FEDERAL NATIONAL MORTGAGE ASSOCIATION vs. ELVITRIA M. MARROQUIN & others.
Essex. SJC-12211
Supreme Judicial Court of Massachusetts
January 9, 2017. - May 11, 2017.
477 Mass. 82 (2017)
GANTS, C.J., LENK, HINES, GAZIANO, LOWY, & BUDD, JJ.
Mortgage, Foreclosure, Real estate. Real Property, Mortgage, Sale. Notice, Foreclosure of mortgage.
In a summary process action, the Housing Court judge properly granted summary judgment in favor of the defendant homeowners, where the foreclosing mortgagor‘s notice of default did not strictly comply with paragraph 22 of the standard mortgage, and therefore, the foreclosure sale was void. [89-90]
SUMMARY PROCESS. Complaint filed in the Northeast Division of the Housing Court Department on June 18, 2012.
The case was heard by David D. Kerman, J., on motions for summary judgment.
The Supreme Judicial Court granted an application for direct appellate review.
Cody J. Cocanig for the plaintiff.
Dayne Lee (Eloise P. Lawrence also present) for Elvitria M. Marroquin.
Joshua T. Gutierrez, Daniel D. Bahls, & Andrew S. Webman, for Lewis R. Fleischner & another, amici curiae, submitted a brief.
GANTS, C.J. In Pinti v. Emigrant Mtge. Co., 472 Mass. 226, 227, 232 (2015), we held that a foreclosure by statutory power of sale pursuant to
Background. In December, 2005, the defendants2 secured a mortgage loan in the amount of $312,000 from American Mortgage Express Corporation (American Mortgage) and, as security for the loan, granted a mortgage on their home to Mortgage Electronic Registration Systems, Inc. (MERS), which American Mortgage had designated as the mortgagee in a nominee capacity. MERS subsequently assigned the mortgage to Bank of America, N.A. (Bank of America), as successor by merger to BAC Home Loans Servicing, LP, formerly known as Countrywide Home Loans Servicing, LP.
After the defendants failed to make their mortgage payments, the loan servicer, Countrywide Home Loans Servicing, LP, on October 17, 2008, mailed the defendants a notice of intention to foreclose (notice of default). The notice informed the defendants
“If the default is not cured on or before January 15, 2009, the mortgage payments will be accelerated with the full amount remaining accelerated and becoming due and payable in full, and foreclosure proceedings will be initiated at that time. As such, the failure to cure the default may result in the foreclosure and sale of your property. . . . You may, if required by law or your loan documents, have the right to cure the default after the acceleration of the mortgage payments and prior to the foreclosure sale of your property if all amounts past due are paid within the time permitted by law. . . . Further, you may have the right to bring a court action to assert the non-existence of a default or any other defense you may have to acceleration and foreclosure.”
The defendants did not cure the default, and in March, 2012, Bank of America gave notice and conducted a foreclosure sale by public auction of the mortgaged home. Bank of America was the high bidder at the foreclosure auction and subsequently assigned its winning bid to the Federal National Mortgage Association (Fannie Mae or plaintiff), which properly recorded the foreclosure deed conveying title of the property in May, 2012. On June 18, 2012, Fannie Mae initiated a summary process action in the Housing Court to evict the defendants from the property. On June 19, 2012, the defendants, representing themselves but assisted by counsel, filed an answer in which, by checking a box, they proffered as a defense to the eviction that “[t]he plaintiff‘s case should be dismissed because it does not have proper title to the property and therefore does not have standing to bring this action and/or cannot prove a superior right to possession of the premises.”
For reasons not apparent from the record, Fannie Mae did not move for summary judgment until June, 2015, where, among other arguments, it contended that Bank of America had complied with the terms of the mortgage in exercising the power of sale, and specifically asserted that the notice of default had complied with paragraph 22 of the mortgage.3 On September 23, 2015, the defendants filed a cross motion for summary judgment in which
In October, 2015, the judge granted the defendants’ cross motion for summary judgment and denied the plaintiff‘s motion. The judge found that the issue in Pinti had been “timely and fairly raised,” and concluded that our decision in Pinti should apply to all cases similarly situated that were pending in the trial court or on appeal where the issue had been timely and fairly raised before July 17, 2015. The judge also concluded that the notice of default failed to strictly comply with the requirement in paragraph 22 of the mortgage that the notice shall inform the borrower “of the right to reinstate after acceleration and the right to bring a court action to assert the non-existence of a default or any other defense of the borrower to acceleration and sale.” The judge found that, by stating, “You may, if required by law or your loan documents, have the right to cure the default after the acceleration of the mortgage payments and prior to the foreclosure sale of your property...,” and “you may have the right to bring a court action to assert the non-existence of a default or any other defense you may have to acceleration and foreclosure” (emphasis added), the notice “significantly, and inexcusably, differed from, watered down, and overshadowed the notice that was contractually and legally required by the mortgage.” He added that “there was no excuse for the difference in language” and that it was impossible to imagine any purpose for drafting a notice that failed to track the language of the mortgage “unless, of course, the purpose was to discourage [b]orrowers from asserting their rights.”4
After the judge issued his decision, the Appeals Court held in Aurora Loan Servs., LLC v. Murphy, 88 Mass. App. Ct. 726, 727 (2015), that the Pinti decision applies to cases pending on appeal where the claim that the notice of default failed to strictly comply
Discussion. 1. Application of the Pinti decision to pending cases. Our decision in Pinti was grounded in the requirement in
