Federal National Mortgage Association v. Patricia W. Deschaine

MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 2017 ME 190Docket: Pen-16-316
Argued: May 12, 2017
Decided: September 7, 2017
Revised: December 7, 2017
Panel: ALEXANDER, MEAD, GORMAN, JABAR, HJELM, and HUMPHREY, JJ.
FEDERAL NATIONAL MORTGAGE ASSOCIATION
v.
PATRICIA W. DESCHAINE et al.
HJELM, J.
[¶1] In 2012, a complaint for residential foreclosure filed by Federal
National Mortgage Association (Fannie Mae) against Patricia W. Deschaine
and Paul J. Deschaine was dismissed with prejudice because the parties failed
to comply with the court’s pretrial order. Fannie Mae did not seek
post-judgment or appellate relief, and so the judgment became final. The
following year, Fannie Mae filed a second complaint for foreclosure involving
the same property, based on the same note and mortgage, and against the
same mortgagors. The Superior Court (Penobscot County, Anderson, J.)
ultimately granted the Deschaines’ motion for summary judgment on Fannie
Mae’s complaint and on their counterclaims to quiet title and for a declaratory
judgment, and denied Fannie Mae’s cross-motion for summary judgment on
2
its complaint. Applying our decision in Johnson v. Samson Construction Co., the
court concluded that this second foreclosure action is barred as a matter of
law by the judgment dismissing with prejudice the earlier foreclosure action.
1997 ME 220, ¶ 8, 704 A.2d 866. On this appeal by Fannie Mae, we conclude
that the court correctly determined that this second foreclosure claim is
precluded by principles of res judicata, and we affirm the judgment.1
I. BACKGROUND
[¶2] The summary judgment record contains the following facts, which
are not in dispute. See Harlor v. Amica Mut. Ins. Co., 2016 ME 161, ¶ 7,
150 A.3d 793.
[¶3] In October 2004, the Deschaines executed a promissory note in
favor of First Horizon Home Loan Corporation in the principal amount of
$127,920. As security for the note, the Deschaines also executed a mortgage
on residential property located in Lincoln in favor of Mortgage Electronic
Registration Systems, Inc. (MERS), as “nominee” for First Horizon.2 Fannie
1 Amicus briefs have been filed by National Consumer Law Center, National Association of
Consumer Advocates, Jerome Frank Legal Services Corporation, and Maine Attorneys Saving
Homes; Maine Bankers Association and The National Mortgage Bankers Association; Pine Tree
Legal Assistance; Gerald F. Petruccelli; and Doonan, Graves & Longoria, LLC. See M.R. App. P. 9(e).
2 Later, in April 2011, the United States Bankruptcy Court for the District of Maine (Haines, J.)
granted the Deschaines’ petition for a discharge in bankruptcy pursuant to 11 U.S.C.S. § 727 (LEXIS
through Pub. L. No. 115-50). As a result of the discharge, the Deschaines can no longer be held
personally liable for their obligations under the note and mortgage. See 11 U.S.C.S. § 524(a)(1)
3
Mae eventually acquired the note endorsed in its favor. MERS purported to
assign the mortgage to Fannie Mae in June 2011, but because MERS possessed
only the right to record the mortgage, the assignment conveyed nothing more
than that right. See Bank of Am., N.A. v. Greenleaf, 2014 ME 89, ¶¶ 15-16,
96 A.3d 700; Mortg. Elec. Registration Sys., Inc. v. Saunders, 2010 ME 79,
¶¶ 9-11, 2 A.3d 289.
[¶4] Paragraph 7(C) of the note and Paragraph 22 of the mortgage
contain acceleration clauses, which provide that if the borrower fails to satisfy
an obligation under either instrument and fails to timely cure the default after
being notified of it, the lender may require “immediate payment in full” of the
amount then remaining unpaid under the loan documents—including the
total balance of principal and interest under the note and any additional fees
and charges allowed by the note and mortgage.
[¶5] Additionally, Paragraph 19 of the mortgage is a reinstatement
provision, stating that “even if [the l]ender has required immediate payment
(LEXIS through Pub. L. No. 115-51) (stating that a discharge in a Chapter 7 bankruptcy “voids any
judgment any time obtained, to the extent that such judgment is a determination of the personal
liability of the debtor with respect to any debt discharged”). Because a discharge in bankruptcy
does not extinguish a valid lien on a property, however, that discharge does not preclude Fannie
Mae from enforcing its security interest in an in rem foreclosure proceeding. See Johnson v. Home
State Bank, 501 U.S. 78, 82-84 (1991) (“[A] discharge [in a Chapter 7 liquidation] extinguishes only
the personal liability of the debtor. . . . [A] creditor’s right to foreclose on the mortgage survives or
passes through the bankruptcy.” (citations and quotation marks omitted)); New Eng. Merchs. Nat’l
Bank v. Herron, 243 A.2d 722, 726 (Me. 1968).
