The Massachusetts Supreme Judicial Court recently ruled that the Massachusetts right-to-cure statute, Chapter 244, Section 35A of the General Laws of Massachusetts (“Section 35A”) is not part of the foreclosure process. In its March 14 decision, the court held that the notice and right-to-cure requirements under Section 35A are instead pre-foreclosure undertakings that, when satisfied, may eliminate a default and preclude the initiation of foreclosure proceedings. The case involved a default on a home mortgage loan in which the borrower was sent a right-to-cure notice under Section 35A and failed to cure the default. After a foreclosure sale, the foreclosing lender brought a summary process action to evict the borrower. The borrower argued that the Section 35A notice he received from the mortgage servicer prior to the foreclosure, informing him of his right to cure, failed to correctly state the mortgagee of record and that, as a result, the foreclosing lender was not entitled to possession of the property because the foreclosure was not done in strict compliance with the power of sale provided in the mortgage, thereby rendering the foreclosure void. Chapter 183, Section 21, of the General Laws of Massachusetts provides that, before a mortgagee may sell mortgaged premises by public auction after a default, the mortgagee first must comply “with the terms of the mortgage and with the statutes relating to the foreclosure of mortgages by the exercise of a power of sale.” The court noted, however, that Section 35A “is designed to give a mortgagor a fair opportunity to cure a default before the debt is accelerated and before the foreclosure process is commenced” (emphasis added). As a result, the court held that Section 35A “is not one of the statutes ‘relating to the foreclosure of mortgages by the exercise of a power of sale’” referenced in Chapter 183, Section 21.
Nutter Notes: Chapter 35A and its implementing regulations at 209 C.M.R. 56.00 provide a process for lenders and servicers to inform a borrower of a mortgage default and to disclose repayment options in order to prevent a foreclosure. The law was amended by Chapter 194 of the Acts of 2012 to also require a mortgage lender to determine whether the value to the lender of modifying a mortgage loan of any of certain specified types would likely outweigh the value to the lender of foreclosure and, if so, the lender must make the loan modification. The court noted that the proper avenue by which a homeowner can challenge a mortgagee’s compliance with Section 35A is either filing an independent equity action in the Massachusetts Superior Court, or asserting counterclaims pertaining to Section 35A in response to the mortgagee’s postforeclosure summary process action in the Housing Court. While the foreclosing lender in this case was successful, the concurring opinion of one of the justices suggests that the borrower may yet have another option to block the foreclosure. In that concurring opinion, the justice referred to another recent Supreme Judicial Court decision in which the court acknowledged that a homeowner could defeat an eviction proceeding to the extent the homeowner is able to “prove that the violation of [Section 35A] rendered the foreclosure so fundamentally unfair that [the homeowner] is entitled to affirmative equitable relief, specifically the setting aside of the foreclosure sale ‘for reasons other than failure to comply strictly with the power of sale provided in the mortgage.’” It remains to be seen how the lower courts will apply this “fundamentally unfair” standard.