Is the bank required to hold both the mortgage and note to properly foreclose in Massachusetts?

6 March 2012

Described by some as the “note and mortgage defense,” this is the question to be decided by the Massachusetts Supreme Judicial Court (“SJC”), the highest appellate court in Massachusetts, at any time now.  The case is titled Eaton v. Federal National Mortgage Ass’n.  The initial briefs have been filed, oral arguments have finished, and even the SJC extended its own deadline to issue its decision.  Moreover, it asked for supplemental briefs responding to particular questions, which were filed.  It is any day now.

Many legal practitioners are waiting with bated breath for the decision to be made, especially real estate attorneys, foreclosure attorneys, bankruptcy attorneys, and the few others that practice in what it known as “foreclosure defense “ (like the author of this post).  The effect of this decision, if it does rule that a foreclosing party (the “mortgagee,” the entity holding the mortgage, usually a bank) must hold both the mortgage and note to properly foreclose, is predicted by many to be tremendous.  Here is the reason.

It has generally been accepted under Massachusetts law that only the mortgagee is required to be held by the foreclosing party (mortgagee).  Based in part on what has been exposed about the requirement that the foreclosing party just properly hold the mortgage (to understand that, you must read the Ibanez decision, and maybe the Bevilacqua decision), it is estimated that a requirement on the foreclosing party to hold both the mortgage and the note will put into question the validity of many more thousands of prior foreclosures.  It appears that the SJC was concerned too about the magnitude of the effect of ruling both the mortgage and note were required.  This author has been informed the particular questions the SJC requested responsive supplemental briefs to answer indicate this concern.

For those hoping to defend against a pending foreclosure this may sound like good news.  However, those same people need to keep in mind that this desired possible outcome of the Eaton case may effect their title (right to ownership) in the event a foreclosure occurred on the property to prior owners.  This means the dog some people think that they have in this fight, if it wins, may turn around to bite them.

In the event that you seek legal help to defend against foreclosure or otherwise have legal needs concerning maintaining your home, give us a call.

Can I keep all my assets if I file bankruptcy? (Part 3)

5 March 2012

In prior posts (2 November 2011 and 3 December 2011) we addressed this general topic; whether you can keep all your assets even after you file bankruptcy, which is asked by all those contemplating filing.  The focus was on when you would be absolutely sure you would not lose the asset.  As we discussed, you can always file (in conjunction with claiming your exemptions) and then see what happens.  As long as the assets were properly listed, you can wait until your case closes, the time of certainly.  But since ending the discussion there is not responsive (or very fun), we discussed some ways a debtor may attain certainty sooner than when the case closes.  One of those ways we discussed was to attempt to exempt “100% of FMV (fair market value)” of an asset, even when the exemption provides a fixed (maximum) dollar amount.  We now update and add to our earlier comments on the propriety of making such an exemption claim with a current event.

It is a recent decision of the Bankruptcy Appellate Panel for the First Circuit on this issue titled In re Massey decided on 27 February 2012 (BAP No. MW 11-060).  The decision runs through prior decisions from local bankruptcy courts and throughout the country on this issue and concludes “[w]e agree with the consensus which has emerged from the foregoing cases that the Debtors’ exemption claim of “100% of FMV” was facially invalid.”  It also rules that an evidentiary hearing in the bankruptcy court, which is typically held after an initial nonevidentiary hearing, was not required or necessary.  This means the Bankruptcy Appellate Panel believes the issue can properly be decided without the bankruptcy court having to consider any particular facts.  Quite to the point the court concluded there was “no legitimate reason [to claim the 100% of FMV exemption].” 

This legal controversy stems from differing opinions on the proper interpretation of Schwab v. Reilly which is an opinion of the United States Supreme Court that discusses the 100% of FMV exemption.  130 S. Ct. 2652, 2668 (2010).  Schwab v. Reilly was mentioned in our prior posts; those wanting to delve into this issue in more depth should read it.

Keep in mind, In re Massey, like other decisions issued by the Bankruptcy Appellate Panel, is not binding on other cases.  It is also too soon to know whether In re Massey will be appealed to a higher court.  However, it indicates that the legal position of claiming “100% of FMV” may not win the day in the end.  At this time, although still far from settled and the final tally is not in, so to speak, the position of claiming a 100% of FMV exemption certainly looks an underdog.  For those having studied this evolving issue and take the opposing view, In re Massey begs the question why Justice Thomas even discussed the “100% of FMV” exemption claim in Schwab v. Reilly, seemingly as a legitimate legal position to take.