The U.S. Court of Appeals for the First Circuit recently affirmed the dismissal of a lawsuit by borrowers seeking to enjoin a mortgage foreclosure sale, holding that:
a) the original lender's nominee, MERS, could validly assign the mortgage without holding beneficial title to the underlying property and that borrowers do not have standing to challenge a mortgage assignment based on an alleged violation of a trust's pooling and servicing agreement; and
b) the mortgage was not void under Massachusetts's "obsolete mortgage" statute, under which a mortgage becomes obsolete and is automatically discharged five years after the expiration of the stated term or maturity date of the mortgage, as acceleration of the note did not trigger the subject limitations period.
A copy of the opinion is available at: Link to Opinion
Husband and wife took out an $800,000 purchase money loan secured by a mortgage on their home in 2007. The mortgage identified Mortgage Electronic Registration Systems, Inc. (MERS) as the mortgagee, acting solely as nominee for the lender and the lender's successors and assigns. The mortgage also gave MERS a power of sale over the property in the event of default.
MERS assigned the loan in 2008 to a new mortgagee. The borrowers also defaulted on the loan in 2008. In 2010, the mortgagee "reassigned the mortgage to itself as trustee for [another trust]."
The borrower "filed several bankruptcy petitions and requested injunctive relief, thereby delaying foreclosure until 2016." The mortgagee gave the borrowers notice of a foreclosure sale in June of 2016 and, in response, the borrowers sued the mortgagee and the loan servicer to enjoin the sale.
The trial court denied the borrower's request for a preliminary injunction and granted the defendants' motion to dismiss for failure to state a claim, holding that the mortgagee had the right to foreclose under Massachusetts law and the mortgage was not rendered "obsolete" or void under Massachusetts law, Mass. Gen. Laws ch. 260, § 33. The borrowers appealed to the First Circuit.
On appeal, the First Circuit rejected the borrower's argument that the mortgage could not foreclose because the first assignment by MERS was invalid, finding that the trial court correctly rejected this argument because "this claim is foreclosed by precedent, which holds that MERS can validly assign a mortgage without holding beneficial title to the underlying property, … and that borrowers do not have standing to challenge a mortgage assignment based on an alleged violation of a trust's pooling and servicing agreement."
The Court also concluded that the district court "properly dismissed [the borrower's'] obsolete mortgage claim, which has no basis in the plain text of the statute or in precedent. Under Massachusetts's obsolete mortgage statute … a mortgage becomes obsolete and is automatically discharged five years after the expiration of the stated term or maturity date of the mortgage."
The Court reasoned that there was no textual support in the statute at issue -- Mass. Gen. Laws ch. 260, § 33 -- for the borrower's argument "that the acceleration of the maturity date of a note affects the five-year limitations period for the related mortgage." It found inapposite a 2015 Massachusetts Supreme Judicial Court decision because "it makes no mention of the impact of the accelerated note on the obsolete mortgage statute's limitations period."
Accordingly, the trial court's ruling was summarily affirmed.
Ralph T. Wutscher
Maurice Wutscher LLP
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