James B. Nutter & Co. v. Estate of Murphy

Citation: Not availableDocket: SJC 12325

Court: Massachusetts Supreme Judicial Court; January 17, 2018; Massachusetts; State Supreme Court

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All slip opinions and orders are subject to revision and are superseded by the Official Reports. Errors should be reported to the Reporter of Decisions at the Supreme Judicial Court in Boston. The case involves James B. Nutter Company against the Estate of Barbara A. Murphy and others, along with two consolidated cases. These civil actions began in the Land Court Department in late 2015 and early 2016, with a motion for partial judgment heard by Judge Robert B. Foster, and subsequently reported to the Appeals Court before being transferred to the Supreme Judicial Court.

In 2007 and 2008, three elderly homeowners obtained reverse mortgages from James B. Nutter Company. Following the deaths of two borrowers and the illness of the third, Nutter alleged defaults and sought to foreclose on the mortgages. Instead of directly pursuing foreclosure, Nutter initiated separate actions in the Land Court for declaratory judgments to enable foreclosure based on the statutory power of sale. Each reverse mortgage included language permitting the lender to invoke this power upon default.

The core issue is whether the reverse mortgage language incorporates the statutory power of sale outlined in G.L. c. 183.21, allowing Nutter to proceed with foreclosure per statutory requirements. The court determined that the language in the reverse mortgages does indeed incorporate this statutory power of sale. 

Reverse mortgages serve as a financial resource for retirees, allowing them to access home equity without immediate repayment obligations, with the loan becoming due only upon death or when the borrower no longer resides in the home. Interest and fees accrue over time, and repayment typically occurs through the sale of the property.

A reverse mortgage is typically a nonrecourse loan, meaning the borrower is not personally liable for repayment; repayment is solely through the mortgaged property. Nutter's reverse mortgage form stipulates in Paragraph 9 that the debt can be accelerated for reasons such as the borrower's death or if the property ceases to be the borrower's principal residence. Paragraph 10 specifies that the borrower has no personal liability for the debt, and Nutter cannot pursue a deficiency judgment in foreclosure, being limited to enforcing the debt through property sale. Paragraph 20 details Nutter's default remedies, allowing foreclosure and sale if immediate payment is demanded, with the lender entitled to recover costs allowed by law. Nutter sought partial judgment to confirm that Paragraph 20 incorporates the statutory power of sale defined in G. L. c. 183. The judge agreed, affirming that Nutter's reverse mortgage includes this statutory power of sale, which allows nonjudicial foreclosure without court authorization if granted in the mortgage. This power has existed since the early 19th century to expedite the foreclosure process and is governed by a detailed statutory framework, primarily G. L. c. 244, which outlines necessary notice requirements for effective foreclosure under power of sale. G. L. c. 183, enacted in 1912, further limits this power.

The act's intent is to provide a statutory framework for the power of sale in mortgages, aiming to simplify mortgage instruments. Section 21 defines the 'statutory power of sale' and permits its incorporation by reference in mortgages. However, it also imposes specific conditions that must be met by mortgagees to utilize this power for foreclosure. A foreclosure sale not adhering to these statutory requirements is deemed void. 

For a mortgagee to exercise the statutory power of sale, the mortgage must explicitly grant this power. There are three recognized methods for incorporating this power into a mortgage: (1) using the exact language of Section 21, (2) referencing it generally as 'statutory power of sale,' or (3) including similar language defining a comparable power. In this case, it is determined that Nutter's reverse mortgages do not incorporate the statutory power of sale through the first or third methods, as they fail to use the precise wording or provide a similar definition.

The more complex issue involves whether a particular paragraph in the mortgage adequately references the statutory power of sale, allowing the lender to invoke this power without explicitly stating it. The interpretation of this contractual language follows traditional contract law principles, where clear language dictates meaning, and ambiguous terms are construed against the drafter. In standardized contracts, where the nondrafting party cannot influence the language, the interpretation focuses on how a reasonable person in that party's position would understand it, rather than the actual intentions of the parties involved.

The reverse mortgage is deemed ambiguous regarding the inclusion of the statutory power of sale due to the language in paragraph 20, which states the lender may invoke the power of sale and other remedies permitted by applicable law, but omits the term 'statutory.' This ambiguity is compounded by the phrase 'any other remedies,' which can imply the exclusion of the statutory power of sale, adhering to the 'rule of the last antecedent.' The mortgage's wording suggests a preference for judicial foreclosure, as indicated by provisions allowing the borrower to reinstate rights after foreclosure proceedings and stating the lender's rights in lawsuits for foreclosure and sale. Additionally, the notice required to be sent to the borrower further implies judicial processes, potentially misleading the borrower regarding their rights and defenses. This concern aligns with previous rulings that highlighted the risk of confusion in nonjudicial foreclosure contexts. Given the ambiguity in paragraph 20 and the overall contract being a contract of adhesion, the language will be interpreted against Nutter, the drafter, in favor of an interpretation that an objectively reasonable borrower would adopt.

Nutter's draftsmanship created ambiguity regarding the term 'power of sale' in the context of reverse mortgages. The court determined that if Nutter intended to refer to the statutory power of sale, the inclusion of the word 'statutory' would have eliminated any confusion. However, the rule that ambiguities are construed against the drafter does not compel the court to accept the borrowers' interpretation unless it presents a reasonable and practical alternative. The court concluded that the only reasonable interpretation of the mortgage is that it incorporates the statutory power of sale, especially given the unique nature of reverse mortgages where borrowers do not make monthly payments and lenders' recourse is limited to foreclosure.

Without the statutory power of sale, the lender would face significant delays in recovering the loan amount, undermining the practical expectations of borrowers in Massachusetts. The court emphasized that, under state law, any power of sale must comply with statutory requirements set forth in G. L. c. 183, § 21, and that parties cannot agree to an unregulated, purely contractual power of sale. Interpreting the clause otherwise would render it ineffective, leaving the lender without a means for repayment. Thus, the court affirmed that the reverse mortgages in question must be interpreted as incorporating the statutory power of sale, requiring strict compliance with relevant foreclosure statutes. The court ultimately upheld the orders favoring Nutter's motion for judgment on the pleadings.