MA Supreme Judicial Court Decision in Federal National Mortgage Association v. Marroquin, et als.

On Thursday, May 11, 2017, The Supreme Judicial Court of Massachusetts (SJC) issued a decision in Federal National Mortgage Association v. Marroquin, et als, preserving the right of a borrower to challenge the lender’s strict compliance with a contractual notice of default in cases in which the challenge was raised at the Trial Court level prior to July 17, 2015.

The Court further held that the notice of default issued by the lender in the Marroquin case was not strictly compliant because the notice issued by the foreclosing entity advised the borrowers that they “may, if required by law or [the borrower’s] loan documents, have the right to cure the default…” (emphasis in original), which is significantly different from the terms of the mortgage. The court further explained that since the defendants had a right to cure, the term “may” was considered misleading. The SJC agreed with the trial court that the notice to cure “significantly and inexcusably, differed from” the terms of the mortgage and “watered… down” the rights of the mortgagor.

This decision further illustrates that any conditional language, including that which limits or qualifies the right to cure is misleading. This is the same rationale that was used in the Pinti decision to determine that “‘may’ have a right to bring a court action” is also misleading.

As described in our prior alerts on the Pinti v. Emigrant Mtge.Co. decision, dated July 17, 2015 and January 29, 2016, the SJC issued a decision in Pinti on July 17, 2015, which held that a foreclosing entity must strictly comply with the terms of the mortgage. Failure to strictly comply with the notice of default provisions prior to foreclosure renders any subsequent foreclosure sale void.

While the SJC’s decision was prospective in nature and applied to “mortgage foreclosure sales of properties…for which the notice of default required by paragraph 22 is sent after the date of this opinion [July 17, 2015],” the question of whether cases pending in the trial courts or on appeal would receive the benefit of the Pinti decision was left open and unresolved. The Marroquin case was one of the cases pending in the Housing Court at the time the Pinti decision was issued.

The Marroquin case involved a post foreclosure eviction in which the former owners challenged the validity of the foreclosure sale alleging that the notice to cure did not strictly comply with the terms of the mortgage. The trial court held that the Pinti decision was applicable because the issue was timely and fairly raised in the Housing Court prior to the Pinti decision. Therefore, the defendants in Marroquin should receive the benefit of the Pinti holding. The SJC took the appeal and agreed that application of the Pinti holding was consistent with the prospective nature of their prior decision because Marroquin was pending in the Trial Court at the time Pinti was decided. The SJC also affirmed the Trial Court’s decision that the notice of default did not strictly comply with the terms of the mortgage.

The SJC conceded that the defendants in Marroquin did not specifically allege in their answer that the notice of default did not strictly comply with the terms of the mortgage. However, the SJC determined that the “check the box answer” filed by the defendants, which raised the defense that plaintiff did not have “superior right to possession of the premises” coupled with an argument by Plaintiff’s counsel in a subsequent motion that the lender failed to comply with the terms of the mortgage, was sufficient to give fair notice of this defense. While the Court did not reach the issue of whether checking that box would be sufficient notice of a Pinti defense, the decision suggests that new and innovative defenses may be later raised by former mortgagees if they relate to superior right of title.

Since the Pinti decision was issued in 2015, there is a limited number of pending cases where the issue of retroactive application of Pinti will apply. However, this decision will open up challenges to the notice to cure in all pending and subsequent post foreclosure evictions. The trial courts and borrower’s counsel will scrutinize every word of all notices to cure to determine whether they are in strict compliance with the terms of the mortgage. Any variation from the language set forth in the mortgage may invalidate the foreclosure sale.

This Opinion also appears to be the first time the SJC has addressed the issue of the sufficiency of the “check the box answer” used by many homeowners in the trial courts who oppose post foreclosure evictions. The Court was at least open to the argument that the general challenge to the foreclosing entity’s superior right of possession may be sufficient to preserve any subsequent specific defense. Orlans PC intends to work with our clients to develop a strategy to compel defendants in post foreclosure summary process cases to plead with specificity as required by the Court rules.

Our office recommends that you review your notices of default to verify that there is no conditional or limiting language surrounding the right to cure, or any other provision in the notice of default paragraph to ensure compliance with the Marroquin and Pinti decisions.