-: S-J-C- one, two, seven, nine, eight.
Mark R. Thompson and another V J.P. Morgan Chase Bank, N-A.
(papers shuffling)
-: Mr. Shonefield, good morning.
-: Morning, Your Honor (clearing throat).
Mr. Chief Justice, may it please the court.
As this court explained in Pinti, in order to exercise
the power of sale and non-judicially foreclose
a lender must strictly comply with the notice requirements
of Paragraph 22 in the standard G-S-E mortgage.
Paragraph 22 requires a lender to notify a borrower
in default that she has the right to reinstate her loan
after acceleration; Chase did that here.
They told the Thompson's using the precise words
of Paragraph 22, that they had the right
to reinstate the loan after acceleration.
Chase provided accurate notice, required by Paragraph 22
and so did everything this Court
has required to exercise the power of sale.
That's the critical distinction between this case
and Pinti and it should end the Court's analysis.
In Pinti...
-: May I ask you questions since I'm a simple soul?
American Bankers Association Amicus says,
"This isn't so complicated,
there is a (mumbles) regulation, which obliges
the lender to send this particular notice."
Which tells the borrower that you can still avoid
foreclosure by paying the total past due amount
before foreclosure sale takes place.
The total due past amount is set forth in that notice.
Does that not mean that applicable law
says that if that person
hands over the past due amount before foreclosure,
the bank is obligated under applicable law to accept it?
-: I think that's exactly right and certainly that's Chase's
practice here and as reflected in other Amicus briefs,
that's the practice industry wide.
If someone is prepared to tender the amount to reinstate
a loan, the lender has no reason to foreclose on the home.
-: We're talking about whether not has reason,
I'm saying that, the applicable law would obligate you,
you are arguing that, "Oh, you're good fellows
and you would as a matter of grace, do it."
The American Bank Association at least, as I read it says,
it's not a matter of grace, under applicable law
you have told the lender, pursuant to this required notice
that he or she may do it and if he or she doesn't,
then foreclosure is avoided and therefore applicable law
obliges you to do it.
-: And I don't disagree with that.
And I think my only point is that practice
is consistent with it.
It's not like there are reports of lenders
evading the obligation as reflected in the 5604 notice.
This is industry-wide practice and so however the Court
wants to reach the conclusion that this wasn't inaccurate
or deceptive, if it agrees that that's the legal standard
and I dispute that it is.
There's nothing deceptive about telling someone
that they have a right, that they in fact have.
-: So if we've declared that their applicable law
is that, you can hand over the money before foreclosure
and that will forgive you, that will not forgive you
but that will mean that the foreclosure will not happen
then there is no deception in the notice because the notice
is a reflection of what in fact, applicable law requires.
Shonefield: I think that's...
-: Even though it's more than what the contract,
the mortgage provides.
-: I don't think it's necessarily more than what the mortgage
provides, so I agree with the premise of your question...
-: The mortgage may allow you to do it...
Shonefield: Exactly.
-: But applicable law would oblige you to do it,
require you to do it.
-: That's precisely right, Your Honor.
I do think however, just to take a step back
to the legal question.
The way the First Circuit Panel interpreted this Court's
decision in Pinti, there's a broad prohibition
on saying anything that's inaccurate or deceptive
in your foreclosure-related notices notwithstanding...
-: Is the disconnect in the five days window?
-: I'm not sure I understand the question.
-: Disconnect between the regulation and the mortgage?
-: Yeah, I think that's exactly right!
What the First Circuit perceived to be intention
was the disclosure in the five day notice.
That says, "That you can still avoid foreclosure
by paying the total past due amount before foreclosure
sale takes place, and you're right under 19,
Paragraph 19 of the mortgage to reinstate your loan
up until the earliest of the five days before."
Paragraph 12 of the mortgage and I think this
was what Chief Justice Gants was alluding to,
does allow the lender to extend the time for repayment.
And as a matter of practice, Chase
and other lenders do in fact do that.
