Gold Star Homes, LLC v. Darbouze

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14-P-1177 Appeals Court
GOLD STAR HOMES, LLC vs. MARCUS DARBOUZE & another.1
No. 14-P-1177.
Essex. March 2, 2016. - May 11, 2016.
Present: Hanlon, Sullivan, & Massing, JJ.
Summary Process, Appeal. Housing Court. Practice, Civil,
Summary process, Pendency of prior action. Mortgage,
Foreclosure. Real Property, Mortgage, Deed.
Summary Process. Complaint filed in the Northeast Division
of the Housing Court Department on September 16, 2013.
The case was heard by Timothy F. Sullivan, J.
John L. McGowan for the defendants.
John P. Miller (Jennifer H. O'Brien with him) for the
plaintiff.
MASSING, J. The defendants, Marcus Darbouze (Marcus) and
Marie R. Darbouze (Marie)2 (together, the Darbouzes), appeal from
a judgment, after a summary process trial in the Housing Court,
1
Marie R. Darbouze.
2
We use first names to avoid confusion.
2
awarding possession of their residence in Billerica (the
property) to the plaintiff, Gold Star Homes, LLC (Gold Star).
The Darbouzes assert that the Housing Court judge should not
have permitted the trial to go forward during the pendency in
the Land Court of a related, prior action in which Marie sought
a declaration invalidating the foreclosure sale. On the merits,
the Darbouzes contend that the judge erred by rejecting their
defenses to summary process: that Mortgage Electronic
Registration Systems, Inc. (MERS), the entity that conducted the
foreclosure sale, was not the mortgage holder, and that MERS's
postforeclosure conveyance of the property to Gold Star by
foreclosure deed was ineffective. We affirm.3
Background. 1. The mortgage and foreclosure. The
evidence presented at the summary process trial established the
following facts.4 On January 20, 2006, Marie purchased the
property for $345,000, financed entirely by two loans. She
borrowed $276,000 of the purchase price from Fremont Investment
3
In a separate memorandum and order issued today under our
rule 1:28, we affirm the subsequent allowance of summary
judgment in favor of Gold Star and its codefendants in the Land
Court action. See Darbouze v. Mortgage Electronic Registration
Systems, Inc., 89 Mass. App. Ct. (2016).
4
We accept the judge's findings of fact unless they are
clearly erroneous; to the extent "the judge's findings are based
not on an assessment of witness credibility but 'solely on
documentary evidence[,] we may draw our own conclusions from the
record.'" U.S. Bank Natl. Assn. v. Schumacher, 467 Mass. 421,
427 (2014), quoting from Packaging Indus. Group, Inc. v. Cheney,
380 Mass. 609, 616 (1980).
3
& Loan (Fremont), granting a first mortgage to MERS, "acting
solely as a nominee for Lender and Lender's successors and
assigns." (The details of the loan for the remainder of the
purchase price, secured by a second mortgage, are immaterial to
the subsequent events and proceedings.) Deutsche Bank National
Trust Company (Deutsche Bank), as trustee for Fremont Home Loan
Trust 2006-1, purchased the loan later in 2006 as part of a
pooling agreement.
On January 7, 2008, Deutsche Bank initiated proceedings
under the Servicemembers Civil Relief Act, 50 U.S.C. app. §§ 501
et seq. (2006) (servicemembers act) in the Land Court prior to
commencing foreclosure on Marie's mortgage.5 On January 24,
2008, Marie filed a petition for relief under Chapter 7 of the
United States Bankruptcy Code. Deutsche Bank filed a motion for
relief from the automatic stay in Marie's bankruptcy case,
representing that it was "the holder of a first mortgage on real
estate in the original amount of $276,000.00 given by Marie R.
Darbouze to [MERS], on or about January 20, 2006." In its
motion, Deutsche Bank represented that "[t]he mortgage was
assigned by [MERS] to the movant." A judge of the Bankruptcy
Court granted Deutsche Bank's request for relief from the stay
on June 24, 2008.
