HSBC Bank v. Matt

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.

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Court Will Consider Mortgage Servicer/MERS Standing and Statutory Foreclosure Affidavits

The Supreme Judicial Court has a busy Fall Term with several important foreclosure cases on the docket. Here’s a quick summary.

HSBC Bank v. Jodi Matt (SJC-11101)

The SJC is considering whether a mortgage servicer holding a securitized mortgage has standing to even begin a foreclosure action in the Land Court under the Servicemembers Civil Relief Act–one of the first steps in the Massachusetts foreclosure process. I wrote about this case in a prior post here. This ruling will affect just about every conventional mortgage foreclosure in the state. The lower court Land Court opinion can be read here.  The court asked for friend-of-the-court briefs, and the Real Estate Bar Association filed a brief supporting the foreclosing lenders. Glenn Russell’s brief for the appellant Jodi Matt can be read here.

Oral arguments were held in early September, but unfortunately the webcast is unavailable. One of my sources told me that the justices were very active and peppered both attorneys with lots of questions.

Following the recent Eaton v. FNMA case, which held that a mortgage servicer may foreclosure upon a showing of proper agency and authority, I predict that the Court will ultimately hold that servicers and lenders holding rights to securitized mortgages have legal standing to start the Servicemembers Civil Relief Act proceeding, even if they merely hold a contractual right to the actual mortgage. The most compelling rationale for such a ruling is that the only purpose of the Servicemember proceeding is to ascertain whether the borrower is in active military service. It is not intended to be a forum to litigate issues relating to the propriety of securitized mortgage transfers and contractual standing.

Federal National Mortgage Ass’n v. Hendricks (SJC 11234)

This case has the potential to change Massachusetts foreclosure practice. The issue presented is whether the long-standing Massachusetts statutory form foreclosure affidavit that the foreclosing lender has complied with the foreclosure laws is on its face sufficient. The case will also decide whether the statutory power of sale form, originally drafted in 1912, is also facially sufficient. The docket and briefs filed in the case can be found here.

The case originated from the Boston Housing Court where Hendricks fought his post-foreclosure eviction by Fannie Mae, asserting that the affidavits filed by Fannie Mae reciting compliance with the foreclosure statute were inadmissible and insufficient. A Housing Court judge disagreed, and upheld the foreclosure and the eviction.

With the well-publicized robo-signing controversy looming in the background, I would not be surprised if the SJC rules in favor of Hendricks here and in the process tightens up the requirements for filing foreclosure affidavits. Indeed, that is the trend with the Legislature’s recent passing of the Foreclosure Prevention Act. As with the Eaton v. FNMA ruling, the Court should likely make its ruling prospective and not retroactive so as to not disrupt titles in the Commonwealth.

Galiastro v. MERS (SJC DAR 20960)

The SJC just accepted direct appellate review from the Appeals Court in this interesting case. This case will finally decide whether Mortgage Electronic Registration Systems (MERS) has standing to foreclose in its own name. The case, however, is somewhat mooted because MERS no longer forecloses in its own name, but there are plenty of MERS foreclosures in back titles. The SJC has announced that it will solicit friend-of-the-court briefs on the issue of “whether MERS “has standing to pursue a foreclosure in its own right as a named ‘mortgagee’ with ability to act limited solely as a ‘nominee’ and without any ownership interest or rights in the promissory note associated with the mortgage; whether the prospective mandate of Eaton v. Federal National Mortgage Association, 462 Mass. 569 (2012), applies to cases that were pending on appeal at the time that case was decided.” This case will be argued in April 2013. I will have analysis after that.

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney with an expertise in foreclosure related issues. You can contact him at info@vetsteinlawgroup.com.

 

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In yet another move evidencing the Supreme Judicial Court’s ongoing concern over the impact of the foreclosure crisis in Massachusetts, the SJC is soliciting friend-of-the-court briefs in the next important foreclosure case, HSBC Bank v. Jodi Matt.

As we wrote about in our prior post here, the SJC is considering whether a lender holding a securitized mortgage has standing to even begin a foreclosure action in the Land Court under the Servicemembers Civil Relief Act–one of the first steps in the Massachusetts foreclosure process. The SJC will ostensibly decide whether lenders holding mortgages held in a securitized pool, with questions whether they in fact were validly assigned those mortgages, can start foreclosures in Massachusetts. The lower court Land Court opinion can be read here.

The text of the Court’s announcement is as follows:

February 17, 2012 – ANNOUNCEMENT: The Justices are soliciting amicus briefs. Whether the Land Court judge correctly concluded that a bank had standing to commence an action to determine whether the defendant (alleged to be in breach of her mortgage obligations) was entitled to the benefits of the Servicemembers Civil Relief Act, on the ground that the bank had a contractual right to become the holder of the note and mortgage. The case is tentatively scheduled for argument in May.

For more information about how to submit a friend of the court brief, go to the SJC Website.

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate litigator and attorney. Please contact him if you are dealing with a Massachusetts foreclosure title dispute.

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Updated (1/14/13): SJC Rules Against Lender, Holds That Ownership of Mortgage Must Be Established

Court May Decide Lenders’ Standing In All Foreclosure Cases Involving Securitized Mortgages

With all the hoopla yesterday surrounding Attorney General Martha Coakley’s monumental lawsuit against the big banks over foreclosure practices, the Supreme Judicial Court on November 29, 2011 quietly agreed to hear an appeal over whether a lender holding a securitized mortgage has standing to even begin a foreclosure action in the Land Court under the Servicemembers Civil Relief Act–one of the first steps in the Massachusetts foreclosure process.

The case is HSBC Bank v. Jodi Matt. The docket can be downloaded here.

The SJC will ostensibly decide whether lenders holding mortgages held in a securitized pool, with questions whether they in fact were validly assigned those mortgages, can start foreclosures in Massachusetts.

First Steps: The Servicemembers Civil Relief Act

The Servicemembers Civil Relief Act is one of the first steps in the foreclosure process. Lenders must file a complaint in the Land Court under the Act to ensure the borrower is not in active military service. Once the Land Court determines the borrower’s status in the military, then the lender can proceed to advertise and hold a public foreclosure auction. Historically, the Servicemembers action was rather perfunctory, but today borrowers have begun to challenge lenders’ right to start foreclosures in these initial Land Court proceedings.

Lower Court Opinion

In the lower court, Land Court Judge Keith Long (the judge in both the landmark U.S. Bank v. Ibanez and Bevilacqua cases), ruled that HSBC Bank had standing to start the foreclosure process under the Servicemembers Civil Relief Act, despite serious questions as to whether HSBC validly held the mortgage. The original mortgage was held by New Century, which was in bankruptcy when it purported to assign the mortgage to HSBC. There was no evidence the assignment was authorized by the bankruptcy trustee and whether the signatory had any office or authority to transfer New Century’s bankrupt assets to other parties. Despite these questions, Judge Long ruled that HSBC, through a securitized pooling and servicing agreement, had the contractual right to become the holder of the mortgage, thereby conferring enough standing to start the foreclosure process.

SJC Takes Appeal Sua Sponte

The SJC, in a rare move, took the appeal on its own initiative (sua sponte in legalese) from the Appeals Court. It has not yet released an argument schedule. We’ll be following the case here, so stay tuned.

Notably, foreclosure defense attorney Glenn Russell, Esq., the attorney who prevailed before the SJC in the Ibanez case, is representing the home owner in this case.

The Land Court’s ruling is embedded below.

HSBC Bank v. Jodi Matt

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