But to return to the question of Pinti
because on a certified question to this Court,
I think it's implicit in the First Circuit's ruling
that there's at least a lack of clarity on this question.
Pinti requires that a lender before exercising the power
of sale, make required and accurate disclosures.
And I think there's no dispute in this case
that what Chase provided, pursuant to Paragraph 22,
was both required and accurate.
It was required to disclose the existence of the right
to reinstate and I think it's important in this connection
to make two observations.
The first one is: the right to reinstate, is in fact
conditional as Paragraph 19 makes clear.
There are conditions imposed on it.
Paragraph 22 nonetheless, requires you to tell them
that they have the right to reinstate.
So Chase did that here.
They told them that they have the right to reinstate
notwithstanding that there were certain conditions on that.
And I think the other thing to observe
in this connection is...
-: If you don't want to accept or if you're reluctant
to accept the notion that you were obligated
as a matter of law to accept it and we're stuck
with you wanna pursue the Pinti argument.
Doesn't notice of the right to reinstate also require
that it be an accurate reflection of the right to reinstate?
Which the notice was not.
-: So to be clear, I'm very happy to live with the first...
-: (exhales) You have a peer if you win
on that ground as opposed to winning...
Shonefield: Yeah, on that grounds.
But with respect to your question, I dispute the premise
in the following two ways: the first one is, Paragraph 22
requires you to disclose the existence
of the right to reinstate notwithstanding the existence
of conditions on that right to reinstate in Paragraph 19 .
I would contrast the detail in Paragraph 22
on the notice of the right to cure.
If you look at the first sentence of Paragraph 22,
it lists certain things you need to include
in the right to cure.
The amount of the default,
the existence of default, the date.
Later in Paragraph 22, all it says is,
"You need to disclose the right to reinstate."
Notwithstanding that there are conditions on the right
to reinstate that aren't subject to any notice requirement,
they're just listed in Paragraph 19.
What Pinti and what the strict compliance regime
require you to do is to disclose the information
that's required by Paragraph 22.
Telling a customer that they have the right to reinstate,
when a customer is obligated to read a contract
and understand that there are conditions on it,
obligates them to look elsewhere
for the conditions on the right to reinstate.
The state-mandated notice that Chase is obligated to provide
doesn't undermine your right to reinstate in any way,
it states a true condition that you can reinstate
up until the date of the foreclosure.
-: The problem I have with your argument is that okay,
your notice says you have the right to reinstate
and then it goes on to say, and you can reinstate it
by say
giving the
lender
a dollar
on the morning
of foreclosure and that will suffice when in fact,
that's just plain wrong.
-: So I think there are circumstances where notwithstanding
having disclosed the right to reinstate under Paragraph 22,
you could make a separate disclosure that vitiates
your compliance with Paragraph 22.
That's not what happened here.
-: Isn't that effectively what the First Circuit
effectively found, is that you basically,
is that the notice, which again you're obliged to give
by the Department of Banks,
basically says you can on the morning of foreclosure say,
"Here's the past amount due," and that is enough to avoid
foreclosure, when in fact you could say, "Sorry, you should
have done this five days ago, when in fact you have not."
Doesn't that undercut the purpose behind giving
of the notice if we allow the notice
to be potentially deceptive?
-: I don't think potentially deceptive
is the standard and again, I'm not disputing
the initial premise of your question.
I don't think the standard is potentially deceptive.
The Court has never held that
in the context of a Section 21 case.
Focusing on the strict compliance regime...
-: Before you leave that point,
you've read the Abstract Club's Brief, Amicus Brief right?
-: Correct.
-: And they say, "Okay, let's not
let's not confuse things
anymore than they already are.
What's required by Pinti is Paragraph 22
and that was done here, end of story."
Should that, I mean this is a group that deals
with this as a societal-wide problem, should we stick with,
is that brief...
-: Absolutely!
