September 1, 2015
by Paul Weinstein
Bendett & McHugh, P.C. – USFN Member (Connecticut, Maine, Vermont)
On August 11, 2015 the Maine Supreme Judicial Court published its opinion in Homeward Residential, Inc. v. Gregor, 2015 ME 108, in which the court clarified the relationship among jurisdiction, justiciability, and standing in the context of a foreclosure action.
After a full trial on the merits, the trial court in Gregor found that Homeward failed to establish standing to foreclose on the mortgage, and the court entered judgment for the defendant. Specifically, the trial court found an unrecorded interim assignment of mortgage in the collateral file, which the court held deprived subsequent assignees (including the plaintiff) of an ownership interest in the mortgage and, thus, standing to foreclose. Importantly, the trial court went on to “reserve the right for both parties to re-litigate the issues discussed herein so that this action may not act as a bar to future action.” The borrower appealed, asserting that the trial court was without authority to reserve to Homeward the right to bring a second foreclosure action.
On appeal, the Maine Supreme Judicial Court vacated the judgment for the defendant and directed the trial court to enter a dismissal without prejudice. The Supreme Judicial Court explained that while the Maine foreclosure statutes grant subject matter jurisdiction in all foreclosure cases to the trial courts, a plaintiff may not invoke that jurisdiction unless it has standing to foreclose. Accordingly, when a party lacks standing to foreclose, the trial court is without authority to address the merits of the case, and instead can only dismiss the action. The Supreme Judicial Court went on to hold that the dismissal must be without prejudice, even though a full trial on the merits was completed, and the trial court had found independent grounds on which to enter a judgment in favor of the defendant. Most significantly, because the dismissal is without prejudice, the plaintiff is free to initiate a subsequent foreclosure action on the loan.
The most immediate impact of the Gregor decision will be on pending Maine foreclosure cases affected by the Supreme Judicial Court’s 2014 decision in Bank of America v. Greenleaf, 2014 ME 89. Greenleaf held that a mortgage assignment executed by MERS acting as nominee for the lender does not transfer full interest in the mortgage. In the wake of Greenleaf, the trial courts struggled with how to dispose of masses of cases involving MERS assignments that deprived plaintiffs of standing to foreclose. Gregor provides a clear directive that these matters are to be dismissed without prejudice (allowing the plaintiffs to re-file), provided that other aggravating factors requiring or weighing in favor of a dismissal with prejudice are not present.
The holding in Gregor provides plaintiffs with some protections and a degree of clarity regarding the law of standing and jurisdiction in Maine foreclosure cases. Nonetheless, the decision also foreshadows stricter evidentiary standards that future foreclosure plaintiffs may need to satisfy. In an important footnote, the Supreme Judicial Court commented that because the witness had obtained her knowledge of the servicer’s business practices from training alone, and not through direct observation or active participation in making entries, the witness was wholly unqualified to provide testimony regarding the business records of Homeward and the prior servicers. As a result, the Gregor decision could provide new ammunition to mortgagors and defense counsel attacking witness credibility.
©Copyright 2015 USFN. All rights reserved.