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.
Arguing in favor of jurisdiction, the plaintiff asserted that for the purposes of judicial economy, its claim for a pre-foreclosure declaration while the matter was pending before the court was nevertheless appropriate, given the number of post-foreclosure cases brought before the Land Court. Disagreeing, the Land Court concluded that, although the estate may come forward later to challenge the default or foreclosure proceedings, this would not be duplicative of the plaintiff’s present action regarding the statutory power of sale. Moreover, the court explained that allowing the plaintiff to seek a declaratory judgment that the mortgagor was in default and that it could foreclose pursuant to the statutory power of sale would effectively permit an end-run around the non-judicial foreclosure process. Accordingly, the court denied the plaintiff’s request.
The Massachusetts real estate attorneys at Pulgini & Norton can assist individuals in all aspects of residential property matters. We have guided people through home sale and purchase closings, title issues, mortgage refinancing, permit and zoning applications, and more. If you require professional representation in your real estate transaction, call Pulgini & Norton at (781) 843-2200 or contact us online and schedule a free initial consultation.
More Blog Posts:
Massachusetts Bank’s Mistake Has Significant Consequences in Reverse Mortgage Case, Massachusetts Real Estate Lawyer Blog, published September 12, 2016
Massachusetts Property Owner Brings Lawsuit to Recover Rental Income Appropriated by Bank after Invalid Foreclosure, Massachusetts Real Estate Lawyer Blog, published November 21, 2016