56 F.4th 1
1st Cir.2022Background
- In 2005 the Aubees granted a mortgage; Wilmington Savings (as trustee for Pretium) was later assigned the note and mortgage.
- Paragraph 22 of the mortgage requires a pre-acceleration notice that informs the borrower of the right to reinstate after acceleration and the right to bring a court action to assert non-existence of a default or other defenses.
- On April 3, 2017 Selene (acting for Wilmington Savings) sent a Notice of Default that quoted paragraph 22 but used "and/or" and added the phrase "assert in the foreclosure proceeding," potentially conflating judicial and non-judicial remedies.
- Wilmington accelerated and completed a non-judicial foreclosure sale on June 18, 2018; the Aubees sued in state court claiming the sale was void for failure to strictly comply with paragraph 22; the case was removed and the district court dismissed the complaint.
- While this appeal was pending, the Rhode Island Supreme Court decided Woel, holding strict compliance with paragraph 22 is a condition precedent and that failure renders a foreclosure void; the First Circuit concluded Woel applies to cases pending on appeal and assessed whether the Aubees plausibly alleged a defective notice.
- The First Circuit reversed dismissal of the breach-of-contract claim as to Wilmington Savings (finding the notice plausibly misleading and noncompliant) and affirmed dismissal as to Selene Finance (not a party to the mortgage) and as to the abandoned statutory claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does Woel's rule (strict compliance) apply to this federal appeal pending when Woel issued? | Woel should apply to this case and other cases pending on appeal. | Woel limited its prospective application to cases pending in the Rhode Island Superior Court only. | Woel applies to this case and to cases pending on appeal; court follows Woel and related Massachusetts precedent. |
| Does paragraph 22 require not just literal recitation but an accurate, non-misleading notice? | Aubees: paragraph 22 requires strict compliance; a notice that reasonably misleads borrowers about how to assert rights fails. | Defendants: the notice, read with earlier language about judicial vs non-judicial options, adequately explained available avenues. | Court: strict compliance includes being accurate and not deceptive; notices that would reasonably mislead borrowers fail paragraph 22. |
| Was the April 2017 notice misleading because of "and/or" and the phrase "in the foreclosure proceeding"? | Aubees: the wording could lead borrowers to believe they could assert defenses in a foreclosure proceeding even in non-judicial sales, discouraging them from filing their own suit. | Defendants: the notice elsewhere explained the mortgagee may choose judicial or non-judicial foreclosure; thus the rights statement merely reflects different avenues. | Court: the "and/or" linkage and phrasing are reasonably likely to mislead; the notice is misleading and fails strict compliance. |
| Is Selene Finance bound by the mortgage's notice obligations? | (Not contested on appeal.) | Selene: not a party to the mortgage; not bound. | Court: affirmed dismissal as to Selene—it is not bound by the mortgage's notice provisions. |
Key Cases Cited
- Woel v. Christiana Trust, 228 A.3d 339 (R.I. 2020) (Rhode Island adopts strict-compliance rule for paragraph 22; foreclosure without strict compliance is void; prospective application to pending cases)
- Pinti v. Emigrant Mortg. Co., 33 N.E.3d 1213 (Mass. 2015) (Massachusetts requires strict, non-misleading paragraph 22 notices; notices that could mislead borrowers fail)
- Fed. Nat'l Mortg. Ass'n v. Marroquin, 74 N.E.3d 592 (Mass. 2017) (Pinti applies in cases where the issue was timely raised in trial court or on appeal)
- Thompson v. JPMorgan Chase Bank, N.A., 982 F.3d 809 (1st Cir. 2020) (interpreting Pinti to require paragraph 22 notices to be accurate and not deceptive)
- Thompson v. JPMorgan Chase Bank, N.A., 158 N.E.3d 35 (Mass. 2020) (Massachusetts Supreme Judicial Court agrees that paragraph 22 notices must be accurate and not deceptive)