First National Mortgage Association v. First Magnus Financial Corporation

• Court: Superior Court of Maine
• Decided: September 25, 2018
• Docket: PENre-16-068
• Status: Unpublished

Opinion

STATE OF MAINE SUPERIOR COURT PENOBSCOT, SS. CIVIL ACTION DOCKET NO RE-16-068

FEDERAL NATIONAL MORTGAGE ASSOCIATION,

Plaintiff, V. ORDER FIRST MAGNUS FIN ANCI AL CORPORATION JAY HAINES, and MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC

Defendant.

Plaintiff has filed an amended complaint for declaratory re1ief and to compel

assignment, asking the Court to order thilt uny interest that First Magnus has in the

mortgage that is the subject of this proceeding be assigned to plaintiff and declare that

Federal National Mortgage Association (FNMA) is the owner of all rights in the note and

mortgage, is the mortgagee, and has standing to enforce the subject note through

foreclosure for any breach of the obligations under the note. No defendant, including the

mortgagor, has answered. After trial at which only the plaintiff appeared, the Court

granted judgment to the defendants on January 24, 2018, and the plaintiff then filed a

motion to reconsider, which the Court now addresses.

Background

FNMA is the current holder of a promissory note endorsed in blank dated October

27, 2005, given by Jay R. Haines to First Magnus in the amount of $121,500. After closing,

Pirst Magnus endorsed the note to Countrywide Bank, N .A. which executed an

endorsement on the note to Countrywide Home Loans Inc., which executed an

endorsement in blank. FNMA is the holder of the note. To secure the note, I faines

executed and delivered to Mortgage Electronic Registration Systems, Inc. (MERS) as

1 nominee for First Magnus, its successors and assigns, a mortgage which was recorded on

October 27, 2005. MERS assigned the mortgage to FNMA on December 7, 2015. 1

Whether this complicated set of transactions entitles the plaintiff to have standing

to foreclose this mortgage is answered by deciding one discrete issue:' does the Law

Court's ruling in Bank of Am., N.A. v. Greenleaf, 2014 ME 89, 96 A.3d 700, overrule a line

of cases that articulated the equitable trust doctrine that "[wlhere there is a separation of

the note from the mortgage, the latter continues in force; and by the principles of a court

of equity, the mortgagee becomes trustee for the holder of the note"? Johnson v. Candage,

31 Me. 28, 31 (1849). Having reviewed all relevant case law and arguments of counsel, I

now answer that question in the negative and grant the motion to reconsider.

Analysis

In Greenleaf, the Law Court addressed a mortgage similar to the one here and held

that "notwithstanding its reference to MERS as the 'mortgagee of record,' the mortgage

in fact granted to MERS 'only the right to record the mortgage' as the lender's nominee,

and 'having only that right, MERS did not qualify as a mortgagee pursuant to our

statute."' ld. <[ 14 (quoting Mortg. Elec. Registration Sys. v. Saunders, 2010 ME 79, <[ 9, 2 A.3d

289). The Court then ruled that MERS, as a matter of law, did not have the right to assign

the mortgage to Bank of America, which assignment was ineffectual, and in the absence

1It is apparent from the record that FNMA acquir d this "loan" from Countrywide Home Loan, (nc., now Bank of America, . oon after the mortgage loan closing. We know that C unlrywid e was the holder of the note for a short period nf time before endorsing it in blank. There i. no indication, however, that it owned or possessed the mMtgag and there i · no eviden ·e of, n assignment of the mortgage to C mntrywide or I3ank of AmeTica. Hecausc lhi1, litigation con erns ownership of the mortgage, th<:!re is no need for service upon Countrywid or Bank of America. , Th Court is awar that other i ·su !S have been raised in similar complaints for declaratory judgment, in ·luding ju ·ticiability, whether an underlying cau. e of action is required, and lad scrvic of shareholders of a di solv d corporation. These i sues hav n t been raised in this case and th~rc is a limit to a court's obligalion to raise and analyze every issue that defendants could have raised if they had decided to a.ppear. Instead, I have focused on the issues raised.

2 of any evidence that the Bank owned Greenleaf's mortgage, the Bank "lacked standing to

seek foreclosure on the mortgage and accompanying note." Id.

trial of this case, I did not apply the equitable trust doctrine, deciding that Greenleaf

implicitly overruled those cases defining the doctrine. If the Law Court had applied the

doctrine to the Greenleaf facts, I reasoned, the result would have been different. If the

equitable trust doctrine were no longer good law, then my Decision after trial would be

correct, however if the doctrine still has vitality, its application here would dictate a

different result in this case.

The concept of equitable trust first appeared in recent foreclosure case law in

Saunders, 2010 ME 79, 2A.3d 289. The Saunderses had executed a promissory note to

Accredited Home Lenders, Inc. as well as a mortgage document in favor of MERS, solely

as "nominee for [Accredited] and [Accredited)'s successors and assigns." MERS sought

to foreclose and the Law Court ruled that MERS, unlike Accredited, did not have any

stake in the foreclosure and therefore had no standing to initiate a foreclosure proceeding.

In so ruling, the Court found that even though the mortgage document provided that

MERS had "the right[] to exercise any or all of those rights, including, but not limited to,

the right to foreclose and sell the Property," it actually only had the right to record the

mortgage in a registry of deeds. ld. 111. It is important to recognize that in Saunders,

unlike here, the note and mortgage were held by the same entity and the only question

was whether MERS had standing. In an apparent effort to have the decision interpreted

narrowly, the Law Court stated the following in a footnote: "We do not address the

situation where the mortgage and note are truly held by different parties. See, e.g. Averill

v. Cone, 129 Me. 9, 11-12, 149 A.297, 298-299 (1930); Wyman v. Porter, 108 Me. 110, 120, 79

A.371, 375 (1911 ); Jordun v. Cheney, 74 Me. 359, 361-62 (1883). When MERS filed its

complaint against the Saunderses, Accredited was both the mortgagee and holder of the

3 note, and MERS held only the right to record the mortgage." Id. '1111 n.3. The question of

what would happen in a situation in which the note and mortgage were held by different

entities was left open.

