ROBERT C. MACKAY vs. HIBERNIA SAVINGS BANK and THE MASSACHUSETTS GENERAL HOSPITAL.

By complaint filed on January 2, 1990, Robert C. MacKay ("Mackay" or "Plaintiff") seeks a declaration that the foreclosure sale of certain property previously owned by him, located at 301-303 Cambridge Street in Boston ("Locus"), which was conducted by the Defendant, Hibernia Savings Bank ("Hibernia"), on December 11, 1989, and all title resulting therefrom, are void. MacKay further seeks an order directing the Defendant, Massachusetts General Hospital ("MGH"), to convey Locus to him, as well as an award of damages, interest and costs from Hibernia. The complaint also sets forth a second count against Hibernia for actual damages, treble damages, attorneys' fees, interest and costs for unfair and deceptive business practices, pursuant to G.L. c. 93A, §2. [Note 1]

On January 23, 1990, MGH filed an answer to the complaint, along with a counterclaim against MacKay, pursuant to G.L. c. 240, §6. By its counterclaim, MGH requested that the Court remove a cloud on its title to Locus, by declaring that, at the time Hibernia foreclosed on Locus, MacKay was not in the military service within the meaning of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended ("the Act"). Thereafter, on January 29, 1990, Hibernia filed an answer and counterclaim to the complaint. By its counterclaim, Hibernia requested that the Court order MacKay to pay its costs and expenses, including attorneys' fees, in connection with this action, and that the balance of the proceeds from the foreclosure sale of Locus be distributed to any parties having an interest therein, in accordance with the priority of their interests as established by the Court.

On February 2, 1990, the Plaintiff filed a motion to dismiss Hibernia's counterclaim under Mass. R. Civ. P. 12 (b) (6) and for an immediate payment from Hibernia of the surplus funds from the subject foreclosure sale. These motions were denied on February 12, 1990.

On May 25, 1990, MGH brought a motion to amend its counterclaim, so as to include an additional count for an order directing MacKay to immediately vacate both the residential and commercial/retail units of Locus and enjoining MacKay from further trespass upon such premises and from interference with MGH's use and enjoyment of these premises. This motion was allowed on June 1, 1990 and the amended Counterclaim was filed on June 4, 1990. The parties filed a statement of certain stipulated facts on July 23, 1990. This statement was entered into evidence as Exhibit No. 14 at trial.

On August 3, 1990, pursuant to G.L. c. 211B, §9, Judge Robert V. Cauchon was assigned to sit in the Superior Court Department of the Trial Court for purposes of determining the disposition of this matter.

Trial commenced September 10, 1990, at which time the Court appointed a stenographer to record and transcribe the testimony. At this time, Hibernia moved to dismiss Count II of the Plaintiff's complaint, which motion was taken under advisement. The trial continued to September 12, 1990, at which time the Court granted Hibernia's motion to dismiss. Thereafter, on September 14, 1990, the Plaintiff moved that the Court reconsider its order. The Court heard arguments on this motion at the third and final day of trial on October 17, 1990, at which time Plaintiff's motion was denied. Twelve (12) witnesses testified and thirty (30) exhibits were introduced into evidence. All of the exhibits are incorporated herein for purposes of any appeal.

On all of the evidence, including the facts so stipulated, I make the following findings:

1. Locus is situated at 301-303 Cambridge Street in Boston. It is a 6 1/2 story building, consisting of retail uses in the basement area and on the first floor, and residential apartment uses on the second through the sixth floors. The residential units on the second through the fifth floors are two-bedroom apartments. The sixth floor unit is a one-bedroom penthouse apartment.

2. MacKay has resided in the sixth floor apartment at Locus since 1972. In 1977, after securing the necessary financing from Hibernia, MacKay purchased the property. The loan was secured by a mortgage on Locus.

3. Experiencing financial difficulties in 1988, MacKay began to discuss selling Locus to one Ismail Z. Ali-Ameri ("Al-Ameri"). Thereafter, Al-Ameri offered MacKay approximately $950,000.00 for the property, but this offer was refused. [Note 2]

4. On November 1, 1988, MacKay refinanced his mortgage ("Mortgage") (Exhibit No. 1) to Hibernia and wrote a new note ("Note") (Exhibit No. 2) in the amount of $654,823.04 due in one year.

