Thompson v. JPMorgan Chase Bank | 1st Cir - The bank ... had an obligation under paragraph 22 to provide notice and, under Pinti, to make anything it did say accurate and avoid potential deception

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Thompson v. JPMorgan Chase Bank | 1st Cir – The bank … had an obligation under paragraph 22 to provide notice and, under Pinti, to make anything it did say accurate and avoid potential deception

Thompson v. JPMorgan Chase Bank | 1st Cir – The bank … had an obligation under paragraph 22 to provide notice and, under Pinti, to make anything it did say accurate and avoid potential deception

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Case: 18-1559 Document: 00117399340 Page: 1 Date Filed: 02/08/2019 Entry ID: 6231441

United States Court of Appeals For the First Circuit

No. 18-1559

MARK R. THOMPSON; BETH A. THOMPSON,

Plaintiffs, Appellants,

JPMORGAN CHASE BANK, N.A.,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Rya W. Zobel, U.S. District Judge]

Before

Thompson, Boudin, and Kayatta, Circuit Judges.

Todd S. Dion on brief for appellants. Juan S. Lopez, Jeffrey D. Adams, and Parker Ibrahim & Berg LLP on brief for appellee. February 8, 2019

Case: 18-1559 Document: 00117399340 Page: 2 Date Filed: 02/08/2019 Entry ID: 6231441

BOUDIN, Circuit Judge. Mark and Beth Thompson sued

JPMorgan Chase Bank (“Chase”) for breach of contract and violating

the statutory power of sale Massachusetts affords mortgagees.

Mass. Gen. Laws ch. 183, § 21. The Thompsons alleged Chase failed

to comply with the notice requirements in their mortgage before

foreclosing on their property. The district court granted Chase’s

motion to dismiss for failure to state a claim.

On June 13, 2006, the Thompsons granted a mortgage to

Washington Mutual Bank on their house to secure a loan in the

amount of $322,500. The mortgage included two paragraphs, both

standard mortgage provisions in Massachusetts, relevant to this

appeal.

First, paragraph 22 required that prior to accelerating

payment by the Thompsons, Washington Mutual had to provide the

Thompsons notice specifying:

(a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to Borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by this Security Instrument and sale of the Property.

In addition, paragraph 22 required Washington Mutual to inform the

Thompsons 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.”

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Case: 18-1559 Document: 00117399340 Page: 3 Date Filed: 02/08/2019 Entry ID: 6231441

Second, paragraph 19 described the Thompsons’ right to

reinstate after acceleration, including the conditions and time

limitations related to that right.

If Borrower meets certain conditions, Borrower shall have the right to have enforcement of this Security Instrument discontinued at any time prior to the earliest of: (a) five days before the sale of the Property pursuant to any power of sale contained in this Security Instrument; (b) such other period as Applicable Law might specify for the termination of Borrower’s right to reinstate; or (c) entry of judgment enforcing this Security Instrument. Those conditions are that Borrower: (a) pays Lender all sums which then would be due under this Security Instrument and the Note as if no acceleration had occurred; (b) cures any default of any other covenants or agreements; (c) pays all expenses incurred in enforcing this Security Instrument, including, but not limited to, reasonable attorneys’ fees, property inspection and valuation fees, and other fees incurred for the purpose of protecting Lender’s interest in the Property and rights under this Security Instrument; and (d) takes such action as Lender may reasonably require to assure that Lender’s interest in the Property and rights under this Security Instrument, and Borrower’s obligation to pay the sums secured by this Security Instrument, shall continue unchanged.

In 2008, after the United States Office of Thrift

Supervision seized Washington Mutual Bank and placed it in

receivership with the Federal Deposit Insurance Corporation

(“FDIC”), FDIC sold the banking subsidiaries to Chase, which became

the mortgagee on the Thompsons’ mortgage.

– 3 –

Case: 18-1559 Document: 00117399340 Page: 4 Date Filed: 02/08/2019 Entry ID: 6231441

On August 12, 2016, Chase sent default and acceleration

notices to the Thompsons. The notices informed the Thompsons that

(1) their mortgage loan was in default; (2) tendering the past-

due amount of $200,056.60 would cure the default; (3) the default

must be cured by November 10, 2016; and (4) if the Thompsons failed

“to cure the default on or before 11/10/2016, Chase [could]

accelerate the maturity of the Loan, . . . declare all sums secured

by the Security Instrument immediately due and payable, commence

foreclosure proceedings, and sell the Property.”

