Articles Posted in Mortgages

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The foreclosure process for a residential mortgage loan can seem daunting, but the borrower may have defenses against foreclosure.  In a May 11, 2018 Massachusetts foreclosure action, the Appeals Court of Massachusetts found in favor of a homeowner fighting against foreclosure.  Ultimately, the court reversed the judgment of the lower court and allowed the plaintiff to continue her defense in the proceedings.Legal News Gavel

The facts of the case are not unusual in foreclosure actions.  The plaintiff signed the original note payable to the bank in 2007.  A few months later, Fannie Mae purchased a pool of loans from the bank, including the plaintiff’s loan.  After the plaintiff defaulted, the bank sent her a right to cure notice.  In 2009, a mortgage loan servicer for Fannie Mae foreclosed on the plaintiff’s home, exercising the power of sale contained in her mortgage.  The servicer, acting for Fannie Mae, offered the highest bid at the auction.  Fannie Mae purchased the property and then brought an eviction action against the plaintiff in Housing Court.  The plaintiff brought her own action and obtained a preliminary injunction against the eviction, on the basis that the servicer did not hold the mortgage note at the time of the foreclosure sale.  On remand, however, the court entered judgment in favor of Fannie Mae and the loan servicer.  The plaintiff appealed the judgment in the case.

On appeal, the plaintiff presented three arguments for reversal, two of which pertained to the requirements of the right to cure notice.  The provision at issue required the notice to specify the default, the action required to cure the default, a date no earlier than 30 days of the notice by which the default must be cured, and a statement that a failure to cure the default on or before that date may result in acceleration.  The provision also required that the notice must inform the borrower of her right to reinstate after acceleration, and her right to bring a court action to assert any defenses to acceleration and sale.

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It is not uncommon for mortgage lenders to assign or transfer their original loan to another financial institution, although it may be confusing to borrowers.  For homeowners involved in a mortgage dispute, guidance from a Massachusetts real estate attorney can alleviate the complexity regarding their rights against each bank.  In a March 15, 2018 case before the Appeals Court of Massachusetts, an improperly documented mortgage was the subject of a declaratory judgment sought by the plaintiff, as an agent of a bank, against the homeowners.Legal News Gavel

The first mortgage on the defendants’ property was initially obtained in 2000.  In 2001, they refinanced that loan.  To do so, one of the defendants executed another mortgage with a second bank in order to satisfy and discharge the original mortgage.  Shortly thereafter, the second bank executed a blank assignment of the new mortgage and loan, which was subsequently altered to fill in the name of yet another bank, the assignee.

The plaintiff in the case was appointed as the servicer of the assignee bank’s mortgage loans in 2002, including the defendants’ mortgage, which was listed in a schedule with a pool of other loans assigned to the plaintiff.  In 2003, the defendants stopped making payments on their mortgage, and the plaintiff commenced an action against them in 2007.  In order to proceed, the plaintiff needed a declaratory judgment that the improperly documented mortgage was equitably subrogated to the prior first mortgage.  Several issues in the case were decided, appealed, and remanded before again returning to the Appeals Court of Massachusetts in 2018.

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In most cases, a mortgage on property must be paid back to the lender according to an agreed upon schedule.  In an August 2, 2017 Massachusetts real estate case before the Land Court, the parties involved did not have a traditional bank mortgage arrangement.  The plaintiff had filed a petition to amend the title to his property by expunging the recorded mortgage.  The plaintiff argued that a mortgage he granted to his brother, the defendant, had become obsolete and unenforceable by the passage of time.  The defendant argued that the limitations period had not yet passed, and therefore, he retained the right to foreclose on the mortgage.Legal News Gavel

In 1994, the plaintiff signed a promissory note and granted a mortgage to the defendant in the amount of $275,000.  The mortgage was recorded and noted on the certificate of title.  Although the original promissory note was lost, the mortgage incorporated the terms of the note by reference.  In 1996, the parties modified the loan by extending the remaining principle sum of $150,000, but they did not record the document.

A mortgage is an interest in real property that secures a lender’s right to repayment, such that should the debtor fail to timely repay the debt or otherwise default on his obligations, the creditor can foreclose on the mortgage and recover.  A promissory note and mortgage co-exist, providing the lender with a double remedy, one upon his deed, to recover the land, another upon the note, to recover a judgment and execution for the debt.  The mortgage remains in full force until the debt shall be paid.

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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.Legal News Gavel

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.Legal News Gavel

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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Property rights are often defined in a contract executed by the parties involved in the transaction.  In an August 1, 2016 decision, the Massachusetts Land Court examined a contract for a reverse mortgage in order to determine the right of the mortgage lender to foreclose.  The lender had used a standard contract to issue the mortgages, which did not explicitly incorporate the statutory power of sale under G.L. c. 183, § 21.  The lender filed an action with the Land Court, seeking a declaration that their reverse mortgage forms nevertheless include these rights.Legal News Gavel

A reverse mortgage is a loan or line of credit available to a person over the age of 62 who has equity in real estate, typically the person’s home.  The loan provides the borrower with cash, usually in the form of a single lump-sum payment, and is secured by the borrower’s equity in the real estate.  The borrower does not make monthly repayments towards the loan, but instead, the loan is due and payable in full when the borrower dies, sells the home, or no longer uses the home as her principal residence.