4
in full, [the borrower] may have the right to have enforcement of [the
mortgage] discontinued” if, among other things, the borrower “pay[s] to
[the l]ender the full amount that then would be due under [the mortgage] and
the [n]ote as if immediate payment in full had never been required” before the
earliest of the date a foreclosure judgment is issued, five days prior to the sale
of the property, or “such other period as [a]pplicable [l]aw might specify for
the termination of [the] right to reinstate.” Paragraph 19 further provides
that if the borrower exercises her right of reinstatement, “the [n]ote and this
[s]ecurity [i]nstrument will remain in full effect as if immediate payment in
full had never been required.”
[¶6] In September 2011, Fannie Mae issued to the Deschaines a notice
of default and right to cure because, among other things, they had not made
any monthly payments on the note since January 2011. The Deschaines failed
to pay the stated amount due—$7,719.33—by the date specified in the notice.
As a result, in December 2011 Fannie Mae filed a foreclosure complaint in the
District Court (Lincoln). In its complaint, Fannie Mae alleged, “[I]n accordance
with the terms of the [l]oan [d]ocuments, [Fannie Mae] has declared the entire
outstanding principal amount, accrued interest thereon, and all other sums
due under the [l]oan [d]ocuments to be presently due and payable.”
5
Specifically, Fannie Mae alleged that the amount due included a principal
balance of $122,712.93, which, together with accrued interest, fees, and other
charges, resulted in a total amount due of $131,944.56.
[¶7] In June 2012, the court (Stitham, J.) issued a trial management
order stating that neither party had complied with an earlier order that had
established a deadline for the parties to exchange witness and exhibit lists,
and warning the parties that sanctions would be imposed if they did not
comply with a revised deadline. See M.R. Civ. P. 16A(a), (d) (authorizing a
court to dismiss an action with prejudice for a party’s failure to comply with a
pretrial order). The following month, the court issued a judgment stating that
there had been “no filings by either party,” and dismissed Fannie Mae’s
foreclosure complaint “with prejudice.” Fannie Mae did not seek any type of
relief from the dismissal through a post-judgment motion or an appeal, and so
the judgment became final.
[¶8] In September 2013—more than one year after the first foreclosure
action had been dismissed—Fannie Mae sent a new notice of default to the
Deschaines, this time stating that, among other grounds for a default, the
Deschaines had failed to make payments on the note since February 2011.
The Deschaines did not take the actions specified in the notice to cure the
6
purported default, and in December 2013 Fannie Mae filed a complaint in the
Superior Court (Penobscot County), which, as later amended, requested a
judgment of foreclosure and other relief based on theories of equitable
mortgage and unjust enrichment.3 In both the original and amended
complaints, Fannie Mae alleged, “[I]n accordance with the terms of the [n]ote
and [m]ortgage, [Fannie Mae] has declared the entire outstanding principal
amount, accrued interest thereon, and all other sums due under the [n]ote and
[m]ortgage to be presently due and payable.”
[¶9] After an unsuccessful mediation session held in the summer of
2014, the Deschaines filed an answer that denied many of the allegations in
the amended complaint and asserted, among others, the affirmative defenses
of lack of standing and res judicata. The Deschaines’ responsive pleading
included counterclaims to quiet title and for a declaratory judgment that, as a
result of the dismissal with prejudice of Fannie Mae’s prior foreclosure
complaint, Fannie Mae was no longer entitled to enforce the mortgage and so
the Deschaines held title to the property unencumbered by the mortgage in
favor of Fannie Mae.
3 The amended complaint named 21st Mortgage Corporation as a party-in-interest because it
allegedly holds a junior interest in the mortgaged property. See 14 M.R.S. § 6321 (2013), amended
by P.L. 2013, ch. 555, § 2 (effective Aug. 1, 2014); P.L. 2015, ch. 229, § 1 (effective October 15, 2015).
That entity did not participate in either the trial court proceedings or this appeal.
7
[¶10] In January 2015, Fannie Mae obtained an assignment of the
mortgage from the successor-in-interest to First Horizon, the original lender,
and thus acquired standing to pursue this second foreclosure action against
the Deschaines, which had already been pending for over a year. See
Greenleaf, 2014 ME 89, ¶ 17, 96 A.3d 700.
[¶11] In November 2015, the Deschaines moved for summary
judgment on their counterclaims and on all counts of Fannie Mae’s complaint.
See M.R. Civ. P. 56. With the motion, the Deschaines filed a statement of
material facts, see M.R. Civ. P. 56(h)(1), in which they asserted that the notice
of default issued by Fannie Mae in September 2011 “resulted in the
acceleration of the mortgage debt.” In support of this assertion, the
Deschaines cited to the 2011 foreclosure complaint as one of several record
references. See M.R. Civ. P. 56(h)(4). Based on that assertion and our decision
in Johnson, the Deschaines argued that Fannie Mae was barred from bringing a
second foreclosure claim and that they were therefore entitled to a judgment
as a matter of law on that claim and on their counterclaims.
