Articles Posted in Foreclosures

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Failing to pay local property taxes can result in serious consequences, including property liens and even foreclosure.  An August 30, 2017 case before the Land Court involved a Massachusetts foreclosure action brought by the town of Charlemont against the defendants after they stopped paying real estate taxes in 1992.  The defendants in the case argued that their property was actually located in the neighboring town of Hawley, although Hawley chose not to assess taxes against their property, believing it to be in Charlemont. survey map

The defendants’ property was only conclusively located in the town of Charlemont after a 2010 act by the Legislature fixed the town’s boundaries.  Prior to that time, the parties disagreed as to whether the defendant’s property was located within the limits of Charlemont, or within the limits of the bordering town of Hawley.  This question of where the property was located prior to the legislation was relevant to determine whether Charlemont could foreclose on its tax title for the previous years that it had assessed taxes against the defendants’ property.  If the defendants were correct that their property was located in Hawley prior to the passage of the act, the tax assessed by Charlemont would be rendered void, and Charlemont, in turn, would have no legal basis to proceed in its foreclosure action against the defendants’ property.

The Land Court began by examining maps of the area that made up Charlemont and Hawley in order to determine the boundary line.  A 1794 map depicted the southern boundary of Charlemont bordering the northern boundary of Hawley.  In 1838, Charlemont annexed an unincorporated village that also bordered the northern boundary of Hawley.  Subsequent maps conflicted in their descriptions of the boundary line between Charlemont and Hawley, prompting the Massachusetts Legislature to pass an act that definitively established the boundary line in question as of March 16, 2011.

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When faced with an impending mortgage foreclosure, many homeowners may have defenses or other legal options that could result in a more favorable outcome.  The Appeals Court of Massachusetts recently reviewed a case on March 31, 2017 that involved defendants who had lost their home to foreclosure.house

At the foreclosure sale in 2013, the high bid did not cover all of the defendants’ remaining debt on the mortgage, leaving a deficiency.  The defendants had been paying the premium for a mortgage insurance policy, as required by their original lender. The insurer, the plaintiff in the case, sued the defendants to recover the deficiency.  The plaintiff moved for summary judgment on a contractual subrogation theory.  The lower court granted the motion and entered a judgment for approximately $41,000 against the defendants.  The defendants appealed the judgment to the higher court.

On appeal, the defendants contended that the lower court erred in entering its judgment because there was a factual dispute as to whether the plaintiff actually paid its insured and acquired any contractual subrogation rights against the defendants.  In support of their argument, the defendants alleged there was no evidence that the plaintiff complied with two provisions of the insurance contract relevant to subrogation.

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Some homeowners can choose to take a bank loan secured by a reverse mortgage on their property, but they should be aware of the potential consequences in the event of a default.  In a January 18, 2017 case before the Massachusetts Land Court, a bank sought a determination of its rights to foreclose on a reverse mortgage and enter a default judgment against the deceased homeowner’s estate and heirs.  The homeowners purchased the subject property in 1984 and executed a reverse mortgage to the plaintiff in 2008.  After they passed away, the plaintiff accelerated the debt and declared the loan secured by the reverse mortgage to be in default.sale

The Land Court had previously determined in other cases that the plaintiff’s standard mortgage form was sufficient to incorporate the statutory power of sale by reference.  However, the plaintiff also moved the court for additional relief in the form of a declaration that the estate was in default of the mortgage and that the default permitted the plaintiff to foreclose on the mortgage, pursuant to the power of sale to satisfy the estate’s obligations.  The larger issue in the case was whether the Land Court had subject matter jurisdiction to provide the relief requested by the plaintiff.

The Massachusetts Land Court has jurisdiction over matters in which any right, title, or interest in land is involved.  Since Massachusetts is a title theory state, and a mortgage is an interest in the property that secures the mortgage debt, the mortgagee has a right, title, or interest in that property.  However, with a statutory power of sale, a mortgagee may foreclose without prior judicial intervention.  Although it is regulated by statute, non-judicial foreclosure occurring pursuant to a private power of sale in the mortgage is a private procedure involving private parties.  Therefore, absent some controversy over title or interest in the mortgaged real property, the land court lacks jurisdiction to consider other aspects of an action involving the ability to foreclose.

