Massachusetts Court Considers Lender’s Right to Foreclose Under Standard Form Mortgage

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.

In the case, the lender argued that the foreclosure procedure set forth in the standard form serves the same function as § 21, is substantially similar to the language of the statute, and indicates that the parties intended to grant the lender the statutory power of sale.  The defendants argued that the standard form does not incorporate the statutory language and therefore does not allow the lender to foreclose by the statutory power of sale.

The Land Court ultimately concluded that the language of the lender’s standard form did incorporate the statutory power of sale by referral.  Although the reverse mortgage form did not include the exact language of § 21, nor did it define a power substantially similar to that of the statutory power of sale, the form did provide that the lender may invoke any other remedies permitted by applicable law.  The court held that this reference to other available remedies under law was sufficient to incorporate the statutory power of sale.

At Pulgini & Norton, our property lawyers represent individuals in various residential real estate matters in Massachusetts.  We can provide trusted legal advice regarding home sales and closings, mortgages, deed recording, land use and zoning issues, and more.  Discuss your concerns with one of our experienced attorneys by calling (781) 843-2200 or contacting us online and scheduling a confidential consultation.

More Blog Posts:

Massachusetts Appeals Court Reviews Summary Process Action in Foreclosure Dispute, Massachusetts Real Estate Lawyer Blog, published May 23, 2016

Massachusetts Bank’s Mistake Has Significant Consequences in Reverse Mortgage Case, Massachusetts Real Estate Lawyer Blog, published September 12, 2016

Contact Information