New SJC Foreclosure Decision

The Massachusetts Supreme Judicial Court last week issued its anxiously awaited decision in Eaton v Federal National Mortgage Association, et al.  Mrs. Eaton asserted that the previously conducted foreclosure on her property was invalid because the entity that conducted the foreclosure did not also hold the note at the time of the foreclosure.  The factual assertion - about the foreclosing entity not also holding the note - was not only true, it was the widespread practice throughout the Commonwealth.  Because of that the great fear of the real estate bar was that should the SJC rule that the note must accompany the mortgage and then apply the holding retroactively, thousands of titles to previously foreclosed homes would be invalidated creating more chaos in an already unstable housing market.

While the SJC did rule that the entity conducting the foreclosure must also hold the note (or must be the agent for the note holder, a big caveat explained below), the court held that since the prior law as "not unambiguous" that the new ruling would only apply prospectively which should sidestep the title disaster many predicted.

As for the holding of the note, the SJC's express allowance of the authorized agent of the note holder to conduct the foreclosure continues to permit an entity other than the actual note holder to do the foreclosure.  Now, however, that other entity must be specifically authorized to act on behalf of the note holder.

A major practical question that must still be resolved (in my view) is how to establish on the record who holds the note when or who was the authorized agent of the note holder.  Will the note and its endorsements now be recorded?  Is an affidavit from the foreclosing entity stating it holds the note suffice?  My reading of Eaton doesn't disclose answers to those types of questions.  We'll watch what's being recorded in the coming weeks and report back on how the requirements of Eaton take shape in the documents presented for recording.