Southbridge RE, LLC v. Kiavi Funding, Inc.

109 F.4th 86

• Court: Court of Appeals for the First Circuit
• Decided: July 25, 2024
• Docket: 23-1480
• Status: Published

Opinion

United States Court of Appeals For the First Circuit

No. 23-1480

SOUTHBRIDGE RE, LLC,

Plaintiff, Appellant,

v.

KIAVI FUNDING, INC.; CHRISTIANA TRUST, a Division of Wilmington Savings Fund Society, FSB, not in its individual capacity but as Trustee for Victoria Capital Trust,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Katherine A. Robertson, U.S. Magistrate Judge]

Before

Barron, Chief Judge, Selya and Kayatta, Circuit Judges.

Todd S. Dion for appellant.

Brian C. Linehan, with whom Reneau J. Longoria and Doonan, Graves & Longoria, LLC were on brief, for appellees.

July 25, 2024 KAYATTA, Circuit Judge. This appeal arises out of

Christiana Trust's foreclosure sales of two properties owned by

Southbridge RE, LLC. Southbridge had previously mortgaged the

properties to LendingHome, which delivered assignments of the

mortgages to Christiana Trust. Southbridge contends that

Christiana Trust nevertheless lacked the proper authority to

conduct the foreclosure sales because LendingHome had delivered

blank assignments of the same mortgages to Toorak Capital Partners

before delivering the assignments to Christiana Trust, thus

breaking the chain of title. The district court disagreed, finding

the assignments in blank to be void under Massachusetts law. For

the following reasons, we agree with the district court.

I.

A.

On September 5, 2018, Southbridge executed a promissory

note for $155,700 to LendingHome (now known as Kiavi Funding), for

the purchase of a commercial property at 103 Prospect Street,

Springfield, Massachusetts. Southbridge secured the note with a

commercial mortgage on the Springfield property, the deed to which

Southbridge acquired on September 7, 2018. The mortgage on the

Springfield property was duly recorded in the Hampden County

Registry of Deeds on September 14, 2018.

On September 19, 2018, LendingHome executed and

delivered an assignment of the mortgage on the Springfield property

- 2 - to Toorak Capital Partners, as security for a private funding

agreement between LendingHome and Toorak. The assignment left

blank the space for the assignee's name. At some point after

September 19, Toorak filled in its own name as the assignee. It

did not record the assignment in the Hampden County Registry of

Deeds until November 30, 2020.

Southbridge defaulted on the Springfield mortgage on

September 1, 2019. On December 13, 2019, LendingHome assigned the

mortgage to Christiana Trust. That assignment was recorded in the

Hampden County Registry of Deeds on December 13, 2019. On

October 14, 2020, a representative for LendingHome executed a

certification and affidavit stating that LendingHome had assigned

the mortgage to Christiana Trust, and therefore that Christiana

Trust held the Springfield mortgage.

On November 2, 2020, LendingHome served Southbridge with

a Notice of Default and Election to Sell Property. After

Southbridge failed to cure its default, Christiana Trust held a

foreclosure sale on January 21, 2021, eventually contracting to

sell the property to Ruby Realty.

B.

A similar series of transactions took place in

connection with a property located in Westfield, Massachusetts.

Southbridge purchased the property at 25 Pleasant Street,

Westfield, Massachusetts on October 4, 2018. On October 11, 2018,

- 3 - it executed a promissory note to LendingHome in the amount of

$175,000 to finance the purchase, again secured by a commercial

mortgage on the Westfield property. The mortgage was recorded on

October 11, 2018.

On October 16, 2018, LendingHome issued a blank

assignment of the Westfield mortgage to Toorak as security for the

same private funding agreement for which it had assigned the

Springfield mortgage. As with the assignment of the Springfield

mortgage, Toorak subsequently filled in its own name, and then

recorded the assignment on November 30, 2020.

