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SJC-12325
JAMES B. NUTTER & COMPANY vs. ESTATE OF BARBARA A. MURPHY & others1 (and two consolidated cases2).
Suffolk. October 2, 2017. - January 18, 2018.
Present: Gants, C.J., Lenk, Gaziano, Lowy, Budd, Cypher, & Kafker, JJ.
Mortgage, Foreclosure. Real Property, Mortgage.
Civil actions commenced in the Land Court Department on October 27, 2015; January 28, 2016; and February 11, 2016, respectively.
A motion for partial judgment on the pleadings was heard by Robert B. Foster, J., and the cases were reported by him to the Appeals Court.
The Supreme Judicial Court on its own initiative transferred the cases from the Appeals Court.
1 Patrick F. Murphy, individually and as personal representative of the estate of Barbara A. Murphy; Thomas E. Murphy; John F. Murphy; Mary C. Murphy; Internal Revenue Service, Technical Service Group; Massachusetts Department of Revenue -- Estate Tax Unit; and Secretary of Housing and Urban Development. 2 James B. Nutter & Company vs. Estate of Mary B. Jamieson & others; James B. Nutter & Company & another vs. David E. Sweeney & others. 2
Daniel Bahls (Uri Strauss also present) for Brett Jamieson. Effie Gikas Tchobanian for the plaintiff. Elaine Benkoski, for Estate of Barbara A. Murphy & others, was present but did not argue.
GANTS, C.J. In 2007 and 2008, three elderly homeowners
obtained loans from James B. Nutter & Company (Nutter), 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, Nutter now seeks to foreclose on
the mortgages. Rather than proceed directly to foreclosure,
however, Nutter brought separate actions in the Land Court
against each borrower or the executors of their estate,3 seeking
in each case a declaratory judgment allowing it to foreclose
pursuant to the statutory power of sale.
Each of the reverse mortgages adhered to Nutter's standard
form, which 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 we must
resolve is whether this language in the reverse mortgage
incorporates the statutory power of sale as set forth in G. L.
c. 183, § 21, and allows Nutter to foreclose on the mortgaged
3 While litigation was pending, the third borrower also died. James B. Nutter & Company (Nutter) amended its complaint, naming the executors of her estate as defendants. 3
property in accordance with the requirements in § 21. We hold
that it does.
Background. 1. Reverse mortgages. For many retirees, one
of the most reliable potential sources of income in later life
is the accrued equity in their homes. See Consumer Financial
Protection Bureau, Issue Brief: The costs and risks of using a
reverse mortgage to delay collecting Social Security, at 8
(2017). In order to secure cash for their living expenses, many
retirees choose to borrow against their home equity. Id. at 9.
One way for them to do so is through a home equity
conversion mortgage, which is a unique kind of loan available to
homeowners age sixty-two or older. See Consumer Financial
Protection Bureau, Reverse Mortgages: A Discussion Guide, at 1,
3 (2017). These mortgages are commonly referred to as "reverse
mortgages" because, instead of making payments to the lender,
the borrower receives cash from the lender, either as a line of
credit, in monthly payouts, or as a lump sum. Id. at 3, 12. As
in a traditional mortgage, a reverse mortgage is secured by the
borrower's home. Unlike a traditional mortgage, however, the
loan does not become due until the borrower dies or no longer
lives in the home; interest and fees are added to the loan
balance over time and the entire balance is typically paid from
the sale of the home. Id. at 3, 7. 4
Another distinctive feature of a reverse mortgage is that
typically it secures a nonrecourse loan, meaning that the
borrower is not personally liable for repayment of the debt. In
other words, the lender must "look exclusively to the mortgaged
property for repayment." Summers v. Financial Freedom
Acquisition LLC, 807 F.3d 351, 355 (1st Cir. 2015).4
2. Nutter's actions for declaratory judgment. Nutter uses
a standard form for its reverse mortgages. Paragraph 9 of this
form states the grounds for acceleration of the debt. It
provides that Nutter can require immediate payment in full if,
among other grounds, the borrower dies, or the mortgaged
property is no longer the borrower's principal residence.
