Earlier this year, the Massachusetts Supreme Court voided a foreclosure sale due to the lender’s inability to prove that it had obtained the right to foreclose. (See my article on Ibanez for an analysis of the case and impact on California.) After that decision, the foreclosure investor in the Ibanez case, Frank Bevilacqua, attempted “try title”, an action to determine the ownership of the property.
In Bevilacqua, once again Mr. Rodriguez, the previous landowner, did not appear. However, even without his appearance, the Court ruled in his favor. The Mass. Supreme Court held that because the foreclosure sale itself was void, Mr. Bevilacqua had no claim of title and therefore had no standing to challenge competing ownership claims. Additionally, the Supreme Court determined that Mr. Bevilacqua was not a bona fide purchaser for value because he was on notice that the lender who foreclosed did not have the right to foreclose on the property. While Mr. Bevilacqua may have relied on the lender’s representation that it had the authority to foreclose, the court concluded that the recorded assignments of the deed of trust were sufficient to put him on notice that the foreclosing lender did not have an interest in the property.
Although the Court sympathized with Mr. Bevilacqua’s plight, its suggestion was to re-foreclose on the property. However, this solution is fraught with perils. First, the foreclosure investor had already spent hundreds of thousands of dollars on improving the property. If the previous owner returned and reinstated the loan, it would likely lead to another round of litigation for Mr. Bevilacqua to recoup his investment. Second, Mr. Bevilacqua had already resold some of the units. The shakeout from this case will likely lead to substantial difficulties for all the parties involved to resolve these problems, even with title insurance.
As with Ibanez, this decision is unlikely to be followed in California. In this case, the Court followed a very literal interpretation of the law. In California, the courts have largely been siding with lenders, even if there have been technical violations of the foreclosure statutes. Instead of requiring lenders to follow a strict interpretation of the law, the California courts have instead focused on promoting the finality of a foreclosure sale.
While the ruling is not binding in California, it does highlight issues that will need to be addressed in California. However, given the law and posture of the court in California, it seems unlikely that California will follow this decision. If you are facing problems with contentious homeowners or other problems with foreclosures, please contact us so that we can help you manage those issues.