HOME EQUITY LOAN PROGRAMS, INCORPORATED vs. SHAWMUT BANK N.A.

Home Equity Loan Programs, Incorporated, the holder of the third, fourth and fifth mortgages on registered land at 425 Beacon Street in the City of Boston, in the County of Suffolk, complains that Shawmut Bank N.A., the holder of the first and second mortgages on the premises, conducted its foreclosure sale pursuant to G.L. c. 244, §14 in such a way that the bidding at the sale was chilled. Specifically the plaintiff complains about the following provisions announced as a condition of the mortgage foreclosure sale held on December 13, 1990 at 10:00 A.M. at the premises:

a.) The successful bidder shall deposit the required deposit with the auctioneer, which deposit shall be forfeited if, after the premises are sold to him, the bidder shall refuse to execute a memorandum of sale, or if, after signing, the bidder does not perform his part of the agreement. In case of forfeiture, the deposit shall become the property of the seller and such forfeiture by the purchaser shall not release him from the agreement.

b.) The balance of the purchase price is to be deposited with Russell L. Chin, Esq., Catlin & Chin, 155 Federal Street, Boston, Massachusetts, 02110, in or within thirty (30) days from the date hereof, in cash, bank treasurer's check, or by certified check, pending approval of the sale by the Land Court Department of the Trial Court. Upon approval of the sale by said Court, the deed shall be taken by the within purchaser within ten (10) days. The forfeiture of said deposits, as above described, and the failure to perform in accordance with the terms and conditions of this Memorandum of Sale shall not relieve the purchaser from his liability under this sale.

c.) The title to the premises shall be that which was conveyed by the mortgage deed to the mortgagee and the purchaser shall take title to the premises by the usual deed under power.

d.) Premises shall be conveyed subject to any and all encumbrances prior to said Mortgage.

The mortgagors Robert and Judith Collier are not a party to this action. Since they heretofore have filed for bankruptcy protection pursuant to Chapter 11 and subsequently converted the proceedings to Chapter 7, they essentially no longer have any interest in the premises.

The mortgage foreclosure documents have been approved by this Court for registration pursuant to the provisions of St. 1943, Chapter 57, as amended prior to its most recent amendment by St. 1990, Chapter 496, effective January 1, 1991 and have been filed for registration with the Suffolk County Registry District of the Land Court. The defendant now has obtained a buyer for the premises and accordingly has moved to dismiss the complaint for failure to state a cause for which relief can be granted or alternatively for summary judgment (a Rule 12 (b) (6) motion). Each of the parties filed affidavits relative to the conduct of the sale, and there are no factual disputes. Accordingly I treat the motion as made pursuant to the provisions of Mass. R. Civ. P. 56.

Prior to the most recent statutory enactment many foreclosing mortgagees brought their complaints for leave to foreclose pursuant to the Soldiers' and Sailors' Civil Relief Act in the Land Court. The statutory scheme called for Court approval of the papers including the foreclosure deed and affidavit after the sale was consummated. Court policy has varied from time to time as to a requirement that the purchase price be paid before the documents are approved. The main reason for insisting in the past that this procedure be followed is that it presents additional burden upon limited judicial resources if the papers are approved by a justice and the buyer subsequently reneges. The current economic slowdown, however, has so overburdened the Court that the time for approval of a foreclosure deed after it is first filed with the appropriate clerk has increased, and some mortgagees may object to their papers being withheld from record pending Land Court approval. The foreclosing mortgagee in the present action chose to have the sale completed and the purchase price paid subject to the obtaining of Land Court approval with the deed to be delivered thereafter. This was an appropriate choice to be made by the defendant even though another mortgagee might choose to follow a different procedure. It did not chill the bidding at the sale. It was included in the statutory notice and was a procedure with which members of the bar are familiar.

The second provision as to which the plaintiff complains as set forth in subparagraph a.) above sets forth a standard provision of a purchase and sale agreement where the seller has an election either to accept the deposit as liquidated damages or to sue as well for specific performance. There is nothing objectionable in this practice.

The plaintiff also complains that the mortgagee undertook to sell only the title which was conveyed to it. Indeed this is the rule set forth in Goldman v. Damon, 272 Mass. 302 (1930) as that is all the mortgagee has to put on the auction block. However, if a mortgagee does not have a good record and marketable title, the event, the title in the present case had been registered pursuant to the provisions of G.L. c. 185 and it takes a minimum of effort to check the outstanding certificate in the applicable Registry of Deeds and any possible federal liens to learn what title questions, if any, there might be affecting the property. Once the title has been registered, the owner named in the outstanding title has virtually indefeasible title, and the certificate easily can be checked to be certain that there is nothing on the encumbrance sheet of which a buyer should be wary.

The applicable statute, G.L. c. 244, §14, provides that the deed delivered pursuant to the foreclosure

shall convey the premises, subject to and with the benefit of all restrictions, easements, improvements (and other outstanding matters] . . . whether or not reference to such restrictions, easements, improvements, liens or encumbrances is made in the deed; but no purchaser at the sale shall be bound to complete the purchase if there are encumbrances, other than those named in the mortgage and included in the notice of sale, which are not stated at the sale and included in the auctioneer's contract with the purchaser.

That language provides sufficient protection for the purchaser.

The standard in Massachusetts is clear that the sale must be conducted by a mortgagee "in exercising a power of sale in a mortgage . . . in good faith". The mortgagee must use reasonable diligence to protect the interest both of the mortgagor but also of those claiming in his right including those holding junior encumbrances or liens. Seppala & Aho Construction Co. v. Petersen, 373 Mass. 316 (1977), 146 Dundee Corporation v. Chemical Bank, 400 Mass. 588 (1987). The sale conducted on behalf of the defendant Bank met this criterion. There were six qualified bidders and at least nineteen bids, albeit by two or three parties bidding during the conduct of the sale. I find and rule that the sale met the common law criterion of fairness as well as the requirements of the General Laws. Moreover I point out that the total indebtedness due the defendant was well in excess of $400,000, and that it was unlikely that even if the plaintiff should prevail in this litigation, a second sale would bring a higher price. Circumstances which would produce a surplus for the junior mortgagee, the plaintiff herein, deem remote and accordingly the motivation for this litigation is dubious.

Judgment accordingly.