5
For a discussion of the history, purpose, and statutory
framework of the servicemembers act in Massachusetts, see HSBC
Bank USA, N.A. v. Matt, 464 Mass. 193, 194-197 (2013).
4
On May 21, 2009, America's Servicing Co., Deutsche Bank's
servicer for the loan, sent Marie a notice of default under
G. L. c. 244, § 35A. The notice referred to Deutsche Bank as
the mortgagee. On September 10, 2009, MERS filed a complaint in
the Land Court under the servicemembers act.6 The Land Court
judge entered judgment in favor of MERS on February 2, 2010. In
the interim, MERS's attorneys published notice of the
foreclosure sale.7 The foreclosure sale was held on February 8,
2010. Gary Litchfield, Gold Star's manager, purchased the
property at auction for $166,000 and paid a deposit of $5,000.
2. The Superior Court action. On March 10, 2010, Marie
filed a complaint in the Superior Court challenging her
underlying Fremont loan as predatory, and seeking to invalidate
the foreclosure sale as a violation of a preliminary injunction
on Fremont loan foreclosures. See Commonwealth v. Fremont Inv.
& Loan, 452 Mass. 733 (2008). Marie's complaint named Deutsche
Bank and Litchfield, individually and as manager of Gold Star,
but not MERS, as defendants.
6
Deutsche Bank abandoned its 2008 proceedings under the
servicemembers act.
7
According to the affidavit of Andrew P. Osofsky, MERS's
attorneys also served notice on Marie by certified mail in
accordance with G. L. c. 244, § 14. Marcus testified at trial
that the Darbouzes did not receive any foreclosure-related
notices or correspondence from MERS. The Darbouzes do not press
any claim regarding notice of the foreclosure sale in this
appeal.
5
A judge of the Superior Court allowed Deutsche Bank's
motion for summary judgment on August 8, 2012, and entered a
judgment dismissing Marie's complaint on August 9, 2012. Marie
filed a timely notice of appeal, but her appeal was dismissed
for lack of prosecution on January 8, 2013. A later motion for
relief from the judgment was denied on April 23, 2013.
3. Postforeclosure transactions. On February 14, 2011,
while Marie's Superior Court action was pending, Litchfield
assigned his auction bid to Gold Star. MERS executed a
foreclosure deed, conveying the property to Gold Star, on
September 19, 2011. MERS then executed a "Corporate Assignment
of Mortgage," dated October 28, 2011, assigning to Deutsche Bank
any remaining interest or rights it had under the mortgage.
That assignment was recorded on November 2, 2011.
Gold Star did not accept delivery of the deed or pay the
balance of the purchase price until May 17, 2013, after the
Superior Court judgment against Marie became final. On that
date, Gold Star paid to MERS's attorneys the $161,000 balance
due on its auction bid and accepted delivery of the deed, which
was recorded, together with MERS's attorney's affidavit of
compliance with G. L. c. 244, § 15, on May 20, 2013.
Discussion. 1. Pendency of prior action. Also on May 17,
2013, prior to Gold Star's initiation of the present summary
process action in the Housing Court, Marie filed a complaint in
6
the Land Court against MERS, Deutsche Bank, and Gold Star,
alleging unlawful foreclosure and seeking declaratory relief
regarding the validity of MERS's exercise of the power of sale
in the mortgage. The Darbouzes assert that the Housing Court
judge erred in denying their motion to dismiss the summary
process action under Mass.R.Civ.P. 12(b)(9), as amended, 450
Mass. 1403 (2008), and abused his discretion by proceeding to
trial notwithstanding the pendency of the first-filed Land Court
action. We discern no error, abuse of discretion, or prejudice
to the Darbouzes.
Rule 12(b)(9) "prohibits the long-barred practice of claim-
splitting." M.J. Flaherty Co. v. United States Fid. & Guar.
