James B. Nutter & Co. v. Estate of Murphy, SJC–12325

• Decision Date: 18 January 2018
• Docket Number: SJC–12325
• Citation: 88 N.E.3d 1133,478 Mass. 664
• Parties: JAMES B. NUTTER & COMPANY v. ESTATE OF Barbara A. MURPHY & others(and two consolidated cases ).
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

478 Mass. 664

88 N.E.3d 1133

JAMES B. NUTTER & COMPANY

v.ESTATE OF Barbara A. MURPHY & others¹ (and two consolidated cases ² ).

SJC–12325

Supreme Judicial Court of Massachusetts, Suffolk..

Argued October 2, 2017

Decided January 18, 2018

Daniel Bahls (Uri Strauss also present) for Brett Jamieson. Effie Gikas Tchobanian for the plaintiff.

Elaine Benkoski, Dedham, for Estate of Barbara A. Murphy & others, was present but did not argue.

Present: Gants, C.J., Lenk, Gaziano, Lowy, Budd, Cypher, & Kafker, JJ.

GANTS, C.J.

In 2007 and 2008, three elderly homeowners obtained loans from James B. Nutter & Company (Nutter), secured by reverse mortgages on their homes. A few years later, two of the borrowers died; the third took ill and could no longer live in her home. Alleging default, Nutter now seeks to foreclose on the mortgages. Rather than proceed directly to foreclosure, however, Nutter brought separate actions in the Land Court against each borrower or the executors of their estate,³ seeking in each case a declaratory judgment allowing it to foreclose pursuant to the statutory power of sale.

Each of the reverse mortgages adhered to Nutter's standard form, which states in paragraph 20 that, in the event of default, "[l]ender may invoke the power of sale and any other remedies permitted by applicable law." The issue we must resolve is whether this language in the reverse mortgage incorporates the statutory power of sale as set forth in G. L. c. 183, § 21, and allows Nutter to foreclose on the mortgaged property in accordance with the requirements in § 21. We hold that it does.

Background. 1. Reverse mortgages. For many retirees, one of the most reliable potential sources of income in later life is the accrued equity in their homes. See Consumer Financial Protection Bureau, Issue Brief: The costs and risks of using a reverse mortgage to delay collecting Social Security, at 8 (2017). In order to secure cash for their living expenses, many retirees choose to borrow against their home equity. Id. at 9.

One way for them to do so is through a home equity conversion mortgage, which is a unique kind of loan available to homeowners age sixty-two or older. See Consumer Financial Protection Bureau, Reverse Mortgages: A Discussion Guide, at 1, 3 (2017). These mortgages are commonly referred to as "reverse mortgages" because, instead of making payments to the lender, the borrower receives cash from the lender, either as a line of credit, in monthly payouts, or as a lump sum. Id. at 3, 12. As in a traditional mortgage, a reverse mortgage is secured by the borrower's home. Unlike a traditional mortgage, however, the loan does not become due until the borrower dies or no longer lives in the home; interest and fees are added to the loan balance over time and the entire balance is typically paid from the sale of the home. Id. at 3, 7.

Another distinctive feature of a reverse mortgage is that typically it secures a nonrecourse loan, meaning that the borrower is not personally liable for repayment of the debt. In other words, the lender must "look exclusively to the mortgaged property for repayment." Summers v. Financial Freedom Acquisition LLC, 807 F.3d 351, 355 (1st Cir. 2015).⁴

2. Nutter's actions for declaratory judgment. Nutter uses a standard form for its reverse mortgages. Paragraph 9 of this form states the grounds for acceleration of the debt. It provides that Nutter can require immediate payment in full if, among other grounds, the borrower dies, or the mortgaged property is no longer the borrower's principal residence. Paragraph 10 provides that the borrower shall have no personal liability for repayment of the debt and that Nutter cannot obtain a deficiency judgment against the borrower in the event of foreclosure: "Lender may enforce the debt only through sale of the Property." Paragraph 20 outlines Nutter's remedies in the event of default. It states, in relevant part:

"Foreclosure Procedure. If Lender requires immediate payment in full under Paragraph 9, Lender may invoke the power of sale and any other remedies permitted by applicable law.... At this sale Lender or another person may acquire the Property. This is known as 'foreclosure and sale.' In any lawsuit for foreclosure and sale, Lender will have the right to collect all costs allowed by law."

In these three actions, Nutter moved for partial judgment on the pleadings, seeking a judicial declaration that the language in paragraph 20 incorporates the statutory power of sale as defined in G. L. c. 183, § 21. The judge granted Nutter's motions, concluding that Nutter's reverse mortgage incorporated the statutory power of sale by reference because the statutory power of sale is a "remed[y] permitted by applicable law." The judge reported the three cases to the Appeals Court pursuant to Mass. R. Civ. P. 64 (a), as amended, 423 Mass. 1403 (1996), and we transferred them to this court on our own motion.

