Aurora Loan Services, LLC v. Murphy , 88 Mass. App. Ct. 726 ( 2015 )

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13-P-874 Appeals Court
AURORA LOAN SERVICES, LLC vs. WALTER MURPHY.1
No. 13-P-874.
Plymouth. November 4, 2015. - December 11, 2015.
Present: Berry, Meade, & Maldonado, JJ.
Mortgage, Foreclosure, Real estate. Real Property, Mortgage,
Sale. Sale, Real estate. Notice, Foreclosure of mortgage.
Practice, Civil, Retroactivity of judicial holding.
Retroactivity of Judicial Holding.
Summary process. Complaint filed in the Southeast Division
of the Housing Court Department on February 6, 2012.
The case was heard by Anne Kenney Chaplin, J., and a motion
for reconsideration was heard by her.
Paul R. Collier, III, for the defendant.
Shawn Michael Masterson for the plaintiff.
MEADE, J. Walter Murphy purchased his home in 2007 with a
mortgage loan from GreenPoint Mortgage Funding, Inc.
(GreenPoint). In November of 2010, Murphy received a notice
1
Also known as Walter W. Murphy.
2
from Aurora Loan Services, LLC (Aurora), notifying him that he
had defaulted on his loan. The letter also informed him of his
right to cure the default, or to assert the nonexistence of a
default or any other defense to acceleration of the loan in a
foreclosure proceeding. Acting as nominee for GreenPoint, the
Mortgage Electronic Registrations Systems, Inc. (MERS), assigned
the mortgage to Aurora on April 13, 2011. In October, 2011,
Aurora foreclosed on and purchased the property in an
extrajudicial foreclosure auction. Thereafter, Aurora commenced
a summary process action to evict Murphy.
In Housing Court, the judge determined that Aurora, as
mortgage servicer, adequately complied with the requirements
under G. L. c. 244, § 35A, as mortgagee, and granted it summary
process to recover possession of the premises. On appeal from
the judgment, Murphy claims that, pursuant to the Supreme
Judicial Court's (SJC) recent decision in Pinti v. Emigrant
Mort. Co., 472 Mass. 226 (2015), Aurora's failure to strictly
comply with the notice of foreclosure procedures contained in
Murphy's mortgage renders the subsequent foreclosure void.
Asserting that a ruling in his favor would not impair existing
property interests and doing so would apply Pinti's otherwise
prospective limitation equitably and without appearing arbitrary
and capricious, Murphy claims the Pinti ruling ought to extend
to cases pending on appeal (when the claim was raised and
3
preserved) at the time of the Pinti decision's release. We
agree and therefore reverse.
1. Background. Murphy purchased 245 Holmes Street in
Halifax on March 13, 2007, through a mortgage loan secured from
GreenPoint in the principal amount of $230,000. The mortgage
conveys a security interest in Murphy's home and explicitly sets
out the rights, powers, and obligations of the parties. Under
its terms, Murphy was the mortgagor (borrower), and GreenPoint
was the mortgagee and lender, with MERS as nominee for its
successors and assigns.
Paragraph 22 of the mortgage describes in bold print the
terms of a power of sale -- including the circumstances in which
Murphy's home could be foreclosed upon and sold at auction, the
appropriate process for doing so, and the entity with the right
to initiate and to conduct such a sale -- in the event that
Murphy defaulted under the terms of the mortgage, thereby
accelerating the loan:
"22. Acceleration; Remedies. Lender shall give notice to
Borrower prior to acceleration following Borrower's breach
of any covenant or agreement in this Security Instrument
. . . . The notice shall specify: (a) the default; (b)
the action required to cure the default; (c) a date, not
less than 30 days from the date the notice is given to
Borrower, by which the default must be cured; and (d) that
failure to cure the default on or before the date specified
in the notice may result in acceleration of the sums
secured by this Security Instrument and sale of the
Property. The notice shall further inform Borrower of the
right to reinstate after acceleration and the right to
bring a court action to assert the non-existence of a
4
default or any other defense of Borrower to acceleration
and sale. If the default is not cured on or before the
date specified in the notice, Lender at its option may
require immediate payment in full of all sums secured by
this Security Instrument without further demand and may
invoke the STATUTORY POWER OF SALE and any other remedies
permitted by Applicable Law."
