Challenge to Trustee’s Standing to Foreclose Dismissed as Moot after Loan Modification

In Matt v. HSBC Bank USA, N.A., the U.S. Court of Appeals for the First Circuit dismissed as moot a borrower’s claims that HSBC as Trustee for the investor lacked authority to act under the terms of the mortgage.

In 2010, HSBC, acting as Trustee for the investor, filed a complaint in Massachusetts state court seeking to foreclose on the mortgage. The borrower, Jodi Matt, then filed this case in federal court in an attempt to prevent foreclosure of her mortgage loan. Matt claimed that HSBC as Trustee lacked authority to foreclose under the power of sale in her mortgage because the various transfers and assignments of the mortgage were invalid. The trial court granted summary judgment for the creditor, and Matt appealed. While the appeal was pending, Matt entered into a loan modification agreement with the servicer for the loan, Select Portfolio Servicing, Inc. (SPS). Because foreclosure was no longer threatened, the court decline
d to reach the merits of the case and dismissed Matt’s claims as moot.

“Pursuant to the Loan Modification Agreement, Matt renegotiated the terms of her existing mortgage loan, and, as a result, her mortgage loan is current and she is no longer subject to any actual or threatened foreclosure proceedings. Consequently, we dismiss this appeal as moot.”

The court was “blindsided” when it learned at oral argument that the parties had entered a loan modification agreement and that the loan had been brought current. Matt conceded that she had submitted her application for the modification to “SPS on behalf of HSBC” and had executed a loan modification agreement with SPS, permanently modifying the loan under the federal Home Affordable Modification Program (HAMP).

After an evidentiary hearing ordered by the appeals court, the district court found that SPS had acted on HSBC’s behalf in executing the loan modification agreement, and that Matt’s mortgage loan was no longer under threat of foreclosure. Nevertheless, Matt continued to pursue her claims against HSBC, now seeking declaratory rather than injunctive relief.

The court declined to provide any form of relief and dismissed the case on mootness grounds.