“Mortgagee and Mortgagor Standing and the Servicemembers’ Civil Relief Act”
The Massachusetts Supreme Judicial Court, in HSBC Bank USA, N.A., Trustee v. Jodi B. Matt, No. 11101 (Jan. 14, 2013)
The Massachusetts Supreme Judicial Court, in HSBC Bank USA, N.A., Trustee v. Jodi B. Matt, No. 11101 (Jan. 14, 2013), recently clarified the issue of standing for both plaintiffs and defendants in actions under the Servicemembers’ Civil Relief Act (“SCRA”). A series of Massachusetts Supreme Court decisions – e.g., Bevilacqua v. Rodriquez, 460 Mass. 762 (2011); Eaton v. Federal Nat’l Mtge. Ass’n, 462 Mass. 569 (2012); and US Bank Nat’l Assoc. v. Ibanez, 458 Mass. 637 (2011) – have put bank foreclosures under a microscope. This decision, however, can help mortgagees overcome SCRA challenges by borrowers who are not entitled to the protections of the SCRA. But Matt is only helpful if a lender itself has standing to bring the SCRA action.
In Massachusetts, mortgagees file SCRA actions, which are independent of the actual foreclosure, for the sole purpose of determining whether a borrower is entitled to the protections of the SCRA. Despite the limited scope of those proceedings, borrowers who are not entitled to the protections of the SCRA have attempted to challenge the SCRA action in an effort to challenge the foreclosure itself. Such was the case in Matt, where the borrower, who conceded that she was not entitled to the protections of the SCRA, nonetheless challenged HSBC’s standing to bring the SCRA complaint. The borrower alleged that HSBC failed to show that it was the holder of the mortgage or the note. In its decision, the Supreme Judicial Court found that the borrower did not have standing because she did not assert in her responsive pleading that she was entitled to the protections of the SCRA. As such, the Court found that the lower court erred in both accepting the borrower’s filings and allowing the borrower to appear and be heard.
The Supreme Judicial Court, in its de novo review, then turned its attention to the standing of the plaintiff-mortgagee, HSBC. The lower court had previously determined that while it was not clear from the record that HSBC was the current holder of either the note or the mortgage, standing was found to exist because HSBC had a contractual right to purchase the mortgage. The Supreme Judicial Court disagreed with the lower court’s conclusion. Instead of the “contractual-right-gives standing” analysis undertaken by the lower court, the Court utilized an “area of concern” analysis and determined that the “area of concern” protected by the SCRA was two-fold: it provides protections to servicemembers and affords relief to mortgagees by not requiring them to await the end of military service before exercising the power of sale. From this, the Supreme Judicial Court reasoned that any injury to a non-mortgagee is not within the area of concern protected by the SCRA. The Court therefore concluded that “only mortgagees or those acting on behalf of mortgagees have standing” to bring SCRA actions. In a footnote, the Court commented that since the SCRA adopts principles of agency with regard to mortgagors, the same would apply to mortgagees. This suggests that the courts would deem servicers acting on behalf of mortgagees as meeting the “area of concern” standing analysis.
In complaints brought under the SCRA, plaintiffs must be prepared to prove their status as mortgagee. The Supreme Judicial Court expressly requires that “[g]oing forward, to establish standing in servicemember proceedings, plaintiff must present such evidence as may be necessary in the circumstances reasonably to satisfy the judge as to their status as mortgagees or agents thereof.” We recommend that upon the filing of an SCRA action, mortgagees or their servicers include the mortgage or assignment of mortgage and/or an affidavit or other servicing document that will show the plaintiff is the mortgagee or acting on behalf of the mortgagee. Also, mortgagees should be prepared to immediately raise the standing issue against borrowers who are not entitled to the protections of the SCRA but file responsive pleadings. Finally, lenders should understand that the Matt decision will not preclude a borrower from bringing a wrongful foreclosure claim alleging that the foreclosing entity is not the mortgagee. The Supreme Judicial Court effectively removed a mortgagee’s res judicata defense in such a separate action when it stated in a footnote that a plaintiff’s standing in an SCRA action will not establish the mortgagee’s status in a separate mortgage foreclosure action. Accordingly, mortgagees will be required to defend any wrongful foreclosure with no benefit of issue preclusion from the SCRA action.