Fed. Nat'l Mortg. Ass'n v. Marroquin, SJC-12139

• Decision Date: 11 May 2017
• Docket Number: SJC-12139
• Citation: 477 Mass. 82,74 N.E.3d 592
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: FEDERAL NATIONAL MORTGAGE ASSOCIATION v. Elvitria M. MARROQUIN & others.

477 Mass. 82

74 N.E.3d 592

FEDERAL NATIONAL MORTGAGE ASSOCIATION

v.Elvitria M. MARROQUIN & others.¹

SJC-12139

Supreme Judicial Court of Massachusetts, Essex..

Argued January 9, 2017

Decided May 11, 2017

Cody J. Cocanig for the plaintiff.

Dayne Lee (Eloise P. Lawrence also present) for Elvitria M. Marroquin.

Joshua T. Gutierrez, Daniel D. Bahls, & Andrew S. Webman, for Lewis R. Fleischner & another, amici curiae, submitted a brief.

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

GANTS, C.J.

In Pinti v. Emigrant Mtge. Co ., 472 Mass. 226, 227, 232, 33 N.E.3d 1213 (2015), we held that a foreclosure by statutory power of sale pursuant to G. L. c. 183, § 21, and G. L. c. 244, §§ 11 –17C, is invalid unless the notice of default strictly complies with paragraph 22 of the standard mortgage, which informs the mortgagor of, among other things, the action required to cure the default, and the right of the mortgagor to bring a court action to challenge the existence of a default or to present any defense to acceleration and foreclosure. We applied this holding to the parties in Pinti but concluded that our decision "should be given prospective effect only." Id . at 243, 33 N.E.3d 1213. We therefore declared that the decision "will apply to mortgage foreclosure sales of properties that are the subject of a mortgage containing paragraph 22 or its equivalent and for which the notice of default required by paragraph 22 is sent after the date of this opinion," which was issued on July 17, 2015. Id . We did not reach the question whether our holding should be applied to any case pending in the trial court or on appeal. Id . at 243 n.25, 33 N.E.3d 1213. We reach that question here, and conclude that the Pinti decision applies in any case where the issue was timely and fairly asserted in the trial court or on appeal before July 17, 2015. Because we conclude that the defendants timely and fairly raised this issue in the Housing Court before that date, and because the notice of default did not strictly comply with the requirements in paragraph 22 of the mortgage, we affirm the judge's ruling declaring the foreclosure sale void.

Background . In December, 2005, the defendants² secured a mortgage loan in the amount of $312,000 from American Mortgage Express Corporation (American Mortgage) and, as security for the loan, granted a mortgage on their home to Mortgage Electronic Registration Systems, Inc. (MERS), which American Mortgage had designated as the mortgagee in a nominee capacity. MERS subsequently assigned the mortgage to Bank of America, N.A. (Bank of America), as successor by merger to BAC Home Loans Servicing, LP, formerly known as Countrywide Home Loans Servicing, LP.

After the defendants failed to make their mortgage payments, the loan servicer, Countrywide Home Loans Servicing, LP, on October 17, 2008, mailed the defendants a notice of intention to foreclose (notice of default). The notice informed the defendants that they were in default and set forth the amount due to cure the default. The notice warned in relevant part:

"If the default is not cured on or before January 15, 2009, the mortgage payments will be accelerated with the full amount remaining accelerated and becoming due and payable in full, and foreclosure proceedings will be initiated at that time. As such, the failure to cure the default may result in the foreclosure and sale of your property.... You may, if required by law or your loan documents, have the right to cure the default after the acceleration of the mortgage payments and prior to the foreclosure sale of your property if all amounts past due are paid within the time permitted by law.... Further, you may have the right to bring a court action to assert the non-existence of a default or any other defense you may have to acceleration and foreclosure."

The defendants did not cure the default, and in March, 2012, Bank of America gave notice and conducted a foreclosure sale by public auction of the mortgaged home. Bank of America was the high bidder at the foreclosure auction and subsequently assigned its winning bid to the Federal National Mortgage Association (Fannie Mae or plaintiff), which properly recorded the foreclosure deed conveying title of the property in May, 2012. On June 18, 2012, Fannie Mae initiated a summary process action in the Housing Court to evict the defendants from the property. On June 19, 2012, the defendants, representing themselves but assisted by counsel, filed an answer in which, by checking a box, they proffered as a defense to the eviction that "[t]he plaintiff's case should be dismissed because it does not have proper title to the property and therefore does not have standing to bring this action and/or cannot prove a superior right to possession of the premises."

