Lessons to Learn About Mortgage Lawsuits from First Circuit Decision
Many important principles of mortgage and foreclosure law are dealt with in a recent case from the First Circuit Court of Appeals, the federal appeals court covering Massachusetts.
The case started when the homeowners sued the alleged owner of their mortgage, U.S. Bank, after they had fallen behind on their payments, and the bank initiated foreclosure. They sought an injunction to restrain foreclosure, as well as damages for a number of alleged violations.
The court made several holdings worth reviewing. Most of these – related to the U.S. Bank’s right to foreclose under Massachusetts law– were not favorable to the homeowner. One holding, however, did hold that the bank was not entitled to collect a deficiency judgment.
First, the homeowners argued that the indorsement of their note was improper and prohibited U.S. Bank from foreclosing. The indorsement did not state the full name of the investment trust on whose behalf U.S. Bank administered the mortgage. The court rejected this argument, holding that as long as U.S. Bank was identified (even if the trust wasn’t), the indorsement of the note was sufficient.
Second, the homeowners argued that Paragraph 22 of their mortgage was breached because U.S. Bank failed to provide an accounting of the amount they owed for their mortgage. In most mortgages, Paragraph 22 contains various pre-foreclosure requirements needed before a sale can be scheduled. In this case, though, the homeowners’ mortgage did not state that U.S. Bank had to provide an accounting, so the court rejected this argument, as well.
Third, the homeowners alleged that U.S. Bank violated the duty of good faith and fair dealing. Nothing U.S. Bank did, however, violated any specific terms of the mortgage, and so the court rejected this argument.
Fourth, the homeowners claimed that U.S. Bank committed negligent and intentional infliction of emotional distress. The homeowners’ allegations, however, were not sufficient to meet the standard for emotional distress. To meet this standard, a defendant must do something that “goes beyond all possible bounds of decency, and is regarded as atrocious, and utterly intolerable in a civilized community.”
Fifth, the homeowners alleged that the bank’s property inspections were unreasonable and constituted trespassing. The mortgage, however, permitted reasonable inspections, and as the inspections occurred only about once per month, the judge held that the inspections were reasonable as a matter of law.
Sixth and finally, the homeowners did prevail on one claim. Under Massachusetts law, a bank can seek what is called a “deficiency” after a foreclosure sale. This is the difference between what the property sold for and any amounts that are still owed after the sale. In this case, though, the bank did not sign the required affidavit within 30 days after the sale. Accordingly, the bank could not collect the deficiency.
The decision raises a whole host of issues, and even those that the homeowners lost on may be instructive for other homeowners dealing with similar issues. Even negative decisions tell us what types of mortgage lawsuits might or might not be successful. In this case, it makes clear what a bank has to do to properly hold the mortgage note, to conduct reasonable property inspections, or to collect a deficiency judgment.
The decision is here: Galvin v. U.S. Bank
Culik Law has handled numerous cases dealing with mortgage foreclosures and illegal mortgage servicing. If you are struggling with your mortgage servicer or bank, contact us to see if we can help.