Mills v. U.S. Bank, NA Ex Rel. Lehman XS Trust Mortgage Pass-Through Certificates ( 2014 )

United States Court of Appeals
For the First Circuit
No. 13-1907
RHONDA G. MILLS,
Plaintiff, Appellant,
v.
U.S. BANK, NA, as Trustee for the Lehman XS Trust Mortgage
Pass-Through Certificates, Series 2007-4N; ONEWEST BANK FSB
individually and as successor to IndyMac Bank, F.S.B.;
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Joseph L. Tauro, U.S. District Judge]
Before
Lynch, Chief Judge,
Howard and Kayatta, Circuit Judges
Rockwell P. Ludden, with whom Ludden Kramer Law, PC was on
brief, for appellant.
David G. Thomas, with whom Russell P. Plato and Greenberg
Traurig, LLP were on brief, for appellees.
May 27, 2014
HOWARD, Circuit Judge. Following the 2011 foreclosure on
her home, plaintiff Rhonda Mills filed this suit against defendants
U.S. Bank, N.A. ("U.S. Bank"), OneWest Bank, F.S.B. ("OneWest"),
and Mortgage Electronic Registration Systems, Inc. ("MERS"),
raising a potpourri of challenges to OneWest's authority to
foreclose on her property. On appeal from the district court's
dismissal of her suit for failure to state a claim, Mills primarily
takes issue with the district court's reliance on our decision in
Culhane v. Aurora Loan Services of Nebraska, 708 F.3d 282 (1st Cir.
2013). Finding Culhane to be on point, we affirm.
I.
On October 6, 2006, Mills refinanced her home in Mashpee,
Massachusetts, executing an adjustable rate note (the "note") in
favor of MortgageIT, Inc. ("MortgageIT") for $376,000 and also
granting a mortgage to MERS. The mortgage contract identified
MortgageIT as the lender and MERS as the mortgagee, "acting solely
as a nominee for Lender and Lender's successors and assigns." The
mortgage provided MERS with "only legal title" to Mills's property,
giving it the right to foreclose and sell the property "as nominee
for Lender and Lender's successors and assigns."
MERS, as we explained in Culhane, "was formed by a
consortium of residential mortgage lenders and investors desiring
to streamline the process of transferring ownership of mortgage
loans in order to facilitate securitization." Id. at 287. Joining
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MERS enables lenders to "name MERS as the mortgagee in mortgages
that they originate, service, or own." Id. MERS itself acts
solely as a "nominee" for the owner or servicer of a mortgage,
giving MERS legal title to the mortgage but leaving it with no
beneficial interest in the loan. Id. When a note is sold by one
MERS member to another, MERS memorializes the sale in its database
but remains the mortgagee of record, thereby avoiding the time and
expense of publicly assigning the mortgage to a new noteholder.
Id.; see also Butler v. Deutsche Bank Trust Co. Ams., No. 12-2108,
2014 WL 1328296, at *3 (1st Cir. Apr. 4, 2014). On the other hand,
when a note is sold to a nonmember, MERS assigns the mortgage to
the new noteholder or its designee. Culhane, 708 F.3d at 287.
Like Culhane, this case illustrates the function served
by MERS. Mills's note was sold by MortgageIT on the secondary
market and changed hands several times before ultimately being
deposited into the Lehman XS Trust, Mortgage Pass-Through
Certificates, Series 2007-4N (the "Trust"), of which U.S. Bank was
trustee; no corresponding assignments were made of legal title to
the mortgage. Mills, meanwhile, began struggling to keep up with
her loan payments, and applied to IndyMac, F.S.B. ("IndyMac"), the
loan servicer at the time, for a loan modification. IndyMac
approved Mills's loan modification application in December 2008,
and Mills signed, notarized, and returned the modification
agreement. Unfortunately for Mills, however, in March 2009 IndyMac
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was succeeded as loan servicer by OneWest, which failed to honor
the modification. On April 23, 2009, MERS executed a document
assigning the mortgage to OneWest, which subsequently recorded the
assignment with the Barnstable Land Court Registry. Finally, on
January 21, 2011, OneWest foreclosed Mills's mortgage and sold her
property at public auction to U.S. Bank.
Mills filed this lawsuit on May 23, 2012 in Barnstable
Superior Court; the defendants removed the case to the District of
Massachusetts a week later. Following the plaintiff's submission
of an amended complaint, the defendants moved for dismissal for
failure to state a claim. On March 28, 2013, the district court
granted the defendants' motions to dismiss and denied Mills's
motion to amend her complaint and add an allegation to her claim
under Mass. Gen. Laws ch. 93A. Mills subsequently filed a motion
for reconsideration, which the district court denied without
comment. This appeal followed.
