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FOR THE COMMONWEALTH OF MASSACHUSETTS

No. SJC 11041
HENRIETTA EATON PLAINTIFF-APPELLEE

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V.
FEDERAL NATIONAL MORTGAGE ASSOCIATION & ANOTHER

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ON APPEAL FROM THE APPEALS COURT SlN(1LE JIJSTICF,

BRIEF O F AMICUS CURIAE NATIONAI, FORECLOSUKE DEFENSE GROUP

Robert Napolitano Certified Paralegal Certified Instructor Continuing Legal Education National Foreclosure Defense Group
P.O. BOX 88.44 Red Bank, NJ 07701
973-710 -3394

State of NJ

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rriapolitano~nfdg.orq www .nf dq . o r 2

Dated:
January 2 7 , 2012

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i TABLE OF CONTENTS
PAGE

TABLE OF AUTHORIIES

. . . . . . . . . . . .

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STATEMENT OF AMICUS INTEREST

........
. . . . . . .

STATEMENT OF ISSUES PRESENTED

STATEMENT OF THE CASE AND FACTS

. . . . . .4

ARGUMENT

. . . . . . . . . . . . . . . . . .5

CONCLUSION

. . . . . . . . . . . . . . . . .15

ii

TABLE OF AUTHORITIES. cases :

. . . . . . . . . . . .

.page

Bank of New York v - Silverberg, 011 NY Slip Op. 05002 (2d Dept. 2011) ( n - 0 . r . ) .

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10(fn)

Fitzgerald v. Meianer, Inc., 38 Wis. 2d 571, 157 N.W. 2d 595 (1968)

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v . Ibanez

6 (fn)

In the Matter of Kemp Y . Countrywide Home Loans, ( U . S . Bkxptcy. Ct. Dist. N.J. 2008)
U.S.

8
2

National Bank Ass'n. (457 Mass. 637 [20111)

................

S t a t u t e s and

Rules:

Articles and Treatises:

CARDOZO LAW REVIEW, Vol. 28:5, page 2185

et. aeq.,-"PREDATORY STRUCTURED FINANCING" Marguette Law Review Article, by Thomas E. Fairchild', - V o l . 51, 1967-1968 "LIMITATION OF JUDQE-MADE LAW TO PROSPECTIVE EFFECT ONLY- 'PROSPECTIVE OVERRULING' OR 'SUNBURSTING'.

11, 12, 13, 14

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. . . . . . .

5,6

Michael D. Larson, "It's Buyer Beware When You're Shopping for a Sub-prime Loan"

.13(fn)

Mr. Fairchild served as Attorney General for t h e State of Wisconsin, as a Justice for the Wisconsin Supreme

Court, and as a Federal Judge for the 7'h Circuit Court of Appeals, for full Curriculum Vitae. Page of the Article.

see footnote t o First

Rockwell P. Ludden, T h e MERS Mortgage in Massachusetts, G e n i u s , S h e l l Game or Invitation to Freud .

. .

. . . . .. . . . .

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STATEMENT OF AMICUS INTEREST: I, Robert Napolitano, Founder o f National Foreclosure Defense Group (NFDG), am a certified paralegal in the State of New Jersey, and certified in the eight States to teach Foreclosure Defense Principles and Practices as a Continuing Legal Education (CLB) course to attorneys licenses in the State, as part of their continuing legal education requirements. Since 2006, I have been involved in consulting and training attorneys, advocates and industry professionals, teaching and highlighting the technical intricacies and nuances o the real
estate mortgage financing industry. I have developed, a

litigation support service specifically tailored for the consumer mortgage banking industry.

My CLE course involves a curriculum for industry

professionals, which covers the process of securitization, the

role of the player's

involved, lender vulnerabilities and their

practical application in a foreclosure defense practice.

T believe that I can bring to this Court some perspective

and guidance on an issue raised by this Court, i.e.,

first,

whether any ruling should be given retroactive effect, at least to the limited extent of allowing a Conaumer who was foreclosed upon by a foreclosure judgment where the action was
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jurisdictionally defective or "lack of standing", and where the consumer may have defenses and claims by reason of such defects, with particular emphasis on the relationship between securitization and the rights of consumers to challenge any immunities that the Trust may put forth from the liabilities of the Originator guilty of predatory lending.
As indicated in the Amicus brief filed by Marie McDonnell,
CFE, for Eatin, the Borrower, it is recognized that lenders, or

