Beal Bank USA v. New Century Mortgage Corporation

MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 2019 ME 150
Docket: Pen-18-158
Argued: May 15, 2019
Decided: October 1, 2019
Panel: ALEXANDER, MEAD, GORMAN, JABAR, HJELM, and HUMPHREY, JJ.
BEAL BANK USA
v.
NEW CENTURY MORTGAGE CORPORATION
HUMPHREY, J.
[¶1] Beal Bank USA appeals from the decision of the Superior Court
(Penobscot County, A. Murray, J.) “denying” its complaint to compel the
assignment of a mortgage to Beal by the insolvent originating lender New
Century Mortgage Corporation.1 Beal argues that, because it is the holder of the
note secured by the mortgage, the court erred when it failed to apply the
equitable trust doctrine to conclude that New Century holds the mortgage in
trust for Beal and that Beal is entitled to an assignment of the mortgage. Beal
1 The Superior Court treated the complaint as a motion to compel assignment and entered an
order, rather than a judgment, denying the relief sought by Beal. For purposes of our analysis, we
view this as a distinction without a difference.
2
also argues that it produced sufficient independent evidence of ownership of
the mortgage to compel an assignment.2 We disagree and affirm the judgment.
I. BACKGROUND
[¶2] The following facts are either alleged in Beal’s complaint or were
found by the trial court and supported by record evidence. 3 Knope v. Green Tree
Servicing, LLC, 2017 ME 95, ¶ 3, 161 A.3d 696.
[¶3] On September 29, 2006, the homeowners of the property at issue
signed a promissory note listing New Century as the lender. To secure the note,
the homeowners executed a mortgage that identified New Century as the
“lender” and Mortgage Electronic Registration Systems, Inc. (MERS), as the
“nominee” for the lender.4 The note was transferred several times and
eventually obtained by LNV Corporation, which held the note at the
2 Because many of the documents that Beal presented purporting to prove independent
ownership of the mortgage were not admitted in evidence, we do not address further whether they
were sufficient to demonstrate actual ownership.
3 Although the issue of whether New Century still owns the mortgage was not presented to the
Superior Court and was inadequately briefed to us, we take judicial notice that New Century filed for
Chapter 11 bankruptcy in April 2007. See King v. King, 2013 ME 56, ¶ 4 n.1, 66 A.3d 593 (stating that
this Court can take judicial notice of pleadings and docket entries in other cases); see also 11 U.S.C.S.
§§ 101-1532 (LEXIS through Pub. L. 116-56); see generally In re New Century TRS Holdings, Inc.,
505 B.R. 431 (Bankr. D. Del. 2014); In re New Century TRS Holdings, Inc., 407 B.R. 576 (Bankr. D. Del.
2009). Beal presented no evidence that New Century retained the homeowners’ mortgage after the
issuance of the final bankruptcy order and termination of the bankruptcy estate.
4With the exceptions of the identity of the lender and the amount of the debt, the language of the
mortgage was identical to that in Bank of America, N.A. v. Greenleaf, 2014 ME 89, ¶ 13, 96 A.3d 700.
3
commencement of this case. On October 30, 2008, MERS purported to assign
the mortgage to LNV. On November 28, 2016, LNV filed a complaint alleging
that it was the equitable owner of the mortgage because New Century held any
interest it had in the mortgage in trust for LNV, as holder of the note, and
seeking an order to compel New Century to assign “any interest” it held in the
mortgage to LNV. Later, Beal was substituted as the plaintiff.
[¶4] On January 10, 2018, the Superior Court held a hearing on Beal’s
complaint; New Century did not appear.5 Beal presented what appeared to be
the original promissory note, a copy of the mortgage, several mortgage
modification agreements, and correspondence and account information
pertaining to the homeowners’ loan and the property.
[¶5] On March 4, 2018, the Superior Court entered an order denying the
relief sought by Beal and ruled that applying the equitable trust doctrine6 in the
manner Beal requested would be inconsistent with our ruling in Bank of
America, N.A. v. Greenleaf, 2014 ME 89, 96 A.3d 700. After the court denied
Beal’s motion to reconsider, Beal timely appealed. M.R. App. P. 2B(c)(1).
5 Although service had been made on New Century and New Century had not entered an
appearance in this action, the Superior Court did not enter a default against New Century.
6 See infra ¶ 7.
4
II. DISCUSSION
[¶6] Beal argues that the Superior Court erred when it determined that
the equitable remedy it seeks is precluded by our holding in Greenleaf. See
2014 ME 89, ¶¶ 10-17, 96 A.3d 700. When a trial court’s judgment is based on
a conclusion of law, we review the trial court’s conclusions de novo. Harris v.
Woodlands Club, 2012 ME 117, ¶ 17, 55 A.3d 449.