And that's what I was about to say is,
section 21 strict compliance regime,
this Court and all of its decisions dealing
with this strict compliance regime
has been exquisitely attentive to the implications
of these rules on bonafide third-party purchasers,
the title industry and anyone
who has an interest in real property.
And part of the issue that this Court has focused on
is the administrability of a rule
that requires strict compliance.
Requiring, and this was part of the discussion
between the majority and the descedent Pinti,
requiring that someone comply with the terms
of Paragraph 22, a party could discern that
from the face of records that are recorded
if they look at the notice and the terms of Paragraph 22.
It's easy enough to look at those two things side by side
and say this was compliant, therefore the mortgage
is not subject to a voidness challenge later on.
Saying that there's a potentially deceptive standard
that is broad-reaching and as the First Circuit
articulated it, requires you to abstain from saying anything
that could potentially be deceptive or inaccurate.
Not tethered to any matter that's related to the exercise
of the power of sale, but anything.
There's no way for someone looking at records
that are recorded with a County Assessor's office
to figure out whether there's anything
potentially deceptive.
So the strict compliance regime makes sense
in order to ensure that parties that are non-judicially
going to foreclose are actually complying
with their obligations, both statutory
and contractual but it has limits.
And I think the limits are attentive to the needs
of third party, bonafide purchasers and the real risks
that the regime imposes on them
when they've taken a property in good faith.
And also requires some attention
to how administrable the rule is.
Can you figure out by looking at the face of documents
whether this has been complied with or not?
And I think again, to go back to the Pinti rule
the issue in Pinti is that what Emigrant told the borrower
was the exact opposite of what Paragraph 22 required.
Paragraph 22 required the lender to tell you
that you have the right to bring an action
to challenge your default.
And what the disclosure at issue in Pinti
said was, you have the right not to do that.
You can lay in wait and you could assert this as a defense.
There's never going to be an opportunity to do that
because this is a non-judicial foreclosure.
And so the right that was required to be disclosed
in Paragraph 22 was never disclosed in Pinti.
And to give another example in Merrigan,
the right that was required to be disclosed in Merrigan
was the right that's at issue here, the right to reinstate.
And this Court held that telling someone
contrary to Paragraph 22, which says you do have the right
to reinstate that you may have the right to reinstate
simply misstates that right, and that's why the Court
in Merrigan agreed that that was a violation
of Paragraph 22; that's not what happened here.
-: But it's not, I'm mean from the point of view
of the Abstract Club, all that the First Circuit
effectively said was that Paragraph 22 says you have a right
to reinstate, Paragraph 19 says, here's how you reinstate.
And if you were to going to mischaracterize
how you can reinstate that could be a violation of Pinti.
But the people reviewing it would have Paragraph 22
and Paragraph 19 and the notice, so all that would be
required is they would need to look, not only at the fact
that you have a right to reinstate
but also to make sure that the manner
in which you reinstate is also accurately reflected.
-: I think that's correct but number one, Paragraph 19
as even the First Circuit agreed, doesn't require notice.
I mean Paragraph 19 is a substantive enumeration
of the conditions for exercise of the right to reinstate.
And again I just remind the Court, that Paragraph 22
doesn't require any enumeration of those conditions.
It says you have the right to reinstate.
Paragraph 22 does require the enumeration of conditions
to cure the default and that is a meaningful distinction
particularly in a strict compliance regime.
Again, I do think, to go to Justice Kafker's point,
you want to be able to have a regime in which bonafide,
third party purchasers all the way down the line
are able to figure out, looking at recorded documents
whether there's been compliance here.
And their focus is going to be on Paragraph,
in light of Pinti, their focus is going to be on Paragraph
22, what Paragraph 22 and the given mortgage says
and again the G-S-E mortgages used in something
upwards of 70% or 90% of those mortgages
and you want to be able to compare the notice
to Paragraph 22.
With respect to the G-S-E mortgage
and their proliferate use in this state,
I would just go back to Chief Justice Gants' first point.
