Damages for a Security Deposit Violation in Massachusetts

The Massachusetts Supreme Judicial Court issued an important decision on Massachusetts’s security deposit law earlier this year which clarifies the damages than a tenant can obtain from a security deposit violation.

In Phillips v. Equity Residential Management, LLC, the Supreme Judicial Court held that treble damages are not required for every security deposit violation.  Like Massachusetts’s security deposit law itself, Phillips is a complex case.

Overview of Massachusetts’s Security Deposit Law 

Massachusetts’s security deposit law heavily regulates a landlord’s acceptance, holding, and return of a tenant’s security deposit.  This law is so detailed that I, along with many other landlord/tenant attorneys, warn landlords to never accept a security deposit.  This law, among other things, has requirements on where a security deposit must be held, what information must be provided to a tenant about the acceptance of the deposit, and what deductions may be taken from the deposit at the end of the tenancy.

Damages for a Security Deposit Violation

Failure to comply with the security deposit law can come with harsh consequences.  The law imposes treble damages, attorney fees, and costs for failure to comply with many of its detailed requirements.  In Phillips, the Supreme Judicial Court clarified which security deposit violations permit treble damages against a landlord.

The security deposit law contains a number of “forfeiture” provisions, where a landlord is required to automatically return a deposit.  The law also imposes treble damages for a failure to “return to the tenant the security deposit or balance thereof to which the tenant is entitled after deducting therefrom any sums in accordance with the provisions of this section, together with any interest thereon, within thirty days after termination of the tenancy.”  Phillips determined whether a tenant gets treble damages for failing to return a portion of the deposit that was otherwise forfeited under the law.

Prior to Phillips, many courts took the position that treble damages applied anytime a landlord violated the security deposit law.  Now, the law is clear that for some violations of the law, a tenant is simply entitled to the full return of his deposit, without treble damages.

Conclusion 

While Phillips places limits on the damages one can receive for a security deposit violation, it would be a mistake to under estimate the importance of complying with this law if you are a landlord, and understanding its protections for tenants if your security deposit has been wrongfully withheld.

In my opinion, one of the dire consequences of Phillips is that tenants may not be able to obtain attorney fees for certain security deposit violations.  They may be able to get their full deposit back, but nothing for the expenses of hiring an attorney to assist with the case, making it cost prohibitive to hire a lawyer for such a matter: the reason why the harsh penalties of this law exist in the first place.

However, there is an often unknown law that may provide help in such a scenario.  G.L. c. 186, § 20 provides that, if there is a written lease agreement allowing the landlord to get attorney fees against a tenant, the tenant is also allowed attorney fees against a landlord for any violation of the lease agreement.  This law suggests that a tenant may be able to obtain attorney fees for security deposit violations that are not within the scope of treble damages, attorney fees, and costs, per Phillips.

If you find yourself involved with a security deposit violation, contact me for a consultation.  An experienced attorney is essential in one of these tricky matters.

Preserving a “Pinti” Defense – Paragraph 22 of the Standard Mortgage

The Massachusetts Appeals Court issued an important decision this week on preserving a “Pinti” defense under paragraph 22 of the standard mortgage.  In US Bank v. Milan, the Appeals Court ruled that a homeowner failed to preserve this foreclosure defense and was precluded from raising it in his foreclosure case (a full copy of this decision is below).

Overview of Paragraph 22 of the Standard Mortgage

Paragraph 22 of the standard mortgage (used for most residential home purchases) requires that a default notice be sent to a homeowner containing a number of required disclosures before a foreclosure sale can proceed.  In Pinti v. Emigrant Mortgage, the Supreme Judicial Court held that a lender must strictly comply with this mortgage requirement.  Failure to do so makes any subsequent foreclosure sale void.

Pinti, importantly, limited the homeowners who were entitled to this defense.  Initially, the decision only applied to those paragraph 22 notices sent after July 17, 2015 (the date of Pinti).  The Appeals Court subsequently extended the benefit of Pinti to those homeowners who had a pending appeal on the paragraph 22 issue, and later, to any homeowner who raised it as a defense in a pending trial court case.  In this present appeal, the Appeals Court needed to determine what counts to preserve this defense in a pending foreclosure case.

