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Defective Paperwork Strips Mortgage Holder of Foreclosure Rights

The National Law Journal

November 19, 2009                                                                          


A Massachusetts federal judge has upheld a bankruptcy court ruling allowing a trustee to treat a mortgage as an unsecured claim, which strips the mortgage holder of foreclosure rights, because of defective mortgage paperwork.

In a Nov. 17 order, District Court Judge Patti Saris affirmed a bankruptcy court order denying the plaintiffs' request to send a question of law to the Supreme Judicial Court of Massachusetts. The case is Mortgage Electronic Registration Systems Inc. (MERS) v. Warren E. Agin, trustee.

The plaintiffs wanted the state high court's take on whether the omission of a borrower's name on an acknowledgement form, which a notary public uses to confirm the identity of the borrower, is a "material defect" that voids the mortgage.

In Massachusetts, deeds or mortgages recorded at a county registry of deeds must have a properly executed acknowledgment form.

One of the plaintiffs in the June 3 bankruptcy court appeal is MERS, which runs a national mortgage electronic registration system that simplifies the selling or trading residential or commercial mortgage loans. The other plaintiff is the actual lender, Countrywide Home Loans Inc., which Bank of America Corp. acquired in 2008.

The ruling concerned a mortgage held by debtor Mathew Giroux, who filed a voluntary Chapter 7 case in bankruptcy court in Massachusetts on June 27, 2008. The bankruptcy court granted the trustee's motion for summary judgment on May 21, which allowed him to treat the mortgage as a unsecured debt.

Saris agreed with the bankruptcy court that Massachusetts case law holds that the state "requires strict formalities in the execution of acknowledgements."

Saris also agreed with the bankruptcy court that Massachusetts courts are likely to follow a 2004 6th U.S. Circuit Court of Appeals decision, In re Biggs, which held that omitting the lender's name in an acknowledgement was not a "purposeless formality."

"Although the question of the acknowledgment's validity is a determinative issue, the Court finds the outcome in the state court to be reasonably clear," Saris wrote.

Cases about the issue have also cropped up in federal courts in other jurisdictions, said the trustee's lawyer, Jeffrey J. Cymrot of Boston-based Sassoon & Cymrott. Cymrot said he's also working on a similar pending case.

"It's largely due to pushing mortgages through the system," Cymrot said. "I don't think it's rare."

The case shows that sloppy execution of mortgage documents has consequences in bankruptcy cases, Cymrot said.

He also said the central question is analogous to that in cases challenging foreclosures because of defective documents that have cropped up in recent months. "It's related, but it's another type of sloppiness," Cymrot said.

Bank of America did not respond to requests to comment by deadline. MERS spokeswoman Karmela Lejarde said the company declined to comment.

Sheri Qualters can be contacted at

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