This is a D-O-B promulgated notice and certainly D-O-B
didn't view there to be any inconsistency
or anything potentially deceptive about requiring lenders
to make this disclosure in view of the G-S-E mortgage,
which as a form matter, includes this provision
saying that you have up until five days
or the earliest of applicable law.
And so I think the two notices, there's no inconsistency
that a reasonable borrower would perceive between them,
looking at the mortgage and looking at all of the terms
of the mortgage, or looking at the notice
and then looking at all of the terms of the mortgage.
-: Well there is a difference unless you accept the view
that applicable law requires you to accept it upon payment.
-: Certainly or as a matter of practice.
The fact of the matter is that no one
is no one's ever going to be potentially deceived
in a way that harms them because they are always going to
have the ability to reinstate the mortgage
up until the date of sale.
And whether that's as a function of the applicable law
provision or as a matter of practice,
I don't think makes a difference here.
Because again, in order for someone to be deceived
or even potentially be deceived there needs to be something
that redoubts to their detriment
and there's nothing in the record to suggest that that's so.
-: Okay, thank you.
Shonefield: Thank you, Your Honor.
(papers rustling)
-: Mr., is it Dion or Dion?
-: Dion, Your Honor, thank you.
Gants: Dion, good morning.
-: May is please the Court, attorney Todd Dion
on behalf of the appellee.
The Honorable Chief Justice and Honorable Associate Justices
of the Supreme Judicial Court of Commonwealth of
Massachusetts, good morning.
It is an honor to present this case before this honorable
court today, as not only have I been reading the same
Paragraph within the same mortgage for the last five years,
-: (Judge chuckling)
-: but I've also been reading...
Gants: Groundhog Day
and closely following the words and interpretations
of this honorable court regarding that one Paragraph
for the last five years as well.
While there are many jurisdictions in the United States
that have followed the tenet that a mortgagee
must strictly comply with the terms of this mortgage
from the Supreme Court of Alabama, to the Supreme Court
of Hawaii and many jurisdictions in between including
Illinois, Minnesota and Rhode Island,
it is this honorable court that has, I must say led the way
and is ahead of these other jurisdictions
regarding the application and the meaning
of strict compliance as it specifically relates
to Paragraph 22 of this mortgage.
Therefore, I respectfully look to this honorable court's
guidance regarding this unique and esoteric issue
under Massachusetts law and perhaps further explain
the meaning of strict compliance
with the terms of this mortgage.
The words of this Court in the landmark Pinti case
indicated that the standard of strict compliance
demands that a Paragraph 22 notice must not potentially
mislead a homeowner into sitting on his or her
unequivocal rights under the terms of the mortgage,
otherwise it's just a a mere irregularity, was the word
of the Chase decision that was cited by the Pinti case.
So the notice must not contain inaccurate statements
and the inaccurate statements
must not be just a mere irregularity.
Now, while Chase argues that avoiding the potential
to mislead is not a specific element of the Massachusetts
statutory power of sale, it is certainly a requirement
of the standard of strict compliance that any variation
from or additional language in the Paragraph 22 notice
not conflict with an unequivocal right
outlined in Paragraph 22 that could lead
to the disastrous consequence of foreclosure.
-: Let me ask you the question, I asked your brother.
If we were to say that the Department of Banks
requires this notice to be sent and requires that it
be sent in precisely the language
established in the regulation, and that language declares
that quote, "You could still avoid foreclosure
by paying the total past due amount
before foreclosure sale takes place."
And if we say, well that is now the law of Massachusetts
pursuant to this regulation, where is there any deception?
Where is there any risk of a disaster because indeed
they would be obligated to accept that money
and you could avoid foreclosure if you were to do that,
despite what the mortgage may say.
-: Well your Honor, first of all, that language
is not required to be in a Paragraph 22 notice,
it's required to be in a 35A notice,
which this Court has been clear, that these are two separate
types of notices with different requirements
and definitely different consequences for non-compliance.
I don't think the language in the regulation
is strong enough to extend an unequivocal right
to reinstate the mortgage until the foreclosure sale.
