Earlier this week the Appeals Court decided that a tenant has the burden of proving that it properly exercised its option to terminate a written lease. The commercial lease in Patriot Power, LLC v. New Rounder, LLC, provided that it would renew automatically each year unless one of the parties timely notified the other
In a closely-watched case affecting hundreds of stores and other commercial establishments across Massachusetts, the Supreme Judicial Court (SJC) today ruled that Article 9 of the Massachusetts Declaration of Rights – which protects the right of equal access to ballots – trumps the right of private property owners to bar individuals from soliciting signatures in…
This morning the Supreme Judicial Court (SJC) issued its decision in Fannie Mae v. Hendricks (pdf), a summary process case that raised the issue of whether the Massachusetts statutory form of foreclosure affidavit – which has been in use for 100 years – is sufficient to show compliance with a power of sale, thereby entitling a foreclosing mortgagee to possession of the premises. The SJC held…
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Just when we thought the Supreme Judicial Court’s Eaton decision (see our post here) had resolved the last big question regarding foreclosure requirements, another case is providing new foreclosure fodder. Recently, the SJC requested amicus briefs in Federal National Mortgage Association v. Hendricks, SJC-11234.
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Nunez concerned a summary process (i.e. eviction) action filed by Fannie Mae against a tenant living in a foreclosed residential property. That action was pending, but not completed, before the effective date…
On October 3, the Supreme Judicial Court (SJC) heard oral argument in yet another case involving a foreclosure – Eaton v. Federal National Mortgage Association. Eaton raises the important question of whether, to properly foreclose, a mortgagee must hold the underlying, defaulted promissory note. Interestingly, about a week before the argument in Eaton, the federal district court in Massachusetts issued a decision in Rosa v. Mortgage Electronic Registration Systems, Inc. (pdf) answering that same question “no.”
In Eaton, the borrower (Henrietta Eaton) took out a mortgage loan from BankUnited. However, the mortgage named Mortgage Electronic Registration Systems, Inc. (MERS) as BankUnited’s nominee, and expressly granted MERS the power of sale. BankUnited assigned Eaton’s promissory note to Federal National Mortgage Association (Fannie Mae), which engaged Green Tree Servicing, LLC (Green Tree) to service the loan. Eaton made some payments to Green Tree, but eventually stopped paying and defaulted.
Eaton’s mortgage was also assigned, but not to Green Tree. In contrast to the situation in U.S. Bank National Association v. Ibanez (pdf) (see related commentary here), there was no claim in Eaton that the mortgage assignment came too late. Rather, after the foreclosure sale was completed, and in the context of an eviction proceeding, Eaton claimed that the foreclosure was invalid because his mortgage and promissory note had been improperly separated from one another. A Superior Court judge entered a preliminary injunction stopping the eviction, and that order was the subject of the SJC’s review.
At oral argument, the SJC grilled both attorneys pretty thoroughly. However, by the end, the momentum seemed to be in Fannie Mae’s favor.
One issue was whether separating the mortgage from the note could result in the borrower being forced to pay the mortgage holder while remaining on the hook to the note holder for the same debt. It seemed that the justices were in agreement with Fannie Mae that, while this “double liability” scenario was theoretically possible, there was no evidence it had ever occurred. The justices did seem somewhat concerned about the lack of clarity over who can initiate a foreclosure – that is, whether a servicer such as Green Tree was authorized to make that decision.
Fannie Mae relied on recent state and federal court decisions supporting its view that the note and mortgage need not be united in one owner. On this point, the justices noted that Eaton’s mortgage itself made clear that it could be assigned, and that such assignments are a regular feature in today’s economy.
Eaton tried to get the justices to focus – as have some other states – on sections of the Uniform Commercial Code (UCC) governing promissory notes. However, the court seemed reluctant to accept that invitation, pointing out that notes and mortgages serve different purposes and are governed by different legal principles. Eaton cited some 19th century Massachusetts cases suggesting that notes and mortgages must be unified, but the court did not seem to feel constrained by these older cases, instead referring to the contractual rights Eaton had granted in the mortgage, which could be seen as waiving any common law requirement of unity. Some of the justices – particularly Justice Cordy –focused on the fact that Eaton had stopped paying the note, and therefore was subject to foreclosure. Overall, they did not seem impressed by Eaton’s claim that she was entitled to know exactly whom she was not paying.
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.