[¶12] In its opposition to the Deschaines’ motion, Fannie Mae disputed
the assertion that the debt was accelerated in the 2011 action, characterizing
it as a legal conclusion that did not require a response. Fannie Mae
8
simultaneously filed its own motion for summary judgment on each count of
its complaint. In its statement of material facts, Fannie Mae reiterated
allegations it had made in its complaint, including the Deschaines’ failure,
since February 2011, to make principal and interest payments due pursuant
to the note, among other grounds for default. Fannie Mae argued that it was
not precluded from bringing a second foreclosure claim against the
Deschaines because the 2013 action was based on new breaches of the note
and mortgage that had not been at issue in the earlier proceeding and because
there had not been an effective acceleration of the debt in that proceeding.
[¶13] In June 2016, the court (Anderson, J.) granted the Deschaines’
motion for summary judgment on both Fannie Mae’s complaint and their
counterclaims, and denied Fannie Mae’s cross-motion for summary judgment.
The court concluded, as a matter of law, that each of Fannie Mae’s claims was
barred by res judicata, and alternatively that in the circumstances of this case
Fannie Mae was not entitled to relief on its equitable claims. As to the
counterclaims, the court concluded that the Deschaines were not subject to
any remaining obligation created by the note and mortgage because Fannie
Mae was “barred from enforcing the note,” and the Deschaines were therefore
entitled to a declaratory judgment that they held title to the Lincoln property
9
unencumbered by the mortgage in favor of Fannie Mae. See 14 M.R.S. § 6206
(2016) (“If it appears that nothing is due on the mortgage, judgment shall be
rendered for the defendant and for his costs, and he shall hold the land
discharged of the mortgage.”). Fannie Mae timely appealed. See 14 M.R.S.
§ 1851 (2016); M.R. App. P. 2(b)(3).
II. DISCUSSION
[¶14] Fannie Mae argues that the court erred by concluding, as a matter
of law, that the present foreclosure action is barred by the doctrine of res
judicata.4 “We review a grant of a summary judgment on a res judicata issue
de novo, viewing the record in the light most favorable to the party against
whom judgment has been granted to decide whether the parties’ statements
of material facts and the referenced record material reveal a genuine issue of
material fact.” Wilmington Tr. Co. v. Sullivan-Thorne, 2013 ME 94, ¶ 6, 81 A.3d
371 (quotation marks omitted).
4 In its summary of the issues on appeal, Fannie Mae also states as an issue that the court erred
by concluding that its claims to enforce an equitable mortgage and for unjust enrichment were
precluded as a matter of law. Because Fannie Mae fails to develop that issue in its brief, we do not
address it. See Bayview Loan Servicing v. Bartlett, LLC, 2014 ME 37, ¶ 15 n.5, 87 A.3d 741 (stating
that a party waives any argument that it fails to adequately develop in briefing). Fannie Mae does
not argue that the court erred by denying its cross-motion for summary judgment on its foreclosure
claim. Rather, Fannie Mae argues that it should “be allowed to proceed on its foreclosure claim”—in
other words, it argues the court did not err by denying its summary judgment motion, which, if
granted, would have precluded a trial. (Emphasis added.) Our discussion is therefore limited to
whether the court erred by granting the Deschaines’ motion for summary judgment on Fannie
Mae’s foreclosure complaint and on their counterclaims. See Thurston v. Galvin, 2014 ME 76, ¶ 5
n.1, 94 A.3d 16 (stating that an issue not raised on appeal is deemed waived).
10
[¶15] The doctrine of res judicata prevents “a party and its privies
. . . from relitigating claims or issues that have already been decided.”
Portland Co. v. City of Portland, 2009 ME 98, ¶ 22, 979 A.2d 1279. The
doctrine “has two components: collateral estoppel, also known as issue
preclusion, and claim preclusion.” Wilmington Tr. Co., 2013 ME 94, ¶ 7,
81 A.3d 371 (quotation marks omitted). Claim preclusion, which is the
component at issue in this case, “bars the relitigation of claims if: (1) the same
parties or their privies are involved in both actions; (2) a valid final judgment
was entered in the prior action; and (3) the matters presented for decision in
the second action were, or might have been, litigated in the first action.”5 Id.(quotation marks omitted).
[¶16] Fannie Mae does not dispute that the same parties were involved
in both the 2011 and 2013 foreclosure actions.
[¶17] Additionally, as Fannie Mae acknowledged at oral argument,
because the dismissal with prejudice in the 2011 action was imposed as a
sanction pursuant to Rule 16A(d) based on both parties’ failure to comply
5 In contrast, issue preclusion “merely prevents the reopening in a second action of an issue of
fact actually litigated and decided in an earlier case.” Johnson v. Samson Constr. Corp., 1997 ME 220,
¶ 6, 704 A.2d 866 (quotation marks omitted). Because the question here is whether the 2011
action prohibits the relitigation of an entire cause of action—namely, Fannie Mae’s claim for
residential foreclosure—and is not limited to a single issue of fact, see id., we address only the claim
preclusion component of res judicata.
