1st Circuit says lenders need to stick to the script in foreclosure proceedings

There’s a lot of paper in front of you when you’re closing on a house, but if a lender is involved, there’s nothing more important than the mortgage. The mortgage document makes your new home collateral on the loan, sets our your payment responsibilities, and lays out what happens if you don’t comply with the mortgage requirements.

The typical mortgage includes what’s call an acceleration clause. The acceleration clause allows the lender, if you miss a payment or otherwise go into default, to request full payment of the past-due principal and interest of the loan. If can you pay, the loan can be reinstated. If you can’t, the lender may, if it complies with all relevant notice requirements, go ahead with foreclosure on the property.

Last month, in Thompson et al. v. JPMorgan Chase Bank, N.A. (1st Circuit 2019), the First Circuit reversed the district court’s granting of the lender’s motion to dismiss because the bank’s default notice letter conflicted with the mortgage’s acceleration clause. The relevant acceleration clause gave the borrowers the right to reinstate if they paid the balance due prior to 5 days before the foreclosure sale. The bank’s notice of default, however, omitted the 5 day requirement and stated that the borrowers only had to pay before the sale.

The court held that omission was potentially deceptive and that Massachusetts law requires strict compliance with the terms of the mortgage. The borrower did not need to show any harm from the deception, as prejudice is not a requirement. In sum, the court demanded nothing but complete accuracy from the lender in a foreclosure proceeding.

You can read the full opinion here.

The team at Levine Law will guide you through the closing process and make you understand what you’re signing, from the acceleration clause on down. Visit us at www.levinelawma.com.