Summer may have arrived with full fury last week, but the collective sigh of relief exhaled on Friday was cool indeed.
In its landmark ruling in Eaton vs. Fannie Mae, the Massachusetts Supreme Judicial Court (SJC) successfully managed to balance its own strict definition of state law with the understanding that said definition had the potential to reduce an already delicate foreclosure process to shambles.
And so, in a pair of phrases elegant in both their simplicity and function, the judges arrived at what was probably the best possible outcome for lenders, homeowners and housing advocates alike.
By defining the term "mortgagee" to "refer to the person or entity then holding the mortgage and also either holding the mortgage note or acting on behalf of the note holder," the SJC effectively removed whatever ambiguity had existed in prior definitions. On its own, this seemingly simple clarification would have been enough to lay waste to the chain of title on previously foreclosed properties. If the foreclosing mortgagee could not demonstrate they possessed – or were acting on behalf of those who did – both the mortgage and the note, then thousands upon thousands of foreclosures recorded under previous definitions may have been rendered unlawful.
And the consequences of that would have been catastrophic to anyone owning a property with a title tainted by a past foreclosure.
Knowing this, the court critically decided to take this new definition one step further, ordering it "only to apply to foreclosures under the power of sale where statutory notice is provided after the date of this decision."
Essentially, prior foreclosures entered in good faith and following all existing laws at the time of their entry can stand as they are.
All together, now: Whew.
Rather than blow up the title to literally tens of thousands of previously foreclosed homes, the SJC instead created simply one more seemingly minor hoop to jump through for lenders accustomed by now to jumping through dozens of them. What’s one more, especially when the alternative would have suspended said hoop hundreds of feet above a boiling lake of lava, with no safety net and no rope to climb to reach it?
Of course, it can and likely will be argued that the hoop presented isn’t really all that trivial. The SJC ruled that a foreclosing entity didn’t have to physically possess both the note and the mortgage, only to swear by affidavit that they do or are acting on behalf of those that do.
This affidavit may be acceptable to the court going forward, but it remains to be seen whether title insurers will accept mortgagees’ written assurances that they have the note, or are acting for the entity that does, without actually seeing the note itself.
Still, those are problems that can and hopefully will be worked out between lenders and title insurers as part of a revised closing process.
As it stands, the ruling largely removes what could have been a major risk for buyers looking to purchase a home with a foreclosure in its title chain. They can now do so with much more confidence. For foreclosing mortgagees, the implications are obvious – no frantic and potentially fruitless searches through dusty files in search of a document they may or may not possess any longer.
And to those housing advocates tempted to bemoan the ruling as removing an option for wrongfully foreclosed-upon homeowners, we say the SJC did them a favor by ruling out the temptation to engage in expensive, time-consuming and risky litigation that may not have benefited their homeowner clients in the first place.
Needless to say, it’s rare when a ruling is as explicitly crafted as the Eaton decision to overtly try and appease as many interested parties as possible. But the SJC did just that, and did it very well.