Which I would argue they can't do anyway.
How were they going to provide a right...
-: Who's the "you can't", who's the 'you'
in "you can't do it" or "they can't do it?"
-: Well, (chuckling) Chase can not extend a right
to reinstate and pay less than the accelerated amount
to any time before the foreclosure sale
because the whole purpose of foreclosure
to begin with is to collect the entire accelerated amount.
If they were to say, "Well the homeowner has a right
to pay less than the accelerated amount at any time
before the foreclosure", I think that would defeat
the purpose of accelerating the loan to begin with.
-: Okay, so what do we do with the fact
the Department of Banks requires them to send this letter
and requires them to send this letter
with the language that they use?
-: Well, it doesn't require them to send it
in a Paragraph 22 letter.
Chase elected to draft this
so called, hybrid 35A,
Paragraph 22 letter and when they did that,
they bore the risk of
it being evaluated
under a standard of strict compliance.
And with that being said, they could have looked
at the notice and say, "Well, this language conflicts
with the unequivocal right or deadline
to reinstate the mortgage pursuant to Paragraph 19
and add a few sentences to fix the problem.
In fact, especially in light of the fact
that I believe there has to be a deadline
on the right to reinstate otherwise the loan
can not be fully accelerated and they can't foreclose
on the entire accelerated amount
rather than some partial reinstatement amount.
-: But doesn't
Section 5604
require them to use,
to give this precise notice?
-: It does require them to give the notice in a 35A letter.
-: Well that's not accurate.
We don't plan to give it.
Would the Department of Banks not be unhappy with them?
-: Well, it's not their choice.
I'm sorry Your Honor.
-: It says, "A mortgagee must provide a 90-day right to cure
a notice that borrower in accordance at least 90 days...
And I think it says it has to use exactly what the language
that has to give this notice, right?
-: They don't have a choice to include that language
in a 35A letter, correct.
However, they did have a choice right below that sentence,
there is a fill in the blank section,
where they have to input the total amount due
and a date by which that may be paid
to avoid eviction and foreclosure.
At that point, they chose rather than distinguish
between the possibilities of what total past due amount
could mean, they chose to input the pre-acceleration
default amount and they chose to also the five-day
limitation on the mortgage, they didn't comply
with that when they filled in the date as well.
So that was their choice to fill in those blanks
and they inaccurately filled in those blanks
in light of the language of Paragraph 19.
-: And if your client had paid that amount,
even though it might have been less
than otherwise required by the mortgage,
are you saying they could still have foreclosed?
-: They no longer have a right to reinstate
after acceleration, so Chase very well could have said,
"Sorry, this is not the full accelerated amount
pursuant to the terms of your mortgage."
That language in the regulation,
it doesn't even mention a right
to reinstate after acceleration.
It doesn't, furthermore it says
the homeowner can avoid foreclosure
by paying the total past due amount.
That's not specific enough.
I mean they can, I can proclaim that I can walk down
Commonwealth Avenue today
but that doesn't mean that I have to.
Just like Chase can proclaim...
-: It also says, on the first page of it,
"You must pay the past due amount of,"
and you fill in the payable amount.
So the payable amount is included in this notice.
-: Yes and it is the pre-acceleration, default amount
that was filled in which I believe is also misleading
because it's not acknowledging that that amount
could change dramatically
after
the supposive acceleration
and definitely within five days of the sale
when the entire amount is due.
I mean it's a difference of hundreds of thousands.
So I do believe that they should have looked at this notice
and figured out since this is being examined
under a standard of strict compliance
we should acknowledge the terms of the mortgage
which dramatically change the balance.
-: In your view, any of these kinds of mathematical errors
would also be Pinti violations?
I'm just trying to get a sense of what,
again I'm concerned that Pinti is setting up,
it's requiring strict compliance with something
but it seems like you're trying to sweep in a lot more
and that raises all kinds of concerns,
given that this is standard verbiage
in an industry which we've already unsettled
a couple of times.
