Tending the Garden: Two Perspectives on Reforming the Patient-Psychotherapist Privilege in Employment Discrimination LitigationPosted: November 3, 2021
Employment discrimination cases often feature a claim for emotional distress damages. In defending against such a claim, an employer sometimes seeks access to the plaintiff’s mental health treatment records, looking for evidence that external or pre-existing factors caused the alleged injury. Disclosure of those records is generally prohibited by the patient-psychotherapist privilege, which protects the confidentiality of communications and records regarding the patient’s treatment. When disputes over these mental health records arise, courts must decide whether the plaintiff has waived that patient-psychotherapist privilege and thereby exposed the therapy records to discovery. In Massachusetts, the current test is a largely discretionary one in which the judge’s focus is on whether the plaintiff has pled more than “garden variety” emotional distress damages and whether the “interests of justice” weigh more heavily in favor of disclosure than confidentiality. In theory, this garden variety test strikes a balance between the plaintiff’s expectation of privacy and the defendant’s interest in accessing probative evidence for its defense. But, in practice, the test’s subjectivity produces uncertainty (and arguably unfairness) for both parties, leaving disclosure of the plaintiff’s deepest confidences—and what may be the defendant’s best chance of disproving damages—to the personal predilections of a judge. This article reviews the relevant case law, and presents two contrasting visions of potential reform.
The United States Supreme Court first recognized the patient-psychotherapist privilege in 1996 in Jaffee v. Redmond. There, the Court reasoned that the relationship between psychotherapist and patient necessitates “full and frank communication,” and that “[t]he mere possibility of disclosure may impede development of the confidential relationship necessary for successful treatment.” The Jaffee decision recognized that, like other privileges, plaintiffs could waive the patient-psychotherapist privilege in certain circumstances; but the Court left it to lower courts to develop standards for determining when waiver is appropriate.
Since Jaffee, courts across the country have developed divided approaches to the issue of waiver. A minority have adopted the defendant-friendly position that waiver of the patient-psychotherapist privilege follows whenever a plaintiff seeks emotional distress damages of any kind or degree. Others hew more closely to the common law of attorney-client privilege, holding that plaintiffs waive their patient-psychotherapist privilege only when they rely on confidential psychotherapy communications or call a mental health professional to testify at trial. Finally, many courts have treaded a middle ground in the so-called “garden variety” approach. Under this approach, courts are apt to find that a plaintiff has waived the privilege when seeking “more than garden variety” emotional distress damages. There is no universal definition of “garden variety” emotional distress, but the Western District of New York’s attempt to give shape to the term is fairly representative: “Garden variety claims refer to claims for compensation for nothing more than the distress that any healthy, well-adjusted person would likely feel as a result of being so victimized; claims for serious distress refer to claims for the inducement or aggravation of a diagnosable dysfunction or equivalent injury.”
Massachusetts adopted a version of the “garden variety” approach via statute, which also considers whether the interests of justice weigh against or in favor of waiver. Section 20B of Mass. Gen. Laws. c. 233 states that waiver is appropriate in cases “in which the patient introduced his mental or emotional condition as an element of his claim or defense, and the judge … finds that it is more important to the interests of justice that the communication be disclosed than that the relationship between patient and psychotherapist be protected.” State and federal trial courts interpreting this guidance have generally concluded that a plaintiff introduces her mental or emotional condition as an element of a claim or defense when she seeks more than “garden variety” emotional distress damages, or claims that the defendant caused a “psychic injury” or “impairment of mental health.”
Yet confusion has arisen as courts have attempted to define “garden variety.” A review of Massachusetts case law reveals that there is little consensus around where garden variety distress ends and extraordinary psychological injury begins. Some courts have found that plaintiffs claiming “mental anguish [and] severe emotional distress, including physical and mental suffering” and “intentional infliction of severe emotional distress” did not introduce their mental condition as an element of their claims, and thus did not waive the privilege. At the same time, others have found that allegations of “great emotional, psychological, and physical harm” and “irreparable mental damage and extreme impairment of mental health” were enough to clear the garden variety hurdle and compel disclosure of treatment records. These contradictory outcomes indicate that parties cannot reliably predict when a court will find that a plaintiff is seeking more than “garden variety” damages based simply on the vocabulary used to articulate the claim. Rather, whether a plaintiff pleads something more than garden variety distress depends largely on the discretion of the particular judge presiding over the case.
Section 20B’s “interests of justice” prong produces additional ambiguity. Specifically, it empowers courts to bar disclosure of treatment records even when a plaintiff seeks more than garden variety emotional distress damages if the interests of justice weigh in favor of preserving the privilege. In recent years, Massachusetts courts have increasingly relied on the interests of justice rationale to protect the privilege, unless the plaintiff calls a mental health professional to testify or introduces the content of her communications with a therapist as evidence at trial. Defendants may nonetheless argue for disclosure by making “a specific showing that the truth-seeking function of the trial will be seriously impaired unless a disclosure of the communication is ordered;” but this, too, proves to be a highly subjective and uncertain standard when actually applied. Thus, Massachusetts judges appear to be driving § 20B’s waiver standard toward the “narrow” approach adopted by other state and federal courts, but with none of the predictability associated with a bright-line rule.
The result is a subjective, content-less standard that presents challenges for both plaintiffs and defendants in employment discrimination cases. Even after carefully crafting a claim for emotional distress, plaintiffs may be unable to dictate or predict whether their treatment records will become subject to disclosure. At the same time, they walk a fine (and fuzzy) line between recovering their emotional distress damages and exposing their treatment records to discovery. Defendants, in turn, have little insight into or control over whether they will be able to develop an informed defense by gaining access to the plaintiff’s mental health history. In short, neither party has fair notice as to how the case is likely to play out.
We propose two alternate pathways to reform. While opposed in important respects regarding how and where the balance of fairness and public policy are properly struck, each approach would provide more predictability than the current standard.
 Jaffee v. Redmond, 518 U.S. 1, 10–11 (1996).
 For a thorough discussion of the different approaches that courts have taken toward waiver of the patient-psychotherapist privilege, see Helen A. Anderson, The Psychotherapist Privilege: Privacy and “Garden Variety” Emotional Distress, 21 Geo. Mason L. Rev. 117 (2013); see also Laudicina v. City of Crystal Lake, 328 F.R.D. 510. 513-14 (N.D. Ill. 2018) (Johnston, Mag.) (reviewing the “three approaches” to the issue of waiver); Cappetta v. GC Services Ltd. Partnership, 266 F.R.D. 121,127-29 (E.D. Va. 2009) (Lauck, Mag.) (same).
 Willey v. Kirkpatrick, No. 07-CV-6484CJS, 2011 WL 4368692, at * 7-8 (W.D.N.Y. Sept. 19, 2011) (Payson, Mag.).
 Sorenson v. H & R Block, Inc., 197 F.R.D. 199, 204 (D. Mass. 2000) (Collings, Mag.) (citing Jacobs v. Vachon, No. 961506, 2000 WL 281665 (Mass. Super. Jan 28, 2000) (Hamlin, J.).
