Opinion
14-P-1696
12-30-2015
JOHN F. ZULLO v. HMC ASSETS, LLC, trustee.
NOTICE: Summary decisions issued by the Appeals Court pursuant to its rule 1:28, as amended by 73 Mass. App. Ct. 1001 (2009), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent. See Chace v. Curran, 71 Mass. App. Ct. 258, 260 n.4 (2008).
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
In 2007, the plaintiff, John F. Zullo, borrowed over one million dollars from Lime Financial Services, Ltd. (Lime). The loan was secured by a mortgage on registered land Zullo owned in Wayland. Zullo defaulted on the note in June of 2008. This resulted in many years of litigation in numerous judicial forums, most of which Zullo himself brought in preemptive efforts to avoid foreclosure. In the current action, Zullo sought to expunge two mortgage assignments from his certificate of title. On summary judgment, a Land Court judge declined such relief and dismissed Zullo's petition, ruling in favor of the current record owner of the mortgage, defendant HMC Assets, LLC (HMC), as trustee of the CAM III Trust. For the reasons set forth below, we agree with the Land Court judge that Zullo's petition fails as a matter of law, although for reasons that differ somewhat from those relied on by the judge.
Background. Except as otherwise noted, the facts are undisputed. When Zullo borrowed the money, he executed both a promissory note made out to Lime and a mortgage in the name of Mortgage Electronic Registration Systems, Inc. (MERS), as nominee for Lime. The mortgage was recorded on the Wayland property's certificate of title.
After Zullo defaulted, MERS assigned the mortgage to DLJ Mortgage Capital, Inc. (DLJ), and that assignment was noted on the certificate of title on December 4, 2008. In preparation for foreclosure, DLJ initiated an action pursuant to the Servicemembers Civil Relief Act to establish that Zullo was not entitled to the benefits of that act. Although that action resulted in a Land Court judgment favorable to DLJ on May 27, 2009, DLJ held off foreclosing on the property (for reasons that do not appear in the record).
A foreclosure sale eventually was scheduled for January of 2011, and two days prior to that scheduled sale, Zullo brought an action in Superior Court against DLJ and others seeking to prevent it. In that action, Zullo challenged DLJ's status as the current holder of the mortgage. Although that action resulted in the postponement of the foreclosure sale, a Superior Court judge dismissed it with prejudice by judgment dated March 18, 2011. With respect to the question whether DLJ was the then-current mortgage holder, the judge ruled that Zullo's alleged "ignorance of who holds his mortgage [is] . . . wholly without merit and frivolous and advanced in bad faith."
Zullo took no appeal from the Superior Court judgment. Instead, he sought the protection of the Bankruptcy Court through a filing initiated on June 8, 2011. Some months later (January 31, 2012), DLJ assigned its mortgage to HMC. That assignment was noted on the certificate of title on June 14, 2012.
Zullo's bankruptcy action eventually terminated on January 7, 2013, after various twists and turns. His efforts to block foreclosure having foundered in both the Superior Court and the Bankruptcy Court, Zullo brought the current action in the Land Court on February 19, 2013. Styling this action as a petition to amend title to registered land, Zullo sought to expunge the two mortgage assignments from the certificate of title, thereby precluding HMC from foreclosing on the mortgage.
While the new Land Court action was pending, a mortgage servicer, acting on behalf of HMC, sent Zullo a 150-day notice of right to cure letter pursuant to G. L. c. 244, § 35A(g). Zullo did not cure the default by the cure date (March 20, 2014). A prior mortgage servicer, acting on behalf of HMC's predecessor, DLJ, had previously sent Zullo a ninety-day demand letter in 2008.
The Land Court judge ruled that the doctrine of claim preclusion barred Zullo from litigating any claims it did bring, or could have brought, in the 2011 Superior Court case, including any challenges to the validity of the mortgage or of its assignment from MERS to DLJ. The judge recognized that claim preclusion could not bar Zullo from raising claims based on actions that occurred after the Superior Court judgment entered, including those involving the assignment from DLJ to HMC. He rejected those later claims on the merits (as discussed further below). In his order allowing HMC's motion for summary judgment, the judge ordered the following disposition:
"For the foregoing reasons, the Summary Judgment motion is ALLOWED. The Petition to amend Certificate of Title is DISMISSED WITH PREJUDICE. It is hereby DECLARED that (a) the assignment of the Mortgage dated August 22, 2008[,] and noted as Document No. 01487689 on certificate of title number 236444, on December 4, 2008, was validly registered, (b) the assignment of the Mortgage dated January 31, 2012[,] and noted as Document No. 1803914 on said certificate on August 14, 2012, was validly registered, and (c) HMC is the holder of the Mortgage."There was no separate judgment disposing of the case, only a docket entry stating "Case Dismissed by Order of the Court."
