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Rhode Island Federal District Court Decision with Pinti Implications

Posted By USFN, Tuesday, November 29, 2016
Updated: Monday, October 31, 2016

November 29, 2016

by Joseph A. Camillo, Jr. and Amy N. Azza
Shechtman Halperin Savage, LLP – USFN Member (Rhode Island)

On October 11, 2016 the District Court of Rhode Island issued a decision in Martins v. Federal Housing Finance Agency, C.A. No. 15-235-M-LDA, relating to compliance with the contractual terms of a mortgage. Specifically, plaintiff Martins filed suit alleging that the defendants Federal Housing Financing Agency, Fannie Mae, and Green Tree Servicing LLC violated her due process rights by failing to provide her with proper notice pursuant to paragraph 22 of her mortgage, and thus conducted an invalid foreclosure. Fannie Mae voluntarily rescinded their nonjudicial foreclosure but filed a counterclaim for judicial foreclosure.

While the nonjudicial foreclosure sale was rescinded — and any claims premised on the nonjudicial foreclosure were rendered moot — the court noted that Martins raised serious issues about the constitutionality of Fannie Mae’s procedures in a nonjudicial proceeding, and that “someone with skin in the game should litigate the issue.” This, no doubt, will open the door to borrowers alleging a constitutionally defective foreclosure under section 22, if not followed.

More importantly, the court in Martins reasoned that the change in process of foreclosure (from nonjudicial to judicial) does not alleviate compliance with the paragraph 22 notice requirements in the mortgage. Despite the fact that the judicial foreclosure statute (R.I. Gen. Laws § 34-11-22) does not expressly require compliance with the mortgage document, if a mortgagee agrees to give a certain notice before a foreclosure (judicial or nonjudicial) then the mortgagee must do that which it agreed, and comply with paragraph 22 of the mortgage as a matter of contract law.

In conclusion, just as the Massachusetts Supreme Court ruled in Pinti v. Emigrant Mortgage Company, Inc., SJC-11742 (July 17, 2015), that a foreclosing mortgagee must send borrowers a default notice that complies strictly with the requirements of the mortgage, the Martins decision (although a federal district court case) serves notice in Rhode Island that lenders seeking to foreclose in Rhode Island (judicially or nonjudicially) must strictly comply with section 22 of the Fannie Mae/Freddie Mac uniform instrument. Servicers should review their Rhode Island default notices carefully to ensure compliance verbatim with the mortgage terms for all nonjudicial and judicial foreclosures.

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