Credit Slips-

The Massachusetts Supreme Judicial Court finally issued its long-awaited ruling in Eaton v. Fannie Mae. This case involved the question of whether a “naked mortgagee”–a mortgagee that was not also the holder of the promissory note–had standing to foreclose. (Full disclosure:  I submitted a pair of amicus briefs in the case arguing that foreclosure required the mortgage and the note to be united.)

The SJC held that in Massachusetts a foreclosing party must have both the mortgage and the note or be acting on behalf of a party with the note. Critically, however, the SJC restricted the ruling to a prospective application. That means that past foreclosures cannot be reopened because of this case, so the financial services industry just dodged billions in liability for wrongful foreclosures and evictions, and the title insurance industry did as well. (Note that Massachusetts has a public option title insurer–a Torrens system of land registration that covers perhaps a third of the properties in the state. If the whole state were covered, there’d be no problem.)

In the immediate term, I’d score the case as a major victory for the financial services industry, which avoided liability for its failure to comply with state law foreclosure requirements. Going forward, however, things are more complicated…

[CREDIT SLIPS]

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