What Happens if You Purchase a Bad Foreclosure

In January of this year I discussed how the Massachusetts Supreme Judicial Court (SJC) held that banks can’t foreclose on a house if they don’t own the mortgage.  This case was later followed by a lower court decision in Francis J. Bevilacqua, Third vs. Pablo Rodriguez wherein the court found that the purchase of property at foreclosure does not transfer good title if the bank took action before it got the mortgage.

Frank Bevilacqua purchased property in Massachusetts out of foreclosure from U.S. Bank.  Upon acquiring title from U.S. Bank, Bevilacqua spent several hundred thousand dollars converting the property into condominiums.  Because of the Ibanez case in January which called into question U.S. Bank’s purported mortgages, Bevilacqua sought a quite title action (referred to as “try title” action in Massachusetts) to clear up any defects to his title.  Bevilacqua argued in his motion that he is rightful owner of the property despite the faulty foreclosure.  The lower court disagreed and held that Bevilacqua lacked standing to bring the quiet title action because U.S. Bank foreclosed before it got the mortgage; thus, Bevilacqua owned nothing.  This set the stage for an appeal to Massachusetts Supreme Judicial Court (SJC).

The Court’s Opinion
The SJC agreed with the lower court and found that Bevilacqua did not own the property, and therefore, lacked any standing to pursue a quiet title action.  Finding that the faulty foreclosure was void, any subsequent transfer of title via foreclosure to Bevilacqua was similarly void. Essentially, because U.S. Bank screwed up the processing, Bevilacqua got screwed in the process. 

Down but Not Out
What this case did not address is Bevilacqua’s ability to re-foreclose.  U.S. Bank has since cleared up its mortgage to the property defectively purchased by Bevilacqua.  Thus, the foreclosure sale operated as an assignment of the mortgage to Bevilacqua  and he re-foreclose on the property.  Of course this presents other issues for Bevilacqua because someone else could win the foreclosure, which would be devastating, given Bevilacqua, had invested several hundred thousand dollars into the property.  Another remedy would be to track down the original owner and obtain a quitclaim deed from him (Bevilacqua had tried but he could not locate Rodgiquez).  Alternatively, the best option would be to make your title insurance company’s problem.  Nevertheless great deals abound in this market but appreciating the risk and performing your due diligence is essential lest you plan to give away all of your profit to attorneys defending your title.  Wait, given that I am an attorney, I guess that is not such a bad solution. 🙂

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