Lender beware – recent appellate district court case finds that premature default notice voids foreclosure

A recent Northern District Appellate Court case (Federal Home Loan Mortgage Corporation v. LaPorta) provided a disconcerting decision for lenders regarding a recent foreclosure. The court found that since Wells Fargo provided notice of default, acceleration of the loan and right to cure to the homeowner prior to formally being assigned the mortgage (even though Wells Fargo was servicing the loan at the time of the notice) such notice was defective resulting in an invalid foreclosure and subsequent sale. The Court cited Massachusetts General Law Chapter 183, Section 21, which sets preconditions for foreclosure sales, ruling that a mortgagee may invoke the statutory power of sale only by first complying with the terms of the mortgage. As a result of Wells Fargo not actually being assigned the mortgage until four months after providing notice, it failed to comply with Paragraph 22 of the mortgage and thus could not exercise the statutory power of sale, the panel decided.
Although the Federal Home Loan Mortgage Corporation v. LaPorta decision is only a District Court Appellate Division case, oral arguments were presented to the Supreme Judicial Court in January in a case Pinti v. Emigrant Mortgage Company, Inc., that also challenges the validity of a foreclosure sale in which the bank did not comply with notice and right-to-cure provisions contained in the mortgage. If the within case is a foreshadowing of the SJC decision to come in Pinti the foreclosure bar could have another sword to avoid. Stay tuned.
Attorney Harold F. Moody, Jr.