How Does a Homeowner Preserve a Paragraph 22 Defense? 

In this case, the homeowner was in a post-foreclosure eviction case, where the bank alleged to have foreclosed the home.  The homeowner was entitled to defend against the eviction by arguing that the foreclosure was void, precluding the bank from obtaining possession of the home.

Here, the homeowner appears to have answered the bank’s eviction lawsuit by using a printed answer form, which allows claimants to raise defenses and counterclaims by checking a box.  This homeowner made a general allegation that the foreclosure was void.  In response to the bank’s inquiry on the basis of this defense, the homeowner alleged that there was forgery in his case, and did not mention a failure to comply with paragraph 22 of his mortgage.  While this case was ongoing, the Supreme Judicial Court issued Pinti.  The trial judge ruled that Pinti applied because the homeowner preserved a Pinti defense in this case, and found the overall foreclosure to be void.

The Appeals Court disagreed, ruling that the homeowner listed forgery, and not a paragraph 22 defect, as the asserted grounds for the homeowner’s foreclosure defense.  In other words, the Court was not willing to let the homeowner “change horses midstream” and get the benefit of Pinti after stating a prior, separate basis for his foreclosure defense.

Conclusion 

Recent court cases have been favorable to foreclosed homeowners with a paragraph 22 defect.  Milan suggests that there are limits to who can get the benefit of Pinti  in their case, and that a failure to expressly raise this matter can be fatal to one’s defense.  This decision, however, really only applies to homeowners with a pending foreclosure case who received a defective paragraph 22 notice before July 17, 2015.  Homeowners who received a defective notice after this date will likely have much more leeway in raising a Pinti defense.

While the Court did not address this issue, Milan touches upon the problems of using forms in answering or bringing a lawsuit.  Such forms allowed a claimant to raise a defense or claim merely by “checking a box” and without providing any supporting facts or detail.  I have long believed that these forms are problematic and not proper under the requirements for raising a legal claimMilan suggests that Massachusetts appeal courts may be inclined to take a closer look at this issue in the future.  Regardless, this is a reason why the benefits of finding an experienced foreclosure defense attorney cannot be overstated.

US Bank v. Milan

SJC Extends Paragraph 22 Defense

The Supreme Judicial Court issued an important ruling last weekend extending the “paragraph 22 defense” to other homeowners facing foreclosure.  In Federal National Mortgage Association v. Marroquin, the Court extended the benefit of the prior Pinti v. Emigrant Mortgage decision to those homeowners who similarly challenged a foreclosure based on non-compliance with paragraph 22 of the standard mortgage (a full copy of the decision is included below).  This is alot of information to take in at once, so read on for a “non-lawyer” explanation!

Paragraph 22 of the standard mortgage is a provision in a typical mortgage agreement that requires a foreclosing entity to provide a default notice to borrowers prior to foreclosure.  This notice requires specific disclosures that need to be given to the borrower.  In the wake of the recent foreclosure crisis, many of these notices have had errors, and have not included all of the required disclosures.  A paragraph 22 defense is a challenge to a foreclosure based on non-compliance with this mortgage requirement.

In Pinti v. Emigrant Mortgage, the Supreme Judicial Court determined that the failure to strictly comply with this mortgage requirement made the foreclosure void.  Pinti, importantly, required “strict compliance” for this part of the mortgage: a borrower does not need to show any harm from such a defect to challenge the foreclosure.  The Court’s decision in Pinti was “prospective”: it would only apply to the homeowners in Pinti and future foreclosure challenges based on non-compliance with paragraph 22.  In Aurora Loan Services v. Murphy, the Appeals Court extended the Pinti ruling to other cases on appeal at the time of the Pinti decision.