 Sorenson, 197 F.R.D. at 204; Myers v Tom Foolery’s Inc., No. WCV98353A, 1999 WL 1025364, at *2 (Mass. Super. Sept. 29, 1999) (Hillman, J.).
 Tauro v. Gange & Sons, No. CA 952757C, 1996 WL 1186815, at *1 (Mass. Super. July 18, 1996) (Gershengorn, J.); Jacobs, 2000 WL 281665, at *2. See also Guimares v. Del Prete, No. 95-0738-A (Mass. Super. Apr. 27, 1996) (Brassard, J.) (“irreparable mental and emotional damage”).
 See, e.g., Conklin v. Feitelberg, 146 F. Supp. 3d 430, 436-38 (D. Mass. 2015) (Dein, Mag.); Saunders v. FA Bartlett Tree Expert Co., No. 5-CV-12358-NG, 2006 WL 8459043, at *5 (D. Mass. Mar. 15, 2006) (Alexander, Mag.); Robart v. Alamo Rent-a-Car, LLC, No. 034603J, 2005 WL 1009746, at *3-4 (Mass. Super. Mar. 16, 2005) (Gaziano, J.); Linscott v. Burns, No. C.A.2003-00648, 2005 WL 351039, at *3 (Mass. Super. Jan. 27, 2005) (Agnes, J.); Donovan v. Prussman, No. CIV. A. 99-175D, 2000 WL 1257463, at *4-7 (Mass. Super. Aug. 28, 2000) (Agnes, J.).
 Linscott, 2005 WL 351039 at *3; see also Donovan, 2000 WL 1257463 at *7.
by Douglas Brayley & Matthew Carrieri
The current standard governing waiver of the patient-psychotherapist privilege unjustifiably tilts the resolution of emotional distress damage claims in the plaintiff’s favor. Massachusetts courts may have developed the “garden variety” test in a sincere attempt to balance the interests of plaintiffs and defendants. However, what has become the routine invocation of the garden variety talisman permits plaintiffs to shield highly relevant information from discovery while still seeking (and recovering) extraordinary damage awards. In practical terms, defendants in employment discrimination lawsuits often find themselves denied access to the most probative evidence available for rebutting a claim that their actions proximately caused an employee to suffer potentially millions of dollars in emotional distress damages. In short, the status quo is unfair to employer defendants.
Our proposed solution is simple. First, plaintiffs who claim only “garden variety” damages—and thus assert the privilege—should thereby assent to certain trial limitations. Specifically, upon invocation of the privilege, the trial court should (1) hold that therapy records and related evidence are inadmissible; and (2) give a jury instruction explaining that the plaintiff seeks (and may be awarded) only “garden variety” emotional distress damages. The instruction should articulate the recoverable damages as compensating, in the words of the Western District of New York, “[n]othing more than the distress that any healthy, well-adjusted person would likely feel as a result of being so victimized.” Other potential consequences arising from the plaintiff’s invocation of the privilege might include imposing reasonable limitations on what plaintiff’s counsel can allege by way of emotional distress in opening statements and closing arguments, and vesting the court with discretion to order remittitur if the jury’s damage award exceeds what the court deems to be reasonable for “garden variety emotional distress.” Under this approach, the power to preserve or waive the privilege remains with the plaintiff, but reasonable conditions on its invocation safeguard the defendant’s interest in developing an informed defense on the issue of damages.
Second, the conditions that attach to preservation of the privilege—and the very definition of “garden variety” emotional distress—should ideally be laid out in a statute, and not developed through the courts. Codifying the terms of privilege preservation and waiver would reduce much of the uncertainty that plagues the current application of the garden variety test. Together, these reforms would rebalance the undue advantages that plaintiffs have come to enjoy in discovery disputes over therapy records, while protecting both parties’ interests in fairness and predictability.
The following hypothetical illustrates the dangers that the current garden variety test poses for employers. A non-White employee in a majority White office applies for a promotion within her department. Her White manager has harbored concerns about her job performance for some time now—her in-office attendance has been spotty and her work product sub-par for months. Nonetheless, she has worked for the company in the same capacity for a couple of years, and employees in her position are normally promoted around the two-year mark. After comparing this employee against the pool of internal candidates, the manager decides to go with a slightly more junior candidate, who happens to be White. However, the manager likes the employee and wants her to succeed, so the manager holds a meeting with her to discuss how her performance might be improved ahead of the next job opportunity. The manager thinks the meeting went well.
Unbeknownst to the employer, this employee has been struggling with clinical depression triggered by traumatic events in her personal life. To date, however, she has chosen not to take time off from work or otherwise disclose her situation to anyone other than a psychotherapist. Distraught that her employer bypassed her for a promotion despite what she perceives as her hard work and grit, and on the advice of her doctor, the employee takes an extended leave from work. Then, while on leave, she files a charge with the Massachusetts Commission Against Discrimination, claiming that her employer discriminated against her on account of race.
The employee eventually removes the case to Massachusetts Superior Court, where she seeks $5 million in emotional distress damages. In her complaint, the plaintiff alleges that the employer’s job actions caused her to experience “severe emotional distress and mental anguish, which produced both physical and mental suffering.” The employer is taken aback by the amount of damages sought by this employee for simply having been denied a promotion, and wonders whether an intervening cause may actually have triggered her alleged distress. Having heard a workplace rumor that the employee may recently have begun therapy, the employer serves discovery requests for—and eventually moves to compel production of—the employee’s treatment records. (Consider, by way of comparison, a defendant’s commonplace request for medical records in a tort action involving physical injuries, which records are sought for the purpose of exploring the extent to which the alleged harm may have originated from a pre-existing condition.)
The employee opposes the motion, asserting that she has alleged no more than garden variety emotional distress. Applying Section 20B’s test, the trial court agrees that the employee’s allegation of only garden variety emotional distress has not introduced her mental condition as an element of the claim. The court is likewise not convinced that the proceedings’ truth-seeking function would be seriously impaired if the employer were not permitted to mine the employee’s psychiatric records. Accordingly, the court declines to compel disclosure.
The employer now occupies an untenable position. Without access to the employee’s mental health records or the ability to cross-examine her treating psychotherapist, it is much more difficult to prove that anything other than the employer’s decision to deny the subject promotion caused plaintiff to suffer her claimed emotional distress. At the same time, there is virtually no constraint on a jury’s eventual ability to award the full requested $5 million in damages. (A recent amendment to Section 13B of Mass. Gen. Laws c. 231, allowing a plaintiff to request a specific amount of damages during closing arguments, heightens the risk of this unfairness.) Feeling unable to present a cogent defense on damages, the employer settles for an amount far greater than it otherwise would have, primarily to mitigate the risk of an outsized jury award.
It is difficult to see how the status quo serves the “interests of justice” intended by Section 20B. A plaintiff should not be allowed to block a defendant’s attempt to take discovery of his or her mental health condition and records, and yet still collect an extraordinary award for what the plaintiff concedes is an ordinary level of emotional or psychological harm. This result flies in the face of common sense, never mind fairness. The law should only allow ordinary or “garden variety” harm to be compensated with ordinary damages. Finally, neither party should be required to guess how a judge will rule on a basic, though highly consequential, evidentiary issue.