Pursuant to Massachusetts law, if a mortgage provides for a power of sale, the lender, in exercising the power, may foreclose without obtaining prior judicial authorization.  In order for a lender to foreclose by exercise of the power of sale, the mortgage itself must grant the lender the statutory power of sale.  The statutory power may be incorporated into a mortgage in three ways:  (1) by including the exact language of the statute defining it in the text of the mortgage; (2) by referring to the definition, generally by use of the term “Statutory Power of Sale”; or (3) with language in the mortgage defining a power substantially similar to that of the statutory power.

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In a recent case, the Massachusetts Land Court ruled on whether a bank could reform an existing mortgage it held with the defendant.  In JP Morgan Chase Bank, N.A. v. Niakaros (Mass. Land Ct. Dec. 13, 2016), the defendant had sought a personal loan in 2007 to pay off an existing mortgage on property owned by his trust, without having to grant a new mortgage on the property.  The bank agreed to the personal loan, and at the closing, the defendant confirmed to the closing attorney that he did not intend to grant a mortgage.  The mortgage was never recorded.Legal News Gavel

The bank failed and was placed in receivership in 2008, and the loan was eventually sold to the plaintiff.  Realizing that both the note and the mortgage on the property were given to the defendant individually, rather than by the trust that owns the property, and that the mortgage was never registered, the plaintiff brought an action to reform the mortgage to name the trust as mortgagor and have it registered.  The primary issues for the land court were whether there was a mutual mistake in the naming of the defendant personally as mortgagor, and whether the defendant would be so unjustly enriched that the mortgage should be reformed.

In Massachusetts, a court has broad power to reform, rescind, or cancel written instruments, including mortgages, on grounds such as fraud, mistake, accident, or illegality.  A reformation based on a mistake will only be allowed if there is full, clear, and decisive proof that the mortgage failed to express the intent that both parties had in making it.  In JP Morgan Chase Bank, the land court ruled that the plaintiff failed to establish that the bank and the defendant made a mutual mistake in executing the mortgage from the defendant individually.  The court credited the testimony of the defendant, in that he communicated his intent to acquire a personal loan and not encumber his trust’s rental property to representatives of the bank as well as the closing attorney.  The court also noted that the note and the mortgage were consistent with the defendant’s description of an individual loan.

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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.Legal News Gavel

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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The Appeals Court of Massachusetts found in favor of homeowners who were sued by their mortgage company after it failed to obtain the signature of the borrower’s spouse on the paperwork. In Salem Five Mortg. Co., LLC v. Lester (Mass. App. Ct. Oct. 13, 2016), the defendant filed a complaint against the plaintiffs, seeking to reform the parties’ residential mortgage. The superior court judge granted summary judgment in favor of the defendant, which was reversed on appeal.Legal News Gavel

In Salem Five Mortg. Co., LLC, the plaintiffs, a married couple, took title to property as tenants by the entirety in a quitclaim deed in 2008. Although the plaintiffs took title jointly, the husband obtained the loan for the property in his name alone, and only he signed the mortgage document encumbering the property. In 2012, the defendant brought suit, seeking relief on four legal theories:  reformation of the mortgage on the ground of mutual mistake, reformation of the deed on the ground of mutual mistake, equitable subrogation of the wife’s interest to prevent unjust enrichment, and imposition of an equitable mortgage. The lower court held that the reformation of the mortgage was justified on the basis of mutual mistake and granted summary judgment.

In cases of mutual mistake in Massachusetts, reformation may be available when the other party knew or had reason to know of the mistake. The defendant, as the party seeking recovery for a unilateral mistake, must present full, clear, and decisive proof that a mistake occurred and that the other party knew or had reason to know of the mistake.

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The Appeals Court of Massachusetts recently decided a case stemming from a home equity conversion mortgage, also known as a reverse mortgage, between a homeowner and her lender. In Fin. Freedom Acquisition, LLC v. Laroche, 90 Mass. App. Ct. 1104 (2016), the bank sought a declaration from the court that the homeowner’s property was subject to the mortgage, despite the fact that it had been previously conveyed to her son. After a judge dismissed the bank’s claims, the bank appealed.Legal News Gavel

In Fin. Freedom Acquisition, LLC v. Laroche, two years prior to executing the reverse mortgage, the homeowner had deeded the home’s fee simple interest to her son, retaining a life estate for herself, for estate planning purposes. Later, the homeowner began researching the possibility of supplementing her income through a reverse mortgage. Deciding to move forward, the homeowner acquired a reverse mortgage from the plaintiff, secured by her home. Prior to closing on the reverse mortgage, the plaintiff discovered that the property had been deeded to the homeowner’s son and noted in the closing documents that a re-conveyance back to the homeowner would be required to complete the transaction. Nevertheless, the closing proceeded without the re-conveyance, and the bank granted the homeowner a mortgage on the property while she received proceeds from the loan. Five years later, the bank again noticed that the property had not been re-conveyed and requested that the homeowner’s son transfer the fee simple back to the homeowner. When he refused to do so, the bank brought an action seeking a declaration that the son’s remainder fee simple interest was subject to the bank’s mortgage.

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