Co., 61 Mass. App. Ct. 337, 339 (2004). "Dismissal under this
rule is proper when the same parties are involved in two
actions, one begun before the other, and '[i]t is apparent from
the face of the present complaint . . . that all the operative
facts relied on to support the present action had transpired
prior to the commencement of the first action.'" Zora
Enterprises, Inc. v. Burnett, 61 Mass. App. Ct. 341, 346 (2004),
cert. denied, 543 U.S. 1150 (2005), quoting from Keen v. Western
New England College, 23 Mass. App. Ct. 84, 85-87 (1986).
Rule 12(b)(9) does not apply here. Most significantly, the
relief that Gold Star sought by filing the present action in the
Housing Court -- summary process and eviction -- was not
7
available to it as a counterclaim in the prior Land Court
action. Compare G. L. c. 185C, § 3 (Housing Court
jurisdiction), and G. L. c. 239, § 2 (jurisdiction over summary
process actions), with G. L. c. 185, § 1 (Land Court
jurisdiction). In addition, Marie alone initiated the Land
Court action -- Marcus had no stake in the note or mortgage --
whereas Gold Star was required to name both Marie and Marcus,
co-occupants of the property, in the eviction proceedings. Gold
Star cannot fairly be accused of splitting its claims to
frustrate the purpose of rule 12(b)(9) where Marie brought the
first action, to which Marcus was not a proper party. The
Housing Court judge did not err in denying the motion to
dismiss.
Nor did the Housing Court judge abuse his discretion by
placing the summary process action on the trial list
notwithstanding the pendency of the first-filed Land Court
action. The parties had repeatedly agreed to continue the trial
date in the Housing Court, originally scheduled for September
30, 2013. The Housing Court docket indicates at least nine
agreed-upon continuances prior to a review date of April 7,
2014. At the review hearing, the Housing Court judge inquired
why the trial on the summary process matter could not go
forward. On learning that the Land Court had not issued a
protective order or enjoined the eviction of the Darbouzes, the
8
judge denied the Darbouzes' rule 12(b)(9) motion and put the
matter on for trial later that day.
The Land Court declaratory relief action had been pending
since May, 2013. Gold Star and its codefendants argued their
motions to dismiss on January 28, 2014, and no decision had
issued. Marie might have asked the Land Court judge to "take
the sensible step of staying" her eviction pending the outcome
of the declaratory judgment matter, M.J. Flaherty Co. v. United
States Fid. & Guar. Co., 61 Mass. App. Ct. at 340, but she did
not. The Housing Court judge did not abuse his discretion in
electing to hear the case.
In any event, the Darbouzes do not make any claim that the
trial in the Housing Court was unfair, and we discern no
unfairness. At trial, both parties introduced documentary
exhibits, Litchfield testified on Gold Star's behalf, and Marcus
testified on behalf of the Darbouzes. The Darbouzes were able
to present all the documentary evidence, testimony, argument,
and defenses they wished to present. The Housing Court had
jurisdiction to decide the validity of the Darbouzes' defenses.
See Bank of N.Y. v. Bailey, 460 Mass. 327, 333-334 (2011). They
have not demonstrated that the Housing Court judge's decision to
proceed to trial was an abuse of discretion, or that they were
harmed thereby.
9
2. Exercise of power of sale. "The purpose of summary
process is to enable the holder of the legal title to gain
possession of premises wrongfully withheld." Wayne Inv. Corp.
v. Abbott, 350 Mass. 775, 775 (1966). "Legal title is
established in summary process by proof that the title was
acquired strictly according to the power of sale provided in the
mortgage; and that alone is subject to challenge. If there are
other grounds to set aside the foreclosure the defendants must
seek affirmative relief in equity." Ibid. See Bank of N.Y. v.
Bailey, 460 Mass. at 333; Deutsche Bank Natl. Trust Co. v.
Gabriel, 81 Mass. App. Ct. 564, 566 (2012). The Housing Court
judge found that Gold Star had established a prima facie case
for possession, that the Darbouzes presented "[n]o credible
defenses," and that Gold Star was entitled to judgment.
The mortgagee, its successors or assigns, or their
authorized representatives must exercise the statutory power of
sale. See G. L. c. 183, § 21; G. L. c. 244, § 14. "Any effort
to foreclose by a party lacking 'jurisdiction and authority' to
carry out a foreclosure under these statutes is void." U.S.