Imposing trial limitations on plaintiffs who profess only “garden variety” emotional distress damages would be an appropriate and overdue step towards fairness. A recent decision of the U.S. District Court for the District of Maine shows how this approach might work in practice. In Doe v. Brunswick School Dep’t, No. 2:15-cv-257-DBH, 2016 U.S. Dist. LEXIS 59107 (D. Me. Apr. 29, 2016), a student claimed that he and his mother had experienced “emotional pain and distress, suffering, mental anguish, and loss of enjoyment of life” on account of his school’s failure to address repeated instances of sexual, physical, and verbal abuse. The defendant school sought access to the student’s therapy records, including those pre-dating the alleged instances of abuse, and the student’s mother invoked the patient-psychotherapist privilege. The court declined to compel production, but in doing so required the student and his mother to withdraw any claims for emotional distress damages other than those that would “likely be felt by any healthy, well-adjusted person” (i.e., that are of a “garden variety” nature), and to forfeit their right to rely on medical or mental health experts or records to prove damages. The court made clear that, should the plaintiffs fail to abide by those limitations, it would consider the privilege waived and order discovery of the student’s therapy records. While Brunswick does not prescribe how such limitations would be enforced at trial, a jury instruction and/or explicit remittitur power vested in the judge would be reasonable means of doing so.
The Brunswick approach benefits plaintiffs and defendants alike. The plaintiff retains control over waiver of the privilege, but no longer needs to worry about painstakingly crafting her complaint for damages in the hope that a judge will discern only garden variety distress in its language. Instead, the plaintiff makes a simple choice: waive the privilege and seek extraordinary damages, or preserve it and accept ordinary relief. The defendant, on the other hand, no longer faces the dilemma of having to rebut a claim for extraordinary damages without the probative evidence it needs to build a defense.
Reform should ideally be carried out through legislative action rather than in the courts, given that much of the current uncertainty results from the unpredictable exercise of judicial discretion. A statute or other rule that defines what exactly constitutes “garden variety” emotional distress, and spells out the other conditions and consequences that will attach should the plaintiff invoke the privilege, would give all parties fairer notice and better secure the interests of justice.
Douglas Brayley is a partner in the Employment, Executive Compensation, and Employee Benefits group at Ropes & Gray LLP, and leads the firm’s employment litigation practice. Doug represents employers in complex employment disputes and internal investigations, and advises employers on a wide range of labor and employment issues in the context of mergers and acquisitions as well as day-to-day operations.
Matthew Carrieri is an associate in the Employment, Executive Compensation, and Employee Benefits group at Ropes & Gray LLP. Matthew represents clients in litigation before state and federal courts and at arbitration, and advises employers on labor and employment matters.
 The analogy is apt. See, e.g., Linscott, 2005 WL 351039 at *2 (“[A] party with a pre-existing condition … who suffers a physical injury is permitted to recover damages for the aggravation to that pre-existing condition whether it is physical or emotional.”) (citing Wallace v. Ludwig, 292 Mass. 251, 254–55 (Mass. 1935) (Rugg, J.)).
by Monica R. Shah & Caroline Davis
Evidentiary privileges, like the patient-psychotherapist privilege, the spousal privilege, or the better-known attorney-client privilege, have long “been found, through centuries of experience, to outweigh the public interest in the search for truth.” By their very nature and design, these privileges deny access to testimony or evidence that would otherwise be relevant, probative, and, in many cases, highly sought after. Nonetheless, our courts enforce these privileges because the “very real interest[s] to be protected” trump the judicial system’s quest for truth and litigants’ presumptive obligation to produce relevant evidence.
Like other privileges protected by law, the patient-psychotherapist privilege protects an important public good: “the imperative need” for “an atmosphere of confidence and trust,” which is essential for “[e]ffective psychotherapy.” As the Supreme Court has recognized, “[b]ecause of the sensitive nature of the problems for which individuals consult psychotherapists, . . . the mere possibility of disclosure may impede development of the confidential relationship necessary for successful treatment.” Therefore, severely restricting the possibility of disclosure – and investing the plaintiff with the ability to predict and control the same – is essential to preserving the public good for which that privilege was established.
Nearly a quarter of Massachusetts residents rely on or attempt to obtain psychotherapy or counseling services, a number that is only increasing as a result of the mental health ramifications of the COVID-19 pandemic. Unfortunately, this critical public good is routinely undermined and jeopardized by the current approach to waiver of the patient-psychotherapist privilege adopted by the Massachusetts courts. Courts applying Massachusetts’ current test—which considers whether the plaintiff has alleged more than “garden variety” emotional distress, and whether the interests of justice weigh in favor of confidentiality or disclosure—frequently reach widely divergent conclusions in similar factual scenarios.
As the law currently stands, even plaintiffs who expressly disavow any intent to claim more than garden variety emotional distress damages—or, in some cases, any emotional distress damages at all—sometimes find their confidential records subject to disclosure. For example, in recent cases applying Massachusetts’ current approach, state courts concluded that plaintiffs asserting “neurological damage” or a “physical injury accompanied by severe pain and suffering including persistent headaches, loss of memory and ability to concentrate,” actually raised their “mental condition” and thus waived the patient-psychotherapist privilege, even despite the plaintiffs’ explicit claims to the contrary.
In recent years, some Massachusetts courts have trended toward increased protection for patient-plaintiffs, adopting reasoning that echoes other states’ “narrow approach.” These courts have concluded that the interests of justice support disclosure of confidential communications only in limited circumstances, including when the plaintiff introduces testimony from her psychotherapist or relies on communications and records from her treatment. Federal courts in Massachusetts have also followed the more narrow approach to privilege waiver. Other Massachusetts courts, conversely, have taken a more expansive view of the interests of justice, weighing the confidential nature of the records against their evidentiary value on a case-by-case basis. These divergent approaches leave patient-plaintiffs unable to control or predict whether a court will deem their privilege waived. Unless Massachusetts narrows its approach to waiver, “the promise of confidentiality” will remain “contingent upon a trial judge’s later evaluation of the relative importance of the patient’s interest in privacy and the evidentiary need for disclosure;” and, just as the Supreme Court predicted in Jaffee, “the effectiveness of the privilege” will be “eviscerate[d].”
The so-called “narrow approach”—under which the patient-psychotherapist privilege is waived only when the plaintiff makes affirmative use of the privileged material in advancing his or her claims—is the best alternative, as some Massachusetts courts have already recognized. In order to properly serve the important private and public interests which underlie that privilege, Massachusetts courts should construe Section 20B to find that “it is more important to the interests of justice that the communication be disclosed than that the relationship between patient and psychotherapist be protected” only where the plaintiff herself introduces or relies upon those communications at trial.
First, predictability and control by the plaintiff is key. An approach that places waiver of the patient-psychotherapist privilege reliably within the patient-plaintiff’s control is essential to serving both the individual’s private interests in protecting confidential communications and the public interest in facilitating effective treatment for persons in need of psychiatric care. The narrow approach “provides the best means of carrying out the Supreme Court’s directive, as articulated in Jaffee, that decisions regarding application of the psychotherapist-patient privilege should be predictable, and should not be made by balancing the plaintiff-patient’s interest in privacy against the defendant’s need for the evidence.”
