• Borrower’s Challenge to Initiation of Foreclosure Proceedings Dismissed as Time-Barred and for Lack of Standing
  • August 12, 2011 | Authors: Samuel C. Bodurtha; Maura K. McKelvey
  • Law Firms: Hinshaw & Culbertson LLP - Providence Office ; Hinshaw & Culbertson LLP - Boston Office
  • In Kelly v. Deutsche Bank National Trust Company, as Trustee for Soundview Home Loan Trust 2006-OPT3, Asset-Backed Certificates, Series, 2006-OPT3, C.A. No. 2011-10328 (D. Mass.), plaintiff borrower refinanced his mortgage on December 30, 2005, with a loan from a lender. The borrower defaulted on his payments and defendant bank, in its capacity as trustee-holder of the mortgage, initiated foreclosure proceedings and scheduled a foreclosure sale for February 16, 2011. On February 4, 2011, the borrower sued the bank, seeking rescission of the loan and challenging the bank’s authority to foreclose on the basis of the transfer of his promissory note and the mortgage.

    The borrower alleged that he had the right to rescind the loan because the lender had failed to provide two copies of the notice of right to cancel the loan transaction, and thus violated the Massachusetts Consumer Cost Credit Disclosure Act (MCCCDA), Mass. Gen. Laws ch. 140D, §10a (Massachusetts’ state law counterpart to the federal Truth in Lending Act). A borrower’s right of rescission under the MCCCDA expires four years after the date the loan transaction is consummated. The borrower’s rescission right in this case thus expired on December 30, 2009. The borrower claimed that the four-year limitations period did not apply because he was seeking rescission by way of recoupment, and the MCCCDA provides that “[n]othing in this section shall be construed so as to affect a consumer’s right of recoupment under the laws of the commonwealth.” Mass. Gen. Laws ch. 140D, §10(i)(3).

    The Court dismissed the borrower’s rescission claim because he was attempting to use recoupment not as a defense but as a means to obtain affirmative relief in a request that the Court cancel his debt. The Court found that recoupment is an affirmative defense that may only serve to reduce or extinguish a plaintiff’s claim and cannot result in affirmative recovery for a defendant.

    The borrower also alleged that the bank lacked the authority to initiate foreclosure proceedings under Massachusetts law because it was not the holder or possessor of the promissory note executed in favor of the lender. The Court dismissed this claim because Massachusetts’ foreclosure statute did not require the bank to demonstrate that it was holder of the note. Mass. Gen. Laws ch. 244, §14. The Massachusetts foreclosure statute only addresses mortgagees and does not make any reference to the holder of the note. Accordingly, the bank did not have to prove possession of the note in order to initiate foreclosure.

    Finally, the borrower alleged that the bank lacked authority to initiate foreclosure proceedings because it did not acquire his mortgage and note in accordance with the terms of the pooling and servicing agreement. The Court dismissed that claim for lack of standing. The Court found that the borrower could not challenge the bank’s authority to initiate foreclosure proceedings under the terms of the pooling and servicing agreement because he was neither a party to, nor third-party beneficiary of the agreement. Absent proof that the borrower was a party to the pooling and servicing agreement or a third-party beneficiary of it, which was not the case, the borrower had no legal basis to enforce the pooling and servicing agreement.