Court rules mortgage companies have to comply with their own mortgage documents

The Supreme Judicial Court today overturned the foreclosure sale of a Cambridge couple's condominium because the company servicing their mortgage failed to follow its own agreement with them and never told them they had the right to sue to try to stop the foreclosure.

In a 4-3 decision, the state's highest court agreed with Linda Pinti and Lesley Phillips that because Emigrant Mortgage Co. never notified them they had the right to sue to block foreclosure after they missed two payments in 2009 - as specified in their mortgage agreement - the company's sale of the unit to another person was illegal.

Emigrant argued that sending the couple a notice of impending foreclosure was good enough. But the court said that's not good enough in Massachusetts, which lets mortgage holders go to foreclosure without having to go to court first, and that the company's failure to inform the two that they could seek a court hearing was enough to void the foreclosure and sale.

This court has recently reemphasized the point that in light of "the substantial power that the statutory scheme affords to a [mortgagee] to foreclose without immediate judicial oversight, we adhere to the familiar rule that 'one who sells
under a power [of sale] must follow strictly its terms'"; the failure to do so results in "no valid execution of the power,
and the sale is wholly void."

Three justices, however, said the notification requirement was not really as critical to the overall document and that, at best, Pinti and Phillips should have the right to seek damages against Emigrant - but not have the entire sale thrown out. Allowing something like that "will have disruptive and unfair consequences for innocent third-party purchasers for years to come," they wrote.