United States: SJC Holds That Holdover Mortgagors Must Pay Rent To Appeal Judgments Of Possession

In an important decision for mortgage lenders and property owners, the Massachusetts Supreme Judicial Court (SJC) held that an indigent “holdover mortgagor”¹ who has had his appeal bond requirement waived in a summary process case must make prospective “fair and reasonable” use and occupancy payments “as rent” to the prevailing bidder in order to maintain a non-frivolous appeal of a judgment entitling the owner to possession of the property.

The SJC's June 17, 2020 unanimous decision in Bank of New York Mellon v. King² resolved a split among lower courts. It reversed a Mass. Appeals Court single justice's order finding that an indigency waiver of the appeal bond requirement prevented the trial court from requiring use and occupancy payments. The SJC held, rather, that the Mass. Legislature mandated prospective use and occupancy payments “as rent” in order for a holdover mortgagor—even an indigent one who has successfully moved to have the appeal bond requirement waived—to pursue a non-frivolous appeal of a summary process court's judgment of possession in favor of the foreclosing bank or prevailing auction bidder.

The King case provided an opportunity for the SJC to weigh in, and settle the law, on whether use and occupancy payments are required in post-foreclosure, summary process eviction appeals. This issue had divided summary process trial courts even in the face of Mass. appellate decisions holding that post-appeal orders waiving or limiting the appeal bond requirement for holdover mortgagors prevented requiring prospective use and occupancy payments.³ As described by the SJC, the King case required it to interpret the Mass. statutes' appeal bond procedural requirements, and their “interrelationship,” governing appeals of summary process judgments awarding possession to the foreclosing bank.⁴

The facts are straightforward. Plaintiff in the summary process eviction case was the foreclosing mortgagee, Bank of New York Mellon (Bank), which held title to the property, while the defendant occupying the property was a holdover mortgagor, Alton King, Jr.⁵ The Bank prevailed in the summary process court, which rendered it a judgment of possession. King timely appealed, planning to challenge the Bank's superior right to possession by allegedly failing to strictly comply with paragraph 22 of the mortgage during the foreclosure process, an issue deemed non-frivolous under settled authority.⁶ 

King also moved to waive the appeal bond requirement under M.G.L. c. 239, § 5(e)⁷ due to his indigent status, which the trial court granted.⁸ But over King's objection, and after an evidentiary hearing in which a real estate broker testified as to market rental amounts for comparable properties in the same geographic area, the trial court granted the Bank's motion to require prospective use and occupancy payments “as rent” under M.G.L. c. 239, §§ 5 and 6, and set King's monthly payment during the appeal at $4,000.⁹ On King's appeal of that order, a single justice of the Mass. Appeals Court vacated that part of the order requiring use and occupancy payments as being inconsistent with the statute and prior precedent.¹⁰ After the appeal was referred to the full Appeals Court, the SJC transferred it to itself on its own motion.¹¹

The SJC noted that Sections 5 and 6 had to be read together, with the Legislature's purposes in mind, to address whether an indigent holdover mortgagor could be required to make prospective use and occupancy payments in order to maintain an appeal.¹² Specifically interpreting the language of Section 5(c) governing cases in which plaintiffs are seeking recovery of land or tenements, and Section 6 applicable to “appeal bonds in the subset of cases in § 5 that involve postforeclosure summary process actions,” the SJC concluded that “[t]he purpose of all these bond provisions is two-fold: to deter frivolous appeals and to provide compensation for plaintiffs for the loss of the property during the appeal.”¹³

The Mass. Legislature, however, also expressly allowed defendant-appellants to move for and obtain waiver of the appeal bond requirement in order to maintain a non-frivolous appeal, upon a showing of indigent status under M.G.L. c. 261, § 27A.¹⁴ “[R]ead[ing] the statutory scheme set out in §§ 5 and 6 as a whole,”¹⁵ and because ruling otherwise “would render § 6 unenforceable,”¹⁶ the SJC “readily conclude[d] that the bond-waiver provision of § 5 applies to postforeclosure summary process appeals whose bond conditions are governed by § 6.”¹⁷

