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NO. 11041

HENRIETTA EATON Plaintiff-Appellee








Adam J. Levitin
Professor of L a w

Georgetown University Law Center 600 New J e r s e y Ave., NW Washington, DC 20001

( 2 0 2 ) 662-9234 adam. l e v i t i . n . l a w . qeorqetown -, . . .-@ -e d ~

J a n u a r y 20,


Table of Contents

I. Statement of Interest of Amicus Curiae



11. Statement of the Issues..,....................... 111. Argument



Appellants and the Mortgage Industry as a Whole

Had C l e a r Notice of What the Law Requires and Cannot

Claim Surprise


B. The Scope of the Naked Mortgagee Problem Is



Adverse Possession, Pleading Standards, Burdens of

Proof, and Laches Would Effectively Bar Most Claims

R e l a t i n g to Past I n v a l i d Foreclosures

.............. 8

D. Title Insurance Protects Against Defects in the

Chain of Title, and T i t l e Insurers Should Not Be Protected from the Risks They Assumed

............. 11

E. Concerns About Clouded Title Are B e s t Addressed by

the Legislature

................................... Conclusion ......................................

Table of Authorities

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, 1 1

2 7 4 (1872),

...... 2-3

Commonwealth v. Christian, 430 Mass. 552, 568 (Mass, 2000).

................................................ .............................................
3 6 (Mass.

G.E.B. v.S.R.W., (1996))

422 Mass. 158, 166


Iannacchino v. Ford Motor Co., 451 Mass. 623, 635 (2008)


.............................................. 1~ Totman v. Malloy, 431 Mass. 143, 145 (2000) ..........8

U.S. Bank Nat'l Ass'n v. Ibanez 458 Mass. 637 (Mass. 2011)

Stewart v. Finkelstone, 206 Mass. 28,

.................4 ,

5 , 6, 1 5

West Broadway Task Force v. Boston Housing Authorite, 414 Mass. 394 ( 1 9 9 3 ) 11


Statutes M.G.L. M.G.L.



185 1. 85


M.G.L. c. 185 5

c. 1 8 5


c, 185 S


............................ 24 .................................. 45 .................................. 9 9 .................................. 101 ................................. 102 ................................. 108 .................................






................................... 8 Cal. Civ. Code 2924 ............................... 15 735 111. Con. Stat. 5/15-1509(c) ................... 15



Court Rules
Massachusetts Rule of Appellate Procedure 13(b)


Massachusetts Rule of Appellate Procedure 16(1)..1/ 10

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

.... ................*............. (3d) on Property, 5 5.4(c) ............ 2 , 6

I. Statement of Interest of Amicus Curiae

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






underlying promissory note

f o r a valid


would cloud title on properties with foreclosures i n the chain of title and, if
so, whether


requirement should be applied prospectively only?

111. Argument

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

rule is deeply rooted in common law and history and is

directly stated in the Restatement (3d) on Property, 5.4(c) (1997):

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.

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.").

The traditional prohibition on foreclosure by

naked mortgagees also protects homeowners against the risk of double satisfaction; were the rule otherwise, homeowners would have to pay once to s e t t l e with the mortgagee, but that would not discharge the note. Similarly, were the rule otherwise, the mortgage would have a life of its own so discharging the note would not eliminate the mortgage. None of this should have surprised Appellants or any other party engaged in mortgage lending. Appellants are sophisticated entities that conduct business nationwide. They were on clear notice what the l a w requires, as shown by the Restatement ( 3 d ) on

Mortgages, and there has never been anything to

indicate that the Commonwealth stands as an exception

from these long-standing principles of property law.

Instead, Appellants chose to ignore the law based

on the calculation that non-compliance and its

attendant risks would be more profitable than compliance. This was a business decision, and

Appellants should not he permitted to have their cake and eat it too, and certainly not on the grounds that

an adverse ruling would cloud title in the

Commonwealth. Appellants' own wrongdoing should not b e the b a s i s of their defense, That said, the Court must of course be cognizant

of the implications of its ruling on third-parties. A5

this brief explains, there are several reasons to be skeptical that there will be substantial harm to third-parties or to the clarity of title in the Commonwealth. First, there is nothing in the record to indicate that the practice of foreclosure by naked mortgagees is widespread. Second, adverse possession, pleading standards, burdens of proof, and laches limit the likelihood that most past foreclosures could be successfully challenged. Third, title insurance stands as a protection f o r innocent parties in those cases where past foreclosures could be successfully challenged. If there is a clouded title problem, it is one that is best addressed by the legislature, as has
o c c u r r e d i n other states, where the finality of

foreclosure sales is protected by statute.