11
with a scheduling order, that dismissal has the same effect as an adjudication
on the merits of Fannie Mae’s foreclosure complaint regardless of whether
Fannie Mae had standing at the time of the dismissal to pursue foreclosure.6
See Green Tree Servicing, LLC v. Cope, 2017 ME 68, ¶¶ 17-18 & n.10, 158 A.3d
931. The dismissal is therefore a valid final judgment for purposes of res
judicata. See Penkul v. Matarazzo, 2009 ME 113, ¶ 8, 983 A.2d 375 (“For a
valid final judgment to have preclusive effect, it must be made on the merits of
the case.”); Johnson, 1997 ME 220, ¶¶ 3, 8, 704 A.2d 866 (concluding that a
judgment dismissing the plaintiff’s foreclosure complaint with prejudice
based on its failure to timely file a report of conference of counsel “operated
as an adjudication on the merits” (quotation marks omitted)).
[¶18] We therefore proceed to address the remaining element of res
judicata, namely, whether the matters presented for decision in this
foreclosure action were, or might have been, litigated in the 2011 foreclosure
6Any assertion to the contrary would have been unavailing in any event. Fannie Mae may not
now collaterally attack the earlier judgment of dismissal with prejudice (i.e., on the merits) based
on its alleged lack of standing in the 2011 action in an attempt to render that judgment void or limit
its preclusive effect, because Fannie Mae failed to raise the standing issue during those earlier trial
court proceedings or through a timely appeal from the dismissal. Cf. Wells Fargo Bank v. White,
2015 ME 145, ¶¶ 10-13, 127 A.3d 538 (holding that the court did not err or abuse its discretion by
denying a plaintiff’s M.R. Civ. P. 60(b)(4) request for relief from a judgment of foreclosure based on
the plaintiff’s contention that the judgment was void for want of standing, because the plaintiff had
the opportunity to raise the standing issue during the trial court proceedings but did not do so).
12
action. See Wilmington Tr. Co., 2013 ME 94, ¶ 7, 81 A.3d 371. To answer that
question, we must determine
whether the same cause of action was before the court in the prior
case. We define a cause of action through a transactional test,
which examines the aggregate of connected operative facts that
can be handled together conveniently for purposes of trial to
determine if they were founded upon the same transaction, arose
out of the same nucleus of operative facts, and sought redress for
essentially the same basic wrong. . . . Claim preclusion may apply
even where a suit relies on a legal theory not advanced in the first
case, seeks different relief than that sought in the first case, or
involves evidence different from the evidence relevant to the first
case.
Id. ¶ 8 (citations, alterations, and quotation marks omitted).
[¶19] Claim preclusion “is grounded on concerns for judicial economy
and efficiency, the stability of final judgments, and fairness to litigants.” Id.
¶ 6. The doctrine promotes those goals by preventing a party “from
splintering his or her claim and pursuing it in a piecemeal fashion by asserting
in a subsequent lawsuit other grounds of recovery for the same claim that the
litigant had a reasonable opportunity to argue in the prior action.” Johnson,
1997 ME 220, ¶ 7, 704 A.2d 866 (quotation marks omitted).
[¶20] We previously addressed claim preclusion in the foreclosure
context in Johnson. In that case, the mortgagee commenced a foreclosure
action in August 1990 alleging that the mortgagor had defaulted by failing to
13
make the periodic payment due on the note in May 1990; that the mortgagor
failed to timely cure the default; and that therefore, pursuant to the
acceleration clause in the note, the mortgagee was entitled to a judgment for
the entire unpaid principal balance. Id. ¶¶ 2-3. Four years later, the court
dismissed the foreclosure action with prejudice after the mortgagee failed to
timely file a court-ordered report of conference of counsel. Id. ¶ 3. The
mortgagee then filed a second foreclosure complaint in August 1995, this time
alleging that the mortgagor had failed to make any payments due on the note
since September 1990 and again seeking a judgment for the entire unpaid
principal balance. Id. ¶ 4. Rejecting the mortgagee’s argument that the first
judgment should only bar claims based on defaults that occurred before the
first action was filed, the trial court granted the mortgagor’s motion for
summary judgment based on res judicata. Id.
[¶21] We affirmed the court’s decision on appeal. Id. ¶¶ 1, 8. We
reasoned that once the mortgagor “triggered the acceleration clause of the
note” by “demand[ing] payment of the entire unpaid principal balance,” the
installment contract, which “required 240 equal monthly payments of
principal and interest[,] . . . became indivisible. The obligations to pay each
installment merged into one obligation to pay the entire balance on the note.”
14
Id. ¶ 8. Accordingly, we concluded, as a matter of law, that the judgment
dismissing the first foreclosure complaint with prejudice barred the second
foreclosure complaint, “which allege[d] precisely what the complaint in the
first action alleged: that [the mortgagor] defaulted on the note and that [the
mortgagee was] entitled to a judgment for the amount due under the note.”
Id. We stated that the mortgagee could not “avoid the consequences of his
procedural default . . . by attempting to divide a contract which became
indivisible when he accelerated the debt in the first lawsuit.” Id.