In Federal National Mortgage Association v. Marroquin, the Supreme Judicial Court needed to decide whether a paragraph 22 defense could be raised by a homeowner who had a trial court case pending at the time of Pinti.  This would include post-foreclosure eviction cases and Superior and Land Court challenges to foreclosure.  In  Marroquin, the Supreme Judicial Court extended Pinti to these cases as well.  If a homeowner had raised a paragraph 22 defense in one of these cases at the time of Pinti, “strict compliance” would apply.

Marroquin will likely apply to only a small range of cases.  The Supreme Judicial Court did not suggest that the prospective ruling of Pinti has changed.  In other words, a homeowner who did not properly preserve a paragraph 22 defense will not be helped by Marroquin.  As this decision comes over 1.5 years after Pinti, there are likely many homeowners who had such viable defenses, but failed to preserve them, on the belief that Pinti’s  prospective ruling would not let this defense apply to their case.

This is my main complaint with Marroquin and the Supreme Judicial Court’s other decisions on paragraph 22.  The Court in Pinti knew that the issue of the paragraph 22 defense would come before the Court again.  Why the Court could not have addressed this matter in the first place, making these later decisions unnecessary, is beyond me.  Nonetheless,  Marroquin fully resolves the scope of this defense for homeowners with a paragraph 22 defect.

If you find yourself in need of assistance with foreclosure, contact me for a consultation.

Federal National Mortgage Association v. Marroquin

SJC Rules that Failure to Send a Postforeclosure Notice Does Not Invalidate A Foreclosure

The Supreme Judicial Court issued a decision this week on postforeclosure notices, and whether the failure to send one invalidates a foreclosure sale.  In Turra v. Deutsche Bank, the Court ruled that the failure to send one of these notices does not void a foreclosure (disclosure: this was my appeal!).  A full copy of the decision is below.

The law in question, G.L. c. 244, § 15A, requires a mortgagee to notify the local municipalities of a foreclosure thirty days after the sale has occurred.  As the Court acknowledged in Turra,  prior court decisions suggested that strict compliance with this law was required to perform a lawful foreclosure.  The question in Turra was whether this was such a requirement, and whether a failure to comply with this step would invalidate a foreclosure.  Turra determined this statute isn’t grounds for challenging foreclosures.

I don’t read Turra to suggest that a failure to comply with a postforeclosure notice requirement can never be used to challenge a foreclosure.  If a homeowner or someone else is actually harmed from a bank’s failure to send such a notice, this violation may potentially be a consumer protection claim.  Turra is clear, however, that such a violation, on its own, is not enough to be a foreclosure defense.

While Turra wasn’t the outcome I wanted, I’m pleased that the Supreme Judicial Court acknowledged the basis for my argument, and conceded  that its prior caselaw suggested this was a plausible defense.  The decision mentions two other decisions where courts came out the oppositie way on this question of law (one of these decisions was one of my other cases using this defense).  You can’t win ’em all!

Turra has an important lesson of wisely choosing a foreclosure defense strategy.  The Internet is filled with foreclosure defense hoaxes and myths that do struggling homeowners more harm than good in trying to save their homes.  A review of unsuccessful foreclosure defense cases in state and federal court shows dozens of cases lost on the same arguments that courts routinely reject.  My strategy in defending homeowners is to make arguments that have a basis in law, and reject arguments that don’t work.  I reject the “kitchen sink” approach to foreclosure defense, where one raises every argument they can think of, irrespective of whether the claim has any hope of succeeding.  It is far better, in my opinion, to stick with arguments that work, and try new approaches.   While not successful in this case, my legal argument on these postforeclosure notices succeeded in several of my other cases, and helped keep a deserving family in their home.  If you find yourself facing foreclosure, don’t rely on an Internet myth to defend yourself: contact an experienced attorney for assistance.

Decision

Attorney Sherwin Argues Foreclosure Appeal Before Massachusetts’s Supreme Judicial Court

SJC

I had the honor of arguing before the Massachusetts Supreme Judicial Court (“SJC”) this week on a foreclosure appeal.  The SJC is Massachusetts’s highest court and the final decision maker on Massachusetts law.  The SJC often takes cases where the law in a particular area is uncertain.  In recent years, the SJC has heard an increasing number of foreclosure cases, which shows that this area of law continues to evolve.

