Strict Compliance Standard for Notice of Default Letters (Massachusetts)
The legal standard of “strict compliance” is not a new concept, especially in Massachusetts as it pertains to the foreclosure process. However, since July 2015 when strict compliance was implemented for notices of default, numerous decisions and judicial opinions have been issued on the subject¹.
On Friday, May 11, 2018, the Massachusetts Court of Appeals issued a decision in Eaton v. Federal National Mortgage Association, 93 Mass. App. Ct. 216 (2018) (“Eaton II”) further clarifying the definition of strict compliance with the notice of default provisions of the mortgage, holding that strict compliance “…does not require that the notice quote word for word from the mortgage.”
This most recent decision does not overturn any prior decisions from the Massachusetts Supreme Judicial Court, but the new ruling will be an additional factor in the analysis. Failure to strictly comply still renders the sale void and a nullity such that title never left possession of the original owner. Pinti v. Emigrant Mortg. Co., Inc., 472 Mass. 226, 241-243, 33 N.E.3d 1213 (2015).
Taking into consideration the newest case, the notice of default could be considered void if the following language is used, as compared to the standard FNMA uniform instrument:
- “right to assert in any lawsuit for foreclosure…” and sale the nonexistence of a default or any other defense [they] may have to acceleration and foreclosure and sale” (emphasis added).” Pinti at 229.
- Language that “significantly, and inexcusably, differ[s] from, watered … down, and overshadowed the notice that was contractually and legally required by the mortgage.” Nat’l Mortg. Ass’n v. Marroquin, 477 Mass. 82, 85, 74 N.E.3d 592 (2017).
- Language considered to significantly differ from the mortgage includes language that limits or qualifies the rights in the mortgage such as:
- “You may, if required by law or your loan documents, have the right to cure the default after the acceleration…”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. See Id.
Language the courts have held as strictly compliant:
- Language stating the lender may “take steps to terminate your ownership in the property by a foreclosure proceeding or other action to seize the home.”
- Even though verbatim is not required, verbatim recitation from the mortgage will always be compliant
This most recent decision, although only from the Massachusetts Appeals Court, held that strict compliance does not require verbatim recitation of the terms of the mortgage, but that the language must only “conform” to be considered strictly compliant. The standard has now evolved from an interpretation of verbatim is the best practice, to allowing lenders to modify the language used in the letters, so long as it conforms to the language in the mortgage. This is a small but significant shift in the prior interpretation.
However, caution should still be used by lenders and services in any decision to vary or stray from the language in the mortgage, because there is a distinction between the facts before the Appeals Court, and those in prior decisions. The distinction relates to which part of the required contractual language was in dispute. The language in dispute in the recent case is not one of the two main rights granted to the borrower in the mortgage related to “right to bring a court action” or the “right to reinstate after acceleration”, but instead was part of the information intended to advise the borrower that failure to cure the default could result in acceleration of the debt and sale of the property.
The difference between the language in dispute is the qualitative nature of the information being communicated to the borrower – “rights” versus consequences. Based on prior decisions, a common thread exists – communication of rights granted by the mortgage of which the mortgage requires the borrower to be notified prior to acceleration. These have been reviewed with a higher scrutiny and may result in lower tolerance for variation from the language (distinctions made between “may have” and “have” when related to “rights”). See Pinti at 229, Marroquin at 85. Whereas, communication of information related to the potential consequences of the default, if not cured, may be viewed with more tolerance for variation so long as such language still “conforms”. See Eaton II.
Close watch continues to be exercised to monitor changes and clarification of the standard of review as it relates to “strict compliance.” Only time and additional clarification from the courts will bring about more a definitive understanding of the legal conclusion of strict compliance. Until that time, lenders and servicers must use the available information to make the best-informed decisions related to associated risks when creating and discussing changes to contractual notices of default in the context of Massachusetts foreclosure.
Please address any questions regarding the above article to Northeast Attorney Erika Hoover at [email protected].
¹U.S. Bank Nat’l Ass’n v. Ibanez, 458 Mass. 637, 645-646, 941 N.E.2d 40 (2011), quoting Moore v. Dick, 187 Mass. 207, 211, 72 N.E. 967 (1905). 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”). See Eaton v. Federal Nat’l Mortgage Ass’n, 462 Mass. 569, 969 N.E.2d 1118 (2012). Pinti v. Emigrant Mortg. Co., Inc., 472 Mass. 226, 33 N.E.3d 1213 (2015). See Fed. Nat’l Mortg. Ass’n v. Marroquin, 477 Mass. 82, 74 N.E.3d 592 (2017). See Eaton v. Federal Nat’l Mortgage Ass’n, 93 Mass. App. Ct. 216 (2018).