Ambiguous language in reverse mortgage sufficiently incorporated the Massachusetts statutory power of sale

James B. Nutter & Co. v. Estate of Murphy, 478 Mass. 664 (Feb. 1, 2018) concerned the right of a holder of a reverse to foreclose under Massachusetts’s statutory power of sale mechanism where the right is not expressly reserved in the security instrument.

In 2007 and 2008, three elderly homeowners obtained loans from Plaintiff 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, Plaintiff moved to foreclose. Rather than proceeding directly to foreclosure, however, Plaintiff brought actions in the Land Court seeking a declaration allowing it to foreclose pursuant to the statutory power of sale.

Each of the reverse mortgages 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 the Court was asked to resolve was whether this language incorporates the statutory power of sale as set forth in G. L. c. 183, § 21, and allows Plaintiff to foreclose on the mortgaged property in accordance with the requirements in § 21.

There are generally three methods of incorporating the statutory power of sale into a mortgage: first, by incorporating the exact language defining the statutory power of sale in § 21 into the text of the mortgage; second, by referring to this definition, generally by use of the term “statutory power of sale”; or third, by including language in the mortgage defining a power substantially similar to that of the statutory power.

The Plaintiff’s mortgage did not incorporate the statutory power of sale under either the first or third method. The question then was whether paragraph 20 adequately refers to the statutory power of sale in § 21 by allowing the lender to “invoke the power of sale and any other remedies permitted by applicable law,” even though it does not expressly use the term “statutory power of sale?”

The Court held that it did. The Court found, however, the language in paragraph 20 was ambiguous as to whether it incorporates the statutory power of sale because it omits the word “statutory.” The inclusion of the phrase “and any other remedies permitted by applicable law” could reasonably be understood to exclude the statutory power of sale: the word “other” indicates that this language refers to remedies other than the power of sale. This ambiguity was exacerbated by the surrounding language of the mortgage which contemplated judicial foreclosure with its reference to “foreclosure proceedings” and “any lawsuit for foreclosure”.

But even construing the ambiguous language against Plaintiff, the Court concluded that the only “reasonable and practical” interpretation of the mortgage is that it does incorporate the statutory power of sale. “It matters that this is a contract for a reverse mortgage, rather than a traditional mortgage, where the borrower makes no monthly payments of principal or interest, where the lender cannot hold the borrower personally liable for the debt, and where the lender’s only recourse on default is to obtain repayment through a foreclosure sale.”

In these circumstances, no reasonable borrower would expect that a lender would enter into a reverse mortgage without retaining a power of sale. And having concluded that the only “reasonable and practical” interpretation of this form reverse mortgage is that it grants a power of sale, that power of sale necessarily must be a statutory power of sale, because in Massachusetts there is no power of sale except the statutory power of sale. To read the term “power of sale” in paragraph 20 as referring to anything other than the statutory power of sale would therefore render it a nullity.

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