MISC 11-447455

December 8, 2011


Piper, J.


On April 13, 2011, Plaintiff filed this action pursuant to the Servicemembers Civil Relief Act (“Act”), seeking a judgment that the Defendant, Suzette McKenna, is not in active military service and is not entitled to the protections of the Act. Defendant, by her counsel, submitted to the court an answer that did “not assert that [Defendant] or any other concerned parties are entitled to the protection of the [Act].” Beaton v. Land Court, 367 Mass. 385 , 388 (1975). However, Defendant did appear to say in her answer, which was filed with the court on September 6, 2011, that Plaintiff is not the current holder of the mortgage at issue, and therefore does not have standing to bring this action under the Act. In addition, Defendant also in her answer appeared to set up various defenses or claims which fall outside the jurisdiction of this court as enunciated in Beaton. These defenses and claims were stricken by the Order this court entered August 4, 2011, without prejudice to Defendant raising them by commencing or answering a separate action in an appropriate forum.

With respect to Defendant’s challenge to Plaintiff’s standing, the August 4, 2011 Order ordered Plaintiff to show cause why the court should not enter a judgment of dismissal in this action. Plaintiff was ordered to do so by submitting documentation, supported by an affidavit as to authenticity, to be filed with the court and served on Defendants.

Plaintiff on December 6, 2011 submitted by mail its response to the court’s order to show cause. In its response, Plaintiff has demonstrated that the mortgage on which this action was commenced is duly held of record by Plaintiff. Indeed, the mortgage (“Mortgage”), as originally executed by Defendant and Charles McKenna as mortgagors on November 9, 2006 and recorded with the Barnstable Registry of Deeds (“Registry”) on November 15, 2006, in Book 21522, Page 270, was granted to Wells Fargo Bank, N.A., the same entity which is the plaintiff in this Servicemembers proceeding. There has been no assignment of the Mortgage recorded in the Registry. The Mortgage remains held by the same mortgagee to whom the mortgagors, including the Defendant, conveyed the Mortgage five years ago. The complaint filed by plaintiff in this action, and the order of notice served upon Defendant, all say as much. In light of the evidence that Plaintiff is the original mortgagee under the recorded Mortgage, and given the absence of any evidence suggesting that the Mortgage has been assigned off-record to someone other than the Plaintiff, Defendant’s contention that Plaintiff is not the current holder of the Mortgage utterly lacks factual foundation and is devoid of merit.

To the extent that Defendant’s answer asserts a lack of standing on the part of the Plaintiff based on some possible separation of the ownership of the Mortgage (held of record by Plaintiff all along) and of the promissory note which the Mortgage secures, that contention also fails, for multiple reasons.

First, nothing suggests that any bifurcation of the holding of the note and the Mortgage has taken place here. The Mortgage, which has remained in the hands of Plaintiff since it was granted, secures, by its terms, the repayment of a promissory note which “states that Borrower owes Lender FOUR HUNDRED THIRTY THOUSAND AND NO/100 (U.S. $ 430,000.00) plus interest” (emphasis added). Lender is defined in the Mortgage as Wells Fargo Bank, N.A., the Plaintiff in the pending Servicemembers action.

Second, even were the court to ignore the absence of any evidence suggestive of a bifurcation of the note and Mortgage, and indulgently assume that the note and Mortgage might no longer be held by the same entity, that would not demonstrate a lack of standing on Plaintiff’s part to bring this action for a determination of Defendant’s entitlement to the benefits of the Act. Particularly given the limited scope of this action, the simple fact that Plaintiff is, without doubt, the record holder of the Mortgage is sufficient to satisfy the general requirements of standing, all that is needed to go forward in cases of this sort. HSBC Bank USA, N.A., v. Matt, No. 10 MISC 421195 at *2 (Memorandum and Order on Defendant’s Motion to Dismiss July 8, 2010)(Long, J.)(appeal pending SJC-11101): “But a plaintiff need not be the current holder of the note or the mortgage to have standing in a Servicemember’s case. It is sufficient if the plaintiff satisfies the general requirements of standing.” In Matt, after considering that the plaintiff in the Servicemembers action “may or may not be the current holder of Ms. Matt’s note and mortgage....” id., at *3, the court, finding that the plaintiff “has a contractual right to become that holder” and that there was no proof that right had been abandoned or lost, found general standing for the plaintiff to obtain judgment that the defendant Matt was not entitled to the benefits of the Act. Id.