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In some cases, there may be grounds to defend against a foreclosure on your home and bring a counterclaim to recover damages. In Fitchburg Capital, LLC v. Bourque (Mass. Land Ct. Nov. 14, 2016), the Massachusetts Land Court decided an appeal concerning issues related to the mortgage foreclosure on the defendant’s property. The plaintiff initially brought an action against the defendant to clear a cloud on title attributable to its mortgage foreclosure without having first obtained a judgment under the Soldiers and Sailors Civil Relief Act against the defendant. In related proceedings, the Supreme Judicial Court invalidated that foreclosure, finding that the mortgages on the property were obsolete and deemed discharged. The remaining issue for the land court in Fitchburg Capital concerned the defendant’s counterclaims against the plaintiff, one of which was for the conversion of rental income that the plaintiff had allegedly appropriated while it had possession of the property following the foreclosure sale.apartment for rent

The plaintiff argued that the defendant should be barred by the doctrine of judicial estoppel from seeking a claim for the conversion of rental income generated by the property because the defendant failed to report the claim he had against the plaintiff during his bankruptcy proceedings. Judicial estoppel is an equitable doctrine that precludes a party from asserting a position in one legal proceeding that is contrary to a position it had previously asserted in another proceeding. A defense of judicial estoppel requires that the position being asserted in litigation must be directly inconsistent with the position asserted in prior proceedings, and the party must have succeeded in convincing the court to accept its prior position.

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In a recent case, a Massachusetts Land Court was presented with a motion to vacate judgment to prevent the foreclosure action and sale of property owned by the defendants. In Town of Russell v. Barlow (Mass. Land Ct. July 13, 2016), the town filed a complaint in 2003 to foreclose on the property at issue as the result of a tax lien. In 2008, a judgment was entered foreclosing the defendants’ right of redemption. The defendants filed their petition to vacate in 2014, contending that the tax taking and foreclosure were invalid because the town violated their due process rights. The court ultimately granted the defendants’ motion and vacated the judgment.house

Massachusetts law generally requires a petition to vacate a decree of foreclosure to be filed within one year of the entry of the decree. The judgment may be vacated within one year if the court determines it is required to accomplish justice. However, the strict application of the one-year limitation may be excused when there has been a denial of due process, which is typically based on a violation of due process rights and the property owner’s ability to participate in the original litigation. Due process, in turn, requires notice of a petition to foreclose by certified mail, but it does not require actual notice.

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If certain due process protections were not provided during foreclosure proceedings, this may be grounds to vacate a judgment of foreclosure. In Town of Brewster v. Owners Unknown (Mass. Land Ct. July 8, 2016), the Massachusetts Land Court reviewed a petition to vacate a final judgment of foreclosure of a tax lien, based on lack of notice. The judgment had been entered over 25 years earlier, when the town obtained a 1991 judgment to foreclose its tax lien against “unknown owners.” The petitioners in Town of Brewster claimed a title interest in the property as heirs of the owner, citing an 1851 deed. The petitioners also asserted that the lack of notice to the heirs violated due process, thus entitling them to vacate the judgment and redeem the property by paying any taxes properly due.foreclosure proceeding

The case was originally commenced in 1986, after the town sought unpaid taxes on the property. The land court examiner filed a title report identifying three persons as parties entitled to notice and requested current addresses from the town. Two of the parties were given notice via certified mail. However, there was no return receipt from one of the parties, despite two attempts to provide notice. The town also published notice of the case in the local newspaper. In 1991, the court issued a final judgment, ordering that all rights of redemption were forever foreclosed and barred. In 2015, the petitioner requested that the judgment be vacated. The town argued that even if a due process violation occurred, the petitioners waited too long after learning of the foreclosure judgment to bring the action, since he had first learned of it in 2012.

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Some foreclosure cases can become complicated, especially when multiple actions are filed in different courts with jurisdiction over a particular aspect of the dispute. In Merrill Lynch Credit Corp. v. Bishay (Mass. Dist. Ct. May 6, 2016), the foreclosure sale purchaser brought a residential summary process action against the former owners after they refused to vacate their home. The action was stayed while the former owners challenged the purchaser’s title in a separation action. The former owners then moved to amend their answer and counterclaim in the current case. The trial court denied the motion to amend and entered judgment awarding possession of the property to the purchaser.Foreclosure proceedings

In Bishay, the defendants were owners of the residential property at issue. In 2004, the defendants borrowed $650,000 from the bank, secured by a mortgage on the property. After the defendants eventually defaulted on the loan, the bank initiated foreclosure proceedings. The plaintiff acquired title to the property pursuant to a foreclosure deed, following an auction conducted by the bank. When the defendants failed to vacate the premises, a summary process action was filed against them. The defendants also challenged the validity of the title to the property in a separate action in the Land Court. The District Court action was stayed pending the outcome of the challenge to the title.

