NICHOLAS MCPICKOLUS REALTY CORPORATION, CHARLES S. ROSENBLUM, d/b/a RICHARDSON INVESTMENTS, and RONALD M. STONE vs. JAMAICA PLAIN COOPERATIVE BANK and MANN, MANN AND RODGERS FUNERAL HOME, INC.

This action originally was commenced in February of 1979 with the filing of a complaint in which it was alleged that the defendant, Jamaica Plain Cooperative Bank, (the "Bank") had foreclosed a mortgage from David L. Siersdale to it covering the premises at 405 South Huntington Avenue in Boston in the County of Suffolk, and recorded with Suffolk Deeds, [Note 1] Book 8670, Page 430 (the "Mortgage") by exercise of the power of sale therein (Defendants' Exhibit No. 2), that the amount bid at the sale on January 26, 1979 resulted in a surplus over and above the outstanding principal, accrued interest and reasonable costs of the foreclosure, that a new sale had been scheduled and that the new sale was an attempt to avoid any surplus. An injunction to restrain the second sale was denied on March 16, 1979, and thereafter, the plaintiffs were allowed to amend their complaint by adding Mann, Mann and Rodgers Funeral Home, Inc., the purchaser at both sales as a party defendant, and by alleging that only the new defendant had assurance that the Bank would grant it a mortage, that announcement of a lis pendens on the premises as well as the mortgage commitment chilled the sale and that the Bank had violated an agreement which it had made with Ronald M. Stone, the principal in the corporate plaintiff. Stone claimed that the Bank had assured him that the sums added to the principal balance of the Siersdale mortgage at the time of its assumption would bring it current, that subsequently the City of Boston sought payment of overdue real estate taxes, that he was unable to obtain an accounting from the Bank or an explanation as to the amounts due, that frustration led him to cease making mortgage payments in April of 1978 and that he always stood ready, willing and able to do so. The failure of the plaintiff, Nicholas McPickolus Realty Corporation, to make any mortgage payments after April 11, 1978 (Plaintiffs' Exhibit No. 4) led to the foreclosure proceedings which the plaintiffs attack.

A trial was held at the Land Court on February 4 and 5, 1982 at which a stenographer was appointed to record and transcribe the testimony. All exhibits introduced into evidence are incorporated herein for the purpose of any appeal. The defendant, Mann, Mann & Rodgers Funeral Home, Inc., moved for a directed verdict at the close of the plaintiffs' case which was taken under advisement and now is denied.

On all the evidence, I find and rule as follows:

1. David L. Siersdale granted the mortgage to the Bank in the original principal amount of $30,000 on October 31, 1973.(Defendants' Exhibit No. 2). Siersdale apparently owned several rental properties in the environs of Jamaica Plain and in due course appears to have fallen on hard times. The plaintiff, Nicholas McPickolus Realty Corporation, (the "Realty Corporation") took over ownership from him in 1976 of a package of such properties upon payment of a token purchase price. Stone was unable to estimate for the Court the amount paid for locus which was conveyed to the Realty Corporation by David L. Siersdale, et al, Trustees, by deed dated January 7, 1976 and recorded in Book 8844, Page 102 (Defendants' Exhibit No. 1) [Note 2] on January 12, 1976. The deed recites that the consideration is nominal, and the Court so finds. Stone testified that he acquired nine or ten pieces of property from Siersdale, that he gave him some money at the closing and promised to give him some in the future. Stone who described himself as a real estate developer and syndicator now lives in New York, but was based in Boston during the relevant periods of time. He has been a member of the Massachusetts bar since 1967 and is a licensed real estate broker in the Commonwealth.

2. After negotiations with Siersdale, Stone approached the Bank to work out arrangements for the assumption of the Mortgage. He requested that everything be brought current, and the Bank was willing to accommodate him by adding the amount of the arrearages due to it to the then principal balance of the note secured by the Mortgage. At the time of the Realty Corporation's takeover of Siersdale's note, the maker was in default on payment of interest in the amount of $793.40, tax account payments of $900.43 and fire insurance premium in the amount of $370, a total of $2,063.83. Four payments of principal, interest and taxes had not been made (Plaintiffs' Exhibit No. 5). However, there was a balance in the escrow account prior to the mortgage takeover of $1,623.90. There was no evidence as to whether Siersdale assigned these moneys to Realty Corporation, but it in fact received the benefit of them in the payment of tax bills.

