One question that the Massachusetts Supreme Judicial Court in the recent Ibanez ruling left unanswered is noted in this excerpt from Justice Robert J. Cordy's concurring opinion, with whom Justice Margot Botsford joined:
- What is more complicated, and not addressed in this opinion, because the issue was not before us, is the effect of the conduct of banks such as the plaintiffs here, on a bona fide third-party purchaser who may have relied on the foreclosure title of the bank and the confirmative assignment and affidavit of foreclosure recorded by the bank subsequent to that foreclosure but prior to the purchase by the third party, especially where the party whose property was foreclosed was in fact in violation of the mortgage covenants, had notice of the foreclosure, and took no action to contest it.(1)
For the ruling, see U.S. Bank Nat’l Ass’n v. Ibanez, No. SJC-10694 (January 7, 2011).
(1) It typically follows that where a foreclosure sale is found to be "wholly void" (ie. absolutely void, void ab initio, void from inception, a legal nullity, nugatory, ineffectual, of no legal effect, etc. - and as distinguished from a foreclosure sale that is treated as being merely voidable - a sale that, although infected with minor defects, is treated as valid and binding until challenged and annulled by the injured party), a bona fide third party foreclosure purchaser acquires no title at all - in the same way as though it had acquired its interest through a forged deed, thereby leaving it holding the bag (unless he/she obtained a title insurance policy - in which case it may be the title insurer left doing the bag-holding). It can be said that when a foreclosure sale is found to be wholly/absolutely void, "there are lasting consequences to everyone in the subsequent chain of title." See Julian v. Buonassissi, 414 Md. 641; 997 A.2d 104 (Md. 2010), making this observation in the context of a deed being found to be "void ab initio or of no legal effect." (go here for more on the distinction between void and voidable).
Reference is made here to the opinion in chief, wherein Justice Ralph D. Gants, writing for a unanimous court, touched on the issue of a void foreclosure sale in the following excerpts (footnotes from the text of the opinion omitted; bold text is my emphasis, not in the original text):
- Recognizing the substantial power that the statutory scheme affords to a mortgage holder to foreclose without immediate judicial oversight, we adhere to the familiar rule that "one who sells under a power [of sale] must follow strictly its terms. If he fails to do so there is no valid execution of the power, and the sale is wholly void." Moore v. Dick, 187 Mass. 207, 211 (1905). See Roche v. Farnsworth, 106 Mass. 509, 513 (1871) (power of sale contained in mortgage "must be executed in strict compliance with its terms"). See also McGreevey v. Charlestown Five Cents Sav. Bank, 294 Mass. 480, 484 (1936).
One of the terms of the power of sale that must be strictly adhered to is the restriction on who is entitled to foreclose. The "statutory power of sale" can be exercised by "the mortgagee or his executors, administrators, successors or assigns." G.L. c. 183, § 21. Under G.L. c. 244, § 14, "[t]he mortgagee or person having his estate in the land mortgaged, or a person authorized by the power of sale, or the attorney duly authorized by a writing under seal, or the legal guardian or conservator of such mortgagee or person acting in the name of such mortgagee or person" is empowered to exercise the statutory power of sale. Any effort to foreclose by a party lacking "jurisdiction and authority" to carry out a foreclosure under these statutes is void. Chace v. Morse, 189 Mass. 559, 561 (1905), citing Moore v. Dick, supra. See Davenport v. HSBC Bank USA, 275 Mich. App. 344, 347-348 (2007) (attempt to foreclose by party that had not yet been assigned mortgage results in "structural defect that goes to the very heart of defendant's ability to foreclose by advertisement," and renders foreclosure sale void).
A related statutory requirement that must be strictly adhered to in a foreclosure by power of sale is the notice requirement articulated in G.L. c. 244, § 14. That statute provides that "no sale under such power shall be effectual to foreclose a mortgage, unless, previous to such sale," advance notice of the foreclosure sale has been provided to the mortgagee, to other interested parties, and by publication in a newspaper published in the town where the mortgaged land lies or of general circulation in that town. Id. "The manner in which the notice of the proposed sale shall be given is one of the important terms of the power, and a strict compliance with it is essential to the valid exercise of the power." Moore v. Dick, supra at 212. See Chace v. Morse, supra ("where a certain notice is prescribed, a sale without any notice, or upon a notice lacking the essential requirements of the written power, would be void as a proceeding for foreclosure"). See also McGreevey v. Charlestown Five Cents Sav. Bank, supra. Because only a present holder of the mortgage is authorized to foreclose on the mortgaged property, and because the mortgagor is entitled to know who is foreclosing and selling the property, the failure to identify the holder of the mortgage in the notice of sale may render the notice defective and the foreclosure sale void. See Roche v. Farnsworth, supra (mortgage sale void where notice of sale identified original mortgagee but not mortgage holder at time of notice and sale). See also Bottomly v. Kabachnick, 13 Mass. App. Ct. 480, 483-484 (1982) (foreclosure void where holder of mortgage not identified in notice of sale).
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- We now turn briefly to three other arguments raised by the plaintiffs on appeal. First, the plaintiffs initially contended that the assignments in blank executed by Option One, identifying the assignor but not the assignee, not only "evidence[ ] and confirm[ ] the assignments that occurred by virtue of the securitization agreements," but "are effective assignments in their own right." But in their reply briefs they conceded that the assignments in blank did not constitute a lawful assignment of the mortgages. Their concession is appropriate. We have long held that a conveyance of real property, such as a mortgage, that does not name the assignee conveys nothing and is void; we do not regard an assignment of land in blank as giving legal title in land to the bearer of the assignment. See Flavin v. Morrissey, 327 Mass. 217, 219 (1951); Macurda v. Fuller, 225 Mass. 341, 344 (1916). See also G.L. c. 183, § 3.
In a related note, a September 28, 2010 ruling from the Washington State Court of Appeals, in Albice v. Premier Mortgage Services Of Washington, Inc. (if link expires, TRY HERE), 157 Wn. App. 912; 239 P.3d 1148; 2010 Wash. App. LEXIS 2199 (Wn. Ct. of App., Div. II, September 28, 2010) appears to have addressed an issue under Washington law closely resembling the unanswered 3rd party bona fide purchaser question in Ibanez.
The Washington appeals court in Albice found that a technical defect in following the applicable statute rendered a foreclosure sale wholly void, despite any claim of bona fide purchaser status made by a 3rd party foreclosure sale buyer who purchased the foreclosed real estate. The court went further to hold that, given the specific facts of the case, the 3rd party foreclosure sale buyer either knew or should have known of the technical defects that were fatal to the foreclosure sale and, consequently, did not qualify as a bona fide purchaser anyway, thereby allowing the foreclosure to be undone, regardless of whether the sale was void, or merely voidable.
It should be noted that, like Massachusetts, Washington is a non-judicial foreclosure state. The foreclosure sale in Albice, like in Ibanez, was carried out pursuant to a power of sale contained in the security agreement. One distinction between the two cases is that in Albice, the security agreement foreclosed was a deed of trust, whereas in Ibanez, the security agreement was a mortgage (possibly a distinction without a material difference).
For the briefs filed in Albice, see:
