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Financial Services Law Insights and Observations

1st Circuit asks Massachusetts high court to resolve foreclosure question

Courts State Issues First Circuit Appellate Mortgages Foreclosure


On July 29, the U.S. Court of Appeals for the 1st Circuit certified to the Massachusetts Supreme Judicial Court the question of whether a national bank’s foreclosure notice was valid under Massachusetts law. According to the order, the appellate court granted the bank an en banc rehearing of its February decision, which concluded that the bank’s foreclosure notice was defective and therefore, it could not properly foreclose the mortgage. The court had reasoned that the notice, which stated that the homeowners “could avoid foreclosure if, but only if, the [homeowners] paid the balance due on or before the specified foreclosure date,” was defective because the mortgage required the homeowners to pay the amount at least five days before the foreclosure date. In its petition for rehearing en banc, the bank argued that a Massachusetts state banking regulation required it to use the specific language it had in the notice and that the panel erred in its reading of existing state court precedent. The appellate court noted that the position is debatable and that in a diversity jurisdiction action the court “cannot properly overturn governing state precedent.” Therefore, the appellate court withdrew its earlier opinion, vacated the judgment, and certified to the Massachusetts Supreme Judicial Court the question of whether the statement in the foreclosure notice would render the notice inaccurate or deceptive, voiding the subsequent foreclosure sale under Massachusetts law.