Mills v. U.S. Bank

• Decision Date: 27 May 2014
• Docket Number: No. 13–1907.,13–1907.
• Citation: 753 F.3d 47
• Parties: Rhonda G. MILLS, Plaintiff, Appellant, v. U.S. BANK, NA, as Trustee for the Lehman XS Trust Mortgage Pass–Through Certificates, Series 2007–4N; OneWest Bank FSB individually and as successor to IndyMac Bank, F.S.B.; Mortgage Electronic Registration Systems, Inc., Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

753 F.3d 47

Rhonda G. MILLS, Plaintiff, Appellant,

v.U.S. BANK, NA, as Trustee for the Lehman XS Trust Mortgage Pass–Through Certificates, Series 2007–4N; OneWest Bank FSB individually and as successor to IndyMac Bank, F.S.B.; Mortgage Electronic Registration Systems, Inc., Defendants, Appellees.

No. 13–1907.

United States Court of Appeals,First Circuit.

May 27, 2014.

Rockwell P. Ludden, with whom Ludden Kramer Law, PC was on brief, for appellant.

David G. Thomas, with whom Russell P. Plato and Greenberg Traurig, LLP were on brief, for appellees.

Before LYNCH, Chief Judge, HOWARD and KAYATTA, Circuit Judges.

HOWARD, Circuit Judge.

Following the 2011 foreclosure on her home, plaintiff Rhonda Mills filed this suit against defendants U.S. Bank, N.A. (“U.S. Bank”), OneWest Bank, F.S.B. (“OneWest”), and Mortgage Electronic Registration Systems, Inc. (“MERS”), raising a potpourri of challenges to OneWest's authority to foreclose on her property. On appeal from the district court's dismissal of her suit for failure to state a claim, Mills primarily takes issue with the district court's reliance on our decision in Culhane v. Aurora Loan Services of Nebraska, 708 F.3d 282 (1st Cir.2013). Finding Culhane to be on point, we affirm.

I.

On October 6, 2006, Mills refinanced her home in Mashpee, Massachusetts, executing an adjustable rate note (the “note”) in favor of MortgageIT, Inc. (“MortgageIT”) for $376,000 and also granting a mortgage to MERS. The mortgage contract identified MortgageIT as the lender and MERS as the mortgagee, “acting solely as a nominee for Lender and Lender's successors and assigns.” The mortgage provided MERS with “only legal title” to Mills's property, giving it the right to foreclose and sell the property “as nominee for Lender and Lender's successors and assigns.”

MERS, as we explained in Culhane, “was formed by a consortium of residential mortgage lenders and investors desiring to streamline the process of transferring ownership of mortgage loans in order to facilitate securitization.” Id. at 287. Joining MERS enables lenders to “name MERS as the mortgagee in mortgages that they originate, service, or own.” Id. MERS itself acts solely as a “nominee” for the owner or servicer of a mortgage, giving MERS legal title to the mortgage but leaving it with no beneficial interest in the loan. Id. When a note is sold by one MERS member to another, MERS memorializes the sale in its database but remains the mortgagee of record, thereby avoiding the time and expense of publicly assigning the mortgage to a new noteholder. Id.; see also Butler v. Deutsche Bank Trust Co. Ams., 748 F.3d 28, 32–33 (1st Cir.2014). On the other hand, when a note is sold to a nonmember, MERS assigns the mortgage to the new noteholder or its designee. Culhane, 708 F.3d at 287.

Like Culhane, this case illustrates the function served by MERS. Mills's note was sold by MortgageIT on the secondary market and changed hands several times before ultimately being deposited into the Lehman XS Trust, Mortgage Pass–Through Certificates, Series 2007–4N (the “Trust”), of which U.S. Bank was trustee; no corresponding assignments were made of legal title to the mortgage. Mills, meanwhile, began struggling to keep up with her loan payments, and applied to IndyMac, F.S.B. (“IndyMac”), the loan servicer at the time, for a loan modification. IndyMac approved Mills's loan modification application in December 2008, and Mills signed, notarized, and returned the modification agreement. Unfortunately for Mills, however, in March 2009 IndyMac was succeeded as loan servicer by OneWest, which failed to honor the modification. On April 23, 2009, MERS executed a document assigning the mortgage to OneWest, which subsequently recorded the assignment with the Barnstable Land Court Registry. Finally, on January 21, 2011, OneWest foreclosed Mills's mortgage and sold her property at public auction to U.S. Bank.

Mills filed this lawsuit on May 23, 2012 in Barnstable Superior Court; the defendants removed the case to the District of Massachusetts a week later. Following the plaintiff's submission of an amended complaint, the defendants moved for dismissal for failure to state a claim. On March 28, 2013, the district court granted the defendants' motions to dismiss and denied Mills's motion to amend her complaint and add an allegation to her claim under Mass. Gen. Laws ch. 93A. Mills subsequently filed a motion for reconsideration, which the district court denied without comment. This appeal followed.

