Opinion
19-P-1375
11-05-2020
HSBC BANK USA, N.A., trustee, v. Raelisa PALACIO & another.
MEMORANDUM AND ORDER PURSUANT TO RULE 23.0
In this post-foreclosure summary process eviction action, a judge of the Housing Court issued a judgment awarding possession of real property to the plaintiff, HSBC Bank USA, N.A., as Indenture Trustee for the Registered Noteholders of Renaissance Home Equity Loan Trust 2007-1 (HSBC). On appeal, the defendants, Raelisa and Pedro Palacio, contend, among other things, that the judge erred by granting summary judgment because the assignment of their mortgage was invalid and the notice of default was defective. The judge concluded that the Palacios lacked standing and that their complaint was barred by res judicata. The Palacios also appeal from the order denying their motion for reconsideration. We affirm.
Background. 1. The loan and default. The Palacios purchased a home in the city of Lynn in 2004. When the payments on their original mortgage became unmanageable, they decided to refinance. On December 12, 2006, the Palacios obtained a loan secured by a mortgage on their home.
In March 2009, the loan was securitized and assigned to HSBC. A written assignment was recorded. Ocwen Loan Servicing, LLC (Ocwen) had been the servicer of the mortgage loan since 2007. In August 2008, the Palacios defaulted on the loan; they have not made any payments on the loan since that default.
2. Prior proceedings. On June 24, 2014, Ocwen sent the Palacios a notice of default specifying the past due amount and stating that the Palacios had the right to cure their default by paying the past due amount within 150 days. HSBC then filed a complaint in the Land Court to determine the Palacios' military status, an early step in the foreclosure process. Judgment entered in that matter in February 2016.
On May 18, 2016, HSBC sent the Palacios a notice of intent to foreclose. On June 8, 2016, the Palacios filed a verified complaint against HSBC and Ocwen in the Essex Superior Court (Superior Court action) challenging HSBC's right to foreclose and alleging defects in the foreclosure process. Specifically, the Palacios alleged that (1) HSBC did not have the legal right to foreclose because the assignment of the Palacios' loan was invalid; (2) Ocwen acted unfairly or deceptively by serving a notice of default that did not establish a full chain of title for the mortgage; (3) HSBC slandered the Palacios' title to their home by recording an invalid assignment; and (4) HSBC waited too long to initiate foreclosure proceedings. The Palacios sought a preliminary injunction to stop the foreclosure sale. A judge denied the injunction request.
On June 13, 2016, HSBC conducted a foreclosure sale at which it purchased the Palacios' property. HSBC recorded a foreclosure deed in the Essex County registry of deeds. In September 2017, a judge dismissed in the Superior Court action three of the four counts of the Palacios' complaint. A judge entered summary judgment in the Superior Court action in HSBC's favor on the final count in October 2018.
3. This summary process action. In December 2018, HSBC sent the Palacios a notice of transfer of ownership. HSBC subsequently served a seventy-two-hour notice to quit on the Palacios. Shortly thereafter, HSBC initiated summary process eviction proceedings in the Northeast Housing Court. The Palacios filed an answer in which they asserted that the foreclosure sale was invalid because it was performed by a "non-attorney and non-notary," and that HSBC never acquired legal title to the mortgage note. They also asserted a counterclaim for fraudulent, unfair, and deceptive business practices under G. L. c. 93A.
On April 18, 2019, HSBC filed a summary judgment motion. After a hearing, the judge concluded, among other things, that the Palacios did not have standing to challenge the validity of the assignment of their mortgage to HSBC, and that their defenses and counterclaims were barred by the doctrine of res judicata. The Palacios filed a motion for reconsideration, which was denied. They appealed from the judgment and the order denying the motion for reconsideration.
Instead of filing an opposition, the Palacios filed a motion to compel discovery. HSBC opposed the motion to compel, but also supplemented its discovery responses. At the hearing, the motion judge noted that HSBC had agreed to supplement its discovery responses and ordered that the supplement be produced by a set date. The Palacios apparently understood this to mean that they would be receiving additional supplemental discovery, while HSBC understood that it had already produced the agreed supplement. The judge also set June 4, 2019, as the date by which the Palacios were to oppose HSBC's motion for summary judgment. The Palacios filed their opposition to the summary judgment motion on June 10, 2019, the day before the motion hearing. As a result, the judge struck the opposition as untimely. However, in his decision on the summary judgment motion, he considered the arguments that the defendants had raised in their brief, as do we. We therefore find it unnecessary to address the Palacios' argument that the judge abused his discretion by striking their response.
Discussion. On appeal, the Palacios argue that the judge erred by granting HSBC's summary judgment motion because their affirmative defenses and counterclaims challenging HSBC's right to foreclose and certain aspects of the foreclosure process raised triable issues of fact.
"We review a grant of summary judgment de novo to determine ‘whether, viewing the evidence in the light most favorable to the nonmoving party, all material facts have been established and the moving party is entitled to a judgment as a matter of law.’ " Pinti v. Emigrant Mtge. Co., 472 Mass. 226, 231 (2015), quoting Juliano v. Simpson, 461 Mass. 527, 529–530 (2012). Here, there are no disputed issues of material fact. The arguments that the Palacios have made about the validity of the foreclosure are legal arguments. Accordingly, it was not error to resolve this matter via summary judgment.