5. Insofar as MacKay made no payments on the Note, thus failing to comply with the payment terms of the Note, Hibernia, in early 1989, declared a default and began fast-track foreclosure proceedings. [Note 3]

6. Hibernia scheduled the foreclosure sale for June 28, 1989 and hired Paul Traverse of the J.W. Traverse Insurance Real Estate Company ("Traverse") to conduct the public auction. Legal notice of the auction was published in the Boston Herald for three (3) consecutive weeks prior to the scheduled date (See Exhibit No. 3). In addition, during the weeks prior thereto, Hibernia placed display advertisements, which included a photograph of Locus, in the Boston Globe and the Boston Herald on three (3) occasions, the Banker and Tradesman on two (2) occasions and the New England Real Estate Journal on one occasion (See Exhibit No. 4). These advertisements did not mention whether or not the sale was being conducted with the benefit of the Act. In response to the advertisements, Hibernia received telephone calls from, and kept a list of the names of, parties interested in the auction (See Exhibit No . 15).

7. Pursuant to a proposal suggested by MacKay, the foreclosure sale scheduled for June 28, 1989 was cancelled. [Note 4]

8. In September of 1989, MacKay filed a petition under Chapter 11 of the Bankruptcy Act. On October 24, 1989, the U.S. Bankruptcy Trustee moved to dismiss the petition, which motion was assented to by MacKay. Thereafter, on November 24, 1989, the motion was allowed.

9. As of October 1989, the Mortgage Note remained in default and Hibernia resumed foreclosure proceedings on the Mortgage. A public auction was scheduled for November 2, 1989, with legal notice thereof being published in the Boston Herald for three (3) consecutive weeks prior thereto (See Exhibit No. 5). This legal notice contained the following language:

This property is to be conveyed without benefit of proceedings under the [Soldiers' and Sailors' Act]. It is to be conveyed subject to the condition that the Buyer will cooperate with the Mortgagee, at no expense to the Buyer, in filing a Petition to Quiet Title or similar action in order to resolve title issues arising under these circumstances. Upon request, Ticor Title Insurance Company will issue affirmative insurance against any loss or damage arising out of a determination that Robert C. MacKay is entitled to the benefit of the [Soldiers' and Sailors' Act].

Additionally, Hibernia placed display advertisements in the Boston Globe on two (2) occasions, the Boston Herald on one occasion and the New England Real Estate Journal and Banker and Tradesman on three (3) occasions prior to the scheduled sale (See Exhibit No. 6). These advertisements contained the following language:

This sale is being conveyed without the benefit of the Soldiers' and Sailors' Civil Relief Act. Title insurance is available for this matter.

10. Hibernia mailed notice of the scheduled November 2, 1989 foreclosure sale to those persons who had shown an interest in the June sale. Hibernia also received many telephone calls from persons interested in attending the November sale (See Exhibit No. 16).

11. At the scheduled time and place for the November 2, 1989 foreclosure sale, Mr. Davis, an auctioneer with the J.W. Traverse Insurance Real Estate Company, publicly announced that the sale was postponed until November 27, 1989. This postponement was requested by MacKay in light of his pending Chapter 11 proceedings.

12. Hibernia telephoned those persons who had evidenced an interest in the November 2 sale, for purposes of notifying them of the new date (See Exhibit No. 16).

13. Approximately one week prior to November 27, 1989, MacKay requested that Hibernia again postpone the foreclosure sale of Locus. Hibernia agreed and, at the scheduled time and place for the November 27 sale, Traverse publicly announced that the sale was postponed until December 11, 1989. At this time, there were only three (3) persons present for the sale; Peter Schwartz, a friend of MacKay ("Schwartz''), and Andrew Puglia, MacKay's attorney ("Puglia") and MacKay himself.

