Massachusetts Appeals Court Rejects Plaintiff-Borrowers’ Claim that Obsolete Mortgage Statute Limits Mortgagee’s Ability to Foreclose on Properties in Default

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The Massachusetts obsolete mortgage statute, G.L. c. 260, § 33, provides, in relevant part, that “power of sale in any mortgage of real estate shall not be exercised . . . nor proceeding begun for foreclosure of any such mortgage after the expiration of . . . 5 years from the expiration of the term or from the maturity date.” The purpose of the statute is to create a date certain by which an old mortgage is deemed discharged as a matter of law in order to provide certainty for title examiners and thereby remove impediments to the purchase and sale of real estate subject to mortgages for which a discharge was never filed in the applicable Registry of Deeds.

In the recent case of Nims v. Bank of New York Mellon, the Massachusetts Appeals Court rejected a borrower’s novel claim that a mortgage’s maturity date was accelerated for purposes of applying the obsolete mortgage statute when the promissory note secured by the mortgage was accelerated and personal liability for the debt had been discharged in bankruptcy.

The plaintiff borrowers in Nims executed a promissory note requiring monthly payments over a thirty-year term and a mortgage securing the mortgagee’s loan. Plaintiffs fell behind in payments on the note, received a “Notice of Intention to Foreclose” from the lender, and ultimately filed for Chapter 7 bankruptcy protection, subject to which plaintiffs were discharged from personal liability on their debts, including the applicable promissory note.

Years after the bankruptcy proceedings, Bank of New York Mellon notified the plaintiffs that the property would be sold at a foreclosure auction. In response, plaintiffs filed suit, and sought a preliminary injunction seeking a declaration that the mortgagees were not entitled to foreclose on the property. In their lawsuit, plaintiff borrowers relied on the fact that the mortgage itself did not make reference to a term or maturity date. Plaintiffs then cited the language in the lender’s original Notice of Intention to Foreclose that in the event their default on the note was not timely cured, “mortgage payments will be accelerated with the full amount remaining accelerated and becoming due and payable in full,” and argued that the “maturity date” for purposes of G.L. c. 260, § 33 is the date by which full payment of the loan secured by the mortgage is due. Plaintiffs consequently argued that, because the power of sale in the mortgage was not exercised by the lender within five years, it was untimely and the lender must be forbidden from foreclosing on the property.

The Appeals Court affirmed the Superior Court’s dismissal of the claims against Bank of New York Mellon, rejecting plaintiffs’ arguments in their entirety. With respect to plaintiffs’ reliance on the absence of an explicit maturity date in the mortgage itself, the Court noted that the mortgage did “refer on its face to the July 6, 2005 note, and made reference to the requirement that the debt be paid in full no later than August 1, 2035. In these circumstances, using common-law interpretive principles, the term or maturity date of the underlying obligation (i.e., the note) is considered the term or maturity date of the mortgage.” In summarily dismissing plaintiffs’ related argument that acceleration of payment obligations under the note in 2010 also accelerated the maturity date of the mortgage pursuant to G.L. c. 260, § 33, the Court held that the statute was intended to quiet title on properties subject to old mortgages and “does not shorten the period of enforceability of mortgages before their maturity date or term has been reached.” The Court also noted that its reading of the obsolete mortgage statute is consistent with the long-standing rule under Massachusetts law that a mortgage has separate enforceability and viability from its underlying note setting forth the terms of the loan obligations.

The Appeals Court’s holding in Nims is sure to be welcome news for banks and lenders, ensuring that borrowers who have defaulted on a note may not avoid their loan obligations, extinguish the mortgage, and obtain title to their previously secured property free and clear in the event that five years have passed after notification of default before a foreclosure has transpired. A converse ruling would have wreaked havoc on the viability of certain mortgages and granted a windfall to borrowers fortunate enough to have foreclosure proceedings delayed or an underlying mortgage without explicit reference to a maturity date on the face of the document. The Supreme Judicial Court subsequently denied the plaintiff-borrowers’ application for further appellate review, cementing the Appeals Court’s ruling as to the import of G.L. c. 260, § 33.

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