Prop. Acquisition Grp., LLC v. Ivester, 17-P-1518

• Decision Date: 18 April 2019
• Docket Number: No. 17-P-1518,17-P-1518
• Citation: 95 Mass.App.Ct. 170,122 N.E.3d 10
• Court: Appeals Court of Massachusetts
• Parties: PROPERTY ACQUISITION GROUP, LLC v. Kenneth IVESTER, Third, & another(and a companion case).

95 Mass.App.Ct. 170

122 N.E.3d 10

PROPERTY ACQUISITION GROUP, LLC

v.

Kenneth IVESTER, Third, & another¹ (and a companion case² ).

No. 17-P-1518

Appeals Court of Massachusetts, Essex..

Argued September 11, 2018

Decided April 18, 2019

Kristin L. Thurbide, Boston (Josef C. Culik also present) for Kenneth Ivester, III, & another.

Brady Hermann, Boston, for Federal National Mortgage Association.

Edward J. Fallman for Property Acquisition Group, LLC.

Present: Vuono, Agnes, & Henry, JJ.

HENRY, J.

The primary issue in this case is whether the mortgagee, Federal National Mortgage Association (Fannie Mae), exercised good faith and reasonable diligence to protect the interests of the mortgagors, Kenneth Ivester and Susan Ivester (Ivesters), by obtaining the highest possible price at an auction sale. We hold that on this summary judgment record, which contains evidence of an inadequate price as well as evidence that Fannie Mae (1) failed to take any steps to determine the current fair market value of the property before the auction sale and (2) did not take any steps other than compliance with statutory mandates, the mortgagors raised material disputes of fact as to whether the mortgagee complied with its duty to exercise good faith and reasonable diligence.

1. Background. These consolidated cases arise from the foreclosure of the Ivesters' property. The winning bidder at that foreclosure auction was Property Acquisition Group, LLC (PAG). The Ivesters appeal from a Superior Court judgment dismissing their claim that the mortgagee, Fannie Mae, did not exercise good faith and reasonable diligence in conducting the foreclosure sale. That appeal has been consolidated with the Ivesters' appeal from the amended judgment entered against them on PAG's summary process action in the Housing Court. Both cases were resolved against the Ivesters on summary judgment. We summarize the undisputed facts drawn from the summary judgment record; to the extent the record includes disputed evidence, we consider that evidence in the light most favorable to the Ivesters, against whom summary judgment entered. See Ritter v. Massachusetts Cas. Ins. Co., 439 Mass. 214, 215, 786 N.E.2d 817 (2003).

a. Purchase, mortgage, and foreclosure. The Ivesters purchased the property located at 245 Salem Street, Lynnfield (property) for $ 399,000 in October, 2003. They refinanced in 2006 with a $ 302,000 loan from CitiMortgage, Inc., secured by a mortgage on the property, and a second loan for $ 50,000 from Citibank Federal Savings Bank.³

The Ivesters admit that they stopped making payments on their $ 302,000 loan in 2013 and that, as of July, 2015, were in arrears in the amount of $ 65,228.38. They also concede that Fannie Mae, the assignee of the mortgage, was both authorized and justified in exercising its right under the mortgage to sell the property for nonpayment and that Fannie Mae satisfied all of the statutory requirements pertaining to foreclosure by sale contained in G. L. c. 244, §§ 11 - 17B.⁴

On behalf of PAG, Richard Damiano attended the foreclosure auction, which was conducted by Fannie Mae's agent.⁵ The opening bid price was set at $ 329,000. Damiano and two other bidders entered bids. Damiano's bid prevailed at $ 355,000, and the foreclosure deed was recorded on January 8, 2016.

b. Property description. The property consists of 4.57 acres, approximately 103,000 square feet (2.36 acres) of which is buildable. At the time of the foreclosure auction, the property was improved with a single family home. The Ivesters contend that facts existed that might have alerted Fannie Mae and did alert bidders to the development potential of the property. At the time of the foreclosure, local zoning bylaws required 30,000 square feet per lot and continuous frontage of 150 feet. Although the property had only noncontinuous frontage of 143.41 feet and 42.26 feet on Salem Street, the Ivesters contend that installation of a new road could open the property to further development, as demonstrated by conceptual plans created for PAG shortly after it acquired the property. Moreover, while the property is located in a single-family residential district, there are restaurants and businesses in the immediate neighborhood, including adjacent to the property. The property, however, does contain wetlands, and any development proposals likely would require an order of conditions from the Lynnfield conservation commission.

