First Circuit Finds That A Notice Of Default Is Potentially Deceptive, Rendering The Foreclosure Invalid

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In Thompson v. JPMorgan Chase Bank (1st Cir. 2019), the First Circuit reversed the District Court's dismissal of the borrowers' claims against the mortgagee, finding that the notice of default did not strictly comply with the terms of the mortgage and Massachusetts law. 

This case involves a post-foreclosure lawsuit. The borrowers claimed that the foreclosing mortgagee did not comply with the notice requirements contained in their mortgage before foreclosing on their property.

A provision of the mortgage contained a time limitation regarding the borrowers' right to reinstate the loan after its acceleration. Specifically, it stated that "Borrower shall have the right to have enforcement of this Security Instrument discontinued at any time prior to the earliest of: (a) five days before the sale of the Property pursuant any power of sale contained in this Security Instrument..." When it sent its pre-foreclosure notice of default to the borrowers, the foreclosing entity did not make any mention that the payment had to be tendered at least five days before the foreclosure sale. Rather, the notice of default stated that the borrowers could "still avoid foreclosure by paying the total past-due amount before a foreclosure sale takes place." That omission proved to be fatal. The First Circuit found that such omission was "potentially defective," and therefore not in strict compliance with the terms of the mortgage and Massachusetts law. The court concluded that the "potentially defective" notice of default rendered the foreclosure sale void.

The First Circuit arrived at that conclusion even though it recognized that the borrowers "do not say that their conduct was in any way altered." They did not claim that they were in any way confused or made any attempt to reinstate the loan before foreclosure. Relying on Pinti v. Emigrant Mortg. Co.(2015), the court explained that the borrowers do not need "to prove that the inaccuracy or deception caused harm."

Because Massachusetts law allows non-judicial foreclosures, in return mortgagees are required to strictly comply with the terms of the mortgage. This case is another reminder how critical it is for foreclosing entities to prepare notices of default that very closely follow the language contained in the mortgage.

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