Khalsa v. Sovereign Bank, N.A.

• Decision Date: 11 January 2016
• Docket Number: No. 14–P–1898.,14–P–1898.
• Citation: 88 Mass.App.Ct. 824,44 N.E.3d 863
• Parties: Guru Jiwan Singh KHALSA & another v. SOVEREIGN BANK, N.A.
• Court: Appeals Court of Massachusetts

88 Mass.App.Ct. 824

44 N.E.3d 863

Guru Jiwan Singh KHALSA & another¹

v.SOVEREIGN BANK, N.A.

No. 14–P–1898.

Appeals Court of Massachusetts, Suffolk.

Argued Nov. 2, 2015.

Decided Jan. 11, 2016.

James L. Rogal, Woburn, for the defendant.

Leonard M. Singer, Boston, for the plaintiffs.

Present: MILKEY, CARHART, & MASSING, JJ.

Opinion

MASSING, J.

To effect a valid foreclosure sale, the foreclosing mortgage holder must also hold the underlying note or be acting on behalf of the note holder. Eaton v. Federal Natl. Mort. Assn.,

462 Mass. 569, 571, 969 N.E.2d 1118 (2012) (Eaton ). This appeal requires us to consider how a mortgagee may show that it is acting “as the authorized agent of the note holder,” id. at 586, 969 N.E.2d 1118, for summary judgment purposes.

On cross motions for summary judgment, a judge of the Superior Court judge entered a declaratory judgment in favor of the plaintiff borrowers, Khalsa and Kaur, and against the defendant mortgagee, Sovereign Bank, N.A. (Sovereign), declaring that the foreclosure sale of the plaintiffs' residence was void because Sovereign had

failed to show that it was acting as the authorized agent of the note holder, Federal Home Loan Mortgage Corporation (Freddie Mac). Sovereign appeals. Because the summary judgment materials create a genuine issue of fact concerning Sovereign's authorization to foreclose on Freddie Mac's behalf, we vacate the judgment and remand the case for further proceedings.

Background. On April 2, 2008, the plaintiffs executed a promissory note payable to Sovereign in the original principal amount of $274,000 to finance the purchase of their home in Millis. To secure the note, the plaintiffs granted Sovereign a mortgage on the property. Shortly thereafter, Freddie Mac purchased the note from Sovereign, retaining Sovereign as servicer of the note and mortgage.

On April 22, 2011, Sovereign notified the plaintiffs that they were in default on their loan for nonpayment. Sovereign held a foreclosure sale on January 18, 2013. Although Sovereign held itself out as the “Lender” in the default notice, the note had been indorsed in blank, and at the time of the sale, Freddie Mac had physical possession of the note. See G.L. c. 106, § 3–205(b )

, inserted by St. 1998, c. 24, § 8 (“When indorsed in blank, an instrument becomes payable to bearer and may be negotiated by transfer of possession alone until specially indorsed”). Sovereign purchased the property at the foreclosure auction and sold its bid to Freddie Mac.

Meanwhile, the plaintiffs had filed a complaint in the Superior Court on January 8, 2013, seeking to enjoin the foreclosure sale and a declaration that Sovereign was not entitled to foreclose because, among other alleged deficiencies, “Sovereign Bank does not have authority from the holder of the mortgage note given by the plaintiffs.” After a hearing on the plaintiffs' application for a preliminary injunction on January 17, 2013, a judge denied relief, and the foreclosure sale went forward the following day. On November 5, 2013, a different judge denied Sovereign's first motion for summary judgment. Acting on subsequently-filed cross motions for summary judgment, on September 9, 2014, a third judge allowed the plaintiffs' motion, denied Sovereign's motion, and declared the foreclosure void.

Evidence of Sovereign's authority to foreclose. The only contested issue in this case is whether Sovereign, which was the holder of the mortgage but not the note, acted with Freddie Mac's authority to conduct the foreclosure sale. On this point, in connection

with its first motion for summary judgment, Sovereign submitted the affidavit of Alan L. Norris, a default operations analyst at Sovereign.² Based on his review of Sovereign's file concerning the plaintiffs' mortgage, Norris stated “to the best of [his] knowledge and belief” that Freddie Mac purchased the plaintiffs' loan on May 13, 2008, “with Sovereign retaining the servicing of the Loan.” He added, “Sovereign is the mortgagee of record, the servicer of the Loan, and the holder of the Note.”³ He asserted in his affidavit that “[t]he relationship between Freddie Mac and the Seller/Servicers of its loans is governed by the Freddie Mac Single Family Seller/Servicer Guide ...” (guide).⁴ He further stated, “Freddie Mac, as owner of the Note, has authorized Sovereign to act on its behalf.”