In the case now before the court, Plaintiff’s standing is even more firmly established. Plaintiff is the record holder of the Mortgage. Plaintiff has a clear stake in the execution of the power of sale contained in the Mortgage, a remedy, central to the core purpose of the Mortgage Plaintiff holds, which might be constrained or disabled should the Defendant be entitled to the Act’s protections. And it matters not that, under some circumstance not shown at all to be the case here, the note might have come to rest in the hands of someone other than Plaintiff. In Massachusetts our law long has recognized that a mortgage and the note whose obligations it secures might be held separately. U.S. Bank Nat’l Ass’n v. Ibanez, 458 Mass. 637 , 652-653 (2011). [Note 1]


The court finds, on the submissions Plaintiff has made, that it has standing sufficient to maintain this action. Defendant’s assertions to the contrary lack merit.

This case is to proceed to entry of a judgment that Defendant is not entitled to the benefits of the Act.

So Ordered.

By the Court. (Piper, J.).


[Note 1] A few recent rulings by trial judges in Massachusetts, to the effect that there must be a unity of the holding of the note and the mortgage for there to be a lawful exercise of the mortgage’s power of sale, do not alter this court’s conclusion that Plaintiff in the case at bar has all the standing necessary to obtain judgment that Defendant is not protected by the Act.

Most significantly, none of those trial court rulings arose in the context of proceedings to obtain a judgment as to military status and protection under the Act. See Culhane v. Aurora Loan Servs. of Nebraska, No. 11-11098-WGY (D. Mass. November 28, 2011)(Young, J.); Adamson v. Mortgage Elec. Registration Sys., Inc., No. 11-0693-H (Mass. Super. Ct. Oct. 19, 2011)(Brassard, J.); Eaton v. Federal Nat’l Mortg. Ass’n, No. 11-1382, slip op. (Mass. Super. Ct. June 17, 2011)(McIntyre, J.)(appeal pending SJC-11041). Those cases all concerned the effectiveness of a foreclosure, through exercise of the statutory power of sale, see G.L. c. 244, s. 14 and G.L. c. 183, s. 21, by a mortgagee who was not (or might not have been) at the time of foreclosure also the holder of the underlying note. These rulings thus go to the question, now being considered by the Supreme Judicial Court in Eaton, whether at the time of foreclosure the power of sale is unavailable to anyone other than the true note holder. The trial court rulings in Adamson and Culhane seem, in fact, to accept the proposition that under long-standing Massachusetts law, the note and mortgage may travel separately, at least provided they are united in the same hands at the time the foreclosure sale is advertised and conducted. But a Servicemembers action is not an enforcement of the mortgage, and precedes the advertisement and conduct of the auction under the power of sale. There is no reason that, even if these recent cases are correct, a Servicemembers judgment ought be unavailable to one who holds the mortgage, even if the note is held by another.

Moreover, this court respectfully concludes that on this question these recent trial court rulings ought not be followed, and that the Supreme Judicial Court will not do so. The correct view of prevailing Massachusetts law is, rather, as set forth in many other trial court orders and decisions, which conclude that our common law does not require, for an effective exercise of a mortgage’s power of sale, that the note for which the mortgage is security be at that time held by the mortgage holder. See, e.g., In re Marron, 455 B.R. 1 (Bankr. D. Mass. 2011)(Hoffman, J.), (reconsideration denied Aug. 29, 2011). The decisional law does not require this unity. Neither does the language and the purpose of the statutory power of sale enacted by the legislature and incorporated into almost every mortgage of Massachusetts real estate. The approach adopted in Eaton would undermine the legislative focus on clarity of titles coming out of foreclosures, and lead to great turmoil in the conveyancing of lands whose titles at some point passed through foreclosure.