After Southbridge defaulted on the Westfield property

mortgage, LendingHome assigned the mortgage to Christiana Trust on

December 16, 2019. The assignment was recorded in the Hampden

County Registry of Deeds on January 6, 2020. On February 4, 2020,

a representative for LendingHome executed an affidavit stating

that LendingHome had assigned the mortgage to Christiana Trust,

which was recorded on February 11, 2020. On October 7, 2020,

another representative for LendingHome executed a second affidavit

and certification reiterating that Christiana Trust owned the

Westfield mortgage. The Westfield property was sold to Christiana

Trust at a December 22, 2020, foreclosure auction.

- 4 - C.

On June 1, 2021, representatives of LendingHome, Toorak,

and Christiana Trust executed two affidavits (one for each

property) in accordance with Mass. Gen. Laws ch. 183, § 5B (the

"5B affidavits") explaining that the original assignments to

Toorak were invalid and that the affiants elected to void the

assignments. The affidavits explained that the assignments "were

not intended to be delivered to Toorak and recorded unless and

until LendingHome defaulted under the terms of the private funding

agreement, which did not occur." Toorak had filled in and recorded

the assignments "[d]ue to an inadvertent oversight . . .

notwithstanding the fact that it was not authorized to do so under

the terms of the private funding agreement with LendingHome."

II.

Southbridge initiated the present suit in Massachusetts

state court seeking to enjoin the foreclosure proceedings until

the alleged defects in Christiana Trust's title could be fixed.

Christiana Trust removed the case to federal court. With the

parties' consent, the district court referred the matter to a

magistrate judge. See 28 U.S.C. § 636(c); Fed. R. Civ. P. 73.

The magistrate judge denied Southbridge's motion for summary

judgment and granted defendants' cross-motion for a declaration

that Christiana Trust had the authority to sell the Springfield

and Westfield properties and therefore that the foreclosure sales

- 5 - complied with Massachusetts law.1 See Southbridge RE, LLC v. Kiavi

Funding Inc., No. 3:21-cv-30061, 2023 WL 2696496, at *17 (D. Mass.

Mar. 29, 2023). This appeal follows.

III.

The Massachusetts Supreme Judicial Court ("SJC") has

consistently rejected as invalid documents purporting to convey

interests in real estate without identifying the grantee by name

-- the exact kind of documents LendingHome conveyed to Toorak. In

U.S. Bank National Ass'n v. Ibanez, the original mortgagee, Rose

Mortgage, Inc., executed an assignment in blank and delivered it

to Option One Mortgage Corp. 941 N.E.2d 40, 46 (Mass. 2011). That

assignment was later stamped with the name of Option One as the

assignee. Id. Option One in turn executed another assignment in

blank and delivered it to Lehman Brothers Bank, which passed it

through a chain of subsequent assignments ending with U.S. Bank as

the claimed holder of the mortgage. Id. The SJC ultimately denied

U.S. Bank's attempt to foreclose on the property, finding that

U.S. Bank had not made a sufficient showing that it had been

1 The magistrate judge also denied defendants' motion for summary judgment on their cross-claims for slander of title, unjust enrichment, and promissory estoppel. After judgment was entered, defendants agreed to dismiss those counterclaims for purposes of expediting final judgment and this appeal.

- 6 - assigned the properties in question.2 Id. at 52. In rejecting

U.S. Bank's counter-argument that the assignments in blank

executed by Option One "evidence[d] and confirm[d] the

assignments" and "[we]re effective assignments in their own

right," the SJC emphasized that "[w]e have long held that a

conveyance of real property, such as a mortgage, that does not

name the assignee conveys nothing and is void." Id. at 53.

Southbridge seeks to avoid the holding of Ibanez by

stressing that here, Toorak -- the holder of the blank assignment

-- filled in its own name in the blank space on the assignment

before recording it. Ibanez does not definitively eliminate the

possibility that under Massachusetts law a belated designation of

the assignee might be valid if authorized by the assignor. See

id. at 52 n.19. But other cases do. See Flavin v. Morrissey, 97

N.E.2d 643, 644 (Mass. 1951) (holding that "[a] deed . . .

incomplete because of failure to name the grantee . . . [i]s

invalid as a deed" even where defendant subsequently filled in the

name of the grantee); Macurda v. Fuller, 114 N.E. 366, 367 (Mass.

