Galiastro v. Mortg. Elec. Registration Sys., Inc.

• Decision Date: 13 February 2014
• Docket Number: SJC–11299.
• Citation: 467 Mass. 160,4 N.E.3d 270
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: Anne–Marie GALIASTRO & another v. MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., & another.

467 Mass. 160

4 N.E.3d 270

Anne–Marie GALIASTRO & another¹

v.MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., & another.²

SJC–11299.

Supreme Judicial Court of Massachusetts,

Worcester.

Submitted Oct. 7, 2013.

Decided Feb. 13, 2014.

Glenn F. Russell, Jr., Fall River, for the plaintiffs.

Robert M. Brochin (Todd S. Holbrook, Boston, with him) for Mortgage Electronic Registration Systems, Inc.

Nathalie K. Salomon, Newton, for Harmon Law Offices, P.C.

Grace C. Ross, pro se, amicus curiae, submitted a brief.

Geoffry Walsh, Boston, for National Consumer Law Center, amicus curiae, submitted a brief.

Present: IRELAND, C.J., SPINA, CORDY, BOTSFORD, GANTS, DUFFLY, & LENK, JJ.

DUFFLY, J.

We address in this case whether the plaintiffs and others who had appeals pending in the Appeals Court when we decided Eaton v. Federal Nat'l Mtge. Ass'n, 462 Mass. 569, 569, 969 N.E.2d 1118 (2012)( Eaton ), may pursue claims seeking to invalidate foreclosure proceedings based on our decision in that case.³ We held in Eaton that a foreclosure by power of sale pursuant to G.L. c. 183, § 21, and G.L. c. 244, §§ 11– 17C, is invalid unless a foreclosing party holds the mortgage and also either holds the underlying mortgage note or acts on behalf of the note holder. Id. at 571, 969 N.E.2d 1118. We concluded also that the interpretation of “mortgagee” in statutes governing foreclosures under statutory power of sale provisions would have only prospective effect, although we applied our newly announced interpretation to the claims asserted by the plaintiffs in that case. Id. We now extend application of the holding in Eaton to cases such as this one, in which the issue was preserved and an appeal was pending in the Appeals Court on June 22, 2012, the date of the rescript in Eaton.

Background.⁴ The plaintiffs, Anne–Marie and Joseph Galiastro (Galiastros), obtained a home mortgage loan on July 26, 2006, from Fremont Investment & Loan (Fremont).⁵ To secure the obligation, the Galiastros contemporaneously granted a mortgage on the home to defendant Mortgage Electronic Registration Systems, Inc. (MERS), which was described in the mortgage as “a separate corporation that is acting solely as a nominee for Lender and Lender's successors and assigns.” The Galiastros ultimately defaulted on their mortgage payments; on March 1, 2010, Harmon Law Offices, P.C. (Harmon), as legal counsel for MERS, notified them of MERS's intention to foreclose by statutory power of sale pursuant to G.L. c. 244, § 14.

On March 29, 2010, the Galiastros filed a complaint in the Superior Court against MERS and Harmon, claiming, inter alia, that MERS did not have standing to initiate foreclosure proceedings because it was not the holder of the Galiastros' promissory note, nor was it an authorized agent of any note holder. ⁶ The Galiastros also filed a motion for injunctive relief seeking to enjoin MERS from proceeding with the foreclosure. In July, 2010, a Superior Court judge denied the Galiastros' motion for a preliminary injunction, and MERS subsequently filed a motion to dismiss the complaint pursuant to rule 12(b)(6) of the Massachusetts Rules of Civil Procedure, 365 Mass. 754 (1974).⁷

When the Galiastros sought to enjoin the foreclosure proceedings, our decision in Eaton had not issued. In that case, we determined that the term “mortgagee” as used in G.L. c. 183, § 21, and G.L. c. 244, §§ 11–17C, although not free from ambiguity, “refer[s] to the person or entity then holding the mortgage and also either holding the mortgage note or acting on behalf of the note holder.” Eaton, supra at 571, 969 N.E.2d 1118. We therefore concluded that unless a foreclosing party holds the mortgage and is either the note holder or an authorized agent of the note holder, a foreclosure by power of sale pursuant to G.L. c. 183, § 21, and G.L. c. 244, §§ 11–17C, is invalid. See Eaton, supra at 586, 969 N.E.2d 1118. In this case, MERS has argued repeatedly against this interpretation of G.L. c. 183, § 21, and G.L. c. 244, §§ 11–17C.

For purposes of the motion to dismiss, MERS accepted ⁸ the Galiastros' allegation that MERS neither held the note nor acted as an authorized agent of the note holder.⁹ The animating premise of its motionwas that the “allegations that MERS lacks standing because it does not hold the note or the right to enforce the note is without support under Massachusetts law.” In January, 2011, a Superior Court judge granted the defendants' motions to dismiss “for the reasons set forth in the [d]efendants' memorandum.”

