Breaking: Massachusetts SJC Issues Another Important Foreclosure Ruling In HSBC Bank v. Matt

by Rich Vetstein on January 14, 2013 · 4 comments

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

ForeclosureLegal Standing For Mortgage Lender/Servicer Must Be Established To Start Foreclosure

Today the Massachusetts Supreme Judicial Court has issued what I believe to be another very important ruling involving foreclosures in the case of HSBC Bank v. Matt (embedded below). This case is the latest piece in the trilogy of recent landmark foreclosure opinions, starting with U.S. Bank v. Ibanez then Eaton v. Fannie Mae  — which has now come full circle from very limited judicial oversight of foreclosures to a much stricter legal environment for lenders.

In my opinion, the net effect of the HSBC v. Matt ruling is to make Massachusetts somewhat closer to a judicial foreclosure state than a non-judicial foreclosure state, as the ruling requires a foreclosing lender or mortgage servicer to submit actual evidence of legal standing to foreclose when they start a Servicemembers Act proceeding, a requirement that has never existed under Massachusetts law. This new requirement could prove to be potentially problematic to mortgages which are held in complex mortgage backed securitized trusts. However, a portion of the Court’s ruling — that only military members can raise a challenge — could turn out to blunt its impact. In the short-term, the Land Court will have to determine what evidence and documentation is legally sufficient for lenders to establish proper legal standing to foreclose.

Servicemembers (f/k/a Soldiers & Sailors) Civil Relief Act

The case involves the Servicemember’s Act proceeding which protects active military members from foreclosure. In Massachusetts, after a lender issues default notices, it will commence a Soldiers and Sailors Civil Relief Act in the Land Court to ensure that the borrower is not on active military duty and to cut off any rights to challenge the foreclosure based on military status. Although a Soldiers and Sailors Act proceeding is not mandatory in order to legally foreclosure, the customary practice in Massachusetts is for lenders to go through the proceeding in order to ensure clear title to the foreclosed property. A Soldiers and Sailors Act proceeding has historically been perfunctory, but in recent years with the mortgage meltdown, borrowers have increasingly tried to challenge foreclosure in the Soldiers and Sailors Act proceeding.

Jodi Matt, represented by noted foreclosure defense attorney, Glenn Russell, Esq. (who also brought the Ibanez case), challenged HSBC Bank’s ability to foreclose in the Soldier’s and Sailors proceeding, arguing that HSBC could not establish that it held the right to foreclose as the trustee of the securitized trust which purported to hold Matt’s mortgage. The Land Court rejected Matt’s challenge on the grounds that Ms. Matt was not in military service. The SJC took the case on direct appellate review.

SJC Changes The Foreclosure Landscape Yet Again

Although it recognized that Ms. Matt was not in the military service — and ruled that borrowers not in the military cannot bring challenges under the Soldiers & Sailors Act  —  the SJC reached the question whether HSBC Bank had legal standing to start the foreclosure process in the Soldiers & Sailors Act proceeding. Following its prior landmark rulings in Ibanez and Eaton, the Court held that HSBC Bank lacked standing under the Act because it merely claimed to have the contractual option to become the holder of the mortgage. The SJC said that wasn’t good enough, and going forward a foreclosing lender must provide actual evidence to the Land Court that it is the actual holder of the mortgage or a duly authorized agent on behalf of the mortgagee.

When this decision is read together with the Court’s opinion in Eaton, which held that foreclosing lenders must hold both the promissory note and the mortgage, and in the context of securitized mortgages, the Matt ruling starts looking like a very BIG decision. Because of the extremely complex manner in which securitized mortgage trusts were organized by Wall Street (outside the scope of this post), there is an inherent problem in ascertaining which entity within the trust framework actually holds the mortgage and the underlying indebtedness, and therefore, the power to foreclose. As a result of this ruling, foreclosing lenders and mortgage services may have a much more difficult time in foreclosing.

What type and the quality of evidence that lenders need to submit will be left to the Land Court justices, as gate-keepers, to decide in future cases. That is a huge unknown question. The Land Court is presently overwhelmed with pending foreclosure petitions, quiet title actions and other matters given recent court budget cuts. Rest assured, this may play a factor in how they handle foreclosures post-Matt.

I will continue to monitor this ever-changing area of the law.

  • Bob

    Hi Richard:
    Once again, I express my Admiration and Respect for the Justices
    of Our High Court.

    To our esteemed Jurist of Massachusetts, particularly our Judges
    in the land court.

    This matter of standing is so very important because now the
    question is, “What Harm Have You Suffered”; demonstrate your
    injury.

    Has the Trust suffered any harm? Briefly, the answer is no.
    If a loan securitized, the payment stream to the true purported owner of the
    note and mortgage was never interrupted. Under the advances clause in all PSA’s
    including Fannie Mae’s, the servicer is mandated to make the payment to the note
    holder, (no matter what) ergo, no harm to the purported owner of the note and
    mortgage.

    Now the true skullduggery will begin to shine through. When
    this outrageous bank made crisis began, most foreclosures initiated in the name
    of MERS. That soon ended because MERS had no legal right to bring foreclosures
    in their name. Then the servicers began the process of foreclosure, in many
    states and that to, has also come to a halt, because they do not have the legal
    right to foreclose and now, more and more, you see foreclosures brought in the
    name of the Trustee and the Trust, as it should legally be.

    However, everyone but the schemers has missed the obvious;
    the reason these matters were not brought by the Trust to begin with, is because the lawyers always knew, they could not demonstrate the Trust had
    suffered harm, a basic tenants of law needed to demonstrate standing (injury), without
    such, you cannot invoke the subject matter jurisdiction of the court.

    Any claimed default the owner of a securitized debt would be
    against the servicer and not the purported borrower.

    More later

    Bob Marley

    • http://www.massrealestatelawblog.com Richard Vetstein

      Bob, look up the collateral source rule which provides that a claimant can recover a debt from the primary obligor (the borrower) irrespective of whether they have insurance or indemnification from another source. Who pays the default insurance obligation? The AIG’s of the world? Who bailed out AIG? We did, the taxpayers. Who pays for this mess? You and me.

      -Rich

  • Bob

    Not so Richards: Let us not forget the fraud in the factum
    and execution of the mortgage contract. Therefore, that argument will not hold
    water.

    In this scheme, the true identity of the lender and the true
    nature of the deal was intentionally omitted from the mortgage contract and
    when it came to the meeting of the minds, material facts that were germane to
    the decision making process were intentionally concealed from one of the party’s
    to said contract and the deal was a detriment to the borrower; clearly evidenced
    by our seven-year predicament.

    No liability falls to the homeowner in any loan that was
    securitized and all these contracts are void as a matter of law. No judge has to declare the contracts void
    they are void. This matter is and always has been a matter of equity. In
    equitable matters, those who come to the table with “unclean hands” are
    entitled to nothing in equity. The securitizers in the most outrageous Ponzi
    scheme unheralded in the annals of the world, come to the table with dirty
    rotten filthy hands and therefore, are entitled to nothing.

    Richard, it should offend your senses that the schemers went
    to Congress to beg our tax payer dollars to save themselves from their own
    wrong doing and then, take the money we gave them and use that money to harm
    us, the ones who gave them the money. You think about that. And, we continue to
    pay on a daily basis.

  • Pingback: SJC Agrees To Hear Crucial Foreclosure Standing Case In HSBC Bank v. Matt | The Massachusetts Real Estate Law Blog

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