Massachusetts Superior Court Again Endorses “Produce The Note” Foreclosure Defense

by Rich Vetstein on November 8, 2011 · 0 comments

in Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Mortgages

Final Say Will Come Soon At SJC In Eaton v. FNMA

In Adamson v. MERS (embedded below), Superior Court Judge Raymond Brassard became the second Massachusetts trial judge to endorse the so-called “produce the note” defense in a foreclosure defense case. The question of whether a foreclosing lender must hold both the promissory note and the mortgage at the same time is now before the Supreme Judicial Court in the eagerly awaited case of Eaton v. Fannie Mae.

In Adamson, Mortgage Electronic Registration System (MERS) claimed to be the holder of the mortgage at the behest of Deutsche Bank. America’s Servicing acted as the servicer. This was a classic sub-prime mortgage with $440,000 in principal at 8.5% interest, with a balloon payment of $370,000 at the end of 30 years. (No wonder the borrower couldn’t keep up with the payments).

The kicker in this case was when America’s Servicing sent the borrower a denial letter for a loan modification stating that it would not foreclose in the next 30 days under the federal HAMP program to give the borrower a chance to explore other modification option. It foreclosed the next day. Ouch.

Unification Theory

Relying on the Judge McIntyre’s earlier decision in the Eaton case, Judge Brassard was persuaded that Massachusetts still holds on to the unification theory where a foreclosing lender must hold both the note and the mortgage at the time of foreclosure. Judge Brassard expressed concern that separating the mortgage from the note could lead to double liability for the borrower (first, a foreclosure, then an attempt to collect the note).

In a ruling which will make foreclosure defense attorneys salivate, Judge Brassard found merit to the borrower’s claim that the lender and the servicer violated the Massachusetts Consumer Protection Act, Chapter 93A, for foreclosing the day after the denial letter was issued, in violation of the 30 day safe harbor period.

Impact & What’s Next?

With two Superior Court judges endorsing this theory and several bankruptcy court judges rejecting it, all eyes are now on the Supreme Judicial Court’s decision in the Eaton v. Fannie Mae case which will be the final say in the matter. If the SJC accepts the unification theory, it will be a bigger bombshell than the U.S. Bank v. Ibanez case last year.

Until the SJC decides the Eaton case, this ruling will continue to slow down the pace of foreclosures in Massachusetts. This will, in turn, keep the inventory of REO properties high, causing further drag on the troubled housing market.

Thank you to the blogging attorneys at the Massachusetts Land Use Monitor for bringing this case to my attention.

Adamson v. MERS Decision

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