Says future seizures require paperwork

Jenifer McKim, Boston Globe

The state’s highest court ruled Friday that lenders must have proper paperwork in hand at the time they complete a foreclosure, but the decision does not apply to seizures that have already taken place, removing a cloud of uncertainty over the status of property titles for thousands of Massachusetts homes.

The state Supreme Judicial Court’s finding came as a relief to real estate industry specialists, who said a retroactive ruling would have created chaos. Because so many home loans were bundled and sold between lenders multiple times during the housing boom, they said, it would be virtually impossible to prove that all paperwork was in place for every transaction.

Lenders said they were following common practices at the time, but housing advocates said banks were simply cutting corners by taking back homes without proper documentation.

“Virtually every mortgage foreclosure that had been done since the enactment of the foreclosure statute could have been thrown into question,” said Christopher Pitt, president of the Real Estate Bar Association for Massachusetts.

The case the seven justices ruled on Friday, Eaton v. Federal National Mortgage Association, or Fannie Mae, centered on two documents borrowers sign to get a home loan. The first is the mortgage itself, which establishes a lender’s right to take back a property; the second is the promissory note signed by a borrower that says they agree to pay the debt. The servicer had the mortgage at the time it foreclosed on the borrower, but didn’t possess the note.

A lower court ruled last year a lender must physically hold the note, but Justice Margot Botsford, who authored the high court’s unanimous decision, said the lender only has to prove it is an “authorized agent of the note holder.”

Botsford also said the court decided to apply the ruling to foreclosures from today forward because the state’s “recording system has never required mortgage [promissory] notes to be recorded” and that regulations governing foreclosure proceedings were “not free of ambiguity.” Many real estate lawyers have argued that lenders didn’t believe they needed to possess the notes at the time of a property take-back.

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