United States: Supreme Judicial Court Limits The Grounds Available To A Mortgagor Challenging A Foreclosure

The Massachusetts Supreme Judicial Court (SJC) recently issued another decision affecting the foreclosure of mortgages in Massachusetts. In U.S. Bank National Association, Trustee, v. John Schumacher, No. 11490, slip op. (Mass. March 12, 2014), the SJC considered the issue of whether the Massachusetts right-to-cure statute, M.G.L. c. 244, Section 35A (Section 35A) (requiring certain pre-foreclosure notices to residential borrowers), is part of the foreclosure process.

The SJC, hearing the case on its own motion, affirmed the Worcester Housing Court's judgment in favor of the lender, and held that "a homeowner's right to cure a default is a preforeclosure undertaking that, when satisfied, eliminates the default and wholly precludes the initiation of foreclosure proceedings."

In Schumacher, following a foreclosure sale, the foreclosing lender, as the successful bidder at the foreclosure, brought a summary process action to evict the borrower. The borrower argued that the notice he received prior to the foreclosure, informing him of his right to cure, failed to correctly state the mortgagee of record and that, as a result, the foreclosing lender was not entitled to possession of the property because the foreclosure was not done in strict compliance with the power of sale provided in the mortgage, thereby rendering the foreclosure void. Referring to the statutory definition of the power of sale contained in M.G.L. c. 183, Section 21 1, the borrower argued that Section 35A constitutes one of the "statutes relating to the foreclosure of mortgages by the exercise of a power of sale." The SJC noted, however, that Section 35A "is designed to give a mortgagor a fair opportunity to cure a default before the debt is accelerated and before the foreclosure process is commenced" (emphasis added). As a result, the SJC held that Section 35A "is not one of the statutes 'relating to the foreclosure of mortgages by the exercise of a power of sale'" referenced in M.G.L. c. 183, Section 21.

While the lender was successful in this battle, the concurring opinion of Justice Gant suggests that the war is far from over. Justice Gant, in referring to the Court's recent decision in Bank of America, N.A. v. Rosa, 466 Mass. 613 (2013) 2, acknowledged that a mortgagor could defeat an eviction proceeding to the extent the mortgagor is able to "prove that the violation of [Section 35A] rendered the foreclosure so fundamentally unfair that [the mortgagor] is entitled to affirmative equitable relief, specifically the setting aside of the foreclosure sale 'for reasons other than failure to comply strictly with the power of sale provided in the mortgage.'" Bank of America, N.A. v. Rosa, supra at 624. It remains to be seen how the lower courts will apply this "fundamentally unfair" standard.

1 M.G.L. c.183, §21 provides: "The following "power" shall be known as the "Statutory Power of Sale", and may be incorporated in any mortgage by reference:

(POWER.)

But upon any default in the performance or observance of the foregoing or other condition, the mortgagee or his executors, administrators, successors or assigns may sell the mortgaged premises or such portion thereof as may remain subject to the mortgage in case of any partial release thereof, either as a whole or in parcels, together with all improvements that may be thereon, by public auction on or near the premises then subject to the mortgage, or, if more than one parcel is then subject thereto, on or near one of said parcels, or at such place as may be designated for that purpose in the mortgage, first complying with the terms of the mortgage and with the statutes relating to the foreclosure of mortgages by the exercise of a power of sale, and may convey the same by proper deed or deeds to the purchaser or purchasers absolutely and in fee simple; and such sale shall forever bar the mortgagor and all persons claiming under him from all right and interest in the mortgaged premises, whether at law or in equity."

2 For further background on this case, see Nutter McClennen & Fish LLP client advisory issued on January 7, 2014.

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.

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