Khalsa v. Sovereign Bank, N.A.

NOTICE: All slip opinions and orders are subject to formal
revision and are superseded by the advance sheets and bound
volumes of the Official Reports. If you find a typographical
error or other formal error, please notify the Reporter of
Decisions, Supreme Judicial Court, John Adams Courthouse, 1
Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-
1030; SJCReporter@sjc.state.ma.us
14-P-1898 Appeals Court
GURU JIWAN SINGH KHALSA & another1 vs. SOVEREIGN BANK, N.A.
No. 14-P-1898.
Suffolk. November 2, 2015. - January 11, 2016.
Present: Milkey, Carhart, & Massing, JJ.
Mortgage, Foreclosure, Real estate. Real Property, Mortgage.
Negotiable Instruments, Note. Agency, What constitutes.
Civil action commenced in the Superior Court Department on
January 8, 2013.
The case was heard by Robert B. Gordon, J., on motions for
summary judgment.
James L. Rogal for the defendant.
Leonard M. Singer for the plaintiffs.
MASSING, J. To effect a valid foreclosure sale, the
foreclosing mortgage holder must also hold the underlying note
or be acting on behalf of the note holder. Eaton v. Federal
Natl. Mort. Assn., 462 Mass. 569, 571 (2012) (Eaton). This
appeal requires us to consider how a mortgagee may show that it
1
Gunbhushan Kaur.
2
is acting "as the authorized agent of the note holder," id. at
586, for summary judgment purposes.
On cross motions for summary judgment, a judge of the
Superior Court entered a declaratory judgment in favor of the
plaintiff borrowers, Khalsa and Kaur, and against the defendant
mortgagee, Sovereign Bank, N.A. (Sovereign), declaring that the
foreclosure sale of the plaintiffs' residence was void because
Sovereign had failed to show that it was acting as the
authorized agent of the note holder, Federal Home Loan Mortgage
Corporation (Freddie Mac). Sovereign appeals. Because the
summary judgment materials create a genuine issue of fact
concerning Sovereign's authorization to foreclose on Freddie
Mac's behalf, we vacate the judgment and remand the case for
further proceedings.
Background. On April 2, 2008, the plaintiffs executed a
promissory note payable to Sovereign in the original principal
amount of $274,000 to finance the purchase of their home in
Millis. To secure the note, the plaintiffs granted Sovereign a
mortgage on the property. Shortly thereafter, Freddie Mac
purchased the note from Sovereign, retaining Sovereign as
servicer of the note and mortgage.
On April 22, 2011, Sovereign notified the plaintiffs that
they were in default on their loan for nonpayment. Sovereign
held a foreclosure sale on January 18, 2013. Although Sovereign
3
held itself out as the "Lender" in the default notice, the note
had been indorsed in blank, and at the time of the sale, Freddie
Mac had physical possession of the note. See G. L. c. 106, § 3-
205(b), inserted by St. 1998, c. 24, § 8 ("When indorsed in
blank, an instrument becomes payable to bearer and may be
negotiated by transfer of possession alone until specially
indorsed"). Sovereign purchased the property at the foreclosure
auction and sold its bid to Freddie Mac.
Meanwhile, the plaintiffs had filed a complaint in the
Superior Court on January 8, 2013, seeking to enjoin the
foreclosure sale and a declaration that Sovereign was not
entitled to foreclose because, among other alleged deficiencies,
"Sovereign Bank does not have authority from the holder of the
mortgage note given by the plaintiffs." After a hearing on the
plaintiffs' application for a preliminary injunction on January
17, 2013, a judge denied relief, and the foreclosure sale went
forward the following day. On November 5, 2013, a different
judge denied Sovereign's first motion for summary judgment.
Acting on subsequently-filed cross motions for summary judgment,
on September 9, 2014, a third judge allowed the plaintiffs'
motion, denied Sovereign's motion, and declared the foreclosure
void.