My appeal concerned whether G.L. c. 244, § 15A, a law requiring a mortgagee to inform a local municipality about a foreclosure sale thirty days after it happened, is a requirement of the foreclosure process.  Different courts across Massachusetts have taken different positions on this, making this a matter that the SJC needs to resolve.  Click here to watch the oral argument.

My experience before the SJC reminded me of the importance of having an attorney who knows and understands the process of pursuing an appeal.  A appeal is a review of a case that was heard before a trial judge or jury; the appellate judges do not hear the testimony of witnesses or review evidence, and are limited to reviewing the entire record presented in the lower court.  A foreclosure appeal is a particular challenge to bring: foreclosure law constantly changes, and a successful appeal requires knowing and understanding the most recent changes in the law.  My appeal will likely be decided in the next three to four months, stay tuned!

I was deeply humbled by my appearance before the SJC.  With the recent election forcing many Americans to look closely at our form of government, I had a chance to see Massachusetts’s highest court up close.  I many not always agree with the SJC’s decisions, but I can’t doubt the Court’s sincerity and devotion to the “rule of law” in our state.  I’m proud to be a Massachusetts attorney and look forward to continuing my practice in this great state.

If you are in need of an appellate attorney, contact me for a consultation.  The importance of having an experienced appellate attorney on your side can be the difference between winning or losing your case.

Appealing a Foreclosure Case

Courtroom

A recent Massachusetts Supreme Judicial Court decision illustrates the importance of properly appealing a foreclosure case.  The Court’s decision reaffirms that a homeowner has one–and only one–opportunity to appeal an unfavorable court decision.

In Eresian v. Merill Lynch Credit Corporation, the Supreme Judicial Court upheld the denial of a homeowner’s attempt to overturn a decision in a foreclosure case from the 1990s (a copy of the full decision is below). The homeowner attempted to file an appeal of this decision in 2015, years after the 1993 foreclosure case.  The Appeals Court rejected this appeal, and stated that the case was closed.  The homeowner then attempted to petition the Supreme Judicial Court for a subsequent order to review her prior decision.  Here, the Supreme Judicial Court rejected this requested relief, noting that the homeowner had already obtained an appeal of her decision, and there was no reason for the Court to allow her the opportunity for another review of the case.

The Court’s decision in this case reaffirms an important lesson for homeowners fighting foreclosure: there are few, if any, “do overs” in matters of law.  If a homeowner loses their foreclosure case and wishes to appeal, they get one–and only one–chance at appeal. Rarely will a homeowner ever be able to come back later for a second shot.

With this in mind, homeowners should strongly consider consulting an experienced foreclosure defense attorney in appealing a foreclosure case.  The risks of not doing the job right the first time just aren’t worth it.

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FHA Loan Foreclosure Requirements

SJC

The Massachusetts Appeals Court issued an important decision on FHA loan foreclosure requirements in Jose v. Wells Fargo Bank (full decision below).  This decision reaffirms the strict requirements that come with foreclosing one of these loans.

A Federal Housing Administration (“FHA”) loan is a loan guaranteed by the federal government, aimed at helping lower income Americans buy homes.  For purposes of foreclosure, FHA loans have much detailed and elaborate requirements than traditional, private loans.  One of these requirements is a “face-to-face meeting” prior to accelerating the loan and foreclosure. This requires the lender to actually meet with the borrower before going forward with the foreclosure process, in an effort to help avoid foreclosure.  This requirement has a practical purpose: the federal government backs these loans if the borrower defaults, so the lender should be making every effort possible to avoid foreclosure.

