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Bankruptcy Court Rules Against Bank in Homeowner Mortgage Case

hello-my-name-is-1428915-mIn a relatively surprising turn of events, in the case of In re Safina Mbazira, which was heard before the U.S. Bankruptcy Court for the District of Massachusetts, the court found that the bank, an assignee of the mortgage, lost the mortgage because of a faulty acknowledgment appended to the mortgage document.

The result of the decision is that borrowers may potentially be able to eliminate mortgage encumbrances by demonstrating flaws in the lender’s recording of the mortgage document in the required real property records.

In the case, the homeowner purchased property from a lender and secured two mortgages from a third party. The day after the loan transaction was completed, the deed that transferred the property to the homeowner was recorded by the land court and was also noted.

Some three years later, the first mortgage was assigned to the bank, and it was recorded in the land court and noted. The assignment, on its face, listed the names of the debtor, lender, date of execution, loan information, and the address of the property.

Some time later, the bank commenced with foreclosure proceedings. The homeowner then instituted a bankruptcy action and sought a homestead exemption for the property. Shortly thereafter, the homeowner initiated litigation to declare the first mortgage invalid and thus unenforceable, since the acknowledgement appended to the First Mortgage inadvertently left off the homeowner’s name as mortgagor.  Since the homeowner is considered a Bona Fide Purchaser under state law, if the homeowner could demonstrate the fault, the homeowner would be freed from the obligation.

The Court determined that the appended acknowledgment was materially defective due to the missing name of the homeowner, and that a mortgage recorded with a faulty acknowledgment does not provide “notice” of the mortgage to Bona Fide Purchasers and other third parties.  Therefore, the court found that the first mortgage was voidable by the homeowner.

This case demonstrates the importance of lenders having all of their documents in complete compliance with all the relevant Massachusetts regulations. It also demonstrates that cases can turn on small details, and therefore it is important to ensure that all the proper filings are in place and completed properly. It is also one case in a string of similar Massachusetts real estate cases seeking to invalidate a mortgage based on a technicality. However, the other cases have not found in favor of the homeowners/debtors.

The lawyers at Pulgini & Norton offer detail-oriented and client-centered representation in Boston property transactions. Our real estate lawyers draft agreements and negotiate provisions with your needs and goals in mind. We will work to overcome or prevent any foreseeable hurdles and protect your interests, while working towards a timely closing or resolution of your matter. Contact us today by calling 781-843-2200 or contact us online for a consultation.

More Blog Posts:

Appeals Court of Massachusetts Renders Decision for MERS in Mortgage Assignment Case, April 24, 2015

Massachusetts Attorney General Obtains Nearly $2 Million Judgment in Alleged Predatory Foreclosure Business Lawsuit, April 15, 2015

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