SJC Has New Order In Eaton Case - Should the Lenders be Worried?
The Massachusetts Supreme Judicial Court has made a requires for more information from the parties in the case of Eaton vs. Fannie Mae. The question remains as to whether this is a hint the court may be inclined to rule against Fannie, an outcome which could throw established Massachusetts foreclosure practices into further disarray.
Most would argue that the order itself is indicative of the court's deep concern over whether its ruling [will] have a disastrous impact on foreclosure titles and, if so, whether its ruling should be applied prospectively rather than retroactively.
Lawyers have until Jan. 23 to submit their arguments. A ruling on the Eaton case was widely expected early this year; it is unclear how long this request for more information will delay the issue of the ruling.
The existence of the order does not necessarily determine which way the court will rule. It is still possible for the court to rule in favor of Fannie, and the nuances of its decision will be significant in determining the wider impact of the ruling.
"I don't think that's there's any way of being able to predict from the order itself which was they're leaning," said Pitt. "I would say that the fact that they're asking these questions acknowledges their interest in several issues that are very important to REBA, and REBA will certainly be submitting an amicus brief."
For some background for those still not familiar with the Eaton case, this case involves a defaulted borrower, which a servicer was attempting to evict. Before doing so, the defense argued, the foreclosing entity or its servicer should have to prove it possessed the note, or debt, owed on the property - and not simply that it had been assigned the mortgage. Otherwise, a former homeowner could be placed in double jeopardy if it turned out the foreclosing entity did not own the note, and the true note-holder subsequently attempted to enforce it.
This is inverse of the argument in the now infamous Ibanez case, in which the SJC ruled that under Massachusetts law, a lender or servicer possessing the note must also be assigned the mortgage before commencing a foreclosure.
The "show me the note" foreclosure defense at the heart of the Eaton case has been argued by foreclosure defense lawyers across the country, with varied success.
If the SJC were to rule in Eaton that a lender must have both, it could call into question the chain of title for thousands of loans, as it has been industry practice for more than a decade to separate the note and the mortgage during the process of securitization. This was almost always accomplished by assigning the mortgage to the Mortgage Electronic Registration System, or MERS.
"Since the note is not a matter of record, and has historically not been a matter of record in Massachusetts, there's no way of telling who has the note. Assignments of the note are not put on record. So every title that has a foreclosure in it, indefinitely [far] back, is going to be potentially affected by this," said Chris Pitt, president of the Real Estate Bar Association (REBA). "I don't think that's there's any way of being able to predict from the order itself which was they're leaning," said Pitt. "I would say that the fact that they're asking these questions acknowledges their interest in several issues that are very important to REBA, and REBA will certainly be submitting an amicus brief."
The SJC's recent order issued Jan. 6, shows its concern as it requests that interested parties submit further arguments on the question of whether "requiring a unity of the mortgage and the underlying promissory note, in order for there to be a valid foreclosure, would cloud any title that has a foreclosure in the chain of title, regardless of how long ago the foreclosure occurred.
The SJC asked parties to "Address whether they believe that such a requirement would have such an effect, and if so, what legal or practical measures exist that might limit the consequences of such a requirement."
The court also asked for more arguments on whether "if the court were to hold that unity of the mortgage and note is required under existing law," the court's ruling should be prospective - in other words, that it would apply only going forward, and not to prior foreclosures. In the Ibanez decision, the court declined to make its ruling prospective because it said it was only clarifying and reinforcing existing law.
The items of concern to the court ought to raise grave concerns for Massachusett's real estate attorneys. If the court does what it did in Ibanez, and rules that existing Massachusetts law has long required that the note and the mortgage must be united, the vast majority of foreclosures which have taken place during the foreclosure crisis of recent years could be called into question.
