Massachusetts Supreme Court Decides Standard Foreclosure Notice Isn’t Deceptive

The Massachusetts Supreme Judicial Court recently held that a foreclosure notice wasn’t deceptive or inaccurate, eliminating a potential defense to foreclosure for homeowners.

In 2019, the United States Court of Appeals for the First Circuit in Massachusetts held in Thompson v. JPMorgan Chase Bank, N.A., 915 F.3d 801 (1st Cir. 2019) that a foreclosure in Massachusetts was void (invalid) because the lender sent a misleading preforeclosure notice. Because lenders typically used this standard notice, the ruling provided a possible defense to foreclosure for many homeowners in Massachusetts.

But the Massachusetts Supreme Judicial Court recently held in Thompson v. JPMorgan Chase Bank, N.A., SJC-12798, ___ Mass ___ (2020), that the notice wasn't inaccurate or deceptive, eliminating this potential defense.

History of the Thompson Case

This case involved a "notice of default and right to cure" (breach letter) that JPMorgan Chase Bank (the lender) sent to the Thompsons (the borrowers) after the borrowers failed to make their mortgage payments. The mortgage contract required the lender to send the borrowers a breach letter containing specific information, including the existence of the right to reinstate the loan after acceleration.

Most standard Fannie Mae and Freddie Mac mortgage forms—those used in many residential mortgage transactions in the United States—contain a breach letter requirement. The breach letter that the lender sent, in this case, complied with a particular paragraph in the standard mortgage (paragraph 22) because the letter stated that the borrowers had the right to reinstate the loan after acceleration. The letter further said that the borrowers could "avoid foreclosure by paying the total past-due amount before a foreclosure sale takes place." But another paragraph in the mortgage (paragraph 19) said that the reinstatement deadline was five days prior to the sale. The breach letter didn't mention the five-day deadline.

The borrowers failed to cure the default, so the lender foreclosed on the property and conducted a foreclosure sale.

The Borrowers' Argument: The Breach Letter Was Confusing and Deceptive

The borrowers claimed that, while the letter complied with paragraph 22 of the mortgage, the letter didn't comply with paragraph 19 because it didn't say anything about the five-day deadline. Instead, the letter advised the borrowers that they could reinstate "before" the foreclosure sale, which implied that a reinstatement payment given fewer than five days before the sale would reinstate the loan.

Even though the borrowers here didn't try to reinstate the loan, they contended that the breach letter was confusing and potentially deceptive.

The Lower Court Dismissed the Borrower's Case

The district court decided that the breach letter strictly complied with paragraph 22 by advising the borrowers about their post-acceleration reinstatement right. So, it granted the lender's motion to dismiss.

The Appeals Court's Decision

However, on appeal, the United States Court of Appeals for the First Circuit Court disagreed with the district court. The Appeals Court held that the letter was potentially deceptive in violation of Massachusetts law and declared the foreclosure of the borrowers' home invalid.

In support of its decision in favor of the borrowers, the Appeals Court speculated that a lender could possibly reject a reinstatement attempt, say, three days before a foreclosure sale—even though the breach letter advised the borrowers that they could reinstate any time before a foreclosure sale takes place. The Court determined that because the notice did not fully inform the borrowers about the five-day deadline to reinstate the loan, the breach letter was potentially deceptive.

The Court ultimately found that the letter was not in strict compliance with the terms of the mortgage or Massachusetts law and, accordingly, invalidated the foreclosure. (Massachusetts courts require a foreclosing lender to comply strictly with certain mortgage terms. See Pinti v. Emigrant Mortg. Co., 472 Mass. 226, 33 N.E.3d 1213, 1220–21 (2015)).

Because most lenders used a standard notice that advised borrowers they could reinstate "before" the foreclosure sale, this decision gave Massachusetts homeowners a new possible defense to foreclosure.

The Massachusetts Supreme Judicial Court Decision

The lender moved for reconsideration of the decision and argued for the first time that Massachusetts law requires the notice to say (verbatim) that borrowers get the right to reinstate up to the time of the foreclosure sale. Specifically, Mass. Gen. Laws ch. 244, § 35A and its accompanying regulations require the foreclosing lender to send a notice specifying that, even after acceleration, homeowners have a legal right to "avoid foreclosure by paying the total past-due amount before a foreclosure sale takes place." 209 Code Mass. Regs. § 56.04.

So, the First Circuit withdrew its earlier decision and certified the following question to the Massachusetts Supreme Judicial Court (meaning, the Appeals Court asked the Supreme Judicial Court to answer this question):

"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 review of the certified question, the Supreme Judicial Court answered no. It said the breach letter, which allowed reinstatement up to the foreclosure sale, as opposed to the five-day limitation in paragraph 19 of the mortgage, wasn't inaccurate or deceptive in a way that would render the foreclosure sale invalid.

The Supreme Judicial Court ultimately determined that the more generous reinstatement period provided under Mass. Gen. Laws ch. 244, § 35A governed over the contractually imposed five-day time limit for reinstatement given in paragraph 19 of the mortgage. The Supreme Judicial Court stated, "the language of the mortgage itself gives notice to the plaintiffs that the five-day limitation of paragraph 19 could be extended either by the discretion of the [lender] or, as is the case here, relevant provisions of State law."

So, while in other states, the "five days prior" limitation in standard paragraph 19 might apply, in Massachusetts, this limitation is superseded by the more generous reinstatement period specified in the state statutes. Therefore, the breach letter that the borrowers received was acceptable.

The Bottom Line

While the Appeals Court's decision that the breach letter was potentially deceptive gave borrowers a new argument for challenging foreclosures in Massachusetts, the Supreme Judicial Court's determination takes away this defense.

Talk to a Lawyer

If you're facing a foreclosure in Massachusetts and want information specific to your particular situation, including whether you have any defenses to the foreclosure and details about state laws that help homeowners avoid foreclosure, consider talking to a lawyer. It's also a good idea to speak to a HUD-approved housing counselor, especially if you want to learn about different loss mitigation (foreclosure avoidance) options.

Effective date: November 25, 2020