Saturday, May 3, 2014

FYI: MA App Ct Reverses Dismissal Of Borrower's Challenge to Authority of Person Signing One Assignment of Mortg in Chain of Assignments

The Massachusetts Appellate Court recently reversed the dismissal of a borrower’s complaint alleging that a foreclosing mortgagee lacked authority to foreclose because one of the assignments of mortgage failed to state the signatory’s capacity to execute the assignment for the assigning entity.  A copy of the opinion is attached.


On January 11, 2006, the borrowers (“Borrowers”) executed a mortgage conveying the property to MERS as nominee for Lender A and Lender A’s successors and assigns, to secure payment of a promissory note in favor of Lender A.  The mortgage was duly filed for registration with the registry district of the Land Court. 


By instrument dated May 21, 2008 (“First Assignment”), MERS assigned the mortgage to Lender B.  Thereafter, by instrument dated February 12, 2009 (“Second Assignment”), Lender B assigned the mortgage to Lender C.  Both assignments were duly filed for registration with the registry district of the Land Court.


On October 15, 2009, Lender C foreclosed on the property and thereafter executed, and filed for registration, a foreclosure deed purporting to convey the property to itself.  Lender C then commenced a summary process in the district court, which action concluded with the entry of an agreement for judgment between the parties, in which the Borrowers agreed to surrender possession of the property to Lender C but reserved their right to challenge Lender C’s title to the property.


By complaint dated March 9, 2010, after commencement but before conclusion of Lender C’s summary process action, the Borrowers filed suit seeking declaratory and injunctive relief based on the allegation that Lender C did not hold a valid interest in the mortgage at the time of foreclosure.  The lower court granted Lender C’s motion to dismiss, and this appeal followed.


The Appellate Court first considered Lender C’s argument that the Borrowers lacked standing to sue.  In rejecting the argument, the Court held that even though the Borrowers were not party to the assignments, their claim against Lender C is based on its authority to foreclose derived from the assignments.  Therefore, the Appellate Court held that Borrowers may challenge the validity of the assignments by which Lender C claims to have acquired the mortgage.


The Appellate Court also rejected Lender C’s argument that the Borrowers may not bring an untimely challenge to Lender C’s title because the certificate of title was issued prior to the lawsuit. 


Under Massachusetts law, “any person deprived of land, or of any estate or interest therein” may challenge a judgment of registration obtained by fraud within one year after entry of judgment, provided that no innocent purchaser for value has acquired an interest during the intervening time.  See G.L. c. 185, § 45.  Following the original judgment of registration, “any subsequent registration procured by the presentation of a forged deed or other instrument shall be null and void.”  G.L. c. 185, § 62.  Furthermore, any “registered owner or other person in interest” may bring a motion to correct a certificate of title upon various grounds, including “that any error or omission was made in entering a certificate or any memorandum thereon,” provided that “nothing shall be done or ordered by the court which shall impair the title or other interest of a purchaser holding a certificate for value and in good faith.”  G.L. c. 185, § 114. 


Stated simply, Lender C was required to establish its title to the mortgage as the foreclosing mortgagee.  Therefore, the Court held that Lender C may be subject to a challenge as to its certificate of title based on a break in the chain of mortgage assignments.


The Appellate Court then considered the Borrowers’ argument that MERS lacked the authority to assign the mortgage unless it provided that it was authorized by the owner of the debt. 


In rejecting the argument, the Court explained that nothing in Massachusetts law requires a foreclosing mortgagee to demonstrate that prior holders of the record legal interest in the mortgage held the note at the time each assigned its interest in the mortgage.  All that is required from a foreclosing mortgagee is to demonstrate an unbroken chain of assignments, and that it held the note at the time the foreclosure was commenced.


Finally, the Court turned to the Borrowers’ argument that the Second Assignment was deficient because it did not demonstrate the authority of the individual who executed it on behalf of Lender B.  The Second Assignment identified the name of the signatory beneath Lender B’s corporate name, but there was no designation of the signatory’s office or other capacity next to her signature.


As you may recall, in Massachusetts, an instrument transferring interest in land held by a business corporation and executed by an individual officer will bind the corporation under Massachusetts law only if the officer is authorized or directed by the board of directors to do so.  See G.L. c. 156D, § 8.41.  Recordation of such an instrument in turn requires evidence of the authorizing vote and incumbency of the officer, typically in the form of a certificate by the secretary or clerk of the corporation.  However, in the case of instruments affecting a recorded mortgage, the formal requirements are markedly more relaxed.


Pursuant to G.L. c. 183, § 54B, such instruments shall bind the entity assigning or discharging the mortgage if “executed before a notary public, justice of the peace or other officer entitled by law to acknowledge instruments, whether executed within or without the commonwealth, by a person purporting to hold the position of president, vice president, treasurer, clerk, secretary, cashier, loan representative, principal, investment, mortgage or other officer, agent, asset manager, or other similar office or position, including assistant to any such officer or position, of the entity holding such mortgage,” without need of any vote affirming such authority or further evidence of their status as such an officer.  See G.L. c. 183, § 54B.


Even under these relaxed requirements, however, the Appellate Court held that the Second Assignment fell short.  According to the Court, the absence of any indication that the signatory is or was an officer of Lender B failed to satisfy the very broad latitude afforded by § 54B.  As the Court explained, “nowhere on the face of the instrument is there any indication or evidence that [the signatory] was, or in any manner purported to be, an officer or other authorized agent of [Lender B].” 


Accordingly, the Appellate Court reversed the judgment of dismissal and remanded for further proceedings. 






Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
(312) 551-9320
(312) 284-4751
(312) 493-0874


Admitted to practice law in Illinois



          McGinnis Wutscher Beiramee LLP





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