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The Supreme Judicial Court (SJC) recently considered the issue of whether a foreclosing lender must be both the holder of the mortgage and the holder of the promissory note secured by the mortgage at the time of a foreclosure.

In Eaton v. Federal National Mortgage Association et al, No. 11041, slip op. (Mass. June 22, 2012), the plaintiff, Henrietta Eaton, seeking to avoid a post-foreclosure eviction from her home in Roslindale, Massachusetts, claimed that the foreclosure of her home was invalid because the foreclosing lender, Green Tree Servicing, LLC (Green Tree), was not the holder of the note at the time of the foreclosure. Green Tree had been servicing the mortgage and stipulated that it was not the holder of the mortgage note.

Reversing a lower court decision, the SJC reviewed the meaning of the term “mortgagee,” as used in the applicable statutes governing the exercise of the power of sale in a mortgage. In particular, the SJC reviewed G.L. c. 244, §§ 11-17C and held that while the use of the term “mortgagee” was ambiguous, the legislative intent was clear: that it must be both the holder of the mortgage, as well as the holder of the underlying mortgage note.

In its unanimous decision, the SJC reasoned that G.L. c. 244, § 17B “assumes that the holder of the mortgage note and the holder of the mortgage are one and the same.” Notwithstanding this interpretation, the SJC observed that there was no language in the statutes prohibiting the use by a mortgagee of an agent to act on its behalf. Thus, the SJC held that an agent of the holder of the mortgage note, if authorized, can validly foreclose a mortgage.

In reaching its decision, the SJC elected to give the ruling prospective effect in light of the “new interpretation of the relevant statute,” thus, avoiding the chilling impact which its decision would otherwise have had on the title to properties that have had a foreclosure sale in the title chain.

Going forward, a foreclosing lender should be sure that, at the time a foreclosure is commenced, the lender is the holder of the mortgage and the mortgage note or, in the case of the mortgage note, is acting on behalf of the mortgage note holder.

It remains to be seen, absent legislative action, what documentation will be required to demonstrate, on the record, that a foreclosing lender does, in fact, hold the mortgage note or is acting on behalf of the mortgage note holder. It is possible that this issue may be resolved by the recording of an Affidavit pursuant to G.L. c. 183, § 5(b) by the attorney representing the foreclosing lender.

This advisory was prepared by the Commercial Finance practice group at Nutter McClennen & Fish LLP. For more information, please contact your Nutter attorney at 617.439.2000.

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.