By Robert Wichowski, Esq.

Brock & Scott, PLLC *

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

The Maine Law Court has issued its long-awaited decision in the case of JP Morgan Acquisition Corp. v. Camille J. Moulton (2024 ME 13). This decision comes on the heels of Charles D. Finch v. U.S. Bank (see USFN article here) and it is one in which USFN, among other industry participants, filed an amicus brief in support of the lender’s position.

This case involves the foreclosure of a residential mortgage in which the trial court found that the foreclosing plaintiff’s demand letter did not comply with 14 MRSA §6111 (Maine’s demand letter statute). In Maine, until the decision of the Finch case, proceeding to foreclosure with a demand letter that did not strictly comply with each and every requirement of 14 MRSA §6111 would result in a judgment in favor of the borrower, which was deemed an adjudication on the merits of the case. Such an adjudication, pursuant to the prior cases of Pushard v. Bank of America, N.A., 2017 ME 230 and Fed. Nat’l Mortg. Ass’n v. Deschaine, 2017 ME 190, and on res judicata principals, resulted in a “free house” for the borrower and an inability of the mortgagee to collect any sums on the note or enforce the mortgage.

As previously written by USFN, the Finch case represented a sea change in Maine foreclosure law, holding that res judicata did not apply where a non-compliant notice was the basis for the adverse result because, according to the language of the statute, a compliant notice is a condition precedent to enforcement of the mortgage and acceleration of the debt. After the decision in Finch, a judgment in favor of a borrower based upon a defective notice is no longer an adjudication on the merits of the case.  Thus, res judicata does not operate to preclude future claims.

Although the Finch decision was argued prior to this case, the Maine Law Court, having both cases pending before it at the same time, solicited amicus curie briefs on the questions of whether the Court should reconsider its precedent that a failure to comply with 14 MRSA §6111 renders the note and mortgage unenforceable as well as whether the Deschaine and Pushard cases should be overruled. In response, several amicus curiae briefs were submitted, and partially on the basis of those briefs, both decisions in Finch and Moulton were decided.

In this case, the notice of default was deemed non-compliant with the statute because there was a sum of money being held in suspense as a partial payment that was not accounted for on the demand, which resulted in the amount to cure in the notice being listed as higher than it really was. The trial court entered judgment in favor of the borrowers and further ordered that Moulton “holds title to the real property at issue, unencumbered by the mortgage and the promissory note.” The court also awarded her reasonable attorneys’ fees and costs. Although the Law Court did not take issue with, or disturb the trial court’s ruling that the notice of default was not compliant with 14 MRSA §6111 or the award of reasonable attorneys’ fees, the Law Court vacated the portion of the judgment that declared that Moulton holds title to the real property at issue free of the note and mortgage. In doing so, the Court held that such a judgment does not preclude the lender from bringing a future foreclosure claim based on a future default, nor does it discharge the entire mortgage or effect a transfer of title.

Although this case, coupled with the Finch opinion, represents a step away from the severe foreclosure climate in Maine for lenders as well as the “court as a casino” effect that the Deschaine and Pushard cases created, it will not end strict scrutiny on notices of default and could even result in an increase in trial courts finding that notices are defective.

Failure to comply with § 6111 still may have drastic consequences. Not only does the lender need to recommence a foreclosure, starting with a new demand letter and be subject to an award of reasonable attorneys’ fees and costs, the second foreclosure case can only proceed as to future defaults. Unless the first foreclosure case also contained a separate count for breach of contract (suit on the note), which is often not an option due to bankruptcies and statutes of limitation, a lender must waive the prior unaccelerated amounts past due.

The takeaways from Moulton are that foreclosure complaints should include a separate count for amounts due under the note, when possible, and that § 6111 remains a strict compliance statute.

We do recommend consulting with local counsel to confirm the validity of notices of default.  Certain cases should also be evaluated upon referral for a possible contract claim.

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USFNews - February 7

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