Discussion. The interpretation of a contract is a question of law, which we review de novo. See Balles v. Babcock Power, Inc., 476 Mass. 565, 571, 70 N.E.3d 905 (2017). To determine whether Nutter's reverse mortgages incorporate the statutory power of sale, we must first examine the nature of the power of sale in Massachusetts.

1. Power of sale. Massachusetts is a nonjudicial foreclosure State, meaning that it "does not require a [mortgagee] to obtain judicial authorization to foreclose on a mortgaged property." U.S. Bank Nat'l Ass'n v. Ibanez, 458 Mass. 637, 645–646, 941 N.E.2d 40 (2011) (Ibanez ). Since at least the beginning of the nineteenth century, Massachusetts has allowed mortgagees to foreclose without a judicial proceeding pursuant to the "power of sale," if such power is granted in the mortgage itself. See Eaton v. Federal Nat'l Mtge. Ass'n, 462 Mass. 569, 580 n.16, 969 N.E.2d 1118 (2012). The power of sale evolved in recognition of "the desire to have a more speedy process of foreclosing than was furnished by suit or entry." Id. at 580 n.15, 969 N.E.2d 1118, quoting A.L. Partridge, Deeds, Mortgages and Easements 201 (rev. ed. 1932). It soon became "a very frequent provision in deeds of mortgage." Id., quoting 1 F. Hilliard, Mortgages 119 (1856).

The Legislature has chosen to regulate the power of sale through a detailed statutory framework, set out in G. L. c. 244, §§ 11 – 17C. See Eaton, 462 Mass. at 581, 969 N.E.2d 1118. Chief among these statutory provisions is G. L. c. 244, § 14, which provides that any foreclosure by power of sale will be ineffectual unless certain notice requirements are met. See Eaton, supra at 581 & n.17, 969 N.E.2d 1118 ; Ibanez, 458 Mass. at 647–648, 941 N.E.2d 40.

The power of sale also is limited by the requirements of G. L. c. 183, § 21, which was enacted in 1912 as part of "An Act to shorten the forms of deeds, mortgages and other instruments relating to real property." St. 1912, c. 502. See Pinti v. Emigrant Mtge. Co., 472 Mass. 226, 235, 33 N.E.3d 1213 (2015). As the title of the act suggests, the purpose of § 21 was "to give the power of sale [a] 'statutory form to shorten the length of mortgage instruments.' " Id., quoting Eaton, 462 Mass. at 580 n.16, 969 N.E.2d 1118. Accordingly, § 21 defines the "statutory power of sale" and provides that it "may be incorporated in any mortgage by reference."⁵

But the statutory power of sale is far more than a mere contractual shorthand; § 21 establishes affirmative requirements that a mortgagee must meet in order to foreclose by power of sale.⁶ See Eaton, 462 Mass. at 571, 969 N.E.2d 1118 ("A foreclosure sale conducted pursuant to a power of sale in a mortgage must comply with all applicable statutory provisions, including in particular G. L. c. 183, § 21..."). Failure to strictly adhere to the requirements of § 21 renders a foreclosure sale void. Ibanez, 458 Mass. at 646–647, 941 N.E.2d 40.

2. Nutter's form reverse mortgage. In order for a mortgagee to exercise the statutory power of sale, the mortgage must itself grant such a power. See id. at 646, 941 N.E.2d 40. We conclude, as several Land Court judges have concluded, that there are generally three methods of incorporating the statutory power of sale into a mortgage: first, by incorporating the exact language defining the statutory power of sale in § 21 into the text of the mortgage; second, by referring to this definition, generally by use of the term "statutory power of sale"; or third, by including language in the mortgage defining a power substantially similar to that of the statutory power. See, e.g., Norton v. Joseph, 17 Land Ct. Rptr. 40, 41 (2009), aff'd, 77 Mass. App. Ct. 1120, 2010 WL 3397032 (2010), citing The Massachusetts Co. v. Midura, 3 Land Ct. Rptr. 138, 138 (1995).

We agree with the Land Court judge that Nutter's reverse mortgages do not incorporate the statutory power of sale under either the first or third method. The mortgage does not recite the exact language of § 21. Nor does it define a power "substantially similar" to the statutory power of sale.

The more difficult question is whether paragraph 20 adequately refers to the statutory power of sale in § 21 by allowing the lender to "invoke the power of sale and any other remedies permitted by applicable law," even though it does not expressly use the term "statutory power of sale." This is a matter of contract interpretation, to which we apply the traditional principles of contract law.

"[W]hen the language of a contract is clear, it alone determines the contract's meaning." Balles, 476 Mass. at 571, 70 N.E.3d 905. Contractual language is ambiguous "if it is susceptible of more than one meaning and reasonably intelligent persons would differ as to which meaning is the proper one."

Citation Ins. Co. v. Gomez, 426 Mass. 379, 381, 688 N.E.2d 951 (1998). When the language is ambiguous, it is construed against the drafter, "if the circumstances surrounding its use ... do not indicate the intended meaning of the language." Merrimack Valley Nat'l Bank v. Baird, 372 Mass. 721, 724, 363...