April 9, 2015
by Santo Longo and Randall S. McHugh
Bendett & McHugh, P.C. - USFN Member (Connecticut, Maine, Vermont)
On February 26, 2015, the Maine Supreme Judicial Court issued a decision in CitiMortgage, Inc. v. Chartier, 2015 Me. 17 (2015), which narrowly interpreted notice of default provisions commonly found in many Maine residential mortgages. The court held that the notice of default, sent to the mortgagor by the servicer, did not comply with relevant provisions in the mortgage. This judicial decision will likely make proceeding to foreclosure in Maine more difficult, and will adversely impact many cases that have already been filed.
The language in the mortgage itself required the “Lender” to send the notice of default. Furthermore, the mortgage defined “Lender” as “Cornerstone Home Loans” and “any person who takes ownership of the Note and this Security Instrument” [emphasis added]. Cornerstone was the original lender and had previously sold the loan and assigned the mortgage. The court held that because the same entity did not own both the note and the mortgage at the time the servicer sent the notice, the notice was invalid. In fact, the court’s holding means that because the note and the mortgage were not owned by the same entity when the notice of default was sent, no “Lender” other than Cornerstone existed (as that term is defined in the mortgage) and, consequently, no party other than Cornerstone could have sent a valid notice of default at that time.
In the wake of Chartier, servicers and lenders seeking to foreclose Maine mortgages will need to ensure that ownership of the note and ownership of the mortgage are united in a single entity before a notice of default is sent; and that the notice is sent by, or on behalf of, that entity. What this means is that for loans with similar mortgage provisions, the mortgage will need to be assigned to the owner/investor before the notice of default is mailed. For pending mortgage foreclosures where the notice of default did not comply with the terms of the mortgage, it is anticipated that some of those pending cases will ultimately be dismissed, or the courts may enter judgments for the defendants. Because the Chartier holding is so recent, it is too early to tell how aggressive Maine’s lower courts will be when applying the high court’s reasoning (in that case) to pending foreclosure actions.
Importantly, the relevant language found in the mortgage in Chartier is also found in the standard residential mortgage form used throughout Maine. As a result, the number of cases affected will be significant. The impacts of Chartier are something servicers and lenders, who are foreclosing mortgages in this state, will want to monitor, and respond appropriately.
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