Most importantly, the narrow approach best serves the critical public policy interests (and the evident legislative intent) underlying the patient-psychotherapist privilege. Like all privileges, the patient-psychotherapist privilege exists because the public benefits of protecting certain confidential communications outweigh litigants’ interests in equal and fair access to relevant evidence. In recognizing the patient-psychotherapist privilege, the Jaffee court weighed and balanced these competing interests and concluded: the patient-psychotherapist privilege “serve[s] a public good [which] transcend[s] the normally predominant principle of utilizing all rational means for ascertaining truth.” In other words, the public benefits of the privilege trump individual litigants’ entitlement to relevant evidence, and our courts should thus adopt an approach which incentivizes and “facilitate[s] the provision of appropriate treatment for individuals suffering the effects of a mental or emotional problem.”
In fulfilling these public policy goals, the narrow approach will ensure proper functioning of both the patient-psychotherapist relationship and the judicial system. Without confidence that their communications will not later be revealed against their will, patients in need of mental health services are less likely to pursue such services or to share honestly and effectively with their treatment provider. Similarly, unless they can be assured that bringing claims will not result in a forfeiture of the privilege to protect their most deeply felt mental health confidences, victims of employment discrimination will be less likely to avail themselves of the remedial recourse of laws intended to protect their civil rights. The judicial system’s goal of making injured plaintiffs whole is poorly served when prospective plaintiffs are forced to choose between pursuing their claims and protecting the confidentiality of their privileged communications. Additionally, both plaintiffs and defendants are likely to benefit from enhanced opportunities for plaintiffs to access effective psychotherapy. Therapy will often improve the patient-plaintiff’s mental state, and thereby help mitigate damages or avoid litigation altogether.
By its very nature and purpose, an evidentiary privilege limits a litigant’s access to relevant evidence, and that limitation is a necessary consequence of any approach to the issue. But in every case, the narrow approach will foster an equal and predictable universe of evidence upon which plaintiff and defendant alike may rely at trial: if the plaintiff relies on confidential communications with a psychotherapist, then the privilege is waived and those records will be subject to discovery by the defendant; but if the plaintiff does not introduce those confidential communications, then neither party may look to the plaintiff’s psychotherapy treatment for evidence for or against the plaintiff’s claims.
At the same time, even under the narrow approach, other methods and avenues for discovery of the plaintiff’s mental state remain available to defendants. When the plaintiff chooses not to waive her privilege, “the defendants remain free to question the plaintiff about the fact of psychotherapy treatment and can still probe the plaintiff’s credibility and inquire into his past for the purpose of showing that his emotional distress was caused at least in part by events that were not related to the alleged acts of the defendants.” Modern discovery practices provide ample opportunity for a defendant to probe the plaintiff’s mental health status, even without access to confidential treatment records. For example, defendants may be able to obtain information and documents (including emails, text messages, social media postings and non-privileged medical records) reflecting plaintiff’s emotional state, and then depose the plaintiff and other witnesses about stressors in the plaintiff’s non-work life without needlessly invading therapeutic communications.
Despite the efforts of some Massachusetts courts to establish a helpful framework, the “garden variety” approach has failed to coalesce into a predictable and useful body of law. Instead, the current approach has produced decades of inconsistent decisions, created disincentives against both seeking psychotherapy and pursuing justice via our civil legal system, and ultimately failed to serve the public interests underlying the privilege itself. In order to resolve the inconsistencies and serve those public interests, Massachusetts should adopt the “narrow approach” and protect the confidentiality of psychotherapist communications unless the plaintiff introduces or relies on those communications when making her claims.
Monica R. Shah is a partner at Zalkind Duncan & Bernstein LLP where she focuses her litigation practice on plaintiff’s side employment law, criminal defense, and Title IX matters. In her employment work, she advocates for employees in discrimination, sexual harassment, FMLA/disability, and wage and hour cases in state and federal courts, and counsels employees on a variety of workplace matters, including employment and severance agreements.
Caroline Davis is an associate at Zalkind Duncan & Bernstein LLP. Her state and federal litigation practice focuses on protecting the rights of employees facing discrimination, retaliation, and other workplace violations, along with academic and university proceedings, criminal defense, and a wide variety of civil litigation.
 United States v. Bryan, 339 U.S. 323, 331 (1950).
 Id. at 332.
 Jaffee, 518 U.S. at 10.
 Massachusetts Health Reform Survey, https://www.bluecrossmafoundation.org/sites/g/files/csphws2101/files/2020-09/2018_MHRS%20Chartpack%20MH%20SUD%20Care%20Measures_final.pdf (Dec. 2021); Covid Community Impact Survey, https://www.mass.gov/doc/ccis-webinar-mental-health/download (June 8, 2021).
 Lora-Pimentel v. Girard, No. 1884CV01073, 2020 WL 4347240, at *2 (Mass. Super. June 23, 2020) (Gordon, J.); Donovan, 2000 WL 1257463 at *4.
 See, e.g., Doe v. Roman Catholic Bishop of Worcester, No. 20042511C, 2006 WL 620701, at *2 (Mass. Super. Feb. 2, 2006) (Locke, J.); Donovan, 2000 WL 1257463 at *7.
 See supra notes 5-8.
 Silvestri, 2016 WL 778358 at *4.
 Jaffee, 518 U.S. at 15 (internal quotation omitted).
 Id. at 11, 15.
The foreclosure crisis in Massachusetts is not over. Massachusetts foreclosure rates continue to climb, depressing values of surrounding homes, creating urban blight, decreasing the economic health of predominantly low and moderate income communities, especially communities of color, and generally negatively affecting economic vitality and residential lending in Massachusetts. Foreclosures affect us all. So what can be done? It is time to look seriously at adopting judicial foreclosure.
Almost all foreclosures in Massachusetts go forward without an opportunity for the homeowners to challenge the foreclosure or present important defenses, including: that they do not owe what is claimed; that the foreclosing entity does not own the mortgage or note; or that the mortgage was obtained by fraud.
Oftentimes, challenges to an unlawful foreclosure are not made until the owner is being evicted – the first time there is an opportunity for a hearing before a judge. Ironically, Massachusetts law offers greater protection for rental tenants in Summary Process cases than it does to former homeowners facing foreclosure.
More than sixty percent of the US population benefits from the opportunity to be heard that judicial foreclosure provides. As a state that values transparency and due process, why is Massachusetts so backward in its foreclosure laws?
Non-judicial foreclosure was traditionally allowed only because foreclosing entities exercised strict compliance in every step of the foreclosure proceeding. This was an honor system, predicated upon lenders maintaining high standards of legal precision in writing, conveying and, if necessary, foreclosing upon mortgages. The foreclosure process therefore did not require a judge’s supervision.
As the residential mortgage market became more complex—including through securitization, assignment of mortgages into trusts, and consolidation of banks into large entities—it also became clear that banks and foreclosure firms often foreclosed carelessly and did not strictly follow the foreclosure statutes or power of sale provisions of the mortgages.
