Mass court rules buyer of foreclosed home doesn’t own property

By Erin Ailworth, Globe Staff

The state’s highest court added further turmoil to the housing market today when it ruled that buyers of foreclosed homes that were seized by lenders under questionable circumstance may not be the legal owners of those properties, and have few easy options to clear their titles.

The decision potentially leaves hundreds, if not thousands, of owners of these properties in limbo, their only apparent recourse to either sue the lender behind the botched foreclosure or “reforeclose” on the prior owner.

“It leaves us nowhere,” said Edward Bloom, president of the Real Estate Bar Association of Massachusetts. “The residential housing market is never going to stabilize and grow until all of these properties that are in foreclosure are organized and cleaned out.”

This is the second ruling in under a year in where the Massachusetts Supreme Judicial Court has tried to sort out the mess created by the rapid-fire foreclosure of thousands of properties after the housing market’s collapse, in which lenders seized and then resold homes before establishing a clear record of ownership. Last winter, the high court upheld a contentious ruling from the land court that challenged how banks have traditionally seized properties without having all the necessary paperwork, and forced major lenders to redo many tainted foreclosures.

Today’s decision was a follow-up to that ruling. The case was brought by developer Francis J. Bevilacqua, who in 2006 bought a building in Haverhill from U.S. Bank National Association. U.S. Bank had seized the property from the prior owner for non-payment before it was appointed to do so by the mortgage lender.

With that cloud hanging over the foreclosure, Bevilacqua sought to clear any doubt that he was the legal owner by bringing a case against the former holder of the property. The high court ruled he could not do so because the improper transfer of the property earlier in the process rendered his title worthless.

With that the court also essentially said that anyone else who purchased a foreclosed home with questionable paperwork may not actually own the property. The court did not address who does own the Haverhill property, if not Bevilacqua.

“If a bank unlawfully forecloses on a home, its resulting foreclosure deed is void and it can’t sell that home,” said Max Weinstein, an attorney and instructor on predatory lending issues at Harvard Law School’s WilmerHale Legal Services Center. Weinstein, who filed a friend-of-the-court brief on behalf of the former owner of the Haverhill property, said yesterday’s ruling extends the court’s protections for homeowners who were forced from their homes under questionable circumstances.

“Fundamentally, this decision is about holding the banks accountable for unlawful foreclosures,” Weinstein said. “It should be the banks who pay for their unlawful conduct, not the original homeowners.”

Bevilacqua subsequently built and sold four condos on the property, meaning that the buyers of those condos too likely do not own their homes.

His lawyer, Jeffrey Loeb, said he found some solace in the Supreme Court ruling that that appears to provide his client with a “road map” to try to re-foreclose on the property.

“It’s going to be a longer and more expensive process for third party buyers, but there’s a method out there to cure the problem,” Loeb said. “It’s not necessarily the fix that my client and I were hoping for but it is a fix, which is, bottom line, what everybody needed.”

Erin Ailworth can be reached at eailworth@globe.com. Follow her on Twitter @ailworth.