AUSTIN TEXAS REAL ESTATE: A Massachusetts court ruled on Friday that some foreclosures are invalid because the banks could not prove they had the proper paperwork.
This will be a precedent of things to come because it is the first ruling by a state court on the issue of whether banks can foreclose on homeowners if can't prove they hold the mortgages.
Mortgage loans are like real property and can only be transferred by physically signing over the paperwork delivering it to the next holder. Under mortgage securitization loans get transferred many times after origination before landing in pools of mortgages that are sold to investors. But often times the banks simply didn't endorse the paperwork between steps.
Overall foreclosing entity must hold the mortgage at the time of the notice and sale in order accurately to identify itself as the present holder in the notice and in order to have the authority to foreclose under the power of sale.
The banks got sloppy with their paper trail and paid the price in the court room. This should be an eye opener for the banks to start digitally storing their contract and documents so the location and accessibility to the data is not lost.
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