mass supreme court & the mortgage mess

The foreclosure crisis has revealed that banks do not have the standing to sue for foreclosure in many cases. This is not a case of giving handouts to borrowers who are in over their heads. Rather, it’s an issue of property law. If Brayden loans me money, then he can sue me for non-payment. If Brayden sells the loan, the new owner can sue me, not Brayden. That’s why courts are *supposed* to ask for the loan note, to verify that a foreclosing bank really does have the right to foreclose. Similarly, if a bank sells a mortgage, the title gets transferred to the new owner, who then has the right to sue.

Journalists and researchers have discovered that banks have essentially sold off loans without keeping adequate records. They wanted the mortgage security market money and they wished to avoid the taxes and paperwork associated with making loans legal according to state and municipal law. The Massachusetts Supreme court has agreed with this point. Banks, in some cases, have screwed up the title and can’t sue.

The interesting question for orgtheorists is how other states and the Feds will react. Isn’t collusion to avoid taxes a form of organized crime? How will foreclosure lawsuits and statutes diffused throughout the American legal system? Will the Massachusetts Court case lead to any serious attempt to clean up this mess?