Evidence of Sovereign's authority to foreclose. The only
contested issue in this case is whether Sovereign, which was the
4
holder of the mortgage but not the note, acted with Freddie
Mac's authority to conduct the foreclosure sale. On this point,
in connection with its first motion for summary judgment,
Sovereign submitted the affidavit of Alan L. Norris, a default
operations analyst at Sovereign.2 Based on his review of
Sovereign's file concerning the plaintiffs' mortgage, Norris
stated "to the best of [his] knowledge and belief" that Freddie
Mac purchased the plaintiffs' loan on May 13, 2008, "with
Sovereign retaining the servicing of the Loan." He added,
"Sovereign is the mortgagee of record, the servicer of the Loan,
and the holder of the Note."3 He asserted in his affidavit that
"[t]he relationship between Freddie Mac and the Seller/Servicers
of its loans is governed by the Freddie Mac Single Family
Seller/Servicer Guide . . ." (guide).4 He further stated,
2
The Norris affidavit, dated January 17, 2013, was the same
document that Sovereign had filed in its successful opposition
to the plaintiffs' application to preliminarily enjoin the
foreclosure sale.
3
Norris's representation that Sovereign was the holder of
the note was incorrect. The judge who denied the plaintiffs'
motion for a preliminary injunction relied in part on this
statement in allowing the foreclosure to proceed. Sovereign
later contradicted Norris's representation with its admission
that Freddie Mac, not Sovereign, had physical possession of the
note at the time of the sale.
4
The affidavit included a reference to a Web site address
for the Seller/Servicer Guide that is no longer valid. The
judge who denied Sovereign's first motion for summary judgment
commented that Sovereign's "suggestion that the Guide is
available online is absurd." He continued, "In any event,
5
"Freddie Mac, as owner of the Note, has authorized Sovereign to
act on its behalf."
Norris did not refer to any particular document in the
file, nor did Sovereign submit any documentary evidence to
support this assertion. The judge who denied Sovereign's first
motion for summary judgment declined to credit Norris's
"unsupported statement, based on no apparent personal
knowledge."
In its second motion for summary judgment, Sovereign
supplemented the Norris affidavit with the affidavit of Dean
Meyer, an assistant treasurer of Freddie Mac, who also based his
affidavit "on a review of the loan records for the property."
Regarding Sovereign's authorization to act on Freddie Mac's
behalf in the foreclosure sale, Meyer also cited the guide,
which, he repeated, "governs the relationship between a
Seller/Servicer and Freddie Mac relating to the sale and
servicing of mortgages." Meyer stated in paragraph five of the
affidavit, "When a borrower defaults, Freddie Mac authorizes a
servicer to initiate foreclosure proceedings in accordance with
the Guide." Meyer concluded in paragraph six, "As a result of
the plaintiffs' default on their mortgage, Sovereign, as a
making it ostensibly available online is no substitute for
including it, or any relevant excerpts, in the summary judgment
record."
6
Freddie Mac servicer, was authorized to conduct foreclosure
proceedings against the Plaintiffs."
The guide is 2,799 pages long. Meyer's affidavit did not
identify exactly where in the guide Freddie Mac authorized
Sovereign in particular, or any seller/servicers in general, to
act on its behalf to initiate foreclosure proceedings or conduct
foreclosure sales. In his memorandum and order allowing the
plaintiffs' cross motion for summary judgment, the judge
commented that "one is left to speculate as to how (if at all)
Mr. Meyer has any personal knowledge of the facts he asserts."
Because Meyer purported to state the content of the guide
without producing the relevant pages, the motion judge allowed
plaintiffs' motion to strike paragraph five as violating the
best evidence rule. See Mass. G. Evid. § 1002 (2015).
The record on Sovereign's second motion for summary
judgment included two pages from the guide, which Norris,
testifying as Sovereign's designee in a deposition conducted
pursuant to Mass.R.Civ.P. 30(b)(6), 365 Mass. 780 (1974), stated
were "the only thing in the seller/servicer guide that Sovereign
Bank is relying upon as authority to foreclose the [plaintiffs']
mortgage." As Sovereign conceded at oral argument on appeal,
neither page establishes that Sovereign was acting on behalf of
Freddie Mac. The motion judge ruled that Sovereign had failed
to present any competent evidence establishing that Sovereign
7
was authorized to act as Freddie Mac's agent when it initiated
the foreclosure sale. Accordingly, the judge denied Sovereign's
motion for summary judgment and allowed the plaintiffs' motion.