This has been made clear by the many SJC cases involving banks and foreclosure firms that did not comply with the strict procedural requirements. Specifically, beginning with U.S. Bank Nat. Ass’n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40 (2011), the Supreme Judicial Court has ruled on a number of foreclosure cases, finding that banks and mortgage holders failed to properly foreclose because: they did not hold the mortgage and note at the time of the foreclosure; they did not send the appropriate notices required by statute; or they failed in some other way to strictly comply with power of sale provisions of the mortgage. The lower court decision in Ibanez stated that many lenders have been allowed “to take someone’s home without any demonstrable right to do so.” Judicial foreclosure is needed to ensure this does not continue to happen. The absence of judicial oversight over foreclosures in Massachusetts has resulted in many foreclosures being invalidated, creating a slew of foreclosed homes with title problems, unnecessarily displacing homeowners, destabilizing neighborhoods, and breeding mistrust and ill-will for mortgage lenders. Despite the legislature adding new notice requirements to Mass. G.L. c.244, this did not cure the problem of unlawful foreclosures. In fact, the number of foreclosures in Massachusetts has been increasing and many continue to be improper.
One study by the Center for Responsible Lending found that, “on average, families affected by nearby foreclosures have already lost or will lose $21,077 in household wealth, representing 7.2 percent of their home value, by virtue of being in close proximity to foreclosures.” Another study by the Alliance for a Just Society estimated lost wealth due to foreclosures at $192.6 billion, an average of $1,700 in lost wealth per U.S. household and that there was a disproportionate effect on communities of color.
The sloppiness and uncertainty created by the non-judicially regulated process has led even some title insurance companies and real estate lawyers in Massachusetts to complain and reconsider the merits of judicial foreclosure. In the wake of some of the recent foreclosure decisions such as Ibanez and Pinti v. Emigrant Mortgage Co., Inc., 472 Mass. 226 (2015), some title insurers said they would change their insurance contracts to require a judicial decision. In fact, some even called for judicial foreclosure. See Rich Vetstein, Title Insurance Companies Balk At Insuring Foreclosed Properties, The Massachusetts Real Estate Blog (Sept. 3, 2015).
In addition, the absence of judicial foreclosure has overburdened the Housing and District Courts that hear Summary Process cases because this is the first opportunity that former homeowners have to challenge the underlying validity of the foreclosure auction and sale. This system clogs up the Summary Process docket and forces often complex litigation into courts that are set up to adjudicate simple and straightforward evictions of tenants. For these cases, this has taken the “summary” out of summary process!
From colonial times, Massachusetts has been a leader in protecting the rights of its residents to due process of law. The Massachusetts Constitution’s due process clause was a model for that of the U.S. Constitution. Yet, regrettably, Massachusetts now lags behind in protecting these rights in the foreclosure process. It is clear the honor system of non-judicial foreclosure has failed: This is especially so for homeowners who have wrongfully been foreclosed upon and for unsuspecting third party buyers who have had to face summary process eviction claims. We urge Massachusetts to join with the over 20 other states that mandate judicial foreclosure in affording homeowners a fair hearing and the right to a day in court, in order to ensure that the law has been followed before they lose their homes. It is a matter of fundamental fairness to extend this basic protection to citizens.
Nadine Cohen is the Managing Attorney of the Consumer Rights Unit of Greater Boston Legal Services. She has been representing homeowners in foreclosure cases since the foreclosure crisis began in 2008.
Todd S. Kaplan is a Senior Attorney at Greater Boston Legal Services. He has worked at GBLS for over 19 years and has worked in the Consumer Rights Unit for over 5 years representing homeowners pre and post-foreclosure. Prior to that he represented tenants facing eviction and was part of a team of attorneys that resulted in a landmark settlement with the MBTA for persons with disabilities.
This is not the time to move to a system of judicial foreclosure in Massachusetts. The current system of non-judicial foreclosures has worked as it should, allowing foreclosures to proceed independent of the courts, yet simultaneously allowing judicial intervention where appropriate to protect the rights of borrowers from improper practices.
Although foreclosure requires the knowledge and experience of an attorney, the process itself is largely formulaic. There are notices that must be sent and legal advertisements that must be drafted and published, each on particular dates and at particular intervals, and there is a process that must be followed for the entry and for the foreclosure public auction.
For centuries, Massachusetts attorneys have handled this process properly while the courts have stood available to resolve disputes only when necessary. This system has conserved judicial resources for disputes that truly require judicial intervention. If the Commonwealth now adopted a system of judicial foreclosure, the regular would become the routine, with courts inevitably treating the process as an administrative one and focusing on the process itself rather than the substance. The cases would be handled by clerks with minimal involvement by judges. There is no reason to believe that the administrative process of judicial foreclosure would enhance borrowers’ rights. Indeed, the opposite is true: The influential foreclosure decisions of the Massachusetts courts (e.g., U.S. Bank Nat. Ass’n v. Ibanez, 458 Mass. 637 (2011), Bevilacqua v. Rodriguez, 460 Mass. 762 (2011), Eaton v. Federal Nat’l Mortgage Ass’n, 462 Mass. 569 (2011), and their progeny), have resulted not from judicial foreclosures, but from a system that allowed the foreclosures to receive the particular attention of a judge in a singular case.
Conversely, there is grave concern that the courts do not have the resources to handle the volume of judicial foreclosure cases. The Land Court and the Superior Court already are taxed by their existing caseloads. And the recent example of the Servicemembers’ Civil Relief Act—which required the Land Court to review and approve certain foreclosures—has shown how the increased workload has led to delays in the completion of foreclosures.
Although foreclosures are symptoms (not causes) of an economic downturn, systematic delays in foreclosure beyond those necessary to protect the rights of borrowers can aggravate an economic downturn. The presence of large numbers of homes in foreclosure has an adverse effect on communities, where the homes may sit vacant or in disrepair for an extended period of time. Cities and towns that are already economically disadvantaged are likely to suffer even more. The system of judicial foreclosure in Florida is instructive. There, the judicial foreclosure process became so bogged down that delays as long as three years became the norm. The courts could not handle the volume of cases, so cases waited for hearing dates. Values remained depressed, condominium associations struggled to collect sufficient revenues, and the overall economy struggled. It is not a coincidence that the Massachusetts real estate market has improved dramatically from the depths of the recession, while Florida brokers are still complaining and newspapers are still writing about the adverse effect of distressed real estate and foreclosures.
Massachusetts has traditionally been in the forefront of protecting its citizens, and it remains so. In the wake of the scandals regarding predatory lending and failures in the secondary mortgage market, the General Court enacted significant changes to Mass. G.L. c.244, § § 35A, 35B, and 35C, that protect borrowers in pre-foreclosure contexts to a degree not found in many other states. We have a system in place that has worked, and has mostly respected the rights of borrowers. Where that has not happened, our courts have been vigilant in protecting those rights. Judicial foreclosure will strain our courts and create delays that harm the economy and real estate market. There is no evidence that a change in the foreclosure process will protect the rights of borrowers to any greater extent than the existing process. Where our existing system of non-judicial foreclosure is not broken, there is no need to fix it.
