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Maine: State Supreme Court Ruling will Bar Many Future Foreclosure Restarts

Posted By USFN, Tuesday, October 10, 2017
Updated: Tuesday, October 3, 2017

October 10, 2017

by Santo Longo
Bendett & McHugh, P.C. – USFN Member (Connecticut, Maine, Vermont)

The Maine Supreme Court has ruled that a second foreclosure action was barred by the doctrine of res judicata after an earlier foreclosure action was dismissed with prejudice. In Federal National Mortgage Association v. Deschaine, 2017 Me. 190 (Sept. 7, 2017), Fannie Mae sought to foreclose after the trial court had dismissed the earlier action brought on the same note and mortgage with prejudice as a sanction after both parties failed to comply with a court scheduling order. In the second action, the defendant-borrowers moved for summary judgment, contending that the action was barred by the trial court’s prior dismissal with prejudice. The trial court agreed and entered judgment in favor of the defendants.

Fannie Mae appealed and the Maine Supreme Court affirmed, holding that when Fannie Mae exercised its right to accelerate the loan in the first foreclosure action, the promissory note became “indivisible” and the borrowers’ obligation to make the monthly payments of principal and interest called for in the note “merged into a unitary obligation” to pay the entire debt. The Court further held that once this occurred, the borrowers had no continuing obligation to make the monthly installment payments, and there could be no new breaches or defaults under the note. The Court found that when Fannie Mae accelerated the debt in the first action, it placed the entire outstanding balance due on the note at issue; and, because Fannie Mae did not prevail in that action, it was precluded from bringing any future separate action to recover based on the same debt. As for the impact on the mortgage, the Court made it clear that:

Additionally, because Fannie Mae is precluded from seeking to recover on the underlying debt on the note, the [trial] court did not err by concluding . . . that the [borrowers] were, as a matter of law, entitled to a judgment declaring that they hold title to the . . . property unencumbered by the mortgage in favor of Fannie Mae.


The Supreme Court’s sweeping holdings in Deschaine will clearly present significant challenges to lenders and servicers seeking to enforce notes and mortgages in Maine. Going forward, Maine foreclosure plaintiffs and their representatives will have to be especially diligent when preparing all aspects of their cases to ensure that they can demonstrate the requisite “strict compliance” with the Maine demand letter and foreclosure statutes, as after the Deschaine case, it is clear that failure to do so can effectively result in the loss of the asset.

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