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1st Cir. Holds Note Acceleration Did Not Trigger Massachusetts 5-Yr SOL for ‘Obsolete Mortgages’

mortgage lawThe U.S. Court of Appeals for the First Circuit recently held that the acceleration of the maturity date of a note does not affect the five-year limitations period for the related mortgage under Massachusetts’s obsolete mortgage statute.

In so ruling, the First Circuit also confirmed that MERS can legitimately assign a mortgage without holding beneficial title to the underlying property.

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

In March 2007, a couple (“borrowers”) obtained a mortgage loan from a lender to purchase a property in Massachusetts. The borrowers executed a promissory note memorializing the loan and a mortgage identifying MERS as the mortgagee, acting “solely as a nominee” for the lender and the lender’s successors and assigns. The mortgage also granted MERS and its successors and assigns power of sale over the property.

In January 2008, MERS assigned the mortgage to an asset securitization trust (“first trust”). In February 2010, the first trust reassigned the mortgage to itself as trustee for a different asset securitization trust (“second trust”).

The borrowers defaulted on their loan in 2008. They then filed several bankruptcy petitions and requested injunctive relief, thereby delaying foreclosure until 2016.

After the servicer provided notice of a foreclosure sale in June 2016, the borrowers sued the loan owner and servicer in federal court to enjoin the sale, arguing the MERS assignment of the mortgage to the first trust was invalid.

The trial court denied the borrowers’ request for a preliminary injunction and granted the loan owner’s and servicer’s motion to dismiss.

The borrowers appealed to the First Circuit, arguing that (1) the servicer cannot foreclose on their property under Massachusetts General Laws Chapter 244, § 14, and (2) the mortgage is obsolete by operation of Massachusetts General Laws Chapter 260, § 33.

As you may recall, 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 First Circuit held that MERS can validly assign a mortgage without holding beneficial title to the underlying property (Culhane v. Aurora Loan Servs. of Neb., 708 F.3d 282, 291-93 (1st Cir. 2013)), and that the borrowers do not have standing to challenge a mortgage assignment based on an alleged violation of a trust’s pooling and servicing agreement (Butler v. Deutsche Bank Tr. Co. Ams., 748 F.3d 28, 37 (1st Cir. 2014)).

The Court also held that a mortgage contract can validly make MERS the mortgagee and authorize it to assign the mortgage on behalf of the lender to the lender’s successors and assigns.

Next, the First Circuit held that the borrowers’ “obsolete mortgage” claim has no basis in the plain text of the statute or in precedent as nothing in the text of the statute supports the borrowers’ assertion that the acceleration of the maturity date of a note affects the five-year limitations period for the related mortgage.

The Court found the borrowers citation to the Massachusetts Supreme Judicial Court’s ruling in Deutsche Bank National Trust Co. v. Fitchburg Capital, LLC, 28 N.E.3d 416 (Mass. 2015), inapposite because the decision makes no mention of the impact of an accelerated note on the obsolete mortgage statute’s limitations period.

Accordingly, the First Circuit affirmed the trial court’s ruling.

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