First American Title oe UNDERWRITING COMMUNICATION Issued by First American Title Insurance Company MA-2015-001-Standard Title: Insuring foreclosures in light ofthe Pint Decision whiten By: Gene Gurvts Date Issued: August 17, 2015 Purpose: This Standard addresses the new level of scrutiny of foreclosure-based tiles in light of the SJC decision In the case of Pint v. Emigrant Mortgage Company, inc. Background: On July 17, 2015, the Supreme Judicial Court issued its ruling in the case of Pintiv. Emigrant Mortgage Company, 472 Mass 226 (2018). The decision is the latest attempt by the court to signal its concem with the way mortgage holders. ‘exercise their non-judicial powers of sale in Massachusetts, At the heart of the case was the Issue of the timing of the commencement of the foreclosure process. It has been well-established law in Massachusetts that, due to the non-judicial nature of the foreclosure, the legal requirements of the foreclosure process must be slricly adhered to, and any deviation therefrom renders the resulting foreclosure void. Recent cases have attempted to define the elements of the foreclosure process ~ when It commences, who has the power to exercise rights fo foreclose, and what remedies the foreclosed ‘owner has to fight the arguably wrongful foreclosure. In the recent case of US Bank Nat'l Assin v. Schumacher, 467 Mass 421 (2014), the court determined that the process by which the foreclosing party provides notices of default to the borrower pursuant to the provisions of M.G.L.c. 244, Section 35A is not a part ofthe foreclosure, and therefore Is not subject to the strict compliance standard required for the foreclosure sale, The Pinti case revolved around the interpretation of the provisions of Paragraph 22 of the mortgage — the acceleration provision of the mortgage triggering the power of sale, The borrower claimed that the acceleration provisions of Paragraph 22 was a required condition precedent to the exercise of the power of sale and therefore its violation rendered the resulting sale void. The foreclosing entity claimed that the provisions of Paragraph 22 were akin to the ones in c. 244, Section 36A, and were therefore not a part of the foreclosure. The superior court judge ruled in favor of the defendant, and the SJC took the appeal on its own intiative. Jn split decision, the court agreed with the plainti-mortgagor. The majority based its decision on its interpretation ofthe provisions of M.G.Le. 183, Section 21. This section defines the meaning of the statutory power of sale. Among the provisions ofthat section is a statement that a sale may be conducted "upon any defauit’, “frst complying with the terms of the mortgage and with the statutes relating to the foreclosure of mortgages by the exercise of a power of sale’. The ‘majority interpreted these provisions to mean that foreciosure sales require strict compliance “not only with the terms of the actual power of sale in the mortgage, but also with any conditions precedent to the exercise of the power that the mortgage might contain." Pint at 233. The majority found that the mortgage provisions requiring and prescribing the pre foreclosure notice of default are some of the conditions contalned in the mortgage that mandate strict compliance, The ‘majority distinguished the default provisions contained in the mortgage from the statutory pre-foreclosure conditions (such ‘as M.G.L.¢ 244, Section 35A, discussed in Schumacher) simply by stating that the court has already identified the statutory Provisions related to the foreclosure sale, and that chapter 354 was not one of such provisions. “This is so because the Fotice provisions in paregraph 22 are ‘terms of the mortgage,’ not terms of a statute ‘relating to the foreclosure of mortgages by the exercise of a power of sale." Pint at 239. ‘As a result, the court ruled that the violations of Paragraph 22 and related mortgage provisions render the resulting foreclosure void ab initio. Just lke in the case of U.S, Bank Natl Ass'n v. Ibanez, 458 Mass. 637 (201), a tile derived from such @ foreclosure is invalid even ifthe thle holder is a bona fide purchaser with no knowledge of the defect. Unlike the Ibanez case, however, the record cannot possibly disclose failure to comply with the defauit provisions of a mortgage For this reason, the majority gave its decision prospective effect only, using the case of Eaton v. Federal Nat! Mige. Ass'n,462 Mass. 569 (2012) as precedent. The ruling applies only to foreclosure sales where the notice of default required by the provisions of the morigage Is sent after the date ofthe Pint! opinion (July 17, 2015). ‘The Pinti decision creates another hurdle for conveyancers and tie insurers who review and insure tiles emanating from foreciosure sales. As the dissent opinion correctly pointed out, the notice of default is not ordinarily a part of record tte. In the view of dissent, the Pinti decision wil result in a treasure hunt of the registry of deeds “contrary to the purposes of the recording system, which was intended to be ‘self-operative and to notify purchasers of existing claims ... [through] a pubic fecord from which prospective purchasers of interests in real property may asceriain the existence of prior claims that might affect their interests.” Pinti dissent at 249, quoting Selectmen of Hanson v. Lindsay, 444 Mass. 502, 607 (2008). While the majorty attempted to address this concem by having @ mortgagee record yet anther affidavit of compliance, absent a statutory authority that such an affidavit be treated as conclusive, the affidavit only creates a rebuttable presumption of compliance. Given the spate of litigation caused by a myriad of (real and imagined) defects in the foreciosure process, an examiner would be hard-pressed to conclude that the recorded affidavit of compliance with the default provisions of the mortgage renders the sale valid and the tile marketable. ‘Another difficulty in relying on affidavits that ostensibly show compliance with default provisions of a mortgage Is that various mortgages have different default provisions, An FHA mortgage default provision may be different from a Credit Union one, and either of them may be different from the default provisions contained in a reverse mortgage. In addition, the individual signing the affidavit may not be the individual who had sent out the default notice, so the knowledge upon Which the affidavit is based may or may not be firs-hand knowledge. All of these factors make the insurabilty of tiles based on such affidavits questionable at best, For these reasons, the most reliable way to determine the vaidty of the foreclosure sale s @ subsequent judicial determination that the sale was valid Standard, A policy of title insurance based on a foreclosure sale where the notice of default is sent after July 17, 2016 may be issued provided that the sale is otherwise compliant with Massachuselts foreclosure laws, and the foreclosing entity has procured a final decree from a court of competent jurisdiction that shows compliance with the Pinti case. Such decree may include, but is not limited to, a decree of possession in a summary process proceeding, or any other action where a jurisdiction to determine that the foreclosure sale was not invalid by the reason of a defective default notice. In order to determine the date on which the notice of default has been sent, the issuing agent needs to review a copy of the notice of default, ‘This Standard does not suvercede Standard MA-2012-008 dated October 30, 2012, Standard MA-2011-09 dated December 22, 2011, the Communication with Regard to Insuring REO Properties issued October 22, 2010, nor that relating to Standards with Respect to Mortgage Foreclosures Affected By The Ibanez Dedslon, issued August 23, 2011. ‘Our agents are required to continue to analyze risks associated with all foreclosed properties via those Communications, including use of the REO Sale Risk Assessment Checklist, the latest version of which is attached to this communication, Note that one of the criteria in the Checklist relates to possession. This is paticularly crucial to us: First American wil not insure tile based on a foreclosure sale even if the default notice was dated prior to July 17, 2015, If the property is ‘occupied by the holder of the equity of redemption inthe foreclosed mortgage or any party claiming through such holder. Contact Info. for Quest Massachusetts Underwriting Department 866-916-0967