by Eva Massimino, Esq.

Bendett & McHugh, P.C.*

USFN Member (CT, ME, MA, NH, RI, VT)

On September 7, 2017, in Federal National Mortgage Association v. Deschaine, 2017 ME 190, the Maine Supreme Court held that once a promissory note is accelerated, the payments required by the note become indivisible, and there can be no new default under the note and mortgage. Due to the indivisibility of the payments, if there is a dismissal of a foreclosure action with prejudice, the lender is precluded from filing another foreclosure at a future date based on a continuing default. The practical impact of Deschaine was that a loan became unenforceable if a foreclosure action was dismissed with prejudice, resulting in a house free from an enforceable mortgage obligation.

Defenses sounding in insufficiencies in pre-foreclosure demand notices have become more frequent and particular, creating significant concern over initiating foreclosure with even the slightest error in the demand notice. Servicers and foreclosure counsel in the area have worked together to help stop and hopefully reverse the trend of minor deficiencies resulting in a windfall for the borrower. The efforts have been slow and frustrating and have resulted in increasingly conservative practice throughout the state.

Recently, we have had some signal that the tide may be turning. The composition of the Maine Supreme Judicial Court has changed. With this change has seemingly come a willingness to temper the need for strict statutory compliance with the state’s demand notice requirements against the severity of a notice’s defect.

On October 12, 2021, the Maine Supreme Judicial Court decided 1900 Capital Trust II v. Moynihan. The Plaintiff in Moynihan provided a demand notice in support of its foreclosure that had a minor discrepancy in the itemization provided which resulted in a $6 difference in the amount due on the loan to reinstate. The court affirmed that given the minor nature of the discrepancy in the notice, the Plaintiff nevertheless met its burden to foreclose the subject mortgage. The holding suggests that there is a reasonableness standard that will also be applied when reviewing demand notices under the strict compliance requirements previously established in Maine.

In addition, there may be some hope in adopting strategies which have been successful in other states. Namely, there may be a circumstance or a process that can be established to revoke acceleration prior to judgment entry by forgiving past due payments and inviting the borrower to resume payments under the existing mortgage terms. The process would effectively revive the note obligations and permit foreclosure if the default were to recur.

Only time will tell if we are truly witnessing a reversal of the “free house” trend, but for now there is at least some indication of a shift in the right direction.

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December 2021 USFN Report