Former wife lacked standing to contest foreclosure notice

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A woman who obtained title to her home through divorce lacked standing to challenge the sufficiency of a notice of default issued in foreclosure proceedings commenced against her ex-husband for his failure to make mortgage payments on the property, the Appeals Court has ruled.

The case involved foreclosure proceedings commenced when Frank T. Costa Jr. defaulted on payments on a mortgage held on a house in Peabody. Costa had previously transferred title to the home to Kathleen McIntosh in connection with their divorce.

Plaintiff MTGLQ Investors brought a summary process action after acquiring title to the property through foreclosure.

In contesting a notice to vacate the property, McIntosh argued that the foreclosure was void under the Supreme Judicial Court’s 2015 decision in Pinti v. Emigrant Mortgage Co. because the notice of default sent to Costa did not strictly comply with paragraph 22 of the mortgage.

MTGLQ Investors contended that McIntosh lacked standing to contest the notice of default because she was not a party to the underlying mortgage contract.

Housing Court Judge Gustavo A. del Puerto found that McIntosh had standing to assert a Pinti challenge but decided that she failed to establish that the notice of default was in fact defective.

McIntosh appealed from the judgment for possession entered for MTGLQ.

A panel of the Appeals Court affirmed without reaching the question of whether notice of default was defective. The panel concluded that, contrary to the lower court’s determination, McIntosh lacked standing to raise a Pinti challenge because “she was neither a party to nor an intended beneficiary of the mortgage.”

“The rights conferred by paragraph 22 belong to the mortgagor alone, and the mortgagor alone is entitled to the protection of notice of those rights,” Judge Sookyoung Shin wrote for the panel. “We see no sound reason why someone who was not entitled to notice to begin with should have standing to challenge the notice to defend against a summary process action.”

The 11-page decision is MTGLQ Investors, LP v. McIntosh, et al., Lawyers Weekly No. 11-090-25.

SJC bound?

Peter V. Guaetta, counsel for plaintiff MTGLQ Investors, said while the decision is a good result for the clients he represents in his Chelmsford practice, it will have limited impact.

“It’s not going to have a huge impact on the vast volume of [foreclosure] cases,” Guaetta said. “It’s more significant as to circumstances where the property has been transferred or deeded for one reason or another after it was encumbered and as to the rights of those owners to challenge the contractual aspect of the foreclosure.”

This case has never been about [my client] getting the home free and clear. But it is about raising a defense when the law hasn’t been followed.

— Adam T. Sherwin, Charlestown

Adam T. Sherwin of Charlestown represents defendant McIntosh. He said his client intends to file a petition for further appellate review by the SJC.

“The Appeals Court itself acknowledged this was a difficult decision, so we think it is appropriate to ask the SJC to take another look at the issue,” he said.

Sherwin asserted that his client should have standing to raise a Pinti challenge.

“As the owner of the home before the foreclosure sale, she was named as a defendant in the post-foreclosure eviction,” Sherwin said. “She should have a right to challenge the bank’s claim to title. We’re alleging it was void because there was a failure to comply with the nonjudicial foreclosure requirements, and any failure to do that makes the entire foreclosure void.”

Sherwin added that the Appeals Court’s 2019 decision in U.S. Bank Trust, N.A. v. Johnson directly supported his client’s case for standing. In Johnson, the court held that a tenant who was in possession of the premises had standing in a summary process action to raise a claim that the foreclosure was invalid, even though she was not a party to the mortgage contract.

“We contend [Johnson] applies equally to my client,” Sherwin said. “She’s not a tenant, but she was a former owner. There’s really no distinction in terms of both having the right to pursue that type of challenge.”

Even if his client would be successful in pursuing a Pinti claim, that would not end the matter, he noted.

“That debt is still out there; that mortgage is still out there,” Sherwin said. “The bank would certainly have a right to foreclose. She has a long road ahead of her. This case has never been about her getting the home free and clear. But it is about raising a defense when the law hasn’t been followed.”

But according to Quincy foreclosure lawyer Todd S. Dion, the panel reached the correct result.

“It makes sense to limit strict compliance challenges to foreclosures to actual parties to the mortgages,” Dion said. “Otherwise, the Housing Court could be flooded with foreclosure challenges from unrelated strangers to the mortgages, including tenants and potential squatters.”