3. Stone executed an agreement with the Bank on behalf of Realty Corporation dated February 1976 for changes on direct reduction mortgage. The principal balance at that time was $27,936.17. [Note 3] To this was added accrued interest of $793.40, taxes owed of $900.43 [Note 4] and insurance paid of $370. The total of these sums was $30,000, the new principal amount. The agreement extended the maturity of the note and mortgage from October 31, 1980 to January 31, 1991 and decreased the monthly payments of principal and interest from $295.48 to $292.48. The agreement was executed on behalf of the Bank by William Morton, assistant treasurer, who was a witness at the trial. Morton had been with the Bank less than six months at the time of this transaction and left in August of 1976.

4. At the time Realty Corporation acquired title to locus Stone did not himself examine the title nor did he have the title to locus examined by another, nor did he obtain a certificate of municipal liens. So far as appears he did not ask the Bank's attorneys to represent him in the transaction nor did he request a title opinion from them.

5. In November of 1977 Stone received a notice from the City of Boston that there were outstanding taxes affecting the locus. Realty Corporation did not introduce the notice at the trial nor did it ever consult the office of the Collector of Taxes for the City of Boston to ascertain the history of the tax delinquency and the amount then due. Rather, Realty Corporation, acting through Stone, haunted the late Lorraine Deagle, Treasurer of the Bank, for an explanation. He also took his complaints to other officers and the Security Committee, but he never went to the one entity who could supply him with an answer.

6. The Bank for its part was unable to answer from its own records the tax history of locus and apparently blamed the problem on the then recent computerization of its records. There was a suggestion, perhaps by Stone, that payments he made on another mortgage and those on the mortgage on locus might have been misapplied, but Plaintiffs' Exhibit Nos. 2, 3, and 4 belie that.

7. Evidence at the trial failed to resolve the questions of what the state of payment of municipal liens on locus was during the period from January 1976 to March 1978. A copy of a certificate of municipal liens dated January 26, 1976 was introduced as Defendants' Exhibit No. 5 which showed the second half of fiscal 1975 taxes due May 1, 1975, unpaid with demand and interest in the total amount of $1,259.06. At that time, the sewer use fee for 1974 of $37.58 and water charges of $330 also were unpaid. A later certificate dated August 15, 1978 (Plaintiffs' Exhibit No. 6) showed 1975 and 1977 fiscal years to be in tax title in the amount of $2,559.95, and 1976 and 1977 sewer use fees of $11.62 and 1977 water charges of $359.55 owed the City of Boston. Plaintiffs' Exhibits Nos. 2, 3 and 4 show substantial tax payments in calendar years 1976, 1977 and 1978. Without the actual tax bills and calendar 1974 and 1975 payment schedules, the Court cannot reconcile the figures to determine the history of the municipal liens on locus.

8. It would seem that it may have been bank counsel who obtained the earlier of the certificates of municipal liens at the time the board was considering Stone's offer to assume the Mortgage, but it is unclear from the evidence that this is so, when it was received and to whom the information was communicated.

9. After Stone received word of the tax arrearages he haunted the Bank's treasurer for an explanation and ceased making any payments to the Bank, a course of conduct in which he persisted even with foreclosure sales scheduled.

10. The building on the premises had been a doctor's office and home for many years. Siersdale had converted it into rental property, but it was never registered with the Boston rent control board. Stone collected the rents prior to the foreclosure and made some repairs, but generally the property appeared unattractive and in disrepair.

11. The plaintiff Rosenblum is said to have a second mortgage on the property, but it was not introduced at the trial.

12. The first foreclosure sale was held on January 26, 1979 at which the defendant Mann, Mann and Rodgers Funeral Home, Inc. (the "funera1 home") was the successful bidder through its officer, A. Gerald Rodgers. The funeral home operated by the defendant was located next door to the locus, and the conditions of the locus distressed him. Mr. Rodgers read of the sale in the Jamaica Plain Citizen. The terms of the sale required a deposit of two thousand dollars and an assumption of the taxes. After the conclusion of the sale the funeral home was granted a mortgage loan by the Bank. The amount of the successful bid was $34,300.00.

