Mitchell v. U.S. Bank National Association

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17-P-1445 Appeals Court
WAYNE E. MITCHELL & another1 vs. U.S. BANK NATIONAL
ASSOCIATION, trustee,2 & others.3
No. 17-P-1445. March 4, 2019.
Mortgage, Foreclosure, Real estate. Real Property, Mortgage.
Negotiable Instruments, Note.
The plaintiffs, Wayne and Sharon Mitchell (Mitchells),
filed this action to try title under G. L. c. 240, claiming that
the foreclosure of their home was invalid. The case raises a
question as to who is the "note holder" able to foreclose a
mortgage, where the note and mortgage were securitized after
they were executed. Here the foreclosure was conducted by
defendant U.S. Bank National Association (U.S. Bank), which
possessed the note, as a trustee, at the time of foreclosure of
the Mitchells' home (property). The Mitchells argue that U.S.
Bank was not authorized to foreclose because U.S. Bank did not
hold the "beneficial interest" in the note, as that interest was
held by the certificate holders of the trust. The trial judge
rejected the Mitchells' argument and we do as well, as it is at
odds with both the language of the note and fundamental trust
law. We accordingly affirm the judgment, which confirmed U.S.
Bank's title to the property as a result of the foreclosure.
1 Sharon Mitchell.
2 For RASC 2006-EMX4.
3 U.S. Bank National Association, trustee; Mortgage
Electronic Registration Systems, Inc.; Wells Fargo Bank, N.A.,
doing business as America's Servicing Company; Mortgage Lenders
Network USA, Inc.; Residential Asset Securities Corp.; and
Residential Funding Corp.
2
Background.4 The Mitchells obtained a mortgage loan from
Mortgage Lenders Network USA, Inc. (MLN), in 2006 with respect
to the property at 547 Washington Street, Winchester. The
Mitchells executed a promissory note (note) in favor of MLN for
the principal amount of the loan and granted a first priority
mortgage to Mortgage Electronic Registration Systems, Inc.
(MERS). The note was initially indorsed by MLN to EMAX
Financial Group, LLC (EMAX), which thereafter indorsed the note
in blank on an allonge to the note. Between March and May of
2006, the note was securitized5 and transferred into a trust
named RASC 2006-EMX4, with U.S. Bank as trustee. On May 1,
2006, U.S. Bank also entered into a custodial agreement with
Wells Fargo Bank, N.A. (Wells Fargo), wherein Wells Fargo became
custodian for the Mitchells' original collateral file, including
the note, as well as the servicer of the loan on behalf of U.S.
Bank.
By 2008 the Mitchells had defaulted on the note and
mortgage. In July 2012, U.S. Bank sent a notice of foreclosure
to the Mitchells. On October 2, 2012, U.S. Bank conducted a
foreclosure sale and on November 20, 2012, executed a
foreclosure deed. The judge specifically found that as of the
date of notice, and of foreclosure, U.S. Bank was (1) the
trustee for the RASC 2006-EMX4 mortgage-backed securities, (2)
the assignee of the mortgage, and (3) in physical possession of
the note, through its agent, Wells Fargo.6
4 The facts are taken from the judge's "Decision," entered
after trial. The Mitchells do not contest the judge's factual
findings.
5 For the purposes of this case we use the term
"securitized," or the "securitization" of a note, to describe a
transaction where the note and mortgage associated with a loan
have been pooled with other similar obligations into a trust, in
which third-party investors can purchase shares (certificates)
that represent interests in the pool. See South Boston Sav.
Bank v. Commissioner of Revenue, 418 Mass. 695, 697-698 (1994).