c. Value of the property. The parties dispute the fair market value of the property at the time of the auction. Fannie Mae admits it did not obtain any appraisals, evaluations, or expert opinions to determine the value of the property prior to the auction. Fannie Mae did not answer an interrogatory asking what amount it had authorized as the starting bid for the foreclosure auction. The record does not otherwise reflect how Fannie Mae or its auctioneer valued the property or arrived at a minimum or opening bid for the auction. Indeed, Fannie Mae answered interrogatories inquiring as to "every effort [Fannie Mae] engaged in ... to determine the ... fair market value" of the property prior to the foreclosure auction by stating only that it did not obtain any appraisals.⁶ In response to an interrogatory inquiring as to each action that would demonstrate reasonable diligence to protect the interests of its mortgagors, Fannie Mae answered, in relevant part, that "after providing the required notices to Plaintiffs, a foreclosure auction was held on November 13, 2015 and the ... [p]roperty was sold to PAG for $ 355,000." There is no suggestion in the record that Fannie Mae considered the property's development potential in establishing the opening bid or in advertising the property for auction.

Fannie Mae's discovery responses do not suggest it was aware of or relied on the property's 2015 assessed value for tax purposes (assessed value). On appeal, however, Fannie Mae relies on the property's 2015 assessed value, which was $ 361,900. The Ivesters and PAG rely on appraisals valuing the property as of the date of the auction. The Ivesters' expert appraised the property at $ 975,000,⁷ and PAG submitted an expert appraisal valuing the property at $ 385,000. All of the valuations concluded that the highest and best use of the property was as vacant land, developable into two to four single family residences.

d. Litigation. The Ivesters commenced this action in Superior Court. In count I of their amended complaint, they asserted that Fannie Mae failed to act in good faith and use reasonable diligence to protect the Ivesters' interests; in count III they sought a declaration that the foreclosure sale was invalid and that they have superior title to PAG; and in count IV, they asserted that Fannie Mae violated G. L. c. 93A.⁸ A Superior Court judge allowed separate motions for summary judgment brought by Fannie Mae and PAG. The judge concluded that Fannie Mae was entitled to summary judgment because the Ivesters had not put forth sufficient evidence to meet their burden of proving that Fannie Mae breached its duty to exercise good faith and reasonable diligence to protect the Ivesters' interests in the foreclosure sale of the property. The judge reasoned that, "in setting its initial foreclosure bid price," Fannie Mae had no obligation "to consider anything other than the value of the property as it was presently zoned and used." The judge also concluded that PAG was entitled to summary judgment because it was a bona fide purchaser for value that had no knowledge of any potential title infirmity.

After PAG took title, it commenced a summary process action against the Ivesters in the Housing Court. That action was stayed until judgment entered in the Superior Court case. Ultimately, the Housing Court judge vacated the stay of PAG's summary process action and entered judgment for possession in favor of PAG.⁹ We consolidated the appeals from both judgments.

2. Discussion. a. The Superior Court judgment. The Ivesters argue that summary judgment was erroneously granted to Fannie Mae because it failed to exercise good faith and reasonable diligence in conducting the foreclosure sale.

i. Foreclosure standards. "[T]he power of sale [in a foreclosure] is a substantial power that permits a mortgagee to foreclose without judicial oversight ... [and] is to be exercised with careful regard to the interests of the mortgagor" (quotations and citations omitted). Federal Nat'l Mtge. Ass'n v. Marroquin, 477 Mass. 82, 86, 74 N.E.3d 592 (2017). "It has become elementary by repeated decisions that a mortgagee attempting to execute a power of sale contained in a mortgage must exercise good faith and use reasonable diligence to protect the interests of the mortgagor or of the one holding the title to the equity of redemption." Krassin v. Moskowitz, 275 Mass. 80, 82, 175 N.E. 269 (1931). See Pehoviak v. Deutsche Bank Nat'l Trust Co., 85 Mass. App. Ct. 56, 61-62, 5 N.E.3d 945 (2014). The duty to exercise good faith and reasonable diligence is not met by "a mere literal compliance with the terms of the power [of sale]" or with the requirements of G. L. c. 244, § 14. Pehoviak, supra at 61, 5 N.E.3d 945, quoting Cambridge Sav. Bank v. Cronin, 289 Mass. 379, 382, 194 N.E. 289 (1935). "Therefore, compliance with G. L. c. 244, § 14, and the duty to act with good faith and reasonable diligence are two distinct issues." Pehoviak, supra.

The mortgagee must "get for the property as much as it can reasonably be made to bring ... [and] do what a reasonable [person] would be expected to do to accomplish that result." Clark v. Simmons, 150 Mass. 357, 360, 23 N.E. 108 (1890). See Williams v. Resolution GGF Oy, 417 Mass. 377, 383, 630 N.E.2d 581 (1994).¹⁰ It is equally well settled, however, that mere inadequacy of a foreclosure sale price, alone, does not necessarily prove an absence of good faith or reasonable diligence. See Sher v. South Shore Nat'l Bank, 360 Mass. 400, 402, 274 N.E.2d 792 (1971). See also Seppala & Aho...