Professional Documents
Culture Documents
S.J.C.
NO. 11041
&
ANOTHER
Defendants-Appellants
-ON APPEAL FROM MASSACHUSETTS SUPERIOR COURT CIVIL ACTION NO. 11-1382
Adam J. Levitin
Professor of L a w
J a n u a r y 20,
2012
Table of Contents
............
5
5
........................................
Claim Surprise
.....................................
Unknown
C.
............................................
.............. 8
Chain of Title, and T i t l e Insurers Should Not Be Protected from the Risks They Assumed
............. 11
14
15
the Legislature
IV.
Table of Authorities
Cases
Bank of N.Y. v. Bailey, 460 Mass. 327, 328 (2011). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * . . . . . . . 5 , Bevilacqua v. Rodriquez, 460 Mass. 762 (2011) Carpenter v. Longan, 83 U.S. 2 7 1 ,
6
.....................................
4,
5,
6, 1 1
2 7 4 (1872),
...... 2-3
................................................ .............................................
3 6 (Mass.
11
9
...............................................
.................4 ,
5 , 6, 1 5
West Broadway Task Force v. Boston Housing Authorite, 414 Mass. 394 ( 1 9 9 3 ) 11
................................
106
185 1. 85
C.
M.G.L. c. 185 5
M.G.L.
c. 1 8 5
M.G.L.
M.G.L,
c, 185 S
c.
185
............................ 24 .................................. 45 .................................. 9 9 .................................. 101 ................................. 102 ................................. 108 .................................
3-309....
12
12
12
12
~2
~2
M.G.L.
................................... 8 Cal. Civ. Code 2924 ............................... 15 735 111. Con. Stat. 5/15-1509(c) ................... 15
C.
260
21
Court Rules
Massachusetts Rule of Appellate Procedure 13(b)
......2
Other Authorities
Glendon J. Buscher, Jr., A B r i e f History of t h e Land Court, Mar. 8, 2006, at http://www.mass.~qov/courts/courtsandiudgecourts/iand -cou~t/lchist3.html 13
Restatement
Adam J. Levitin is a Professor of Law at the Georgetown University Law Center. He has no financial interest in this case. A statement o f interest is available in his original a m i c u s brief,
11. Statement
of the Issues
requiring unity
Whether
of
the
mortgage
and
f o r a valid
foreclosure
would cloud title on properties with foreclosures i n the chain of title and, if
so, whether
unity
The Courts request for supplemental briefing bruited concern about clouding title in the Commonwealth from a ruling that foreclosure by a naked mortgagee-a mortgagee that is not also the obligee on the mortgage note-is invalid.
These concerns appear to have been first raised in a letter to the Court from amici Real Estate Bar Association (REBA) and the Abstract Club dated December 7 , 2 0 1 1 . This letter violated MASS. R. APP. PRO. 16(1) by submitting not just a supplemental citation to the Court, but also commentary on that citation. See Commonwealth v. Christian, 430 Mass. 552, 568 (Mass. 2000) (Rule 16(1) does not authorize reargument in the disguise of a supplementary citation. ) REBA and the Abstract Club also violated MASS. R . APP. PRO. 13(b) by failing serve said submission, as
Requiring unity of the note and mortgage for a valid foreclosure c o u l d , no doubt, cloud title in some cases. The scope of this problem is unknown, however, and there are numerous reasons to believe it would be quite limited in practice if applied retrospectively and even more limited in adverse economic impact on the residents of the Commonwealth. There is nothing radical about Appellee's position that a naked mortgage may not foreclose. This
mortgage may be enforced only by, or in behalf of, a person who is entitled to enforce the obligation the mortgage secures.
This prohibition is based on conunon sense, namely that a mortgage is but an incident to a note and without evidence of the underlying obligation and a default on it, there is nothing to trigger the mortgagee's rights under the mortgage instrument. Carpenter v. Lonqan, 83
U.S. 271, 274 (1872) ("The note and mortgage are
well as a subsequent letter with a supplemental citation, dated December 9 , 2011, on amici who do not support their position. The Massachusetts Rules of Appellate Procedure do not specify a remedy for such violations; it is instead the Court's prerogative, but an appropriate s a n c t i o n would be to disregard the submission.
