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SJC-12139
FEDERAL NATIONAL MORTGAGE ASSOCIATION vs.
ELVITRIA M. MARROQUIN & others.1
Essex. January 9, 2017. - May 11, 2017.
Present: Gants, C.J., Lenk, Hines, Gaziano, Lowy, & Budd, JJ.
Mortgage, Foreclosure, Real estate. Real Property, Mortgage,
Sale. Notice, Foreclosure of mortgage.
Summary process. Complaint filed in the Northeast Division
of the Housing Court Department on June 18, 2012.
The case was heard by David D. Kerman, J., on motions for
summary judgment.
The Supreme Judicial Court granted an application for
direct appellate review.
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.
1
Julio E. Vasquez and Christopher Vasquez.
2
GANTS, C.J. In Pinti v. Emigrant Mtge. Co., 472 Mass. 226,
227, 232 (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. 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. 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
3
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:
2
The mortgage loan was secured by the defendants Elvitria
M. Marroquin and Julio E. Vasquez. The limited record before us
suggests that Christopher Vasquez is Marroquin's son, and that a
motion filed by the Federal National Mortgage Association to
amend the summons and complaint to include him was granted by
the Housing Court judge. For convenience, we refer to "the
defendants" throughout this opinion.
4
"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."
5
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.
3
Paragraph 22 of the mortgage provides that in the event
the borrower commits a breach of any term of the mortgage, prior
to acceleration of the loan the lender must notify the borrower
of
"(a) the default; (b) the action required to cure the
default; (c) a date, not less than [thirty] days from the
date the notice is given to [the defendants], by which the
default must be cured; and (d) that failure to cure the
default on or before the date specified in the notice may
result in acceleration of the sums secured by [the
mortgage]."
Paragraph 22 further provides that such notice must 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." It also declares that, if the default is not timely
cured, the lender "may invoke the statutory power of sale."
6
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,
7
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
(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. 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
4
The judge analogized the warning in the notice of default
to a Miranda warning that informed a suspect before
interrogation:
"You [may] have the right to remain silent. If you
give up the right [and if you have that right], anything
you say or do [may] can and will be used against you in a
court of law. You [may] have the right to an attorney. If
you cannot afford an attorney [and if you have that right],
one [may] will be appointed for you. Do you understand
these rights as they have been read to you?"
8
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, quoting U.S. Bank Nat'l Ass'n v. Ibanez, 458 Mass. 637,
646 (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. Our concern was that a third party who purchases
property that had once been sold at a foreclosure auction would
9
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,
mortgagees "as a general matter" would address this uncertainty
by executing and recording "an affidavit of compliance with the
notice provisions of paragraph 22 that includes a copy of the
notice that was sent to the mortgagor pursuant to that
paragraph." Id. at 244. However, we applied our ruling to the
parties in Pinti, id. at 243, citing Eaton v. Federal Nat'l
Mtge. Ass'n, 462 Mass. 569, 589 (2012), and deferred the
question whether our holding "should be applied to any other
class of cases pending on appeal." Id. at 243 n.25.
In Galiastro v. Mortgage Elec. Registration Sys., Inc., 467
Mass. 160, 167-170 (2014), we addressed that same issue in a
closely parallel context. In Eaton, 462 Mass. at 571, we
declared that a foreclosure by power of sale is invalid unless a
foreclosing party holds the mortgage and also either holds the
underlying note or acts on behalf of the note holder. We
applied this rule to the parties in Eaton, but otherwise gave
the ruling prospective effect only. Id. In Galiastro, supra at
168, we extended the benefit of our decision in Eaton to
10
litigants who had preserved this issue and whose cases were
pending on appeal at the time that Eaton was decided. We
declared that "[w]here multiple cases await appellate review on
precisely the same question, it is inequitable for the case
chosen as a vehicle to announce the court's holding to be
singled out as the 'chance beneficiary' of an otherwise
prospective rule." Galiastro, supra at 167-168, citing United
States v. Johnson, 457 U.S. 537, 555 n.16 (1982), and
Commonwealth v. Pring-Wilson, 448 Mass. 718, 736 (2007).
Limiting the application of prospective rulings to such a
"chance beneficiary" would mean that something as arbitrary as
the speed at which a case is litigated might determine its
outcome, as only the first case raising this issue to reach the
Supreme Judicial Court would get the benefit of the ruling. It
would also greatly diminish the "incentive to bring challenges
to existing precedent" by depriving similarly situated litigants
"of the benefit for the work and expense involved in challenging
the old rule." Galiastro, supra at 169, quoting Powers v.
Wilkinson, 399 Mass. 650, 664 (1987).
The same principles underlying our decision in Galiastro to
extend the Eaton rule to cases pending on appeal cause us to
extend the Pinti rule to cases pending in the trial court where
the Pinti issue was timely and fairly raised before we issued
our decision in Pinti. In such cases, the homeowner-mortgagors
11
are similarly situated to the plaintiffs in Pinti, because they
presented the same arguments in the trial court that the Pinti
plaintiffs presented to this court on appeal. All that
distinguishes the homeowners in Pinti from the homeowners in
this case is the pace of the litigation. The summary process
complaint in this case was first filed in June, 2012; the
complaint in Pinti seeking a judgment declaring that the
foreclosure sale was void was filed in January, 2013. If this
case had proceeded to judgment more promptly in the Housing
Court, this appeal, rather than Pinti, might have been the one
that established the so-called Pinti rule.5
Having so ruled, we now consider whether the homeowner
defendants in this case timely and fairly raised a Pinti defense
before the issuance of our Pinti decision. The judge found that
they had, and we conclude that he was not clearly erroneous in
so finding.