In the body of the judge's summary judgment order -- but not reflected in the relief granted -- the judge discussed whether HMC could proceed with foreclosure based on a showing that it either possessed the underlying note or had been authorized to act on the noteholder's behalf. See Eaton v. Federal Natl. Mort. Assn., 462 Mass. 569, 571 (2012) (Eaton). In short, the judged stated his view that a lost note affidavit in HMC's possession provided sufficient proof to satisfy the rule that Eaton established. Additional facts related to HMC's rights with regard to the note and to the adjudication of Eaton issues below are reserved for later discussion.
Prior to Eaton, a mortgage holder could foreclose without any showing that at the time of the foreclosure it also held the rights to the underlying debt. See Sullivan v. Kondaur Capital Corp., 85 Mass. App. Ct. 202, 209 (2014), citing Eaton, supra at 587-588. In Eaton, the Supreme Judicial Court established a prospective rule that in order to foreclose, a mortgagee must also demonstrate either that it holds the underlying note or that it has been authorized to act on the note holder's behalf. See Eaton, supra at 586-588. Application of Eaton to this controversy is complicated by the fact that the original note is apparently missing.
Discussion. Dismissal of the petition. We begin by reviewing whether the judge properly dismissed Zullo's petition and then turn to the judge's discussion of the Eaton issues. As noted, the judge dismissed much of the petition based on claim preclusion. Zullo argues that the Land Court judge should not have given preclusive effect to the Superior Court action, because that court lacked subject matter jurisdiction to determine the validity of the mortgage and of its assignment since these involved interests in registered land. See Sullivan v. Kondaur Capital Corp., 85 Mass. App. Ct. 202, 204 (2014) (Kondaur Capital) (noting that a Superior Court judge transferred an action challenging the validity of a mortgage on registered land to Land Court "because the complaint concerned claims of title to registered land over which the Land Court has exclusive jurisdiction"), citing G. L. c. 185, § 1(a 1/2), and Feinzig v. Ficksman, 42 Mass. App. Ct. 113, 115-117 (1997) (Superior Court lacks jurisdiction over cases that affect title to registered land).
Zullo raised this issue in his summary judgment brief, and both parties discussed it at the hearing on the motion for summary judgment. However, the judge did not address it in his ruling, and we therefore do not have the benefit of his thinking on whether the Land Court's jurisdiction was exclusive.
However, even if the Superior Court lacked jurisdiction, this does not necessarily mean that Zullo now gets a second chance at deciding issues that were addressed in the earlier litigation. See Harker v. Holyoke, 390 Mass. 555, 559 (1983) (in some circumstances, a plaintiff who chose a particular forum and had a "full and fair" opportunity to try his action there can be precluded from retrying the matter in a different court regardless of whether the initial court had subject matter jurisdiction). We need not resolve whether the Superior Court judgment has preclusive effect over the current Land Court action, because we agree with HMC that Zullo's petition, in its entirety, fails as a matter of law for other reasons.
Although Zullo has standing to claim that the two mortgage assignments are void, he has no basis on this record for doing so here, where both assignors complied with the dictates of G. L. c. 183, § 54B (the statute governing the assignment of mortgages), and where HMC otherwise demonstrated a simple chain of title that well established its record ownership of the mortgage. See Bank of N.Y. Mellon Corp. v. Wain, 85 Mass. App. Ct. 498, 503 (2014) (Wain). Contrast Kondaur Capital, supra at 206-208 (mortgage assignment can be challenged where assignor did not comply with G. L. c. 183, § 54B). To the extent that Zullo argues that the MERS system cannot be used in the context of registered land, such a claim has been put to rest. See id. at 208-210. To the extent Zullo seeks to challenge the mortgage assignments on other grounds, such as his claim that HMC and the trust on whose behalf HMC holds title to the mortgage have not complied with applicable trust law, he has no standing to do so. See Wain, supra at 502-503. Because we agree with the judge that Zullo's petition to amend title to registered land fails as a matter of law, the judge's dismissal of that petition was proper.
Eaton issues. Much of the appellate briefing addresses the judge's comments regarding whether HMC was in a position to satisfy the Eaton rule. As an initial matter, Zullo argues that such issues were not properly before the judge. We therefore turn first to how those issues arose in the current case.