Discussion. Under Eaton, 462 Mass. at 571, "a foreclosure
by power of sale pursuant to G. L. c. 183, § 21, and G. L.
c. 244, §§ 11-17C, is invalid unless a foreclosing party holds
the mortgage and also either holds the underlying mortgage note
or acts on behalf of the note holder." Galiastro v. Mortgage
Electronic Registration Sys., Inc., 467 Mass. 160, 161 (2014).5
The question before us is whether a genuine factual dispute
exists as to whether Sovereign was acting "as the authorized
agent of the note holder." Eaton, supra at 586. While the
judge did not err in identifying the shortcomings in Sovereign's
materials and, accordingly, denying Sovereign's motion for
summary judgment, these shortcomings did not entitle the
plaintiffs to summary judgment in their favor.
General agency principles apply in the context of mortgage
foreclosure sales. Ibid. An agency relationship "arises 'from
the manifestation of consent by one person to another that the
other shall act on his behalf and subject to his control, and
5
This rule applies only to mortgage foreclosure sales for
which the mandatory notice of sale was given after June 22,
2012, the date of the Eaton decision, and to cases pending on
appeal on that date in which the issue had been preserved. See
Eaton, supra at 589; Galiastro v. Mortgage Electronic
Registration Sys., Inc., supra. This includes the case before
us.
8
consent by the other so to act.'" Harrison Conference Servs. of
Mass., Inc. v. Commissioner of Rev., 394 Mass. 21, 24 (1985),
quoting from Restatement (Second) of Agency § 1(1) (1958).
Where the mortgage holder and note holder are not the same,
the mortgage holder can demonstrate that it was authorized to
act as the note holder's agent in a variety of ways. The task
is simple if the mortgage holder can produce an instrument
executed by the note holder prior to the foreclosure proceedings
that expressly authorizes the mortgage holder to foreclose on
the particular loan. Sufficient proof would be similarly
straightforward if the mortgage holder could produce a document
from the note holder, predating the foreclosure, generally
authorizing the mortgage holder to act in its discretion as the
note holder's agent for the purpose of foreclosing on a series
of mortgages that included the borrower's. Providing the
requisite proof is more challenging where, as here, a loan-
specific preforeclosure authorization apparently does not exist.
Through its affidavits, Sovereign attempted to show that
its seller/servicer relationship with Freddie Mac included the
authority to act on Freddie Mac's behalf to initiate and conduct
foreclosure proceedings with respect to all the loans Sovereign
serviced on Freddie Mac's behalf (which included the
plaintiffs'). We agree with Sovereign that such proof could
satisfy Eaton; that is, Sovereign could have shown that it
9
possessed the requisite authority without pointing to any
preforeclosure instrument expressly authorizing it to foreclose.
To prevail on its motion for summary judgment, however,
Sovereign had to establish that no genuine issue of material
fact existed concerning such an agency relationship with Freddie
Mac and that it was therefore entitled to judgment as matter of
law. DeWolfe v. Hingham Centre, Ltd., 464 Mass. 795, 799
(2013). The affidavits that Sovereign produced in an effort to
support its assertions did not satisfy the requirements of
Mass.R.Civ.P. 56(e), 365 Mass. 824 (1974), which requires
affidavits "made on personal knowledge" that "set forth such
facts as would be admissible in evidence." See Polaroid Corp.
v. Rollins Envtl. Servs. (NJ), Inc., 416 Mass. 684, 696 (1993)
("bare assertions and conclusions regarding a company officer's
understandings, beliefs, and assumptions are not enough to
withstand a well-pleaded motion for summary judgment"); Haverty
v. Commissioner of Correction, 437 Mass. 737, 754 (2002), S.C.,
440 Mass. 1 (2003) ("generalized statements . . . devoid of
specific details" insufficient). For example, as noted, the
judge ruled that Meyer's affidavit failed adequately to
demonstrate the basis of his personal knowledge and violated the
10
best evidence rule.6 Norris's affidavit was similarly deficient.
