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Massachusetts High Court Rules Bank Had No Standing to Bring Military Foreclosure Case - HSBC Bank v. Matt

January 24, 2013

At Howard Law, P.C., we appreciate that the law sometimes gives special protections to members of the armed forces. Partner Vincent Howard served in the Army, and our Oceanside foreclosure defense lawyers sometimes represent military families that are fighting foreclosure while also dealing with the disruptions and special challenges of military life. So we were interested to see a case dealing with the federal Servicemembers Civil Relief Act and a Massachusetts law implementing it. In HSBC Bank v. Matt, HSBC Bank filed in the state's Land Court against Jodi Matt, seeking to determine whether she was entitled to protection from foreclosure. She conceded that she was not, but argued that HSBC had no standing to foreclose in any case. The lower court disagreed, but the Massachusetts Supreme Judicial Court overruled it on appeal, saying HSBC did not establish that it was a mortgagee or an agent of a mortgagee.

The SCRA temporarily suspends many court proceedings against military servicemembers on active duty. This includes foreclosure proceedings under most circumstances. In Massachusetts, banks may bring an action establishing whether the SCRA applies before foreclosing, but only if they are entitled to foreclose. HSBC brought such a proceeding against Matt, saying it was the assignee and holder of Matt's mortgage. Matt's court filing said she was not entitled to SCRA relief, but also argued that HSBC had not shown it was the mortgage or note holder. After some discovery, the court denied her motion, saying that though it wasn't clear whether HSBC held the papers, it had standing because it had a contractual right to become the holder. The court found that plaintiffs need not be the current holder, because the right to become the holder gives a plaintiff interest in the loan's collectability.

Matt objected in several ways, and appealed the judgment permitting HSBC to foreclose. The Massachusetts Supreme Judicial Court first ruled that the lower court erred in hearing Matt's motions at all, since she conceded that the SCRA does not apply to her and thus had no interest in the proceeding. It next determined that the Land Court judge used an incorrect standard to decide the question of HSBC's standing. The purpose of the SCRA, as caselaw notes, is in part to protect mortgagees. Nonmortgagees cannot foreclose, so extending standing to them in servicemember actions would not further the SCRA's purpose. Those who merely have the option of becoming the mortgage holder have a very limited interest that doesn't give rise to an SCRA action. Thus, the high court vacated the judgment for entry and sale, though it cautioned litigants that standing in such a proceeding is not standing to foreclose.

Vincent Howard and our Moreno Valley foreclosure defense attorneys are not surprised to see this ruling. It would be more surprising if the high court had ruled that nonmortagees do have the right to bring this proceeding. In theory, any financial institution could become the mortgage holder, which means such a ruling would permit basically any financial institution to bring a servicemember proceeding. Of course, most aren't likely to bring such an action, but the underlying issue of standing will quickly become important if an actual foreclosure is brought--which is why the issue was important to Matt, even though the SCRA doesn't apply to her. Our Mission Viejo foreclosure defense lawyers have read many cases in which the financial institution trying to foreclose turns out not to have any interest in the property, and this can derail the foreclosure entirely.

Led by Vincent Howard, Howard Law represents Californians who are fighting to hold on to homes despite predatory lending, wrongful foreclosure or fraud in loan modifications. If you'd like to talk to us about your options and your rights, call us toll-free at 1-800-872-5925 or send us a message through our website.

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