BOSTON -- The highest court in Massachusetts on Friday clarified protections in state law for homeowners facing foreclosure but said its ruling applies only to future foreclosures, disappointing some advocates who had hoped the closely watched decision would apply more broadly.
The Supreme Judicial Court ruled in the case of a Boston woman who sued after Green Tree Servicing LL sold her house to Federal National Mortgage Association, Fannie Mae, at a foreclosure sale in 2010.
Henrietta Eaton’s lawyer argued that a lender does not have the right to foreclose unless it holds both the mortgage itself and the promissory note, which creates an obligation to pay the debt.
A lower court ruled the lender could not prove it held the promissory note and declared the foreclosure invalid.
The SJC agreed with Eaton that state law requires both documents before foreclosure. But the court said its ruling applies only to future foreclosures.
Justice Margot Botsford, who wrote the unanimous opinion, said it seeks to clarify some confusion in the law about the meaning of the term "mortgagee" and the proper procedures a mortgagee must follow to foreclose on a property.
"We now construe the term to refer to the person or entity holding the mortgage and also either holding the mortgage note or acting on behalf of the note holder," Botsford wrote.
"Further, we exercise our discretion to treat the construction announced in this decision as a new interpretation of the relevant statute, only to apply to foreclosures ... after the date of this decision."
Samuel Levine, who argued the case before the SJC on Eaton’s behalf while he was still a student at Harvard Law School, called the case "a win" for Eaton and homeowners who face foreclosure in the future, but said advocates had hoped the court would apply the rule retroactively.
"We’re disappointed that the homeowners who have already lost their homes will not have any recourse under this decision," Levine said. "But we think going forward it will curb the worst practices."
Georgetown University Law Professor Adam Levitin, who wrote a friend-of-the-court brief supporting Eaton’s position, said the decision makes clear that lenders who do not hold both the mortgage and the promissory note do not have the right to foreclose, an area of state law that until now has been ambiguous.
"It’s not an outright victory. The court was definitely concerned that if it applied the ruling retroactively, that it would cloud title for a lot of real estate in Massachusetts. They avoided that," Levitin said.
"However, for people who are currently in foreclosure or worried that foreclosure will happen in the future, this rule matters quite a bit because the mortgage industry was, frankly, sloppy about its paperwork.
"If you lost your house in foreclosure, you’re not getting it back because of this, but overall, it means homeowners have pretty good protections, namely, you can’t be thrown out of your house unless the lender can absolutely prove they have the right to do so."
Richard Briansky, a Boston attorney who represented Fannie Mae and Green Tree, declined to comment.
"Going forward, today’s ruling will hopefully bring clarity and certainty to the foreclosure process in Massachusetts, which will help the state work through its ongoing housing challenges," said Andrew Wilson, a spokesman for Fannie Mae.
Wilson said Fannie Mae encourages homeowners struggling with their mortgage payments to seek help as early in the process as possible, including by calling one of its 12 mortgage help centers around the country.
More than 45,000 people in Massachusetts have lost their homes to foreclosure as a result of the economic downturn over the last several years, according to figures provided by the state attorney general’s office.