By Sonia J. Buck, Esq.

Brock &Scott, PLLC *

USFN Member (CT, NC, RI, AL, FL, GA, KY, MA, MD, ME, MI, NH, NJ, OH, PA, SC, TN, VA, VT)

In Finch v. U.S. Bank, N.A., 2024 ME 2; ____ A.3d ____, the Maine Law Court issued a 4-3 decision on January 11, 2024, overruling its prior “draconian” holding in Pushard v. Bank of Am., N.A. (2017 ME 230, 175 A.3d 103), which required a lender to discharge its mortgage following a foreclosure judgment in favor of the defendant mortgagor predicated on a faulty 14 M.R.S. § 6111 notice of default. Id. at ¶6. Under Pushard, if a judgment was entered in favor of the mortgagor because the lender made an error in its notice of default, the mortgagor would be entitled to a “free house” under res judicata principles. The mortgagee would thereafter be precluded from any subsequent foreclosure action and the mortgage would be unenforceable. The Law Court in Finch concluded, however, that a mortgagor is not automatically entitled to a discharge of the mortgage when a lender fails to comply with a necessary element to the foreclosure, namely, a demand letter that strictly complies with 14 M.R.S. § 6111.

The Law Court now properly recognizes the issuance of a conforming demand letter to be a condition precedent to the foreclosure action. If the notice was non-confirming, acceleration of the debt is a legal impossibility. In a well-written and well-reasoned majority opinion, the Law Court now acknowledges it was incorrect in Pushard insofar as it held that the mortgagee had accelerated the note, “despite the plain statutory prohibition on acceleration without compliance.” Finch at ¶2. Finch now makes it clear that “a failure to meet a precondition to the commencement of a suit does not have claim-preclusive effect.” Finch at ¶49.

As background, in Pushard, the plaintiff initiated a foreclosure action against the borrowers and lost. Pushard at 107; ¶4. As was the case in Finch, the trial court in Pushard concluded that the bank failed to meet its burden on critical elements of foreclosure. Id. The Court therefore entered a foreclosure judgment in favor of the defendants. Id. One of the elements the Bank failed to satisfy was the requirement of a notice of default that strictly complies with statutory requirements under 14 M.R.S. § 6111. Id. Citing the borrower-friendly line of foreclosure precedent since § 6111 was revamped in 2009, the Law Court in Pushard ruled that strict compliance with § 6111 is required and that failing to comply results in a judgment for the defendant. Such a judgment invokes res judicata principles and precludes the mortgagee from later enforcing the note and the mortgage in a subsequent foreclosure action. The Pushard Court further held that a discharge of the mortgage is required, because the “note and mortgage are unenforceable and [the borrowers] hold title to their property free and clear of the Bank’s mortgage encumbrance.” Id. at 115–16; ¶36 (citing Federal National Mortgage Association v. Deschaine, 170 A.3d 230, 236 (Me. 2017)). The result was extremely harsh, in that even a small typographical error or other de minimis mistake in the demand letter resulted in a free home for borrowers, notwithstanding the borrowers’ (often long-standing) default on the loan and an otherwise informative notice of default and right to cure.

After winning in the foreclosure action, the Pushards, like Finch, subsequently initiated an action against the bank seeking (among other things): “(1) a discharge of the mortgage and (2) an order enjoining the Bank from enforcing the note and mortgage and compelling the Bank to record a release of the mortgage.” Pushard at 108; ¶5. Both parties filed motions for summary judgment. The trial court found for Bank of America, correctly holding that the foreclosure judgment does not preclude a subsequent foreclosure claim because the bank did not accelerate the payments on the note. Pushard at 106; ¶1. The Law Court, however, in what now is being declared an error, reversed the trial court’s decision in Pushard and required that Bank of America discharge the Pushards’ mortgage. Id.

For over seven years, the Pushard rule has been the law in Maine, putting lenders, servicers, and law firms in a position of extreme risk in the event of any errors, even minor or inconsequential ones, in the demand letter, despite substantial compliance and providing the borrowers with the necessary information (in other words, complying with the spirit and intent of § 6111, as amended in 2009). At long last, the Finch decision strikes a balance of equities between the parties with respect to the effects of a prior judgment against the mortgagee, while still requiring strict compliance with § 6111.

The procedural posture in Finch was much like that of Pushard. In 2015, U.S. Bank’s foreclosure action against Chares D. Finch resulted in a judgment in Finch’s favor, on the grounds that the bank’s demand letter failed to strictly comply with § 6111. Finch at ¶3. Relying on res judicata and “free and clear title” principles outlined in Pushard, Finch then filed a complaint for a declaratory judgment in Superior Court in an attempt to force U.S. Bank to discharge its mortgage, given the judgment in Finch’s favor. Id. The Superior Court entered judgment in Finch’s favor, and U.S. Bank appealed. Id.

