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Granting A New Lease On Life To A Multi-Year, Multi-Court Mortgage Conflict, The First Circuit Permits Homeowners Limited Rule 56(D) Discovery

The conflict in Emigrant Residential LLC v. Pinti (“Pinti III”) began when two homeowners defaulted on the mortgage for their Cambridge condominium and failed to cure the default. During this time, ownership of the mortgage and the note changed hands multiple times. Unfortunately, more than one of the lenders failed to record the assignment and/or deliver the necessary documents to the new lender. After the home was sold at foreclosure, one lender issued a notice of mortgage discharge to the homeowners. The lender contends that this discharge was a mistake. In Pinti I, the Court held that the foreclosure was void for failure to comply with the notice terms of the mortgage. The lender tried again to recover in Pinti II, but the case was dismissed for lack of standing on the part of the lender-plaintiff. Finally, in Pinti III, a different lender who, in fact, owned the mortgage and note sued the homeowners.

In District Court, the Pinti III lender-plaintiff moved for summary judgment and the homeowners filed a Rule 56(d) motion seeking additional discovery. The District Court denied the 56(d) motion and granted summary judgment for the lender-plaintiff and the homeowners appealed. Reversing the District Court, the Court of Appeals for the First Circuit reasoned that, although “for the most part” the homeowners had a full and fair opportunity to conduct discovery in prior related litigation, two areas of inquiry had not been explored previously and stood “separate and apart.” Though mere “[s]peculation that a note might not be authentic and that assignments might have been mishandled” would not be enough to justify additional discovery, this case presented an “unusual record, showing significant and repeated missteps by the [lender] entities in their handling of pertinent documents,” such that limited discovery into the chain of custody was warranted. The Court of Appeals, accordingly, sent the case back to the District Court for the homeowners to conduct this limited discovery and the Court to reconsider summary judgment.

In addition to serving as a warning to financial institutions to button up their chain of custody procedures and records, the Pinti III decision cautions against rushing to summary judgment with an incomplete discovery record. It should also remind litigants and attorneys that there is a time and a place for bringing a successful Rule 56(d) motion.

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