A recent decision by the US Court of Appeals First Circuit has invalidated innumerable mortgage foreclosures and left many homeowners and real estate investors with major legal problems on their hands.
The court’s ruling in Thompson v. JPMorgan Chase Bank states that conflicting language in a bank’s mortgage and notices of default were “potentially deceptive” and thus invalid.
Mark and Beth Thompson defaulted on their mortgage to JPMorgan Chase Bank (“Chase”).
Chase foreclosed on the mortgage and sold the property.
After the sale the Thompsons filed a lawsuit challenging the foreclosure.
They claimed that inconsistencies between the terms of their mortgage and the default notices they received from the bank prior to foreclosure violated Massachusetts’ statutory law (M.G.L. c. 183, section 21) and caused a breach of contract between them and the bank.
Inconsistencies between the Mortgage and the Notices of Default
Paragraph 19 of the mortgage stated that if the Thompson’s defaulted on their loan they had the right to pay the amount owed and stop any foreclosure proceedings up to “five days before the sale of the Property.”
The bank sent notices to the Thompsons informing them of their default and of the bank’s intention to foreclose the mortgage.
The notices stated that the Thompson’s could “still avoid foreclosure by paying the total past-due amount before a foreclosure sale takes place.”
According to the court the terms of the mortgage and the terms of the notice of default conflicted with each other and thus rendered the notices void.
Here, the notice’s additional language–“you can still avoid foreclosure by paying the total past-due amount before a foreclosure sale takes place”–could mislead the Thompsons into thinking that they could wait until a few days before the sale to tender the required payment. Suppose the Thompsons had shown up with the payment three days before the sale believing that their tender was timely since the notice said that the tender may be made before the sale. The bank would properly have pointed out that under paragraph 19 a tender must be at least five days before the sale.
The court concluded that
Omitting the qualification (that the payment must be tendered at least five days before the foreclosure date) in our view rendered the notice potentially deceptive.
This decision could negatively affect anyone who has bought property from a bank in recent years.
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