SJC TO CONSIDER “PRODUCE THE NOTE” FORECLOSURE DEFENSE IN MERS MORTGAGE CASE

Published on: October 17, 2011

The Massachusetts Supreme Judicial Court has agreed to hear an appeal considering the controversial “produce the note” defense in foreclosure cases and whether a foreclosing lender must possess both the promissory note and the mortgage in order to foreclose. Based on arguments asserted by the lender, the court may also consider the circumstances by which a mortgage granted to Mortgage Electronic Registration System (MERS) can be effectively foreclosed in Massachusetts.  Ultimately, the SJC will have to decide how old common law decided in the late 1800s now applies to mortgages in the 21st century with securitization, servicers and MERS.   Unlike the U.S. Bank v. Ibanez case, the outcome of this one is much more difficult to predict. 

As with many sub-prime mortgage borrowers, Henrietta Eaton had defaulted on her mortgage to Green Tree Mortgage. This was a MERS mortgage originally granted to BankUnited then assigned to Green Tree. Green Tree foreclosed in 1999 and assigned its winning bid to Fannie Mae who attempted to evict Eaton in January 2010.

 Eaton was able to obtain an injunction from the Superior Court halting the eviction on the grounds that Green Tree did not possess the promissory note underlying the mortgage when the foreclosure occurred. This has been coined the “produce the note” defense and has been gaining steam across the country. This is the first Massachusetts appellate case to consider the defense and surrounding legal issues.

 The Superior Court Judge, Francis McIntyre, wrote a 10 page opinion, explaining that Massachusetts has long recognized that although the promissory note and the mortgage can travel different paths after the borrower signs them, both instruments must be “reunited” to foreclose. “The mortgage note has a parasitic quality, in that its vitality depends on the promissory note,” the judge ruled. As is becoming increasingly prevalent, neither Green Tree nor Fannie Mae could locate the original signed promissory note; they were only able to produce a copy endorsed in blank without an amendment, or allonge, indicating when it was endorsed or who held it at the time of the foreclosure. Without the note properly endorsed and assigned to Green Tree, the foreclosure was a nullity, the judge held.

The court heard arguments the beginning of this month, with a decision likely to follow in several months, so stay tuned!

Click here for a copy of the Superior Court Decision.