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Another court, this one in Massachusetts, has ruled that banks can't foreclose on homes without title to the property, which, as we noted in an earlier post, mortgage securitization may put out of reach of lenders or at least into lengthy legal dispute. The banks getting mortgages off of their books through this process evidently figured that defaults would not come back to bite them, though why exactly is unclear. According to the latest court ruling, securitization documents call for title to the property to be transferred along with the mortgage when it is packaged into a security. The thing I don't quite get is, if the payments are then sliced up into tiny pieces and each put into a tranche, who actually holds the title to the property? This real estate lawyer doesn't quite say, though he thinks the Massachusetts Land Court is ignoring a fundamental legal principle by refusing to recognize that the note follows the mortgage. But my question stands: Where does it end up? I suppose the simple answer is with the underwriter of the securitization, but if that institution is different from the one that originated the mortgage and the latter failed to transfer the title, then it seems to me this could lead to lengthy legal battles over the collateral. Of course, that assumes that higher courts or legislatures don't reverse these decisions. The question is on what basis they would do that.
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