Bank Natl. Assn. v. Ibanez, 458 Mass. 637, 647 (2011).
The Darbouzes contend that MERS's foreclosure on Marie's
mortgage was invalid because Deutsche Bank, not MERS, was the
mortgagee. The record established the opposite.
10
The weight of the documentary evidence introduced at trial
shows that MERS was the mortgagee at all relevant times. MERS
is named in the mortgage as "mortgagee," "acting solely as a
nominee for Lender and Lender's successors and assigns." MERS
obtained judgment under the servicemembers act, authorizing MERS
to foreclose. MERS's attorney, Harmon Law Offices, P.C., issued
the notice of sale in the name of MERS, "[p]resent holder . . .
of said mortgage," in the form prescribed by G. L. c. 244, § 14.
The memorandum of terms and conditions of sale for the property
executed at the auction called for payment to the Harmon Law
Offices, as specified in the notice of sale.8
The fact that the notice required by G. L. c. 244, § 35A,
recites that Deutsche Bank is the "current mortgagee" does not
contradict the evidence of MERS's authority to exercise the
power of sale. As an initial matter, a deficiency in the notice
required by § 35A "does not furnish a basis to challenge the
validity of the foreclosure." Haskins v. Deutsche Bank Natl.
Trust Co., 86 Mass. App. Ct. 632, 634 (2014), citing U.S. Bank
Natl. Assn. v. Schumacher, 467 Mass. 421, 429-430 (2014).9
8
We reject the Darbouzes' assertion that the absence of any
reference to MERS in the memorandum of terms and conditions of
sale establishes that its attorneys did not conduct the sale on
its behalf.
9
"Instead, the appropriate avenue for a borrower to raise a
challenge to the form of notice given under § 35A is by means of
an equitable action, prior to foreclosure, seeking to enjoin the
11
Moreover, the notice properly and accurately identified the loan
servicer as the party to contact to discuss loan repayment and
efforts to cure the default. See Haskins, supra at 640-641.
More fundamentally, the term "mortgagee" as used in the
statutes relating to mortgage foreclosure was long understood,
and was understood at all relevant times in this case, to refer
not only to the mortgage holder, but also to "the holder of the
mortgage note." Eaton v. Federal Natl. Mort. Assn., 462 Mass.
569, 581-582 (2012). Thus, under common usage at the time,
Marie's "mortgagee" was both MERS and Deutsche Bank.10
This observation also disposes of the Darbouzes' claim that
Deutsche Bank's references to itself as the holder of Marie's
mortgage in various forums before and after the foreclosure sale
were inconsistent with MERS's status as mortgagee. For example,
in its motion for relief from the automatic stay in Marie's
bankruptcy case, Deutsche Bank represented that it was "the
holder of a first mortgage on real estate in the original amount
of $276,000.00 given by Marie R. Darbouze to [MERS] on or about
January 20, 2006." Deutsche Bank was in fact the secured
foreclosure." Haskins v. Deutsche Bank Natl. Trust Co., supra,
citing U.S. Bank Natl. Assn. v. Schumacher, supra at 422 n.4.
The Darbouzes' challenge to the § 35A notice came too late.
10
Indeed, the dictionary definition "suggest[s] that the
mortgagee is the note holder." Eaton v. Federal Natl. Mort.
Assn., 462 Mass. at 584 n.22, citing Black's Law Dictionary 1104
(9th ed. 2009).