Norris did not refer to any particular document in the file, nor did Sovereign submit any documentary evidence to support this assertion. The judge who denied Sovereign's first motion for summary judgment declined to credit Norris's “unsupported statement, based on no apparent personal knowledge.”

In its second motion for summary judgment, Sovereign supplemented the Norris affidavit with the affidavit of Dean Meyer, an assistant treasurer of Freddie Mac, who also based his affidavit “on a review of the loan records for the property.” Regarding Sovereign's authorization to act on Freddie Mac's behalf in the foreclosure sale, Meyer also cited the guide, which, he repeated, “governs the relationship between a Seller/Servicer and Freddie Mac relating to the sale and servicing of mortgages.” Meyer stated in paragraph five of the affidavit, “When a borrower defaults, Freddie Mac authorizes a servicer to initiate foreclosure proceedings in accordance with the Guide.” Meyer concluded in

paragraph six, “As a result of the plaintiffs' default on their mortgage, Sovereign, as a Freddie Mac servicer, was authorized to conduct foreclosure proceedings against the Plaintiffs.”

The guide is 2,799 pages long. Meyer's affidavit did not identify exactly where in the guide Freddie Mac authorized Sovereign in particular, or any seller/servicers in general, to act on its behalf to initiate foreclosure proceedings or conduct foreclosure sales. In his memorandum and order allowing the plaintiffs' cross motion for summary judgment, the judge commented that “one is left to speculate as to how (if at all) Mr. Meyer has any personal knowledge of the facts he asserts.” Because Meyer purported to state the content of the guide without producing the relevant pages, the motion judge allowed plaintiffs' motion to strike paragraph five as violating the best evidence rule. See Mass. G. Evid. § 1002

(2015).

The record on Sovereign's second motion for summary judgment included two pages from the guide, which Norris, testifying as Sovereign's designee in a deposition conducted pursuant to Mass.R.Civ.P. 30(b)(6)

, 365 Mass. 780 (1974), stated were “the only thing in the seller/servicer guide that Sovereign Bank is relying upon as authority to foreclose the [plaintiffs'] mortgage.” As Sovereign conceded at oral argument on appeal, neither page establishes that Sovereign was acting on behalf of Freddie Mac. The motion judge ruled that Sovereign had failed to present any competent evidence establishing that Sovereign was authorized to act as Freddie Mac's agent when it initiated the foreclosure sale. Accordingly, the judge denied Sovereign's motion for summary judgment and allowed the plaintiffs' motion.

Discussion. Under Eaton, 462 Mass. at 571, 969 N.E.2d 1118

, “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.” Galiastro v. Mortgage Electronic Registration Sys., Inc., 467 Mass. 160, 161, 4 N.E.3d 270 (2014).⁵ The question before us is whether a genuine factual dispute exists as to whether Sovereign was acting “as the authorized agent of the note holder.” Eaton, supra at 586, 969 N.E.2d 1118. While the judge did not err in identifying the

shortcomings in Sovereign's materials and, accordingly, denying Sovereign's motion for summary judgment, these shortcomings did not entitle the plaintiffs to summary judgment in their favor.

General agency principles apply in the context of mortgage foreclosure sales. Ibid. An agency relationship “arises ‘from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.’ ” Harrison Conference Servs. of Mass., Inc. v. Commissioner of Rev., 394 Mass. 21, 24, 474 N.E.2d 160 (1985)

, quoting from Restatement (Second) of Agency § 1(1) (1958).

Where the mortgage holder and note holder are not the same, the mortgage holder can demonstrate that it was authorized to act as the note holder's agent in a variety of ways. The task is simple if the mortgage holder can produce an instrument executed by the note holder prior to the foreclosure proceedings that expressly authorizes the mortgage holder to foreclose on the particular loan. Sufficient proof would be similarly straightforward if the mortgage holder could produce a document from the note holder, predating the foreclosure, generally authorizing the mortgage holder to act in its discretion as the note holder's agent for the purpose of foreclosing on a series of mortgages that included the borrower's. Providing the requisite proof is more challenging where, as here, a loan-specific preforeclosure authorization apparently does not exist.

Through its affidavits, Sovereign attempted to show that its seller/servicer relationship with Freddie Mac included the authority to act on Freddie Mac's behalf to initiate and conduct foreclosure proceedings with respect to all the loans Sovereign serviced on Freddie Mac's behalf (which included the plaintiffs'). We agree with Sovereign that such proof could satisfy Eaton; that is, Sovereign could have shown that it possessed the requisite authority without pointing to any preforeclosure instrument expressly authorizing it to foreclose.

To prevail on its motion for summary judgment, however, Sovereign had to establish that no genuine issue of material fact existed concerning such an agency relationship with Freddie Mac and that it was therefore entitled to judgment as matter of law. DeWolfe v....