Published on: April 18, 2019

In Property Acquisition Group, LLC v. Ivester, 17-P-1518 (April 18, 2019), the Massachusetts Appeals Court has provided what appears to be another avenue for property owners to challenge non-judicial foreclosure sales.

In 2003, the Ivesters purchased a single-family home located on 4.57 acres of land in Lynnfield, MA for $399,000.  In 2013, the owners admittedly defaulted on a $302,000 mortgage they obtained in 2006.  Federal National Mortgage Association (“Fannie Mae”) was the assignee of the mortgage and commenced foreclosure under the power of sale in 2015.  There is no dispute that Fannie Mae complied with all notice and publication requirements of G.L. c. 244.

At the foreclosure auction, Property Acquisition Group, LLC (“PAC”) submitted a high bid of $355,000, only $6,900 less than the town’s assessed tax value for the property.  Fannie Mae conveyed title to PAG and PAG subsequently brought a summary process action in the Housing Court for possession.  The Ivesters disputed the action for possession by PAG and commenced a simultaneous Superior Court action against Fannie Mae, alleging that the foreclosure was invalid because Fannie Mae failed to protect their interests in selling the property for an inadequate price.

The Ivesters’ claim of inadequate price was based on allegations that the property was suitable for redevelopment into between two to four buildable lots.  An expert appraisal provided by the Ivesters suggested property value as vacant, buildable land of approximately $975,000.

Fannie Mae acknowledged that it had not considered the value of alternative uses for the property, had not obtained its own appraisal of the property, and had not even reviewed the town’s assessed value in preparation for the foreclosure sale, but nevertheless met its duty of good faith and reasonable diligence by complying with the notice and publication terms of G.L. c. 244 and obtaining a third party price that was 98% of assessed value.

The Superior Court granted Fannie Mae’s motion for summary judgment and the Housing Court awarded judgment for possession to PAG.  The Ivesters appealed both decisions, which the Appeals Court consolidated into a single appeal.

The Appeals Court reiterated the Massachusetts standard that “a mortgagee attempting to execute a power of sale contained in a mortgage must exercise good faith and use reasonable diligence to protect the interests of the mortgagor or of the one holding the title to the equity of redemption.”  Krassin v. Moskowitz, 275 Mass. 80, 82 (1931).  Here, the Appeals Court found that the record on summary judgment, which had to be construed in the manner most favorable to the Ivesters, suggested that Fannie Mae had performed no diligence in trying to ascertain the price of the property value prior to foreclosure—no appraisal, no review of assessed value and no consideration of other alternatives—which was not consistent with what a reasonable seller would have done.  That the sale price was close to the assessed value was a matter of pure coincidence.

As a result, the Appeals Court vacated the summary judgment decision for Fannie Mae and remanded the matter back to the Superior Court for further development of the record in regard to Fannie Mae’s compliance with its duty of good faith and reasonable diligence.  However, because the issue of the sufficiency of the price related to Fannie Mae’s duty to the Ivesters and not to the technical execution of the power of sale, the foreclosure was not deemed void.  The Appeals Court upheld PAG’s superior claim to title and confirmed judgment for possession for PAG.  If the Superior Court ultimately found Fannie Mae in breach of its duty to the Ivesters, their claims could be fully redressed by a money judgment.

The takeaway here for our condominium and mortgagee clients is that strict compliance with the formalities of the foreclosure are not enough.  Reasonable diligence is required to ensure a fair for the property owner whose interests are being foreclosed.   While that may not necessarily require consideration of the value of alternative uses for the property, at the very least it appears to require some effort to determine value in anticipation of the foreclosure sale.

If you have any doubts or concerns about whether you are meeting your duty of reasonable diligence in your foreclosure matters, please contact one of our experienced attorneys to help guide you through that process.

For a copy of the Decisions please [click here].