13. The Bank's counsel determined that there was a flaw in the legal technicalities relative to the first sale, and a second foreclosure sale was advertised for February 23, 1979 and adjourned to March 16. The funeral home again was the successful bidder at a price of $34,500 which was greater than that bid in January. The Bank still was holding the funeral home's deposit from the abortive sale, and no new deposit was required of it. A new memorandum of sale which gave the purchase price of $34,500, a deposit of $2,000, and a closing date in thirty days with title to be conveyed by a good and sufficient foreclosure deed was executed by the funeral home after the conclusion of the sale. (Plaintiffs' Exhibit No. 8). Stone had testified that more people were present at the first sale, Rodgers that there were more at the second sale. At the latter sale the announcement was made of the lis pendens (Plaintiffs' Exhibit No. 7) placed on record by counsel for the plaintiff, Realty Corporation, after this court refused to enjoin the second sale.

14. After the second sale, the funeral home executed a new mortgage loan application for $30,900 which was granted, and title to the premises was taken in accordance with the memorandum of sale.

15. Since the acquisition of title, the funeral home has caused the building to be rewired, new meters were installed, the plumbing is now being brought up to code, the hot water system was replaced, some or all of the roof and gutters were replaced, but more work still remains to be done. In addition, the locus was registered with the rent control board. The present rents for the six apartments total about $1,300 per month.

16. Rodgers' opinion of the value of the property in 1980 after the work was done was $70,000 and at the time of the trial, $85,000 to $100,000. Stone placed the value at $80,000 to $85,000 in February of 1979. A witness for the plaintiffs, Eliott Conviser, a general contractor, was, of the opinion that the value was $80,000 to $100,000 at that time "depending on the repair work and cosmetic work if properly marketed." The Court excluded the opinion of a member of the Bank's security committee who is a real estate appraiser since he had not actually been in the building.

17. Stone testified at the trial that he had discussed a sale of the locus with Rodgers prior to either foreclosure sale, but Rodgers in turn testified only as to the complaints he had directed to Stone arising from the condition of the property.

The plaintiff through Stone claims that its agreement with the Bank was that title to the premises was to be free and clear of all liens to third parties. I find on the contrary that when the Realty Corporation took over Siersdale's obligations to the Bank, its principal, Ronald Stone, requsted that all obligations to the Bank be made current, and this was done. The sums owed the Bank were added to the principal balance and in effect loaned by the Bank to Realty Corporation. What the parties neglected to deal with were sums owed to third parties. I find that the arrangement worked out between Stone and Morton, the bank representative dealing with the assumption, was not directed to moneys due others but only to sums owed to the Bank. Stone as a lawyer knew, or should have known, that a certificate of municipal liens was the only accurate way of ascertaining amounts due the City of Boston. He was negligent in protecting his interests at the time of the Siersdale acquisition by failing to run the records at the Registry and to obtain a report from the Boston Collector of Taxes. It is understandable that he followed this course, for he paid nothing for the locus at the time of the closing with Siersdale and doubtless hoped that the rents would offset the Mortgage payments. Once the unpaid taxes surfaced, a reasonable man, at least when the Bank was unable to explain satisfactorily the nature of the problem, would have sought information from the City. Stone never did this and never resumed making mortgage payments. There unquestionably was a continuing default at the time of the foreclosure sales, and the Bank clearly had the right to foreclose. Upon breach of the conditions of a mortgage the mortgagee is entitled to make an open and peaceful entry on the mortgaged premises, which if continued for three years would be effective to foreclose the mortgage [Note 5] and also to foreclose by exercise of the power of sale. Joyner v. Lenox Savings Bank, 322 Mass. 46 (1947). That being so, we are left with two principal questions for decision: a) whether the failure of the Bank to announce that motgage financing was available invalidated the sale when one potential purchaser presumably would be granted a loan by the Bank, and b) whether the announceuent of the lis pendens chilled the sale. The burden of proof is on the plaintiffs to establish the defective nature of the foreclosure sale. The rule governing them is well settled. As was said in Sandler v. Silk, 292 Mass. 493 , 496 (1935).

"It has become settled by repeated and unvarying decisions that a mortgagee in executing a power of sale contained in a mortgage is bound to exercise good faith and put forth reasonable diligence. Failure in these particulars will invalidate the sale even though there be literal compliance with the terms of the power. Krassin v. Moskowitz, 275 Mass. 80 , 82, and cases cited. Dexter v. Aronson, 282 Mass. 124 , 127. Boyajian v. Hart, 284 Mass. 557 , 558. Cambridge Savings Bank v. Cronin, 289 Mass. 379 , 382. This duty and obligation as to good faith and reasonable care extends for the benefit and is available for the protection not only of the mortgagor but of those claiming in his right, including those holding junior encumbrances or liens. The mortgagee is a trustee for the benefit of all persons interested. Bon v. Graves, 216 Mass. 440 , 446. Winchester Rock & Brick Co. v. Murdough, 233 Mass. 50 , 54. Clapp v. Gardner, 237 Mass. 187 , 191. Brooks v. Bennett, 277 Mass. 8 , 16. Markey v. Langley, 92 U. S. 142, 155."

