First Circuit Invalidates Foreclosure for Non-Compliance in Pre-Foreclosure Cure Notice

March 28, 2019

- By The MAR Legal Team

You may have heard the buzz about a recent case with major implications for home foreclosures. The case, Thompson v. JP Morgan Chase Bank, was decided on February 8, 2019, by the First Circuit Court of Appeals and requires banks to strictly comply with mortgage language when seeking a foreclosure sale.

The Case

In this 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.”

The court, repeatedly citing a 2015 case, Pinti v. Emigrant Mortg. Co., 33 N.E.3d 1213 (Mass. 2015), explains that mortgagees must strictly comply with terms “directly concerned with the foreclosure sale” and those “prescribing actions the mortgagee must take in connection with the foreclosure sale.” Failure to strictly comply with these terms as well as compliance attempts that are in any way either deceptive or inaccurate are not permissible, even if the language at issue does 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 sale. The fact that the notice did not specify this time requirement that was contained in the mortgage was sufficiently misleading to invalidate the foreclosure.

The Decision

The Court’s rationale is rooted in the fact that Massachusetts is a non-judicial foreclosure jurisdiction, meaning that banks are not required to obtain a judicial judgment approving foreclosures of mortgaged properties. As a result, “the foreclosure procedure… is itself favorable to the bank,” especially because the bank writes the notice and “has ample opportunity and expertise to make it entirely accurate.” Therefore, the Court says it will hold them to a high standard, requiring strict compliance with mortgage terms. It is even 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.

The case has 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.

What this means for REALTORS®

While this case will have its most direct impact on banks, keep in mind that if you are working with foreclosure properties your sale could face further delays as a result of this case.