The principle applied by the trial court in Eaton is not likely to be adopted by the Supreme Judicial Court. If that does happen, and the common law in Massachusetts changes to require, for a valid foreclosure, possession of the promissory note by the foreclosing mortgagee at the time of foreclosure, there will be wide-ranging adverse title impacts. Massachusetts conveyancing practice, relying on long-standing law, never has insisted upon proof of possession of the note to establish proper title coming out of a foreclosure. There never has been recording of notes at the registries of deeds at any time. Notes are never recorded--not (as they may be in some other states) when the initial mortgage is recorded, nor at any time after that, including at the time, following the auction sale, when the foreclosure deed and affidavit are put on at the registry.

If the law becomes that a foreclosure is invalid unless conducted by a single holder of both the note and mortgage, every mortgage foreclosure, past and future, and every title following every foreclosure, will be cast in doubt. Former owner mortgagors will be able to assert title to lands long ago treated as settled, on the basis that the foreclosing mortgagee lacked possession and control of the note at the time. Given the tenuous nature of the recordkeeping, over many years, about who possessed promissory notes from time to time in the lives of residential mortgage loans, and the dissolution and disappearance of many of the entities who were note holders, the challenge of proving possession of the note at the time of foreclosure may prove insurmountable in very many cases.

If the law is that foreclosure by a mortgage holder lacking the note invalidates the resulting title, that risk will infect foreclosures going back many years. If the title is bad, it would be bad for a foreclosure conducted decades ago. Short of proof of adverse possession (for more than twenty years following the foreclosure by those holding under the foreclosure deed), it is hard to see how title claims based on the lack of the note by the foreclosing mortgage holder would be cut off.

It is for this reason that the statutory power of sale in G.L. c. 183, §21, as well as the statutory procedure, in G.L. c. 244, §14, governing the exercise of the power of sale, carefully refer in the relevant places to the mortgagee, and studiously avoid reference to the lender or note holder. Many of the many trial court decisions which came to the conclusion opposite that reached in Eaton rely on this fundamental: the legislature had its sole focus on the mortgagee, because consideration of the question of who held the unrecorded note would lead to grave doubt about the title which follows the foreclosure sale. These enactments were designed to regularize conveyancing practice, and promote certainty of title, and the legislature would not have introduced any new doctrine which might impugn titles and promote attack on them.

The practice set out in these statutes, and followed consistently for many generations, never has permitted the question of ownership of the note to disturb otherwise regular recorded mortgage foreclosure titles. This approach is consistent with long-standing Massachusetts common law that allows valid mortgage foreclosure by the mortgage holder even if it is not also possessed of the note at the time. Eaton misstepped when it relied on early cases to conclude that, at one point at least, this was not the law in the Commonwealth. Those cases, primarily Wolcott v. Winchester, 81 Mass. 461 (1860) and Crowley v. Adams, 226 Mass. 582 (1917) were misread by the Superior Court in its order in Eaton as holding that Massachusetts law required unification of the note and mortgage at the time of foreclosure. They do not stand for that proposition.

Wolcott, in fact, recognizes the Massachusetts legal principle, true then and now, that there may be a separation of the holding of the note or bond from that of the mortgage. “Our doctrine has not gone to the extent that the mere purchase of the debt drew with it the mortgage security, so far as to vest the legal interest in the purchaser so that he might enforce the same by a suit in his own name. 81 Mass. at 464. “The party holding such legal estate no doubt holds the same in trust for the party owning the debt, where the entire debt secured by a mortgage had parted with one of the several notes secured by a mortgage, retaining the others with the mortgage for his own benefit.” Id. at 465. The Wolcott court rejected the proposition that “one seeking to enforce a legal title as mortgagee, but who holds nothing but the debt...” id., had no right to foreclose. The court, to the contrary, said that foreclosure remedies were available to the lender holding the debt, but that accomplishment of the foreclosure might require the interim step of a “bill in equity, to charge the party who had the legal title as a trustee for the party who held the debt.” 81 Mass. 465 -466.

