• DYE CULIK PC | Consumer Protection Division

First Circuit Upholds Right of Homeowners to Challenge Mortgage Assignments

Homeowners have the right to challenge the assignments of their mortgages, says a new opinion from the First Circuit Court of Appeals, the federal appellate court covering Massachusetts and other New England states.

In the case of Culhane v. Aurora Loan Services, 2013 WL 563374, — F.3d — (1st Cir. Feb. 15, 2013), the First Circuit overruled a majority of lower court opinions, and held that borrowers do have the right to challenge whether their mortgages were properly assigned.

Previously, many courts had ruled that homeowners did not have what is called “standing,” i.e., a right to challenge the assignment. Those courts denied homeowners the right to challenge the assignments on the faulty reasoning that because the assignment is a legal contract between two parties (the assigning bank and the bank receiving the assignment), and the homeowner is not a party to that contract, and thus has no rights under it. This reasoning was held incorrect.

The court said it unambiguously: “We hold, therefore, that a mortgagor [homeowner] has standing to challenge the assignment of a mortgage on her home to the extent that such a challenge is necessary to contest a foreclosing entity’s status qua mortgagee.”

Of note was that retired Supreme Court Justice David Souter sat on the court that issued the opinion.

The opinion did, however, uphold the validity of the MERS system. But a case currently pending in the Massachusetts Supreme Court about MERS could potentially affect whether MERS is entitled to foreclose in its own name. That case has yet to be decided.

What does the opinion in Culhane v. Aurora Loan Services mean? It means that there is now clear and binding legal precedent holding that banks must be able to show that their assignments are valid. Homeowners have the right to ensure that their homes are not foreclosed upon illegally.

As the lower court wrote, “It is clear beyond peradventure that [the homeowner] is substantially behind in paying her mortgage and appears unable to remediate her default. This, however, does not render her an outlaw, subject to having her home seized by whatever bank or loan servicer may first lay claim to it. She still has legal rights.” Culhane v. Aurora Loan Servs. of Neb., 826 F. Supp. 2d 352, 359 (D. Mass. 2011) (emphasis added).

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