2
inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity.").
Appellants should not he permitted to have their cake and eat it too, and certainly not on the grounds that
Appellants and t h e Mortgage Industry as a Whole Had C l e a r Notice of What t h e Law R e q u i r e s and Cannot C l a i m
Surprise
possession of the note i s insufficient f o r a foreclosure; a noteholder who is not the mortgagee may
Tbanez.
The present case deals with the situation in which the party prosecuting the foreclosure holds the mortgage, but not the note. Forbidding a naked mortgagee from foreclosing is hardly a radical extension of the Law; the Restatement ( 3 d ) on Property,
B 5,4(c)
brought by the obligee of the note or its agent: "A mortgage may be enforced only by, or in behalf of, a person who is entitled to enforce the obligation the mortgage secures." This is so because of the ineluctable logic of the mortgage being but an incident to the note and without a life of its own. To the extent that the mortgage industry ha5 disregarded a legal principle so commonsensical and uncontroversial that it has been encapsulated in a Restatement, it does so at its peril.
It is hard to reconcile a position that expresses
Massachusetts, It is hard to believe that the sky will now fall if the Court applies what has always been the law not just in Massachusetts, but nationwide.
B. T h e Scope of t h e Naked Mortgagee Problem Is Unknown
There is simply no record to show how widespread the practice of foreclosure by naked mortgages has
'It is important to note that lost promissory note do not create a naked mortgagee problem. A lost note
only matters if the note i s a negotiable instrument and thus the reification of the obligation itself. If a note is non-negotiable, then it is simply a regular contract, and the l o s s of the physical original does not affect the ability o f the obligee to enforce the contract, as long as the terms of the contract can be proven and the Statute of Frauds satisfied. For negotiable notes, the General Assembly has addressed the Lost note problem via M.G.L. Gh. 106 S 3-309, entitled "Enforcement of Lost, Destroyed, or Stolen Instrument," which provides a method for the enforcement of lost negotiable notes. The importance of being able to prove the terms of the note cannot be sufficiently emphasized. Absent the terms o f the note, i t is impossible to know the amount owed, as the nate provides not only the principal and interest and amortization schedule, but also for other various fees which might apply, such as late fees and attorneys' fees. Without knowing the amount owed, it is impossible to know what payment is
7
There are several factors that should assuage concerns about clouded title resulting from a
retroactively applicable ruling requiring a u n i t y of the note and mortgage f o r a valid foreclosure. Adverse possession, pleading standards, burdens of proof, and equitable defenses such as laches all combine to make the likelihood of successful challenges to past
ruling
invalidating foreclosures by naked mortgagees, Massachusetts adverse possession law creates an outer bound on the extent of clouded title for nonregistered property. The adverse possession period in Massachusetts is twenty years, M.G.L.
ch.
260,
21.'
necessary to satisfy the note. What's more, it is impossible to know if a foreclosure results i n a deficiency or the lender or not. Thus, while a lost note will present complications f o r a mortgagee, the foreclosure process simply cannot work in the Commonwealth without knowing what the amount owed on the note is, which in turn requires knowing the terms of the note. J Massachusetts does not require intent as an element of adverse possession. Totman v. Malloy, 4 3 1 Mass. 1 4 3 , 145 ( 2 0 0 0 ) ("The guiding principle behind the elements of adverse possession is not to ascertain
.. . .
. ..
.. .
Thus,
pre-1992
foreclosures
should
not
create
pleading standards and burdens of proof present an important obstacle to successful challenges to past foreclosures. In Iannacchino v. Ford Motor Co., this Court announced a more rigorous pleading standard that requires more than mere factual allegations
"consistent with[ ] an entitlement to relief," but also that the allegations "possess enough heft to show that the pleader is entitled to relief,'' 451 Mass. 623, 6 3 5
(2008)
omitted).
a
In p r a c t i c a l seeking
plaintiff
to
the
foreclosure to
allege that
In few, if any
basis
cases
or
making
such
2011 R u l e
16(1)
Estate Bar Association (REBA) and the Abstract Club to the Court:4 it is impossible to tell from land records
the intent or state of mind of the adverse claimant, but r a t h e r to provide notice to the true owner, allowing fox the legal vindication o f property rights.'' ) 4 See supra note 1 re: validity o f the submission.
and court records whether the mortgagee was in fact the noteholder. Thus, the very fact that concerns REBA and the Abstract Club because it makes i t harder f o r risk averse private title insurance companies
to
may be concerned about their risks (see section III.D, below), the quiet enjoyment of Massachusetts property owners is unlikely to be disturbed.