II.
A. Dismissal
1. Validity of Assignment
Under Massachusetts statute, only "the mortgagee or his
executors, administrators, successors or assigns" can exercise a
statutory power of sale (which Mills's mortgage granted) and
foreclose without prior judicial authorization. Mass. Gen. Laws
ch. 183, § 21; see also id. ch. 244, § 14; Culhane, 708 F.3d at
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290; U.S. Bank Nat'l Ass'n v. Ibanez, 941 N.E.2d 40, 50 (Mass.
2011). Consequently, "[a]ny effort to foreclose by a party lacking
jurisdiction and authority to carry out a foreclosure under these
statutes is void." Ibanez, 941 N.E.2d at 50 (internal quotation
marks omitted). Like the plaintiff in Culhane, Mills contends that
the foreclosing entity, OneWest, was never assigned valid legal
title, rendering the foreclosure void. In other words, Mills's
complaint represents a "challenge [to] a foreclosing entity's
status qua mortgagee," which Mills has standing to raise. Culhane,
708 F.3d at 291. We review de novo the district court's dismissal
of Mills's complaint for failure to state a claim. Mass. Ret. Sys.
v. CVS Caremark Corp., 716 F.3d 229, 237 (1st Cir. 2013).
Before turning to the merits of Mills's claim, we briefly
review our prior analysis of the MERS system in Culhane, which,
notwithstanding Mills's protestations to the contrary, we
ultimately conclude is dispositive of this case. In Culhane, we
rejected the plaintiff's contention that the nominal designation of
MERS as holder of the mortgage "was a nullity because MERS never
owned the 'beneficial half of the legal interest' in the mortgage,"
leaving MERS with nothing to assign to the foreclosing entity. 708
F.3d at 291. On the contrary, we concluded that "the MERS
framework, which customarily separates the legal interest [in the
mortgage] from the beneficial interest [in the underlying debt],
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corresponds with longstanding common-law principles regarding
mortgages." Id. at 292.
We elaborated that "[t]he mortgage, in a title theory
state like Massachusetts, transfers legal title to the mortgaged
premises from the mortgagor to the mortgagee for the sole purpose
of securing the loan," leaving the mortgagee with "bare legal title
to the mortgaged premises, defeasible upon repayment of the loan
(because the mortgagor owns the equity of redemption)." Id. We
noted that under Massachusetts law, a note and the underlying
mortgage need not be held by the same party. Id.; see also Eaton
v. Fed. Nat'l Mortg. Ass'n, 969 N.E.2d 1118, 1124 (Mass. 2012). We
further explained that the MERS framework, in which the mortgage
and note are held by separate entities from the outset, creates an
implied equitable trust in which the mortgagee "holds bare legal
title to the mortgaged premises in trust for the noteholder" and
"[t]he noteholder possesses an equitable right to demand and obtain
an assignment of the mortgage." Culhane, 708 F.3d at 292. Absent
a contrary provision in the mortgage itself, a mortgagee "may
assign its mortgage to another party," and "need not possess any
scintilla of a beneficial interest in order to hold the mortgage."
Id. at 292-93.
Accordingly, we found that "MERS's role as mortgagee of
record and custodian of the bare legal interest as nominee for the
member-noteholder, and the member-noteholder's role as owner of the
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beneficial interest in the loan, fit comfortably with each other
and fit comfortably within the structure of Massachusetts mortgage
law." Id. at 293. Our conclusion was bolstered by the terms of
the mortgage contract itself, which (identical to the mortgage in
this case) designated MERS as the mortgagee "solely as nominee for
[the lender] and [its] successors and assigns." Id. As the
lender's nominee, MERS held "title for the owner of the beneficial
interest," and was therefore contractually authorized to transfer
the mortgage at the direction of the designated loan servicer. Id.
In short, MERS validly held legal title to the mortgaged property
and was doubly authorized (under both Massachusetts common law and
the terms of the mortgage contract) to assign its interest to the
foreclosing entity.
Mills's argument in this case, though not entirely
duplicative of the unsuccessful challenge in Culhane, is a
variation on the same theme. Mills focuses primarily on the
Massachusetts statute of frauds, Mass. Gen. Laws ch. 183, § 3,
which requires assignments of mortgages and other interests in land
to be placed in writing and signed by the assignor. See Ibanez,
941 N.E.2d at 51. More specifically, Mills avers that while "the
Mills mortgage was securitized and therefore necessarily sold by
way of 'true sale' at least twice before its final assignment to
the Trust," none of these intermediary transfers were recorded.
