SONIA J. BUCK is ? Maine attorney with the law firm of Pierce Atwood, LLP. She may be reached at sbuck@pierceatwood.com.
Bank of America, N.A. v. Greenleaf -Ten Years Later and Still Standing
In the wake of the financial crisis of 2008 and the ensuing wave of foreclosures tied to dubious mortgage lending practices, the Law Court issued several pro-borrower decisions that imposed strict requirements on foreclosing lenders and draconian consequences for relatively minor mistakes. This trend goes back to the 2014 decision in Bank of America, N.A. v. Greenleaf [1] which made it harder for foreclosure plaintiffs who were not the original lender to prove ownership of the mortgage in situations where the chain of assignments between the original lender and the foreclosure plaintiff included an assignment by Mortgage Electronic Registration Systems[2](MERS) as opposed to one directly from the original lender.
Then in KeyBank National Association v. Estate of Quin [3] the Court required foreclosing lenders to call witnesses with firsthand knowledge of the record-keeping practices of all prior lenders and loan servicers to get payment history records into evidence. And in Pushard v. Bank of America, NA[4] the Court held that a judgment for a foreclosure defendant, even if based on a technical defect in the lender's notice of default and right to cure, would have res judicata effect and bar any subsequent action to enforce the lender's rights under the mortgage. A decade later, Greenleaf continues to make trouble for the Maine foreclosure bar. But recent Law Court decisions have eased the burden on foreclosing lenders by changing the rules stated in Quint and Pushard. These decisions suggest that Greenleaf too could be subject to reconsideration.
With Greenleaf Quint, and Pushard, the Law Court presumably acted on an understandable impulse to hold banks accountable in response to the mortgage lending crisis brought on in large part by their own actions. Ruling against certain lenders during this timeframe was understandable given the proliferation of questionable lending practices and inadequate recordkeeping. The Law Court had good reason to guard against "haphazard practices among many of the national mortgage servicers."[5] In doing so, however, the Court tipped the scales too far against lenders and deviated from prior precedent in the process. Now that the Law Court has started to return to long-held legal principles, Maine is poised to end the Greenleaf standing problem as well.
The defendant in Greenleaf appealed a foreclosure judgment in Bank of America's favor, claiming that the bank lacked standing because it relied on an assignment of mortgage from MERS, as nominee for the original lender, and lacked an assignment directly from the original lender.[6] The defendant argued that the MERS assignment was insufficient to give the bank standing to foreclose.[7] The question before the Court: what rights did MERS have under the mortgage that it could legally transfer to Bank of America? The answer: recording rights only.[8]
Greenleaf NN that the MERS assignment transferred to Bank of America only the right to record the mortgage, not ownership rights in the mortgage. That was so even though it was undisputed that Bank of America owned the underlying promissory note, and, historically, ownership of the mortgage follows ownership of the note.[9] The holding that MERS assignments do not transfer ownership rights created a major standing problem that lenders have lived with ever since, as lenders seeking to foreclose on mortgages are often at the end of chains of assignments that include an assignment by MERS, which under Greenleaf is ineffective to transfer ownership rights in the mortgage. For ten years, mortgage lenders have been unable to foreclose on certain properties, including vacant properties, simply because the chain of assignments connecting the current mortgage holder to the original lender includes a MERS assignment.
A decade later, Greenleaf continues to make trouble for the Maine foreclosure bar. But recent Law Court decisions have eased the burden on foreclosing lenders by changing the rules stated in Quint and Pushard. These decisions suggest that Greenleaf too could be subject to reconsideration.
The Law Court has issued course-correcting decisions with respect to other obstacles its post-financial crisis jurisprudence placed in the path of foreclosing lenders. It has yet to address the problem Greenleaf created. But these recent decisions suggest that further course correction is possible.