Jose v. Wells Fargo Bank concerned one of the exceptions to the face-to-face meeting requirement, which allows a lender to avoid this requirement if it has no offices within 200 miles of the borrower.  Wells Fargo argued that this exception applied because there were no branch offices of the mortgagee (the holder of the loan) within this distance from the borrower.  Wells Fargo, undeniably, had branch offices of its servicer within 200 miles of the borrower (who is responsible for the day to day responsibilities of administering the loan).

The Court rejected this argument, holding that under the plain terms of the law, an office within 200 miles of either the mortgagee or servicer does not allow a foreclosing entity to qualify for this exception to the FHA loan foreclosure requirements.  As such, the lender was required to do a face-to-face meeting with the borrower, and its failure to do so made the foreclosure void.

This decision is an important win for homeowners, in that it makes this exemption to the FHA loan foreclosure requirements less viable for many lenders, who frequently have loan servicing offices across the state.  The decision also reaffirms the need to strictly comply with these FHA loan requirements, and the consequences of a lender’s failure to do so.

If you have a FHA loan and are facing a possible foreclosure, contact me to see if I can be of assistance.

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Santos v. U.S. Bank: Loan Modification Denial

SJC

The Massachusetts Appeals Court issued an important decision last week in Santos v. U.S. Bank (full decision below) regarding a loan modification denial.  The Court rejected the borrower’s negligence claim, but acknowledge that other grounds exist for fighting a loan modification denial. (Disclaimer: I was involved briefly in both the trial court and appeal of this case).

In Santos, the homeowner was denied a loan modification under the Home Affordable Modification Program (“HAMP”), a federal program that encourages servicers to give struggling homeowners a loan modification.  HAMP, by all accounts, has been a mess: servicers routinely “loose” required paperwork for these applications, deny borrowers for baseless reasons, and stall the process as long as possible.  The failure to properly review these applications, in my opinion, is a major reason for thw continued foreclosure crisis across the country.

After being denied a loan modification, the homeowner in Santos sued the servicer on a claim of negligence: a cause of action against someone for failure to take proper care in doing something (negligence claims are often raised in personal injury cases).  One of the required elements for a negligence claim is that the opposing party have a duty of care to the claimant.  In Santos, the Appeals Court rejected the borrower’s lawsuit because the Court determined that the loan servicer owed no duty of care to the borrower for reviewing his loan modification (despite being a participant in the HAMP program).  Because the servicer owed no duty to the borrower, the borrower in Santos was not permitted to pursue a negligence claim.

The Appeals Court did, however, acknowledge that other grounds could be used for fighting a loan modification denial, such as a Consumer Protection Law (“Chapter 93A”) claim.  To bring such a claim, however, the borrower needs to do more than merely alleged that the servicer failed to follow the HAMP guidelines but instead, that the servicer committed unfair and deceptive business practices (a higher burden than negligence).

Santos illustrates a strange paradox in foreclosure defense: participating loan services in the HAMP program are required to consider homeowners for loan modifications, but failure to properly review a modification application, by itself, will not provide a homeowner with their “day in court” on these matters.  This occurrence is frustrating for homeowners (and foreclosure defense attorneys!) who see that an applicant is entitled to a loan modification, but may not necessarily have a legal cause of action on this important matter.

Santos also discussed another important legal question: whether homeowners can “split” foreclosure defenses in different cases. The Court ruled on the homeowner’s attempt to pursue a foreclosure defense that he had an opportunity to do in the prior, post-foreclosure eviction case (the homeowner filed this case after being evicted from the home).  The Court ruled that res judicata, a legal defense preventing a party from raising claims in multiple cases, barred the homeowner’s later attempt to pursue this defense.  A homeowner, simply put, gets “one bite at the apple” in fighting a foreclosure.  If a homeowner does not raise a foreclosure defense in their legal case, they run the risk of losing it forever.

So, what are the take home lessons from Santos?