Paragraph 10 provides that the borrower shall have no personal
liability for repayment of the debt and that Nutter cannot
obtain a deficiency judgment against the borrower in the event
of foreclosure: "Lender may enforce the debt only through sale
of the Property." Paragraph 20 outlines Nutter's remedies in
the event of default. It states, in relevant part:
4 To give an example of one way a reverse mortgage works, suppose a sixty-two year old homeowner has recently retired and decides to take out a loan of $250,000, secured by a reverse mortgage on her home. She receives the $250,000 as a lump sum, continues to live in her home, and makes no payments to the lender during her lifetime. The entire $250,000 loan becomes due, along with the accrued interest and fees, when she dies. Her heirs, who have inherited the home, must now repay the loan -- which they can do by selling the home. If they do not repay the loan, the lender's only option is to foreclose on the mortgage and sell the home. 5
"Foreclosure Procedure. If Lender requires immediate payment in full under Paragraph 9, Lender may invoke the power of sale and any other remedies permitted by applicable law. . . . At this sale Lender or another person may acquire the Property. This is known as 'foreclosure and sale.' In any lawsuit for foreclosure and sale, Lender will have the right to collect all costs allowed by law."
In these three actions, Nutter moved for partial judgment
on the pleadings, seeking a judicial declaration that the
language in paragraph 20 incorporates the statutory power of
sale as defined in G. L. c. 183, § 21. The judge granted
Nutter's motions, concluding that Nutter's reverse mortgage
incorporated the statutory power of sale by reference because
the statutory power of sale is a "remed[y] permitted by
applicable law." The judge reported the three cases to the
Appeals Court pursuant to Mass. R. Civ. P. 64 (a), as amended,
423 Mass. 1403 (1996), and we transferred them to this court on
our own motion.
Discussion. The interpretation of a contract is a question
of law, which we review de novo. See Balles v. Babcock Power,
Inc., 476 Mass. 565, 571 (2017). To determine whether Nutter's
reverse mortgages incorporate the statutory power of sale, we
must first examine the nature of the power of sale in
Massachusetts.
1. Power of sale. Massachusetts is a nonjudicial
foreclosure State, meaning that it "does not require a 6
[mortgagee] to obtain judicial authorization to foreclose on a
mortgaged property." U.S. Bank Nat'l Ass'n v. Ibanez, 458 Mass.
637, 645-646 (2011) (Ibanez). Since at least the beginning of
the nineteenth century, Massachusetts has allowed mortgagees to
foreclose without a judicial proceeding pursuant to the "power
of sale," if such power is granted in the mortgage itself. See
Eaton v. Federal Nat'l Mtge. Ass'n, 462 Mass. 569, 580 n.16
(2012). The power of sale evolved in recognition of "the desire
to have a more speedy process of foreclosing than was furnished
by suit or entry." Id. at 580 n.15, quoting A.L. Partridge,
Deeds, Mortgages and Easements 201 (rev. ed. 1932). It soon
became "a very frequent provision in deeds of mortgage." Id.,
quoting 1 F. Hilliard, Mortgages 119 (1856).
The Legislature has chosen to regulate the power of sale
through a detailed statutory framework, set out in G. L. c. 244,
§§ 11-17C. See Eaton, 462 Mass. at 581. Chief among these
statutory provisions is G. L. c. 244, § 14, which provides that
any foreclosure by power of sale will be ineffectual unless
certain notice requirements are met. See Eaton, supra at 581 &
n.17; Ibanez, 458 Mass. at 647-648.
The power of sale also is limited by the requirements of
G. L. c. 183, § 21, which was enacted in 1912 as part of "An Act
to shorten the forms of deeds, mortgages and other instruments
relating to real property." St. 1912, c. 502. See Pinti v. 7
Emigrant Mtge. Co., 472 Mass. 226, 235 (2015). As the title of
the act suggests, the purpose of § 21 was "to give the power of
sale [a] 'statutory form to shorten the length of mortgage
instruments.'" Id., quoting Eaton, 462 Mass. at 580 n.16.
Accordingly, § 21 defines the "statutory power of sale" and
provides that it "may be incorporated in any mortgage by
reference."5
But the statutory power of sale is far more than a mere
contractual shorthand; § 21 establishes affirmative requirements
that a mortgagee must meet in order to foreclose by power of
5 General Laws c. 183, § 21, provides:
"The following 'power' shall be known as the 'Statutory Power of Sale', and may be incorporated in any mortgage by reference:
"(POWER.)