For reasons not apparent from the record, Fannie Mae did not move for summary judgment until June, 2015, where, among other arguments, it contended that Bank of America had complied with the terms of the mortgage in exercising the power of sale, and specifically asserted that the notice of default had complied with paragraph 22 of the mortgage.³ On September 23, 2015, the defendants filed a cross motion for summary judgment in which they argued that the notice of default failed to strictly comply with the terms of paragraph 22 of the mortgage and that the defendants should be entitled to the benefit of our decision in Pinti even though the notice of default was sent well before the issuance of that opinion.

In October, 2015, the judge granted the defendants' cross motion for summary judgment and denied the plaintiff's motion. The judge found that the issue in Pinti had been "timely and fairly raised," and concluded that our decision in Pinti should apply to all cases similarly situated that were pending in the trial court or on appeal where the issue had been timely and fairly raised before July 17, 2015. The judge also concluded that the notice of default failed to strictly comply with the requirement in paragraph 22 of the mortgage that the notice shall inform the borrower "of the right to reinstate after acceleration and the right to bring a court action to assert the non-existence of a default or any other defense of the borrower to acceleration and sale." The judge found that, by stating, "You may, if required by law or your loan documents , have the right to cure the default after the acceleration of the mortgage payments and prior to the foreclosure sale of your property ...," and "you may have the right to bring a court action to assert the non-existence of a default or any other defense you may have to acceleration and foreclosure" (emphasis added), the notice "significantly, and inexcusably, differed from, watered ... down, and overshadowed the notice that was contractually and legally required by the mortgage." He added that "there was no excuse for the difference in language" and that it was impossible to imagine any purpose for drafting a notice that failed to track the language of the mortgage "unless, of course, the purpose was to discourage [b]orrowers from asserting their rights."⁴

After the judge issued his decision, the Appeals Court held in Aurora Loan Servs., LLC v. Murphy , 88 Mass.App.Ct. 726, 727, 41 N.E.3d 751 (2015), that the Pinti decision applies to cases pending on appeal where the claim that the notice of default failed to strictly comply with the notice provisions in the mortgage had been "raised and preserved" before the issuance of the decision. Although the issue was not before it, the Appeals Court declared that "the Pinti rule" did not extend to cases pending in the trial court. Id . at 732, 41 N.E.3d 751. Relying on this dictum, the plaintiff moved to vacate the judgment under Mass. R. Civ. P. 60 (b), 365 Mass. 828 (1974). The judge denied the motion, and the plaintiff appealed. We allowed the defendants' application for direct appellate review.

Discussion . 1. Application of the Pinti decision to pending cases . Our decision in Pinti was grounded in the requirement in G. L. c. 183, § 21, that, before a mortgagee may exercise the power of sale in a foreclosure, it must "first comply[ ] with the terms of the mortgage and with the statutes relating to the foreclosure of mortgages by the exercise of a power of sale." Because the power of sale is a "substantial power" that permits a mortgagee to foreclose without judicial oversight, we followed the traditional and familiar rule that " ‘one who sells under a power [of sale] must follow strictly its terms'; the failure to do so results in ‘no valid execution of the power, and the sale is wholly void.’ " Pinti , 472 Mass. at 232–233, 33 N.E.3d 1213, quoting U.S. Bank Nat'l Ass'n v. Ibanez , 458 Mass. 637, 646, 941 N.E.2d 40 (2011). See Pryor v. Baker , 133 Mass. 459, 460 (1882) ("The exercise of a power to sell by a mortgagee is always carefully watched, and is to be exercised with careful regard to the interests of the mortgagor").

Although it had long been established in law that the failure to strictly comply with the terms of a mortgage renders void an otherwise valid foreclosure sale, we gave our decision "prospective effect only, because the failure of a mortgagee to provide the mortgagor with the notice of default required by the mortgage is not a matter of record and, therefore, where there is a foreclosure sale in a title chain, ascertaining whether clear record title exists may not be possible." Pinti , 472 Mass. at 243, 33 N.E.3d 1213. Our concern was that a third party who purchases property that had once been sold at a foreclosure auction would not, through a title search, be able to determine whether the notice of default strictly complied with the terms of the mortgage. It would therefore be nearly impossible to eliminate the risk that the foreclosure sale would later be declared void and that the title would be returned to the foreclosed property owner. See id . We presumed that, after our decision in Pinti ,...