[¶7] Beal contends that, as the holder of the note secured by a mortgage,
it has an “equitable pre-foreclosure right” to compel an assignment of that
mortgage—a “right,” it argues, that is distinct from, and therefore not precluded
by, our holding in Greenleaf.7 See 2014 ME 89, ¶¶ 10-17, 96 A.3d 700. As
support, Beal relies on the equitable trust doctrine, which states that
[o]ne who takes a mortgagee’s title holds it in trust for the owner
of the debt to secure [the debt for] which the mortgage was given.
If a mortgage is given to secure negotiable promissory notes, and
the notes are transferred, the mortgagee and all claiming under
him will hold the mortgaged property in trust for the holder of the
notes.
Jordon v. Cheney, 74 Me. 359, 361 (1883); see also Wyman v. Porter, 108 Me. 110,
120, 79 A. 371 (1911); Stone v. Locke, 46 Me. 445, 449 (1859).
7 Beal acknowledges that it is “unable to obtain an assignment directly from the insolvent original
lender [New Century],” which means that Beal is effectively arguing that the court should declare
Beal to be the legal owner of the mortgage for purposes of a future foreclosure action.
5
[¶8] Thus, Beal argues that, because it holds the note and is unable to
obtain the mortgage by other means as a result of New Century’s bankruptcy,
and because New Century, as the mortgagee,8 holds the mortgage “in trust” for
Beal’s benefit, Beal can therefore compel the assignment of the legal title to the
mortgage. See U.S. Bank Nat’l Ass’n. v. Ibanez, 941 N.E.2d 40, 54 (Mass. 2011)
(stating that, under Massachusetts law, the holder of the note can obtain an
“equitable order of assignment” of the accompanying mortgage). Beal insists
that its position is not inconsistent with our ruling in Greenleaf because it is
pursuing a pre-foreclosure action in equity that is intended only to establish an
existing “equitable (but not an actual) ownership interest in the underlying
mortgage.”
[¶9] To evaluate Beal’s claim, we first look to the underpinnings of our
decision in Greenleaf to determine whether the equitable trust doctrine applies
in this context and, if so, whether it operates to compel an assignment of the
mortgage as Beal requests. In Greenleaf, we held that for a party to have
standing to foreclose it must, among other things, present proof of its status as
holder of the note and owner of the mortgage. 2014 ME 89, ¶¶ 10-12,
96 A.3d 700. In doing so, we rejected Bank of America’s argument that it had
8 New Century’s assignment to MERS, as “nominee,” was identical to that in Greenleaf, and
therefore conveyed only the power as nominee. See Greenleaf, 2014 ME 89, ¶¶ 13-14, 96 A.3d 700.
6
standing to foreclose as the mortgagee based on MERS’s purported assignment
of the mortgage to it. Id. ¶¶ 13-17. We held that because MERS had acquired
only the right to record the mortgage as the lender’s nominee and not
ownership of the mortgage, MERS could not grant to Bank of America a greater
interest than it held and thus it could not assign ownership of the mortgage to
the bank.
[¶10] We also rejected Bank of America’s alternate argument that, even
if there was no “formal assignment of the [m]ortgage,” it nevertheless became
the mortgagee once it took possession of the promissory note such that it could
enforce the note. In effect, the bank argued there what Beal argues here: an
assignment of the mortgage is “not even necessary in instances where . . . a
mortgage is given to secure a promissory note.”
[¶11] Although Beal concedes, as it must, that its physical possession of
the note alone is not sufficient to establish standing to foreclose, see Greenleaf,
2014 ME 89, ¶¶ 10-17, 96 A.3d 700, it relies on Massachusetts case law to
support its arguments that, in Maine, it has an equitable pre-foreclosure right
in the mortgage and that it can compel an assignment of the mortgage from the
mortgagee. This reliance is misplaced.
7
[¶12] Beal cites U.S. Bank, N.A. v. Ibanez, 941 N.E.2d 40, 54 (Mass. 2011),
for the proposition that it can obtain an equitable assignment of a mortgage
held in trust by the mortgagee. There, in holding that a bank failed to
demonstrate that it held a mortgage in accordance with the statutory
requirements for a nonjudicial power of sale foreclosure,9 the Massachusetts
Supreme Judicial Court rejected the bank’s argument that, because it was in
possession of the note, it had a “sufficient financial interest in the mortgage to
allow [the bank] to foreclose.” Id. at 53. In doing so, the court stated that, “the
assignment of the note does not carry with it the assignment of the mortgage.”
Id. at 53-54. Instead, the holder of the note can obtain a valid written
assignment of the mortgage or seek an equitable assignment of the interest held
“in trust” by the mortgagee. Id. at 54. Absent either of these, “the mortgage
holder remains unchanged.” Id.
[¶13] We decline to extend this reasoning, grounded in Massachusetts’s
power of sale foreclosure laws, to our mortgage and judicial foreclosure
analysis pursuant to Maine law. See id. at 49; Mortg. Elec. Registration Sys., Inc.
v. Saunders, 2010 ME 79, ¶ 13, 2 A.3d 289; 14 M.R.S. §§ 6321-6325 (2018).