What Wolcott certainly holds is that, even when there is a separation of the note and the mortgage, the mortgage, standing as security for the underlying obligation to pay memorialized in the note, cannot be enforced by foreclosure if the debt has been satisfied. So, in Wolcott, where the foreclosure was directed against land which had been acquired by the holder of the bond, foreclosure was not proper, because, in these unique circumstances, the underlying obligation was no longer outstanding to support a valid foreclosure. “As a purchaser, he [the mortgage holder] must have known that the possession of the debt was essential to an effective mortgage, and that without it he could not maintain an action to foreclose the mortgage. The not finding it in possession of the mortgagee, and not stipulating for any transfer of such debt, are circumstances that should estop him from setting up any title against the bona fide purchaser of the debt, who had possession of the bond and an assignment of the mortgage in due form to vest the legal estate in him as against the assignor, and only defective as to any others, in not being recorded.” Id. (emphasis supplied). Wolcott properly should be read as approving separate holding of the note and mortgage, but the Wolcott holding rests on the certain principle that one seeking to foreclose a mortgage, the debt underlying which has become satisfied, cannot foreclose after the obligation secured by the mortgage no longer exists.

Crowley stands for this point on even more straightforward facts. “The debt secured being the principal, and the mortgage an incident, payment of the debt before the date of performance terminates the interest of the mortgagee and no release or reconveyance is necessary to revest the legal title in the mortgagor, although a discharge may properly be demanded to clear the record title. 226 Mass. at 583. Crowley rests on the fact, found by the judge in the Land Court, id. at 584, that “the debts secured had been paid, ...[so] there was no default or breach of condition.” “[A]nd under such circumstances the foreclosure in each instance, whether by entry or sale under the power, did not pass a good title either to the person entering or to the purchaser even if the purchaser bought for value and in good faith, or to any subsequent purchaser claiming under him without notice....” It was not the separation of the note from the mortgage that brought about a deficient title after foreclosure, but rather the fact that the debt secured by the mortgage had been satisfied.

This is the import as well of Howe v. Wilder, 77 Mass. 267 (1858), considered by the court in Culhane. In Howe, the court instructed that one who sold a note for value had lost the right to enforce payment to himself of the amounts due under the note, and by accepting consideration in exchange for assignment of the note, left himself with “no interest or right which he can set up or assert against either the mortgagor or mortgagee.” Id., at 269. Because he no longer had any obligation owed him under the note, the party who sold it away “[w]hatever may be the state or condition of the legal title to the estate, it is equally clear that he has no equitable claim upon or right to disturb the mortgagor or interrupt him in the possession and enjoyment of [the land].” Id. All this party could have expected was a conditional judgment of foreclosure, calling for payment, failing which possession of the mortgage land would be his. But because he was owed nothing on the transferred note, such a judicial action for foreclosure would be unavailable to him. Howe is another iteration of the many cases that teach that where there is no obligation, the right to foreclose a mortgage given to secure the obligation is unavailable. “...[W]here there is no condition to be performed, there can be no failure of performance, and no consequences can follow a contingency which in the nature of things can never occur.” Id. In the end, the Howe court decided that the money borrowed remained due under the note, and that the mortgage remained undischarged and in force. The Howe court, in fact, directed the entry of a conditional judgment of foreclosure, noting as it did so that “[n]o one is subjected to a burden, or allowed an advantage, that is not strictly in accordance with the provisions of the contracts into which they have respectively entered.” Id. at 270.

There is no basis in Massachusetts law for the view that a valid mortgage foreclosure requires the foreclosing mortgage holder to possess the promissory note which the mortgage secures. Adoption of such a rule, given long-standing conveyancing practice based on the contrary principle, would engender wide-spread challenges to the titles which have come out of mortgage foreclosures over many years.