Mortgagors seeking to prevent foreclosure of their homes have often relied upon attacking the chain of assignments of the underlying promissory note or security instrument.  As in many other states, the law in Massachusetts is that a mortgagor, as a third party to the assignment, may challenge the assignment on any ground which would render the assignment void, but may not challenge upon any ground that renders the assignment merely voidable.   

However, case law in many states is still somewhat undeveloped regarding what particular claims, if proven, could render an assignment void rather than voidable.  A commonly litigated argument made by mortgagors is that an assignment (often an assignment from MERS to a subsequent mortgagee) is void due to the signing party’s lack of authority.  The argument is often made when the signing party wears two hats – both employee of the assignee and vice president of MERS.

On February 14, the First Circuit Court of Appeals weighed in on exactly that situation.  In Wilson v. HSBC Mortg. Services, Inc., 13-1298, 2014 WL 563457, ___ F.3d___ (1st Cir. Feb. 14, 2014), the mortgagors filed suit claiming that an assignment from MERS to HSBC was void because it was not executed by MERS, but rather by an HSBC employee who falsely purported to sign on MERS’ behalf.  The court found that the HSBC employee wore two hats, acting as both vice president of HSBC and vice president of MERS, and that doing so was perfectly legal under Massachusetts law.  Because the four corners of the assignment showed in no uncertain terms that the person executing the assignment did so in her capacity as a vice president of MERS, the assignment was valid.

In its reasoning, the court referenced examples of void and voidable assignments as found by Massachusetts state courts.  Specifically, contracts entered into under duress, induced by fraudulent misrepresentations, entered into by mutual mistake, or when a corporate officer acts beyond the scope of his authority, were considered voidable.  On the other hand, examples of void assignments in the mortgage context were situations in which the putative assignor never held the mortgage and, thus, had no interest or when the assignor was but a nominee for the mortgage holder and never possessed a legally transferrable interest.  The mortgagors in Wilson did not challenge MERS’ status as holder of the mortgage, and thus could not prove the assignment to be void on the basis that MERS never held an interest in the mortgage.  Moreover, though the court found no evidence that the signatory acted beyond her scope of authority, even such a finding likely would not have resulted in a different holding based upon the court’s review of Massachusetts law.

The court further found that such assignments were otherwise valid under Massachusetts statutory law.  Mass. Gen. Laws ch. 183, § 54B provides, in relevant part, that an assignment of a mortgage, if executed before a notary public by a person purporting to hold the position of vice president of the entity holding such mortgage, shall be binding on such entity.  The court noted that an assignment that is binding on the assignor is not, by definition, void.

The Wilson court’s ruling follows similar rulings in other circuits holding that mortgagors may not challenge mortgage assignments based upon allegations that the person executing the assignment did so without authority, because even if true, such acts would render the assignments merely voidable rather than void. See, e.g., Reinagel v. Deutsche Bank Nat. Trust Co., 735 F.3d 220, 226 (5th Cir. 2013) (finding that the Texas Supreme Court clarified that a contract executed on behalf of a corporation by a person fraudulently purporting to be a corporate officer is, like any other unauthorized contract, not void, but merely voidable at the election of the defrauded principal).  Due to the large number of mortgage cases that are litigated at the federal following removal from state courts, further clarification on the distinctions between void and voidable assignments is likely to develop in the coming months from both the district and appellate courts.