Instead, the sole recorded transfers of the mortgage were the
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original mortgage contract between Mills and MERS and the final
assignment from MERS to OneWest. Because the intermediary
transfers were not recorded, concludes Mills's syllogism, the
"chain of assignments" was broken and MERS had no interest to
assign OneWest.
Without specifically addressing this statute of frauds-
based argument, the district court found Culhane fatal to Mills's
claim, citing our pronouncement that the MERS system "fit
comfortably within the structure of Massachusetts mortgage law."
We agree with the district court's conclusion, and we find that
Mills's contentions to the contrary rest on a misperception of the
MERS framework.
At the outset, we note that Mills's complaint does not
allege that the mortgage (which evidences legal title to Mills's
property) changed hands prior to securitization; instead, Mills's
allegation is that the note (which evidences the beneficial
interest) "was subsequently sold by MortgageIT on the secondary
market and earmarked to become, through a series of transfers, part
of a mortgage pool deposited into the [Trust]." This is hardly
surprising, since MERS's very raison d'être "is its ability to
remain mortgagee of record, possessing a legal interest in a
homeowner's mortgage, while the beneficial interest in that
accompanying note is transferred among MERS's member institutions."
Butler, 2014 WL 1328296, at *3. Given the separability of the
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mortgage and note under Massachusetts law, see Eaton, 969 N.E.2d at
1124, the transfer of the promissory note between MERS members does
not affect legal title to the mortgage. See Woods v. Wells Fargo
Bank, N.A., 733 F.3d 349, 355-56 (1st Cir. 2013) (distinguishing
"electronically track[ing] transfers of a mortgagors' [sic]
promissory note" within the MERS registry from "the assignment and
recordation of mortgage interests in a county registry of deeds");
Culhane, 708 F.3d at 292 ("[T]he transfer of the note does not
automatically transfer the mortgage."); In re Marron, 455 B.R. 1,
7 (Bankr. D. Mass. 2011) ("The fact that the debtors' promissory
note passed like a hot potato down a line of owners, . . . with no
accompanying assignment of the note owner's beneficial interest in
the mortgage, changes nothing.").1
Mills's statute of frauds-based argument, while less than
a paragon of lucidity, appears to follow a narrower track than the
broad challenges that we rejected in Culhane, Woods, and Butler.
Rather than resting on the erroneous premise that the transfer of
1
Mills suggests in passing that even if Massachusetts law
allows for the note and mortgage to be held by different entities,
the language of the mortgage contract here did not. Specifically,
Mills points to a provision in the mortgage contract stating that
"[t]he Note or a partial interest in the Note (together with this
Security Instrument) can be sold one or more times without prior
notice to Borrower," which she takes to mean "that the mortgage may
be assigned with the note." We, however, have already rejected
this reading as "jejune," noting that the language of the provision
is "permissive and by no means prohibits the separation of the two
instruments" and that the mortgage and note had in fact been
"separated upon their inception." Culhane, 708 F.3d at 292 n.6.
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the note entails a corresponding transfer of the separately-held
mortgage as a matter of law, Mills scrutinizes the language of the
mortgage contract in an apparent attempt to demonstrate that it did
not in fact grant MERS legal title to the property. Specifically,
Mills alleges that there is a "strident ambiguity" as to whether
MERS is an "actual mortgagee" (i.e., "owner of legal title to the
secured property") or merely "act[ing] in a representative capacity
on behalf of the actual owner" of legal title. As we have
recounted, the mortgage contract established MERS as mortgagee
while also describing MERS as "acting solely as a nominee for
Lender and Lender's successors and assigns." Mills claims that
these provisions "place[] MERS in the impossible position of being
both principal and agent with regard to the same mortgage at the
same time."
Proceeding on the theory that MERS acted solely as an
agent of the successive noteholders with no legal title to the
property, Mills suggests that each intermediary transfer of the
promissory note entailed a change of principals and thus a transfer
of the mortgage from one principal to the next. Because these
intermediary transfers were not recorded, continues the argument,
the mortgage failed to move down the chain of principals. Any
subsequent assignment by MERS on behalf of a principal who did not
in fact validly receive title to the mortgage, Mills concludes,
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"becomes a fraudulent act, the recording of which is not only
meaningless but an affront to the democratic recording system."2
This theory rests on a flawed foundation -- indeed, upon
the same premise that we invalidated in Culhane. Although Mills
contends that "MERS acts solely in a representative capacity and
owns nothing with regard to the mortgage loan," she herself
acknowledges that we adopted a different view in Culhane, holding
(in her words) that MERS "acts in an ownership capacity -- it
actually owns the legal title to the secured property" and that
"[b]ecause it remains the mortgagee throughout the securitization
process, assignments are unnecessary."
