On July 17, the Massachusetts Supreme Judicial Court (SJC) announced a 4-3 decision that voided a residential foreclosure and the subsequent sale of the property.
Boston-based real estate attorney Edward Hershfield, partner at Brown Rudnick, said even though the lender followed most of the rules for foreclosure set forth in the mortgage agreement, it skipped an important one, and that was critical to the plaintiff’s case.
“The court held that it can’t be substantial compliance” Hershfield said. “It’s got to be strict compliance.”
The SJC found that Emigrant Mortgage failed its requirement to inform its client of her “right to bring a court action to assert the non-existence of a default or any other defense of the plaintiffs to the acceleration of the sale” before foreclosing on the property.
After Emigrant foreclosed on the condominium and sold it at an auction. Now the highest court in the state has decided that both the foreclosure and sale must be reversed.
In 2008, Linda Pinti and her wife took out a $160,000 mortgage on the Cambridge condominium they had owned for years. In August and September 2009, the couple failed to make their payments and Emigrant notified them they were in default.
Emigrant told the couple they could cure the default by curing their payment history; when they didn’t, Emigrant foreclosed on their home and sold it to a man named Harold Wilion in 2012.
In January 2013 Pinti filed suit against Emigrant in Superior Court seeking nullification of the sale because the foreclosure was illegal. Emigrant prevailed, and Pinti appealed the decision to the SJC.
In the majority opinion, Justice Margot Botsford wrote, “it is hardly unfair or burdensome to require a mortgagee such as Emigrant to comply with the provisions of paragraph 22 in one of its own mortgages by sending a notice that conforms to the language of the paragraph. Given this, we find no compelling reason to bless a notice of default that fails accurately to notify Massachusetts mortgagors of their right and need to initiate legal action if they seek to challenge the validity of a foreclosure.”
In the dissenting opinion, Justice Robert J. Cody conceded that Emigrant made a mistake by failing to meet the obligation set forth in its own contract. However, he reasoned that while that mistake may give the plaintiff recourse against the Emigrant, it should not force the owner out of the house he bought on good faith.
“I would conclude that the defect in the paragraph 22 notice was insufficient to defeat his [Wilion’s] interest in the property. Therefore I respectfully dissent.”
Hershfield said he was surprised by the split decision.
“There clearly was a lot of back and forth between the justices,” Hershfield said. “There is respectful disagreement about what happened. They could have found that the notice is a contractual obligation between parties, but not going to requirement for the sale.”
Hershfield said it isn’t clear if the decision will apply to both residential and commercial loans, but it will make the loan process a little more complicated and buying a home that has been foreclosed upon a little more risky.
“They’ll probably come up with a form that will be another hoop that lenders will need to jump through,” Hershfield said.
“At the end of the day there will be a standard form that every residential lender will have to make sure is given to every homeowner in Massachusetts that is facing foreclosure. The industry will deal with it.”