The facts of Greenleaf presented this precise situation. Because the Greenleaf MERS

assignment was ineffectual, the mortgage was retained by an entity other than the note

holder. As a result, it could be argued that the principles established in Candage, and

confirmed in Cone, Porter, and Cheney,' could save the day for the bank. The contrary

result in Greenleaf in which it was stated, "there is also no evidence in the record

purporting to demonstrate that MERS acquired any authority with respect to Greenleaf's

mortgage by any means other than that defined in the mortgage itself," Greenleaf, 2014

ME 89, 'lJ:15, 96 A.3d 300, demonstrates that the Law Court was focusing only on MERS

as a source of plaintiff's mortgage ownership and was not addressing how other

doctrines or principles could affect ownership of the mortgage. Consistent with this

interpretation, the decision in Greenleaf does not address any of the precedent defining

the concept of equitable trust and does not address the topic in any way. There is no

indication the issue was argued in Greenleaf and I must conclude that if the Law Court

had intended to overrule or even distinguish the Cheney line of cases, it would have done

so. Subsequent foreclosure case law in whkh the standing issue has even been referenced

is also silent on the impact of the Greenleaf decision on this line of cases.' I am now hesitant

, I have not included an in-depth study of these and other cases that stand for the proposition that lh mortgage follows the note because it is clea r that the principle was s ,.ttl ed Maine law pl'ior to th ,reen leaf d.ecis ion. See John J. AromanJo, Standing to Foreclose in Mai1ie: Bank of Ame rica, N.A. v. Gr e nleaf, 29 Maine Bar J. 186 (2014). •See, t:.g., Bank of Am., N.A. v. Greenleaf, 2015 ME 127, en 4, 124 A.3d 1122; Homeward Residen tial, Inc. v. Gregor, 2015 ME 108, en: 21, 122 A.3

4 to find that the cases that firmly established this principle were overruled in Greenleaf

without any analysis or mention by the Law Court that the overruling was taking place.

I also factor into this decision an appreciation of what I am asked to do. None of

the served parties have filed an answer to the complaint or fashioned a whimper of

opposition. The entity identified in the pleadings as potentially having an interest in the

mortgage, First Magnus, no longer exists. MERS has not answered, nor have the

homeowners. It is perfectly clear that no one involved contemplated a situation in which

the note holder could not avail itself of the rights described in the mortgage if the terms

of the note were not met. Additionally, the concept of ownership of a mortgage by an

entity other than the owner of the note is a strange one. The only purpose of the mortgage

is to secure a note and provide a source of compensation for a note holder should the

terms of the note be breached. A mortgage appears to have no intrinsic value apart from

its usefulness to the note holder and it is difficult to believe that the parties to a transaction

contemplate that note holders intentionally separate themselves permanently from

control or ownership over the related mortgage.' It is only by operation of law, not by

design of the parties, that this note truly parted company from the mortgage, and it

appears that there is nothing to be gained by keeping the two apart.• My conclusion that

• On this point, I no te that in th ,reenleaf decision the Law Court determined that the mortgagee nly a~signed the rig ht to record the mortgag , not the mortgage itself, so the note holde r actually retnined th mortgc1gc. Tn reality, it could b a rg ued thal the mortgagt>e intended for the note to be se parate l from lh e m rtgage cau. ing MERS to b the morlgagcc of record, but ther was alway~ an intent for the two bt! reunited if needed. · Th undesirable s ituation presented here in which notes became sepan1tcd from mortgage· was initially ca use by those who, in order lo case the process of morlgage secu riti7.a li on ,md thereby reclp grea t~r profits, created MERS. The fallout, as I have observed as a resu ll of my involvement i11 MTIRS assignm nt cases in which the mortgagee is now defunct, has caw;

5 T should reconsider my Decision in this case 1s only buttressed by these policy

considerations.

Judgment

In its amended complaint, FNMA asks the Court to (1) declare that it is the true

mortgagee of record and has standing to enforce the Haines note through foreclosure of

the mortgage, and (2) to order that any interest in the mortgage held by First Magnus

Financial Corporation be assigned to it. The Court Grants the relief requested.

The Entry Is:

The Court's Decision dated 1 /24/18 is Vacated. The Court Orders:

1. That the Plaintiff is the owner of all rights in this note and mortgage dated

October 27, 2005, Jay Haines borrower and mortgagor, pertaining to the

premises at 133 Kenduskeag Avenue in Bangor, Maine; the Plaintiff is the

mortgagee of this mortgage within the meaning of 14 M.R.S. § 6321, and the

Plaintiff has standing to enforce the note through foreclosure of the mortgage

for any breach of the obligations under the note.

2. That any interest that First Magnus Financial Corporation has in the mortgage

it granted to Jay R. Haines on October 27, 2005, pertaining to the premises at

133 Kenduskeag Avenue in Bangor, Maine, be assigned to the Federal National

Mortgage Association.

Dated: September 25, 2018 ;ii;f:;{___ WILLIAM ANDERSON JUSTICE, SUPERIOR COURT

ORDER/JUDG'1E~t Er,.TERED IN THE COURT DOCKET ON: 10/Y/l'?'