Friday, July 04, 2014

Maine Supremes: Despite Lender's Sufficient Proof Of Its Status As Holder Of Note, Its Failure To Prove Ownership Of Mortgage Proves Fatal To Its Standing To Proceed With Foreclosure Action; Indicates That Mortgage May Not Always Follow The Note

A recent ruling by the Maine Supreme Court involving a foreclosure action serves as a reminder that, at least under the state law of Maine, the principle that the "mortgage follows the note" apparently does not necessarily apply where the foreclosing party merely proves its status as holder of the promissory note. Consequently, a foreclosing party in Maine must prove both:
  • its status as "holder" of the promissory note, and
  • its ownership of the mortgage securing the promissory note
in order to establish its standing to foreclose.

From a recent Opinion Summary:
  • Scott Greenleaf executed a promissory note to Residential Mortgage Services, Inc. (RMS). That same day, Greenleaf signed a mortgage on property securing that debt. The mortgage listed RMS as the lender of the debt and Mortgage Electronic Registration Systems, Inc. (MERS) as the nominee for the lender.

    MERS subsequently assigned its interest in the mortgage and note to Countrywide Home Loans Servicing, LP (BAC). BAC then merged with Bank of America, N.A. (Bank). Five years later, the Bank instituted foreclosure proceedings against Greenleaf. The district court entered a judgment of foreclosure in favor of the Bank.

    Greenleaf appealed, arguing that the Bank lacked standing to foreclose on the property.

    The Supreme Court agreed with Greenleaf and vacated the judgment, holding (1) the Bank proved its status as the holder of the note but failed to establish its ownership of Greenleaf’s mortgage;(1) and (2) because the Bank failed to satisfy two of the Higgins foreclosure requirements, the Bank was not entitled to a judgment of foreclosure in any event.
Source: Opinion Summary: Bank of Am., N.A. v. Greenleaf.

For the court ruling, see Bank of America, N.A. v. Greenleaf, 2014 ME 89 (ME. July 3, 2014).

Representing the homeowner were Thomas A. Cox, Esq.,(2) Portland, Maine, and John D. Clifford IV, Esq., Clifford & Golden, PA, Lisbon Falls, Maine.

Filing a joint "friend of the court" brief in support of the homeowner's position in this case were Yale University Law School's Jerome N. Frank Legal Services Organization,(3) New Haven, Connecticut, and the National Consumer Law Center, Boston, Massachusetts.

(1) From the court's ruling:
  • The interest in the note is only part of the standing analysis, however; to be able to foreclose, a plaintiff must also show the requisite interest in the mortgage.

    Unlike a note, a mortgage is not a negotiable instrument. See 5 Emily S. Bernheim, Tiffany Real Property § 1455 n.14 (3d ed. Supp. 2000). Thus, whereas a plaintiff who merely holds or possesses—but does not necessarily own—the note satisfies the note portion of the standing analysis, the mortgage portion of the standing analysis requires the plaintiff to establish ownership of the mortgage. See Harp, 2011 ME 5, ¶ 9, 10 A.3d 718.

    In Wilk, for example, Deutsche Bank was able to satisfy the note portion of the analysis by establishing that it was the holder of the note. 2013 ME 79, ¶ 10 & n.3, 76 A. 3d 363. In its attempt to establish its interest in the mortgage, Deutsche Bank produced a series of mortgage assignments from the original lender leading to OneWest Bank, and then from One West to Deutsche Bank. The purported assignment from OneWest to Deutsche Bank, however, was dated two weeks before OneWest had acquired the mortgage from its predecessor. Id. ¶ 12. Notwithstanding Deutsche Bank’s adequate interest in the note, we vacated the judgment of foreclosure because Deutsche Bank failed to introduce any evidence that it owned the mortgage. Id. ¶ 22.
(2) Thomas Cox is Volunteer Program Coordinator at Maine Attorneys Saving Homes, a joint project of the non-profit law firm Pine Tree Legal Assistance ("PTLA") (which provides free legal help to Maine people with low incomes), and the Maine Volunteer Lawyers Project (a part of PTLA which coordinates the volunteer efforts of Maine attorneys and community members to help people of low income navigate the civil justice system.

(3) Yale University Law School's Jerome N. Frank Legal Services Organization links law students with individuals and organizations in need of legal help who cannot afford private attorneys.