The Law Court vacated the Superior Court’s declaratory judgment in favor of Finch and remanded the case for an entry in favor of U.S. Bank. U.S. Bank’s mortgage remains enforceable. Finch at ¶52. In overruling aspects of Pushard through Finch, the Law Court relied on the clear language of § 6111: “the mortgagee may not accelerate maturity of the unpaid balance of the obligation or otherwise enforce the mortgage because of a default consisting of the mortgagor's failure to make any required payment … until at least 35 days after the date that written notice … is given by the mortgagee.” Finch at ¶2; 6 (citing 14 M.R.S. § 6111). Based on the precondition to acceleration set forth in § 6111, for “claim preclusion purposes, the fact that the Bank could not accelerate the note balance or enforce the mortgage means that the Bank’s claim for the full amount due on the note and for foreclosure of the mortgage was not and could not have been litigated.” Finch at ¶7. If no justiciable litigation on the note or the mortgage is allowed due to failure of a condition precedent set forth in § 6111, no claim preclusion can occur.

The Finch Court noted that it erred with its premise in Pushard that acceleration can be “triggered” by a foreclosure action being filed without the lender having any right to do so under the statute: “Our premise that a lender’s filing of a foreclosure action automatically accelerates the note cannot be squared with the plain language of § 6111.” Finch at ¶25-27. The Finch Court also noted that it erred in not distinguishing Pushard from Johnson v. Samson Constr. Corp.,1997 ME 220, 704 A.2d 866, which is distinguishable in at least two material ways. Finch at ¶26. In Johnson, the foreclosure was dismissed with prejudice as a sanction. Whether or not the lender ever had the right to accelerate the note was not an issue in Johnson. Id. Further, Johnson involved a business loan on a non-residence such that the non-acceleration language and condition precedent set forth in § 6111 did not apply. Id. Therefore, the lender in Johnson was not prohibited from acceleration, such that the amount due was not only accelerated but the note and mortgage were also litigated. Id.

Despite the heavy-handed dissenting opinion, lamenting that principles of stare decisis are being eviscerated and that the Finch decision is a “retreat from the principles of judicial restraint,” (Finch at ¶90), the majority thoroughly reconciled its Finch decision with stare decisis principles, including consistency, anomaly, workability, reliance, and policy. It noted for example, that Johnson is still good law in its holding that a dismissal with prejudice in one foreclosure action, as a sanction for misconduct, barred a second foreclosure. Finch at ¶26. The Law Court further held that this decision was not a departure from current Maine jurisprudence, but a re-alignment to return Maine law back to consistency with prior rulings and with every other jurisdiction in the country.

            In addition, strict compliance with § 6111 is only one element required to be proven for a foreclosure judgment to be issued to a mortgagee. There remain eight essential elements:

1.     The existence of the mortgage, including the book and page number of the mortgage, and an adequate description of the mortgaged premises, including the street address, if any;

2.     Properly presented proof of ownership of the mortgage note and the mortgage, including all assignments and endorsements of the note and the mortgage;

3.     A breach of condition in the mortgage;

4.     The amount due on the mortgage note, including any reasonable attorney fees and court costs;

5.     The order of priority and any amounts that may be due to other parties in interest, including any public utility easements;

6.     Evidence of properly served notice of default and mortgagor's right to cure in compliance with statutory requirements;

7.     Proof of default of or completion of mediation; and

8.     If the homeowner has not appeared in the proceeding, a statement, with a supporting affidavit, of whether or not the defendant is in military service in accordance with the Servicemembers Civil Relief Act.

Chase Home Finance, LLC v. Higgins, 2009 ME 136, ¶11, 985 A.2d 508, 510-511. If a mortgagee fails to prove the foreclosure case due to failure of any of the other elements, where the note was accelerated, there might still be a res judicata impact on any subsequent foreclosure.  

            Much remains to be seen in this line of jurisprudence. Foremost, J.P. Morgan Mortgage Acquisition Corp. v. Moulton , Law Court Dkt. No. Oxf-21-412 (argued Nov. 1, 2022) remains pending before the Law Court. Like Finch, the Moulton case also involves a demand letter that failed to comply with the strict requirements of § 6111 and resulted in judgment for the defendant, again holding that the note and mortgage were unenforceable. The Finch case will undoubtedly be further discussed and analyzed in the highly anticipated Moulton decision. Even if Moulton retains the strict compliance component in interpreting § 6111, the Law Court should provide guidance on what constitutes strict compliance. For example, what level of itemization of the amounts due will be required? Might § 6111 interpretation provide room for de minimis errors, where the notice of default substantially complies and addresses the spirit of the statute? It also remains to be seen what impact Finch (and soon-to-be Moulton) will have on the body of foreclosure case law in Maine going forward. What is certain is that Finch represents a long overdue shift in Maine foreclosure law and a course-correction by our Law Court and marks a victory for lenders in what has historically been a borrower-friendly foreclosure environment in Maine courts.

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USFNews - January 24

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