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their assignees who participated in an essentially fraudulent recording process as members of MERS, (and often involving the

securitization of Mortgage Notes into Mortgage Backed Securities held in Trusts, that were separated from the Mortgages), did
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at the expense of the consumer, where they brought foreclosure action based upon the fraudulent misrepresentation that they were the real party in interest, as holder of both the note and mortgage at the time of foreclosure, and at the same time, sought to immunize themselves from predatory lending practices committed by the originator, under claims of having "holder in due course" status under applicable UCC provisions. This Court has already ruled in the seminal case of U . S .
National Bank Ass'n.
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Tbanez (457 Mass. 637 [ Z O l l l ) ,

(a case

in which Ms. McDonelL also submitted an Amicus Brief) that in a securitized trust situation, i.e., where the mortgage note has
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been securitized and purportedly ended up in a trust, that the foreclosing Trust must show its legal authority to foreclose, or its 'legal standing". Following Ibanes, it is my belief that

where a foreclosing party, such as a Securitized Trust, or any plaintiff who represented that it has ownership of both the Note and Mortgage by sworn allegations in the complaint,

representing that it has such standing, when in fact it did not, then the consumer/borrower who lost his or her home as a result of such a" foreclosure, should be allowed to seek damages, at least within the statute of limitations period f o r consumer fraud, which is four years in this state, for any predatory

lending practices committed by the originator.

ISSUES PRESENTED:
I.
-

What are the principles, or standards under case law

precedent, for giving a ruling retroactive effect, i.e., what are the governing principles and standards found in case law precedent, allowing retroactivity to a ruling here, where large numbers o f consumers were victims of predatory loans, and foreclosures obtained that were defective, where the foreclosing party has liability for those practices but avoided such claims?
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Whether, a ruling here, to the effect that a

foreclosing party lacked standing to foreclose, (whether a

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securitized trust, or any party that fraudulently obtained a foreclosure in this State), should have limited retroactive

application and effect, under those case law principles and standards (Point I, supra.), thereby allowing Consumer/Borrowers who were lost their homes through such foreclosure, to recover damages for consumer fraud violations, including predatory lending practices, at least within the 4-year statute of limitations, where the foreclosure was obtained by a party who lacked standing, particularly the Securitized trust, and who did not have holder in due course status and thus had assignee liability for predatory lending practices done by the originator. STATEMENT OF THE CASE AND PACTS:

I adopt the statement of facts and the case, as presented

by Ms. McDonnell in her Amicus Brief, particularly with reference to her findings and statistical analysis, showing the rampant nature, of the number of mortgage foreclosures that were tainted either with invalid assignments, or splitting of the Note and Mortgage. Thus, Ma. McDonnell opined that such foreclosures should be held invalid, either because the assignments were invalid, or even if valid, if the mortgage ownership of the mortgage and
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note were "split". Added to that, by the very nature of the securitization process, noted in Ibanez, in the least, where the Mortgage A88ignments go through MERS, while the Notes are assigned under the parameters of the Trust Agreement, rarely if ever are these instruments not "split", i.e. owned together by the foreclosing Trust, be).
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Mortgage Servicer, (as the case may

ARGUMENT : There is a body of governing principles from the case law, both in other states, or federally, and even in interpreting the constitution, that may be recognized by this Court.
In an excellent Law Review Article in the Marquette Law

Review, by Thomas E. Fairchild',

Vol. 51, 1967-1968 entitled:

"LIMITATION OF JUDGE-MADE LAW TO PROSPECTIVE EFFECT ONLY'PROSPECTIVE OVERRULING' O R 'SUNBURSTING' Exhibit

A),

(copy annexed as

there is a complete analysis and recitation of a

body of federal and state case law a8 to when prospective effect should be given, with the apparent presumption being that a case

be given retroactive effect, unless otherwise stated.

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Mr. Fairchild served as Attorney General for the State of Wisconsin, as a Justice for the Wisconsin Supreme

Court, and as a Federal Judge for the 7"' Circuit Court of Appeals, for full Curriculum Vitae, see footnote to First Page of the Article.

