The Banks’ Huge Eaton Loss: Showing the Note Owner

The seminal Eaton v. Fannie Mae decision by the Massachusetts Supreme Judicial Court is not a huge banking industry win going forward. In fact, if the Legislature lets it stand, it’s a huge homeowner win. Forget the part about the decision applying in the future only; while I think it is wrong, it was doctrinally reasonable and arguably protects many innocent third parties.

Going forward, the really big deal is that the Court has taken the “show me the note” defense and made it “show me the note owner.”

“Show me the note owner” is really hard to do in an era of mass securitization fail. Securitization fail means the trust doesn’t own the loans. And if the trust doesn’t own the loans, then the servicer isn’t the agent of the note owner and can’t foreclose non-judicially. Moreover, as this Court’s earlier Ibanez decision revealed, securitization fail may have occurred more often in Massachusetts than elsewhere.

By requiring the non-judicially foreclosing servicer to have authority from the note owner to foreclose, the Court is strengthening foreclosure defense in Massachusetts. See, homeowners have tried to get the courts to take securitization fail seriously, and specifically the standing problem it creates for servicers. But generally judges hate hearing about how banks screwed up securitization, fearing it leads to undeserved free houses. In fact, a bankruptcy appellate court reviewing a Massachusetts case got basic doctrine wrong to reject the argument.

Securitization fail arguments should have a lot more traction now.

Check out the rest here…