12
creditor and the appropriate party in interest to seek relief
from the stay. Its misstatement in the motion that "[t]he
mortgage was assigned by [MERS] to the movant" was superfluous
and is not substantiated by any documentary evidence.11
Likewise, Deutsche Bank's statements in Marie's Superior
Court action do not negate MERS's status as mortgagee at the
time it executed the power of sale. For example, in its
memorandum in support of its motion to dismiss the Superior
Court action dated May 3, 2010, Deutsche Bank stated that it "is
an assignee of the loan. As such, Deutsche Bank foreclosed on
[Marie's] loan" (emphasis supplied). This statement was
accurate so far as it went: Deutsche Bank held the beneficial
interest in the loan and, working through MERS (its agent), had
caused a foreclosure to occur on the property pledged as
security. Similarly, in support of its motion for summary
judgment in the Superior Court action in April, 2012, Deutsche
Bank stated that it had "held a duly noticed foreclosure
auction." To be more exact, Deutsche Bank should have said that
"MERS, acting as Deutsche Bank's authorized agent, held a duly
11
Indeed, if Deutsche Bank, as opposed to MERS, had
conducted the foreclosure sale, Deutsche Bank could not have
relied on such an unsubstantiated statement as proof that MERS
had actually conveyed legal title to it. See U.S. Bank Natl.
Assn. v. Ibanez, 458 Mass. at 649-651. The Darbouzes'
suggestion that the October 28, 2011, assignment of the mortgage
from MERS to Deutsche Bank "is a confirmatory assignment of an
earlier off-record assignment" is mere speculation.
13
noticed foreclosure auction on Deutsche Bank's behalf." See
Eaton v. Federal Natl. Mort. Assn., 462 Mass. at 586.
Nonetheless, imprecision in such descriptions -- offered
before Eaton established a new requirement for unity of interest
between note and mortgage -- were irrelevant to any matter at
issue in the Superior Court action, which concerned the
circumstances in which Marie obtained her loan from Fremont in
2006. These statements do not operate as binding judicial
admissions of facts contrary to what the record established
concerning MERS's legal title to the property and status as
mortgagee at the time it conducted the foreclosure sale. We
discern no error in the Housing Court judge's determination that
Deutsche Bank's statements did not provide a credible defense to
the evidence that MERS properly exercised the power of sale.
3. Validity of Gold Star's deed. On February 14, 2011,
about a year after the foreclosure sale, Litchfield formally
assigned his winning bid to Gold Star. MERS conveyed the
property to Gold Star by foreclosure deed dated September 19,
2011. At the time, Marie's Superior Court action was pending.
Gold Star did not accept delivery of the deed or pay the balance
of the purchase price until May 17, 2013, after the Superior
Court judgment against Marie became final.
During the time between MERS's execution of the deed and
Gold Star's acceptance of delivery, MERS on October 28, 2011,
14
executed a "Corporate Assignment of Mortgage," assigning to
Deutsche Bank "the said Mortgage having an original principal
sum of $276,000.00 with interest, secured thereby, with all
moneys now owing or that may hereafter become due or owing in
respect thereof, and the full benefit of all the powers and of
all the covenants and provisos therein contained," as well as
MERS's "beneficial interest under the Mortgage." This
assignment was recorded on November 2, 2011.
The Darbouzes argue that because MERS assigned away its
mortgage interest to Deutsche Bank before Gold Star accepted
delivery of the deed, the deed failed to convey any interest to
Gold Star, rendering Gold Star's summary process action invalid.
We disagree.
When MERS completed the exercise of the power of sale on
February 8, 2010, the property was no longer mortgaged land and
its mortgage no longer existed. See Bevilacqua v. Rodriguez,
460 Mass. 762, 775 (2011); Santiago v. Alba Mgmt., Inc., 77
Mass. App. Ct. 46, 50 (2010). "[W]hen [MERS] purported to
assign the mortgage to [Deutsche Bank], there simply was no
mortgage to assign." Santiago v. Alba Mgmt., Inc., supra.
Moreover, once Gold Star accepted and recorded the deed at the
conclusion of Marie's Superior Court lawsuit and paid the
balance of the purchase price, MERS's and Deutsche Bank's
remaining interest in the property, if any, was extinguished.
15
Thus, Gold Star was the owner of the property in fee simple when
it initiated the summary process action to evict the Darbouzes.
Conclusion. The Housing Court judge did not err or abuse
his discretion in holding a trial on the summary process action
notwithstanding the prior pending Land Court action, in finding
that Gold Star had made out a prima facie case of possession, or
in determining that the Darbouzes' defenses lacked merit.
Judgment affirmed.