Further, citing to the language of Section 5(e), the SJC then “determine[d] whether a postforeclosure appellant for whom the bond has been waived may be ordered to make use and occupancy payments ‘as rent' pending,” and in order to maintain, “his or her appeal.”¹⁸ The SJC found that payments made “as rent” during the holdover mortgagor's use and occupancy period of an appeal under Section 5(e), which due to an automatic stay of execution delays recovery of possession by the property's lawful owner, are “distinct from the bond required by § 5(c) or 6, in that it is paid in lieu of that bond.”¹⁹ Rejecting King's argument that “rent” as used in Section 5(e) can only be mandated where a traditional landlord-tenant relationship exists or existed, the SJC found that “[t]he balancing of interests that the Legislature required in the landlord-tenant context also is clearly applicable to postforeclosure cases covered by § 6.”²⁰ “Therefore, contrary to [King's] argument,” the SJC “conclude[d] that the Legislature intended ‘any rent' in § 5(e) to encompass the payment of use and occupancy ‘as rent' in § 6.”²¹ The SJC accordingly held that summary process trial “courts may order postforeclosure mortgagors like [King] to pay use and occupancy ‘as rent' to the purchaser of the premises during the pendency of their appeal when the mortgagor's bond has been waived. Such an obligation is consistent with [Massachusetts] case law and reflects a proper balancing of interests.”²²

In order to preserve the right to obtain compensation for lost use of the property during a summary process eviction appeal, the prevailing bidder, whether the foreclosing mortgagee, assignee or other owner, must timely file a motion to require such payments following the defendant's appeal, either on its own or as a cross-motion when opposing the indigent defendant's motion to waive the otherwise required appeal bond. Additionally, the property owner must meet its burden of establishing fair market monthly rental value for the property by submitting with its motion, and providing supporting testimony at an evidentiary hearing if disputed, an affidavit by a certified appraiser or qualified real estate professional with knowledge of the geographic area of the property.

As discussed by the SJC, when setting the monthly payment amount for a postforeclosure property, the summary process court should take into account such factors as “the fair market rental value of the property, which had a value of $1 million [in King]; . . . [any] conditions-related defects . . .; and . . . the principal and interest of the defendant's [defaulted] mortgage” payment.²³ Pursuant to the language of Section 5(f), the SJC applied the de novo standard in its review affirming the summary process court's order setting $4,000 per month as a “fair balancing of interests” for the use and occupancy payments during the pendency of King's appeal (a reduction of $1,000 from the Bank's real estate expert's opinion of $5,000 as the fair monthly rental value).²⁴ Accordingly, in any appeal of an order requiring use and occupancy payments by an appealing holdover mortgagor, the reviewing court will apply the de novo standard to assess whether the monthly payment amount is “fair and reasonable” under all the circumstances.²⁵

Footnotes

1.  The term “holdover mortgagor” refers to a former property owner who remains in possession of a foreclosed property, refusing to voluntarily surrender possession.

2.  Bank of New York Mellon v. King, 485 Mass. 37, 2020 WL 3260860 (June 17, 2020).

3.  See Bank of New York Mellon vs. Dundon, Mass. App. Ct., No. 2019-J-257 (July 17, 2019); Bank of New York v. Apollos, 2008 Mass. App. Div. 208, 2008 WL 4411371 (Sept. 19, 2008).

4.  King, 2020 WL 3260860, at *3.

5.  Id. at *1-2.

6.  See Pinti v. Emigrant Mortg. Co., 472 Mass. 226, 236-37 (2015).

7.  Subsequent references in this article to Sections 5 and 6 are to M.G.L. c. 239, §§ 5 and 6.

8.  King, 2020 WL 3260860, at *2.

9.  Id.

10.  Id. (citing to and attaching the order in Dundon, Mass. App. Ct., No. 2019-J-257).

11.  Id.

12.  Id. at *3.

13.  Id. at *4.

14.  Id. (discussing and quoting M.G.L. c. 239, § 5 (e)).

15.  Id.

16.  Id. at *5.

17.  Id.

18.  Id.

19.  Id. at *6 (emphasis in original).

20.  Id. at *7.

21.  Id. at *8.

22.  Id. See also id. at *9 (“The court shall, however, order, pursuant to § 5 (e), a postforeclosure mortgagor remaining in possession of the property to pay use and occupancy to the purchaser of the property ‘as rent' pending the appeal if his or her bond has been waived.”).

23.  Id.

24.  Id. at *9-10.

25.  Id. at *9; see also M.G.L. c. 239, § 5(f).

Originally published 08 July, 2020

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