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Thus, in that Marquette Law Review Article, supra., it is noted that "prospective overruling" is applied in the following circumstances (Article, pp.254-255):

"Whatever explanation may be made of prospective overruling in terms of judicial philosophy, clear it is that use of the technique makes change less disruptive, and thereby makes an appellate court less apprehensive about making a change when it considers a new rule to be more sound than the old" Mr. Fairchild notes that Appellate Courts that render a ruling "prospective only", have done so on a "selective" basis, while preserving "retroactivity" as Blackstone law would have it choosing "varied formulae" for prospective limitation, i.e., not making a prospective limitation all encompassing, but situational only (Article, pg. 2 5 6 ) : "High courts which have used the technique of prospective overruling have done so selectively. One and the same court will permit the new law announced in some of its overruling decisions to be as completely retroactive as Blackstone would have it, and in other situations would choose varied formulae f o r limitation to prospective operation, depending upon the court's estimate as to the disruption which would be caused or avoided by greater breadth of retroactivity or closer limitation to purely prospective o p e r a t i o n . m 2 Mr. Fairchild then cites the standards, or issues involved in making a determination a s to whether to apply a ruling retroactively, or prospectively, noting that there should be a
2

Citing Fitzgerald v. Meisner, Inc., 3 8 Wis. 2d 571, 157 N.W. 2d 595 (1968), where the Wisconsin Supreme C o u r t held that a decision which changes or overrules a law should be applied retroactively, unless there are compelling judicial reasons to the contrary.
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presumption o f retroactivity, unless there are judicial reasons to the contrary: (Article pg. 2 5 7 ) : " I suggest that a decision to 'sunburst' (apply a ruling prospectively) is reached after considering a number of factors(1) How explicitly or how long ago w a s the old rule announced or recognized, and how deeply does the new rule modify the old? (2) Is the old rule of a type which people rely upon in making deliberate choices of conduct or dealing? ( 3 ) Was the old decision erroneous when made,or have conditions changed so that it has subsequently become unjust? (411s the new rule adopted primarily because it tends to prevent injustice ? ( 5 ) What is the extent of disruption which would result from retroactive application? ( 6 ) Have recent decisions suggested the probability of the change in rule?"

...

I suggest this Court peruse the entire Article to note

cases where retroactive effect is given, given the impracticality of analysis here under the 15-page limitation.
I only suggest that under one or more of these standards,

this ruling should clearly be given retroactive application, to four years back, coinciding with the statute of limitations 1.Tbe rule that there should be an identity, or merger in ownership of the mortgage and note is of ancient origin, finding precedent as long ago a8 the l g t h century, noted below; 2.Thare was little if any reliance upon the o l d rule, if it existed at all, that there need not be a unity of ownership;

3. The new rule is adopted to prevent rampant fraud in

bringing foreclosure actions without ownership of the Note, and exposing the borrower to potential liability should the true owner of the note show up and seek recovery against the borrower who had already satisfied his indebtedness in the foreclosure;
4. Limiting Recovery to borrowers who have been defrauded to

those having consumer fraud claims within the statute of limitations period would, by creating a settlement fund or all claims, only going back only 4 years, so as to limit any disruption in the housing market; indeed if anything it would improve the situation by removing uncertainty with respect to there being clean title, a concern expressed by this Court.3 Thus, under New Jersey Law, the States Uniform Commercial Code Provisions govern the enforceability of the Mortgage Note, and presumably these UCC provisions are uniform in most, if not all states, including Massachusetts, providing that one must be the holder of the note at the time of foreclosure, a circumstances not found in securitized mortgages. See In the Matter of Kemp v . Countrywide Bkrptcy. Ct. Dist.
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Home

LoanB, (U.S.

N.J.

2008,

copy annexed as Exhibit B)(In

One of the conditions for a former homeowners obtaining a recovery was that he provide a release of any claims

to title by reason of a fraudulent foreclosure, thereby removing such uncertainty.

Kemp, there was a MERS recording and transfer of the underlying Mortgage, whereas the Mortgage Note was securitized and purportedly going a different path to Bank of New York, as Trustee under the Trust Agreement. The Kemp court, applying UCC provisions, denied Countrywide enforceability through

foreclosure where there were rampant defects with the Note assignments, and Proof of the Note's the "holder'' ownership were Lacking, and

status was not proven to be with it.