"But upon any default in the performance or observance of the foregoing or other condition, the mortgagee or his executors, administrators, successors or assigns may sell the mortgaged premises or such portion thereof as may remain subject to the mortgage in case of any partial release thereof, either as a whole or in parcels, together with all improvements that may be thereon, by public auction on or near the premises then subject to the mortgage, or, if more than one parcel is then subject thereto, on or near one of said parcels, or at such place as may be designated for that purpose in the mortgage, first complying with the terms of the mortgage and with the statutes relating to the foreclosure of mortgages by the exercise of a power of sale, and may convey the same by proper deed or deeds to the purchaser or purchasers absolutely and in fee simple; and such sale shall forever bar the mortgagor and all persons claiming under him from all right and interest in the mortgaged premises, whether at law or in equity." 8
sale.6 See Eaton, 462 Mass. at 571 ("A foreclosure sale
conducted pursuant to a power of sale in a mortgage must comply
with all applicable statutory provisions, including in
particular G. L. c. 183, § 21 . . ."). Failure to strictly
adhere to the requirements of § 21 renders a foreclosure sale
void. Ibanez, 458 Mass. at 646-647.
2. Nutter's form reverse mortgage. In order for a
mortgagee to exercise the statutory power of sale, the mortgage
must itself grant such a power. See id. at 646. We conclude,
as several Land Court judges have concluded, that 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. See,
e.g., Norton v. Joseph, 17 Land Ct. Rptr. 40, 41 (2009), aff'd,
6 The Legislature has made this clear in the design of its statutory framework, which integrates § 21 into its other provisions regulating the power of sale in G. L. c. 244, §§ 11- 17C. For example, G. L. c. 244, § 15, requires a mortgagee who forecloses by power of sale to record an affidavit showing that "the requirements of the power of sale and the law have been complied with;" such an affidavit serves as "conclusive evidence . . . that the sale complied with [G. L. c. 244] and [G. L. c. 183, § 21]" (emphasis added). G. L. c. 244, § 15 (b), (c). 9
77 Mass. App. Ct. 1120 (2010), citing The Massachusetts Co. v.
Midura, 3 Land Ct. Rptr. 138, 138 (1995).
We agree with the Land Court judge that Nutter's reverse
mortgages do not incorporate the statutory power of sale under
either the first or third method. The mortgage does not recite
the exact language of § 21. Nor does it define a power
"substantially similar" to the statutory power of sale.
The more difficult question is 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." This is a
matter of contract interpretation, to which we apply the
traditional principles of contract law.
"[W]hen the language of a contract is clear, it alone
determines the contract's meaning." Balles, 476 Mass. at 571.
Contractual language is ambiguous "if it is susceptible of more
than one meaning and reasonably intelligent persons would differ
as to which meaning is the proper one." Citation Ins. Co. v.
Gomez, 426 Mass. 379, 381 (1998). When the language is
ambiguous, it is construed against the drafter, "if the
circumstances surrounding its use . . . do not indicate the
intended meaning of the language." Merrimack Valley Nat'l Bank
v. Baird, 372 Mass. 721, 724 (1977). "The author of the 10
ambiguous term is held to any reasonable interpretation
attributed to that term which is relied on by the other party."
Id. Finally, we construe a contract as a whole, so as "to give
reasonable effect to each of its provisions." J.A. Sullivan
Corp. v. Commonwealth, 397 Mass. 789, 795 (1986).
These familiar principles are supplemented with more
specific rules of construction where, as here, the contracts at
issue are standardized contracts of adhesion. Although
typically when confronted with ambiguous language a court will
examine extrinsic evidence to determine what the parties meant
the contract to say, see Bank v. Thermo Elemental Inc., 451
Mass. 638, 648-649 (2008), such an inquiry is impracticable
where the nondrafting party had no ability to influence the
language of the contract. See Restatement (Second) of Contracts
§ 211 comment c (1981) ("The customer [in a standardized
agreement] . . . is commonly not represented in the drafting").
Thus, when interpreting adhesion contracts, we seek to
effectuate, not the actual intentions of the parties in each
transaction, but instead the meaning an objectively reasonable
person in the nondrafting party's position would give to the
language in the contract. See, e.g., Golchin v. Liberty Mut.
Ins. Co., 466 Mass. 156, 159-160 (2013) (standard insurance
policies must be interpreted in light of "what an objectively
reasonable insured . . . would expect to be covered" [citation 11
omitted]). See also Restatement (Second) of Contracts, supra at
§ 211 comment e ("courts in construing and applying a
standardized contract seek to effectuate the reasonable
expectations of the average member of the public who accepts
it").
