In a recent opinion, the Appeals Court of Massachusetts considered how a mortgagee may show that it is acting as the authorized agent of the note holder for the purpose of surviving a motion for summary judgment. In Khalsa v. Sovereign Bank, N.A. (Mass. App. Ct. Jan. 11, 2016), the borrowers filed a complaint seeking to enjoin a foreclosure sale and a declaration that the mortgagee was not entitled to foreclose. The parties filed cross summary judgment motions, and the lower court found in favor of the homeowners. The court declared that the foreclosure sale of the plaintiff’s residence was void because the defendant failed to show that it was acting as the authorized agent of the note holder (Freddie Mac). The defendant appealed that decision.
In Khalsa, the homeowners executed a promissory note to purchase their home in 2008, and they granted the defendant a mortgage on the property to secure the loan. Freddie Mac subsequently purchased the note from the defendant, although the defendant remained the servicer of the note and mortgage. In 2011, the defendant notified the homeowners that they were in default on their loan and held a foreclosure sale. At the time of the sale, Freddie Mac had physical possession of the note. The contested issue between the parties was whether the defendant, which was the holder of the mortgage but not the note, acted with Freddie Mac’s authority to conduct the foreclosure sale.
To effect a valid foreclosure sale, the foreclosing mortgage holder must also hold the underlying note or be acting on behalf of the note holder. An agency relationship arises from the manifestation of consent by one party to another that the other shall act on its behalf and subject to its control, and the other party consents to so act. If the mortgage holder and note holder are not the same, as in Khalsa, the mortgage holder can demonstrate that it was authorized to act as the note holder’s agent in a variety of ways, the simplest being a specific agreement between the parties. However, in Khalsa, the defendant could not produce a loan-specific pre-foreclosure authorization, and instead it relied on the affidavits of its employees to establish that its seller-servicer relationship with Freddie Mac included the authority to act on Freddie Mac’s behalf to initiate and conduct foreclosure proceedings. On appeal, the court was presented with the question of whether a genuine factual dispute existed as to whether the defendant was acting as the authorized agent of the note holder, such that it could survive a summary judgment motion.
The court found that although it would be possible for the defendant to show that it possessed the authority to foreclose without an instrument specific to the loan at issue, the affidavits presented by the defendant did not satisfy the legal requirement that they be made on personal knowledge that set forth facts that would be admissible in evidence. Nevertheless, the court noted that while the defendant failed to identify the precise language in the overarching seller/servicer agreement to establish conclusive proof of its authority, this does not mean that it would be unable to provide the requisite proof at trial. The court pointed to additional evidence submitted by the defendant and found that, based on the course of events, a jury could find that Freddie Mac had authorized the defendant to go forward with the foreclosure. As a result, the judgment was vacated and remanded back to the superior court.
At the Massachusetts firm of Pulgini & Norton, our real estate attorneys represent individuals in a wide variety of residential property issues, including foreclosures, mortgages, closings, land use and zoning disputes, and other transactions. To discuss your real estate needs with one of our skilled attorneys, call (781) 990-2200 or contact us online.
More Blog Posts:
Massachusetts Appeals Court Reverses Summary Judgment, Allows Homeowner to Continue Suit Against Mortgage Company, Massachusetts Real Estate Lawyer Blog, published November 17, 2015
Massachusetts Governor Signs Act Clearing Title To Foreclosed Properties, Massachusetts Real Estate Lawyer Blog, published January 4, 2016