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Recent Massachusetts Case Clarifies Foreclosure Standing Requirements
By Thomas P. Quinn, Jr. and Frank H. Bishop, Jr.

On June 22, 2012, the Massachusetts Supreme Court published its decision in Eaton v. Fannie Mae.[1] The case, which has been closely watched since it was argued in the fall of last year, will have a significant impact on the foreclosure process in Massachusetts on a going-forward basis.

The Facts

In September of 2007, Henrietta Eaton refinanced a mortgage on her home in the Roslindale section of Boston. She signed a promissory note in the amount of $ 145,000 payable to BankUnited, FSB (“BankUnited”) and a mortgage document naming BankUnited as “lender” and the Mortgage Electronic Registration Systems, Inc. (“MERS”) as “mortgagee.” As is customary, the promissory note and mortgage were separate instruments. However, the court noted that by its terms the mortgage was clearly connected to the promissory note.

Nearly two years later, MERS assigned its interest as mortgagee to Green Tree Servicing, LLC (“Green Tree”) and duly recorded the assignment in the local registry of deeds. Although the Court record included no evidence of a transfer of the note, it was indorsed in blank by BankUnited and then allegedly transferred to the Federal National Mortgage Association (“Fannie Mae”). Accordingly, the precise date of this transfer to Fannie Mae, if any, is unclear.

When Ms. Eaton failed to make timely payments on the note Green Tree moved to foreclose pursuant to the terms of the power of sale under the mortgage and conducted a foreclosure auction on the property in November of 2009. Green Tree, which was the highest bidder at the foreclosure sale, assigned its rights in the bid to Fannie Mae. A foreclosure deed was then recorded in the appropriate registry of deeds.

Following the transfer of the foreclosure bid, Fannie Mae commenced proceedings in the Housing Court to evict Ms. Eaton. Eaton counterclaimed, arguing that the underlying foreclosure sale was invalid because Green Tree did not hold the promissory note at the time of the foreclosure. The Housing Court granted a 60 day stay to permit Eaton to bring suit in Superior Court.[2] She did so in April of 2011.

In her Superior Court complaint, Ms. Eaton sought:

  • A declaration that the foreclosure was void and that she was the owner of the property; and
  • Injunctive relief to delay the original eviction proceeding in the Housing Court and to prevent Fannie Mae from obtaining or conveying the collateral property.

Green Tree stipulated during the Superior Court case that at the time of the foreclosure it did not hold the promissory note originally payable to BankUnited. In granting Ms. Eaton the relief she sought, the Superior Court judge concluded that for the foreclosure to be valid the foreclosing mortgagee must hold both the mortgage and the underlying note, and must be in physical possession of the note itself. Fannie Mae and Green Tree appealed, arguing that the Superior Court holding was based on a misreading of Massachusetts common law and ignored that “the statutory scheme applicable to exercise of a power of sale gave Green Tree absolute authority as ‘mortgagee,’ to foreclose.”[3]

Analysis on Appeal

A. Massachusetts Common Law

Under its common law Massachusetts is a “title theory” jurisdiction, meaning that the mortgage document transfers legal title in the collateral property, but that such title is “defeasible upon the payment of money or the performance of some other condition” by the mortgagor.[4] In essence, the mortgagee is only the “owner” of the property for the purpose of securing the debt that is embodied in the promissory note. When the two documents (note and mortgage) are separated, the mortgage becomes “‘a mere technical interest’” and “‘the holder of the mortgage holds the mortgage in trust for the purchaser of the note, who has an equitable right to obtain an assignment of the mortgage . . . ’”[5]

In light of these common law provisions, the Supreme Court concluded as follows: “it appears that, at common law, a mortgagee possessing only the mortgage was without authority to foreclose on his own behalf the mortgagor’s equity of redemption or otherwise disturb the possessory interest of the mortgagor.”[6] Thus, from the perspective of Massachusetts common law, a mortgagee must have authority under both documents in order to foreclose.

B. Massachusetts Statutory Law

On appeal, Green Tree and Fannie Mae argued that, regardless of common law considerations, Section 14 of Chapter 244 of the General Laws, which describes the procedures for foreclosure pursuant to the power of sale, unambiguously authorized Green Tree, as assignee of MERS, to foreclose as the “mortgagee” with the power of sale under the mortgage.[7]

The Supreme Court disagreed, observing that the provision cited above is but “one in a set of provisions governing mortgage foreclosures by sale, and that set in turn is one component of a chapter of the General Laws devoted generally to the topic of foreclosure and redemption of mortgages.”[8] First, the Court pointed out that the statutory power of sale is set forth in Section 21 of Chapter 183 of the General Laws.[9] Under this statute, if a mortgage provides for a power of sale, the mortgagee may exercise such power to foreclose non-judicially upon any default under the mortgage, including nonpayment of the underlying mortgage note. Section 21 also provides, however, that for such a foreclosure sale to be valid, the mortgagee must comply with the terms of both the mortgage and statutes relating to foreclosure under the power of sale. The statutes governing such foreclosures under a power of sale are found in Sections 11 to 17C of Chapter 244 of the General Laws.

