## Facts

- Janice M. Edry owned and lived in a single-family home in Acton, Massachusetts, encumbered by a mortgage held by Rhode Island Hospital Trust National Bank.
- Edry fell behind on mortgage payments beginning in 1994; by November 1995 the Bank accelerated the mortgage and proceeded to foreclosure.
- The Bank instructed its auctioneer to provide only the minimum statutorily required notice, consisting of small legal notices in a local newspaper.
- Evidence showed that the common practice for residential foreclosure sales in the area was to supplement legal notices with display advertisements in the real estate section, used in most comparable foreclosures.
- At the foreclosure auction, the Bank bid approximately the amount of its debt (about $85,500); the property was sold for $86,500.
- Expert testimony established the property’s fair market value at about $190,000, making the sale price roughly 45% of value.
- The Bank did not attempt to determine the property’s market value or take steps aimed at increasing bidder participation.
- The high bidder (Gurtler) had contracted to purchase but had not completed the transaction or fully paid the purchase price.
- After the foreclosure, Edry filed a Chapter 13 bankruptcy case and brought an adversary proceeding seeking to set aside the foreclosure; the court preserved the status quo by temporary restraining order and preliminary injunction pending trial.

## Issues

1. Whether a mortgagee that complies with statutory foreclosure procedures may nonetheless have a foreclosure sale set aside for failing to exercise good faith and reasonable diligence under Massachusetts law.
2. Whether intentionally limiting advertising to the statutory minimum, combined with a grossly inadequate sale price, constitutes a breach of the mortgagee’s duty to protect the mortgagor’s interests.
3. Whether the foreclosure purchaser’s uncompleted purchase status prevented bona fide purchaser protection from barring avoidance of the sale.

## Decision

- After trial, the bankruptcy court voided the foreclosure sale and granted declaratory relief to Edry.
- The court held that, despite statutory compliance, the Bank failed to act with good faith and reasonable diligence in conducting and advertising the sale.
- The court found the Bank’s deliberate choice to use only minimal notice, without customary advertising or efforts to assess market value, contributed to an inadequate sale price.
- The court determined the high bidder was not a bona fide purchaser for value because the purchase had not been completed, permitting the sale to be voided.

## Legal Principles

- Under Massachusetts law, a mortgagee conducting a foreclosure sale owes a duty of good faith and reasonable diligence to protect the mortgagor’s interests; statutory compliance alone is insufficient.
- A foreclosure sale may be set aside where the mortgagee’s conduct or omissions depress bidding and produce a grossly inadequate price.
- Reasonable diligence may require steps suited to the circumstances, including efforts to learn market value and to advertise in a manner reasonably calculated to attract bidders.
- Bona fide purchaser protections may limit remedies, but they do not bar avoidance where the purported purchaser has not completed the transaction and therefore is not protected as a purchaser for value.

## Conclusion

The court voided the foreclosure because the mortgagee’s intentional reliance on minimal advertising, failure to assess market value, and lack of efforts to encourage competitive bidding breached the Massachusetts duty of good faith and reasonable diligence, and the purchaser’s uncompleted status did not prevent rescission of the sale.


In re Edry, 201 B.R. 604 (Bankr. D. Mass. 1996)