This article will discuss the Law Court’s 2014 decision in Bank of America, N.A. v. Greenleaf, 2014 ME 89, and the legislative response to it in 2015. The discussion should interest anyone who is involved in loan sales or foreclosures of mortgages by non-portfolio lenders.
The upshot is that the new legislation leaves undisturbed the rule of Greenleaf that a civil action foreclosure can be brought only by a person who shows both that it has the right to enforce the note and has ownership of the mortgage.
By way of background, the average mortgage loan is papered by at least a note and a mortgage. During the recent real estate bust, academics and courts recognized that a promissory note includes two sets of rights: ownership (i.e., who gets the money) and entitlement to enforce. These can be held by different people, as when a servicer enforces loan documents and then pays the proceeds over to the note holder.
Usually, the right to enforce the mortgage by foreclosure automatically follows the right to enforce the note, so that whoever can demand payment of the note can also proceed against collateral for it. The contrary Maine rule evolved in a line of cases culminating in Greenleaf. In Greenleaf, the Law Court held that a lender that had the right to enforce the note could only enforce the mortgage securing that note if it could show that it was the original mortgage holder or had been assigned the mortgage. The assignment of the mortgage that was attempted in Greenleaf was ineffective, since it came from the Mortgage Electronic Registration Systems, Inc. (“MERS”), which, under the loan documents, had only the power to record the mortgage as nominee for the lender, not the right to actually transfer ownership of it.
Whether Maine is the only state rejecting the idea that the right of mortgage enforcement follows the right of note enforcement, or whether this is just a matter of the Law Court following the procedural requirements of the civil action foreclosure statute isn’t totally clear. Whichever is the case, the result is the same: the lender has to show both the right to enforce the note and ownership of the mortgage.
The legislature has responded to Greenleaf mainly by leaving its holding alone. The Act to Create Transparency in the Mortgage Foreclosure Process, H.P. 267 – L.D. 401, Ch. 229, which is now worked into 14 M.R.S.A. Section 6321, imposes a requirement that any civil action foreclosure complaint “contain a certification of proof of ownership of the mortgage note,” explaining that court decisions had required proof of note ownership, but hadn’t specified when the proof was supposed to be provided. This, by itself, does nothing to change the part of the holding that requires the foreclosing note enforcer to show that it is also the mortgage holder.
The other main responsive statute is the Act to Protect Consumers against Residential Real Estate Title Defects, H.P. 215-L.D. 321, Ch. 289 (enacted as 33 M.R.S.A. Section 508), which seems aimed at the problem of Greenleaf’s ineffective MERS assignment. In Greenleaf, the court held that MERS had been named only as nominee with authority to record the mortgage, leaving it unable to effectuate an assignment of ownership. The new legislation fixes this problem by providing that a nominee holding a mortgage for another person is presumed, absent contrary language, to have the power to make assignments, partial releases or discharges of the mortgage. Some title companies have issued underwriting standards that follow the new statute.
The Greenleaf decision may have made Maine an outlier in its mortgage laws. From the looks of the legislation coming out of last year’s session, it seems that we won’t be joining the mainstream any time soon.