On appeal, the issue before the Massachusetts District Court was whether the judge erred in denying the defendants’ motion to amend their answer filed in the residential summary process action. In Massachusetts, the rules of civil procedure allow any party to amend its pleading once as a matter of course within 20 days after it is served, or after that time expires, by leave of court or by written consent of the adverse party. The court should allow a motion to amend unless it has a good reason, such as prejudice to the non-moving party.

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In a new opinion, the Appeals Court of Massachusetts reviewed a foreclosure case involving a summary process action brought against the mortgagor-occupant. In Gold Star Homes, LLC v. Darbouze, 89 Mass. App. Ct. 374 (2016), the defendant and mortgagor initially filed a complaint with the Land Court against the plaintiff and purchaser of the property, alleging unlawful foreclosure. The plaintiff then brought a summary process action against the defendant in the Housing Court. The lower court ruled in favor of the plaintiff on its summary process action, despite the defendant’s pending suit against it.foreclosure

The purpose of summary process is to enable the holder of the legal title of property to gain possession of the premises wrongfully withheld. Legal title is established in summary process by proof that the title was acquired strictly according to the power of sale provided in the mortgage, and that alone is subject to challenge. If there are other grounds to set aside the foreclosure, the defendant must seek affirmative relief in equity.

On appeal, the defendant contended that the judge should not have proceeded on the plaintiff’s summary process action while his related, prior action sought a declaration invalidating the foreclosure sale. The appeals court disagreed, explaining that the relief sought by the plaintiff in the Housing Court, i.e., summary process and eviction, was not available as a counterclaim in the defendant’s Land Court action. The court also noted that the defendant could have asked the Land Court to stay her eviction pending the outcome of its decision, but she did not. As a result, and since the trial in the Housing Court was fair, the appeals court held that the lower court did not err by proceeding with the trial.

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In a recent opinion, the Appeals Court of Massachusetts considered how a mortgagee may show that it is acting as the authorized agent of the note holder for the purpose of surviving a motion for summary judgment. In Khalsa v. Sovereign Bank, N.A. (Mass. App. Ct. Jan. 11, 2016), the borrowers filed a complaint seeking to enjoin a foreclosure sale and a declaration that the mortgagee was not entitled to foreclose. The parties filed cross summary judgment motions, and the lower court found in favor of the homeowners. The court declared that the foreclosure sale of the plaintiff’s residence was void because the defendant failed to show that it was acting as the authorized agent of the note holder (Freddie Mac). The defendant appealed that decision.mortgage-fee-1-1237677-640x640

In Khalsa, the homeowners executed a promissory note to purchase their home in 2008, and they granted the defendant a mortgage on the property to secure the loan. Freddie Mac subsequently purchased the note from the defendant, although the defendant remained the servicer of the note and mortgage. In 2011, the defendant notified the homeowners that they were in default on their loan and held a foreclosure sale. At the time of the sale, Freddie Mac had physical possession of the note. The contested issue between the parties was whether the defendant, which was the holder of the mortgage but not the note, acted with Freddie Mac’s authority to conduct the foreclosure sale.

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Massachusetts Governor Charlie Baker recently signed into law “An Act Clearing Titles to Foreclosed Properties.”  The Act, which went into effect on December 31, 2015 and is retroactive, limits the statutory time period that former owners will have to challenge a foreclosure sale of their homes.  The purpose of the Act is to clear legal title for those Massachusetts homeowners who purchased their homes through foreclosure sales, many of whose titles became clouded after a 2011 case decided by the Massachusetts Supreme Judicial Court.real-estate-icon-1142925-640x640-2

In U.S. Bank Nat’l Assoc. v. Ibanez, 458 Mass. 637, 648 (2011), the Supreme Judicial Court held that the entity foreclosing on a property must be the assignee of the mortgage at both the time of the notice of sale as well as the time of the subsequent foreclosure sale.  The holding went against industry custom and widespread practice, and it had the effect of potentially invalidating thousands of previous foreclosures.  Many of these title-holders were Massachusetts individuals who had purchased properties in foreclosure sales in an effort to fix them up and resell them, live in them, or rent them.  However, with a clouded title, many were left with houses that could not be sold.

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