[¶22] Johnson fully disposes of the issue in this case. The Deschaines’
promissory note requires 360 equal monthly payments of principal and
interest. Paragraph 7(C) of the note states, however, that if the borrower fails
to “pay the full amount of each monthly payment on the date it is due . . . the
[n]ote [h]older may send [the borrower] a written notice telling [the
borrower] that if [she] do[es] not pay the overdue amount by a certain date,
the [n]ote [h]older may require [the borrower] to pay immediately the full
amount of [p]rincipal that has not been paid and all the interest that [the
borrower] owe[s] on that amount.” An acceleration clause at Paragraph 22 of
the mortgage states that if the borrower “fail[s] to keep any promise or
agreement made in this [s]ecurity [i]nstrument, including the promises to pay
15
when due the [s]ums [s]ecured,” and fails to timely cure the default after being
notified of it, then the “[l]ender may require that [the borrower] pay
immediately the entire amount then remaining unpaid under the [n]ote and
under this [s]ecurity [i]nstrument . . . without making any further demand for
payment.” Paragraph 22 further provides, “If [l]ender requires immediate
payment in full, [l]ender may bring a lawsuit to take away all of [the
borrower’s] remaining rights in the [p]roperty and have the [p]roperty sold.”
[¶23] It is undisputed that in September 2011 Fannie Mae sent the
Deschaines a notice of default informing them that they had failed to make
monthly payments on the note since January 2011, and stating that if the
Deschaines failed to cure the default “within 35 days of receipt of this notice,
the balance of the [n]ote may be deemed accelerated without further demand,
and the [l]ender may proceed with foreclosure of the [m]ortgage.” It is also
undisputed that the Deschaines failed to timely cure the default. Accordingly,
the necessary predicates for acceleration as specified in Paragraph 7(C) of the
note and Paragraph 22 of the mortgage—namely, a default, a subsequent
notice of default, and a failure to cure the default—were fulfilled. Then, in
December 2011, Fannie Mae filed a foreclosure complaint alleging that “in
accordance with the terms of the [l]oan [d]ocuments, [Fannie Mae] has
16
declared the entire outstanding principal amount, accrued interest thereon,
and all other sums due under the [l]oan [d]ocuments to be presently due and
payable.”7 (Emphasis added.) If Fannie Mae in fact accelerated the debt in the
2011 action—as it had alleged—then this case would be indistinguishable
from Johnson because Fannie Mae would have placed the entire outstanding
balance on the note at issue in the first case, precluding any future separate
action to recover the same debt.
[¶24] In an attempt to avoid the effects of Johnson, Fannie Mae makes
several arguments to support its contention that the record does not
conclusively establish that acceleration occurred in the 2011 action.
[¶25] First, Fannie Mae contends that the acceleration provisions in the
note and mortgage, which state that the lender “may” require immediate
payment in full upon the borrower’s failure to cure a default, merely give the
lender the option to accelerate the debt and that Fannie Mae did not
indisputably exercise that option. In contrast, the note in Johnson stated in
mandatory terms that upon a borrower’s failure to cure a default “the entire
unpaid principal and accrued interest shall become immediately due and
7 We note that according to its own complaint, filed in December 2011, Fannie Mae alleged that
the principal balance alone that was due from the Deschaines exceeded $122,000, in contrast to the
$7,719.33 required to cure the default as stated in the notice of default issued by Fannie Mae only
one month earlier.
17
payable without further demand.” Johnson, 1997 ME 220, ¶¶ 2, 8, 704 A.2d
866 (emphasis added) (quotation marks omitted).
[¶26] In the circumstances of this case, however, the permissive
acceleration language in the Deschaines’ note and mortgage does not make
Johnson distinguishable because, as shown in the summary judgment record,
Fannie Mae exercised its optional right to accelerate the entire obligation.
When, as here, a note contains an optional acceleration clause, some
affirmative action is required by the note holder to provide notice to the
borrower that the holder has exercised that option. See, e.g., Hassler v.
Account Brokers of Larimer Cty., Inc., 274 P.3d 547, 553-54 (Colo. 2012); Reano
v. U.S. Bank, Nat’l Ass’n, 191 So. 3d 959, 961 (Fla. Dist. Ct. App. 2016); Bischoff
v. Cook, 185 P.3d 902, 911 n.8 (Haw. Ct. App. 2008); First Fed. Sav. & Loan Ass’n
of Gary v. Stone, 467 N.E.2d 1226, 1232 (Ind. Ct. App. 1984). The filing of a
foreclosure complaint “constitutes a valid exercise of a mortgagee’s
acceleration right” and is sufficient to provide notice to the mortgagor.
Hartford Fed. Sav. & Loan Ass’n v. Tucker, 491 A.2d 1084, 1086 (Conn. 1985);
see also FAS Capital, LLC v. Carr, 7 F. Supp. 3d 1259, 1270 (N.D. Ga. 2014);
Reano, 191 So. 3d at 961; Bischoff, 185 P.3d at 911 n.8; C.T. Drechsler,
Annotation, What is Essential to Exercise of Option to Accelerate Maturity of Bill
18
or Note, 5 A.L.R.2d 968 § 5[a] (1949) (“The institution of a suit for the whole
debt is, of course, the most solemn form in which the holder can exercise his
option. This is well recognized and it is, hence, generally held that the
institution of a suit on the bills or notes is notice of the most unequivocal
character that the holder wishes to avail himself of his option for
acceleration.”).
