SJC mandates strict contractual compliance prior to foreclosure
by Anne Shannon
On July 17, 2015 the Massachusetts Supreme Judicial Court ruled in Pinti v. Emigrant Mortgage Company that strict compliance with the notice of default provision in a mortgage is required as a condition of a valid foreclosure sale. The Pinti decision will have significant implications for foreclosure practitioners and on titles that are affected by future foreclosures.
In Pinti, Emigrant Mortgage Company foreclosed on the plaintiffs’ mortgage through the power of sale provision contained in the mortgage. After the sale, Pinti filed an action to have the foreclosure declared void on the basis that Emigrant did not comply strictly with the default provision contained in paragraph 22 of the mortgage. Paragraph 22 of the mortgage required Emigrant to advise the 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.” Emigrant’s notice instead informed the mortgagors that they “ha[d] the right to assert in any lawsuit for foreclosure and sale the non existence of a default or any other defense [they] may have [had] to acceleration and foreclosure and sale.”
Emigrant argued that its notice substantially complied with the terms of the mortgage, and that strict literal compliance with the terms of the mortgage is unnecessary. In support of its position, Emigrant cited last year’s Supreme Judicial Court decision in U.S. Bank v. Schumacher, in which the SJC ruled that substantial compliance with the statutory requirements for pre-foreclosure notices of default was sufficient to effectuate a valid foreclosure.
The court rejected Emigrant’s argument that the holding in Schumacher should control and distinguished Schumacher from the present case. The court noted that the statute at issue in Schumacher was created not to enhance existing foreclosure procedures, but to give homeowners a period of time within which to cure the default before commencement of a foreclosure action. Therefore, the long line of case law requiring strict compliance with “the statutes relating to the foreclosure of mortgages by the exercise of a power of sale” was inapplicable in that case.
In Pinti, the court held that strict compliance with the terms of the mortgage contract is required for a valid foreclosure, reasoning that the contractual term in question constituted a prerequisite to the exercise of the power of sale clause. The court further noted that in Massachusetts, foreclosure can be accomplished by the exercise of the statutory power of sale clause without court adjudication. Emigrant’s failure to adhere strictly to the language in the mortgage contract could lead the plaintiffs to believe they did not need to initiate a pre-foreclosure action, but rather could wait and assert their rights as a defense once a foreclosure lawsuit was filed by Emigrant. In theory, the borrower’s passivity – waiting for a lawsuit that would never be filed-would result in the title to the property passing to a bona fide purchaser through the non-judicial foreclosure process.
The SJC’s ruling in Pinti indicates its decision is to be applied prospectively. However, conveyancers representing mortgage lenders and downstream purchasers must be cognizant of this decision when reviewing foreclosures on title. It is likely that Pinti will prompt borrowers’ counsel to pursue challenges based on similar perceived differences between default notices and contractual language. To date, Massachusetts title insurance companies have not yet determined what documentation they will require in light of Pinti in order to insure owner’s title. Conveyancers should watch carefully for the ramifications of the Pinti decision as the case law develops.
(This article appears in the September 2015 edition of the REBANews.)
New Hampshire: Statutory Amendment re Notice of Sale Requirements
by Adam F. Faria
Harmon Law Offices, P.C. – USFN Member (MA, NH)
On June 26, 2015 New Hampshire Governor Hassan signed into law SB 50, an act “relative to the notice required prior to foreclosure of residential property.” The provisions of the law go into effect on January 1, 2016. SB 50 serves to amend NH RSA 479:25 by distinguishing and expanding the foreclosure notice of sale period for “residential mortgages” from the notice of sale requirements for all other mortgages not defined as “residential mortgages.” The Act also provides for additional disclosures in the notice of sale where the property is an owner-occupied dwelling of four or fewer units without regard to the type of mortgage.
A “residential mortgage” as defined in RSA 397-A:1, VI-c. is, “any loan, including a first or second mortgage loan, primarily for personal, family, or household use which is secured in whole or in part by a mortgage, deed of trust, or other equivalent consensual security interest upon a dwelling or any interest in real property or in residential real estate.” In the case of “residential mortgages,” SB 50 extends the notice requirement to mortgagors under NH RSA 479:25, II. Under the current language of RSA 479:25, notice of sale must be sent to mortgagors at least twenty-five days before the sale. SB 50 increases the notice period to at least forty-five days before the sale. Additionally, while the Act maintains the existing twenty-one day notice requirement to persons having a lien of record, it extends the period under which a record lienholder is entitled to notice. The current RSA 479:25 requires notice be sent to a person having a lien of record at least thirty days before the sale. SB 50 requires notice be sent to a person having a lien of record at least fifty days prior to sale.
In the case of mortgages that do not fall under the definition of “residential mortgages,” the notice period remains unchanged. Notice to the mortgagor shall be sent twenty-five days prior to the sale; notice to a person having a lien of record shall be sent at least twenty-one days before the sale; and any person having a lien of record at least thirty days prior to the sale is entitled to notice.
Moreover, SB 50 requires the following additional disclosures be included in the notice of sale for all owner-occupied dwellings of four or fewer dwelling units: “1. The address of the mortgagee for service of process and the name of the mortgagee’s agent for service of process; and 2. Contact information for the New Hampshire Banking department, along with the statement ‘for information on getting help with housing and foreclosure issues, please call the foreclosure information hotline at [ ]. The hotline is a service of the New Hampshire banking department. There is no charge for this call.'” The Act further requires the banking department to provide a toll-free telephone number. As of the time of this writing, the banking department has not provided a toll-free telephone number.
It is unclear whether the new notice requirements contained in SB 50 are required only for notices of sale sent on or after January 1, 2016, or whether they are required for any sale that occurs on or after January 1, 2016. An additional complicating factor arises for any foreclosure sale scheduled to take place in 2015 and whose notices are compliant only with the current provisions of RSA 479:25. If that sale is postponed into 2016 when the provisions of SB 50 are in effect, it is unclear whether the sale would be a valid sale. For these reasons it behooves the prudent practitioner to begin compliance with the provisions of SB 50 at the earliest opportunity.