14. During the week prior to the scheduled December 11, 1989 sale, Hibernia placed display advertisements in the Boston Globe, including the Sunday edition on December 10, 1989, and the Boston Herald. (See Exhibit No. 7) Additionally, Hibernia telephoned approximately twenty-two (22) persons who had previously shown an interest in the auction, to apprise them of the new date.

15. On December 11, 1989, Traverse conducted a public auction of Locus, on the sidewalk in front of the property. [Note 5] Approximately nine (9) persons appeared for the auction, but only four (4) registered to bid; Robert Pyer, Assistant Vice President of Hibernia ("Pyer"), John Codman, Jr., a licensed real estate broker ("Codman"), Schwartz and Puglia.

16. Upon opening the bidding at the auction, Traverse received a bid of $450,000.00 from Hibernia. Codman then entered a bid for $500,000.00, which was followed by a bid from Hibernia for $550,000.00. A fourth bid was then entered by Codman for $600,000.00. Neither Schwartz nor Puglia advanced any bids for the property. Inasmuch as Codman's bid remained unchallenged, Traverse announced that Locus was sold for $600,000.00. Hibernia and Codman then executed a memorandum of the sale and the auction was terminated.

17. In accordance with a decision of MGH's Board of Trustees, Codman attended the auction and bid on Locus on behalf of MGH (See Exhibit No. 8). [Note 6] The conveyance to Codman is evidenced by a deed from Hibernia, dated December 18, 1989, recorded at Book 16017, Page 183 in the Suffolk County Registry of Deeds (Exhibit No. 9) and the subsequent transfer is evidenced by a deed, for the stated consideration of $1.00, dated December 19, 1989, recorded at Book 16017, Page 187 in the Suffolk County Registry of Deeds (Exhibit No. 10).

18. After paying the outstanding balance on the Mortgage Note, interest and costs, as determined by Hibernia, from the proceeds of the foreclosure sale, thre was an excess of approximately $8,000.00, which amount is currently held by Hibernia.

19. Neither MacKay nor anyone else expressing an interest in Locus is, or has been in the military service since the granting of the mortgage.

20. As of the time of the foreclosure sale, MacKay was residing in the sixth floor apartment of Locus. He was also operating a bicycle shop in the basement of the premises. At the present time, he has no lease with MGH for either the apartment or the retail use. MGH has requested no rent from MacKay in either instance.

21. On December 27, 1989, MacKay received notice from MGH, dated December 26, 1989, that he must vacate both the sixth floor apartment and the bicycle shop at Locus. Despite this notice, MacKay continues to occupy both portions of the premises.

22. An appraisal of Locus obtained by Hibernia in April of 1989 indicated a value, based upon the legally authorized income from rental of the units, of $400,000. The opinion of an expert presented by MacKay placed the value as of December 11, 1989, at $780,000. The difference between the two opinions primarily resulted from the experts' differing understandings as to the status of rent control as a factor. Hibernia's appraiser valued the property on the basis of income realizable from the legally authorized rents; MacKay's appraiser proceeded on the assumption that the property either was or could be as a matter of course made free from rent control.

23. In November, 1989, MacKay applied to the Boston Rent Equity Board ("the BREB") for vacancy decontrol certificates for the four apartments on the second, third, fourth and fifth floors of Locus (Exhibits No. 21-24). The BREB granted three certificates in January 1990 (Exhibit No. 12) and denied the fourth (for Apt. No. 4). Another application for a decontrol certificate on Apartment number four (4) was denied in August 1990 (Exhibits No. 25 and 26).

There is no credible evidence that the nature or timeliness of the foreclosure sale was unreasonable or caused MacKay damages. Accepting the estimates of either Hibernia's or MacKay's appraiser, the price paid for Locus was either 150% or 77% of its fair market value, respectively. Given the difficulty that MGH had in obtaining rent de-control along with the uncertainty in such a process, I find that while the potential for vacancy decontrol certainly has some value, the units were not guaranteed such decontrol as a matter of course and the fair market value must reflect that fact. Further, the Court has explained that "when land is sold, by auction, under a power contained in a mortgage, it seldom, if ever, brings a price which reaches its real value." Seppala & Aho Construction Co. Inc. v. Petersen, 373 Mass. 316 , 328 (1977); Austin v. Hatch, 159 Mass. 198 , 199 (1893). Accordingly, I find that MacKay has proven no damages.

