Last month the Supreme Judicial Court (SJC) decided Federal National Mortgage Association v. Nunez  (pdf).  We discussed the oral argument of that appeal in this earlier post

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

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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?

The Supreme Judicial Court (SJC) this morning issued its decision in Bank of New York v. Bailey (pdf) (see our prior commentary here).  In this case the defendant homeowner sought to stave off eviction from his Boston home after a foreclosure initiated by Mortgage Electronic Registration Systems, Inc. (MERS) as nominee for the lender, and consummated by

The Boston Herald’s Jerry Kronenberg reports that Massachusetts Attorney General Martha Coakley has opened an investigation into “creditor misconduct in connection with unlawful foreclosures,” with a particular focus on Mortgage Electronic Registration Systems, Inc. (MERS).  The Herald article is here, and some of our own MERS-related posts are here, here and here.

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 decisionWith 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.

Continue Reading SJC Hears Argument in Bevilacqua and Nunez Appeals

On April 4, 2011, the Supreme Judicial Court (SJC) heard argument in Bank of New York v. Bailey, another case arising from the foreclosure crisis.  Unlike some of the other recent cases, this one does not involve an Ibanez question.

Following a foreclosure, the foreclosed mortgagor sought to stop the bank’s follow-on eviction action.  The mortgagor claimed that

One of many issues swirling in the miasma of the foreclosure crisis has been whether Mortgage Electronic Registration Systems, Inc. – MERS for short – can validly foreclose a mortgage that it holds as nominee for the lender.  The question arises because MERS itself doesn’t make loans – it simply holds mortgages that secure loans made by others.  While this issue is now

Another case arising from a premature foreclosure is headed to the SJC.  Judge Keith Long, whose Land Court decision was affirmed in U.S. Bank National Association v. Ibanez (see related commentary here), also decided Bevilacqua v. Rodriguez (pdf).  The plaintiff in Bevilacqua was an innocent third-party buyer of a property foreclosed by a bank before the bank had received an assignment of the mortgage.  In an effort to clear his title, the buyer filed an “action to try title” in the Land Court.  In short, this type of case is an attempt to force the other party to show that it has title to the land.  Judge Long ruled in a straightforward manner that, due to the defective foreclosure, the plaintiff never received title to the land.  As a result, the plaintiff could not use the try title statute to force the original mortgagor to prove his title. 

In late December 2010, just a few weeks before issuing its decision in Ibanez, the Supreme Judicial Court (SJC) granted the buyer’s request for direct appellate review in Bevilacqua.  The SJC has invited amicus briefs on the following issue:  “Whether a Land Court judge correctly dismissed a petition under G. L. c. 240, § 1, to ‘try title’, where the plaintiff held a quitclaim deed conveyed after an invalid foreclosure sale of the property by U.S. Bank National Association, which did not hold the mortgage at the time of the sale.”  

An SJC affirmance of Judge Long’s Bevilacqua decision would not leave innocent purchasers without a remedy.  We recently represented an individual who bought property from a bank that had conducted a foreclosure sale before it held an assignment (the fact that our buyer purchased before the Land Court’s Ibanez decision did not save him from the impact of that case).  Past Massachusetts cases, such as Kaufman v. Federal Nat’l Bank and Holmes v. Turner’s Falls Co., have held that a bank’s invalid deed at a foreclosure sale acts as an assignment of that bank’s rights.  Relying on these cases, we obtained a Land Court ruling that our client was now the holder of the improperly foreclosed mortgage.  This judgment has put our client in a position to foreclose correctly on the property, with the ability to bid in the outstanding balance of the mortgage note at the new foreclosure sale.  This approach is not a perfect solution for a buyer who purchases property after a botched foreclosure.  But, it does provide a way forward in the wake of Ibanez.

Oral argument of Bevilacqua is tentatively scheduled for May 2011.  According to Jeff Loeb, Bevilacqua’s counsel, this date was chosen to permit the SJC to hear that appeal along with two other cases in which it has granted direct appellate review: Federal Nat’l. Mortgage Assn. v. Nunez  (pdf) and Deustche Bank Nat’l. Trust Co. v. Matos (pdf) (the Matos appeal was dismissed voluntarily by the parties on Valentine’s Day).  Those cases address the effective date and impact of M.G.L. c. 186A, “Tenant Protections in Foreclosed Properties.”  This new statute was added by Section 6 of Chapter 258 of the Acts of 2010 and took effect on August 7, 2010.

Continue Reading SJC to Follow Up on Ibanez and Also Address Rights of Tenants in Foreclosed Properties