High Court Rules on Defective Foreclosure Notice, Holding it Valid Because No Violation of State Law
Updated: Jan 22
In a long-awaited decision, the Massachusetts Supreme Judicial Court has held that though a pre-foreclosure notice was defective, it did not result in a void foreclosure. The court reasoned that an applicable foreclosure statute superseded the defective notice, rendering the violation legally insignificant. Ultimately, said the court, a foreclosure based on the defective notice was still legal.
The dispute comes from a term of the homeowner’s mortgage which says that when the property is in foreclosure, the homeowner has the right to reinstate the loan (bring it current) until “five days before the sale.”
However, Chase had sent a notice stating that the homeowner had until the date of the foreclosure sale to reinstate. The notice was sent pursuant to a state foreclosure law that gives the homeowner until the sale date, rather than until five days before the sale. Nevertheless, Chase’s notice contradicted the term of the mortgage – the mortgage said that the homeowner had until five days before the sale, while Chase’s notice said the homeowner had until the sale.
The foreclosure was then conducted.
After the foreclosure, the homeowner filed suit against Chase, arguing that Chase’s faulty notice misrepresented the terms of the mortgage, and was “misleading, potentially deceptive, and therefore should render the mortgage void.” Indeed, because foreclosure in the state is generally conducted nonjudicially (that is, without any court oversight) it was especially important that a notice be accurate.
What happened next amounted to a game of hopscotch through different levels of the court system. The case was filed in state Superior Court and was then removed to federal trial court by Chase. The federal trial court granted summary judgment for Chase, dismissing the case. The homeowner then appealed to the federal Court of Appeals, which first decided in favor of the homeowner, but then reversed itself, withdrew its own opinion, and sent the case back to the state Supreme Court for a ruling on the legal issues.
The exact issue being decided by the Supreme Court was as follows:
Did the statement in the 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 ... ?
The state Supreme Court held that the sale was valid. The reason for this was language in the mortgage itself, language that is in the mortgage of most homeowners. The mortgage said that any rights created by the terms of the mortgage were subject to any applicable law. This meant that even though the foreclosure notice was defective, the homeowner should have known that state law trumped it.
Accordingly, the court concluded that since state law requires acceptance of a reinstatement up to the foreclosure sale date (not just up to five days before, as the notice said), there was nothing wrong with the notice. The court wrote as follows:
Because that statute and its enabling regulations obligate [Chase] to accept a reinstatement payment at any time prior to a foreclosure sale, just as the notice stated, the notice sent by Chase was neither deceptive nor misleading.
That said, the court then went on to emphasize that although there was no violation, long-standing precedent still requires that the terms of the actual power of sale in the mortgage, with any conditions precedent to the exercise of the power of sale, must be strictly complied with.
The court thus did not entirely disregard the requirements that a foreclosing bank must comply with, but rather singled out this issue as one that does not mandate strict compliance because state statute supersedes it.
For instance, if a foreclosure sale is advertised in the incorrect county, it may be held void. And, if certain other foreclosure law requirements are not complied with, a foreclosure also may be voided.
Consumer advocates have been awaiting this decision for many months, and though the decision was not favorable to this particular homeowner, it clarifies other areas of foreclosure law that can be applied to help homeowners facing foreclosure.
As with any high court decision, it is sure to be a catalyst for further disputes across the country. Many other states have used the decisions of the Massachusetts Supreme Judicial Court in making decisions about their own state foreclosure laws. Other states such as North Carolina also permit non-judicial foreclosure, and the decision may be instructive to other courts.
The decision is here: Thompson v. JPMorgan Chase
DYE CULIK PC is a consumer protection law firm based in Boston, MA and Charlotte, NC. Our attorneys help homeowners and small business protect their rights against banks, financial institutions, mortgage servicers, and debt collectors. We have been helping to fight back against these companies for over a decade. If you are having an issue with a foreclosure, loan modification, or other issue related to your mortgage, contact us to see how we can help.