A Brief Synopsis of Recent MA Mortgage-Related Decisions

Several mortgage-related decisions have recently issued from both the Massachusetts federal and state courts.  In no particular order, here is a brief synopsis of some of the more interesting ones:

In U.S. Bank National Assoc. v. Bolling, 15-P-1259 (Sept. 1, 2016), the Appeals Court confirmed that Massachusetts law controls when determining a plaintiff’s standing to bring a lawsuit, regardless of whether the lawsuit challenges the terms of a contract which contained a choice-of-law provision naming an alternate jurisdiction.  The Defendant in a summary judgment proceeding challenged the foreclosure of her Massachusetts property for failure to comply with the terms of the mortgage pooling and servicing agreement (“PSA”).  The PSA’s choice-of-law provision named New York as the proper jurisdiction.  The Defendant argued that failure to comply with the terms of the PSA rendered the assignment into the foreclosing entity void under New York law, and therefore the subsequent foreclosure was similarly void.   A Massachusetts Superior Court judge agreed and rendered summary judgment in the Defendant’s favor.  The Appeals Court reversed, stating that, where the property in question is in Massachusetts and the Defendant’s challenge does not arise from either the PSA or the assignment, Massachusetts law concerning standing controls.  Because under Massachusetts law failure to comply with the terms of the PSA renders the assignment merely voidable, not void, the Defendant lacked standing to challenge the assignment as void.

In Deutsche Bank Nat'l Tr. Co. v. Lefebvre, No. 15-P-1096 (Aug. 31, 2016), the Appeals Court affirmed a decision for the Bank in a post-foreclosure eviction action.  Despite a lengthy history concerning the applicability of the Eaton rule, the Bank at all pertinent times held the mortgage and the note, and the fact that the note was indorsed in blank did not render the foreclosure invalid.  The former homeowner’s contention that “mere possession of a Note does not equate to ownerships [sic]” was simply incorrect as a matter of law as applied to a note indorsed in blank based upon basic principles set forth in Article 3 of the Uniform Commercial Code.

In Lewis v. Bank of N.Y. Mellon Tr. Co., N.A., Civil Action No. 16-11122-FDS, 2016 U.S. Dist. LEXIS 117446 (D. Mass. Aug. 31, 2016), the District Court denied the Bank’s Motion to Dismiss Plaintiff’s Complaint, a challenge to the foreclosure of Plaintiffs’ house.  Plaintiffs alleged that MERS lacked authority to assign their mortgage after the dissolution of the original lender, a claim that the District Court promptly disposed of, stating that Plaintiffs’ “argument, however, has been consistently rejected by courts in this district. In essence, the dissolution of the original lender does not affect MERS's authority to assign a mortgage.”  Plaintiffs also alleged that the Bank did not hold their note, and therefore lacked authority to foreclose.  The Bank had not submitted the note, and MERS had not submitted the note’s transaction history, in support of the Motion to Dismiss.  After careful consideration of the applicable pleading standard, the Court concluded that “while it appears doubtful that [the Bank] is not presently the owner of plaintiffs' promissory note, dismissal is at least premature.”  Should the Bank produce additional evidence that it holds the note, the Court suggested summary judgment as the most expeditious resolution.

In Fin. Freedom Acquisition, LLC v. Laroche, No. 15-P-772 (Aug. 30, 2016) (issued pursuant to Rule 1:28), the Appeals Court affirmed a Superior Court decision declining to encumber the Defendant mortgagor’s son’s fee interest in the subject property.  The Defendant conveyed the property to her son, reserving a life interest, two years prior to taking out a reverse mortgage.  Plaintiff Financial became aware of the deed prior to closing on the mortgage, in fact noting that a reconveyance of the property to the mortgagor was needed, but closed the mortgage without such reconveyance.  Several years later, Financial requested that the mortgagor’s son convey the property to his mother; the son refused.  Financial brought suit seeking to have the son’s interest encumbered, as well as alternate claims for equitable subrogation and unjust enrichment.  The Court found that the lower court properly determined that the son’s interest should not be subject to the mortgage because Financial knew about the ownership issue before finalizing the mortgage transaction.  As the Court stated, “[t]hat an error likely occurred when Financial closed the loan and disbursed funds does not change the fact that Financial willingly took Dorothy's mortgage with actual knowledge of Dorothy's prior grant.”  The Court concluded that the son’s interest was not encumbered by the mortgage, and that as Financial was not entitled to equitable subrogation because its actual knowledge barred it from recovery.  Financial’s unjust enrichment claim fared no better as the contract between the parties, the mortgage, defined their respective rights and obligations and was controlling.