[¶27] Here, in its 2011 complaint for foreclosure, Fannie Mae alleged—
subject to the requirements of M.R. Civ. P. 11(a)—that it had declared the
entire unpaid principal balance to be due immediately. Accordingly, Fannie
Mae’s own complaint in the 2011 proceeding establishes that it exercised its
right to accelerate the underlying debt on the note, and it may not now argue
otherwise.8
[¶28] Fannie Mae next argues that under the parties’ mortgage contract
an attempted acceleration is not effective unless and until the court enters a
8 This case is therefore distinguishable from Wilmington Trust Co. v. Sullivan-Thorne, where we
concluded that the summary judgment record did not establish that the mortgagee had accelerated
a promissory note in previous litigation between the parties. 2013 ME 94, ¶ 12 n.4, 81 A.3d 371. In
the first action, the mortgagee merely sent the mortgagor a notice stating that it would accelerate
the debt if the mortgagee failed to cure the default, but did not actually commence a foreclosure
proceeding carrying out that threatened action. See id. ¶¶ 3-4, 12 n.4. Rather, the mortgagee, which
the mortgagor brought in as a third-party defendant, filed a counterclaim against the mortgagor,
but the counterclaim did not clearly place the full unpaid principal balance at issue and also was not
a claim for foreclosure. See id. ¶¶ 4, 11-12. We stated that Johnson did not bar the mortgagee from
bringing the later foreclosure action because the underlying debt had not been accelerated. Id. ¶ 12
n.4.
19
foreclosure judgment, because until that time the mortgagor has the right
under Paragraph 19 to “discontinue[]” enforcement of the mortgage. The
mortgagor may do so by paying the mortgagee “the full amount that then
would be due under [the mortgage] and the [n]ote as if immediate payment in
full had never been required,” thereby reinstating the parties’ prior
contractual relationship with the same continuing obligation on the part of the
mortgagor to make installment payments. In Fannie Mae’s view, acceleration
occurs only if the borrower fails to take certain actions to stop foreclosure,
thereby putting the onus on the borrower to elect whether acceleration by the
lender occurs.
[¶29] Fannie Mae’s argument misconstrues the nature of its right to
accelerate. Pursuant to Paragraph 7(C) of the note and Paragraph 22 of the
mortgage, acceleration is the lender’s unilateral right, upon stated conditions,
to require “immediate payment in full” of the amount then remaining unpaid
under the loan documents “without making any further demand for payment.”
The loan documents therefore establish that acceleration was not dependent
on the Deschaines’ failure exercise their rights under Paragraph 19 of the
mortgage. Rather, as we have discussed, see supra ¶¶ 26-27, the acceleration
occurred here no later than when Fannie Mae commenced the first
20
foreclosure action and declared in its complaint that the entire amount the
Deschaines were obligated to pay pursuant to the loan documents was then
due. Further, it is undisputed that in the 2011 action the Deschaines did not
take the actions required by Paragraph 19 to discontinue Fannie Mae’s right
to foreclose prior to entry of the dismissal with prejudice. Accordingly, even
assuming a borrower’s invocation of the right to reinstate renders
acceleration ineffective, that did not occur in this case.
[¶30] Finally, relying on case law from other jurisdictions, see, e.g.,
Singleton v. Greymar Assocs., 882 So. 2d 1004, 1006-08 (Fla. 2004); Cenlar FSB
v. Malenfant, 151 A.3d 778, 785-92 (Vt. 2016), Fannie Mae urges us to
abandon our holding in Johnson, arguing that we misunderstood the effect of a
dismissal with prejudice on subsequent foreclosure actions. Specifically,
Fannie Mae argues that if the dismissal with prejudice in the 2011 action
operates as an adjudication on the merits, see supra ¶ 17, then it was
necessarily an adjudication in favor of the Deschaines, which requires us to
treat the judgment of dismissal as if the court had determined that Fannie Mae
failed to prove the elements of foreclosure, including default. See Greenleaf,
2014 ME 89, ¶ 18, 96 A.3d 700 (listing the elements of proof to obtain a
foreclosure judgment). Fannie Mae goes on to argue that under the loan
21
documents a default is a condition precedent to acceleration, and so contrary
to our holding in Johnson, which also involved a note where acceleration arose
from a default, 1997 ME 220, ¶¶ 3, 8, 704 A.2d 866, the effect of the dismissal
with prejudice was to invalidate the attempted acceleration because in effect
the court determined that the Deschaines were not in default. See Cenlar FSB,
151 A.3d at 787-88. Fannie Mae argues that absent a prior adjudication of
default or an effective acceleration, it remains free to file a new claim for
foreclosure based on defaults that have allegedly occurred since the dismissal
was entered, because those new grounds for foreclosure could not have been
litigated in the 2011 action.
