Massachusetts’s highest court ruled that a foreclosure sale in the state can be valid even when the entity foreclosing on the home doesn’t hold the mortgage note as long as it has proper authority.
The state’s Supreme Judicial Court reversed a lower court decision, saying it is enough that the foreclosing party is acting on behalf of the note holder and doesn’t need to physically possess the note, according to a decision today.
The case stems from a foreclosure involving mortgage-finance company Fannie Mae. The homeowner, Henrietta Eaton, claimed the foreclosure on her home in the Roslindale section of Boston was invalid because the mortgage servicer didn’t hold the mortgage note and lacked the authority to foreclose, according to the court’s decision.
Samuel Levine, a Harvard Law School graduate who represented Eaton in the case, said in an interview that the decision is a victory for homeowners facing foreclosure because servicers will have to establish their authority to foreclose. It will require more due diligence by lenders before seizing homes, he said.
“Our hope is that with this ruling it will create some clarity and create some actual opportunity for homeowners to figure out who owns their loan,” Levine said in a telephone interview.
At a foreclosure auction in 2009, mortgage servicer Green Tree Servicing LLC was the highest bidder for Eaton’s home and then transferred the property to Fannie Mae.
The lower court blocked Eaton’s eviction from the home, saying she would probably succeed in proving the transfer was void, according to today’s decision. That court said a foreclosing entity at the time of the sale must hold both the mortgage and the underlying mortgage note. Green Tree had stipulated that it didn’t hold the note.
The Supreme Judicial Court’s ruling applies only to future foreclosures and not past home seizures, the court said. Fannie Mae argued in court papers that a retroactive ruling requiring a united mortgage and note for a foreclosure would damage title to properties that were subject to earlier repossession.
“Today’s ruling will hopefully bring clarity and certainty to the foreclosure process in Massachusetts,” Andrew Wilson, a Fannie Mae spokesman, said in an e-mailed statement.
The Supreme Judicial Court remanded the case to the Superior Court and said Eaton may argue that Green Tree neither held the note nor acted on behalf of the note holder.
The case is Eaton v. Federal National Mortgage Association, 11041, Supreme Judicial Court of Massachusetts (Boston).