6 In Eaton v. Federal Nat'l Mtge. Ass'n, 462 Mass. 569, 571
(2012), the Supreme Judicial Court held that the "mortgagee" for
foreclosure purposes is "the person or entity then holding the
mortgage and also either holding the mortgage note or acting on
behalf of the note holder." The Mitchells' arguments in the
trial court accordingly focused on who was "holding the mortgage
3
The Mitchells filed this action to try title in the Land
Court in April 2014.7 U.S. Bank counterclaimed for a declaration
of superior title as a result of the foreclosure. After a
trial, the judge's comprehensive decision found for U.S. Bank
and declared that U.S. Bank held clear, superior record title to
the property. The Mitchells appealed.
Discussion. The Mitchells raised several arguments in the
trial court challenging the foreclosure but in this court they
raise only one: that the foreclosure was invalid because U.S.
Bank was not the "beneficial owner" of the note at the time of
foreclosure. According to the Mitchells, under the "clear and
unambiguous" language of the note it may be enforced only by the
persons "entitled to the beneficial interest in the loan."
Those persons, they argue, are the certificate holders, once a
note has been securitized. Accordingly, they claim that only
the certificate holders have the right to foreclose where the
note has been securitized.
The Mitchells' argument is incorrect. The note does not
state that it is to be enforced by the persons "entitled to the
beneficial interest"; rather, the note states that the "Note
Holder" is the "Lender or anyone who takes this Note by transfer
and who is entitled to receive payments under this Note"
(emphasis added).8 The question of who is the person "entitled
to receive payments" under the note is in part a question of
law, the answer to which is governed by the note and the Uniform
Commercial Code (UCC), as adopted in Massachusetts. See G. L.
c. 106. Under the note the original payee was MLN, but the note
states that it can be transferred, and here it was transferred
and eventually indorsed in blank, on the allonge. Under art. 3
of the Massachusetts UCC, G. L. c. 106, § 3-205 (b), an
note" as of the time of foreclosure, as did the judge's
findings.
7 The Mitchells filed the original complaint in 2012. The
defendants' motion to dismiss was allowed in March, 2014, and
the Mitchells were given leave to file an amended complaint.
The "second amended petition to try title" was filed in April,
2014.
8 The mortgage similarly provides that "MERS (as nominee for
Lender and Lender's successors and assigns) has the right:
. . . to foreclose and sell the Property." MERS assigned the
mortgage to U.S. Bank in December 2008.
4
instrument "[w]hen indorsed in blank . . . becomes payable to
bearer." See Khalsa v. Sovereign Bank, N.A., 88 Mass. App. Ct.
824, 825 (2016). The bearer, or possessor, of the note at the
time of foreclosure was U.S. Bank, as trustee. U.S. Bank, as
trustee, was thus the entity "entitled to receive payments" of
amounts due under the note. The holding of property and the
receipt of payments due are well recognized and common functions
of a trustee. See South Boston Sav. Bank v. Commissioner of
Revenue, 418 Mass. 695, 697 (1994).
The Mitchells' contrary argument is flawed in several
respects. As discussed, the certificate holders are not the
persons entitled to receive payments under the note and the UCC.
In addition, the making of the loan and granting of the mortgage
was a transaction between the Mitchells and the lender, and that
transaction was entirely separate from the transaction that
securitized the note and mortgage. It is the note and mortgage
that govern the foreclosure process, together with the
applicable law, Eaton v. Federal Nat'l Mtge. Ass'n, 462 Mass.
569, 575-589 (2012); whatever contractual rights the certificate
holders may have are governed by the separately transacted
securitization documents. Notably, the Mitchells cite no case
or other authority for the proposition that the securitization
transaction fundamentally altered the enforcement rights under
the note and mortgage. Cf. U.S. Bank Nat'l Ass'n v. Ibanez, 458
Mass. 637, 649 (2011) (mortgages that secure promissory notes in
mortgage-backed securities "are still legal title to someone's
home").9
Judgment affirmed.
Thomas B. Vawter for the plaintiffs.
David E. Fialkow for Mortgage Electronic Registration
Systems, Inc., & others.
9 We note that the argument advanced by the Mitchells would,
if accepted, render it extremely difficult to foreclose on any
property as to which the note and mortgage have been
securitized.