Robert J. Moriarty, Jr. is a founding partner in Marsh, Moriarty, Ontell & Golder, P.C. and has concentrated his practice in commercial and residential real estate. He is a frequent lecturer on complex title matters and is a former president of REBA.
By Paul R. Collier, III
A quartet of decisions by the Supreme Judicial Court rejected mortgage lending industry efforts to immunize itself from liability for predatory and reckless loan underwriting and unauthorized foreclosures. While the industry criticizes these decisions, it makes no real argument as to their doctrinal soundness. Instead, “setting blame aside,” the industry objects that these decisions provided no benefits to homeowners, and created “outright chaos” in the marketplace.
As to the first of these claims, the industry is being disingenuous at best, dissembling at worst. The claims and defenses based on the Supreme Judicial Court decisions have preserved literally thousands of homes in the Commonwealth. Yet, notwithstanding its professed concern for the welfare of struggling homeowners, lending industry voices in every fora have opposed mortgage modifications that reduce loan principal (and other homeowner relief measures) because of the “moral hazard” flowing from debt-buried homeowners escaping the consequences of their borrowing conduct. In truth, the industry seeks only to set aside its responsibility for the dire state of many under water U.S. homeowners.
As to the claim of “market chaos,” the evidence shows nothing of the sort. To the contrary, realty tracking services document increasing numbers of properties purchased at foreclosure sales, declines in bank-owned properties, and increases in “short sales” and other alternatives, both in Massachusetts and nationwide. The number of homes preserved, moreover, will only increase as a result of the Attorney General’s Home Corps grants providing legal representation to homeowners facing foreclosure.
The Past as Prologue
The Supreme Judicial Court presaged the housing market collapse in Commonwealth v. Fremont Inv. & Loan, 452 Mass. 733, 739 (2008), where the Court affirmed now-Supreme Judicial Court Justice Gants’ decision that origination of mortgage loans “doomed to foreclosure” violated the Consumer Protection Act. Judge Gants reached this conclusion after the Commonwealth’s Attorney General reviewed nearly two hundred sub-prime loans made by Fremont, and objected to foreclosure of most of those loans as predatory and unfair, or, as Judge Gants held in a related decision, “made with reckless disregard of the risks of foreclosure.” Predictably, securitized lenders’ “reckless” loan origination practices led inexorably to the “careless” foreclosure of those unsound mortgages; this explosion of securitized mortgage foreclosures drove the Supreme Judicial Court’s foreclosure trilogy: United States Bank Nat’l Ass’n v. Ibanez, 458 Mass. 637 (2011), Bevilacqua v . Rodriguez, 460 Mass. 762 (2011), and Eaton v. Fannie Mae, 462 Mass. 569 (2012).
Before narrowing the discussion to decisional precedent, some context is merited. First, while predatory loans touched all races and all communities, sub-prime loans were overwhelmingly made to borrowers of color. Since the foreclosure crisis began, communities of color experienced nearly double the foreclosure rates of white communities, with all of the collateral damage which high-foreclosure communities face. Comparing 2004 and 2009 Census Bureau data, the financial fallout of the losses of family homes, and loss of value even where families preserved their homes, resulted in the greatest wealth disparity by race ever recorded, with the median net worth of black American families falling to one twentieth that of white families, median black net worth falling to $5,677, and one third of black American families with zero or negative net worth. http://www.pewsocialtrends.org/2011/07/26/wealth-gaps-rise-to-record-highs-between-whites-blacks-hispanics/
Ibanez, Bevilacqua, and Eaton
Ibanez was the first of the trilogy, where the securitized trustee foreclosed on a home despite not having title to the mortgage which provided the sole authority for the non-judicial foreclosure. By a back-dated assignment, the trustee admitted to acquiring the mortgage over a year after the foreclosure sale, and then sought a judicial declaration of valid, conveyable title. In support, the Real Estate Bar Association (REBA) asserted that “…it was the understanding of the conveyancing bar that it was acceptable practice for a noteholder to commence foreclosure proceedings with the understanding that the necessary confirming assignments could be obtained and later recorded.” The Ibanez Court rejected this “understanding,” observing that Massachusetts authority had been to the contrary for two centuries:
Recognizing the substantial power that the statutory scheme affords to a mortgage holder to foreclose without immediate judicial oversight, we adhere to the familiar rule that “one who sells under a power [of sale] must follow strictly its terms. If he fails to do so there is no valid execution of the power, and the sale is wholly void.” …
One of the terms of the power of sale that must be strictly adhered to is the restriction on who is entitled to foreclose. The “statutory power of sale” can be exercised by “the mortgagee or his executors, administrators, successors or assigns.” … Any effort to foreclose by a party lacking “jurisdiction and authority” to carry out a foreclosure under these statutes is void.
Ibanez, supra at 646-647. Holding the “retroactive” foreclosure sale void, the Ibanez ourt also declined the invitation to hold that the promissory note and the securitization documents gave the trustee sufficient “financial interests” and “indicia of ownership” to foreclose.
Bevilacqua followed Ibanez. There, both mortgage bankers and the title industry sought to launder properties foreclosed by non-mortgagees in violation of Ibanez by contending that the sale of such properties with void foreclosure titles created a valid title in subsequent purchasers. Bevilacqua, supra at 774 – 778. The Court disagreed:
[T]he key question in this regard is whether the transaction is void, in which case it is a nullity such that title never left possession of the original owner, or merely voidable in which case a bona fide purchaser may take good title…. Our recent decision in the case of U.S. Bank Nat’l Ass’n v. Ibanez, 458 Mass. 637, 647 (2011), however, concluded that”[a]ny effort to foreclose by a party lacking ‘jurisdiction and authority’ to carry out a foreclosure under [the relevant] statutes is void.” We decline the invitation to revisit this issue.
Eaton closes the trilogy. In Eaton, the Supreme Judicial Court faced the obverse of the question presented in Ibanez – whether the holder of a mortgage assignment but not the debt could foreclose upon a property for non-payment of that debt. Here, both REBA and the title insurance industry contended that unity of mortgage title and note was not required for foreclosure. Again, this was a disingenuous position: although both had argued in Ibanez that noteholders could foreclose without assignment of the mortgage because the debt was the important issue, both argued in Eaton that the debt was wholly unnecessary to foreclosure.
Industry representatives grafted onto this argument the same, frantic “sky-is-falling” predictions asserted in Ibanez and Bevilaqua: that if the “unity” requirement was affirmed, then, because recording of notes in Registry or Land Court records was not a legal requirement, all record titles would be in question. This was puzzling, since in Ibanez the industry had vehemently argued that assignments of mortgages at the Registry historically were not, and should not be, required; but if unrecorded and unrecordable mortgage assignments posed no threat to title integrity, then why did unrecorded notes threaten civilization as we know it?
The Court affirmed the “Unity Rule,” holding that the term “mortgagee” meant a mortgagee who also holds the underlying mortgage note….” Yet, despite what the Court described as 150 years of precedent, the Court limited its holding to prospective application, “because of the fact that our recording system has never required mortgage notes to be recorded.” The Court explicitly suggested that non-recording issues be resolved by a title affidavit system, creating a Registry record for future foreclosure titles.
