1st Cir. Rejects Borrowers’ Attempt to Void Loan Using Massachusetts’s ‘Obsolete Mortgage’ Statute

The U.S. Court of Appeals for the First Circuit recently affirmed the dismissal of a lawsuit by borrowers seeking to enjoin a mortgage foreclosure sale, holding that (a) the original lender’s nominee, MERS, could validly assign the mortgage without holding beneficial title to the underlying property and that borrowers do not have standing to challenge a mortgage assignment based on an alleged violation of a trust’s pooling and servicing agreement; and (b) the mortgage was not void under Massachusetts’s “obsolete mortgage” statute, under which a mortgage becomes obsolete and is automatically discharged five years after the expiration of the stated term or maturity date of the mortgage, as acceleration of the note did not trigger the subject limitations period.

A copy of the opinion in Hayden v. HSBC Bank USA, National Association is available at:  Link to Opinion.

A husband and wife took out an $800,000 purchase money loan secured by a mortgage on their home in 2007. The mortgage identified Mortgage Electronic Registration Systems, Inc. (MERS) as the mortgagee, acting solely as nominee for the lender and the lender’s successors and assigns. The mortgage also gave MERS power of sale over the property in the event of default.

MERS assigned the loan in 2008 to a new mortgagee. The borrowers defaulted on the loan in 2008. In 2010, the mortgagee “reassigned the mortgage to itself as trustee for [another trust].”

The borrowers “filed several bankruptcy petitions and requested injunctive relief, thereby delaying foreclosure until 2016.”   The mortgagee gave the borrowers notice of a foreclosure sale in June 2016 and, in response, the borrowers sued the mortgagee and the loan servicer to enjoin the sale.

The trial court denied the borrowers’ request for a preliminary injunction and granted the defendants’ motion to dismiss for failure to state a claim, holding that the mortgagee had the right to foreclose under Massachusetts law and the mortgage was not rendered “obsolete” or void under Massachusetts law. Mass. Gen. Laws ch. 260, § 33.  The borrowers appealed to the First Circuit.

On appeal, the First Circuit rejected the borrowers’ argument that the mortgage could not foreclose because the first assignment by MERS was invalid, finding that the trial court correctly rejected this argument because “this claim is foreclosed by precedent, which holds that MERS can validly assign a mortgage without holding beneficial title to the underlying property, … and that borrowers do not have standing to challenge a mortgage assignment based on an alleged violation of a trust’s pooling and servicing agreement.”

The Court also concluded that the district court “properly dismissed [the borrowers’] obsolete mortgage claim, which has no basis in the plain text of the statute or in precedent. Under Massachusetts’s obsolete mortgage statute … a mortgage becomes obsolete and is automatically discharged five years after the expiration of the stated term or maturity date of the mortgage.”

The Court reasoned that there was no textual support in the statute at issue — Mass. Gen. Laws ch. 260, § 33 — for the borrowers’ argument “that the acceleration of the maturity date of a note affects the five-year limitations period for the related mortgage.” It found inapposite a 2015 Massachusetts Supreme Judicial Court decision because “it makes no mention of the impact of the accelerated note on the obsolete mortgage statute’s limitations period.”

Accordingly, the trial court’s ruling was summarily affirmed.

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Hector Lora has substantial experience in all phases of complex commercial litigation, including motion practice, written discovery, depositions, mediations, bench and jury trials, and appellate practice. For more than a decade, his practice has focused extensively on the defense of civil enforcement actions filed by the FTC, as well as real estate litigation, and contested mortgage and condominium lien foreclosures and foreclosure of security interests under UCC Article 9. Hector also has substantial experience in advising a variety of types of businesses regarding their compliance with applicable federal and state laws, including the Federal Trade Commission Act, the Telephone Consumer Protection Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Telemarketing Sales Rule, the Controlling the Assault of Nonsolicited Pornography and Marketing Act of 2003, and Florida laws governing telephone solicitation and communication. Hector received his Juris Doctor from the Georgetown University Law Center, and his undergraduate degree with honors from the University of Florida.