Landmark National Bank v. Kessler* and a recent Supreme Court of Massachusetts case US Bank v. Ibanez**, provide an interesting perspective in to the legal deficiencies of mortgage backed securities. In both of these cases the underlying home owners mortgage had been registered with the Mortgage Electronic registration System (MERS) or assigned to an entity that would allow the mortgage to be part of a pool pf assets sold as a mortgage backed security; all very legal.
What was problematic was the documentation of the transfer or assignments. Under the Statute of Frauds, ay contract concerning an interest in land must be written. Because of the speed with which these mortgages traded hands before they wound up in a Mortgage backed security, the assignment never designated the new assignee. Documents were left blank and unsigned. Due to this, it was unclear who help the mortgage and whom was entitled to foreclose on the property.
These formalities of contract and real estate were overlooked because of the speed with which these mortgages changed hands. Participants in the market were also so enamoured with MERS that they did not question its legal status. All of these activities were driven by market forces and a lack of respect for the rule of law.
The decisions in the Landmark and US Bank case uphold the formalities of contract and the recording of mortgages. These out of date 17th century concepts may be boring and old but they are reliable and create a sense of stability when contracts are challenged and titles need quieting.
The law may be old and outdated but everyone is reassured when it helps them keep their house. Banks should have been more careful. When they weren’t then those homeowners should be able to keep their homes.
*192 P.3d 177 (2008)