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Financial Services Law Insights and Observations

First Circuit Holds Massachusetts Borrower Can Challenge the Validity of a Mortgage Assignment, but Holds the Assignment Valid

Foreclosure Mortgage Servicing


On February 15, the U.S. Court of Appeals for the First Circuit held a borrower had standing to challenge the assignment of the borrower’s mortgage under certain circumstances, even though the borrower was not a party to the assignment of the mortgage. Culhane v. Aurora Loan Servs. of Neb., 12-1285, 2013 WL 563374 (1st Cir. Feb. 15, 2013). The First Circuit reasoned that because Massachusetts law provides the borrower with the legal right to ensure any attempted foreclosure of her home was conducted lawfully, and because foreclosure is permitted without prior judicial authorization, the borrower had standing to challenge the assignment of a mortgage to the extent such a challenge was necessary to contest the foreclosing entity’s status as the mortgagee. Though MERS was named the legal owner of the mortgage in the original mortgage documents, the plaintiff alleged that MERS had no beneficial interest in the loan and, as such, had no ability to assign the mortgage to the noteholder. The First Circuit affirmed the lower court's ruling, finding the MERS assignment of the mortgage to the defendant was valid because the note and mortgage need not be held by the same entity and MERS had transferred what interest it held - bare legal title. Thus, the court determined, the defendant properly held the mortgage and possessed the authority to foreclose.