From Quint to Shone
In 2020, in Bank of New York Mellon v. Shone, [10] the Law Court examined the business records exception to the rule against hearsay under Maine Rule of Evidence 803(6) as it applied to a foreclosing lender's introduction into evidence of the "integrated" business records of prior loan servicers. Shone held that a prior servicers business records become integrated with the current servicer's business records, such that the testimony of the current servicer is sufficient to satisfy the "integrated business records" exception to the hearsay rule.[11]
The Shone case diverged from precedent set in Quint[12] and its predecessors,[13] which had required testimony about both the originating and receiving entities' record-keeping practices to lay the foundation for the business records exception. Under Quint, counsel had to call multiple witnesses — a witness from every prior servicer in the loan's history. This practice was burdensome and costly and ran afoul of Maine's historical law on the integrated business records hearsay exception.[14] Shone streamlined the process of getting loan history documents into evidence by holding that business records from a prior servicer are admissible once they are properly integrated into the business records of the receiving entity.[15]
In overruling Quint, the Shone Court acknowledged the doctrine of stare decisis, but declared that "[t]he question before us is less a matter of honoring stare decisis than a matter of resolving the sharp and hitherto unexplained conflict between the two interpretations of rule 803(6) that we have endorsed at various time since 1984."[16] The Shone case marked the beginning of a sea change in foreclosure jurisprudence, as the Law Court began to correct some of the problems its Greenleaf and post-Greenleaf jurisprudence had created for lenders seeking to foreclose on delinquent borrowers. The Law Court signaled in Shone that it was open to additional corrective action provided the same could be accomplished within the parameters of stare decisis.
From Pushard to Finch
On January 11, 2024, in Finch v. U.S. Bank, N.A. [17] the Law Court issued a 4-3 decision overruling its "draconian" holding in Pushard v. Bank of America, N.A[18]Pushard held that any failure to comply with the strict requirements of 14 M.R.S. § 6111 (the foreclosure demand letter statute) not only results in a judgment for the defendant, but also, under principles of res judicata, precludes the lender from enforcing the note and the mortgage in a subsequent foreclosure action.[19] The Pushard Court further held that in the event of a judgment for a foreclosure defendant based on a defective Section 6111 notice, a discharge of the mortgage is required, because the "note and mortgage are unenforceable and [the borrowers] hold title to their property free and clear of the Bank's mortgage encumbrance."[20] Because the notice requirements of Section 6111 are very strictly construed, this meant that even a small typographical error in a demand letter could result, not just in the failure of that particular foreclosure action, but in the lender forever forfeiting its rights in the property and the delinquent borrower ending up with a "free house."
The Law Court in Finch looked at the same issue and reached a different conclusion, holding that a mortgagor is not automatically entitled to a discharge of the mortgage when a lender fails to provide a demand letter that complies with Section 6111.[21] Finch characterized evidence of a proper Section 6111 notice as "a precondition to the commencement of a suit," and held that failure to meet that requirement "does not have claim-preclusive effect."[22] Because a proper Section 6111 notice is a precondition to the acceleration of the balance due on the loan that happens in a foreclosure, for "claim preclusion purposes, the fact that the Bank could not accelerate the note balance or enforce the mortgage means that the Bank's claim for the full amount due on the note and for foreclosure of the mortgage was not and could not have been litigated."[23] And if the foreclose claim was not litigated due to the plaintiff's failure to meet a condition precedent, no claim preclusion can occur. In other words, Pushard is overruled.
Contrary to the view taken in the dissenting opinion, which laments that stare decisis is being eviscerated and that the Finch decision is a "retreat from the principles of judicial restraint,"[24]the majority thoroughly reconciled its decision with stare decisis. Echoing the precedential principles discussed in Shone, the majority noted that Finch was not a departure from current Maine law, but a return to principles articulated by the Law Court in prior rulings that are consistent with the law in every other jurisdiction in the country.[25]
Stare Decisis and Standing to Foreclose
The Law Court's decisions in Shone and Finch represent a long overdue shift in foreclosure jurisprudence, mitigating the res judicata and business records problems Pushard and Quint created. But the problem at the heart of Greenleaf-—MERS assignments and standing—remains. The Greenleaf Court found that Bank of...
