Articles Posted in Mortgages

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Massachusetts foreclosure proceedings may involve multiple legal challenges from different parties and extend over many years.  In a May 13, 2019 case, the Appeals Court of Massachusetts reviewed a dispute over the surplus sale proceeds following a real estate tax taking.  The action was brought by an individual plaintiff against the defendant, who was the owner of a foreclosed property.

In 2010, the town executed a tax taking on property owned by the defendant.  The town subsequently filed a petition in Land Court to foreclose all rights of redemption on the property, and in 2014, obtained a foreclosure judgment in its favor.  The town sold the property at auction for approximately $815,000 in 2016.

The plaintiff in the case had brought a Massachusetts Wage Act claim against the defendant in 2012.  She was awarded a judgment in the amount of $250,000, to be secured by a mortgage on the defendant’s property, which the plaintiff recorded in August of 2014.  After learning that the town planned to sell the property at auction, the plaintiff filed an action against the defendant and the town seeking a declaratory judgment that she was entitled to the surplus of the tax debt from the sale.  After the judge entered summary judgment in favor of the town, the plaintiff filed the instant appeal.

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Failing to pay Massachusetts property taxes may lead to significant consequences for property owners, including the taking of a tax title to their home.  In many cases, however, the law provides a way for individuals to reclaim ownership.  In an April 17, 2019 case before the Massachusetts Land Court, the homeowners sought to determine the amount needed to redeem property that had been taken for nonpayment of taxes.  The plaintiff in the case was a private company that held the tax title from their house.  The plaintiff argued that the redemption amount must include the sum of tax payments that it had made since acquiring title, as well as 16% interest on that amount.

The problem arose in 2011, when the City took title to the defendants’ house pursuant to Massachusetts law, as the defendants had not paid their real estate taxes on the property that year.  The law allows the City to hold title until the defendants exercise their right of redemption, or until they no longer possess the right of redemption.  During that time, the accrued interest rate on the defendants’ redemption amount (i.e., unpaid taxes, fees, costs, etc.) is 16%.

In 2016, the plaintiff purchased the tax title from the City at auction.  The plaintiff paid the City the outstanding taxes on the defendants’ property and continued to pay the taxes on the property for the next three years.  The plaintiff subsequently initiated foreclosure proceedings against the defendants, who answered the complaint by claiming the right to redeem title to the property. The plaintiff argued that the redemption amount should include the following:  unpaid taxes for 2011 through 2015 plus interest and fees, the subsequent taxes paid by the plaintiff from 2016 to 2018, and interest at 16% on that amount.  The defendants agreed to the unpaid taxes for 2011-2015, but argued that the plaintiff had no authority to claim the other amounts under the statute.

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In Massachusetts, a homeowner may have valid legal defenses against the lender in mortgage foreclosure proceedings.  In a December 27, 2018 Massachusetts foreclosure case, the issue was whether the foreclosure on the defendants’ home mortgage was void due to the bank’s failure to strictly comply with the provisions in the mortgage.  The bank appealed the matter after the trial court ruled that the foreclosure was void.

In Massachusetts, the statutory power of sale requires that, upon default, the lender comply with the terms of the mortgage and all foreclosure laws.  In 2015, the Massachusetts Supreme Judicial Court held in Pinti that, to effect a valid foreclosure sale, the lender must strictly comply not only with the terms of the actual power of sale in the mortgage, but also with any pre-foreclosure conditions that are required before exercising the power of sale.  Thus, a lender’s failure to strictly comply with the notice of default provided in the mortgage renders the foreclosure sale void.

The strict compliance requirements of Pinti apply to any foreclosure case in which an issue with the failure to adhere to the mortgage terms was timely and fairly asserted in the trial court, or for any appeal before July 17, 2017.

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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.

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.

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.

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.

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.

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.

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.

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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