We decline Mills's invitation to revisit our still-recent
precedent. Contrary to Mills's claim of "strident ambiguity" as to
MERS's status under the mortgage contract, Culhane makes clear that
MERS validly serves both as the holder of "bare legal title as
mortgagee of record" and as "nominee for the member-noteholder."
2
Mills offers the following illustration of her theory:
In the MERS model, MERS is the agent for the originating
lender, A. As such, assuming it has the authority to do
so, MERS may transfer the mortgage from A to B. But that
transfer is of an interest in land, and there must still
[be] a writing . . . signed by the party to be bound in
order to have any legal effect. And even though MERS may
also act as B's agent, it cannot transfer the mortgage
from B to C unless and until there has been a valid
written assignment from A to B -- that is to say, without
a valid assignment from A to B there is nothing for MERS
to assign on behalf of B even though there is an agency
relationship between MERS and B.
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708 F.3d at 291, 293; see also Culhane v. Aurora Loan Servs. of
Neb., 826 F. Supp. 2d 352, 369 (D. Mass. 2011) ("[T]he notion that
MERS is pejoratively 'two-faced' [as 'both principal and agent']
derives from a legal premise that is faulty in its understanding of
MERS's interest in the mortgage."). MERS's designation as nominee
means that it "holds title for the owner of the beneficial
interest," not, as Mills appears to suggest, that it lacks title
altogether. Culhane, 708 F.3d at 293; cf. Morrison v. Lennett, 616
N.E.2d 92, 94 (Mass. 1993) ("A nominee trust is often used to hold
legal title to real estate so that the identity of the trust
beneficiary may remain undisclosed."); Black's Law Dictionary 1149
(9th ed. 2009) (defining "nominee" as "[a] party who holds bare
legal title for the benefit of others"). Because legal title to
the mortgage remained vested in MERS and not in the noteholder, the
intermediary transfers of the note in no way undermined the
subsequent assignment of the mortgage from MERS to OneWest. See
Marron, 455 B.R. at 7 ("Through all of these transfers [of the
promissory note] right up until it finally assigned the mortgage to
HSBC, MERS remained the mortgagee in its capacity as trustee and as
nominee for whomever happened to own the note.").
2. Mass. Gen. Laws ch. 183, § 54B
Mills also avers that the assignment of her mortgage from
MERS to OneWest ran afoul of Mass. Gen. Laws ch. 183, § 54B, which
provides in pertinent part:
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[An] assignment of mortgage . . . if executed
before a notary public . . . by a person
purporting to hold the position of president,
vice president, treasurer, clerk, secretary,
cashier, loan representative, principal,
investment, mortgage or other officer, agent,
asset manager, or other similar office or
position, including assistant to any such
office or position, of the entity holding such
mortgage, or otherwise purporting to be an
authorized signatory for such entity . . .
shall be binding upon such entity and shall be
entitled to be recorded . . . .
Mills claims that the statute "was misread and
misapplied in such a way as to allow the non-holder of a mortgage
to foreclose merely by having its agent 'purport' to act on their
behalf." Once again, her position is foreclosed by Culhane, where
we described the plaintiff's claim that "MERS was not the 'entity
holding such mortgage' within the purview of section 54B" as
"simply an old wine in a new bottle," premised on the already-
refuted proposition that MERS did not validly hold the mortgage.
708 F.3d at 294. Mills's argument is of the same spoiled vintage
as that in Culhane: here, too, we have already held that MERS
possessed legal title to the mortgage at the time of assignment,
invalidating Mills's § 54B claim.3
3
Mills also raises cursory challenges under the Massachusetts
Declaration of Rights, suggesting that "the interpretation and
application of § 54B urged by the Appellees impinges upon the
guarantees of substantive and procedural due process." This
argument is inadequately developed, see United States v. Zannino,
895 F.2d 1, 17 (1st Cir. 1990), and in any event it, too, is
"contingent on the plaintiff's core contention that MERS did not
validly hold the mortgage at the time of its assignment to
[OneWest]," Culhane, 708 F.3d at 295, which we have rejected.
