Finch v. U.S. Bank
| Docket Number | Docket: And-21-355 |
| Decision Date | 11 January 2024 |
| Citation | 307 A.3d 1049 |
| Parties | Charles D. FINCH v. U.S. BANK, N.A. |
| Court | Maine Supreme Court |
Morgan T. Nickerson, Esq. (orally), and Emily E. Gianetta, Esq., K&L Gates LLP, Boston, Massachusetts, for appellant U.S. Bank, N.A.
John D. Clifford, IV, Esq. (orally), Clifford & Golden, PA, Lisbon Falls, for appellee Charles D. Finch
Panel: MEAD, JABAR, HORTON, CONNORS, and LAWRENCE, JJ., HJELM, A.R.J., and HUMPHREY, A.R.J.*
Dissent: HJELM, A.R.J., MEAD, J., and HUMPHREY, A.R.J.
[¶1] U.S. Bank, N.A., appeals from a judgment entered in the Superior Court (Androscoggin County, Stewart, J.) ordering the Bank to discharge its mortgage held as security on a loan to Charles D. Finch. The judgment implemented a previous order of the court (Stanfill, J.) in favor of Finch based on our decision in Pushard v. Bank of America, N.A., 2017 ME 230, ¶ 36, 175 A.3d 103.
[¶2] In Pushard, we considered the effect of a foreclosure statute that prohibits a residential mortgage lender from accelerating the balance due on the note or enforcing the mortgage unless the lender has first issued to the borrower a notice of default that complies with the statute. Id. ¶¶ 22-33; see 14 M.R.S. § 6111; (2023)1 (providing that "[a] mortgagee may not accelerate maturity of the unpaid balance of the obligation or otherwise enforce the mortgage … until at least 35 days after" issuing a written notice of default to the borrower in compliance with the statute (emphasis added)). However, despite the plain statutory prohibition on acceleration without compliance with the statute, we held that the lender had accelerated the maturity of the loan by filing a foreclosure action that asserted that the entire balance was then due. Id. ¶¶ 27, 31-33 (citing Fed. Nat’l Mortg. Ass’n v. Deschaine, 2017 ME 190, ¶ 26, 170 A.3d 230). As a result, by operation of res judicata, the effect of our Pushard decision is that a foreclosure judgment for the borrower based on a mistake in the lender’s notice of default renders the note and mortgage unenforceable and requires transfer of title to the borrower, "free and clear of the [lender’s] mortgage encumbrance." Id. ¶ 36.
[¶3] That is what happened here. The Bank’s foreclosure action against Finch culminated in a 2015 judgment in Finch’s favor because the Bank’s notice of default failed to comply with 14 M.R.S. § 6111, the same statute at issue in Pushard. Relying on our ruling in Pushard, Finch sought—and the trial court granted—a judgment declaring that the note and mortgage were unenforceable, that the Bank was required to discharge the mortgage, and that Finch held title to the property free and clear of the mortgage. On appeal, the Bank contends that we should overrule Pushard, at least in part, arguing that, as a matter of law, title cannot be transferred and a mortgage is not required to be discharged even if a further foreclosure action on that mortgage would be barred by res judicata.
[¶4] Another foreclosure appeal pending before us, J.P. Morgan Mortgage Acquisition Corp. v. Camille J. Moulton, Oxf-21-412 (Me. argued Nov. 1, 2022), also involves a section 6111 notice of default and a judgment for the borrower declaring, as required by Pushard, that the borrower holds title to the mortgaged property free and clear of the note and mortgage. The appellant in Moulton argues that we should reexamine our precedent requiring a lender’s notice of default to comply strictly with the requirements of section 6111. Cf. JPMorgan Chase Bank, N.A. v. Lowell, 2017 ME 32, ¶ 21, 156 A.3d 727; Keybank Nat’l Ass’n v. Sargent, 2000 ME 153, ¶¶ 36-37, 758 A.2d 528. Given that our foreclosure jurisprudence concerning section 6111 and claim preclusion is at issue in both appeals, we requested supplemental briefing from the parties on a series of broader questions.2
[¶5] With the benefit of that briefing, we decide that our analysis in Pushard merits reconsideration and revision. The effect of Pushard is that a typographical error in a section 6111 notice issued before the commencement of a foreclosure action can result in a literal forfeiture of the lender’s entire interest in the note and mortgage and a transfer of title to the borrower. The disproportional and draconian nature of that result, the doubtful legal premise that it rests on—that a lender can accelerate a loan balance by commencing’ a foreclosure action without having the statutory right to take either step, and the fact that no other jurisdiction has adopted either that result or that premise combine to call our Pushard analysis into question.
