1st Circuit Grants Homeowners Additional Discovery on Note Authenticity and Mortgage Assignments

On June 17, 2022, a three-judge panel of the U.S. Court of Appeals for the First Circuit vacated and remanded a district court decision in favor of a bank’s subsidiary holding company, holding that the district court improperly denied the homeowners certain discovery requests concerning the authenticity of their mortgage note and the assignments of the mortgage by the original mortgage company (another subsidiary of the same bank) and other entities.

The case is related to several different lawsuits stemming from the homeowners’ default on their mortgage payments in 2009.  The home was foreclosed upon and sold to a third party at the foreclosure sale.  As a result, the mortgage company delivered a mortgage discharge to the homeowners, which they recorded.  The foreclosure buyer filed a suit in state court to evict the homeowners.  The homeowners filed their own state-court lawsuit against the buyer and the mortgage company, and the foreclosure was ultimately declared void by the Massachusetts Supreme Judicial Court.  The mortgage company then sued the homeowners in federal district court, seeking to strike the mortgage discharge from the land records and to be declared the lawful owner of the property through foreclosure by entry.  However, the district court found that the mortgage company did not have standing to pursue the claim because it was no longer the holder of the note.  The holding company then filed a similar lawsuit, asserting to be the proper holder of the note.

The holding company moved for summary judgment before discovery was exchanged.  In response, the homeowners filed a motion seeking additional discovery.  The holding company opposed the motion on the ground that discovery had been available in the prior actions and the requested discovery would not affect the outcome of the summary judgment motion.  Without explanation, the district court denied the motion for additional discovery, and later granted the motion for summary judgment.  The homeowners appealed the denial of the motion for additional discovery and the grant of summary judgment to the holding company.

On appeal, the First Circuit only addressed whether it was an abuse of discretion to deny the motion for additional discovery; it found that it need not address the order granting the holding company’s motion for summary judgment because the additional discovery was justified.  The First Circuit agreed that most of the discovery requests had been addressed in the myriad prior cases, but there was good cause for additional discovery because the homeowners had not previously been afforded discovery on (i) the authenticity of the note or (ii) the chain of custody. The First Circuit noted that general speculation that a note is inauthentic or that assignments were mishandled does not always justify discovery.  However, in this case, the handling of the documents was called into question by the numerous unrecorded assignments among the several entities.  The First Circuit therefore remanded with instructions for the district court to allow limited discovery on those two issues.