SJC ruling could upend foreclosures across US

Foreclosures nationwide could be challenged if the Supreme Judicial Court upholds a ruling in favor of a Boston woman.
Foreclosures nationwide could be challenged if the Supreme Judicial Court upholds a ruling in favor of a Boston woman. (Victor J. Blue/Bloomberg News)

The highest court in Massachusetts is poised to rule as soon as this month on a foreclosure case that could lead to a surge in claims from homeowners seeking to overturn seizures.

The justices are deciding whether to uphold a lower court ruling that gave a Boston home back to Henrietta Eaton after Sam Levine, a 25-year-old Harvard Law School student, argued that the loan servicer made mistakes when it foreclosed because it didn’t hold the note proving Eaton was obliged to pay the mortgage.

“If the Massachusetts court says this defense works, that would have a huge ripple effect across the country,’’ said Kurt Eggert, a professor at Chapman University School of Law in Orange, Calif.


A ruling in favor of Eaton would show how a $25 billion settlement reached this month with state and federal officials still leaves banks exposed to liabilities tied to home repossessions. It also underscores the challenge of resolving a foreclosure process that Federal Reserve chairman Ben Bernanke said in a study last month is plaguing the housing recovery.

At issue in Eaton v. Federal National Mortgage Association, also known as Fannie Mae, are two documents borrowers sign to get a home loan. The first is the mortgage establishing the right to seize a property. The second is the promissory note that creates an obligation to pay the debt. While the servicer had the mortgage when it foreclosed, it didn’t have the note.

Fannie Mae and Green Tree admitted they didn’t possess the original note at the time of Eaton’s foreclosure. They produced a photocopy of it instead.

Copies of promissory notes aren’t enough to establish rights, just as copies of dollar bills wouldn’t be honored by a bank, said Kathleen Engel, a professor at Suffolk University Law School. If an original note can’t be found, attorneys must file a lost-note affidavit and provide evidence to establish a claim.


The Supreme Judicial Court justices signaled last month they may rule in favor of Eaton when they asked parties in the case to submit briefs arguing whether such a decision should be applied retroactively or only to future lending. If retroactive, it would cloud the titles of the 40,000 Massachusetts properties seized in the last five years.

Eaton, who has lived in the two-bedroom home in Roslindale for more than a decade, began fighting an attempt by Fannie Mae to evict her in 2010 after students from the Harvard Legal Aid Bureau knocked at her door as part of a foreclosure outreach project. Last year, Suffolk Superior Court invalidated the foreclosure.