In a letter dated November 4, 2010, Aurora informed Murphy
that his loan was "in default" and that it would accelerate the
loan unless he remitted the overdue balance and cured the
default by April 4, 2011. In the letter, Aurora asserted that
unless Murphy cured the default, it would take steps to
terminate his ownership in a foreclosure proceeding. The letter
also notified Murphy of his right to assert the "non-existence
of a default or any other defense" that he might have to
acceleration of the loan and sale of his property.
Nothing in the record indicates that Murphy cured the
default within the prescribed 150-day period. After this period
passed, MERS formally assigned the mortgage to Aurora on or
about April 13, 2011. On October 6, 2011, Aurora commenced
foreclosure proceedings against Murphy and subsequently recorded
a foreclosure deed through which Aurora purported to become the
title owner of the property. In a mailing dated December 16,
2011, Aurora sent Murphy a "notice to quit and vacate premises"
informing him that his rights to occupy the property would
terminate within seventy-two hours; Aurora then commenced a
summary process action to evict him.
5
In the summary process proceeding, a judge of the Housing
Court determined that Aurora established its case for possession
of the premises, plus costs. Murphy had argued that Aurora
failed to prove its superior right to possession of the premises
because (1) it did not strictly 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" as required by
G. L. c. 183, § 21, (2) Aurora failed to comply with the
provisions of G. L. c. 244, § 35A, because it was not the
assignee of the mortgage when it sent Murphy notice of his right
to cure, and (3) the notice of the right to cure itself did not
comply with either § 35A or paragraph 22 of Murphy's mortgage.
The judge found no merit to Murphy's claims and ruled that
"mortgagee" in relation to § 35A properly included Aurora as a
"mortgage servicer." In addition, the judge held that there was
"no dispute" whether Murphy received notice of his right to cure
and that disputes regarding the notice's failure strictly to
comply with paragraph 22 or § 35A were "not the types of claims
that would render the foreclosure void ab initio." The judge
further held that there was no express obligation strictly to
comply with § 35A in defining the statutory power of sale.2
2
The SJC since has resolved this legal question in U.S.
Bank Natl. Assn. v. Schumacher, 467 Mass. 421, 430-431 (2014),
which holds that § 35A is not one of the statutes relating to
the foreclosure of mortgages by exercise of the power of sale
6
Murphy further contested the notice of his right to cure as
inadequate in a motion for reconsideration. He claimed that,
because Massachusetts is a nonjudicial foreclosure State without
a mandated "foreclosure proceeding," Aurora's failure to notify
him that he would need affirmatively to bring a court action in
order to assert a defense or the nonexistence of default
deprived him of proper notice, and made the foreclosure sale
void ab initio, not merely voidable. In her order denying the
motion, the judge held that, while providing such notice is a
necessary condition precedent, the content of the notice is not.
Relying on Superior Court decisions, Murphy claimed that other
Massachusetts courts had found that parties must strictly comply
with § 35A as a statute that is part of the power of sale under
G. L. c. 183, § 21. Because the SJC had not yet decided the
relevant points governing this matter, the judge declined to
follow the trend in the Superior Court and denied Murphy's
motion for reconsideration. Murphy timely noticed an appeal
from the judgment and the order denying reconsideration.
under G. L. c. 183, § 21, because § 35A is designed to give a
mortgagor a fair opportunity to cure a mortgage before the debt
is accelerated and foreclosure proceedings begin. Therefore, "a
mere violation of § 35A" is insufficient to render a foreclosure
proceeding void; the violation must be so "fundamentally unfair"
as to entitle the mortgagor to equitable relief. Schumacher,
supra at 433 (Gants, J., concurring). Because we reverse on
alternate grounds, we need not consider here whether the notice
under § 35A was fundamentally unfair.