Further, the selling price at a foreclosure sale is only one factor in determining whether the sale was proper. Union Market National Bank v. Derderian, 318 Mass. 578 , 582 (1945); Chartrand v. Newton Trust Company, 296 Mass. 317 (1936). Under Massachusetts law, the mortgagee must act as a reasonably prudent person would in selling his own property, Kavolsky v. Kaufman, 273 Mass. 418 , 422 (1930); Clark v. Simmons, 150 Mass. 357 , 360 (1890) and has duties of good faith and reasonable diligence in selling the property. Seppala at 320. The Bankruptcy Court found too rigid a 70% litmus test (the sale price being 70% or more of the fair market value) established in Durrett v. Washington National Insurance Company, 621 F.2d 201 (5th Cir. 1980) and found a case by case analysis more appropriate. In Re Ruebeck, 56 Bankr. 163 (D. Mass. 1987). [Note 7] That Court applied the broad standard of commercial reasonableness under the Uniform Commercial Code, looking to the nature and extent of the sales efforts as well as the sale price. In Re General Industries, 79 Bankr. 124 (D. Mass. 1987). In Ruebeck, "the sale of (the) property was chilled by three unadvertised continuances." Id. at 170, and in General Industries the sale was advertised by "minimal and rather legalistic statutory notice . . ." General Industries at 134. In the present case, Hibernia adequately publicized the sale by the combination of advertising in major metropolitan newspapers and making telephone calls to prospective bidders prior to the sale.

Further, although the sale was postponed once and further delayed twice more, I find that inasmuch as MacKay was responsible for those delays, he cannot now claim he was damaged thereby. The cancellation of the sale of June 28, 1989 was suggested by MacKay and due to an agreement created for MacKay's benefit. Similarly, upon the request of MacKay, the November 2, 1989 sale was postponed.

MacKay argues that the sale was "chilled" by being advertised to be conducted without the benefit of the Act. The Court has held that failure to comply with the Act does not in and of itself render the foreclosure invalid as to anyone not entitled to its protection. Beaton v. Land Court, 367 Mass. 385 (1975). Further, MacKay has failed to prove that a potential buyer would be dissuaded by a Hibernia's failure to comply with the Act. The expenses incurred by a potential buyer in bringing suit under the Act after purchase are minimal compared to the value of Locus. Moreover, the mortgagee agreed to provide title insurance against any possible claim under the Act. One reason why Hibernia decided to use the "fast track" foreclosure process was that it was faced with a declining real estate market and feared that Locus's value would diminish even further if the sale was forced to await proceedings under the Act. As demonstrated by Plaintiff's own appraiser, the value of Locus had declined about $100,000 during the prior year.

Accordingly, I find that the "fast track" procedure in this instance where the real estate market was in substantial decline, where the mortgagee advertised that it would supply title insurance and where the mortgagor was not a member of the service and there were no known claimants under the Act, was not improper.

Plaintiff submitted a Post-Trial Memorandum and Defendants have submitted Proposed Findings of Fact and Conclusions of Law. I have not attempted to rule on each of said Proposals as I have made my own findings on the questions of fact which I deem material and on the law which I believe is applicable. MacKay suggests in his Post-Trial Memorandum that I reconsider my decision to dismiss Count Two of the Complaint alleging a violation under G. L., c. 93A. After a thorough reading of that Memorandum, I affirm the dismissal of that Count.

For the reasons mentioned above, I rule that as between MGH and MacKay, MGH has superior title to Locus and hereby order MacKay to vacate both the residential and commercial/retail units of Locus. I also enjoin MacKay from further trespass upon Locus and from interfering with MGH's use and enjoyment of Locus. Inasmuch as MGH seeks to remove any possible cloud on title under the Act, it may do so by bringing a separate action under G. L., c.240; §6 and taking the required procedural steps.

Hibernia shall furnish Mackay an accounting of any remaining excess from the sale. The Court will retain jurisdiction should there be any disagreement over such amount.

Judgment accordingly.