Mass. Court Rules Banks Wrongly Foreclosed Homes

A Massachusetts Supreme Judicial Court ruling earlier this month held that banks had wrongly foreclosed on two homes in July 2007, a finding that potentially jeopardizes the legitimacy of thousands of home foreclosures in Massachusetts, according to Max Weinstein, a lecturer at Harvard Law School who served as co-counsel for one of the mortgage borrowers in the case.

Weinstein said that Wells Fargo and U.S. Bank foreclosed upon houses before they owned the legal rights to the mortgages. He said that the banks were “cutting corners” and “trying to play fast and loose” by acting before the law allowed them to.

HLS students from the Predatory Lending Prevention and Consumer Protection Clinic worked with Weinstein on the case for over a year before the final ruling.

According to Weinstein, because thousands of foreclosures are now void under the Massachusetts Supreme Judicial Court’s ruling, banks will be forced to either monetarily compensate homeowners whom they foreclosed upon, or, if the houses haven’t been sold, restore the homeowners to their homes.

“At least in Massachusetts, courts aren’t going to bend the law for the haphazard way in which the consumer finance industry does business,” Weinstein said about the broader meaning of the ruling.

U.S. Bank Spokesperson Steve Dale said that the bank was not involved with the act of foreclosure or interacting with the mortgagers and that U.S. Bank was merely the trustee, or formal owner, of the mortgage. He said that the servicer—American Home Mortgage Servicing, Inc.—was responsible for the foreclosure, adding that there is a misunderstanding over the roles of the trustee and the servicer.

“This is very frustrating,” Dale said. “It’s tarnishing our reputation [when] we’ve done nothing wrong.”

American Home Mortgage Servicing, Inc. and Wells Fargo did not return requests for comment.

The banks originally brought about the case to clarify an unrelated matter, and a Land Court judge found a discrepancy—the dates of the foreclosures were earlier than the dates of the banks’ legal rights—and declared the foreclosures void. After the judge refused to reverse his ruling, the banks repealed to the Massachusetts Supreme Judicial Court.

—Staff writer Caroline M. McKay can be reached at carolinemckay@college.harvard.edu.