Massachusetts is a non-judicial foreclosure state, meaning that a mortgagee is authorized to foreclose on a mortgaged property without obtaining prior court approval. The ability of a lender to exercise its “power of sale,” that is without court approval, exists only if such power is granted in the mortgage itself. If the mortgage does not contain a “power of sale” provision, the lender is left with two time-consuming options to recover the amount due under the loan: either file suit or conduct a foreclosure by entry, which takes three years.
The power of sale dates back to the beginning of the nineteenth century in response to the need for an expedited foreclosure process. Since then, the power of sale has been regulated through the provisions of G.L.c.244, §§ 11-17C, which impose strict notice requirements in order to validly foreclose, and is defined in G.L.c.244, §21.
The courts have identified three methods of incorporating the statutory power of sale into a mortgage: either (1) by reciting the exact language of §21; or (2) by referring to the definition, typically by using the term “statutory power of sale”; or (3) by defining a power that is substantially similar to the definition of the statutory power of sale in §21. Generally, the first and the third methods are not used. Rather, the preferred method of incorporating the statutory power of sale is the second one, namely using these exact words “statutory power of sale” in the mortgage.
What if the mortgage provision states that the lender has the “power of sale” but it omits the word “statutory”? Is that omission fatale depriving the lender of a non-judicial foreclosure proceeding? The Supreme Judicial Court addressed that precise issue in the context of a reverse mortgage in James B. Nutter & Company v. Estate of Barbara A. Murphy & Others, 478 Mass. 664 (January 18, 2018). The case (consolidated with two other cases) involved three separate reverse mortgages held by the same lender. Each mortgage contained the same provision: “Lender may invoke the power of sale and any other remedies permitted by applicable law.” The provision omitted the critical word “statutory.”
The SJC recognized that the mortgage provision was ambiguous in that the mortgage contained language contemplating both non-judicial and judicial foreclosure. Applying the principles of contract interpretation, the SJC held that “no reasonable borrower in Massachusetts would expect that a lender would enter into a reverse mortgage without retaining a power of sale.” The SJC concluded that the mortgage provision did incorporate the statutory power of sale as defined in G.L.c.244, §21.
In doing so, the SJC emphasized that “[it] matters that this is a contract for a reverse mortgage, rather than a traditional mortgage,” thereby implying that its holding would not necessarily apply to a traditional mortgage. Fitch Law Partners will closely monitor developments as the issue unfolds.
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