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


Previously, in U.5. Bank Nat'l A s s ' n v. Ibanez,


458 Mass. 637 (2011), this Court made clear that

possession of the note i s insufficient f o r a foreclosure; a noteholder who is not the mortgagee may

not foreclose. This Court then extended that ruling in

Bevilacqua v. Rodriguez, 460 Mass. 762 (2011), which taught that an improper non-judicial foreclosure is incapable of passing good title to the foreclosure sale purchaser, and in Bank of N.Y. v . Bailey, 460 Mass. 327, 328 (2011), which held that the Housing Court has jurisdiction to hear a challenge to title raised by a former homeowner as a defense to a summary process eviction action by a p a r t y acquiring the property pursuant to a foreclosure sale. while the Court's ruling on these cases was important and timely, the outcomes in these unanimous holdings should not have surprised the p a r t i e s : Ibanez applied b a s i c commercial law and real estate principles that a transfer is not made until it is made and that transfers of real property must comply with the Statute on Frauds, and BeviLacqua was an important restatement of the fundamental rule o f commercial law, nemo dat, that one cannot transfer what one does not have. Similarly, the ruling in Bailey was a natural extension of the rulings in


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)

makes clear that a foreclosure must be

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

retroactivity concerns about foreclosures done by

naked mortgagees with the Ibanez, Bevilacqua, and

Bailey rulings, which were not restricted solely to prospective foreclosures. In the year since the Ibanez ruling, the Massachusetts mortgage lending market has not collapsed nor ha5 title become clouded throughout

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

been in the Commonwealth. There is been tremendous

variation in foreclosure practices by mortgagees, and this makes it hazardous to suppose that the actions of the defendants in the instant case are in any way representative o f mortgagees in general or that there has been a wide-scale problem of foreclosures by naked mortgages.2 This initial empirical caveat should temper

'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

any consideration of the impact of a retroactively applicable ruling.

A d v e r s e P o s s e s s i o n , P l e a d i n g S t a n d a r d s , Burdens of Proof, and Laches Would E f f e c t i v e l y Bar Most C i a i m s R e l a t i n g t o Past I n v a l i d F o r e c l o s u r e s

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

foreclosures unlikely in most cases, thereby sharply

limiting the retroactive effect


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.



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

.. . .

. ..

.. .







clouded title issue. For more recent foreclosures, Massachusetts's

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

(internal quotations would past require


In p r a c t i c a l seeking

terms, this invalidate a



foreclosure to

allege that

foreclosure w a s u n d e r t a k e n by a naked mortgagee.

In few, if any


would plaintiffs have a allegations beyond sheer




conjecture for precisely the reasons discussed in the Dec.


2011 R u l e


submission from the Real

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


ascertain clear title will actuallv prevent challenqes

to title in Massachusetts. Thus, while title insurers

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

is that the burden of proof would rest on the party

claiming that the foreclosure was improper.

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




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


present a further limitation on practical retroactive application of a ruling in favor of t h e plaintiff.


Laches provides a defense against litigation brought unseasonably in which delay has caused the ddendant

to be at a disadvantage, such as incurring expense or

obligations. See, e.g., G.E.B. 158, 166




(1996); W.

Broadway Task Force v. Boston Mass.







Finkelstone, 206 Mass. 28, 3 6 precisely the sort of

(Mass. 1910). This is

defense that should protect

purchasers of properties with foreclosures far back in the chain of title.

D Title I n s u r a n c e Protects Against Defects i n t h e . Chain of T i t l e , and T i t l e I n s u r e r s Should Not B e Protected from the Risks They Assumed

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.

purchaser o f any type of property

always faces the risk of clouded title; this is an

unavoidable risk of commerce. Some purchasers chose to assume this



self-insure. Others



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

companies. To the extent that property owners have n o t






insurance, the


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





..... .- ..



are registered, and therefore face no risk of clouded title. Glendon 3 . Buscher, Jr.,
Land Court, Mar. 8 , 2006, at

Brief History of the

tit t p :/ / wm m a s 3 qov I courts / c OUT f s a n d i udqe s /courts/ Iand .


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


If, after all this, some title insurers are

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



Therefore, title insurers

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

on some of their existing policies. That is the gamble

involved with insurance, and if title insurers have not been careful with their underwriting, it is not
f o r the Court to save them from themselves. E Concerns About C l o u d e d T i t l e A r e B e s t A d d r e s s e d b y . t h e Legislature

To the extent that a clouded title problem

emerges, it is best addressed by the legislature. Indeed, legislatures in other states have chosen to specifically protect the finality of foreclosure sales


.... .

.. .

. ... .. .

by statute.5

e, Cal. e.g.,

Civ. Code


(upholding finality of non-judicial foreclosure

sales); 7 3 5 Ill. Con. Stat. 5/15-1509(c) (upholding finality of judicial foreclosure sales). The General Assembly remains free t o do so if it believes such a step is necessary.
IV. Conclusion

In the year since this Court's ruling in Ibanez,

the s k y has not fallen. It will not fall if this Court rules f o r Appellee and makes its ruling retroactively applicable. Instead, it will permit those wrongfully foreclosed homeowners who have the wherewithal to bring l i t i g a t i o n and to overcome the significant legal hurdles to obtain just recoveries. Respectfully submitted,

600 New Jersey Ave., NW Washington, DC 2 0 0 0 1

( 2 0 2 ) 662-9234

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

A , 012 2

In judicial foreclosure states, challenges to past foreclosures are necessarily barred by timeliness requirements for appeals and,= judicata.