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.)