7
2. Discussion. On review of a jury-waived proceeding, we
accept the judge's findings of fact unless they are clearly
erroneous. See U.S. Bank Natl. Assn. v. Schumacher, 467 Mass.
421, 427 (2014). However, where the judge has not assessed
witness credibility, but instead based her findings on
documentary evidence, we may draw our own conclusions from the
record. Ibid. We examine the judge's rulings on questions of
law de novo. Ibid.On appeal, Murphy claims that Pinti, 472 Mass. at 231-244,
which holds that the failure to comply strictly with the notice
of default provisions in the mortgage renders the foreclosure
sale void, not merely voidable, ought to apply to cases pending
on appeal when that claim was raised and preserved.3 Applying
the principles governing application of new doctrines to cases
pending on appeal determined in Galiastro v. Mortgage Electronic
Registration Sys., Inc., 467 Mass. 160, 165-170 (2014), we
agree.
In Pinti, supra at 235-236, the SJC held that a notice of
default provision (nearly identical to Murphy's) in paragraph 22
3
Murphy also claims that Aurora had no right to exercise
authority as lender because it did not receive a written
assignment of the mortgage for several months after it sent the
notice of foreclosure and right to cure. In support of his
argument, Murphy claims that G. L. c. 183, § 21, confirms that
only the original mortgage holder or holder of the written
mortgage assignment may exercise the powers of foreclosure
granted under a mortgage. We need not reach the issue.
8
of the plaintiff's mortgage required strict compliance as a
necessary component of the power of sale in the mortgage and the
statutory power of sale in G. L. c. 183, § 21. The court
explained that the errant notice, which informed the defaulting
mortgagors of their right to bring a court action, did not
strictly comply with the provisions of paragraph 22 of the
mortgage because the notice did not inform the mortgagors of
their right and the need to initiate legal action to challenge
the validity of the foreclosure, a necessary step in a
nonjudicial foreclosure State like Massachusetts. Pinti, supra
at 237. Therefore, because the notice failed to strictly comply
with paragraph 22 of the mortgage, the court held the subsequent
foreclosure sale was void, not voidable. Id. at 238, 240-243.
Specifically, the court distinguished the requirements for
strict compliance with paragraph 22, the focus of Pinti, from
the less stringent notice requirements of § 35A. Id. at 239-
240. The court previously had determined that "strict or exact
compliance with all the provisions of § 35A was not a
prerequisite of a valid foreclosure" because § 35A was designed
to protect existing and new homeowners from foreclosure and loan
acceleration by providing a grace period. Id. at 239, citing
Schumacher, 467 Mass. at 430-431. Because of this distinct
purpose, § 35A is not a foreclosure sale statute within the
meaning of G. L. c. 183, § 21. Pinti, supra at 239, citing
9
Schumacher, supra at 431. Pinti explains that the "terms of the
mortgage" and a statute "relating to the foreclosure of
mortgages by the exercise of a power of sale" under G. L.
c. 183, § 21, should be understood to have separate requirements
with independent meanings that include paragraph 22 as a term of
the mortgage requiring strict or exact compliance, yet exclude
§ 35A as a statute not within the fixed set of foreclosure sale
statutes. Pinti, supra at 239, citing Schumacher, supra at 430.
As such, notice to cure a default must strictly comply with the
terms of paragraph 22 of a mortgage in order to conduct a valid
subsequent foreclosure proceeding.4
Citing a willingness to apply property law decisions
prospectively and noting the impact the case otherwise could
have on the validity of titles, the Pinti court applied the
decision prospectively. Id. at 243. Specifically, the court
stated that the case "will apply to mortgage foreclosure sales
of properties that are the subject of a mortgage containing
paragraph 22 or its equivalent and for which the notice of
4
Aurora also argues that compliance with § 35A satisfies
the notice requirements of paragraph 22 and cites to paragraph
15 of Murphy's mortgage, which provides: "If any notice
required by this Security Instrument is also required under
Applicable Law, the Applicable Law requirement will satisfy the
corresponding requirement under this Security Instrument."
