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Eaton v. Fannie Mae: Massachusetts High Court Rules Foreclosing Banks Must Produce the Note

The long-awaited decision in the case of Henrietta Eaton v. Federal National Mortgage Association was released today by the Massachusetts Supreme Judicial Court. Why is the decision so important? Because, in a much-contested dispute, the Court came down (mostly) on the side of homeowners, ruling that a bank has to have the homeowner’s note in order to foreclose.

For the past few years, decisions in lower Massachusetts courts have gone both ways, some courts requiring that the note be produced, and some not. This decision resolves the issue in favor of requiring banks to produce the note.

The decision is more complex than that, though.

Relying the principle that property law should be forward-looking, the court ruled that this principle is only prospective—that is, it only applies to foreclosures conducted after the date of the decision, not foreclosures before. So, for people whose homes were foreclosed before June 22, 2012 (the date of the decision), it will be an uphill battle.

Another point the court made was that homeowners, to get a court order stopping a pending foreclosure, may need to be able to prove to the court that the bank does not have the note. It is difficult to see how, in a practical sense, the homeowner could do this—prove a negative—when the homeowner does not have access to the bank’s records.

An issue I expect to come up in future cases how note-holder status will be proven by the banks. The court suggests that banks may want to file an affidavit in the registry of deeds stating that they have the note. This may give rise to a future wave of robo-signing if the bank affidavits are not true, and is likely to be the subject of future litigation.

What doesn’t the decision address? It doesn’t address whether so-called “securitization fail” will prevent a bank from being able to enforce a note. This is where the loan was transferred to the bank, but the transfer violates the terms of the trust documents under which the bank claims to own the note. This issue will be left for another day.

Overall, though, this decision enshrines the common-sense principle that for a bank to foreclose, it has to be owed the debt.

A copy of the decision is available here: Henrietta Eaton v. Federal National Mortgage Association

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