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Massachusetts Supreme Judicial Court Requires Compliance with Mortgage Document Requirements in Connection with Foreclosures
By Frank H. Bishop, Jr. and Katie Hawkins

On July 17, 2015, the Massachusetts Supreme Judicial Court issued its opinion in Pinti v. Emigrant Mortgage Company, Inc., holding that a mortgagee is required to strictly comply with the requirements of mortgage documents that contain notice of right to cure provisions in order to validly foreclosure in Massachusetts. Due to the failure of Emigrant Mortgage Company, Inc. ("Emigrant") to strictly comply with such requirements found in a mortgage executed by Lesley Phillips and Linda Pinti, the Supreme Court rendered void the foreclosure sale of the property to a third party.

FACTS

In 2008, Ms. Phillips and Ms. Pinti obtained a loan from Emigrant secured by a mortgage on their home. Under the mortgage, prior to acceleration of the loan following a breach of the mortgage by the mortgagors, Emigrant was required to provide the mortgagors with a notice of their right to cure the default, which, among other things, required Emigrant to inform mortgagors of their right to bring a court action to assert the non-existence of a default or any other defense to acceleration and sale. The mortgage also provided that upon the failure of the mortgagors to cure the default, Emigrant could invoke the statutory power of sale under Massachusetts law.

In 2009, Ms. Phillips and Ms. Pinti failed to make their monthly mortgage payments, and Emigrant sent them a notice of their right to cure. The notice stated that Ms. Phillips and Ms. Pinti had "the right to assert in any lawsuit for foreclosure and sale" the non-existence of the default or any other defense, rather than the "right to bring a court action" to address the issue, as required by the mortgage. In 2012, Emigrant held a foreclosure sale, and the home was sold to Harold Wilson. In 2013, Ms. Phillips and Ms. Pinti sued Emigrant and Mr. Wilson, alleging that the foreclosure sale was void because the notice of their right to cure did not comply with the terms of the mortgage. The trial court entered summary judgment for Emigrant and Wilson, holding that strict compliance with the terms of the notice of right to cure provisions of the mortgage was not required. Phillips and Pinti appealed.

The Supreme Court reversed the judgment of the trial court, holding that strict compliance with the notice of right to cure provisions in the mortgage was required. Under the Massachusetts power of sale statute, to effectuate a valid foreclosure sale a mortgagee must first comply with the terms of the mortgage and with the statutes relating to the foreclosure of mortgages by the exercise of a power of sale. The Supreme Court noted that it had consistently held that mortgagees must strictly comply not only with the terms of the actual power of sale in the mortgage, but also with any conditions precedent to the exercise of the power that the mortgage might contain. Therefore, strict compliance must be paid to: (1) terms directly concerned with the foreclosure sale authorized by the power of sale in the mortgage, and (2) those terms prescribing actions the mortgagee must take in connection with the foreclosure, whether before or after the sale takes place.

In the mortgage signed by Phillips and Pinti the Supreme Court found that the notice of right to cure provisions were a prerequisite to the use of the mortgage's power of sale and, therefore, among the terms of the mortgage with which strict compliance was required. Accordingly, the language included in the notice of right to cure sent by Emigrant - which referenced the right to assert "in any lawsuit for foreclosure and sale" the non-existence of a default, rather than "the right to bring a court action" - did not comply with the requirements of the mortgage. While the former notice language might be applicable in a judicial foreclosure state, where the mortgagee is required to commence a court action to foreclose, it is not appropriate in a power of sale state (like Massachusetts) where judicial process is not required. Moreover, the Supreme Court also found that the inaccurate disclosure of the nature of Ms. Phillips's and Ms. Pinti's rights in a power of sale state may have caused them to fail to assert those rights or defenses in a timely fashion.

Due to its failure to comply with the notice of right to cure terms in the mortgage the Supreme Court rendered Emigrant's foreclosure sale void. Recognizing that its decision may impact the validity of titles in Massachusetts, the Supreme Court decided to give its decision only prospective effect, providing precedential effect only to foreclosure sales after July 17, 2015. In dicta, the high court also suggested that to help eliminate potential confusion to title issues mortgagees may want to execute and record an affidavit demonstrating compliance with the requirements of the notice of right to cure provisions of the mortgage and also include a copy of the notice that was sent to the borrower.

Frank Bishop is an associate in the Portland, Maine office of Hudson Cook, LLP. Frank can be reached at 207.541.9554 or by email at fbishop@hudco.com.

Katie Hawkins is an associate in the Portland, Maine office of Hudson Cook, LLP. Katie can be reached at 207.210.6836 or by email at khawkins@hudco.com.

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