Here, having considered both the language of paragraph 20
and the form reverse mortgage as a whole, we conclude that the
mortgage is ambiguous as to whether it incorporates the
statutory power of sale. Paragraph 20 of the reverse mortgage
states that the "[l]ender may invoke the power of sale and any
other remedies permitted by applicable law." Because it omits
the word "statutory," this language is ambiguous on its face as
to whether it includes the statutory power of sale. The
inclusion of the phrase "and any other remedies permitted by
applicable law" does not eliminate this ambiguity because it can
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, and under standard rules of
grammar, the modifying phrase "permitted by applicable law"
would apply only to the immediately preceding term -- that is,
"any other remedies" -- and not to the term "power of sale."
See, e.g., Russell v. Boston Wyman, Inc., 410 Mass. 1005, 1006
(1991) ("The 'rule of the last antecedent' holds that
'qualifying phrases are to be applied to the words or phrase 12
immediately preceding and are not to be construed as extending
to others more remote'" [citation omitted]).
This ambiguity is only exacerbated by the surrounding
language. See Balles, 476 Mass. at 572 ("To determine whether
[contractual] language . . . is ambiguous, we look both to the
contested language and to the text of the contract as a whole").
The reverse mortgage contains language that appears to
contemplate judicial foreclosure rather than foreclosure by
power of sale: paragraph 11 of the mortgage provides that the
borrower's right of reinstatement "applies even after
foreclosure proceedings are instituted" (emphasis added), and
paragraph 20 states that "[i]n any lawsuit for foreclosure and
sale, Lender will have the right to collect all costs allowed by
law" (emphasis added). Such language is plainly inconsistent
with the practices of a nonjudicial foreclosure State like ours.
In addition, the notice that Nutter is required to send to
the borrower under paragraph 20 states, "Borrower has the right
in any lawsuit for foreclosure and sale to argue that Borrower
did keep promises and agreements . . . and to present any other
defenses that Borrower may have" (emphasis added). In the past,
we have found substantially similar language contained in a
notice of default to be seriously misleading to borrowers. In
Pinti, 472 Mass. at 241-242, we noted the significant risk of
confusion that stemmed from such language, explaining: 13
"[I]n a nonjudicial foreclosure jurisdiction like Massachusetts, misstating . . . information in a way to suggest that a mortgagor with a defense does not need to initiate a lawsuit but may wait to respond to a foreclosure lawsuit filed by the mortgagee can have disastrous consequences for the mortgagor: if the mortgagor has a valid defense to the foreclosure sale going forward, but is not made aware that he or she must initiate an action in court against the mortgagee to raise that defense, the sale may well proceed and result in title passing to a bona fide purchaser without knowledge of the issue -- at which point . . . the mortgagor's right to redeem his or her home may well be lost." 7
The cases on appeal here are distinguishable from Pinti,
where the issue was whether the default notice complied with the
requirements set out in the terms of the mortgage itself. See
id. at 243. But we draw a broader lesson from Pinti, which is
that in a nonjudicial foreclosure State like ours, generic
standardized language that does not reflect that fact creates a
needless risk of misunderstanding and confusion. Here, the
facial ambiguity of the phrase "power of sale and any other
remedies permitted by applicable law," combined with the
repeated references to judicial foreclosure throughout the
mortgage, renders the language in paragraph 20 "susceptible of
more than one meaning." Citation Ins. Co., 426 Mass. at 381.
Because the language in paragraph 20 has more than one
potential meaning and is in a contract of adhesion, we construe
7 The language at issue in Pinti v. Emigrant Mtge. Co., 472 Mass. 226, 237 (2015), contained in a default notice, stated that the borrowers had "the right to assert in any lawsuit for foreclosure and sale the nonexistence of default or any other defense". 14
it against the party that drafted it -- here, Nutter -- and
adopt the interpretation that an objectively reasonable borrower
of reverse mortgages would give to the language in the contract.
See Lechmere Tire & Sales Co. v. Burwick, 360 Mass. 718, 720-721
(1972) ("an 'adhesion' contract [is] to be construed strictly
against [the party] in whose behalf it ha[s] been drafted").