Next, the Court analyzed the use of the term “mortgagee” generally in Chapter 244 and, in particular, Section 17B of Chapter 244, which establishes the notice requirements necessary to seek a deficiency balance.[10] In the Court’s view, this statutory provision assumes that the holder of the mortgage and note are one in the same. Indeed, the Court concluded that the very provision highlighted on appeal by Green Tree and Fannie Mae was among a series of interrelated provisions that “reflects a legislative understanding or assumption that the ‘mortgagee’ referred to is also the holder of the mortgage note.”[11]

The Court did differ, however, from the portion of the Superior Court’s holding which required that the foreclosing party have physical possession of the note in order to foreclose. Rather, the Supreme Court held that – since there was no statutory language precluding it – a party acting as an authorized agent of the note holder could stand “in the shoes” of the mortgagee. As such, in order to effect a valid foreclosure, the Supreme Court held that the mortgagee must either (a) hold the note, or (b) act on behalf of the note holder.[12]

C. Prospective Effect

Given the ambiguity in the statutes regarding the definition of the term “mortgagee,” the lack of prior Massachusetts case law directly addressing the issue and the fact that prior practice in the state had reached a different interpretation, in good faith, of the term than was reached here, the Supreme Court exercised its discretion to apply the interpretation of the term “mortgagee” on a prospective basis only, meaning that its interpretation would only apply to mortgage foreclosure sales for which the mandatory notice of sale had been given after the date of the opinion – June 22, 2012.[13] By doing so the Supreme Court’s decision also has the practical effect of preventing a rash of litigation attempting to challenge prior foreclosures based on this holding. However, on a going-forward basis, mortgagees must ensure that they either hold the note that is secured by the mortgage or are acting on behalf of the note holder when initiating a foreclosure proceeding.

D. Disposition of the Case

Despite the Court’s exercise of its discretion to apply its holding on a prospective basis only, the Court nonetheless applied it to the pending appeal. The Court concluded that where a mortgagee acts on the authority of the note holder, the mortgagee may comply with the statute without “physically possessing or actually holding” the mortgage note. Therefore, because the Superior Court judge’s decision on the preliminary injunction did not consider the question of Green Tree’s, or MERS’s, for that matter, authority to act on behalf of BankUnited, or as an assignee of BankUnited, in commencing foreclosure proceedings, the Court vacated the preliminary injunction and remanded the case on that issue.[14] On remand, Ms. Eaton must demonstrate that, at the time of the foreclosure sale, Green Tree neither held the note nor acted on behalf of the note holder.

Thomas P. Quinn, Jr. is a Partner in the Massachusetts office of Hudson Cook, LLP. Tom can be reached at 774-365-4758 or by email at

Frank H. Bishop, Jr. is an Associate in the Maine office of Hudson Cook, LLP. Frank can be reached at 207-541-9554 or by email at


[1] 2012 Mass. LEXIS 488 (June 22, 2012).

[2] The Supreme Court noted that the decision in Ms. Eaton’s case preceded the Massachusetts Supreme Court holding in Bank of N.Y. v. Bailey (460 Mass. 327, 951 N.E.2d 331 (2011)) which held that the Housing Court had concurrent jurisdiction to hear a counterclaim alleging invalid foreclosure sale when also hearing a summary action for eviction. Eaton v. Fannie Mae, Footnote 9.

[3]Eaton v. Fannie Mae, *12.

[4]Eaton v. Fannie Mae, *13, citing Perry v. Miller, 330 Mass. 261, 263, 112 N.E.2d 805 (1953), and cases cited therein.

[5]Eaton v. Fannie Mae, * 14 and 15, citing Wolcott v. Winchester, 81 Mass. 461 (1860) and U.S. Bank Nat’l Ass’n v. Ibanez, 458 Mass. 637, 652 (2011). The Ibanez decision is in turn citing Barnes v. Boardman, 149 Mass. At 114.

[6]Eaton v. Fannie Mae, *17.

[7] 244 M.G.L.A. § 14 states that a [M]ortgagee or person having his estate in the land mortgaged, or a person authorized by the power of sale, or the attorney duly authorized by a writing under seal, or the legal guardian or conservator of such mortgagee or person acting in the name of such mortgagee or person, may, upon breach of condition and without action, do all the acts authorized or required by the power . . . .” The statute does require the mortgagee to comply with certain publication requirements in advance of the sale.

[8]Eaton v. Fannie Mae, *26.

[9] 183 M.G.L.A. § 21 states as follows:
The following ‘power’ shall be known as the ‘Statutory Power of Sale’, and may be incorporated in any mortgage by reference:
“But upon any default in the performance or observance of the foregoing or other condition, the mortgagee or his executors, administrators, successors or assigns may sell the mortgaged premises or such portion thereof as may remain subject to the mortgage in case of any partial release thereof, either as a whole or in parcels, together with all improvements that may be thereon, by public auction on or near the premises then subject to the mortgage, or, if more than one parcel is then subject thereto, on or near one of said parcels, or at such place as may be designated for that purpose in the mortgage, first complying with the terms of the mortgage and with the statutes relating to the foreclosure of mortgages by the exercise of a power of sale, and may convey the same by proper deed or deeds to the purchaser or purchasers absolutely and in fee simple; and such sale shall forever bar the mortgagor and all persons claiming under him from all right and interest in the mortgaged premises, whether at law or in equity.”

[10]244 M.G.L.A. § 17B reads in part:

No action for a deficiency shall be brought . . . by the holder of a mortgage note or other obligation secured by mortgage of real estate after a foreclosure sale by him . . . unless a notice in writing of the mortgagee’s intention to foreclose the mortgage has been mailed, postage prepaid, by registered mail with return receipt requested, to the defendant sought to be charged with the deficiency at his last address then known to the mortgagee, together with a warning of liability for the deficiency, in substantially the form [set out in this section] . . .

Eaton v. Fannie Mae, *27.

[11]Eaton v. Fannie Mae, *26-27. The Court also referenced Sections 19, 20 and 23 and Chapter 244 of the General Laws, construing the use of the term “mortgagee” in each of them in a similar fashion. See: Eaton v. Fannie Mae, * 28.

[12]Eaton v. Fannie Mae, footnote 26.

[13]Eaton v. Fannie Mae, * 40-43.

[14]Eaton v. Fannie Mae, * 43-46.

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