First Circuit Reverses Its Earlier Decision Voiding a Foreclosure Sale Over a Potentially Defective Notice of Default After the SJC, on Certification, Found the Notice Was Not Misleading

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When a borrower defaults on the terms of the mortgage, the loan is accelerated, thereby allowing the bank to conduct a foreclosure sale. Because Massachusetts is a non-judicial foreclosure state, a bank does not need to obtain a judgment to foreclose (provided the mortgage contains a statutory power of sale provision). When sending a notice of default, a bank must strictly comply with the terms of the mortgage and also comply with statutory provisions governing the foreclosure of mortgages.

Strict compliance with the terms of the mortgage is critical. In Pinti v. Emigrant Mort. Co. Inc., the SJC held that failure to comply renders the subsequent foreclosure void. There are two types of mortgage terms that the notice of default must comply with: (1) the terms concerning the power of sale, and (2) the terms governing the actions the borrower must take before (such as reinstating the loan) or after the sale takes place.  

What happens when the mortgage imposes restrictions on the right to reinstate that do not exist under applicable law? Does that mortgage provision govern the foreclosure proceeding?  A recent decision, Thompson v. JPMorgan Chase Bank, N.A., clarified that point.

The Thompsons sued Chase to set aside a foreclosure sale alleging that the notice of default failed to comply with the terms of the mortgage. Their mortgage contained a provision imposing conditions and time-limitation on their post-acceleration reinstatement right. It specified that Chase had to exercise its reinstatement right no later than five days before the foreclosure sale.  

Relying on Pinti, the First Circuit initially found that the notice the Thompsons received was potentiallydeceptive and concluded that the foreclosure sale was void. The notice provided that the Thompsons could "still avoid foreclosure by paying the total past-due amount before a foreclosure takes place." Because the notice did not include the five-day limitation specified in the mortgage, the First Circuit reasoned that it was potentially defective and, therefore, under the principles of Pinti the foreclosure sale was void.   

Chase moved for reconsideration. The First Circuit withdrew its decision and certified the question of state law to the SJC. The SJC observed that under G.L.c. 244, §35A a borrower has the right to reinstate a mortgage at any time before the foreclosure sale.  That statutory provision controls and supersedes any conflicting provision of the mortgage. The SJC concluded that the notice could not have been misleading for omitting the mortgage provision imposing a five-day deadline because such provision does not apply.  

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