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Mass. SJC Holds ‘Hybrid’ Foreclosure Notice Not Inaccurate or Deceptive

reinstatement periodThe Massachusetts Supreme Judicial Court recently held a “hybrid notice” related to foreclosure was neither inaccurate nor deceptive where the notice included overlapping reinstatement periods required by both the mortgage instrument and state statute. 

A copy of the opinion in Thompson v. JPMorgan Chase Bank, NA is available at:  Link to Opinion.

In June 2006 a pair of homeowners obtained a residential mortgage loan. The mortgage was a standard form “Freddie Mac/Fannie Mae” residential mortgage.

The standard form mortgage contained two relevant provisions. First, paragraph 22 contained notice requirements that must be met before acceleration and foreclosure. Second, paragraph 19 placed limits and conditions on the mortgagors’ rights to reinstate a mortgage after acceleration, including purporting to terminate the right to reinstate “five days before sale of the Property pursuant to any power of sale contained in this Security Instrument.”

Additionally, Massachusetts statutory law establishes notice requirements before a foreclosing mortgagee can be accelerated and foreclosed based on borrower default. Under the Massachusetts statute, the required notice must inform the mortgagor, inter alia, “that the mortgagor may redeem the property by paying the total amount due, prior to the foreclosure sale.” G. L. c. 244, § 35A (c) (8).

Subsequently, a new mortgagee took over the borrowers’ loan and in July 2009, the borrowers defaulted on the loan. On Aug. 12, 2016, the new mortgagee sent the borrowers a notice of its intention to accelerate the loan and foreclose on their home.

The notice conformed with both G. L. c. 244, § 35A, and paragraph 22 of the borrowers’ mortgage and informed the borrowers that if they failed “to cure the default on or before [Nov. 10, 2016], [the bank] [could] accelerate the maturity of the Loan, . . . declare all sums secured by the Security Instrument immediately due and payable, commence foreclosure proceedings, and sell the Property.” The notice also informed the borrowers of their right to reinstate and that they could “still avoid foreclosure by paying the total past-due amount before a foreclosure sale takes place.” This notice conformed verbatim to the template required by 209 Code Mass. Regs. § 56.04.

A foreclosure sale occurred, and one month later the borrowers commenced an action in the state trial court to set aside the foreclosure. The borrowers argued that the conflicting statements as to the last day upon which they possibly could reinstate their mortgage — up to the foreclosure sale, as the notice stated, or up to five days before the foreclosure sale, as the terms of the mortgage provided — meant that the bank’s notice was misleading, potentially deceptive, and therefore should render the foreclosure sale void. See, e.g., Pinti v. Emigrant Mtge. Co., 472 Mass. 226, 240 (2015).

The matter was removed to federal court, where the trial judge eventually granted summary judgment in favor of the mortgagee, determining that strict compliance with the notice requirements of paragraph 22 did not require specifying the conditions placed upon the borrowers’ right to reinstate contained in paragraph 19.

The U.S. Court of Appeals for the First Circuit then reversed concluding that, because the notice failed to include the five-day limitation specified in the mortgage contract, the notice was potentially deceptive and, therefore, void pursuant to Pinti.

On a petition for reconsideration, in which the mortgagee and numerous amici pointed out that the mortgagee was required under Massachusetts law to send the notice verbatim, the First Circuit vacated its decision and certified the following question to the Massachusetts Supreme Judicial Court:

“Did the statement in the August 12, 2016, default and acceleration notice that ‘you can still avoid foreclosure by paying the total past-due amount before a foreclosure sale takes place’ render the notice inaccurate or deceptive in a manner that renders the subsequent foreclosure sale void under Massachusetts law?”

The Massachusetts Supreme Judicial Court began its analysis noting that Massachusetts is a “non-judicial foreclosure state,” meaning that it allows a mortgagee to foreclose on a mortgaged property without judicial authorization, so long as the mortgage instrument grants that right by reference to the statutory power of sale. See Pinti, 472 Mass. at 232, citing U.S. Bank Nat’l Ass’n v. Ibanez, 458 Mass. 637, 645–646 (2011); G. L. c. 183, § 21.

In addition, because of the “substantial power . . . to foreclose in Massachusetts without judicial oversight,” the SJC has repeatedly emphasized that “one who sells under a power [of sale] must follow strictly its terms; the failure to do so results in no valid execution of the power, and the sale is wholly void.” Federal Nat’l Mtge. Ass’n v. Marroquin, 477 Mass. 82, 86 (2017).

In Pinti, 472 Mass. at 235, the SJC summarized its jurisprudence concerning what counts as a condition precedent as “(1) terms directly concerned with the foreclosure sale authorized by the power of sale in the mortgage, … and (2) those prescribing actions the mortgagee must take in connection with the foreclosure sale — whether before or after the sale takes place.” Id.

In this matter, the Court acknowledged that the mortgagee sent one notice which satisfied the requirements of both G. L. c. 244, § 35A, and, at least facially, those of paragraph 22 of the borrowers’ Fannie/Freddie Uniform Mortgage Instrument. In addition, the possibility of such a so-called “hybrid notice” was explicitly contemplated by paragraph 15 of the mortgage: “[i]f any notice required by this Security Instrument is also required under Applicable Law, the Applicable Law requirement will satisfy the corresponding requirement under this Security Instrument.”

As such, the Court agreed with the First Circuit that Massachusetts law requires that any notice given pursuant to paragraph 22 must be accurate and not deceptive.  However, it disagreed that the notice here was potentially deceptive because the Court determined that the more generous reinstatement period provided under G. L. c. 244, § 35A governs over the contractually imposed time limits on reinstatement articulated in paragraph 19 of the GSE Uniform Mortgage.

The Court found the borrowers’ contention unavailing that the notice requirements of G. L. c. 244, § 35A, are “of no significance” to the mortgagee’s duty to notify pursuant to paragraph 22. The Court again noted there is nothing that states a single notice could not satisfy both the requirements but rather the possibility is explicitly contemplated in the GSE Uniform Mortgage itself in paragraph 15.

Accordingly, because the notice in question was neither inaccurate nor deceptive, the SJC held that the statement in the Aug. 12, 2016 default and acceleration notice that “you can still avoid foreclosure by paying the total past-due amount before a foreclosure sale takes place” did not render the notice inaccurate or deceptive in a manner that renders the subsequent foreclosure sale void under Massachusetts law.

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