Indeed, in an article by Rockwell P. Ludden, "The MERS

Mortgage in Massachusetts, Genius, S h e l l Game

Fraud",

OK

Invitation to

(copy annexed as Exhibit C) the discussion concerns the

legal problems and propensity for fraud where MERS ia a part of the Mortgage Assignment process, particularly with Securitized mortgages. It is pointed out that where there is a MERS mortgage assignment, there is universally a problem with a party's standing to foreclose, where the mortgage and note were separated in the discrete assignments. There, the fundmental, and long standing principle requiring a unity of instruments as a prerequisite to foreclosure, is stated succinctly, in testimony given Congress by the CEO of MERSCORP, as to the function of MERS:
"A fundamental legal principle is that the mortgage follows

the note; which means that as the note changes hands, the mortgage remains connected to it legally, even though it is
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not physically attached. In other words, the promissory note is enforceable against the property because of the mortgage, but the mortgage instrument itself is not independently enforceable as a debt. This principle is not changed when MERS is the mortgagee because of the agency relationship between MERS and the lender."' The point is that the requirement that the Note and Mortgage be together in one person or entity as a prerequisite for enforcing the debt, is not a new rule, but one deeply entrenched in American Jurisprudence. Thus, we are not changing
an old rule upon which people depended in their financial

dealings, but clarifying what has been established and simply applying it to the new facts arising in the securitization process.
As

pointed out in the Mass. MERS article, citing the Ibanez

holding, it is a long settled principle in this State that where MERS is involved in the Mortgage assignment process, the transfer of the debt does not carry with it a transfer of the Mortgage so as to provide the necessary "reconnection" required for a foreclosure action (MERS article, page
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8).

See also Bank of New xork v. Silverberg, 011 NY Slip Op. 05002 (Zd Dept. 2011) ( n . o . r . 1 (Answering in the negative: The principal issue ripe for determination by this Court, is whether PIERS, as nominee and mortgagee

. . .

for purposes of recording, can asaign the right to foreclose upon a mortgage t o a p l a i n t i f f in a foreclosure a c t i o n absent MERS'S right to, or p o s s e s s i o n of, the a c t u a l underlying promissory note.

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I submit that one cannot overestimate how toxic and dangerous the mortgage securitization process has been to the soundness and viability o f sub-prime mortgage financing, (where most predatory practices occurred), not to mention the obvious that it was the primary cause of the housing financial crises and meltdown of the world's understated. Here, it is submitted that the consumer ought recover any damages from a party who foreclosed without standing, where the defrauded consumer can make predatory lending claims against any party in the securitization chain, under theories discussed below for ''assignee liability" economy, which cannot be

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I respectfully refer the Court to an excellent Law Review Article, published by the Benjamin Cardozo Law School'6 CARD020 LAW REVIEW, Vol. 2 8 : 5 ,
page 2185 et seq.,

en titled "PREDATORY

STRUCTURED FINANCING", written by Christopher Peterson, an Associate Professor o f Law at the University of Florida, Frederic G. Levin College of Law (pertinent portions cited herein are annexed as Exhibit D). It is a comprehensive treatise, citing applicable law, regarding the relationship between Securitization and Predatory Lending (Chapt. 11, pp.
2213-2225); Indirect Assignee Liability for Predatory Consumer

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Lending Practices, including Applying Common law Theories for

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imputing Liability (to the Trust or Servicer) for such practices(Chapter 111, pp.2225-2253). Specifically, discussed is the relationship between Securitization and Predatory Lending,
as a means by which Securitized Trusts attempted to immunize

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themselves from the predatory practices of Mortgage Loan Originators, at the expense of the Consumer, by claiming immunity from these claims and defenses as Holders in due

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Course, where there is emerging theories to denigrate their

holder in due course status, and hold them responsible.

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I suggest this Court review the entire law review article,

as limited space means a limited presentation of what it says about the cause-effect relationship between securitization of sub-prime loans, and the vulnerability of consumers to predatory practices in the origination of sub-prime loans.

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I would like to cite one paragraph in that treatise which

best capsulate the reason that the securitization of sub-prime
loans (those not purchased by Fannie Mae and other GSEs) made

them prone to lax underwriting standards, and hence predatory practices, thereby giving mortgages to people they knew could
ill afford them, or without disclosing the real
costs

and terms

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of the loan: (Article, Exhibit D, at pp-. 2214-2215):

Unlike prime lenders, sub-prime lenders usually securitize their loans. That means that sub-prime lenders have much more
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leeway when it comes to setting rates and underwriting standards. As a result, rates, fees and program guidelines vary drastically depending upon which broker or lender a consumer visitsf5 In the rush to originate new loans, some lenders have even ignored their own underwriting guidelines6. Unlike prime loans, where access to the secondary market is guarded by the play-it-safe GSE's, the secondary subprime market is filled w i t h aggreeeive investors and businesses looking to maximize their profits by any possible m e a n s . " Then, after delineating the wealth and breadth of federal and state laws protecting the consumer against predatory lending practices (pp.2225-2232) which would be available to the defrauded consumer in this State, the Article suggests the need for holding the Trust liable, whiling posing a number of legal theories f o r supporting that proposition:(At pp, 2232-2233): 'While the law governing predatory lending is primarily focused on holding predatory lenders (originators and their brokerslfor their terms and practices, it does contemplate holding secondary mortgage market participants liable f o r predatory lending practices in some situations. However, the complexity and seemingly random organizational structure of predatory lending assignee liability law strongly suggests that secondary market accountability has been something o f an afterthought for courts, legislatures and administrative agencies." (Parenthesis mine)

