Massachusetts Supreme Judicial Court Rules That Lenders May Foreclose Without Possessing Mortgage Note, But Only In Certain Circumstances

Foreclosure Fannie Mae Mortgage Servicing

On June 22, the Massachusetts Supreme Judicial Court held that lenders do not need to be in physical possession of a mortgage note to foreclose on a property, but that they must establish that they are acting on behalf of the noteholder. Eaton v. Federal Nat’l Mortgage Ass’n, No. SJC-11041, 2012 WL 2349008 (Mass. June 22, 2012). The lower court had preliminarily enjoined defendant Fannie Mae from evicting the plaintiff following a foreclosure sale; that court interpreted the term “mortgagee,” as used in Massachusetts’ statutes, to refer to a person holding both the mortgage and the mortgage note. At the time of the foreclosure, the foreclosing party held only the mortgage. Reversing the lower court, the Supreme Judicial Court found that the term “mortgagee” refers to a person who (i) holds the mortgage, and (ii) either physically holds the mortgage note or acts on behalf of the mortgage note holder. Recognizing that it was common prior practice to interpret the term “mortgagee” as requiring possession of only the mortgage, the court held that its new interpretation of “mortgagee” should be given only prospective effect.