[¶31] We are not persuaded by Fannie Mae’s challenges to Johnson’s
continuing vitality. In a statement of material fact, Fannie Mae itself
asserted—and the Deschaines admitted—that the Deschaines “failed to cure
the default” that was the basis for the 2011 action. To the extent that Fannie
Mae now argues that the dismissal with prejudice means that the Deschaines
were not, in fact, in default, thereby rendering acceleration ineffective, its
argument does not carry the day. Although the dismissal with prejudice in the
2011 action operates as an adjudication on the merits for purposes of res
judicata, see Johnson, 1997 ME 220, ¶¶ 3, 8, 704 A.2d 866, that dismissal was
22
not actually an adjudication in favor of the Deschaines, but rather resulted
from both parties’ failure to comply with a scheduling order, see Cope,
2017 ME 68, ¶ 18, 158 A.3d 931 (“A dismissal with prejudice imposed as a
sanction is not an adjudication of the merits of a plaintiff's claim. Rather, the
imposition of a sanction represents the court’s determination of a collateral
issue: whether the party or attorney has abused the judicial process.”
(alteration and quotation marks omitted)). The dismissal with prejudice
therefore does not undermine the undisputed facts in the summary judgment
record demonstrating that, as we have concluded, see supra ¶ 23, the
conditions precedent to acceleration—including default—were satisfied in the
2011 action. Further, because acceleration is entirely the lender’s prerogative
and occurs upon the filing of a foreclosure complaint, see supra ¶¶ 26-27, it
does not depend on any judicial imprimatur in the form of a judgment in the
lender’s favor.
[¶32] Fannie Mae also contends that adherence to Johnson will result in
a windfall to the Deschaines—namely a “free,” or deeply discounted, house—
and that this consequence is disproportionate to the bank’s procedural default
in the 2011 action.
23
[¶33] We disagree. To the contrary, abandoning our analysis in Johnson
would result in a windfall to Fannie Mae and all other similarly situated
mortgagees because those parties would become entitled to commence
successive foreclosure actions indefinitely until they eventually win. In other
words, mortgagees would be treated differently from all or most other
litigants in other types of cases. We have held that a judgment entered for the
defendant based on a procedural aspect of the case, such as the statute of
limitations or some other grounds unrelated to the substance of the claim,
bars another effort by the plaintiff to obtain the same relief from the same
defendant. See Hebron Acad., Inc. v. Town of Hebron, 2013 ME 15, ¶¶ 29-30,
60 A.3d 774 (concluding that a municipal decision denying a tax abatement
request based on the applicant’s failure to meet a statute of limitations “was a
decision on the merits for res judicata purposes” and barred a future
declaratory judgment action concerning the tax status of the property);
Spickler v. Dube, 644 A.2d 465, 467-68 (Me. 1994) (concluding that an
involuntary dismissal for want of prosecution of a shareholders’ derivative
suit “serve[d] as a valid final judgment for the purposes of res judicata” and
barred relitigation of the same cause of action). The salutary purposes
supporting the doctrine of claim preclusion—to promote judicial economy,
24
and to conserve the resources of the courts and litigants by protecting them
from sequential, piecemeal litigation, see Wilmington Tr. Co., 2013 ME 94, ¶ 6,
81 A.3d 371—are as relevant and important in foreclosure litigation as in
other areas of the law. We find no persuasive justification for carving out an
exception to the settled doctrine of claim preclusion that would protect
mortgagees from the adverse consequences of judgments dismissing their
complaints with prejudice, particularly when unsuccessful litigants in all other
categories of civil litigation would continue to be barred from relitigating their
claims.9
[¶34] Further, our recent decisions contain multiple examples of
proceedings—not at all unlike the case at bar—where mortgagees have failed
to abide by court orders and established rules of court procedure, resulting in
dismissals of their complaints. See, e.g., United States Bank v. Sawyer, 2014 ME
81, ¶¶ 12-13, 17, 95 A.3d 608; Bayview Loan Servicing v. Bartlett, 2014 ME 37,
¶ 15-18, 22-23, 87 A.3d 741; Bank of N.Y. v. Richardson, 2011 ME 38, ¶¶ 2-6,
9 We note that a mortgagee is not without an opportunity to avoid, where appropriate, the
preclusive effect of the judgment that would dismiss with prejudice a foreclosure complaint as a
sanction for the mortgagee’s misconduct. For example, the mortgagee is entitled to notice and an
opportunity to be heard before a court considers entering such a judgment, which should define the
terms of the dismissal so that the scope and effect of that order will be clear to the parties, to us,
and to courts addressing any subsequent attempt to relitigate a particular claim. See Green Tree
Servicing, LLC v. Cope, 2017 ME 68, ¶¶ 20-22, 158 A.3d 931. Additionally, a mortgagee may also
seek appellate relief from the terms of a judgment of dismissal with prejudice that it contends are
oppressive—something Fannie Mae did not do after the court dismissed its 2011 complaint.
