Cenlar FSB v. Malenfant
| Decision Date | 19 August 2016 |
| Docket Number | No. 2014-441,2014-441 |
| Citation | 2016 VT 93 |
| Parties | Cenlar FSB v. Joseph L. Malenfant, Jr. and Laurie G. Malenfant |
| Court | Vermont Supreme Court |
NOTICE: This opinion is subject to motions for reargument under V.R.A.P. 40 as well as formal revision before publication in the Vermont Reports. Readers are requested to notify the Reporter of Decisions by email at: JUD.Reporter@state.vt.us or by mail at: Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801, of any errors in order that corrections may be made before this opinion goes to press.
On Appeal from Superior Court, Chittenden Unit, Civil Division
Jeffrey J. Hardiman and Randall Souza of Shechtman Halperin Savage, LLP, Pawtucket, Rhode Island, for Plaintiff-Appellant.
Marc E. Wiener of Marc E. Wiener Law Offices, PLLC, Burlington, for Defendants-Appellees.
PRESENT: Reiber, C.J., Dooley, Skoglund, Robinson and Eaton, JJ.
¶ 1. This case calls upon us to solve a procedural puzzle involving successive foreclosure actions on the same note. In particular, this case raises the question: What is the impact of a court's dismissal with prejudice of a lender's claim on a promissory note and accompanying foreclosure action with respect to the lender's ability to bring a subsequent claim for default on the note?
¶ 2. Lender appeals a judgment for borrowers in lender's second action for a judgment on the note and foreclosure, after the first was dismissed with prejudice. Lender argues that the first dismissal cannot be interpreted as vacating the judgment on the note and for foreclosure that the trial court had previously issued in that case. Alternatively, lender contends that its notice of default in the initial foreclosure action was sufficient to satisfy its notice obligation in connection with its second foreclosure action. We conclude that the trial court's dismissal with prejudice of the lender's first action on the promissory note and complaint for foreclosure did effectively vacate that court's prior judgment for lender on the note and for foreclosure. We conclude that lender was not on this record entitled to pursue a second action because it had not taken any steps to reinstate borrower's monthly payment obligations after lender had accelerated the note. Accordingly, we affirm.
¶ 3. The facts and procedural background are not in dispute, except where noted. In 1993, Joseph L. Malenfant, Jr. and Laurie G. Malenfant (borrowers) executed a promissory note secured by a mortgage on their property in Colchester to GMAC Mortgage Corp., the predecessor-in-interest to Cenlar FSB (lender).
¶ 4. By May 2008, borrowers had fallen into default on the loan. Lender filed its first action against borrowers for default on the note and a foreclosure remedy in December 2008. See Cenlar FSB v. Malenfant, Docket No. S1664-08 Cnc (Vt. Super. Ct.). On May 22, 2009, the court issued a judgment order finding borrowers to be in default on the note, calculating the amounts due to lender, and issuing a decree of foreclosure in favor of lender in that action.1 Borrowers timely filed a "letter of appeal" arguing, among other things, that they were in the process of consideration for a loan modification, and that under the applicable regulations the foreclosure process was to be stopped until complete consideration was offered to them. The court issued an entry order directing the lender to show cause why the appeal should not be granted pursuant to Vermont Rule of Civil Procedure 80.1. In September 2009, following a hearing, the trial court ordered the lender to provide information to borrowers about the status of their loan-modification request, and ordered that no certificate of nonredemption would be issued unless the lender had complied with all applicable laws relating to the federal Making Home Affordable Program and explained to the court why borrower's application for loan modification was denied.2
¶ 5. Borrowers and lender entered into a temporary forbearance and trial payment plan from March to June 2010. During this period, court proceedings were suspended. At a status conference following the end of this period, lender indicated that it was reviewing borrowers' loan-modification application. Lender represented without contradiction that it last received payment on the mortgage in June 2010. Borrowers suggested that from the end of the forbearance period onward, they repeatedly asked lender for information about the balance due to bring their balance current. The court kept the case on the docket, and held a status conference on November 1, 2010. Lender failed to appear. On its own motion, the court issued an order, captioned "Dismissal Order," which read in its entirety:
¶ 6. Lender did not appeal this order. Neither party filed a motion for relief from judgment or order, V.R.C.P. 60(b), or a motion to alter or amend, V.R.C.P. 59(e). The order did not expressly state whether the judgment order and decree of foreclosure issued on May 22, 2009 was vacated. The legal effect of this unappealed order of dismissal with prejudice is one of the issues in this case.
