Articles Posted in Mortgages

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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.

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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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.

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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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.

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.

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.

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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In a recent decision, the Appeals Court of Massachusetts addressed the issue of whether Pinti v. Emigrant Mort. Co., which held that the failure to comply strictly with mortgage provisions renders a foreclosure sale void, is extended to cases pending on appeal when that claim was raised and preserved. Resolving the question in favor of the homeowner, the court held that since the homeowner in Aurora Loan Services, LLC v. Murphy specifically preserved and raised the issue on appeal, an exception to the prospective-only rule should be made.

In Aurora Loan Services, LLC, the plaintiff provided notice to the homeowner that his loan was in default and that it would accelerate the loan unless he paid the overdue balance and cured the default within 150 days. After the period passed, the lender formally assigned the mortgage to the plaintiff, which commenced foreclosure proceedings against the homeowner. The homeowner argued in the summary process proceeding that the plaintiff failed to prove its right to possession because it did not strictly comply with the terms of the mortgage, it was not the assignee of the mortgage at the time it sent notice to the homeowner of his right to cure, and the notice itself failed to comply with the mortgage or G.L. c. 244 § 35A.

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In a recent opinion, the Appeals Court of Massachusetts considered whether the law firm and auction company of a lender were immune from civil liability in an action brought by the borrower for violations of consumer protection statutes and the Massachusetts Civil Rights Act.

In Mack v. Wells Fargo Bank, N.A. (Mass. App. Ct. Dec. 1, 2015), the plaintiff alleged that the defendants continued to advertise and schedule foreclosure actions of her property in violation of a temporary restraining order and a preliminary injunction prohibiting them from doing so. The plaintiff also alleged that the defendants communicated with her with knowledge that she was represented by an attorney and engaged in conduct intending to harass, oppress, or abuse the plaintiff in association with the collection of a debt.

The defendants filed a motion for summary judgment, contending that the litigation privilege immunizes them from civil liability for their actions. The trial court denied the motion, ruling that the defendants’ alleged actions in violating the preliminary injunction were undertaken solely for the purpose of effecting a non-judicial foreclosure and therefore did not fall within the scope of the litigation privilege. The defendants then sought interlocutory review from the appeals court.

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The Massachusetts Court of Appeals recently reviewed an action brought by a home mortgage borrower against the lender and its assignee, alleging that they violated the consumer protection statute by modifying his mortgage, among other claims, and that they should be enjoined from evicting the borrower from his home. In Moronta v. Nationstar Mortgage, LLC, the borrower’s primary argument was that the defendants violated G.L. c. 93A by structuring a mortgage consisting of high-cost loans, which the lender had no reasonable expectation that the homeowner could pay, and therefore misleading the borrower as to the viability of the transaction. The lower court granted summary judgment in favor of the defendants, and the decision was appealed by the borrower to the Massachusetts Court of Appeals.

In Moronta, the borrower refinanced his original mortgage of $330,600 to consolidate his debt and lower his monthly payments. At the time he refinanced in 2007, the borrower’s monthly income was $6,000, although the loan application amount stated that it was $8,500. The lender granted two loans, one in the amount of $296,000 with an adjustable interest rate and large balloon payment of $264,963 at the end of 30 years, and a second in the amount of $74,000 at a fixed interest rate of 10.5%. In November 2009, the lender foreclosed on the property.

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In a newly issued opinion from the Massachusetts Land Court, Nutting v. Nationstar Mortgage, LLC (August 24, 2015), the homeowner-plaintiffs attempted to challenge the validity of a foreclosure sale of their home in their petition to try title pursuant to G.L. c. 240 §§ 1-5. They also argued that the subsequent foreclosure deed of the property was void based on errors in the chain of title, and that the defendants did not have lawful title to the property.

Under the Massachusetts try title statute, the court has subject matter jurisdiction only if the plaintiffs establish the following elements:  (1) they hold record title to the property; (2) they are in possession of the property; and (3) there is an actual or possible adverse claim clouding the plaintiffs’ record title. The plaintiffs are entitled to a presumption of truth with regard to the third element, and they are in possession of the property by currently residing in the house, satisfying the second element.   The only issue in dispute in Nutting was the first element, whether the plaintiffs held record title to the property.

If the plaintiffs could prove that at the time of the foreclosure, the foreclosing entity did not hold title to the property, they could satisfy the first element. Thus, to establish that they still held record title, the plaintiffs claimed that the foreclosure sale was void, arguing that the defendant did not hold both the promissory note and a valid assignment of mortgage at the time of the foreclosure sale. The court disagreed, however, stating that the underlying note and mortgage need not be conveyed together under Massachusetts law. As a result, a foreclosing mortgagee is not required to demonstrate that the previous holders of the recorded interest in the mortgage also held the note each time that the interest was assigned to the next holder.

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The Massachusetts Court of Appeals recently decided whether a claim of unfair and deceptive review of a homeowner’s loan modification request could affect the bank’s title post-foreclosure. Bank of New York Mellon v. Fernandez arose out of a post-foreclosure summary judgment action filed by the bank, which was seeking to recover possession of the property. The homeowner answered with affirmative defenses and counterclaims asserting that the bank’s mortgage servicer had failed to comply with the Home Affordable Modification Program (HAMP) regulations when it denied her request to modify her loan. The case reached the court of appeals when the homeowner appealed a lower court’s judgment awarding possession of her house to the bank.

The case is slightly unusual because typically in a post-foreclosure summary judgment action, the only legal issue for the Housing Court to determine is whether the bank strictly complied with the power of sale provided in the mortgage, thereby lawfully obtaining title to the property. As a result, the homeowner’s claim that the mortgage servicer violated laws governing the loan modification program would generally not affect the bank’s title and right to possession.

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