Because Aurora raises this claim for the first time on appeal,
we decline to reach it. See Cariglia v. Bar Counsel, 442 Mass.
372, 379 (2004).
10
default required by paragraph 22 is sent after the date of [the
Pinti] opinion." Ibid. However, the court specifically left
open the question whether its decision should be applied to "any
other class of cases pending on appeal." Id. at 243 n.25.
This case presents the opportunity to resolve that open
question. Murphy claims that a failure to extend Pinti to this
and other pending cases (where the issue has been raised and
preserved) would unjustly deprive him of the benefit that the
similarly situated Pinti mortgagors received. See Galiastro,
467 Mass. at 167-168. We agree.
This appeal was stayed after the SJC granted direct
appellate review in Pinti on the same issue, i.e., whether
paragraph 22 requires strict compliance. "Where multiple cases
await appellate review on precisely the same question, it is
inequitable for the case chosen as a vehicle to announce the
court's holding to be singled out as the 'chance beneficiary' of
an otherwise prospective rule." Ibid. Here, Murphy should not
be "deprived of the benefit of . . . challenging the old rule,"
nor deterred from challenging existing precedent merely because
the SJC selected Pinti, and not Murphy, to announce and to
clarify the terms and statutes requiring strict compliance. Id.
at 169, quoting from Powers v. Wilkinson, 399 Mass. 650, 664
(1987) (Abrams, J., concurring in part and dissenting in part).
Applying Pinti to Murphy's appeal also comports with the SJC's
11
practice of extending prospective-only holdings to the parties
that bring the issue before the court, as well as similar
actions pending on appeal.5 See Galiastro, supra at 170. See
also Commonwealth v. Pring-Wilson, 448 Mass. 718, 736 (2007)
(applying new rule of criminal law decided in prior case to
different defendant on appeal, "even though we said in the
decision that the new rule would apply prospectively"). This
exception to the prospective-only rule for the party bringing
the doctrinal case (Pinti) and the party on appeal specifically
preserving and raising the issue (here, Murphy), helps to limit
the unevenness and inequity that might otherwise follow a
doctrinal change. See Galiastro, supra. We do not extend the
Pinti rule to cases pending in the trial court as the SJC has
already limited the new rule's application "to mortgage
foreclosure sales of properties that are the subject of a
mortgage containing paragraph 22 or its equivalent and for which
the notice of default required by paragraph 22 is sent after
[July 17, 2015,] the date of [the Pinti] opinion." Pinti, 472
Mass. at 243.
5
As in Galiastro, cases that were pending on appeal when
Pinti was released included those cases in which the case was
docketed in this court before July 17, 2015, and this court had
not yet issued a decision in the case. See Galiastro, supra at
167 n.14. Cases where we had issued a decision, and the
litigants have filed a petition for further appellate review,
will also be considered pending on appeal for purposes of the
retroactive reach of Pinti. Ibid.
12
Having decided that the requirement for strict compliance
with paragraph 22 announced in Pinti applies, we hold that
because the notice of default and the right to cure that Aurora
sent Murphy did not inform him of his need to initiate a court
action to assert his rights and defenses in a foreclosure
proceeding in a nonjudicial foreclosure State like
Massachusetts, Aurora did not strictly comply with paragraph 22,
a term of Murphy's mortgage, as required under G. L. c. 183,
§ 21. This failure to strictly comply with paragraph 22
therefore renders Aurora's foreclosure on the property void.
3. Conclusion. The motion for reconsideration should have
been allowed. The judgment is reversed and the case is remanded
for further proceedings consistent with this opinion.
So ordered.