  1. Pursuing a case for a loan modification denial requires a showing of a pattern of abuse by the lender in reviewing an application.  Homeowners pursuing a loan modification should always, always keep a paper trail on their application attempts to help build such a case if a lawsuit becomes necessary.
  2. A successful foreclosure defense requires a homeowner to pursue all of their potential claims in a lawsuit, or risk losing them down the road.  This often becomes an issue for homeowners who attempt to represent themselves in court, fail to raise important defenses, and find themselves with limited options if their initial lawsuit is unsuccessful: a reason why such claimants should speak with a foreclosure defense attorney to discuss their options.
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Fannie Mae v. Rego: Supreme Judicial Court Permits a Chapter 93A Defense to Foreclosure

 

SJC

The Massachusetts Supreme Judicial Court issued Fannie Mae v. Rego today, an important foreclosure law decision that permits a Chapter 93A defense to foreclosure (full copy of the decision is below).  Chapter 93A, the common name for Massachusetts’s Consumer Protection Law, is a broad consumer statute that prohibits “unfair and deceptive practices” by businesses.  Chapter 93A claims are commonly used for monetary damages, and can provide an an award of treble damages against a party who violates this law (along with attorney fees).  The question for the Court was whether a Chapter 93A defense could be raised to void a foreclosure (as opposed to simply awarding a party money).

Rego  was an appeal of a post-foreclosure eviction (“summary process”) case, where the homeowner was defending against the eviction of his home on the grounds that the foreclosure was void.  The homeowner brought a counterclaim (a lawsuit brought in the same case against the original party who filed the suit) for violation of the Consumer Protection Law.  Here, the trial court dismissed this counterclaim, without offering a real reason for doing so.  The Supreme Judicial Court held in Rego that a homeowner is permitted to raise a Chapter 93A defense in a eviction foreclosure case that goes to the issue of possession of the property; in other words, whether the foreclosure was done correctly.  If this is the relief sought by a Chapter 93A claim, Rego suggests that it can be raised in a post-foreclosure eviction case.  If the Chapter 93A merely seeks monetary damages, such a claim is not allowed in one of these cases (and would have to brought separately).

Rego, in my interpretation, is an important decision because it clarifies that a Chapter 93A claim may be used to void a foreclosure sale.  Many lawyers (and some judges) are not aware that Chapter 93A provides a court with equitable relief.  Equitable relief  is a remedy that goes beyond money damages, and requires a party to act or refrain from performing a particular act.  This type of relief is especially important in foreclosure defense, where the homeowner isn’t looking for money as a defense to foreclosure; the homeowner instead wants the foreclosure reversed.  Rego, in my interpretation, holds that there is a Chapter 93A defense to foreclosure; something that was less clear before today’s decision, where some trial courts took the position that money was the only award from a foreclosure that violated Chapter 93A.

 Rego also decided another issue of foreclosure law: whether an attorney could perform a foreclosure on behalf of a mortgagee without written authorization.  The relevant foreclosure law, G.L. c. 244, Section 14, seemed to suggest that such a writing was required for attorneys who performed foreclosures.  The Supreme Judicial Court held that no such writing is required, and that legal counsel may perform the steps of the foreclosure process without written authorization.  Although the bulk of  Rego was spent on this narrow issue of law, the Court’s decision is unsurprising:  I am aware of only one trial court decision that came out in the homeowner’s favor on this argument (with the overwhelming majority following the reasoning of  Rego).

 Rego

Sherwin Law Firm To Argue Foreclosure Defense Appeal Before Supreme Judicial Court

SJC

The Supreme Judicial Court has granted direct appellate review for one of my upcoming foreclosure defense appeals.  Direct appellate review allows the Supreme Judicial Court (Massachusetts’s highest court) to hear an appeal pending before the Appeals Court (the appellate court that is responsible for initially hearing appeals).  Direct appellate review is often granted for pressing issues of law that the Supreme Judicial Court believes is necessary to resolve as soon as possible.

This appeal is whether a mortgagee’s failure to comply with G.L. c. 244, § 15A (which requires notices to be sent after the foreclosure sale) invalidates a foreclosure.  This law has been included as among the requirements for a Massachusetts foreclosure and trial courts are divided as to whether this is a valid foreclosure defense.  Stay tuned!