by Ashley Torres, Esq. and Eva Massimino, Esq.

Bendett & McHugh, P.C.
USFN Member (CT, MA, ME, NH, RI, VT)

On February 8, 2019, the United States First Circuit Court of Appeals, in Thompson v. JPMorgan Chase Bank, ruled that a default and acceleration notice sent pursuant to the acceleration provision of a mortgage, was potentially deceptive when it advised that the subject loan could be reinstated after acceleration any time prior to sale when the mortgage, in a separate section, provided the right to reinstate only up to 5 days prior to the date of sale.  Specifically, in Thompson, the First Circuit ruled that Thompson’s mortgage laid out disclosures required prior to acceleration in Paragraph 22 of his mortgage.

With regard to reinstatement however, Paragraph 22 only required that the Lender advise Thompson of his “right to reinstate after acceleration.” The default and acceleration notice sent by the servicer advised of the right to reinstate after acceleration but then also advised that Thompson could, “still avoid foreclosure by paying the total past-due amount before a foreclosure sale takes place.” The only mortgage provision relating to reinstatement specifically was paragraph 19 of Thompson’s mortgage which only allowed for reinstatement up to 5 days prior to a foreclosure sale. The Court found the Lender’s statement in its notice was therefore misleading and potentially deceptive and remanded the case for further consideration regarding the validity of the resulting foreclosure sale. Interestingly, Paragraph 19 of Thompsons’ mortgage did not specify that the limitation on time for reinstatement be disclosed in a default letter.

Massachusetts title insurers’ views on how this decision affected current and past foreclosure sales continually evolved in the wake of Thompson.  Initially, title insurers differed on whether they were going to decline to insure foreclosure sales with potential Thompson issues.  In the interim, a motion for rehearing was filed and was supported by many amici briefs filed by industry leaders. Most importantly, and perhaps in response to some of the arguments raised in the motion for rehearing in Thompson, title insurers then took issue with language found not only in contractual demand letters but also the language servicers are required to use in their MGL Ch. 244 Sec. 35A statutory demand letters. The 35A demand letter template provided by 209 C.M.R. §56.04 allows for reinstatement up to the sale of the property.

Eventually, insurers began to require that “supplemental notices” be sent on loans where statutory and contractual demand language was combined, to clarify that any provision in the subject mortgage limiting the right to reinstate to a date earlier than the sale is waived and that reinstatement would be allowed up to the time of sale. Insurers also required that both the contractual and statutory demand letters be compliant with Thompson as well. Sales held in reliance on insurer’s prior opinions were then deemed uninsurable, causing an onslaught of sale rescissions to comply with the requirements of Thompson as interpreted by title insurers.

On July 29, 2019, the United States First Circuit Court of Appeals vacated their holding in Thompson. The Court held that due to the precise language contained in the relevant state banking regulation (209 C.M.R. §56.04), which required the “Right to Cure” notices to include the language at issue, together with the widespread industry support received by J.P. Morgan Chase Bank in subsequent filings in support of its petition for rehearing, the matter should be certified to the Massachusetts Supreme Judicial Court (SJC).

Despite the fact that the First Circuit vacated their holding, title insurers continued to apply the ruling and thus continued to require both the contractual and statutory demand letters be compliant with Thompson. Insurability of foreclosure sales in Massachusetts remained in flux for over a year while the SJC considered the question certified to it:

“Did the statement in the August 12, 2016, default and acceleration notice that ‘you can still avoid foreclosure by paying the total past-due amount before a foreclosure sale takes place’ render the notice inaccurate or deceptive in a manner that renders the subsequent foreclosure sale void under Massachusetts law?”             

On November 25, 2020, the SJC answered the question certified to it by the First Circuit with a firm “No.”

The Court examined the interplay of multiple provisions of the mortgage and the applicable state law. Paragraph 12 of the mortgage gave the mortgagee the contractual capacity to lengthen the timeframe to reinstate. Paragraph 16 of the mortgage stated that “[a]ll rights and obligations contained in this Security Instrument are subject to any requirements and limitations of Applicable Law”, which was defined by the mortgage to include state statutes. The terms of the mortgage therefore allow the reinstatement period to be extended either by the discretion of the mortgagee or relevant state law.

Paragraph 19 of the mortgage allowed the mortgagor to reinstate only up to 5 days prior to the foreclosure sale. However, this is contradictory to Massachusetts General Laws Chapter 244, Section 35A, which permits the mortgagor to reinstate any time prior to the foreclosure sale. Therefore, the Court reasoned Chapter 244, Section 35A “constitutes controlling and applicable law that supersedes the conflicting provisions in the mortgage contract.” Because Chapter 244, Section 35A, and the state banking regulation (209 C.M.R. §56.04), require mortgagees to allow reinstatement any time prior to a foreclose sale, and the notice stated just that, the Court determined that the notice was not deceptive or misleading.

The Court reasoned that in reading paragraphs 12 and 16 together, with Chapter 244, Section 35A and applicable regulation, it is evident that the mortgagee not only had the contractual option to allow reinstatement at any point prior to the foreclosure sale, but also was required to do so. The limitation on the reinstatement period imposed by paragraph 19 is superseded by the more generous reinstatement timeframe provided by Chapter 224, Section 35A.

The Court also ruled that a single “hybrid” notice may satisfy both the requirements of Chapter 244, Section 35A and paragraph 22 of a GSE Uniform Mortgage. The Court pointed out that paragraph 15 of a GSE Uniform Mortgage, which states “[i]f any notice required by this Security Instrument is also required under Applicable Law, the Applicable Law requirement will satisfy the corresponding requirement under this Security Instrument”, anticipates such a hybrid notice. This holding is significant as title insurers had previously interpreted prior case law in the state to require separate notices for the statutory and contractual pre-acceleration notice requirements.

On November 30, 2020, the Plaintiff filed a Motion for Reconsideration or Modification. Some title insurers, if not all, will not insure over a Thompson issue until a final decision on this motion is entered by the SJC.

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December 2020 e-Update