In the past, I have, for the most part, turned away clients that have come to me claiming that the bank "never had the note." This is due mostly to a provision in the Uniform Commercial Code (or UCC) which is legislation adopted by every state, and proposed by a group called the National Conference of Commissioners of Uniform State Laws. That provision, commonly known as UCC 3-309 states as follows:
"(a) A person not in possession of an instrument is entitled to enforce the instrument if (i) the person was in possession of the instrument and entitled to enforce it when loss of possession occurred, (ii) the loss of possession was not the result of a transfer by the person or a lawful seizure, and (iii) the person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process.
(b) A person seeking enforcement of an instrument under subsection (a) must prove the terms of the instrument and the person's right to enforce the instrument. If that proof is made, Section 3-308 applies to the case as if the person seeking enforcement had produced the instrument. The court may not enter judgment in favor of the person seeking enforcement unless it finds that the person required to pay the instrument is adequately protected against loss that might occur by reason of a claim by another person to enforce the instrument. Adequate protection may be provided by any reasonable means."
While some may call me a cynic, I believe that most National Banks act as a kind of cabal, and I find it very unlikely that a transferor bank would fail to fill out some kind of affidavit of loss in support of a transferee bank. Forcing the bank to do as much seems like an empty - and frankly - expensive exercise for most borrowers. In addition to obtaining a preliminary injunction, I would almost certainly have to beat back a mostion to dismiss, which is a lot of my time.
That said, a recent decision, Eaton v. Fannie Mae, has changed the landscape somewhat for the "show me the note" defense. In Eaton, the Court found that a likelihood of success on the merits existed, because the foreclosing entity was a servicer, and not the holder of the Plaintiff's note. The Court in Eaton found that there had to be a unity of ownership in the foreclosing entity, and the note holder. This decision would, if adopted per se, ban foreclosures by MERS, or other servicers, like, for example, BAC Home Loan Servicing, LP - the now successor in interest to Countrywide Home Loans. The Eaton case is similar - but not the same - as the decision in U.S. National Bank v. Ibanez, where the Court explained that a mortgagee, in order to foreclose, had to have present title.
Reading between the lines, it is clear that, if Eaton is adopted as precedential (it is presently on appeal) in order to foreclose in Massachusetts, a lender will have to hold both a valid assignment of the mortgage and a valid assignment of the mortgagor's note. If the decision is found to be retroactive, thousands of Massachusetts foreclosures could be found invalid.
However, before hopes get to high, it is important to note that recent lower Court decisional law, including opinions by Raymond J. Brassard of the Massachusetts Superior Court, and Melvin Hoffman of the Massachusetts Bankruptcy Court have suggested that MERS may foreclose in its own name, possessing only bare title to the subject mortgage.
How will the Appeals Court Rule? It's difficult to say. Requiring note ownership would potentially invalidate so many foreclosures. But inconvenience should not stand in the way of the law. Judge McIntyre is right. A mortgagor whose house is lost to foreclosure often times faces a possible "deficiency judgment" or will owe some amount due beyond the price at which the house sold. As the Court sagaciously observes in Eaton, "a holder in due course of the promissory note could seek to recover against the mortgagor, exposing her to double liability." In Ibanez supra., it is obvious that the SJC, Massachusetts' highest Court, believed as I do: that inconvenience should not stand in the way of the law. I expect Judge McIntyre's thoughtful decision to be affirmed. Then again, I don't sit on the Appeals Court.
Stay Tuned.
blog comments powered by Disqus