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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On October 3, the Supreme Judicial Court (SJC) heard oral argument in yet another case involving a foreclosure – Eaton v. Federal National Mortgage AssociationEaton 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.


Continue Reading Can Foreclosure Be Erased Because Mortgagee Doesn’t Hold The Note?

In its recent decision in Gilbert v. Federal National Mortgage Association (pdf), the Middlesex County Superior Court rejected the plaintiff’s attempt to unwind a foreclosure process that ended with the principal defendant, Fannie Mae, owning the plaintiff’s home.  The main claim in the plaintiff’s 10-count complaint – and the one on which the court based its dismissal of the case – was

You could hear sighs of relief coming from the Boston Redevelopment Authority (BRA) and thousands of homeowner associations (HOAs) last week when the Federal Housing Finance Agency (FHFA) announced that its new proposed rule on private transfer fee covenants does not affect the fees that HOAs and the BRA collect from homeowners when they re-sell their homes.  The details are in this FHFA Fact Sheet (pdf).