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Property Acquisition Group, LLC v. Kenneth Ivester, Third

Appeals Court of Massachusetts, Essex

April 18, 2019

KENNETH IVESTER, THIRD, & another[1] (and a companion case[2]).

          Heard: September 11, 2018.

         Civil action commenced in the Superior Court Department on January 19, 2016. The case was heard by James F. Lang, J., on motions for summary judgment. Summary process. Complaint filed in the Peabody Division of the District Court Department on March 7, 2016.

         After transfer to the Northeast Division of the Housing Court Department, the case was heard by Timothy F. Sullivan, J., on a motion for summary judgment.

          Kristin L. Thurbide (Josef C. Culik also present) for Kenneth Ivester, III, & another.

          Brady Hermann for Federal National Mortgage Association. Edward J. Fallman for Property Acquisition Group, LLC.

          Present: Vuono, Agnes, & Henry, JJ.

          HENRY, J.

         The primary issue in this case is whether the mortgagee, Federal National Mortgage Association (Fannie Mae), exercised good faith and reasonable diligence to protect the interests of the mortgagors, Kenneth Ivester and Susan Ivester (Ivesters), by obtaining the highest possible price at an auction sale. We hold that on this summary judgment record, which contains evidence of an inadequate price as well as evidence that Fannie Mae (1) failed to take any steps to determine the current fair market value of the property before the auction sale and (2) did not take any steps other than compliance with statutory mandates, the mortgagors raised material disputes of fact as to whether the mortgagee complied with its duty to exercise good faith and reasonable diligence.

         1. Background.

         These consolidated cases arise from the foreclosure of the Ivesters' property. The winning bidder at that foreclosure auction was Property Acquisition Group, LLC (PAG). The Ivesters appeal from a Superior Court judgment dismissing their claim that the mortgagee, Fannie Mae, did not exercise good faith and reasonable diligence in conducting the foreclosure sale. That appeal has been consolidated with the

         Ivesters' appeal from the amended judgment entered against them on PAG's summary process action in the Housing Court. Both cases were resolved against the Ivesters on summary judgment. We summarize the undisputed facts drawn from the summary judgment record; to the extent the record includes disputed evidence, we consider that evidence in the light most favorable to the Ivesters, against whom summary judgment entered. See Ritter v. Massachusetts Cas. Ins. Co., 439 Mass. 214, 215 (2003) .

         a. Purchase, mortgage, and foreclosure.

         The Ivesters purchased the property located at 245 Salem Street, Lynnfield (property) for $399, 000 in October, 2003. They refinanced in 2006 with a $302, 000 loan from CitiMortgage, Inc., secured by a mortgage on the property, and a second loan for $50, 000 from Citibank Federal Savings Bank.[3]

         The Ivesters admit that they stopped making payments on their $302, 000 loan in 2013 and that, as of July, 2015, were in arrears in the amount of $65, 228.38. They also concede that Fannie Mae, the assignee of the mortgage, was both authorized and justified in exercising its right under the mortgage to sell the property for nonpayment and that Fannie Mae satisfied all of the statutory requirements pertaining to foreclosure by sale contained in G. L. c. 244, §§ 11-17B.[4]

         On behalf of PAG, Richard Damiano attended the foreclosure auction, which was conducted by Fannie Mae's agent.[5] The opening bid price was set at $329, 000. Damiano and two other bidders entered bids. Damiano's bid prevailed at $355, 000, and the foreclosure deed was recorded on January 8, 2016.

         b. Property description.

         The property consists of 4.57 acres, approximately 103, 000 square feet (2.36 acres) of which is buildable. At the time of the foreclosure auction, the property was improved with a single family home. The Ivesters contend that facts existed that might have alerted Fannie Mae and did alert bidders to the development potential of the property. At the time of the foreclosure, local zoning bylaws required 30, 000 square feet per lot and continuous frontage of 150 feet. Although the property had only noncontinuous frontage of 143.41 feet and 42.26 feet on Salem Street, the Ivesters contend that installation of a new road could open the property to further development, as demonstrated by conceptual plans created for PAG shortly after it acquired the property. Moreover, while the property is located in a single-family residential district, there are restaurants and businesses in the immediate neighborhood, including adjacent to the property. The property, however, does contain wetlands, and any development proposals likely would require an order of conditions from the Lynnfield conservation commission.

         c. Value of the property.

         The parties dispute the fair market value of the property at the time of the auction. Fannie Mae admits it did not obtain any appraisals, evaluations, or expert opinions to determine the value of the property prior to the auction. Fannie Mae did not answer an interrogatory asking what amount it had authorized as the starting bid for the foreclosure auction. The record does not otherwise reflect how Fannie Mae or its auctioneer valued the property or arrived at a minimum or opening bid for the auction. Indeed, Fannie Mae answered interrogatories inquiring as to "every effort [Fannie Mae] engaged in ... to determine the . . . fair market value" of the property prior to the foreclosure auction by stating only that it did not obtain any appraisals.[6] In response to an interrogatory inquiring as to each action that would demonstrate reasonable diligence to protect the interests of its mortgagors, Fannie Mae answered, in relevant part, that "after providing the required notices to Plaintiffs, a foreclosure auction was held on November 13, 2015 and the . . . [p]roperty was sold to PAG for $355, 000." There is no suggestion in the record that Fannie Mae considered the property's development potential in establishing the opening bid or in advertising the property for auction.

         Fannie Mae's discovery responses do not suggest it was aware of or relied on the property's 2015 assessed value for tax purposes (assessed value). On appeal, however, Fannie Mae relies on the property's 2015 assessed value, which was $361, 900. The Ivesters and PAG rely on appraisals valuing the property as of the date of the auction. The Ivesters' expert appraised the property at $975, 000, [7] and PAG submitted an expert appraisal valuing the property at $385, 000. All of the ...

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