[1, 2] [¶6] Based on section 6111’s clear language, we conclude that when a lender fails to comply with section 6111’s requirements, the lender lacks the right to accelerate the note balance or commence a foreclosure action. We further conclude that when a lender lacks the right to accelerate the note, the note cannot be, and is not, accelerated anyhow by the commencement of a foreclosure action that the lender also lacks the right to commence. The result is to overrule our holding in Pushard that a lender that has not complied with section 6111 can still commence a foreclosure action and accelerate the balance due. By overruling Pushard, we align our interpretation of the statute with its plain language.
[3] [¶7] In the Bank’s foreclosure action against Finch, the Bank’s failure to comply with section 6111 means that the Bank could not accelerate the note balance or enforce the mortgage. For claim preclusion purposes, the fact that the Bank could not accelerate the note balance or enforce the mortgage means that the Bank’s claim for the full amount due on the note and for foreclosure of the mortgage was not and could not have been litigated, and a subsequent foreclosure action would therefore not be barred. That, in turn, means that the Bank’s note and mortgage have not been rendered unenforceable. We therefore vacate the judgment requiring the Bank to discharge the mortgage and remand with instructions to enter a judgment in the Bank’s favor on Finch’s complaint.
[¶8] The parties stipulated to the following facts. In 2004, Finch executed a promissory note in the amount of $75,000 and a mortgage on property in Durham securing the debt. The note was properly negotiated to the Bank, and the mortgage was assigned to the Bank and recorded in the Androscoggin County Registry of Deeds. Finch defaulted on his obligations to make monthly payments under the note and mortgage. The Bank commenced an action for foreclosure of the mortgage and for the entire balance due on the note. The District Court, (Lewiston, Dow, J.) entered a judgment in Finch’s favor in April 2015 based on a finding that the Bank had not provided Finch with a notice of default that met the requirements of section 6111, The court did not address or decide any of the other elements of the Bank’s claim, such as breach of a condition of the note or mortgage.
[¶9] In January 2016, after the Bank declined Finch’s request to discharge the mortgage following the 2015 judgment, Finch filed, in the Superior Court (Androscoggin County), the complaint in the action now before us. He sought a judgment declaring that the Bank is obligated to discharge the mortgage and an injunction requiring the Bank to discharge the mortgage.3 The Bank asserted a counterclaim for unjust enrichment on the basis that Finch had not repaid principal and interest due under the note.
[¶10] In December 2018, Finch and the Bank each moved for judgment as a matter of law on the complaint and the counterclaim. See M.R. Civ. P. 50. In January 2021, the court (Stanfill, J.) heard argument on the parties’ motions and then entered a partial judgment declaring that Finch was entitled to a discharge of the mortgage under the holding of our decision in Pushard. As to the Bank’s counterclaim, the court determined that the Bank could not use the theory of unjust enrichment to recover money it had been owed under either the note or the mortgage, but that it might be entitled to restitution for property taxes and insurance costs that it had paid after losing the foreclosure action in 2015. The court set the matter for a hearing to determine the extent to which the Bank might be entitled to restitution for expenditures that were made after the 2015 judgment and that inured to Finch’s benefit. In lieu of litigating that issue, however, the parties agreed to an amount that the Bank had paid and stipulated that Finch had reimbursed the Bank.
[¶11] In response to the partial judgment, the Bank in March 2021 recorded a discharge of the mortgage that cited the judgment as the reason for the discharge. The court (Stewart, J.) entered a final judgment on October 20, 2021. The final judgment provided that it could be recorded to effectuate a discharge of the mortgage.4
[¶12] The Bank timely appealed. See 14 M.R.S. § 1851 (2023); M.R. App. P. 2B(c)(1).
[4] [¶13] Finch argues that this case is moot because the Bank has already recorded a discharge of the mortgage in the Androscoggin County Registry of Deeds.
[5–7] [¶14] "Generally, to hear an appeal, we must be able to resolve a justiciable controversy in which the parties have a current interest in the outcome of the litigation." In re Christopher H., 2011 ME 13, ¶ 11, 12 A.3d 64. "If a case does not involve a justiciable controversy, it is moot." Lewiston Daily Sun v. Sch. Admin. Dist. No. 43, 1999 ME 143, ¶ 13, 738 A.2d 1239. "When mootness is an issue, we examine the record to determine whether there remain sufficient practical effects flowing from the resolution of the litigation to justify the application of limited judicial resources." Id. ¶ 14 (alteration and quotation marks omitted).
[¶15] We have permitted the reinstatement of a discharged mortgage when "such relief [did] not operate to the detriment of...
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