II.

A. Dismissal

1. Validity of Assignment

Under Massachusetts statute, only “the mortgagee or his executors, administrators, successors or assigns” can exercise a statutory power of sale (which Mills's mortgage granted) and foreclose without prior judicial authorization. Mass. Gen. Laws ch. 183, § 21; see also id. ch. 244, § 14; Culhane, 708 F.3d at 290;U.S. Bank Nat'l Ass'n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40, 50 (2011). Consequently, “[a]ny effort to foreclose by a party lacking jurisdiction and authority to carry out a foreclosure under these statutes is void.” Ibanez, 941 N.E.2d at 50 (internal quotation marks omitted). Like the plaintiff in Culhane, Mills contends that the foreclosing entity, OneWest, was never assigned valid legal title, rendering the foreclosure void. In other words, Mills's complaint represents a “challenge [to] a foreclosing entity's status qua mortgagee,” which Mills has standing to raise. Culhane, 708 F.3d at 291. We review de novo the district court's dismissal of Mills's complaint for failure to state a claim. Mass. Ret. Sys. v. CVS Caremark Corp., 716 F.3d 229, 237 (1st Cir.2013).

Before turning to the merits of Mills's claim, we briefly review our prior analysis of the MERS system in Culhane, which, notwithstanding Mills's protestations to the contrary, we ultimately conclude is dispositive of this case. In Culhane, we rejected the plaintiff's contention that the nominal designation of MERS as holder of the mortgage “was a nullity because MERS never owned the ‘beneficial half of the legal interest’ in the mortgage,” leaving MERS with nothing to assign to the foreclosing entity. 708 F.3d at 291. On the contrary, we concluded that “the MERS framework, which customarily separates the legal interest [in the mortgage] from the beneficial interest [in the underlying debt], corresponds with longstanding common-law principles regarding mortgages.” Id. at 292.

We elaborated that “[t]he mortgage, in a title theory state like Massachusetts, transfers legal title to the mortgaged premises from the mortgagor to the mortgagee for the sole purpose of securing the loan,” leaving the mortgagee with “bare legal title to the mortgaged premises, defeasible upon repayment of the loan (because the mortgagor owns the equity of redemption).” Id. We noted that under Massachusetts law, a note and the underlying mortgage need not be held by the same party. Id.; see also Eaton v. Fed. Nat'l Mortg. Ass'n, 462 Mass. 569, 969 N.E.2d 1118, 1124 (2012). We further explained that the MERS framework, in which the mortgage and note are held by separate entities from the outset, creates an implied equitable trust in which the mortgagee “holds bare legal title to the mortgaged premises in trust for the noteholder” and “[t]he noteholder possesses an equitable right to demand and obtain an assignment of the mortgage.” Culhane, 708 F.3d at 292. Absent a contrary provision in the mortgage itself, a mortgagee “may assign its mortgage to another party,” and “need not possess any scintilla of a beneficial interest in order to hold the mortgage.” Id. at 292–93.

Accordingly, we found that “MERS's role as mortgagee of record and custodian of the bare legal interest as nominee for the member-noteholder, and the member-noteholder's role as owner of the beneficial interest in the loan, fit comfortably with each other and fit comfortably within the structure of Massachusetts mortgage law.” Id. at 293. Our conclusion was bolstered by the terms of the mortgage contract itself, which (identical to the mortgage in this case) designated MERS as the mortgagee “solely as nominee for [the lender] and [its] successors and assigns.” Id. As the lender's nominee, MERS held “title for the owner of the beneficial interest,” and was therefore contractually authorized to transfer the mortgage at the direction of the designated loan servicer. Id. In short, MERS validly held legal title to the mortgaged property and was doubly authorized (under both Massachusetts common law and the terms of the mortgage contract) to assign its interest to the foreclosing entity.

Mills's argument in this case, though not entirely duplicative of the unsuccessful challenge in Culhane, is a variation on the same theme. Mills focuses primarily on the Massachusetts statute of frauds, Mass. Gen. Laws ch. 183, § 3, which requires assignments of mortgages and other interests in land to be placed in writing and signed by the assignor. See Ibanez, 941 N.E.2d at 51. More specifically, Mills avers that while “the Mills mortgage was securitized and therefore necessarily sold by way of ‘true sale’ at least twice before its final assignment to the Trust,” none of these intermediary transfers were recorded. Instead, the sole recorded transfers of the mortgage were the original mortgage contract between Mills and MERS and the final assignment from MERS to OneWest. Because the intermediary transfers were not recorded, concludes Mills's syllogism, the “chain of assignments” was broken and MERS had no interest to assign OneWest.

Without specifically addressing this statute of frauds-based argument, the district court found Culhane fatal to Mills's claim, citing our pronouncement that the MERS system “fit comfortably within the structure of Massachusetts mortgage law.” We agree with the district court's conclusion, and we find that Mills's contentions to the contrary rest on a misperception of the MERS framework.

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