R further obstacle to reopening past foreclosures
Irrespective of the form of the action, the burden o f proof as to the impropriety o f the foreclosure would rest on the party challenging the foreclosure. This would be an extremely difficult, if not impossible burden to meet in challenging
for
most
past
foreclosure due to lack of unity of the mortgage and note because lenders are unlikely to have preserved their loan files. The evidence necessary to meet the burden of proof is unlikely to exist in many cases. Finally, equitable doctrines such
as
laches
10
Laches provides a defense against litigation brought unseasonably in which delay has caused the ddendant
S.R.W.,
422
Mass.
(1996); W.
Auth.,
414
(1993);
Stewart
v.
In the event that a past foreclosure could be successfully challenged, title insurance would protect the current occupants of the property and result in a clearing o f title.
A
risk
and
self-insure. Others
opt
for
third-party insurance. In Massachusetts, property title may be insured either through a "public option" of registration of the land in a Torrens registration system r u n by the Land Court or through private title-insurance
obtained
some
form
of
title
insurance, the
Court
should not be overly concerned about clouded title, as this is a risk that these property owners assumed upon purchase (and depending on the terms of t h e property sale, they may have a warranty action against their seller). And those property owners with a
form of
title insurance are protected from the problems of clouded title. The question, then, is simply whether the title insurers will have to pay on their policies for the risks they assumed. Massachusetts offers property owners the option of registering their property in a Torrens land registration system. In this system, a property owner brings an action for registration, the Land Court examines title to the p r o p e r t y , and if title is clear the Land Court issues a judgment of registration in exchange for a fee of .l% (10 basis points) of the assessed value of the property. M.G.L. c. 185, S 2 6 ,
45, 99. Registration vest6 indefeasible title i n the
registrant; any party with a claim to title can only recovec monetarily and from the registration system's insurance fund, and must bring a claim within a sixyear statute of limitations. M.G.L. c. 185 SS 101-102,
108. Approximately 2 0 % - 3 0 % of Massachusetts properties
12
......
............
-.
..... .- ..
...
......................
are registered, and therefore face no risk of clouded title. Glendon 3 . Buscher, Jr.,
Land Court, Mar. 8 , 2006, at
A
court/lchist3.html, Many of the remaining 70%-80% of Massachusetts properties have private title insurance. In such
cases, owner's title insurance protects the current
occupants of homes with foreclosure sales in their chain of title from clouded title problems, while lender's title insurance protects the occupants' mortgage lenders. Requiring the unity of note and mortgage for foreclosure would be unlikely to freeze up the Massachusetts title insurance market. The real risk to title insurers would be small because of the difficulty successfully challenging past foreclosures. Private title insurers are also free to address the risks o f clouded title by contract: they could include exclusions in their policies g o i n g forward; they c o u l d price for the risk in their premia; the could include deductible5 or copayments; and they could reinsure (as they already do, primarily with captive reinsurance affiliates of mortgage lenders
13
reluctant to assume the risks of insuring title on properties with a foreclosure in the chain of title, it presents an opening for their competitors to gain market share. Title insurers' revenue comes i n sinqlepremium payments and thus depends on constantly underwriting
new
policies.
can hardly afford to abstain from any segment of the market, not least because they are competing against the "public option" of title insurance via registration.
What is really at s t a k e here is not the future
availability o f title insurance on properties with foreclosures in their chain of title, but whether private title insurance companies will have to pay out
emerges, it is best addressed by the legislature. Indeed, legislatures in other states have chosen to specifically protect the finality of foreclosure sales
14
.... .
.. .
. ... .. .
by statute.5
e, Cal. e.g.,
Civ. Code
2924
a d a m . l c v i t i n @-l a w . g e o r q e t o w n . e d u
Dated January
5
A , 012 2
In judicial foreclosure states, challenges to past foreclosures are necessarily barred by timeliness requirements for appeals and,= judicata.
15