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3. Miscellany
As a secondary challenge, Mills appears to suggest in the
rather murky closing pages of her opening brief that OneWest may
not "have been servicing the mortgage on the Trust's behalf." Only
in her reply brief and at oral argument did Mills develop this
argument into the more cogent argument that OneWest lacked
authority to foreclose because it "did not own the note at the time
of foreclosure." Mills has failed, however, to sufficiently unfold
this argument on appeal. See United States v. Zannino, 895 F.2d 1,
17 (1st Cir. 1990) ("[I]ssues adverted to in a perfunctory manner,
unaccompanied by some effort at developed argumentation, are deemed
waived."); Pignons S.A. de Mecanique v. Polaroid Corp., 701 F.2d 1,
3 (1st Cir. 1983) ("[A]ppellant generally may not preserve a claim
merely by referring to it in a reply brief or at oral argument.").4
4
Nor in any event are we persuaded on the merits of this
argument. Although Eaton held that a foreclosing entity must hold
both the mortgage and the note (or act on behalf of the
noteholder), that holding was prospective only and does not apply
here, 969 N.E.2d at 1133, nor does its subsequent extension to
"cases that were pending on appeal . . . when the rescript in
Eaton issued," Galiastro v. Mortg. Elec. Registration Sys., 4
N.E.3d 270, 277 (Mass. 2014). And although Mills suggests that the
terms of the mortgage contract required "that the person
foreclosing must at the time of the foreclosure own both the note
and the mortgage," we disagree. The provision in question provides
that if the borrower's default is not cured, "Lender at its option
may require immediate payment in full of all sums secured by this
Security Instrument without further demand and may invoke the
STATUTORY POWER OF SALE and any other remedies permitted by
Applicable Law." This provision is permissive; we do not read it
as prohibiting the mortgagee from foreclosing without possession of
the note.
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We also treat as waived the plethora of additional
embryonic arguments that Mills raises at the end of her opening
brief and in portions of her reply brief, including perfunctory
contentions that the mortgage loan was "toxic, predatory, and
doomed to fail"; that "the securitization was not done in
compliance with the trust agreements or New York law"; and that the
assignment from MERS to OneWest was "signed by a known robo-
signer." See Zannino, 895 F.2d at 17.
B. Leave to Amend
Mills also challenges the district court's denial of her
motion to amend her complaint and add an allegation that she sent
a demand letter to the defendants pursuant to her claim under Mass.
Gen. Laws ch. 93A. The district court denied that motion on the
ground of futility, "[b]ecause adding this allegation has no effect
on the foregoing analysis of OneWest's authority to exercise the
statutory power of sale." Although we ordinarily review a district
court's denial of leave to amend for abuse of discretion, see
Manzoli v. Comm'r of Internal Revenue, 904 F.2d 101, 107 (1st Cir.
1990), we review de novo the district court's determination of
futility, see Glassman v. Computervision Corp., 90 F.3d 617, 623
(1st Cir. 1996). We find no error in the district court's
conclusion. Even with the proposed addition, Mills's Chapter 93A
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claim still failed to satisfy Rule 12(b)(6), as it rested on the
faulty premise that OneWest lacked authority to foreclose.5
C. Submission of Newly Discovered Evidence
Mills finally assigns error to the district court's
failure to rule on her motion -- filed mere hours before the
district court issued its dismissal order -- to submit newly
discovered evidence. In her opening brief, however, Mills alluded
only in passing to "the newly discovered evidence of material
discrepancies in both the assignment and the promissory note," and
did not develop this argument until her reply. It is accordingly
waived. See Zannino, 895 F.2d at 17; Pignons S.A. de Mecanique,
701 F.2d at 3.6
5
To the extent that Mills suggests (mostly in her reply
brief) that there were alternative bases for her Chapter 93A claim,
such as "that she was given a predatory loan, qualified for a
modification that OneWest refused to honor, and was never behind in
her mortgage payments until she was instructed to stop paying in
order to 'qualify' for her modification," she has failed to
sufficiently develop her argument on appeal, and issues may not be
raised for the first time in a reply brief. See Zannino, 895 F.2d
at 17; Pignons S.A. de Mecanique, 701 F.2d at 3.
6
In any event, the import of the submitted evidence --
allegedly contradictory versions of the mortgage assignment from
MERS to OneWest and of the promissory note -- is less than clear.
Although Mills claims various discrepancies between these versions,
she fails to explain how these discrepancies implicate the
documents' validity; instead, she merely engages in the sort of
speculation (e.g., "we cannot rule out the possibility of liberties
having bee[n] taken that should not have been taken in a court of
law") that we need not give weight under Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 555 (2007).
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III.
For the foregoing reasons, we affirm the district court's
order granting the defendants' motion to dismiss and denying
Mills's motion to amend her complaint.
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