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Two banks couldn’t prove they owned the mortgages in Massachusetts and they lost a pivotal case on January 7, 2011. This was a Supreme Court decision following an appeal by the banks when they lost at trial earlier this year. The banks probably regret their appeal of a limited land court’s decision which has now gone viral and has even hit the banks stock prices on Friday. The U.S. Bank v. Ibanez decision is the first state supreme court to weigh in on this issue involving securitized trusts.

What does this decision do for Florida homeowners facing foreclosure? Well Massachusetts is a title theory state while Florida is a lien theory state for one thing. One of the key points of the decision was that a mortgage could be bifurcated or separated from the note due to a 1800s decision in Massachusetts. Florida case law provides that a mortgage follows the note. Therefore no bifurcation would occur. However, if the note is lost as is often the case, and the banks cannot show that the mortgages were properly transferred into the securitized trust, that’s where Ibanez will count.

In Ibanez, U.S. Bank initiated the foreclosure proceeding before it possessed a legally effective mortgage assignment. This happens regularly in Florida. Often foreclosure defense attorneys in Florida are faced with trying to determine when notes and mortgages were actually transferred to the plaintiff bank. The banks present undated endorsements of notes which are merely stamps by an employee who often doesn’t review what they are signing or stamping. Assignments are dated retroactively to try and cure the problem. Numerous employees have testified in countless depositions that they do not review any records prior to executing assignments.

In an effort to curb abuses by mortgage servicers, the First District Court of Appeal in Florida ruled on December 8, 2010 in Palacio to set aside a default judgment against Tampa, Florida homeowners who were “under the reasonable belief that the foreclosure action had been abated.”

According to the homeowners, the lender was willing to agree to a modification pursuant to certain terms, including an immediate payment of $8,500, a reduction of principal from $205,000 to $150,000 which would be re-amortized to result in a new monthly payment. After judgment was entered, the homeowners made five payments in accordance with what they understood was a modified mortgage agreement.

Despite the alleged modification agreement, a foreclosure sale was set and the homeowners’ final payment as returned. The homeowners hired a Tampa foreclosure defense attorney before the sale date and filed a motion to set aside the default judgment which was denied. Upon appeal, the appellate court ruled that the trial court’s failure to conduct an evidentiary hearing warrants reversal in favor of the homeowners. Despite the bank’s argument that the allegations of a modification were facially insufficient to warrant setting aside a default judgment, the appellate court disagreed.