Back to the Future
Although the Legislature moved quickly to adopt the suggested affidavit system, there are several significant issues simmering in trial court proceedings. Some have come about as a result of legislative efforts to address predatory lending and foreclosure activities which have so tarnished a banking industry once perceived as more George Bailey than Gordon (“Greed is Good”) Gekko, while others are simply the latest strategies of a securitized finance sector determined to force foreclosed homeowners and invisible investors, rather than the banks and mortgage loan servicers, to pay the costs of its practices. Most importantly, after four years of over-patient state and federal governmental cajoling of securitized loan servicers to preserve families in their homes where a mortgage modification would produce more value than a sale by foreclosure, the Legislature has now made these mortgage modifications mandatory in G.L. c. 244 §§35A, 35B, and 35C. “An Act Preventing Unlawful and Unnecessary Foreclosures” compels loan servicers to do what sound business judgment (and basic humanity) could not. The industry should face close scrutiny to ensure that the statutorily-required “net worth” comparison between the “value” of affordable modifications (preserving the family’s home) and the value obtained from the foreclosure sale of that home bears more relationship to reality that their predatory lending “underwriting standards” did.
In that vein, contrary to their own entwined funding, purchasing and securitizing structures, securitized trustees and their servicers argue in the courts that their pre-ordained mortgage loan pipeline represents an arms-length, bona fide purchaser transaction. On that basis, the finance industry now argues that it should be immune from liability for the predatory practices of their originating assignors despite long-established precedent that assignees stand in the shoes of their assignors. These issues are currently on direct appellate review in the Supreme Judicial Court in Drakopoulos v. U.S. Bank, Trustee, SJC – 11271.
Similarly, the issue of whether only a mortgagee may undertake foreclosure-related action has arisen again, this time with regard to the G.L. c.. 183 §21 and c. 244 §35A requirements concerning exercise of the statutory and contractual powers of sale and mortgage acceleration. §35A has, since May 1, 2008, expressly commanded that only a “mortgagee” may accelerate a residential mortgage, and that the required notice “shall inform the mortgagor of… the name and address of the mortgagee or anyone holding thereunder….” Confronted with trustees and/or servicers sending these notices without any mortgage assignment, and even representing originators or servicers as the “mortgagee,” trial courts have differed both as to the meaning, and the effect of a breach of this provision.
Finally, industry counsel assail the Supreme Judicial Court decisions as “unnecessarily” and “ill-advisably” rejecting the industry’s lending and foreclosure practices which the Court – and many experienced Massachusetts conveyancers, including Judge Keith Long, the Land Court Judge deciding both Ibanez and Bevilacqua, andMass. Lawyer’s Weekly’s “Avuncular Adviser” – have characterized as surprisingly careless; instead, the industry practices should have been approved because they represented local practices. But our courts long ago recognized that an entire industry could choose expedience over due care, and that the judiciary was ill-advised to subordinate the public interest to private ordering. The T. J. Hooper, 60 F.2d 737 (2d Cir.N.Y. 1932). From unsound loan origination to false robo-signing of judicial documents to careless foreclosure of family homes, the securitization industry has shown, again and again, that expedience is king. Where the lending industry is seeking to dispossess families from their homes with no judicial oversight, surely requiring that lenders do so meticulously in compliance with the minimal requirements of the mortgage and the law is not too much to expect.
If the industry’s reckless underwriting and their careless foreclosures are any guide, there is indeed more to come.
Since 1977, Paul R. Collier, III has been a public interest lawyer, working as a legal services attorney, a Lecturer on Law in Advanced Civil Litigation and Trial Practice at Harvard Law School, and Director of Litigation and the Predatory Lending Project at the Wilmer/Hale Legal Services Center of the Harvard Law School. He practices in Cambridge, was counsel in Ibanez, and Amicus in Fremont, Bevilacqua, and Eaton.
By Richard A. Oetheimer and Diane C. Tillotson
From the perspective of conveyancing attorneys and national mortgage lenders and servicers, the recent foreclosure decisions from the Massachusetts Supreme Judicial Court (“SJC”) have been surprising and a bit puzzling. Surprising that in such a seemingly settled area of the law the standard foreclosure practices of Massachusetts counsel, in reliance on local title standards, would be found not to conform to state law. Puzzling because the decisions neither address nor resolve the root of the problems underlying the litigation. The decisions have also highlighted some relatively unique aspects of Massachusetts mortgage law.
In many if not most American jurisdictions, the mortgage is mere security for the note and follows the note as a matter of law. See Carpenter v. Longan, 83 U.S. 271 (1872). Although Massachusetts has recognized this principle, by holding that the mortgagee holds the mortgage in trust for the note holder, who is the beneficial owner of the mortgage, the SJC’s decision in U.S. Bank, N.A. v. Ibanez, 458 Mass. 637 (2011) held that only the mortgagee can foreclose and that a note holder requires an assignment of the mortgage to do so. In Eaton v. Federal National Mortgage Association, 462 Mass. 569 (2012), the SJC held that, prospectively, a mortgagee must either hold the note or be the authorized agent of the note holder in order to foreclose. Because, as a matter of practice, notes have never been recorded in Massachusetts, retroactive application of this holding would have produced disastrous results as it would have been impossible to determine the validity of any foreclosure of record. Prospective application of this rule, while manageable, places additional burdens on the lenders and conveyancers but does little to address the underlying consumer issues.
Eaton, Ibanez and Bevilacqua v. Rodriguez, 460 Mass. 762 (2011), share a common ancestry: each case arises from efforts by a party grappling with the consequences of the plummeting value of real estate during the recent economic downturn. In Ibanez, the central player was a bank foreclosing without a valid assignment of the mortgage at the time of the foreclosure. Bevilacqua involved a purchaser for value after a foreclosure sale looking to establish good title in light of Ibanez, and in Eaton, a homeowner sought to defend against eviction and stay in her home. While each of these cases continues to have a significant impact on foreclosure practice in Massachusetts, the “deficiencies” addressed by the SJC in those cases were not at the root of financial problems faced by the parties and the Court’s decisions do little to resolve those issues. Recognizing that the Court can decide only the issues in the litigation before it, it is nonetheless unsettling that the loss to the consumer parties would have occurred regardless whether the assignment in Ibanez was timely delivered and/or recorded or whether the note in Eaton was held by the foreclosing mortgagee.
The fact pattern underlying Eaton is not uncommon. In 2007, Henrietta Eaton refinanced the mortgage on her home in the Roslindale section of Boston, executing a promissory note and mortgage in favor of BankUnited, FSB. Although BankUnited was identified as the lender in the mortgage, Mortgage Electronic Registration System, Inc. (“MERS”) was named as mortgagee and as a result became the holder of legal title with the power of sale as nominee of BankUnited or its assignee. The mortgage gave MERS the right to foreclose and sell the property. Two years later, MERS assigned its interest in the mortgage to Green Tree Servicing, LLC (“Green Tree”) and when Eaton failed to make payments on the note, Green Tree foreclosed and was the highest bidder at the sale. Shortly thereafter, Green Tree assigned its rights to Fannie Mae which commenced a summary process action to evict Eaton from her home in early 2010.
