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James B. Nutter & Company v. Estate of Murphy

Supreme Judicial Court of Massachusetts, Suffolk

January 18, 2018

JAMES B. NUTTER & COMPANY
v.
ESTATE OF BARBARA A. MURPHY & others[1] (and two consolidated cases[2]).

          Heard: October 2, 2017.

         Civil actions commenced in the Land Court Department on October 27, 2015; January 28, 2016; and February 11, 2016, respectively. A motion for partial judgment on the pleadings was heard by Robert B. Foster, J., and the cases were reported by him to the Appeals Court.

         The Supreme Judicial Court on its own initiative transferred the cases from the Appeals Court.

          Daniel Bahls (Uri Strauss also present) for Brett Jamieson. Effie Gikas Tchobanian for the plaintiff.

          Elaine Benkoski, for Estate of Barbara A. Murphy & others, was present but did not argue.

          Present: Gants, C.J., Lenk, Gaziano, Lowy, Budd, Cypher, & Kafker, JJ.

          GANTS, C.J.

         In 2007 and 2008, three elderly homeowners obtained loans from James B. Nutter & Company (Nutter), secured by reverse mortgages on their homes. A few years later, two of the borrowers died; the third took ill and could no longer live in her home. Alleging default, Nutter now seeks to foreclose on the mortgages. Rather than proceed directly to foreclosure, however, Nutter brought separate actions in the Land Court against each borrower or the executors of their estate, [3] seeking in each case a declaratory judgment allowing it to foreclose pursuant to the statutory power of sale.

         Each of the reverse mortgages adhered to Nutter's standard form, which states in paragraph 20 that, in the event of default, "[l]ender may invoke the power of sale and any other remedies permitted by applicable law." The issue we must resolve is whether this language in the reverse mortgage incorporates the statutory power of sale as set forth in G. L. c. 183, § 21, and allows Nutter to foreclose on the mortgaged property in accordance with the requirements in § 21. We hold that it does.

         Background.

         1. Reverse mortgages.

         For many retirees, one of the most reliable potential sources of income in later life is the accrued equity in their homes. See Consumer Financial Protection Bureau, Issue Brief: The costs and risks of using a reverse mortgage to delay collecting Social Security, at 8 (2017). In order to secure cash for their living expenses, many retirees choose to borrow against their home equity. Id. at 9.

         One way for them to do so is through a home equity conversion mortgage, which is a unique kind of loan available to homeowners age sixty-two or older. See Consumer Financial Protection Bureau, Reverse Mortgages: A Discussion Guide, at 1, 3 (2017). These mortgages are commonly referred to as "reverse mortgages" because, instead of making payments to the lender, the borrower receives cash from the lender, either as a line of credit, in monthly payouts, or as a lump sum. Id. at 3, 12. As in a traditional mortgage, a reverse mortgage is secured by the borrower's home. Unlike a traditional mortgage, however, the loan does not become due until the borrower dies or no longer lives in the home; interest and fees are added to the loan balance over time and the entire balance is typically paid from the sale of the home. Id. at 3, 7.

         Another distinctive feature of a reverse mortgage is that typically it secures a nonrecourse loan, meaning that the borrower is not personally liable for repayment of the debt. In other words, the lender must "look exclusively to the mortgaged property for repayment." Summers v. Financial Freedom Acquisition LLC, 807 F.3d 351, 355 (1st Cir. 2015).[4]

         2. Nutter's actions for declaratory judgment.

         Nutter uses a standard form for its reverse mortgages. Paragraph 9 of this form states the grounds for acceleration of the debt. It provides that Nutter can require immediate payment in full if, among other grounds, the borrower dies, or the mortgaged property is no longer the borrower's principal residence. Paragraph 10 provides that the borrower shall have no personal liability for repayment of the debt and that Nutter cannot obtain a deficiency judgment against the borrower in the event of foreclosure: "Lender may enforce the debt only through sale of the Property." Paragraph 20 outlines Nutter's remedies in the event of default. It states, in relevant part:

"Foreclosure Procedure. If Lender requires immediate payment in full under Paragraph 9, Lender may invoke the power of sale and any other remedies permitted by applicable law. . . . At this sale Lender or another person may acquire the Property. This is known as 'foreclosure and sale.' In any lawsuit for foreclosure and sale, Lender will have the right to collect all costs allowed by law."

         In these three actions, Nutter moved for partial judgment on the pleadings, seeking a judicial declaration that the language in paragraph 20 incorporates the statutory power of sale as defined in G. L. c. 183, § 21. The judge granted Nutter's motions, concluding that Nutter's reverse mortgage incorporated the statutory power of sale by reference because the statutory power of sale is a "remed[y] permitted by applicable law." The judge reported the three cases to the Appeals Court ...


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