Notice to vacate

According to court records, Costa purchased the home in 1999. In 2005, he granted a mortgage on the property to Washington Mutual Bank to secure a $215,000 promissory note. McIntosh was not a party to the mortgage or the note.

Paragraph 22 of the mortgage states that, prior to acceleration of the loan, the lender is required to send notice informing the borrower “of the right to reinstate after acceleration and the right to bring a court action to assert the non-existence of a default or any other defense of Borrower to acceleration and sale.”

In 2009, Costa executed a quitclaim deed conveying title to the property to McIntosh. Despite transferring his interest in the property, Costa remained obligated to repay the mortgage loan.

In 2016, JPMorgan Chase Bank, N.A., which had become the servicer of the loan, sent Costa a notice of default after he had failed to make multiple mortgage payments.

Thereafter, MTGLQ became the holder of the mortgage and the note. MTGLQ proceeded to commence foreclosure proceedings and acquired the property by foreclosure deed in April 2018. The company then sent notices to vacate to McIntosh and Costa.

Although also named as a defendant in the summary process action, Costa did not appear in the case. Following a bench trial, the Housing Court judge entered judgment granting possession to MTGLQ.

Notice to vacate upheld

In Pinti, the SJC declared a mortgage foreclosure void because the notice sent to the borrowers of their default and their right to cure did not strictly comply with paragraph 22 of the mortgage.

Specifically, the SJC held that strict compliance with the notice requirement of paragraph 22 of the standard mortgage is a condition of a valid foreclosure by power of sale under G.L.c. 183, §21, and that a defect in the paragraph 22 notice renders the foreclosure void rather than voidable.

In addressing McIntosh’s appeal, the Appeals Court panel first addressed the question of whether the defendant had standing to raise a Pinti claim. It found the case law did not “provide a clear path” for resolving the issue.

“On the one hand, it is well settled that ‘[i]n an action under summary process by the purchaser at a mortgagee’s sale, the legal title may be put in issue, and it therefore [is] incumbent upon the [purchaser] to establish its right of possession to the land demanded,’” Shin wrote. “On the other hand, it is likewise well settled that only the parties to a contract or its intended beneficiaries have standing to enforce rights under it.”

However, the panel concluded that the court in Pinti — which was not faced with the issue of standing — never intended to impliedly depart from the rule that a contract cannot be enforced by those who are not parties to the agreement.

Shin wrote that the “crux” of the Pinti court’s decision was the potential for “disastrous consequences” for mortgagors should they not receive accurate notice under paragraph 22 of their right to bring an action to challenge an impending foreclosure sale.

“These concerns are not implicated where the party seeking to raise a Pinti claim is, like McIntosh, a stranger to the mortgage,” Shin wrote.

With the concerns expressed by the court in Pinti in mind, the panel concluded that McIntosh lacked standing to challenge validity of the notice of default in the foreclosure proceeding.

“Were we to reach a contrary result on standing, it would allow such a holdover tenant, or anyone else in possession of the property, to unwind a foreclosure sale long after the paragraph 22 notice was sent even where, as here, the mortgagor himself has chosen not to challenge the adequacy of the notice,” Shin wrote. “This would have unfair consequences for bona fide purchasers that we do not think the Pinti court intended.”

The panel proceeded to distinguish the Appeals Court’s decision in favor of the tenant-in-possession in the Johnson case cited by defendant McIntosh.

“The difference is that the tenant in Johnson did not seek to enforce any provision of either the note itself or some other contract to which she was not a party; her claim was that the plaintiff’s failure to produce the original note for examination rendered the foreclosure invalid,” Shin wrote. “Johnson is therefore not dispositive of whether McIntosh has standing to raise a Pinti claim, which by its nature derives from the rights and obligations created by paragraph 22 of the mortgage.”

Lastly, the panel found unavailing McIntosh’s alternate argument that the notice to vacate sent to her by MTGLQ was invalid.

“As McIntosh more or less concedes, she was a tenant at sufferance and, as such, was entitled only to reasonable notice of MTGLQ’s ‘intention to secure possession of the property,’” Shin wrote. “The notice to vacate states that MTGLQ had purchased the property at a foreclosure sale, that MTGLQ ‘seeks to recover possession of the Property,’ and that ‘[w]ithin seventy-two (72) hours after service of this notice, you are hereby required to vacate … unless you are a tenant or subtenant who rented the Property before the foreclosure sale.’ This was adequate notice.”