Thompson v. JP Morgan Bank Case

November 30, 2020

- By The MAR Legal Team

You may recall a writeup from March of last year about a case that was quite controversial for creating a new and amorphous standard in foreclosure procedures. Today, the state’s highest court issued a ruling on a key element of that case, essentially upholding the status quo for an already highly regulated area – the language required for foreclosure documents.  

Procedural Background 

The case, Thompson v. JP Morgan Chase Bank, has been moving through federal courts. In the case, the language in the mortgage permitted the mortgagor to cure the default by paying off the mortgage five days before the foreclosure sale. However, the default and acceleration notice sent to the mortgagor did not include this timing detail, saying only that the mortgagor could “still avoid foreclosure by paying the total past-due amount before a foreclosure sale takes place.” 

A U.S. District Court judge first ruled for the bank in May of 2018. However, in February 2019, a federal appellate court, the First Circuit Court of Appeals, reversed that decisionrequiring banks to strictly comply with mortgage language when seeking a foreclosure saleeven if the language at issue did not actually harm the plaintiff. Thus, in the case at hand, it does not matter whether the mortgagor could have actually paid off the mortgage within 5 days of the saleThe fact that the notice did not specify this time requirement that was contained in the mortgage was sufficiently misleading to invalidate the foreclosure. 

Rationale and Impacts 

The Court’s rationale warooted in the fact that Massachusetts is a non-judicial foreclosure jurisdiction, meaning that banks are not required to obtain a court ruling before foreclosing on a propertyAs a resultbanks should be held to a high standard, requiring strict compliance with mortgage termsMost notably, the court stated it would even be willing to use “some imagination to consider every possible way” a bank’s notice could be misleading to a mortgagor, regardless of whether imprecise compliance actually harms the mortgagor. 

That decision left banks with both prospective and retrospective challenges, potentially calling into question the validity of completed foreclosures and setting a high bar for drafting mortgages and default acceleration notices to address all issues, both real and potentially imagined.   

Question of Massachusetts Law  

After Chase and many others in the banking industry petitioned for reconsideration, the federal appellate court vacated its decision and took a procedural step, sending a question on the state law central to the case to the state’s highest court, the Massachusetts Supreme Judicial Court (SJC)The question asked whether the default and acceleration language rendered the notice inaccurate or deceptive in a way that should void the foreclosure under Massachusetts law. 

On November 25, 2020, the SJC ruled that the notice was not deceptive or misleading because the default and acceleration notice included a disclaimer that it was subject to “requirements and limitations of applicable law.” Thus, Massachusetts law, which permits payments any time prior to the foreclosure, superseded the notice requiring payment 5 days in advance of foreclosure and was adequately incorporated by the disclaimer.  

Next Steps 

The case now returns to the federal U.S. Court of Appeals for the First Circuit. It seems likely they will issue a ruling in-line with the SJC’s guidance on this key issue in the case. The ruling will come as a relief to the banking industry and is a good reminder of the importance of accuracy in foreclosure proceedings.