Breaking: SJC Rules For Lenders and MERS In Eaton v. Fannie Mae Case

by Rich Vetstein on June 22, 2012 · 2 comments

in Fannie Mae, Foreclosure, Massachusetts Real Estate Law

Huge Sigh of Relief For Mortgage and Foreclosure Industry

The much awaited opinion by the SJC in Eaton v. Fannie Mae has just been released, and it is a huge Maalox for the banking and real estate community. Case embedded below. I have written a more detailed analysis here but here are the highlights:

  • Although the Court adopted some of the Eaton side’s arguments, I believe that lenders and MERS ultimately came out as the winners, as initial reports indicate. The Court basically gave lenders a pass on prior defective foreclosures and created new “rules of the road” for foreclosures going forward. There will definitely be more litigation after this case to sort out what foreclosing lenders and servicers need to prove in order to foreclose.
  • Agreeing with the Eaton/homeowner side, the Court ruled that going forward, lenders will have establish that they “hold” both the mortgage and promissory note, in order to foreclose. However, the court endorsed several methods in which lenders will be able to satisfy this requirement, thereby potentially creating several exceptions which will swallow the general rule.
  • Agreeing with lenders and Fannie Mae, the Court took the rare step of declining to apply the the key holding retroactively. The ruling will apply prospectively and will have no impact on previously completed or in process foreclosures. Those foreclosures will likely be immune from challenge along the lines Eaton asserted. This saved the lender and title insurance industry millions of dollars in claims.
  • Critically for the lending and title community, the Court ruled that lenders do not need to physically hold both note and mortgage at time of foreclosure, striking a huge blow to the “produce the note” defense:  The court acknowledged that the Massachusetts foreclosure statute, enacted well before the proliferation of securitization and MERS, was unclear in the modern era of securitizing mortgages.
  • The court essentially blesses the current MERS and current servicer system where mortgage servicers can show that they have legal authority to act on behalf of mortgage holder/lender to foreclose. The SJC overturned the injunction against the lender and the case was remanded below where the servicer, Green Tree, will have the opportunity to establish they have the legal authority and agency to foreclose on behalf of the mortgage holder.
  • We will see new attorney and custodian of records affidavits being filed and used to establish the chain of ownership the court said would comply with the foreclosure laws.
  • More Coverage:  Banker & Tradesman, BusinessWeek, Wall St. Journal, Credit Slips (Prof. Adam Levitin)

Eaton v. Fannie Mae SJC Ruling

  • john l.

    the underlying issue is that all notes have been monetized into legal tender. google “modern money mechanics”. who has what paper is irrelevant, it’s absolutely impossible that anyone has the right to foreclose for debt. all bank money is issued not lent. no legal or economic such thing as an unpaid debt. all debits are balanced by credits.

    the only legal or equitable reason to foreclose is to preserve the value of the property to the system (to stop waste), or to shut down the system. otherwise every dollar is constantly renewed, so to speak- refi’ed every day. there is no debt, no interest due, no loan, just one broad superseding warranty by the central bank that is empowered to legally fiat currency into existence.

    there is no tension in most foreclosure complaints and the law is being practiced at odds with its own purpose and aims. the mortgage is a security it is a value. the only choice is foreclose or not foreclose, and rarely will taking the property and dispossessing the owners and the occupants possibly bring more result to any plaintiff. Most foreclosures cost more than they bring in. The only reason for any of these recently is the compensation by the Fed pursuant among other agreements the 2008 Treasury pact that has resulted in Fannie Mae and other govt entities taking so many properties and paying 80 cents of the dollar on paper-losses… following a mandated foreclosure! i dont think they can even do a ‘deed in lieu of’; it seems the “recyclers” must foreclose and bid for some pretend value of usually decrepit properties, in order to establish the paper-loss deficiency.

    The average foreclosure must cost $40,000 and take 5 years to liquidation; cant be worth it for most places under normal circumstances. it violates every doctrine of “in rem” to find a judgement for more than a property could be worth to the creditor.

  • Pingback: Breaking: Massachusetts SJC Issues Another Landmark Foreclosure Ruling In HSBC Bank v. Matt | The Massachusetts Real Estate Law Blog

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