5 N.E.3d 945
Mass. App. Ct.2014Background
- Deutsche Bank foreclosed a first mortgage on Westborough property; Commerce Bank held a junior (second) mortgage. At auction Pehoviak was high bidder at $670,000; Deutsche Bank bid the mortgage balance and later purchased for $528,215.80, leaving a $141,784.20 surplus that would have gone to Commerce.
- Pehoviak indicated a cash purchase but intended to assign his bid to Belekewicz (a financier). Purchaser’s counsel repeatedly requested proof that Deutsche Bank had sent statutorily required foreclosure notices to junior lienholders (IRS and a writ holder, Armstrong).
- Deutsche Bank had, in fact, documentation showing notice to the IRS and a waiver from Armstrong in its file, but its counsel refused repeated requests to provide that documentation to purchaser’s counsel and later declared the buyer in default and purchased the property itself.
- Pehoviak sued for specific performance; Commerce intervened alleging Deutsche Bank’s negligence in executing the power of sale. After trial (jury waived) the judge found Deutsche Bank breached its duty of good faith and reasonable diligence and that Commerce was harmed; judgment awarded Commerce $141,784.20 plus interest.
- Deutsche Bank appealed, arguing (1) it complied with G. L. c. 244, § 14, so no breach; (2) Commerce failed to prove causation (that Pehoviak could close); and (3) Commerce failed to mitigate by not bidding at the sale. The trial court’s factual findings were affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Deutsche Bank breached duty of good faith and reasonable diligence in executing power of sale | Deutsche Bank’s refusal to provide proof of statutory notices to a prospective buyer was unreasonable and breached duties owed to mortgagor and junior lienholders, harming Commerce | Compliance with statutory notice (G. L. c. 244, § 14) and literal terms of the power sufficed; no obligation to supply documents to purchaser’s counsel | Breach: Court held Deutsche Bank’s repeated refusal to provide notice evidence violated duty of good faith and reasonable diligence despite literal statutory compliance |
| Whether Commerce proved causation (that buyer was able to close) | Evidence (buyer’s prior financing relationship with Belekewicz, counsel’s assurances, and suit seeking specific performance) made it more likely than not buyer could close | Buyer lacked commitment letter or bank statements proving funds, so causation was unproven | Causation: Trial judge’s finding that buyer likely could close was not clearly erroneous and was affirmed |
| Whether Deutsche Bank’s failure to provide notices relieved buyer or excused performance | Buyer’s requests for confirmation were proper due diligence; failure to answer did not justify repudiation | Deutsche Bank viewed buyer as repudiating by attempting assignment and as missing the closing window, so no obligation to respond | Court: Buyer’s inquiries were reasonable; Deutsche Bank’s claim of repudiation was unwarranted |
| Whether Commerce failed to mitigate damages by not bidding or making contingent bid | Commerce reasonably relied on Deutsche Bank to act in good faith; inaction was not commercially unreasonable | Commerce should have bid or registered contingent bid to protect junior lien and reduce damages | Mitigation defense waived because not pleaded; court also found Commerce’s inaction not obviously unreasonable |
Key Cases Cited
- Cambridge Sav. Bank v. Cronin, 289 Mass. 379 (mortgagee must exercise good faith and diligence beyond literal compliance)
- Sandler v. Silk, 292 Mass. 493 (failure to exercise good faith and diligence in power of sale can invalidate sale)
- Sher v. South Shore Natl. Bank, 360 Mass. 400 (mortgagee’s duty protects junior encumbrancers and mortgagor)
- Williams v. Resolution GGF OY, 417 Mass. 377 (heightened duty when mortgagee becomes purchaser; must obtain best price)
- Atlas Mort. Co. v. Tebaldi, 304 Mass. 554 (duty of good faith distinct from literal compliance with power)
- McKenna v. Andreassi, 292 Mass. 213 (causation ordinarily a question of fact)
- Cummings Properties, LLC v. National Communications Corp., 449 Mass. 490 (failure to plead affirmative defenses waives them on appeal)
- Anderson v. Bessemer City, 470 U.S. 564 (appellate review of factual findings: clear-error standard)