1916) (finding that a deed delivered without the name of the

assignee but with "direction . . . to fill the blank space with

the name of [a specific party]" was "without validity" and

2The properties at issue had allegedly been pooled into a trust and converted into a mortgage-backed security that was assigned to U.S. Bank. Ibanez, 941 N.E.2d at 46.

- 7 - "conferred . . . no legal right"). Moreover, the record in this

case is clear that Toorak did not have permission from LendingHome

to fill in Toorak's name as assignee in the absence of a default

by LendingHome that never took place.

Southbridge points to communications between LendingHome

and Toorak seeking Toorak's approval to postpone the foreclosure

sale in anticipation of obtaining a short-sale offer on the

Springfield property. As plaintiff argues, LendingHome would not

have needed Toorak's approval unless Toorak had an interest in the

property, thus contradicting defendants' insistence that the

assignment in blank was never intended to be valid. But nothing

in the communications indicates an intent to confirm a prior

pending conveyance of an interest. Rather, notice to Toorak was

entirely consistent with Toorak having a conditional interest in

the property that never ultimately vested.

Southbridge objects that allowing defendants to use

post-foreclosure affidavits to establish title to the properties

contravenes SJC precedent and falls outside the scope of Mass.

Gen. Laws ch. 183, § 5B. See Ibanez, 941 N.E.2d at 54 ("Nor may

a postforeclosure assignment be treated as a preforeclosure

assignment simply by declaring an 'effective date' that precedes

the notice of sale and foreclosure . . . ."). But the 5B

affidavits do not create in Christiana Trust an interest in the

properties that did not otherwise exist, nor do the 5B affidavits

- 8 - void the Toorak assignments. Rather, the Toorak assignments were

void from the beginning. Defendants proffered the affidavits

simply to confirm that Toorak had no authority to complete the

assignments delivered in blank on behalf of LendingHome. And 5B

affidavits are proper in this context where they are "limited to

facts that explain what actually occurred, and are not inconsistent

with the substantive facts contained in the original document."

Bank of Am., N.A. v. Casey, 52 N.E.3d 1030, 1038-39 (Mass. 2016).

Plaintiff also contends that defendants failed to list

the Toorak assignments in their third notice of sale as required

by Massachusetts law.3 Per Mass. Gen. Laws ch. 244, § 14, a

mortgagee wishing to hold a foreclosure sale must publish notice

of the sale "once in each of 3 successive weeks." Where the

mortgagee "holds a mortgage pursuant to an assignment, no

notice . . . shall be valid unless . . . the recording information

for all recorded assignments is referenced in the notice of sale

required." Id. But as Massachusetts law makes clear, an

assignment in blank is void (not voidable). And a void conveyance

"[is] to be considered by the law as [a] nullit[y]." Somes v.

Brewer, 19 Mass. (2 Pick.) 184, 201 (1824). So an assignment in

3 The Springfield property foreclosure sale notices were published on November 17, November 24, and December 1, 2020. The Westfield property foreclosure sale notices were published on November 18, November 25, and December 2, 2020. Because the Toorak assignments were only recorded on November 30, 2020, they could only have been included in the third and final notices.

- 9 - blank is not an assignment at all. Thus as the magistrate judge

found, the most logical reading of ch. 244, § 14 is that it does

not require that a foreclosure notice mention void assignments.

See Southbridge RE, LLC, 2023 WL 2696496, at *10. And because the

Toorak assignments were void from the start, defendants had no

obligation to include them in the notice. See Sampson v. U.S.

Bank, Nat'l Assoc., 692 F. Supp. 3d 1, 6 (D. Mass. 2023) (finding

that an assignment of a mortgage by an entity that was not the

mortgage holder was "not part of the chain of title" and therefore

did not need to be included in the "disclosure requirements of

[section] 14 and related regulations"). As such, the foreclosure

sale notices do not contravene state law.

Finally, at oral argument, counsel for plaintiff

contended for the first time that there might be a factual question

as to whether the assignments to Toorak were actually in blank or

whether they identified the assignee when delivered. But the

evidence shows otherwise and, in any event, this argument was

clearly raised too late. United States v. Zannino, 895 F.2d 1, 17

(1st Cir. 1990).

IV.

We therefore affirm the judgment of the district court.

- 10 -