In Eaton v Federal National Mortgage Association, 462 Mass. 569 (Mass. 2012), the Supreme Judicial Court of Massachusetts addressed “the propriety of a foreclosure by power of sale undertaken by a mortgage holder that did not hold the underlying mortgage note.” In this case, the homeowner executed both a promissory note, solely to the lender, and a mortgage to the lender and to MERS. Under the terms of the mortgage, the lender was referred to as “lender” and MERS was referred to as “mortgagee.” As mortgagee, MERS was stipulated to hold legal title to the property with the power of sale “solely as nominee.” MERS was also given explicit authority under the mortgage to exercise the right to foreclose the property as nominee for lender. Subsequently, MERS assigned its interest to Green Tree servicing, LLC (Green Tree). The assignment was recorded in the county register of deeds, but without evidence of transfer of the note.

Eventually, the homeowner fell behind on his mortgage payments and Green Tree moved to foreclose. Green Tree was the highest bidder at the foreclosure auction, and assigned the rights to its bid to Fannie Mae. Fannie Mae later moved to evict the homeowner from the property. In response, the homeowner filed a counterclaim, arguing that the underlying foreclosure was invalid because Green Tree did not hold the note at the time of the foreclosure action. The housing court and the superior court found in favor of the homeowner, holding that a mortgagee must possess both the mortgage and the mortgage note to have authority to foreclose.

However, the Supreme Court, transferring the case to its court on its own motion, came to a different conclusion. The Supreme Court found that the lower courts relied only on common law for their holdings, and that statutory law, particularly G.L.c. 183, § 21 and G.L.c. 244, § 14, changes the analysis. Relying on these stautes, the court held “that where a mortgagee acts with the authority and on behalf of the note holder, the mortgagee may comply with these statutory requirements without physically possessing or actually holding the mortgage note.” Whether a mortgagee is acting with authority and on behalf of the note holder is a an agency question, which the Supreme Court could not address based on the record.

The court also held that the ruling only had prospective effect, and thus the ruling “appl[ies] only to mortgage foreclosure sales for which the mandatory notice of sale has been given after the date of this opinion.” However, the court also applied the ruling to the parties in the case, and the court remanded the case to the superior court to determine whether Green Tree was acting with authority and on behalf of the lender at the time of the closing.