A win for lenders – Massachusetts Supreme Court rules that a notice of default and right to remedy before foreclosure in accordance with state law is not potentially misleading | Bowditch & Dewey
The recent Massachusetts Supreme Court decision in Thompson v. JPMorgan Chase Bank, NA, – NE3d —-, 2020 WL 7238390, at * 4 (1st Cir. December 9, 2020) represents a substantial victory for the financial services industry by clarifying that a lender’s notice of default and right of repair before the seizure in accordance with state law will isolate the notice of the attack as potentially inaccurate or misleading. Massachusetts law requires that the lender’s notice of default and the lender’s pre-foreclosure right to remedy give the borrower the right to reinstate the mortgage after acceleration until the time of sale. The court ruling means that the lender’s opinion is not inaccurate or misleading to nullify the subsequent foreclosure sale, even though the notice does not include the more restrictive wording of paragraph 19 of the GSE Uniform Mortgage which terminates a borrower’s right to reinstate the mortgage five days before the sale.
In Thompson, the borrower brought an action against the lender 30 days after the sale, alleging that the lender’s prior notice of foreclosure was misleading because it did not include the limitation in paragraph 19 of the GSE Uniform Mortgage that the right to reinstate the mortgage is only available up to five days before the sale. The district court held that strict compliance by the lender with paragraph 22 of the mortgage did not require it to specify the specific conditions imposed on the plaintiff’s right to reinstate his rights contained in paragraph 19 of the mortgage. However, the First Circuit overturned the district court, saying the notice was potentially misleading because it could mislead borrowers into believing that they could wait a few moments before the sale to make the required reparation payment.
After reconsideration, the lender and several amici argued that a lender’s pre-foreclosure notice should be sent as is and in strict accordance with Massachusetts law, and substantial upheaval would ensue in the market. residential mortgage if the decision was upheld. Circuit 1 then overturned its decision and certified the following question to the SJC:
Made [defendant’s] statement in the August 12, 2016 Notice of Default and Acceleration that “you can still avoid foreclosure by paying the full amount overdue before a foreclosure sale takes place” render the notice inaccurate or deceptive in a way that voids the subsequent foreclosure sale under Massachusetts law?
The SJC answered the question “No”. The SJC concluded that the more generous reinstatement period provided for in Chapter 35A of the General Laws of Mass until the time of sale takes precedence over the contractually imposed reinstatement periods set out in paragraph 19 of the GSE Uniform Mortgage. This means that a borrower can, in fact, reinstate the mortgage after the acceleration by handing over the required repair amount even moments before a planned sale. The SJC’s decision was based on other provisions of the mortgage, including paragraph 12 which gives the lender the option of extending the time limit for a reinstatement payment, and paragraph 16 which provides that all rights and obligations in under the mortgage are subject to the requirements and limitations of applicable law.
The court ruling resolves prior uncertainty in this area of the law and avoids the prospect of possible legal challenges of a large number of past foreclosure sales.