See also Restatement (Second) of Contracts, supra at § 211
comment c ("standard terms . . . are construed against the
draftsman"). We note that this analysis is necessary only
because of Nutter's draftsmanship. If the term "power of sale"
was meant to refer to the statutory power of sale, Nutter could
have avoided any ambiguity simply by adding the word
"statutory."8 Having said that, the rule construing ambiguities
against the drafter does not require us to adopt the
interpretation claimed by the estates of the borrowers in these
8 Nutter could have easily adopted the language in the standard form required by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) for mortgages executed in Massachusetts, which not only provides that the mortgagee may invoke "the STATUTORY POWER OF SALE," but also requires notice informing the borrower of "the right to bring a court action to assert the nonexistence of a default or any other defense" (emphasis added). Massachusetts--Single Family--Fannie Mae/Freddie Mac Uniform Instrument, Form 3022 (rev. 10/16). In contrast to the standard form mortgages required in judicial foreclosure States, it does not contain any language suggesting that foreclosure requires a judicial proceeding. Contrast with, e.g., New York--Single Family--Fannie Mae/Freddie Mac Uniform Instrument, Form 3033 (1/01) ("Lender may bring a lawsuit to . . . have the Property sold"). 15
cases. "A prerequisite to the application of [that] rule is
that the alternative interpretation placed upon the alleged
ambiguity . . . be, under all circumstances, a reasonable and
practical one" (citation omitted). Shea v. Bay State Gas Co.,
383 Mass. 218, 225 (1981).
Even construing the ambiguous language against Nutter, we
conclude that the only "reasonable and practical" interpretation
of the mortgage is that it incorporates the statutory power of
sale. Id. 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. Without a power of sale,
the only way that a lender can recover the principal of the
loan, not to mention interest and fees, is through foreclosure
by entry -- a process that would take three years -- or
foreclosure by action, "a method rarely used" in Massachusetts.
Beaton v. Land Court, 367 Mass. 385, 393 (1975).9 In these
9 In a foreclosure by entry, a mortgagee who peaceably enters a property and remains for three years, after recording a certificate or memorandum of entry, can thereby foreclose the borrower's right of redemption. G. L. c. 244, §§ 1, 2. In a foreclosure by action, the mortgagee must sue to foreclose on the property, in accordance with the ordinary rules of procedure governing all actions. G. L. c. 244, §§ 3, 4. See Beaton v. Land Court, 367 Mass. 385, 393 (1975). 16
circumstances, no reasonable borrower in Massachusetts would
expect that a lender would enter into a reverse mortgage without
retaining a power of sale. See Starr v. Fordham, 420 Mass. 178,
192 (1995) ("a contract should be construed to give it effect as
a rational business instrument" [citation omitted]).
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. The power of
sale -- that is, the power to foreclose without judicial
authorization -- cannot be exercised in Massachusetts unless it
conforms to the statutory requirements of § 21. The
Legislature's carefully crafted statutory framework leaves no
room for parties privately to agree on a purely contractual,
unregulated power of sale.10
To read the term "power of sale" in paragraph 20 as
referring to anything other than the statutory power of sale
would therefore render the provision a nullity, leaving the
10 Parties do remain free, of course, to include within a mortgage specific terms governing the exercise of the power of sale that add to the requirements of G. L. c. 183, § 21. This is specifically contemplated by § 21, which requires a foreclosure by power of sale to "comply[] with the terms of the mortgage" as well as the relevant statutes. See, e.g., Pinti, 472 Mass. at 243 (default notice violated condition precedent to exercise of power of sale contained in mortgage). 17
lender with no ability to obtain repayment through a power of
sale. See Ferri v. Powell-Ferri, 476 Mass. 651, 654-655 (2017)
("the court will prefer an interpretation 'which gives a
reasonable, lawful and effective meaning to all manifestations
of intention, rather than one which leaves a part of those
manifestations unreasonable, unlawful or [of] no effect'"
[citation omitted]). "It is neither reasonable nor practical to
interpret [a] clause as being meaningless." Shea, 383 Mass. at
225. We therefore conclude that no reasonable borrower in
Massachusetts would understand that this power of sale would be
anything other than a statutory power of sale.11
By interpreting Nutter's reverse mortgage to incorporate
the statutory power of sale, we bring these mortgages fully
within the regulatory ambit of the statutes and case law that
govern foreclosures in Massachusetts. Nutter may not foreclose
unless it strictly complies with the requirements in § 21, which
in turn requires strict compliance with all other statutes
related to the exercise of the power of sale. G. L. c. 183,
§ 21. See Eaton, 462 Mass. at 579-580; Ibanez, 458 Mass. at
646-648.
11 Such a reading would also present a contradiction with the phrase that follows the term "power of sale": ". . . and any other remedies permitted by applicable law." Presumably a mortgage that requires "other remedies" to be consistent with applicable law would not contemplate a power of sale that is not. 18
Conclusion. For the reasons stated above, we conclude that
the language of paragraph 20 of Nutter's reverse mortgages
incorporates the statutory power of sale as defined in G. L.
c. 183, § 21. We therefore affirm the orders allowing Nutter's
partial motion for judgment on the pleadings in each case.
Judgments affirmed.