For Lenders and Homeowners, a Big Foreclosure Decision in Massachusetts - Eaton v. Fannie Mae

On June 22, the Massachusetts Supreme Judicial Court ruled in Eaton v. Federal National Mortgage Association that foreclosures in the state can be valid even if the foreclosing party doesn’t hold the mortgage note.

The decision isn’t a total victory for lenders, however. Homeowners facing foreclosure also benefit from the ruling because it requires mortgage servicers to establish their authority to foreclosure before taking action. 

For your consideration, three takeaways from Eaton: 

1. The ruling establishes clear rules for determining authority: 

“As a result of Eaton, going forward, mortgagees must be careful not to invoke the statutory power of sale in Massachusetts unless they are either the holder of the underlying note or acting as an authorized agent of the note holder.  In order to avoid claims regarding the validity of foreclosures, it will likely become common practice for foreclosing parties in Massachusetts to record affidavits concerning their relationship to the note or note holder.” (Decision That Foreclosing Party Must Be Note Holder Or “Acting On Behalf” Of Note Holder Likely To Spur Practice In Massachusetts Of Recording Such Relationships by Saul Ewing LLP) 

2. Completed foreclosures will not be called into question:

“While rejecting the interpretation urged by the defendants and various industry amici, the court agreed that its contrary interpretation should not apply retroactively. Accordingly, the court held that its ruling would ‘apply only to mortgage foreclosure sales for which the mandatory notice of sale has been given after the date of this opinion.’” (Foreclosing Mortgagee Must ‘Show the Note,’ Massachusetts High Court Rules by Ballard Spahr LLP) 

3. This likely won’t be the final word on foreclosures in Massachusetts:

“However, this is not the end of foreclosure litigation in Massachusetts. As with most landmark cases pronouncing a new rule of law, subsequent litigation to clarify what the court meant is likely to follow in this case… All things considered, I will agree with Prof. Levitin who opined: ‘In the immediate term, I’d score the case as a major victory for the financial services industry, which avoided liability for its failure to comply with state law foreclosure requirements. Going forward, however, things are more complicated.’” (Averting The Apocalypse: Foreclosing Lenders Avoid Disaster and Given More Options To Foreclose In Eaton v. Fannie Mae by Richard Vetstein) 

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See also:

• Massachusetts Supreme Judicial Court Clarifies Foreclosure Requirements: Eaton v. Federal National Mortgage Association - Dechert LLP 

• What does the Eaton decision mean for Massachusetts homeowners facing foreclosure? - George Bourguignon 

• Massachusetts Supreme Judicial Court Rules That Lenders May Foreclose Without Possessing Mortgage Note, But Only In Certain Circumstances - BuckleySandler LLP 

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Related developments:

• Borrower May Sue Over Lender’s Failure To Contact Prior to Foreclosure, California Appellate Court Rules - Ballard Spahr LLP 

• FTC Wins Judgment in Mortgage Modification Case - BuckleySandler LLP 

• Defects in Chain of Title Must Be Raised Prior to Foreclosure - Ballard Spahr LLP 

• No Need to ”Show the Note” for a Non-Judicial Trustee’s Sale - Snell & Wilmer L.L.P.

• State Law Update: South Carolina Adopts Mortgage Lending Act Regulations - BuckleySandler LLP 

• Case Reconsidered In Light Of Residential Funding Co., LLC V. Saurman - Warner Norcross & Judd 

• Special Alert: California Legislature Approves Key Parts of State’s “Homeowner Bill of Rights” - BuckleySandler LLP http://www.jdsupra.com/legalnews/special-alert-california-legislature-ap-60493/

• Sixth Circuit Holds Foreclosure Filing Before Transfer of Mortgage and Note May Violate FDCPA - BuckleySandler LLP 

• New York’s Proposed Foreclosure Fraud Prevention Act Would Criminalize “Robo-Signing” - Dechert LLP 

• Maryland Appellate Decision Makes It Easier for Creditors Holding Notes with Gaps in the Chain of Title to Foreclose - Saul Ewing LLP 

• Feds Extend Deadline for Reviewing Defective Foreclosures - Lawyers.com 

• Lack of Standing Is an Affirmative Defense – Wells Fargo Bank, N.A. v. Reeves - Trenam Kemker 

• Regulators Extend Foreclosure Review, Issue Financial Remediation Framework, Publish Status Report - BuckleySandler LLP 

• State Law Update: North Carolina, Connecticut, Ohio Update Banking, Mortgage Laws - BuckleySandler 

• Another California Court Approves The Use Of MERS - Sheppard Mullin Richter & Hampton LLP 

• Independent Foreclosure Review Remediation Guidance and Extension - Orrick, Herrington & Sutcliffe LLP 

• Bank May Foreclose By Advertisement Even When The Mortgage Note Is Lost - Warner Norcross & Judd 

• The FHFA’s New Buy-Back Statement - Bilzin Sumberg Baena Price & Axelrod LLP 

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