The notices explained to the Thompsons that they had

“the right to reinstate after acceleration of the Loan and the

right to bring a court action to assert the nonexistence of a

default, or any other defense to acceleration, foreclosure, and

sale.” The notices also said the Thompsons could “still avoid

foreclosure by paying the total past-due amount before a

foreclosure sale takes place.”

On November 15, 2017, after the Thompsons failed to cure

the default, Chase foreclosed on the property and conducted a

foreclosure sale. On December 15, 2017, the Thompsons filed a

complaint in Plymouth County Superior Court, alleging Chase failed

to comply with the paragraph 22 notice requirements prior to

foreclosing on their property. On January 23, 2018, Chase removed

the suit to the District Court for the District of Massachusetts.

– 4 –

Case: 18-1559 Document: 00117399340 Page: 5 Date Filed: 02/08/2019 Entry ID: 6231441

Chase then filed a motion to dismiss for failure to state

a claim. After opposition and reply, the district court concluded

that Chase’s default and acceleration notice strictly complied

with paragraph 22, including advising the Thompsons of their post-

acceleration reinstatement right, and granted Chase’s motion to

dismiss. The Thompsons now appeal. They argue that the default

letter failed to comply strictly with paragraph 22 because the

letter did not inform the Thompsons of the conditions and time

limitations included in their post-acceleration reinstatement

right as described in paragraph 19. They also claim that the

portion of the notice that specified that the Thompsons could

“still avoid foreclosure by paying the total past-due amount before

a foreclosure sale takes place” was inaccurate and misleading,

though they do not say that their conduct was in any way altered.

A district court’s dismissal for failure to state a claim

is reviewed de novo, Galvin v. U.S. Bank, N.A., 852 F.3d 146, 153

(1st Cir. 2017), taking all factual assertions in a complaint as

true and drawing all reasonable inferences in the plaintiffs’

favor; but this does not include legal conclusions clothed as

factual allegations. Bell Atlantic Corp. v. Twombly, 550 U.S.

544, 555–56 (2007). To survive a motion to dismiss, the claim

must be “plausible.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).

In Massachusetts, upon default in the performance of a

mortgage, a mortgagee may sell the mortgaged property using the

– 5 –

Case: 18-1559 Document: 00117399340 Page: 6 Date Filed: 02/08/2019 Entry ID: 6231441

statutory power of sale, so long as the mortgage itself gives the

mortgagee the statutory power by reference. Mass. Gen. Laws ch.

183, § 21. Section 21 requires that, prior to conducting a

foreclosure sale, a mortgagee must “first comply[] with the terms

of the mortgage and with the statutes relating to the foreclosure

of mortgages by the exercise of a power of sale.” Id.

Because Massachusetts does not require a mortgagee to

obtain a judicial judgment approving foreclosure of a mortgaged

property, see U.S. Bank Nat’l Ass’n v. Ibanez, 941 N.E.2d 40, 49

(Mass. 2011), Massachusetts courts require mortgagees to comply

strictly with two types of mortgage terms: (1) terms “directly

concerned with the foreclosure sale authorized by the power of

sale in the mortgage” and (2) terms “prescribing actions the

mortgagee must take in connection with the foreclosure sale–

whether before or after the sale takes place.” Pinti v. Emigrant

Mortg. Co., 33 N.E.3d 1213, 1220–21 (Mass. 2015).

The mortgage terms for which Massachusetts courts demand

strict compliance include the provisions in paragraph 22 requiring

and prescribing the pre-foreclosure default notice. Pinti, 33

N.E.3d at 1221. At first glance, Chase’s acceleration and default

notice appears to comply strictly with paragraph 22 in the

Thompsons’ mortgage. By its terms, paragraph 22 required Chase to

“inform [the Thompsons] of the right to reinstate after

acceleration.” Mirroring this language, the notice explained to

– 6 –

Case: 18-1559 Document: 00117399340 Page: 7 Date Filed: 02/08/2019 Entry ID: 6231441

the Thompsons that they had “the right to reinstate after

acceleration of the Loan.”

Because paragraph 19, which defines the Thompsons’ post-

acceleration reinstatement right, imposes conditions and time

limitations on that right, the Thompsons argue that Chase failed

to comply strictly with paragraph 22’s notice requirement by

failing to inform the Thompsons of the conditions and limitations

on the reinstatement right. Paragraph 22, however, instructs that

Chase inform the Thompsons of their substantive right to reinstate;

it does not require that Chase describe in detail the procedure

that the Thompsons must follow to exercise the right or the

deadlines associated with the right. And paragraph 19 does not,

on its own, impose any notice requirements on Chase.