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It then describes the various legal theories of assignee liability that find their roots in the UCC (pp. 2233-2238): under consumer protection federal statutes (pp. 2238-2243; state

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Bee footnote 177, pg. 2215, Citing e.g. Michael D. Larson, "It's Buyer Beware When You're Shopping or a Sub-Prime Loan", at wmv.bankrate.com, and other citations listed in that footnote.

'

See Footnote 178, pg. 2215

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and local predatory lending laws (pp. 2243-2247); and common law

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theories o f imputing liability for predatory lending (pp.22442256) (e.g. aiding and abetting, conspiracy). Whether in a particular case the courts o f this state would

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allow a consumer to impute a predatory practice to the Securitized trust, or hold any other assignee liable for the predatory practices of the originating lender or its broker is a matter to be decided on a case by case basis. It should suffice for this court to allow a consumer who was a victim of a predatory practice within the 4-year statutory Limitation period
to assert a claim, f o r damages, and then show the elements for

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holding the foreclosing party liable under any available theory. It is also suggested that since most parties who brought foreclosures within that time span were members of MERS and used that vehicle to claim the right to foreclose as Assignees of the mortgage, without the note, that it is both fitting and proper to establish a settlement fund through MERS. with this Court,

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from which members would contribute, notices to affected parties would be sent, advising them of their right to assert any claim, perhaps limiting the monetary amount. There should also be an indemnity fund in favor o f the consumer should some third party in the future produce the original note and seek recovery against the consumer who already paid.
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CONCLUSION:
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Making any ruling retroactive to the extent suggested and then establishing a settlement fund for claims o f defrauded mortgage consumers would accomplish two purposes: (1) providing relief to those consumers victimized by predatory loans, who could not avail themselves of a chance at recovery, while; (2) stabilizing the mortgage finance and housing industry by removing any toxicity upon clean title by having the borrower release any claims against the lender. Respect
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submitted,
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74-(:.+...... .

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Robert Napolitano Certified Paralegal and Certified Instructor/ Continuing Legal Education - State of NJ National Foreclosure Defense Group P . O . Box 8844 R e d Bank, NJ 07701

973-710 -3394 rnapolitano@nfdg.org wwW.nfdg.org

CERTIFICATION OF COMPLIANCE WITH COURT RULES

I, Robert Napolitano, duly certifies under penalties of perjury

that the within Brief, filed Amicus Curiae, complies with the Rules of the Court that pertain to filing of Briefs including, but not limited to: Mass. R. A . P. 16(a)(6) (pertinent findings
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OK

memorandum of decision); Mass. R . A. P . 16(e) (references to .. . . . .. . . . . -. . . . ._ . . . .. . . .- .. . - -. .. .

the record); Mass. R. A. P. 1 6 ( E ) (reproduction of statutes, rules, regulations) : Mass. R. A . P. 16(h) (length of briefs) ; Mass. R. A . P . 18 (appendix to the briefs); and Mass. R. A. P.

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20 (form o f briefs, appendices, and other papers).

Dated: January 28, 2012

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R o b e r t Napolitano

Certificate o f Mail Service

I , R o b e r t Napolitano, duly certifies under penalties of perjury

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that on September 2 1 , 2012, I served by F i r s t Class Mail, my

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Brief, Amicus Curiae, upon each of the parties, or their attorneys, at the following last known business addresses:

H. Esme Caramello, Esq. Attorneys for Henrietta Eaton, Appellee c / o Harvard Legal Aid Bureau 23 Everett Street Cambridge, MA 02138 Tel: (617)-495-4408
Joseph P . Calandrelli, E s q .

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Attorneys for Fed1 National Mortgage Assn & Green Tree Servicing LLC c / o Prince Lobel T y e , LLP 100 Cambridge Street, Suite 2200 Boston, MA 02114 Tel: (617)-456-8096 L-;:;><:-?q Fax: (617)-456-8100
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Robert Napolitano
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