1. Standing. The motion judge properly dismissed the Palacios' challenge to the assignment of the mortgage for lack of standing. Borrowers have standing to challenge defects in the assignment of their mortgage only where the defect renders the assignment "void, not merely voidable." Bank of N.Y. Mellon Corp. v. Wain, 85 Mass. App. Ct. 498, 502 (2014). See Strawbridge v. Bank of N.Y. Mellon, 91 Mass. App. Ct. 827, 832 (2017) ; Sullivan v. Kondaur Capital Corp., 85 Mass. App. Ct. 202, 205–206 (2014). In Massachusetts, "a mortgage is a transfer of legal title in a property to secure a debt." U.S. Bank Nat'l Ass'n v. Ibanez, 458 Mass. 637, 649 (2011). Accordingly, a foreclosing entity must establish that they hold the underlying mortgage note at the time of foreclosure. Id. at 651. Because an assignment that is voidable is still effective to pass legal title, see Barrasso v. New Century Mtge. Corp., 91 Mass. App. Ct. 42, 46-47 (2017), the fact that an assignment is voidable does not prevent the foreclosing entity from making the requisite showing that it holds the mortgage note.
Thus, "a mortgagor in default has no legally cognizable stake in whether there ... might be latent defects in the assignment process." Bank of N.Y. Mellon Corp., 85 Mass. App. Ct. at 502. In other words, a defect in the assignment does not impact the right of a lender such as HSBC to foreclose; a defect in assignment is a matter between the lender making the assignment and HSBC. Because the Palacios are not impacted by any claimed defect, they do not have a right to challenge it, and therefore lack standing.
2. Res judicata. The judge correctly found that all of the Palacios' defenses and counterclaims were barred by res judicata. " ‘Res judicata’ is the generic term for various doctrines by which a judgment in one action has a binding effect in another. It comprises ‘claim preclusion’ and ‘issue preclusion.’ " Duross v. Scudder Bay Capital, LLC, 96 Mass. App. Ct. 833, 836–837 (2020), quoting Heacock v. Heacock, 402 Mass. 21, 23 n.2 (1988). The doctrine that is relevant here, claim preclusion, is based on "[c]onsiderations of fairness and the requirements of efficient judicial administration [which] dictate that an opposing party in a particular action as well as the court is entitled to be free from continuing attempts to relitigate the same claim" (citation omitted). Baby Furniture Warehouse Store, Inc. v. Meubles D & F Ltée, 75 Mass. App. Ct. 27, 33 (2009). Accordingly, claim preclusion "makes a valid, final judgment conclusive on the parties and their privies, and bars further litigation of all matters that were or should have been adjudicated in the action" (emphasis added). Heacock, supra at 23.
"The invocation of claim preclusion requires three elements: (1) the identity or privity of the parties to the present and prior actions, (2) identity of the cause of action, and (3) prior final judgment on the merits." Santos v. U.S. Bank Nat'l Ass'n, 89 Mass. App. Ct. 687, 692 (2016), quoting Kobrin v. Board of Registration in Med., 444 Mass. 837, 843 (2005). Causes of action are the same for the purposes of res judicata when they "grow[ ] out of the same transaction, act, or agreement, and seek[ ] redress for the same wrong." Fassas v. First Bank & Trust Co. of Chelmsford, 353 Mass. 628, 629 (1968), quoting Mackintosh v. Chambers, 285 Mass. 594, 596 (1934). In other words, "a party cannot avoid this rule by seeking an alternative remedy or by raising the claim from a different posture or in a different procedural form." Wright Mach. Corp. v. Seaman-Andwall Corp., 364 Mass. 683, 688 (1974).
Here, the Palacios had the opportunity to litigate their claims about the validity of the mortgage assignment and the validity of the notice of default in the Superior Court action. Their counterclaims and affirmative defenses in this suit -- all of which challenge the validity of the foreclosure process or HSBC's ownership of the loan -- arise from the same transaction, act or occurrence as in the Superior Court action. Thus, they are barred.
The Palacios contend that the doctrine of res judicata does not apply to a post-foreclosure challenge to title or possession. They correctly note that a borrower may raise defects in title either by asserting counterclaims in the summary process action or by filing an independent equity action. See Bank of Am., N.A. v. Rosa, 466 Mass. 613, 626 (2013). But, from this, they draw the incorrect conclusion that a borrower who has unsuccessfully challenged a foreclosure in one lawsuit may challenge the foreclosure again in a second one. Because the Palacios litigated the validity of the mortgage assignment and the sufficiency of the foreclosure process in the Superior Court action, they needed to raise all claims arising from the mortgage assignment or foreclosure process in that action. See Duross, 96 Mass. App. Ct. at 836.
The Palacios further contend that they should be permitted to challenge the validity of the foreclosure in this action because they have raised a new argument as to why the foreclosure notice is misleading. See Thompson v. JPMorgan Chase Bank, N.A., 915 F.3d 801, 805, vacated by 931 F.3d 109 (1st Cir. 2019). "[R]es judicata principles prohibit parties from proceeding by way of ‘piecemeal litigation, offering one legal theory to the court while holding others in reserve for future litigation should the first theory prove unsuccessful.’ " Santos, 89 Mass. App. Ct. at 693, quoting Bagley v. Moxley, 407 Mass. 633, 638 (1990). All arguments about the foreclosure notice could and should have been brought in the Superior Court action. Put in plain, non-legalese terms, res judicata means, generally speaking, that litigants only get one bite at the apple.
We take no position as to the merits of the Palacios' argument, which may turn on the Supreme Judicial Court's resolution of questions certified by the First Circuit Court of Appeals. See Thompson, 931 F.3d at 111.
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The Palacios acknowledge that they had a copy of the allegedly deceptive notice in 2014. They did not challenge the notice at that time because they did not understand that they could. We take that representation as true, but it is not enough to provide a basis for relief. The Palacios had the notice at the time of the prior litigation, and they are barred from raising any arguments about the validity of the notice in this action.
Judgment affirmed.
Order denying motion for reconsideration affirmed.