1st Circuit Court of Appeals Finds Foreclosure Sale Not Rendered Void by Statutory Violations or Breach of Mortgage Instrument

The U.S. Court of Appeals for the First Circuit recently rejected arguments that a foreclosure sale was rendered void by the defendants’ violations of certain Massachusetts statutes, or by defendants’ violation of a section of the mortgage instrument.

As background, the plaintiffs refinanced their mortgage for a home in Massachusetts in 2007, and defaulted on their obligations under that loan in 2008.  They applied for a loan modification in 2012, which was denied.  The property was foreclosed upon and sold at the foreclosure sale.

The plaintiffs first argued that the foreclosure sale was void because the defendants violated a Massachusetts statute requiring notice to the municipal tax-collector within 30 days of the foreclosure sale.  The First Circuit found an unpublished Massachusetts Appeals Court case persuasive, which had held that a mortgagee’s failure to provide the required notice under the statute at issue did not render the foreclosure sale void under Massachusetts law.

The plaintiffs further argued that the foreclosure sale was void because of the defendants’ violation of another Massachusetts statute, which provides a mortgagor with 90 days to cure a payment default prior to foreclosure proceedings.  However, the First Circuit noted that the Massachusetts Supreme Judicial Court has explicitly held that a violation of this statute does not render a foreclosure sale void.

An argument that the sale was void because it violated a section of the mortgage instrument was equally unsuccessful because, while the Massachusetts Supreme Judicial Court has held that a violation of an identical provision voided a foreclosure sale, the Court expressly provided that the ruling was prospective only, and the foreclosure sale at issue took place prior to the decision.

The First Circuit also upheld the district court’s dismissal of claims to quiet title, for breach of the duty of good faith and reasonable diligence, and various statutory consumer protection claims.

The case is Flores v. Onewest Bank, F.S.B., and it is available here.