In another court ruling against embattled homeowners facing foreclosure, the Massachusetts Appeals Court has ruled that a defective 150 day cure notice is not a valid defense to a foreclosure sale. The case is Haskins v. Deutsche Bank (click for link to case). The ruling will make it more difficult for distressed homeowners to challenge foreclosure and could accelerate the pace of pending foreclosures.
150 Day Cure Notice
The 2010 Foreclosure Prevention Act requires that foreclosing lenders provide a borrower with a 150 day right to cure prior to starting a foreclosure proceeding. The notice must identify the current “holder” of the mortgage. Before this ruling, some trial courts had ruled that a bank’s failure to strictly comply with those requirements was sufficient grounds to halt a foreclosure sale.
In the Haskins case, the borrower challenged his foreclosure on technical grounds because the cure notice incorrectly identified the holder of the mortgage as IndyMac Mortgage Services. IndyMac was the mortgage servicer and mortgage was legally held in a securitized trust operated by Deutsche Bank.
Justice Mark Green, a former Land Court judge and former banking general counsel, recognized that today the vast majority of residential mortgages are serviced by large mortgage servicers while owned and held in securitized trusts. Rejecting the borrower’s form-over-substance argument, Justice Green ruled that as long as the borrower receives an accurate cure notice with the correct loan balance information and payment address so the borrower can pay up and cure, an erroneous identification of the actual mortgage holder should not affect the validity of the pending foreclosure.
Massachusetts foreclosure defense attorney Adam Sherwin, who represented the borrower, put up a valiant fight in this case. However, with this ruling and several recent decisions before it, foreclosure defense attorneys have suffered several setbacks in the courts, making it more difficult for distressed homeowners to challenge and stop foreclosures.
Distressed Homeowners Lose Key Defense, While Foreclosure Purchasers Gain More Title Security
Last week, the Supreme Judicial Court decided yet another important foreclosure case, U.S. Bank v. Schumacher(embedded below). The issue considered in Schumacher was whether a foreclosing lender’s defective 90 day notice to cure was a defense in a subsequent post-foreclosure eviction (summary process action) by the borrower. The SJC said no it was not a valid defense, as it should have been raised much earlier in the legal process in a separate action in the Superior Court.
Schumacher considered a 2007 law requiring that foreclosing lenders provide a borrower with a 90 day right to cure prior to starting a foreclosure proceeding. Before Schumacher, some trial courts had ruled that a bank’s failure to strictly comply with those requirements was fatal to a foreclosure sale. In such cases, even a post-foreclosure buyer of the property would have potentially defective title. From a title perspective this result was especially problematic since a bank’s compliance or non-compliance with §35A would not appear in the property’s title at the registry of deeds.
By holding that a defective cure notice is no defense to a post-foreclosure eviction, the SJC has made it more difficult for distressed homeowners to challenge the legality of foreclosures in eviction cases. On the flip side, the ruling will help buyers of foreclosed property as it makes their titles less susceptible to challenge by the previous owners.
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.
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. JodiMatt. 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.
Battle Over Invalid Foreclosures May Shift To Evictions In Housing Courts
In the closely watched case of Bank of New York v. Bailey (embedded below), the Massachusetts Supreme Judicial Court ruled on August 4, 2011 that the Housing Court may hear a homeowner’s challenge that a foreclosing lender failed to conduct a foreclosure sale in accordance with state law and under the now seminal U.S. Bank v. Ibanez decision. Previous to this decision, foreclosing lenders and their attorneys were quite successful in evicting homeowners even where there were defects in the foreclosures.
A Subprime Eviction
KC Bailey obtained a mortgage in 2005, which appears to have been of the sub-prime vintage (America’s Wholesale Lender), on his home in Mattapan. Merely two years later, he defaulted, and the lender commenced foreclosure proceedings. Bailey claimed that the lender never provided him with any notice of the foreclosure, and he first learned about it when an eviction notice was duct taped to his fence. The lender started an eviction in the Boston Housing Court. Bailey defended on the basis of the alleged defective notice. The Housing Court judge ruled in favor of the lender, and the case went up to the SJC.
Ruling: Housing Court May Hear Foreclosure Challenge
The SJC first ruled, in a case of first impression, that the Housing Court had jurisdiction to consider whether the lender had properly completed the foreclosure sale and provided adequate notice to Bailey. The court noted that such a challenged was “long-standing.” Next, the Court ruled that all foreclosing lenders seeking eviction must show that it has completed the foreclosure sale in full compliance with state law. This is a change in prior practice as lenders would typically submit the foreclosure deed as evidence of good title and ownership without additional investigation.
Impact: More Difficult To Evict, But More Opportunity For Loan Mods
This decision is going to make it more difficult and expensive to evict foreclosed homeowners and get these properties off lenders’ books. On the positive side, it may give homeowners more leverage to negotiate loan modifications to enable them to stay in their homes and recover from financial distress. Evictions based on faulty foreclosures will be nearly impossible to complete and could potentially drag on for months if not years.
This decision will also have a substantial impact on the already over-burdened Housing Court system. If you have ever been to the Thursday summary process session at Boston or Worcester Housing Court, it’s akin to a refugee camp, with hundreds of cases lined up and families facing homelessness. It’s very sad. I’m sure the judges will push lenders and homeowners dealing with faulty foreclosures to resolve their differences out of court, or tell them to wait in back of the line for trial assignment.
Richard D. Vetstein, Esq. is regarded as one of the leading real estate attorneys in Massachusetts. With over 25 years in practice, he is a four time winner of the "Top Lawyer" award by Boston Magazine, a "Super Lawyer" designation from Thompson/West, and "Best of Metrowest." For Rich's professional biography, click here. If you are interested in hiring Rich or have a legal question, email or call him at [email protected] or 508-620-5352.