-: If they were going to, if Chase...
-: But to your question, any mathematical errors
are now Pinti violations too, in your view?
-: No, any false statements.
This is a false statement to say that they can accept less
than the accelerated amount any time before the foreclosure
sale because they have to accelerate the whole amount.
They're not gonna foreclose on half of a mortgage,
they need to foreclose...
-: So, if they get $10 wrong,
that's also going to be a Pinti violation?
-: If if puts the homeowner in a position...
-: They say the homeowner owns $247,000.33
and it's actually 68 cents.
Are we gonna, is that also a Pinti violation now?
-: Well, if it could lead them to the disastrous consequence
of foreclosure because it's inaccurate, then, yes.
-: Isn't that a problem?
If that's what Pinti meant, we better fix Pinti.
-: Well the homeowner has a right...
-: Gotta be some substance to it as opposed to
you know, technical
compliance, it doesn't make any difference.
Pinti's gotta have a meaningful parameter, doesn't it?
-: Yes it does.
And I believe in this case...
-: But in your case, it's any, anything inaccurate
is a Pinti violation.
-: It's not just an inaccuracy.
It also involves and unequivocal right
that guarantees the homeowner
a right to challenge the foreclosure.
Before five days, before the sale
they're guaranteed a right to reinstate the mortgage.
So if Chase says, "No, we're not gonna reinstate
the mortgage," they can void the foreclosure.
After five days, they no longer have that right
and I believe it's an important right
that must be paid attention to.
If after five days, if Chase refuses,
they have no more recourse.
They can't void the foreclosure if Chase refuses to accept
less than the accelerated amount
which the way I'm looking at the language
of this mortgage, they very well can.
So that puts the homeowner in a bad position.
Also, I would argue, I mentioned the language below,
the language in question where they were input the total
past due amount and the date,
35A itself
requires
a statement
in the notice
that they have a right
to redeem the mortgage and a date
by which the past due amount should be paid.
I think that's inaccurate as well
because they're not acknowledging the Paragraph 19
conditions of the mortgage, the five days
and that they have a right to reinstate
the mortgage prior to five days.
-: A problem I have with your theory
is that if the mortgage says they don't need to collect,
you gotta pay the amount due five days
before the foreclosure.
And the bank sends a notice that says you can pay it
anytime before foreclosure
and the bank indeed will accept
that at any time before foreclosure, why is that deceptive?
It's a departure from the mortgage but it's a departure
to the disadvantage of the lender and
under your theory,
anytime the lender would could a break in the notice
and give more time to the borrower,
that would be a Pinti violation.
-: Well there has to be a deadline on the right to reinstate
otherwise there is not a true acceleration.
So, I don't care if it's five days or five seconds
before the foreclosure, at some point they have to say,
"Okay, we are demanding the full accelerated amount,"
without allowing the homeowner a right
to pay less than the accelerated amount.
So I believe at any point, if the hypothetical homeowner
could five seconds before the foreclosure tender the amount
Chase could refuse and they would be misled
by this notice into doing that.
-: That assumes they could refuse.
-: I'm sorry, Your Honor.
-: Your argument is premised on the view that Chase
could refuse do what the notice says
can be done.
-: Yes.
I would argue that they in fact have to at some point
before the foreclosure, they have to demand the full
accelerated amount and not say that the homeowner
has a right to pay less than the accelerated amount.
At some point before the foreclosure
if they're gonna accurately foreclose on the full amount.
-: Okay, thank you.
Dion: Thank you, Your Honor.
(papers rustling)
-: Mr. Chief Justice, may I request leave
to file a post-argument letter?
-: Sure.
-: Thank you.
-: Long as you give notice to the other side.
-: Absolutely.
-: Does that mean I would have...
-: You would have an equal right to respond.
-: Okay.
-: But I would encourage brevity
which is the soul of wit in these matters.
[Lawyers Together] Thanks Your Honor.
(papers rustling)