In an appeal attracting amicus briefs from the AARP, the National Consumer Law Center, the Massachusetts Attorney General, and others, the Massachusetts Supreme Judicial Court, the state’s highest court, recently reversed in part and affirmed in part a trial court’s grant of summary judgment in favor of a mortgagee on counterclaims brought by the borrowers in summary process eviction proceedings following a non-judicial foreclosure.

In so ruling, the SJC held that in summary process eviction proceedings following a nonjudicial foreclosure:

  • A borrower may bring a counterclaim under § 15 (b)(2) of the Massachusetts Predatory Home Loan Practices Act (MPHLPA), G. L. c. 183C, but the counterclaim must be “limited to the extent of amounts required to reduce or extinguish the borrower’s liability under the high-cost home mortgage loan plus costs and reasonable attorney’s fees”; and
  • A borrower may not pursue an otherwise time-barred claim under G. L. c. 93A (UDAP) by way of a counterclaim or defense in recoupment when the mortgagee does not seek monetary damages.

A copy of the opinion in HSBC Bank USA, N.A. v. Morris is available at: Link to Opinion.

The borrowers obtained first- and second-lien mortgage loans to purchase their home in 2005. Both loans had a maturity date of Nov. 1, 2035. The borrowers stopped making payments in 2008.

The mortgagee sent right to cure and loan modification solicitation letters in 2016 and initiated the non-judicial foreclosure process in 2017. The borrowers did not respond or apply for a loan modification. In September of 2017, the mortgagee served a 72-hour notice to quit. The borrower did not vacate the property. The mortgagee filed the present summary process eviction action in October 2017.

The borrowers asserted various counterclaims and defenses in the summary process eviction action, including that the mortgagee violated the MPHLPA, “and that they were entitled to damages and injunctive relief under G. L. c. 93A.”

The parties filed cross-motions for summary judgment. The trial court granted the mortgagee’s motion. The borrowers appealed, and the intermediate appellate court again ruled in favor of the mortgagee. The SJC granted the borrowers’ application for further appellate review.

The SJC first noted that the MPHLPA — the “high-cost home mortgage loan” statute in Massachusetts — allows claims both against lenders and against assignees. The borrowers asserted one of the provisions relating to assignee liability, Section 15(b)(2).

Under § 15(b)(2) of the MPHLPA, a borrower may, “at any time during the term of a high-cost home mortgage loan, employ any defense, claim, [or] counterclaim, including a claim for a violation of [the MPHLPA]” against the assignee that the borrower could have asserted against the original lender in any one of three circumstances: (1) “after an action to collect on the home loan or foreclose on the collateral securing the home loan has been initiated,” (2) after “the debt arising from the home loan has been accelerated or the home loan has become [sixty] days in default,” or (3) “in any action to enjoin foreclosure or preserve or obtain possession of the home that secures the loan.” The borrowers asserted their claims under the third scenario, as counterclaims in the assignee’s summary process eviction proceedings.

Claims under Section 15(b)(2) are not subject to the MPHLPA’s five-year statute of limitations, but instead “must be brought ‘during the term of [the] high-cost mortgage loan.'” The assignee argued that the borrowers’ MPHLPA counterclaim was “untimely because the foreclosure sale concluded the term of the home mortgage loan and thus the [borrowers] did not bring the counterclaim ‘during the term of [the] high-cost home mortgage loan’.”

The SJC agreed that “when a property is sold at a foreclosure sale, the mortgage is extinguished.” See Bevilacqua v. Rodriguez, 460 Mass. 762, 775 (2011). The Court also agreed that “following foreclosure there is no longer a ‘mortgage loan,’ as the mortgage ceases to exist,” and therefore that the “‘term of a high-cost home mortgage loan’ has ended.”

However, the SJC also pointed out that “§ 15(b)(2) refers to the ‘term of a high-cost home mortgage loan'” and not merely “the term of the mortgage itself”. Although the mortgage lien is extinguished upon foreclosure, the borrower remains liable for any deficiency. “Any remaining deficiency may be collected through a deficiency action pursuant to the requirements of G. L. c. 244, § 17B.” In addition, § 15(b)(2) allows claims and defenses “in any action to . . . obtain possession of the home that secures the loan” and “the phrase seems to include post-foreclosure summary process actions.”

Unable to resolve the issue with reference to the statutory text alone, the SJC looked to the legislative history of the MPHLPA. The Court held that “[b]ased on this history and underlying legislative intent to enact a broadly remedial statute, . . . the ‘term of the high-cost mortgage loan’ refers to the period from the origination date to the date when the underlying indebtedness is repaid, or to the original maturity date, whichever is earlier,” in order that borrowers may avail themselves of the MPHLPA’s “expansive protections in a post-foreclosure ‘action to . . . preserve or obtain possession of the home that secures the loan’” under Section 15(b)(2).

Accordingly, the SJC held that the borrowers’ MPHLPA counterclaim was timely. However, the Court also noted that “the § 15(b)(2) counterclaim is limited to monetary damages capped at the ‘amounts required to reduce or extinguish the borrower’s liability under the high-cost home mortgage loan’ plus costs and reasonable attorney’s fees.”

As to the borrowers’ UDAP claim under G. L. c. 93A, the SJC first noted that “[o]riginating a loan that the lender should recognize at the outset the borrower is not likely to be able to repay, is an ‘unfair’ practice prohibited by G. L. c. 93A.” UDAP claims under G. L. c. 93A may be brought “by way of original complaint, counterclaim, cross-claim or third-party action, for damages and such equitable relief, including an injunction, as the court deems to be necessary and proper.” Such claims have a four-year statute of limitations. See G. L. c. 260, § 5A.

The assignee argued that the borrowers’ UDAP claim under G. L. c. 93A was untimely because it was not brought within four years of the time it accrued. The SJC noted that “an affirmative claim under G. L. c. 93A would be barred under [the four-year] statute of limitations, the four-year limitations period does not apply to preclude a party from raising a defensive counterclaim alleging a violation of G. L. c. 93A”. See G. L. c. 260, § 36.

However, the SJC also noted that “[t]o fall within G. L. c. 260, § 36, the counterclaim must be limited ‘to the extent of the plaintiff’s claim'”, as a claim in recoupment. “A successful recoupment claim by a defendant may reduce or extinguish the plaintiff’s claim, but it could not result in an affirmative recovery for the defendant.”

Here, the SJC held that “[t]he present counterclaim . . . bears no resemblance to a recoupment” because the assignee’s summary process eviction action only sought possession of the property and did not also seek “any outstanding liability under the loan.”

Therefore, the SJC held that the borrowers could not assert their otherwise untimely UDAP counterclaim under G. L. c. 93A as a claim in recoupment, as a defense to the assignee’s summary process eviction action.

Accordingly, the SJC reversed the trial court’s grant of summary judgment in favor of the assignee “insofar as it concerns the [borrowers’ M]PHLPA counterclaim,” reversed in part and affirmed in part “insofar as it concerns the c. 93A claim” and remanded for further proceedings consistent with its opinion.