Eaton defended the summary process action with a counterclaim asserting that the foreclosure was void because Green Tree did not hold the note at the time of the foreclosure. The Housing Court stayed the foreclosure proceeding to give Eaton the opportunity to seek relief in the Superior Court, the Supreme Judicial Court having not yet decided Bank of New York v. Bailey, 460 Mass. 327, 333-34 (2011), where it determined that the Housing Court had jurisdiction to adjudicate counterclaims alleging invalid foreclosure sales in summary process actions. Notably, while Eaton raised claims concerning the validity of the foreclosure, she never disputed that the arrearages were owed or claimed that the note had been paid. The Superior Court agreed with Eaton that the foreclosure sale was invalid. The SJC interpreted G.L. c. 244, § 14 to require a foreclosing “mortgagee” to be either the note holder or the authorized agent of the note holder, and remanded Eaton for further proceedings on the agency question. Responding to pleas from the conveyancing and lending bar, the Court, noting that “significant difficulties in ascertaining the validity of a particular title” would arise if its holding was not limited to prospective operation, limited its Eaton holding to mortgage foreclosures for which the notice of sale was given after June 22, 2012, the date of the opinion.
As noted above, the effect of the Ibanez and Eaton decisions is to introduce an element of uncertainty to legal titles. Massachusetts is a “title theory” of mortgages state where the granting of a mortgage vests legal title in the mortgagee regardless of the note holder’s identity. While payment of the underlying debt would certainly be a defense to foreclosure, as noted below, there is nothing to suggest that this is a problem. In addition, Eaton raises a question concerning those situations where a mortgage is used as security for something other than a debt, for example, as security for the performance of obligations under a settlement agreement. While this concern is not relevant in the consumer context, Eaton is not limited to consumer transactions. The Court in Eaton did avoid some of the adverse effects of its earlier Ibanez ruling by giving its decision only prospective effect. For this reason, any concern that Eaton does not resolve “foreclosures in the pipeline” is misplaced; the date of publication of the notice is the touchstone (just as in Ibanez). So long as the notice issued prior to the opinion, no relationship to the note need be shown. See e.g.; McKenna v. Wells Fargo Bank, 693 F.3d 207 (1st Cir. 2012).
Legislative response to Eaton was swift and in the summer of 2012, the General Court amended G.L., c. 244, § 14 and added §§ 35(B) and 35(C). The amendments, effective November 1, 2012, provide a solution for dealing with the impacts of Eaton for residential mortgages (and residential foreclosures) of one to four-family dwellings. Prior to the notice of foreclosure sale, the creditor/foreclosing mortgagee must certify compliance with the Eaton requirements and the certification must be based on a review of the creditor’s business records and provides “conclusive evidence in favor of an arms-length third-party purchaser for value, at or subsequent to the resulting foreclosure sale” that the requirements have been met. Lenders may not pass on the cost of preparing these affidavits or any curative actions taken in response to Eaton to third parties. The Real Estate Bar Association of Massachusetts (“REBA”) has recently promulgated a form of affidavit meeting the requirements of Section 35(C).
The legislative response, while welcome, did not resolve all open issues. For example, the four-month gap relating to notices published between the June 22, 2012 date of decision and the November 1, 2012 effective date is not addressed, nor are mortgages related to commercial or other properties or large residential complexes. Presumably, affidavits meeting the requirements of Section 35(C) coupled with documentary evidence sufficient to satisfy the title insurance industry will satisfy the conveyancing bar’s need for the requisite certainty in certifying titles, albeit without the protection provided by Section 35(C) for residential properties. Conveyancers will need to ensure that the affidavits are executed by persons with appropriate authority and are duly recorded with the foreclosure documents. Certifying title to any property with a foreclosure in the chain of title will impose added burdens on the lender and conveyancing attorney and create additional caseload for the state’s housing courts as the “Eaton or Ibanez defense” will likely be raised in numerous summary process actions.
Whether they are right or wrong in their construction of Chapter 244, as a matter of public policy were the Court’s decisions necessary or advisable? Did the problems identified in those cases need to be addressed? Consumer law advocates have argued that securitization of loans resulted in fragmentation of interests that makes it impossible for a mortgagor to challenge authority to foreclose or to seek relief from the mortgage debt. But this argument does not withstand scrutiny.
What consumer law advocates are really lamenting is the institutionalization of the mortgage market in recent decades. For most borrowers, the era of calling George Bailey at the neighborhood Building & Loan to work out their financial difficulties is long past. These market forces were in place with the rise of the secondary mortgage market long before securitization.
When mortgages are securitized, the identity of the trustee, who holds the notes in a pool for the benefit of the certificate holders (the investors) is of little to no practical benefit to borrowers. Under the contractual documents governing the securitization, responsibility for the relationship with borrowers resides in the loan servicers. Federal law in the form of the RESPA statute, 12 U.S.C. §§ 2601 et seq., ensures that borrowers know who is servicing their loan, and where they are to send their loan payments. Generally it is the servicer who controls the foreclosure decision and process.
Some consumer advocates view it as problematic that the legal and equitable ownership and foreclosing authority are not united in a single party. But has this posed a real-world problem? Have borrowers been foreclosed who were not genuinely in default? No one is suggesting any pattern of this; in Ibanez,Justice Cordy’s concurrence noted there was no dispute that the mortgagors were in default and subject to foreclosure. Is there any evidence of strangers to the mortgage debt foreclosing? Again, no: in Ibanez the plaintiffs were the securitization trusts; and in Eaton it was the mortgage servicer. Have any mortgagors had creditors make competing claims to their loan debt? Once again, the answer is no; there is no evidence anyone has paid or been called upon to pay twice due to securitization.
In sum, the Court’s recent decisions have had the consequence of causing confusion in the marketplace, slowing the foreclosure process and complicating resale of properties. Questions of affixing blame for the sharp decline in housing prices and the resulting increase in foreclosures aside, it is natural to feel empathy for those at risk of losing their homes, and understandable to want to help them. Recent Massachusetts legislation is designed to do so by affording opportunities to certain borrowers to be considered for loan modifications. But at the same time there is a consensus among experts that an efficient foreclosure process is also a necessary component of stabilizing housing prices. It is hoped that the recent legislation passed in response to Ibanez and Eaton will have the effect of providing what the SJC in Bevilacqua believed it could not: good title to innocent third-party purchasers.
Richard A. Oetheimer is a partner at Goodwin Procter LLP. He participated as Amicus in Eaton on behalf of the Mortgage Bankers Association, and has represented mortgage lenders and servicers in foreclosure-related litigation. The views expressed herein are his own and not the views or positions of his clients.
Diane C. Tillotson is a partner at Hemenway & Barnes LLP who specializes in real estate permitting and litigation. She is a former President of both the Real Estate Bar Association and the Abstract Club and participated in the submission of the Amicus brief in Eaton filed on behalf of those associations. The views expressed herein are her own.