Last week the Massachusetts Supreme Judicial Court (SJC) heard oral argument in the Bevilacqua and Nunez appeals (see our prior comment here). In a measure of its interest in Ibanez-related issues, the court permitted amici on both sides of Bevilacqua – the Mortgage Bankers Association and the Massachusetts Attorney General, respectively – to participate in the argument.
A few observations follow:
Bevilacqua concerns an action to try title started by a party who bought property from a bank after the bank foreclosed on that property. The bank didn’t hold an assignment of record at the time of the foreclosure, raising serious questions about its validity under the SJC’s recent Ibanez decision. With some minor exceptions, everyone in Bevilacqua seemed to agree that a foreclosure sale by a party before it became the assignee of the mortgage (a premature foreclosure) effectuated an assignment of the mortgage to the buyer. There also was agreement that the plaintiff-buyer might have other remedies, such as seeking damages from the foreclosing bank, or rescission. (Note that these remedies might not help subsequent buyers, who would have limited rights under quitclaim covenants).
The thrust of the buyer’s position was that the court should take a narrow view of the meaning of record title, since the relevant instruments (including an assignment of the mortgage) were now on record. The buyer argued that he had a sufficient record title in the property to warrant discovery on the issue of whether there had been an off-record assignment of the mortgage to the foreclosing bank before the foreclosure sale.
For the most part, the court’s questions reflected a concern that a buyer from a bank that did not itself hold title could not become an owner (the “how’d you like to buy the Brooklyn Bridge” problem). This concern led to a discussion of whether the title acquired in a premature foreclosure sale was void, or merely voidable, and the possible ramifications of each outcome on an innocent buyer who did not recognize the Ibanez issue at the time of his purchase.
The Attorney General was insistent that a ruling for the buyer would unduly expand the action to try title.
With some notable exceptions, the court seemed inclined to rule against the buyer. Given the number of issues the justices raised, it will be interesting to see the grounds for their decision.
The Nunez case seems easier to call. After foreclosing and taking title, Fannie Mae filed a summary process (i.e. eviction) action. That case was pending when M.G.L. c. 186A, which contains new requirements for evictions by foreclosing parties, became effective. It was not disputed that this new statute would require dismissal of the summary process case and leave Fannie Mae unable to evict. The justices appeared to agree that, as a result, Chapter 186A affected Fannie Mae’s substantive rights and should take effect only prospectively.
One of the most striking things about both arguments was that none of the justices seemed very familiar with the foreclosure or eviction processes. There were questions from the bench suggesting that one’s status as a bona fide purchaser might depend on common understandings of title examiners, as opposed to legal principles. Adopting this view would undermine the heart of the Ibanez ruling, which rejected as inaccurate a widely accepted title standard published by the Real Estate Bar Association that allowed for premature foreclosures. Also, many questions in Bevilacqua seemed to assume that, by moving in, the buyer had effectively entered and taken possession of the property for purposes of foreclosing the bank’s mortgage by entry (as opposed to by sale). However, it seems inconsistent with the ruling in Ibanez to permit a bank that is not an assignee of a mortgage to foreclose by entering and taking possession when it cannot hold a foreclosure sale. The homeowner could rightly ask, “why are you trespassing on my property when you don’t even hold a mortgage on it?”
The court also seemed to suggest that the assignee of a mortgage becomes the holder of the note. While it may be true that, in some circumstances, an assignee of a mortgage may be entitled to ownership of the note, the general rule is that the mortgage follows the note.
In Nunez, the justices struggled with the distinction between a tenancy at will and a tenancy at sufferance.
Given the recurrence of interesting and important real estate law questions in the Commonwealth, it would be a positive development if one of the justices were to take on the task of becoming the court’s expert in this area.