Even Technical Errors Can Invalidate Foreclosure

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Even technical errors in mortgage and foreclosure documents can invalidate the foreclosure and subsequent sale of a condominium unit, according to the Massachusetts Housing Court. Following foreclosure, and purchase at the foreclosure sale by the foreclosing bank, the former owner asserted that erroneous references in the foreclosure documentation for the unit invalidated the foreclosure and left her with the superior right of possession. The Housing Court, J. Muirhead, agreed and invalidated the foreclosure. East West Bank v. Chung, Lawyers Weekly No. 17-001-13.

Defendant had executed a note and mortgage in favor of United Commercial Bank, properly identifying the property as 165 Tremont Street #1602. The property description gave the same address, but also made references to Unit 1603 and Unit 101, neither of which were ever subject to the mortgage. The mortgage and note were later assigned to East West Bank, who recorded the assignment with the Suffolk Registry of Deeds. Following the owner’s default in 2011, East West Bank sent the required default notices and notice of foreclosure.

East West Bank then published three notices of the foreclosure sale of the property in the Boston Globe. While the notices properly identified the property as mortgaged premises Unit 1602, they went on to repeat the mistakes more particularly describing the unit as Unit 1603, and also made reference to Unit 101. East West Bank was the high bidder at auction, and subsequently instituted a summary process action to evict the former owner. In that proceeding, the former owner argued that the foreclosure, and the resulting sale, were invalid, leaving her with superior right of possession.

The Court noted that in executing a power of sale in a mortgage, the mortgagee is required to exercise good faith and reasonable diligence, as trustee for benefit of all involved. While the mistakes in the documentation were technical and in no way prejudiced the former owner, such mistakes can invalidate a title sale, even if the bank otherwise complied with the mortgage power of sale. As Judge Muirhead noted, “While mistakes can be corrected, this one was not and it creates a problem for the plaintiff.”

Banks and other foreclosing entities in a post Ibanez decision landscape must scrupulously observe the terms of the power of sale and ensure that all documentation and notices are clear and accurate, or risk invalidation of an otherwise unremarkable foreclosure.

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