¶ 7. In September 2011, lender filed a second action for default on the note, and sought foreclosure. The parties engaged in mediation but did not resolve the case. After the trial court denied lender's motion for summary judgment, it held a final hearing on the merits in June 2014. At that hearing, lender introduced evidence of the total redemption amount on that date and the total accelerated balance owed under the mortgage loan, assuming a default date of September 1, 2008—a different date from the default date asserted in the first default action. The court dismissed this second foreclosure action because lender failed to send a new default notice prior to filing the second foreclosure action. As the court explained in its written order, the mortgage deed required the lender to give the borrowers at least thirty days' notice of default and an opportunity to cure. Lender's representative testified that the default date upon which this second foreclosure action was based was different from the first. Because the filing of this second action was based on "a new, and different set of operative facts," the court dismissed the claim based on lender's failure to "complete the circle [by] . . . sen[ding] Defendants [a] notice of default and acceleration" based on the default date alleged in the second foreclosure action.
¶ 8. The court made it clear that lender was free to file a new, third foreclosure action against borrowers, this time complying with the contractual requirement of notice before acceleration, with an opportunity to cure. However, argument at the hearing revealed divergent views by the parties concerning the effect of both prior dismissals—the court's dismissal of the first foreclosure action with prejudice and also its dismissal of the second foreclosure action—on the scope of lender's potential third claim on the note and for foreclosure. Moreover, the court wanted to be clear about the intended preclusive effect of its dismissal of this second foreclosure action with respect to any future action. After argument and briefing by the parties, the court issued a written decision and final judgment order on September 18, 2014, reiterating its dismissal of the second foreclosure action and discussing the prospective effect of its dismissal, as well as the court's prior dismissal of the first foreclosure case.
¶ 9. The court rejected lender's argument that the May 2009 foreclosure judgment for lender was still in effect. It concluded that the only logical way to construe the court's November 1, 2010 dismissal of that case was to understand it as vacating the underlying foreclosure judgment. Moreover, it noted that lender's own conduct supported the court's understanding that the dismissal with prejudice required the lender to start over, with a "clean slate." Lender did not attempt to enforce the prior foreclosure decree, or request a certificate of nonredemption, but instead filed a new foreclosure action on the same note, using a later default date than the first action. Finally, the court noted that the issue was "largely academic," as the court would be highly unlikely to allow lender the necessary extension of time to sell the foreclosed property. The court declined to consider whether the court in the first foreclosure action had the authority to dismiss that case with prejudice, noting that lender did not appeal the dismissal order at the time.
¶ 10. Considering the preclusive effect of this second dismissal with respect to the relief that would be available to lender in a third action, the court stated that "all foreclosure actions are fundamentally equitable in nature, and thus the court has some discretion in adjusting the parties' respective rights and liabilities . . . to achieve a result which is . . . fair and just," within the constraints of statute. The court concluded that precluding lender from recovering any of the amounts it had advanced to pay borrowers' real-estate taxes through the course of these proceedings would be "harsh and fundamentally unfair." But the court concluded that its final judgment would bar lender from recovering of all of the accrued interest—as well as attorney's fees, late fees, filing fees, recording fees, and other costs incurred—from May 1, 2008 (the default date lender sought to prove in the first foreclosure...
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