Judge Gordon H. Piper of the Land Court has added his voice to the chorus of opinions on the important issue presented in the case of Eaton v. Fannie Mae, which is awaiting decision by the Supreme Judicial Court (SJC).  The issue is whether, under Massachusetts law, a foreclosing mortgagee must hold both the mortgage and the promissory note that it secures.  This issue has been the subject of a number of posts on this site, most recently here.

In his decision in Wells Fargo Bank, N.A. v. McKenna, Judge Piper addresses the question in the context of a Servicemembers’ Civil Relief Act proceeding.  That proceeding is for the sole purpose of establishing that the party being foreclosed upon is not in the military. 

In barely more than two pages, Judge Piper finds that, “[i]n light of the evidence that Plaintiff is the original mortgagee under the recorded Mortgage, and given the absence of any evidence that the Mortgage has been assigned off-record to someone other than the Plaintiff, Defendant’s contention that Plaintiff is not the current holder of the Mortgage utterly lacks factual foundation and is devoid of merit.”  Relying on a 2010 Land Court decision in which an appeal to the SJC is pending (HSBC Bank USA v. Matt, SJC-11101), McKenna also holds that, in any event, a plaintiff is not required to be the current holder of the note or the mortgage to have standing in a Servicemembers’ action.  Rather, all that is required for standing to bring such a case is that the plaintiff have a contractual right to become the holder.

The most interesting part of Judge Piper’s decision is a four page, single-spaced footnote that directly addresses the trial court decisions in Culhane, Adamson and Eaton.  Judge Piper concludes in no uncertain terms that the common law of Massachusetts is that the foreclosing mortgagee does not need to hold the promissory note, and that the SJC is unlikely to change that longstanding principle.

The opening part of McKenna suggests that the Land Court wants the SJC to have the benefit of practical experience before deciding Eaton.  Judge Piper stresses that “there will be wide-ranging adverse title impacts” of an almost apocalyptic nature if Eaton requires “proof of possession of the note to establish proper title coming out of a foreclosure.”  Because promissory notes are never recorded in the Registry,

[i]f the law becomes that a foreclosure is invalid unless conducted by a single holder of both the note and mortgage, every mortgage foreclosure, past and future, and every title following every foreclosure will be cast in doubt . . . .  Given the tenuous nature of the recordkeeping, over many years, about who possessed promissory notes . . . in the lives of residential mortgage loans, and the dissolution and disappearance of many of the entities who were note holders, the challenge of proving possession of the note at the time of foreclosure may prove insurmountable in very many cases . . . .  [T]hat risk will infect foreclosures going back many years . . . .  Short of proof of adverse possession . . . it is hard to see how title claims based on the lack of the note by the foreclosing mortgage holder would be cut off.

Turning to the specific bases for his view of the law, Judge Piper notes that the statutory power of sale and the statutory procedure governing the exercise of the power of sale “studiously avoid reference to the lender or note holder,” instead referring to the mortgagee.  He then explains why the Superior Court in Eaton wrongly read 19th century Massachusetts cases as requiring unity of the note and mortgage when, in his view, those cases stand for the opposite proposition.  Judge Piper concludes by again emphasizing that requiring unity “would engender wide-spread challenges to to titles which have come out of mortgage foreclosures over many years” based on “long-standing conveyancing practices.”  These practices generally restrict examinations of title to what is on record in the Registry of Deeds.

So, the SJC now has two recent and contradictory decisions – focusing on two different policy concerns – to consider as it decides Eaton:  Judge Young’s decision in Culhane based on his concern for a borrower’s potential double liability, and Judge Piper’s decision in McKenna reflecting his concern for the stability of land titles resulting from mortgage foreclosures, and the public’s need to be able to rely on recorded instruments to establish title.  These contrary decisions only add to the drama surrounding the SJC’s decision in Eaton, which is expected in February, 2012. 

Thanks to Jeff Loeb for bringing this case to our attention.