25
15 A.3d 756; Johnson, 1997 ME 220, ¶¶ 3, 8, 704 A.2d 866; cf. also Homeward
Residential, Inc. v. Gregor, 2015 ME 108, ¶¶ 13-14, 21, 24, 122 A.3d 947. If we
were to shield mortgagees and their attorneys from the preclusive effects of
adverse judgments arising from deficient pretrial conduct, we would
improperly tolerate and perhaps even foster within that limited group of
parties and counsel an inappropriately casual attitude toward the processes
necessary for the prompt, orderly, and fair administration of justice. See
Cenlar FSB, 151 A.3d at 796 (Dooley, J., dissenting) (stating that the “message”
that should be sent to mortgagees and counsel who engage in unacceptable
litigation practices “should not be that they may file foreclosure action after
foreclosure action until they finally win”); M. Wachspress, et al., Comment,
In Defense of “Free Houses,” 125 Yale L.J. 1115, 116 (2016) (stating that
application of principles of res judicata in foreclosure cases will “provide[] a
necessary market-correcting incentive to promote greater responsibility
among foreclosure litigators”).
[¶35] For these reasons, we reaffirm our analysis in Johnson as good
and settled law, and conclude that because Fannie Mae exercised its right to
accelerate, the promissory note became “indivisible” and the Deschaines’
obligation to pay each monthly installment of principal and interest over the
26
life of the note merged into a unitary obligation to pay the entire debt.
1997 ME 220, ¶ 8, 704 A.2d 866. Contrary to Fannie Mae’s contention, there
could be no new breaches of the Deschaines’ obligations following
acceleration because, once the contract became unified as a result of that
acceleration, the Deschaines did not have any continuing responsibility to
make monthly installment payments.10 Fannie Mae “cannot avoid the
consequences of [its] procedural default” by alleging grounds for foreclosure
that are different from those alleged in the 2011 action—in other words, by
“attempting to divide a contract which became indivisible when [it]
accelerated the debt in the first lawsuit.” Johnson, 1997 ME 220, ¶ 8, 704 A.2d
866.
[¶36] Consequently, the matters presented for decision in the present
foreclosure action were or might have been litigated in the 2011 action
because in each case Fannie Mae sought “redress for the same basic wrong,”
see Wilmington Tr. Co., 2013 ME 94, ¶¶ 7-8, 81 A.3d 371, and—as explicitly
stated in both its 2011 and 2013 complaints—requested precisely the same
form of relief: a judgment of foreclosure for “the entire outstanding principal
10 In Wilmington, we concluded that a second action on the same note and mortgage was not
precluded, in part because the mortgagor sought to recover for breaches that were not at issue in a
prior action. 2013 ME 94, ¶ 12, 81 A.3d 371. There, however, the mortgagor had not accelerated
the debt in the prior action, see supra n.8, and so the contract had not become unified.
27
amount, accrued interest thereon, and all other sums due under the [l]oan
[d]ocuments.” The third element of res judicata is therefore satisfied.
III. CONCLUSION
[¶37] In sum, based on the application of the principles articulated in
Johnson to the undisputed facts of this case, Fannie Mae’s 2013 foreclosure
complaint is barred by the judgment dismissing with prejudice its
2011 complaint. The court therefore did not err by granting the Deschaines’
motion for summary judgment on Fannie Mae’s foreclosure complaint.
Additionally, because Fannie Mae is precluded from seeking to recover the
underlying debt on the note, the court did not err by concluding, based on
14 M.R.S. § 6206, that the Deschaines were, as a matter of law, entitled to a
judgment declaring that they hold title to the Lincoln property unencumbered
by the mortgage in favor of Fannie Mae.
The entry is:
Judgment affirmed.
Jeffrey J. Hardiman, Esq., and Dean J. Wagner, Esq., Shechtman Halperin
Savage, LLP, Pawtucket, Rhode Island, and Marissa I. Delinks, Esq. (orally),
Hinshaw and Culbertson LLP, Boston, Massachusetts, for appellant Federal
National Mortgage Association
28
James F. Cloutier, Esq., Cloutier, Conley & Duffett, P.A., Portland, for appellees
Patricia W. Deschaine and Paul J. Deschaine
L. Scott Gould, Esq., Cape Elizabeth, for amici curiae National Consumer Law
Center and National Association of Consumer Advocates
Jeffrey Gentes, Esq., Jerome Frank Legal Services Corporation, New Haven,
Connecticut, for amicus curiae Jerome Frank Legal Services Corporation
Thomas A. Cox, Esq. (orally), Portland, for amicus curiae Maine Attorneys
Saving Homes
Catherine R. Connors, Esq., and John J. Aromando, Esq., Pierce Atwood LLP,
Portland, for amici curiae Maine Bankers Association and The National
Mortgage Bankers Association
Frank D’Alessandro, Esq., Pine Tree Legal Assistance, Portland, for amicus
curiae Pine Tree Legal Assistance
Gerald F. Petruccelli, Esq., amicus curiae pro se
John A. Doonan, Esq., and Reneau J. Longoria, Esq., Doonan, Graves & Longoria,
LLC, Beverly, Massachusetts, for amicus curiae Doonan, Graves & Longoria
Penobscot County Superior Court docket number RE-2013-140
FOR CLERK REFERENCE ONLY