However, Massachusetts law requires that the paragraph

22 notice given to the mortgagor be accurate and not deceptive–

note the possible difference between the two concepts–and the

Supreme Judicial Court has made clear that inaccuracy or deceptive

character can be fatal. In Pinti, the mortgagee’s notice said

that the mortgagors “have the right to assert in any lawsuit for

foreclosure and sale the nonexistence of a default.” Pinti, 33

N.E.3d at 1222 (emphasis omitted). This, the Pinti court reasoned,

could mislead mortgagors into thinking that they could await a

lawsuit by the mortgagee before attacking the foreclosure. Id.

– 7 –

Case: 18-1559 Document: 00117399340 Page: 8 Date Filed: 02/08/2019 Entry ID: 6231441

Here, the notice’s additional language–“you can still

avoid foreclosure by paying the total past-due amount before a

foreclosure sale takes place”–could mislead the Thompsons into

thinking that they could wait until a few days before the sale to

tender the required payment. Suppose the Thompsons had showed up

with the payment three days before the sale believing that their

tender was timely since the notice said that the tender may be

made before the sale. The bank would properly have pointed out

that under paragraph 19 a tender must be made at least five days

before the sale.

The Thompsons do not claim to have been prejudicially

misled, and they certainly did not tender the payment at any time

before the sale. The mind of the common-law lawyer is steeped in

the proposition that a mistake must ordinarily have had an adverse

impact on the plaintiff or a court will disregard it: no harm, no

foul. See, e.g., Shaulis v. Nordstrom, Inc., 865 F.3d 1, 15 (1st

Cir. 2017) (concluding that fraudulent-misrepresentation claim

fails because plaintiff did not allege an actionable injury caused

by defendant’s false statement). But Pinti frees the mortgagor of

any need to prove that the inaccuracy or deception caused harm:

“The defendants’ assertion that the plaintiffs in this case were

not prejudiced by any failure to comply with the provisions of

paragraph 22 misses the point. Paragraph 22 demands strict

compliance, regardless of the existence, or not, of prejudice to

– 8 –

Case: 18-1559 Document: 00117399340 Page: 9 Date Filed: 02/08/2019 Entry ID: 6231441

a particular mortgagor.” Pinti, 33 N.E.3d at 1223 n.20 (citing

Foster, Hall & Adams Co. v. Sayles, 100 N.E. 644, 646 (Mass.

1913)).

After all, the bank is the one writing the notice and

has ample opportunity and expertise to make it entirely accurate.

It may take some imagination to consider every possible way it

could be misleading; but the foreclosure procedure allowed to the

bank is itself favorable to the bank. In exchange, both accuracy

and avoidance of potential deception are conditions of the validity

of the foreclosure, lifting from the Thompsons the need to show

prejudice. The state-court reading of Massachusetts law binds a

federal court sitting in diversity. N. Am. Specialty Ins. Co. v.

Lapalme, 258 F.3d 35, 38 (1st Cir. 2001).

In sum, the bank had no obligation under paragraph 19 to

lay out its procedures, but it did have an obligation under

paragraph 22 to provide notice and, under Pinti, to make anything

it did say accurate and avoid potential deception. Words are

usually elastic, but it does not matter that the purist could well

think that the notice in this case was potentially deceptive rather

than literally inaccurate (for the Thompsons could defeat

foreclosure by payment before the foreclosure date). Omitting the

qualification (that the payment must be tendered at least five

days before the foreclosure date) in our view rendered the notice

potentially deceptive.

– 9 –

Case: 18-1559 Document: 00117399340 Page: 10 Date Filed: 02/08/2019 Entry ID: 6231441

The Thompson brief squarely raised the objection; the

bank offered no response to it. Despite the absence of a claim of

actual prejudice, the strict-compliance requirement, supported by

both the Pinti holding and the rationale supplied for the holding,

invalidates the foreclosure. The judgment must be reversed, and

the case remanded for further proceedings consistent with this

opinion.

It is so ordered.

– 10 –

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One Response to “Thompson v. JPMorgan Chase Bank | 1st Cir – The bank … had an obligation under paragraph 22 to provide notice and, under Pinti, to make anything it did say accurate and avoid potential deception”

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  1. […] paragraph 19 of the mortgage. As a result, the Court held that the subject foreclosure was void. Thompson v. JPMorgan Chase Bank, N.A., No. 18-1559, 2019 WL 493164 (1st Cir. Feb. 8, 2019). In sum, the Court held that the potentially […]


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