In other words, Sovereign's efforts to demonstrate its own
entitlement to summary judgment failed not as a matter of theory
but as a matter of proof.
Of course, Sovereign's failure to show that it was entitled
to summary judgment does not mean that the plaintiffs were
entitled to the allowance of their cross motion for summary
judgment. See, e.g., Curly Customs, Inc. v. Bank of Boston,
N.A., 49 Mass. App. Ct. 197, 199 (2000). With respect to their
motion for summary judgment, the plaintiffs as the moving party
had "the burden of demonstrating affirmatively the absence of a
genuine issue of material fact on every relevant issue,
regardless of who would have the burden on that issue at trial."
Arcidi v. National Assn. of Govt. Employees, Inc., 447 Mass.
616, 619 (2006).7 "This burden need not be met by affirmative
6
Sovereign does not argue on appeal that the motion judge
abused his discretion in striking paragraph five of Meyer's
affidavit.
7
The Supreme Judicial Court has not addressed whether, in
an action challenging the validity of a nonjudicial foreclosure
under Eaton, the mortgagor who initiates the action carries the
burden of proving at trial that the mortgagee is neither the
holder of the note nor acting on behalf of the note holder, or
whether the foreclosing mortgagee carries the burden of proving
that it holds the note or is the note holder's authorized agent.
In the preliminary injunction context, the mortgagor is required
"to show that she has a reasonable likelihood of establishing
that, at the time of the foreclosure sale, [the mortgage holder]
neither held the note nor acted on behalf of the note holder."
Eaton, 462 Mass. at 590. See Chartrand v. Newton Trust Co., 296
Mass. 317, 320 (1936) ("The burden of proving that the sale was
11
evidence negating an essential element of the plaintiff's case,
but may be satisfied by demonstrating that proof of that element
is unlikely to be forthcoming at trial." Flesner v. Technical
Communications Corp., 410 Mass. 805, 809 (1991), citing
Kourouvacilis v. General Motors Corp., 410 Mass. 706 (1991).
Applied to this case, to prevail on summary judgment the
plaintiffs had the burden to show that Sovereign's materials
could not support an inference that its seller/servicer
relationship with Freddie Mac included the authority to
foreclose on the plaintiffs' loan.
In evaluating whether the plaintiffs met their burden on
this point, "we review the record in the light most favorable to
the party against whom the judge allowed summary judgment, here
[Sovereign]." Marhefka v. Zoning Bd. of Appeals of Sutton, 79
Mass. App. Ct. 515, 516 (2011). "Any doubts as to the existence
of a genuine issue of material fact are to be resolved against
improperly conducted rested on the plaintiffs"). However,
because the facts concerning the relationship between the
mortgagee and the note holder are far more readily available to
them, and because the statutory requirements governing
nonjudicial foreclosures must be strictly adhered to, see U.S.
Bank Natl. Assn. v. Ibanez, 458 Mass. 637, 646 (2011), it can be
argued that once the mortgagor makes a plausible showing that
the mortgagee does not hold the note and is not acting on behalf
of the note holder, the mortgagee should carry the burden of
proving that the foreclosure is valid under Eaton. We need not
decide this issue, as the moving party carries the burden of
proving the absence of any genuine issue of material fact for
the purposes of summary judgment.
12
the party moving for summary judgment." Milliken & Co. v. Duro
Textiles, LLC, 451 Mass. 547, 550 n.6 (2008).
The plaintiffs presented affirmative proof that Sovereign
did not hold the note when it foreclosed on the mortgage.
Sovereign, in turn, presented materials intended to show that it
possessed authority to act on the note holder's behalf. For the
reasons set forth above, Sovereign's apparent inability to
produce a preforeclosure instrument from Freddie Mac expressly
authorizing it to foreclose on the plaintiffs' mortgage is not
fatal to Sovereign's claim that it had the requisite authority.
Although Sovereign failed at the summary judgment stage to
identify the precise language in the complex seller/servicer
agreement establishing conclusive proof of its authority, this
does not mean that it would be unable to provide the requisite
proof at trial.