At the time Zullo filed his petition, no foreclosure proceedings had commenced. Whether for that reason, or because of the limited nature of petitions to amend certificates of title, the petition did not raise an Eaton claim. Instead, the petition narrowly targeted whether HMC held a valid mortgage on the property.
When it filed for summary judgment, HMC itself unsurprisingly did not raise the question whether it was in a position to satisfy the Eaton rule. Nor did Zullo raise the issue in his opposition to that motion (with the one qualification that Zullo noted his view that the lost note affidavit was illegible). At the hearing on the summary judgment motion, the judge and the parties touched on the issue whether HMC held both the mortgage and the rights to the note. At one point, the judge asked Zullo, "[y]ou're not making any allegations about the note, are you?" Zullo responded, "[w]ell, I am. There's some issues with the note in the opposition. They've produced a lost note affidavit that is basically illegible." Zullo then explained that this was only a "secondary argument" because in the context of a petition to amend a certificate of title, he "didn't know how far that argument was relevant." Later in the hearing, the judge mentioned that "[t]he note and the mortgage can travel separately [even if t]hey have come together before the notice of sale." After Zullo misinterpreted the judge as saying that the note and mortgage here had come into common ownership, the judge provided a clarifying response as follows: "They haven't come together. No . . . . I don't even care if they've come together. My point is I don't have to care. There's no notice of sale." In other words, the judge expressed his view that the issue whether HMC could satisfy the Eaton rule was not before him.
Several months after the parties had argued the motion for summary judgment, but before that motion had been resolved, HMC began foreclosure proceedings. Seeking to block the foreclosure sale, Zullo filed a motion for preliminary injunction in the current action (without amending his underlying petition). In that motion, Zullo, for the first time, pressed the Eaton issues, arguing that HMC could not foreclose because it had not demonstrated either that it held the note or was authorized by the note holder to foreclose. The judge's consideration of that motion was mooted by an agreement between the parties postponing the foreclosure sale for two months so long as Zullo complied with certain conditions. Just before those two months had expired, the judge issued his order allowing HMC's summary judgment motion and dismissing Zullo's petition. In that order, the judge expressed his views on the Eaton issue even though neither party had raised or briefed the issue in the context of the summary judgment motion.
Zullo also filed a related motion for a lis pendens.
Zullo's motions and any supporting materials, and HMC's responses, have not been included in the record appendices. However, the nature of Zullo's arguments can be gleaned from the transcript of the hearing on the motions.
The Eaton issues fall outside the narrow scope of Zullo's petition, which was never amended. Some argument can be made that the judge could have treated the pleadings effectively as having been amended once Zullo raised the Eaton issues in the preliminary injunction context. However, the limited scope of the relief that the judge ordered confirms that he did not consider the pleadings as having been amended in this manner. Instead, the judge confined his disposition of the case to the scope of the current pleadings. Because the Eaton issues were not resolved by the judgment, we do not address them on appeal. Therefore, we do not consider the judge's discussion of how Eaton applies in circumstances where, as here, the current holder of the note apparently cannot be ascertained (the note allegedly having been lost or destroyed). We note that deferring consideration of how an entity in HMC's position can satisfy Eaton will allow such issues to be reviewed on a more fully developed trial court record.
We are not unsympathetic to HMC's protest that Zullo should not be allowed serial opportunities to challenge HMC's right to foreclose. At the same time, countervailing fairness concerns would be raised by considering the Eaton issues as having been resolved by the judge's ruling on HMC's summary judgment motion. Cf. Packaging Indus. Group, Inc. v. Cheney, 380 Mass. 609, 616-617 & n.10 (1980) (hearing on preliminary injunction cannot be consolidated with trial on the merits "in such a manner as to deprive a party of 'clear and unambiguous notice' and 'a full opportunity' to present [his] case") (citation omitted); Federal Deposit Ins. Corp. v. Grupo Girod Corp., 869 F.2d 15, 17-18 (1st Cir. 1989) (cautioning against a trial court judge's resolving an issue on summary judgment unless the parties had due notice that the issue was in play, especially where the issue arose in an "unsettled area of the law").
Perhaps because the summary judgment record was not developed with an eye toward Eaton, it includes next to nothing about what happened to the original note. For example, the affiant of the lost note affidavit, an officer of one of the entities that had serviced the Zullo loan on behalf of DLJ (HMC's predecessor), stated that his company "believe[d]" the original note had been destroyed, though he does not actually state that the note was ever in his company's or DLJ's possession.
Judgment affirmed.
By the Court (Katzmann, Milkey & Hanlon, JJ.),
The panelists are listed in order of seniority. --------
/s/
Clerk Entered: December 30, 2015.