We recognize that the defendants did not specifically
allege that the mortgagee's notice of default failed to strictly
comply with the terms of paragraph 22 of the mortgage until they
filed their cross motion for summary judgment on September 23,
5
We recognize that this ruling will increase the impact our
Pinti decision may have on the validity of titles, but we expect
the increase to be modest and that it will simply be part of the
inherent "unevenness [that] is an inevitable consequence of any
change in doctrine." Galiastro v. Mortgage Elec. Registration
Sys., Inc., 467 Mass. 160, 170 (2014), quoting Johnson Controls,
Inc. v. Bowes, 381 Mass. 278, 283 n.4 (1980).
12
2015, more than two months after the issuance of our opinion in
Pinti. But more than three years before that opinion, in June,
2012, they filed an answer as self-represented litigants where
they checked the box proffering as a defense to the eviction
that the plaintiff did not have "superior right to possession of
the premises."6 We need not consider whether the assertion of
this affirmative defense alone was sufficient to give fair
notice of a Pinti defense, because it is apparent from the
plaintiff's memorandum in support of its motion for summary
judgment, which was filed one month before the issuance of our
Pinti decision, that the plaintiff recognized that the
defendants had alleged that the notice of default failed to
comply with the terms of paragraph 22 of the mortgage. In that
memorandum, the plaintiff argued that it had complied with the
requirements of paragraph 22 and that it would be "irrational
and fundamentally unfair" to declare the foreclosure proceeding
void because of the purported minor differences between the
language of the notice of default and that of the mortgage.
6
The full text of the defense, marked box no. 67 on the
answer, states:
"The 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.
Wayne Inv. Corp. v. Abbott, 350 Mass. 775 (1966) (title
defects can be raised as defense in summary process); G. L.
c. 239, § 1 (summary process available to plaintiff only if
foreclosure carried out according to law)."
13
Where the plaintiff recognized that the defendants had raised
the Pinti issue as a defense before our Pinti decision, the
judge did not err in finding that the defendants fairly and
timely raised the issue and therefore were entitled to the
benefit of the Pinti decision.
2. Obligation of strict compliance. Having determined
that the defendants are entitled to the benefit of our holding
in Pinti, we must now address whether the notice of default
strictly complied with paragraph 22 of the mortgage. It did
not.
Once a borrower has defaulted on a mortgage, G. L. c. 183,
§ 21, authorizes the mortgagee to foreclose and sell the
premises, provided it "first compl[ies] with the terms of the
mortgage and with the statutes relating to the foreclosure of
mortgages by the exercise of the power of sale." Pinti, 472
Mass. at 232, quoting G. L. c. 183, § 21. As we explained in
Pinti, supra at 236, "the 'terms of the mortgage' with which
strict compliance is required -- both as a matter of common law
under this court's decisions and under § 21 -- include not only
the provisions in paragraph 22 relating to the foreclosure sale
itself, but also the provisions requiring and prescribing the
preforeclosure notice of default" (footnote omitted). See
Foster, Hall & Adams Co. v. Sayles, 213 Mass. 319, 322-324
(1913).
14
The notice of default in this case communicated much of
what paragraph 22 requires but fell short in several crucial
respects. Paragraph 22 requires that the notice "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
of sale." Despite this language in the plaintiff's own uniform
mortgage instrument, the notice declared that the borrower "may,
if required by law or [the borrower's] loan documents, have the
right to cure the default after the acceleration of the mortgage
payments and prior to the foreclosure sale of [the borrower's]
property if all amounts past due are paid within the time
permitted by law" (emphasis added). Similarly, the notice
declared that the borrower "may have the right to bring a court
action to assert the non-existence of a default or any other
defense [the borrower] may have" (emphasis added). We agree
with the judge that this language in the notice "significantly,
and inexcusably, differed from" the language in paragraph 22 of
the mortgage, and "watered . . . down" the rights provided in
that paragraph to the mortgagor homeowner.
The phrase, "you may, if required by law or your loan
documents, have the right to cure the default after
acceleration," suggests that the right to cure and reinstate is
not available to every mortgagor, and that any such right is
15
contingent upon the law or the provisions of other loan
documents. But paragraph 19 of the mortgage specifically grants
a mortgagor the right to reinstatement after acceleration, and
sets forth the steps required to do so. This phrase instead
suggests that the homeowner may need to perform legal research
and analysis to discern whether the right to cure and reinstate
is available.
Similarly, rather than unequivocally inform the borrower of
the right to bring a court action to attempt to prevent a
foreclosure by asserting that there was no default or by
invoking another defense, the notice of default stated that the
borrower may have the right to bring such an action. Here, too,
the implication is that the right is merely conditional, without
specifying the conditions, and that the mortgagor may not have
the right to file an action in court. The defendant contends
that it accurately informed borrowers that they "may have" the
right to bring a court action because they would have no such
right if their court action lacked a good faith basis. But
neither paragraph 22 of the mortgage nor the notice identified a
bad faith exception to this right and we cannot reasonably infer
that a borrower would understand that the "may have" language
referenced such an exception.7
7
Because we find that the notice of default was not in
strict compliance with paragraph 22, we need not address the
16
We agree with the judge that, because the Pinti decision
applies to this case and because the notice of default did not
strictly comply with the requirements of paragraph 22 of the
mortgage, the foreclosure sale is void.8
Conclusion. The allowance of the defendants' cross motion
for summary judgment, as well as the denials of the plaintiff's
motions for summary judgment and for relief from judgment, are
affirmed.
So ordered.
defendants' contention that the plaintiff waived its argument
that the notice was in strict compliance when it conceded that
it was only in substantial compliance in the memorandum in
support of its motion for summary judgment and at the hearing in
the Housing Court.
8
Nothing bars the plaintiff from reinitiating the
foreclosure process with a notice of default that strictly
complies with paragraph 22 of the mortgage.