Massachusetts Court Reverses Deficiency Judgment Against Defendants Who Lost Their Home in Foreclosure

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.

When an insurer pays an insured’s claim under its insurance contract, the insurer succeeds to any right of action the insured may have against the parties allegedly responsible for the loss.  But if the plaintiff made a payment to an entity other than an insured, or a payment otherwise not required by the policy, the plaintiff would obtain no subrogation rights under the policy.

Under the defendants’ mortgage insurance policy, two provisions defined “insured” and set the terms under which the plaintiff may become subrogated to the rights of an insured.  In support of its summary judgment motion, the plaintiff submitted the affidavit of its employee, who stated that the plaintiff had paid a claim to the owner or servicer of the mortgage note as a consequence of the defendants’ failure to make mortgage payments.  However, the appeals court noted that nothing in the affidavit states whether that owner or servicer was an insured as defined by the policy.  Furthermore, there was nothing in the record of evidence that would otherwise establish that the plaintiff paid and insured under the policy.  The appeals court emphasized that not only were there questions as to the plaintiff’s rights, but also the defendants potentially could be exposed to a second lawsuit by another entity seeking to collect the same deficiency.  Accordingly, the court vacated the judgment and remanded the case back to the lower court for further proceedings.

The property law attorneys at Pulgini & Norton assist people in all aspects of residential real estate in Massachusetts. We can provide guidance regarding mortgage financing and re-financing, land use and zoning regulations, home purchase and sales transactions, and more.  Schedule your free consultation today by calling Pulgini & Norton at (781) 843-2200 or completing our online contact form.

More Blog Posts:

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

 Massachusetts Land Court Dismisses Bank’s Action Against Defendant to Reform Mortgage, Massachusetts Real Estate Lawyer Blog, published January 2, 2017

Contact Information