Researchers say Ibanez case is about laymen’s rights, not default

Judicial opinions like U.S. v. Ibanez out of Massachusetts show courts wanting banks to follow a tighter legal process when foreclosing on securitized mortgages, a new research paper from the American Constitution Society for Law and Policy said. The paper, “An Evolving Foreclosure Landscape: The Ibanez Case and Beyond,” concludes that the issue in Ibanez is not whether a foreclosure filing is warranted, but whether the banks could simply move forward and foreclose when they failed to establish legal title before the filing. The paper was written by researchers Peter Pitegoff and Laura Underkuffler. Researchers contend the courts are not suggesting the banks in these cases cannot foreclose or don’t have the right to foreclose. Instead, they see the decision as one in which the judges are saying the securitization process is too complex and scattered for laypersons, creating a need for banks to create structure in the messy securitization process by going back and fixing assignments before foreclosing. “The apparent attitude of the courts in these cases can be best summarized by the statement of a New York judge in a comparable context: that courts will not be mere automatons mindlessly processing paper motions in mortgage foreclosure actions, most of which proceed on default,” the researchers wrote. “Rather, in these cases, courts have held banks, other lenders, and securitized trusts to strict proof of what might otherwise seem to be fairly inferred facts and contractual obligations.” The American Constitution Society for Law and Policy concludes that judges seem to have drafted these opinions not to say the bank was wrong to foreclose on someone who was in default, but to ensure a standard is in place for handling the process in light of the mortgage securitization process. “With such rampant problems, the approach that was taken in Ibanez and the other cases is the only one that is sensible: the burden of proving the right to foreclose must be placed on the foreclosing party,” Pitegoff and Underkuffler wrote.  “If a remote assignee or securitization trustee claims the right to foreclose, it must prove the legal basis for that claim. It cannot be the case that a remote party can claim the right to foreclose, with the property owner then forced to disprove its entitlement to that action.” Write to Kerri Panchuk.