The Galiastros appealed from the judgment of dismissal; their appeal was entered in the Appeals Court on February 24, 2011, and the parties thereafter filed briefs. On September 6, 2011, we transferred to this court on our own motion an appeal filed in the Appeals Court on August 24, 2011, seeking relief from a preliminary injunction in Eaton v. Federal Nat'l Mtge. Ass'n, No. SUCV2011–01382, 2011 WL 6379284, Suffolk Sup.Ct. (June 17, 2011). See Eaton, supra at 570–571, 969 N.E.2d 1118. The Appeals Court then stayed all proceedings in the instant case pending our decision in Eaton. The rescript in Eaton issued on June 22, 2012, and on July 11, 2012, the Appeals Court vacated its stay in this case. We thereafter allowed the Galiastros' petition for direct appellate review.

While these proceedings were pending, other activity was taking place that affected the status of the parties relevant to the issues in this case. On September 7, 2011, after the Galiastros' appeal was docketed in the Appeals Court but before it was stayed, MERS, as nominee for Fremont, assigned the Galiastros' mortgage to “Deutsche Bank National Trust Company, as Trustee for Fremont Home Loan Trust 2006–3” (Deutsche Bank). On November 18, 2011, the Galiastros received a notice that Deutsche Bank had scheduled an auction sale, and they then filed a motion in the Superior Court for a temporary restraining order seeking to prevent the commencement of foreclosure proceedings pending a decision on their appeal. On February 9, 2012, a Superior Court judge denied the motion on the ground that “Deutsche Bank is not a party to th[e] case and Deutsche Bank has both the mortgage and the note.” Deutsche Bank then proceeded with the nonjudicial foreclosure sale, purchased the property, and brought a summary process action in the Housing Court seeking to evict the Galiastros from their home. The Galiastros moved to stay the eviction proceedings pending resolution of this appeal, and a Housing Court judge ordered a stay of the proceedings on the condition that the Galiastros pay use and occupancy costs while the stay was in effect.

The Galiastros since have vacated the property, and they acknowledge that their request for injunctive relief is now moot.¹⁰ The Galiastros' complaint, however, also asserts claims for damages, and thus not all of their claims are moot. We consider, first, the ramifications of our decision in Eaton for the Galiastros and other parties who, at the time of the issuance of the rescript in Eaton, had cases pending on appeal based on preserved claims that the foreclosing party did not hold the note at the time of foreclosure. Second, we consider whether the motion judge erred in dismissing all the other claims raised by the Galiastros.

Standard of review. We review the allowance of a motion to dismiss de novo. See Lopez v. Commonwealth, 463 Mass. 696, 700, 978 N.E.2d 67 (2012). We accept as true the facts alleged in the plaintiffs' complaint as well as any favorable inferences that reasonably can be drawn from them. Id. Factual allegations are sufficient to survive a motion to dismiss under rule 12(b)(6) if they “plausibly suggest [and are] (not merely consistent with)” an entitlement to relief. Iannacchino v. Ford Motor Co., 451 Mass. 623, 636, 888 N.E.2d 879 (2008), quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Although a complaint need not contain “detailed factual allegations,” it must offer more than mere “labels and conclusions.” Iannacchino v. Ford Motor Co., supra, quoting Bell Atl. Corp. v. Twombly, supra at 555, 127 S.Ct. 1955. The factual allegations must “raise a right to relief above the speculative level ... [based] on the assumption that all the allegations in the complaint are true (even if doubtful in fact)....” Iannacchino v. Ford Motor Co., supra, quoting Bell Atl. Corp. v. Twombly, supra.¹¹

Discussion. Retroactive application of Eaton. Whether the Galiastros' complaint states a claim entitling them to relief based on allegations that MERS lacked standing to effect a foreclosure by the power of sale depends first on whether the rule we announced in Eaton applies to the Galiastros' claims on appeal.

As stated, we determined in Eaton that the term “mortgagee” in G.L. c. 183, § 21, and G.L. c. 244, §§ 11–17C, must be interpreted to mean “a mortgagee who also holds the underlying mortgage note.” Eaton, supra at 584, 969 N.E.2d 1118. We therefore concluded that, unless a foreclosing party holds both the mortgage and the underlying mortgage note, a foreclosure by power of sale is invalid, unless the foreclosing party acts as an authorized agent of the note holder.¹²Id. at 586, 969 N.E.2d 1118. In reaching that decision, we looked to long-standing common law and noted that, in Massachusetts, real estate mortgages operate under a “title theory,” meaning that a mortgage is a transfer of legal title to the mortgagee that serves as security for the mortgagor's debt, as set forth in the underlying note. Id. at 575, 969 N.E.2d 1118.

Under Massachusetts common law, in contrast to that in a number of other jurisdictions, the transfer of an underlying note does not carry with it the mortgage. Id. at 576, 969 N.E.2d 1118, citing Barnes v. Boardman, 149 Mass. 106, 114, 21 N.E. 308 (1889). A mortgage thus can be separated from the note, and when it is, the mortgage holder acts as “equitable trustee for the note holder.” Eaton, sup...