9 Unlike Massachusetts, Maine does not allow for the nonjudicial foreclosure of residential
mortgages executed on or after October 1, 1993. See 14 M.R.S. § 6203-A (2018) (allowing for
nonjudicial foreclosure of mortgages given primarily for business, commercial, or agricultural
purposes).
8
Additionally, the court in Ibanez did not imply that any such equitable
assignment from the mortgagee to the note holder occurred automatically, nor
that any such equitable assignment was proper in the circumstances of that
case. See id. at 56 (Cordy, J. concurring) (“The plaintiff banks . . . have simply
failed to prove that the underlying assignments of the mortgage that they allege
(and would have) entitled them to foreclose ever existed in any legally
cognizable form before they exercised the power of sale that accompanies those
assignments.”).
[¶14] Our holding in Greenleaf stands as an implicit rejection of Beal’s
argument here that the equitable trust doctrine effectively establishes
ownership of a mortgage in the holder of its accompanying note. See Greenleaf,
2014 ME 89, ¶¶ 10-17, 96 A.3d 700. Although some courts continue to apply
the dated equitable trust doctrine in the context of modern mortgage
foreclosure actions, those courts do so under the foreclosure laws of their
jurisdictions. See, e.g., Culhane v. Aurora Loan Servs. of Neb., 708 F.3d 282,
292-93 (1st Cir. 2013) (citing Massachusetts’s foreclosure law); Ibanez,
941 N.E.2d at 54. In Maine, its application would be fundamentally at odds with
our holding in Greenleaf. See Greenleaf, 2014 ME 89, ¶¶ 10-17, 96 A.3d 700; see
also Saunders, 2010 ME 79, 2 A.3d 289. Taken to its logical conclusion,
9
acceptance of Beal’s argument would require us to hold that, once a party
becomes the “holder”10 of a note secured by a mortgage, that status would
operate to automatically transfer ownership of the mortgage to that party, a
construct that we implicitly rejected in Greenleaf and which would render our
bifurcated standing analysis of the holder of the note and the owner of the
mortgage entirely superfluous. See Greenleaf, 2014 ME 89, ¶¶ 10-12,
96 A.3d 700.11
[¶15] We therefore conclude that although the holder of the note may
retain some equitable interest in the accompanying mortgage, any such interest,
standing alone, does not equate to actual ownership of the mortgage nor is it
sufficient to establish a “pre-foreclosure right” to compel its assignment. See
Greenleaf, 2014 ME 89, ¶ 12, 96 A.3d 700; see also Locke, 46 Me. at 447-49
(concluding that “assignment of a note is not an assignment of the mortgage,”
but that possession of the note gives rise to an equitable interest and
indispensable party status in future actions affecting the mortgage).
10 In this context, a “holder” is a party “in possession of the original note that is indorsed in blank.”
Greenleaf, 2014 ME 89, ¶ 10, 96 A.3d 700.
11 Further, Beal’s equitable argument aside, Beal has failed to furnish evidence, in light of New
Century’s bankruptcy and the resulting termination of its bankruptcy trust, to demonstrate that New
Century continues to be the owner of the mortgage, and we are loath to compel the assignment of
any mortgage in which the identity of the mortgagee cannot be established with any degree of
certainty by the holder of the note. See Greenleaf, 2014 ME 89, ¶ 22 n.13, 96 A.3d 700 (discussing the
evidentiary burden for a plaintiff to obtain a foreclosure).
10
Accordingly, the court did not err in denying the relief sought by Beal to compel
assignment of the mortgage here.12
The entry is:
Judgment affirmed.
Richard E. Briansky, Esq. (orally), Eckert Seamans Cherin & Mellott, LLC,
Boston, Massachusetts, for appellant Beal Bank USA
Jonathan E. Selkowitz, Esq. (orally), and Frank D’Alessandro, Esq., Pine Tree
Legal Assistance, Inc., Portland; Thomas A. Cox, Esq., Portland; and Andrew R.
Sarapas, Esq., Strout & Payson, P.A., Rockland, for Amici Curiae Pine Tree Legal
Assistance, Inc., and Maine Attorneys Saving Homes
Aaron M. Frey, Attorney General, and Kevin J. Crosman, Asst. Atty. Gen., Office
of the Attorney General, Augusta, for Amicus Curiae Attorney General
John A. Doonan, Esq., and Reneau J. Longoria, Esq., Doonan, Graves & Longoria,
LLC, Beverly, Massachusetts, for Amicus Curiae Caliber Home Loans Inc.
F. Bruce Sleeper, amicus curiae pro se
Penobscot County Superior Court docket number RE-2016-109
FOR CLERK REFERENCE ONLY
Beal’s argument that denying this relief will result in an “undeserved windfall” for the
12
homeowners is unavailing as other means of enforcing the promissory note remain available to it.