An Evolving Foreclosure Landscape: The Ibanez Case and Beyond

Peter Pitegoff

An Evolving Foreclosure Landscape: The Ibanez Case and Beyond

2011, Law & Society: Private Law - Property eJournal

Abstract

Mortgage securitization, subprime lending, a persistently weak housing market, and an explosion of residential mortgage defaults – today’s homeowners and banks face a new and challenging landscape. Recently, courts in several states have issued decisions that alter the terrain for mortgage foreclosures. In Massachusetts, New Jersey, and New York, among other states, courts have dismissed foreclosure actions on the basis of what might seem to be highly technical deficiencies in the pleading or proof. The most well-known–and controversial–in this cluster of cases is U.S. Bank National Ass’n v. Ibanez, decided by the Supreme Judicial Court of Massachusetts this year. In Ibanez, the court held that two assignee banks failed to obtain legal title to foreclosed properties because they failed to prove that they held valid assignments of the foreclosed mortgages at the moment that the foreclosure proceedings were begun.

Before: JACOBS, POOLER, and CARNEY, Circuit Judges. Appeal from an order of the United States District Court for the Western District of New York (Richard Joseph Arcara, J.) denying the motion of the Bank of New York Mellon Trust Company’s (“BNY Mellon” or “the Bank”) for judgment on the pleadings. The district court concluded that plaintiffs have Article III standing to sue BNY Mellon for violating the timely recordation requirements imposed by New York State’s mortgage-satisfaction-recording statutes and certified the question for interlocutory appeal. On review, we hold, first, that state legislatures may create legally protected interests whose violation supports Article III standing, subject to certain federal limitations. We further decide that the New York law violations alleged here constitute a concrete and particularized harm to plaintiffs in the form of both reputational injury and limitations in borrowing capacity over the nearly ten-month period during which their mortgage discharge was unlawfully not recorded and in which the Bank allowed the public record to reflect, falsely, that plaintiffs had an outstanding debt of over $50,000. In addition, the Bank’s failure to record plaintiffs’ mortgage discharge created a material risk of concrete and particularized harm to plaintiffs by providing a basis for an unfavorable credit rating and reduced borrowing capacity. These risks and interests, in addition to that of clouded title, which an ordinary mortgagor would have suffered (but plaintiffs did not), are similar to those protected by traditional actions at law. Whether better characterized as “substantive” or “procedural” wrongs, the Bank’s violations of the state statutes are plausibly alleged to have caused actual harm and subjected plaintiffs to a real risk of material harm, the very sort of which the state statutes appear designed to protect mortgagors such as plaintiffs against. As a result, we conclude that the Maddoxes’ allegations support their Article III standing, and that they may pursue their claims for the statutory penalties imposed by the New York Legislature, and other relief, in the federal district court, subject to compliance with other jurisdictional prerequisites and class certification requirements. Order affirmed and case remanded. Judge Jacobs dissents in a separate opinion.

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