Although it had long been established in law that the failure to strictly comply with the terms of a mortgage renders void an otherwise valid foreclosure sale, we gave our decision “prospective effect only, because the failure of a mortgagee to provide the mortgagor with the notice of default required by the mortgage is not a matter of record and, therefore, where there is a foreclosure sale in a title chain, ascertaining whether clear record title exists may not be possible.” Pinti, 472 Mass. at 243. Our concern was that a third party who purchases property that had once been sold
In Galiastro v. Mortgage Elec. Registration Sys., Inc., 467 Mass. 160, 167-170 (2014), we addressed that same issue in a closely parallel context. In Eaton, 462 Mass. at 571, we declared that a foreclosure by power of sale is invalid unless a foreclosing party holds the mortgage and also either holds the underlying note or acts on behalf of the note holder. We applied this rule to the parties in Eaton, but otherwise gave the ruling prospective effect only. Id. In Galiastro, supra at 168, we extended the benefit of our decision in Eaton to litigants who had preserved this issue and whose cases were pending on appeal at the time that Eaton was decided. We declared that “[w]here multiple cases await appellate review on precisely the same question, it is inequitable for the case chosen as a vehicle to announce the court‘s holding to be singled out as the ‘chance beneficiary’ of an otherwise prospective rule.” Galiastro, supra at 167-168, citing United States v. Johnson, 457 U.S. 537, 555 n.16 (1982), and Commonwealth v. Pring-Wilson, 448 Mass. 718, 736 (2007). Limiting the application of prospective rulings to such a “chance beneficiary” would mean that something as arbitrary as the speed at which a case is litigated might determine its outcome, as only the first case raising this issue to reach the Supreme Judicial Court would get the benefit of the ruling. It also would greatly diminish the “incentive to bring challenges to existing precedent” by depriving similarly situated litigants “of the benefit for the work and expense involved in challenging the old rule.” Galiastro, supra at 169, quoting Powers v. Wilkinson, 399 Mass. 650, 664 (1987).
The same principles underlying our decision in Galiastro to extend the Eaton rule to cases pending on appeal cause us to
Having so ruled, we now consider whether the homeowner defendants in this case timely and fairly raised a Pinti defense before the issuance of our Pinti decision. The judge found that they had, and we conclude that he was not clearly erroneous in so finding.
We recognize that the defendants did not specifically allege that the mortgagee‘s notice of default failed to strictly comply with the terms of paragraph 22 of the mortgage until they filed their cross motion for summary judgment on September 23, 2015, more than two months after the issuance of our opinion in Pinti. But more than three years before that opinion, in June, 2012, they filed an answer as self-represented litigants where they checked the box proffering as a defense to the eviction that the plaintiff did not have “superior right to possession of the premises.”6 We need not consider whether the assertion of this affirmative defense alone was sufficient to give fair notice of a Pinti defense, because it is apparent from the plaintiff‘s memorandum in support of its
2. Obligation of strict compliance. Having determined that the defendants are entitled to the benefit of our holding in Pinti, we must now address whether the notice of default strictly complied with paragraph 22 of the mortgage. It did not.
Once a borrower has defaulted on a mortgage,
The notice of default in this case communicated much of what paragraph 22 requires but fell short in several crucial respects. Paragraph 22 requires that the notice “inform [the borrower] of the right to reinstate after acceleration and the right to bring a court action to assert the non-existence of a default or any other defense of [the borrower] to acceleration of sale.” Despite this language in the plaintiff‘s own uniform mortgage instrument, the notice declared that the borrower “may, if required by law or [the borrower‘s] loan documents, have the right to cure the default after the acceleration of the mortgage payments and prior to the foreclosure sale of [the borrower‘s] property if all amounts past due are paid within the time permitted by law” (emphasis added).
The phrase, “you may, if required by law or your loan documents, have the right to cure the default after acceleration,” suggests that the right to cure and reinstate is not available to every mortgagor, and that any such right is contingent upon the law or the provisions of other loan documents. But paragraph 19 of the mortgage specifically grants a mortgagor the right to reinstatement after acceleration, and sets forth the steps required to do so. This phrase instead suggests that the homeowner may need to perform legal research and analysis to discern whether the right to cure and reinstate is available.
Similarly, rather than unequivocally inform the borrower of the right to bring a court action to attempt to prevent a foreclosure by asserting that there was no default or by invoking another defense, the notice of default stated that the borrower may have the right to bring such an action. Here, too, the implication is that the right is merely conditional, without specifying the conditions, and that the mortgagor may not have the right to file an action in court. The plaintiff contends that it accurately informed borrowers that they “may have” the right to bring a court action because they would have no such right if their court action lacked a good faith basis. But neither paragraph 22 of the mortgage nor the notice identified a bad faith exception to this right, and we cannot reasonably infer that a borrower would understand that the “may have” language referenced such an exception.7
We agree with the judge that, because the Pinti decision applies to this case and because the notice of default did not strictly comply with the requirements of paragraph 22 of the mortgage, the foreclosure sale is void.8
So ordered.