A pair of recent court decisions have caused significant uncertainty in the mortgage and conveyancing communities. Here are the breakdowns and takeaways of each.
- Pinti v. Emigrant Mortgage Co., Inc. By now, we should all be familiar with the case of Bank of America v. Schumacher, which held that the failure to serve the Right to Cure letter as required by Mass. General Laws Chapter 244, Section 35A does not automatically invalidate a completed foreclosure sale. To refresh, the case holds that Section 35A does not relate to the Statutory Power of sale that almost all mortgage foreclosures are governed by. Therefore, a violation of Section 35A does not invalidate a foreclosure completed pursuant to the Power of Sale. Now meet Pinti. In Pinti, the plaintiff sued to invalidate a foreclosure, claiming that the mortgagee failed to comply with Paragraph 22 of its standard Fannie Mae mortgage, concerning default of the mortgage, cure of the default, and acceleration of the loan. At a cursory glance, this case seems akin to Schumacher. However, the SJC took a more in-depth look at the language of Paragraph 22 and came to a conclusion that is the opposite of Schumacher. The Pinti court held that, in failing to strictly comply with Paragraph 22 by failing to notify the mortgagor that she had the right to bring a court action to establish the non-existence of a default or other defense to the foreclosure, the mortgagee did not fulfill a prerequisite to the exercise of the statutory power of sale, to wit,. Therefore, the subsequent exercise of the power of sale was unlawful, rendering the completed foreclosure sale invalid. Despite the opposite outcomes, both Pinti and Schumacher case be reconciled. Pinti says that all contractual prerequisites to exercising the power of sale found in Paragraph 22, i.e. notice of default, notice of the right to cure (as defined in the contract), acceleration, and demand must be completed before the power of sale can be exercised. Schumacher says that the statutory provisions regarding the right to cure loan defaults are separate and distinct from the power of sale and violations of those statutes are not fatal to a completed foreclosure.
Bottom Line: (1) Know your loan documents and make sure that you comply with their terms before proceeding to foreclosure. Any defect can void a foreclosure. (2) Schumacher remains good law, but is to be narrowly construed to only apply to the notices required pursuant to Section 35A.
- Agin v. Green Tree. In this case, a bankruptcy trustee sought to avoid (to dissolve) a mortgage on the grounds that the notary clause failed to state that the mortgagor’s signature was her free act and deed. The bankruptcy court agreed with the trustee, holding that, since a mortgage is a deed and deeds must contain an acknowledgment that the grantor signed the document voluntarily, a mortgage that fails to so acknowledge that fact is void and should never have been accepted for recording by the registry of deeds. The fact that it was recorded is irrelevant; the mortgage is void. The Court refused to award other relief sought by the Trustee, but the damage was done. The mortgage ceased to exist and, since the debtor received a discharge in bankruptcy, so was the note. The mortgagee got nothing. This case builds upon an earlier one which held that a mortgage signed by a corporate officer must be acknowledged as the being the free act and deed of the corporation.
Bottom Line: (1) Again, know your loan documents. Before closing, make sure that the notary clauses state that the act of signing the mortgage is the “free act and deed” of the mortgagor. (2) If, post-closing, you discover that your mortgage does not comply, attempt to rectify the defect by requesting that the mortgagor sign a confirmatory mortgage or, failing that, bring suit in the pursuant to G. L. c. 183, §§ 34-40 and have the voluntariness of the mortgagor’s act confirmed by the court before a third party can challenge the validity of your mortgage.
BRCSM performs foreclosures for lenders, servicers and other financial institutions in Massachusetts and Rhode Island. For more information and a list of attorneys in this practice area, please visit the firm’s Corporate Restructuring and Creditors Right page by clicking here.