Indeed, Sovereign's summary judgment materials included
multiple indicators that it was acting as Freddie Mac's agent.
The guide included detailed instructions on how to conduct
foreclosures on Freddie Mac's behalf, strongly suggesting that
Sovereign, as a seller/servicer, generally possessed the power
to conduct foreclosures. In addition, the summary judgment
record shows that after Sovereign was the highest bidder at the
foreclosure sale, Freddie Mac purchased Sovereign's bid. Based
on that course of events, a fact finder could infer that Freddie
13
Mac had authorized Sovereign to go forward with the foreclosure.8
While Sovereign's materials may amount to "at best a toehold to
establish" its authority to act on Freddie Mac's behalf, "[a]
toehold . . . is enough to survive a motion for summary
judgment." Marr Equip. Corp. v. I.T.O. Corp. of New England, 14
Mass. App. Ct. 231, 235 (1982).9
8
Sovereign suggests that Freddie Mac "ratified" Sovereign's
agency status after the fact by purchasing Sovereign's bid. The
ratification doctrine is inapt here, as it presumes, contrary to
the requirements of Eaton, that at the time of the foreclosure
sale, Sovereign was not authorized to act for Freddie Mac. See
Licata v. GGNSC Malden Dexter LLC, 466 Mass. 793, 802 (2014),
quoting from Linkage Corp. v. Trustees of Boston Univ., 425
Mass. 1, 18, cert. denied, 522 U.S. 1015 (1997) ("Where an agent
lacks actual authority" to act on a principal's behalf, the
principal is nonetheless bound "if the principal acquiesces in
the agent's action, or fails promptly to disavow the
unauthorized conduct after disclosure of material facts").
9
The summary judgment record includes a third affidavit
signed by Kristy Kochenash, a banking officer of Sovereign, who
stated based on "personal knowledge" and her review of
Sovereign's business records, "the Foreclosing Mortgagee was
. . . [a]uthorized by the owner of the promissory note secured
by the above mortgage to conduct the foreclosure sale."
Kochenash's affidavit was titled an "Eaton Affidavit" and was
filed in the registry of deeds three months after the
foreclosure sale. See Eaton, supra at 589 & n.28 (suggesting
that, prospectively, foreclosing mortgagees could clarify the
chain of title for subsequent purchasers by filing an affidavit
pursuant to G. L. c. 183, § 5B, in the registry of deeds stating
that the mortgagee "either held the note or acted on behalf of
the note holder at the time of the foreclosure sale"). The
motion judge did not consider this affidavit because Sovereign
never brought it to the judge's attention. See Dziamba v.
Warner & Stackpole LLP, 56 Mass. App. Ct. 397, 399 (2002)
(noting that Superior Court Rule 9A[b][5], the "anti-ferreting"
rule, is designed to prevent "throw[ing] a foot-high mass of
undifferentiated material at the judge"). Accordingly, we
14
Conclusion. The judgment is vacated, and the case is
remanded to the Superior Court for further proceedings.
So ordered.
decline to consider what effect this affidavit would have had on
the cross motions for summary judgment.
We note that under "An Act preventing unlawful and
unnecessary foreclosures," St. 2012, c. 194, effective November
1, 2012, foreclosing mortgagees must file an affidavit in the
registry of deeds "[p]rior to publishing a notice of foreclosure
sale," certifying compliance with G. L. c. 244, § 35B, regarding
good faith efforts to avoid foreclosure, and G. L. c. 244,
§ 35C, regarding the mortgagee's status as either the holder of
the note or the authorized agent of the note holder. These
affidavits may be relied upon by "an arm's-length third party
purchaser for value," but do not relieve the affiant from
liability for failure to comply with these sections. G. L.
c. 244, §§ 35B(b), (f), 35C(b). See St. 2015, c. 141, "An Act
clearing titles to foreclosed properties" (allowing conclusive
effect to affidavits demonstrating foreclosure complied with
requirements of statutory power of sale three years after
recording of affidavit, unless challenged in court).