Lexington Trust Co. v. McCabe, 313 Mass. 733 , 735 (1943) and Sher v. South Shore National Bank, 360 Mass. 400 , 401-403 (1971) are in accord.

The Supreme Judicial Court has repeated many times that mere inadequacy of price alone does not show bad faith or lack of due diligence. Once the duty is fulfilled by the mortgagee to the mortgagor and the bidding starts, a mortgagee may buy as cheaply as he can. Seppala & Aho Construction Co. v. Peterson, 373 Mass. 316 , 328-9 (1977).

If we apply these principles here, the conduct of the sale gives no course for complaint.

So far as the question of financing is concerned, the instant case is very similar to Manoog v. Miele, 350 Mass. 204 , 207 (1966). In Manoog, prior to the sale, the mortgagee had entered into a purchase and sale agreement covering the mortgaged premises subject to his acquiring title; the purchase price set forth in the agreement was greater than that bid by the mortgagee at the sale. An instruction was requested and refused that this conduct constituted bad faith. The Supreme Judicial Court decided that the question raised by the request was one of chilling the sale which it held to be a complex question of fact "which cannot be said to hinge solely upon the existence of a differential between the agreement price and the foreclosure sale price." (At page 208).

The same is true of the instant case. The plaintiff would have me find that the commitment by the Bank to the funeral home, the successful bidder at the first sale, imposed a requirement at the second sale that the auctioneer announce that the Bank might make mortgage financing available. The Bank was not required to make such an announcement. It is true that Rodgers might well have assumed from the prior commitment granted to the funeral home, from other financial dealings with the Bank, from his relationship with the Bank's president (a friendly competitor) and from the retention of the funeral home's deposit that a commitment might be forthcoming after the second sale. There was no necessity for the Bank to make an open ended commitment to others who might wish to bid, however, for it would be impossible to determine in advance of the fall of the hammer whether they were qualified. The facts in Manoog would seem to have had a more chilling effect on the sale than in the case at bar; in addition, Manoog establishes the necessity of considering all factors as a whole and not relying on only one aspect of the sale to establish the chilling. The mortgagee is not to be discouraged from dealing with persons prior to the sale who otherwise might not be interested in the property.

So too must the question of the announcement of the "lis pendens" be viewed. As to it, however, I further find and rule that the plaintiffs are barred from attacking the sale on this ground. After the complaint was filed, the plaintiffs sought an injunction in this Court to restrain the Bank from conducting the sale, and it was denied. The lis pendens then was recorded in Book 9159, Page 651(Plaintiffs' Exhibit No. 7). The plaintiffs anticipated that recording the lis pendens would compel the Bank to postpone the sale and that they would achieve by indirection the injunction the Court had denied. They elected to follow one course and misjudged the results. The Bank was forced by the plaintiffs' action to announce the existence of the lis pendens, for if it had not, the purchaser at theforeclosure sale might have had an excuse for not consummating the transaction.

The plaintiff offered no evidence that he was financially able to make the mortgage payments which he had refused to make and which led to the foreclosure sale. The payments were in default, and the Bank had the right to institute the foreclosure proceedings.

On all the evidence, I find and rule that the Bank did not assure the Realty Corporation that there were no unpaid charges due to third parties at the time the Siersdale obligations were assumed, that the agreement was to add the arrearages due the Bank to the principal amount secured and to increase the term thereof which was done, that the failure to offer financing to any purchaser at the sale and the announcement of the existence of the lis pendens did not improperly chill the sale, that the actions of the Bank were done in good faith and that it used reasonable diligence to protect the rights of the mortgagor and those claiming under him.

The plaintiffs requested that the Court make thirty-three findings of fact and rulings of law. Requests Nos. 1, 5, 7, 15, 21, 22, 23, 27, 30 are granted. The other requests are denied either as being inconsistent with the findings and rulings I have made, or as being immaterial or as incorrectly stating the law.

Judgment accordingly.