Pehoviak v. Deutsche Bank Nat'l Trust Co.

• Decision Date: 11 March 2014
• Docket Number: No. 12–P–1485.,12–P–1485.
• Court: Appeals Court of Massachusetts
• Parties: Paul PEHOVIAK & another v. DEUTSCHE BANK NATIONAL TRUST COMPANY.

85 Mass.App.Ct. 56
5 N.E.3d 945

Paul PEHOVIAK & another ¹
v.
DEUTSCHE BANK NATIONAL TRUST COMPANY.

No. 12–P–1485.

Appeals Court of Massachusetts,
Worcester.

Argued Nov. 5, 2013.
Decided March 11, 2014.

[5 N.E.3d 947]

Marissa I. Delinks, Boston, for the defendant.

Howard B. D'Amico for the intervener.

Present: CYPHER, BROWN, & FECTEAU, JJ.

FECTEAU, J.

The defendant, Deutsche Bank National Trust Company (Deutsche Bank), appeals from a judgment in the amount of $141,784.20,² plus interest, entered in favor of the intervening plaintiff, Commerce Bank and Trust Company (Commerce), after a jury-waived trial. Deutsche Bank claims that the judge erred in (1) applying G.L. c. 244, § 14, under the facts presented, (2) finding that Deutsche Bank's failure to act in good faith and to use reasonable diligence to complete and close the foreclosure sale with Pehoviak caused Commerce harm, and (3) failing to account for Commerce's lack of mitigation efforts. We conclude that (1) Deutsche Bank breached its duty to exercise reasonable diligence by refusing the prospective buyer's request to provide him with evidence that it had sent statutorily required notices of foreclosure to junior lienholders, (2) the judge's finding on causation was not clearly erroneous, and (3) Deutsche Bank waived the affirmative defense of mitigation of damages by failing to raise it in its first responsive pleading.

1. Background. Deutsche Bank was the holder of a first mortgage on real property in Westborough, Massachusetts. The mortgagors defaulted on the mortgage loan, and Deutsche Bank foreclosed on the property. The mortgagors owed Deutsche approximately $500,000. Commerce was the holder of a mortgage on the same property securing a home equity loan, which was subordinate to Deutsche Bank's mortgage. The mortgagors were also in default on Commerce's loan and owed Commerce approximately $170,000. In addition, there were two other liens on the property that were subordinate to Commerce; one was a Federal tax lien, and the other was a writ of attachment by one Dennis Armstrong.

At the foreclosure sale on March 6, 2006, Pehoviak was the highest bidder with a bid of $670,000. Commerce was prepared to bid as high as $650,000 to protect its interest, but when Pehoviak's bid exceeded that amount, Commerce did not make a bid and did not register a contingent bid before,

[5 N.E.3d 948]

during, or after the sale.³ Deutsche Bank was the next highest bidder on the property with a bid of the principal balance owed under its mortgage, which was $528,215.80.

In the memorandum of sale and on a buyer information sheet, Pehoviak indicated that he would not be financing the transaction and that it would instead be a cash purchase. In fact, Pehoviak was purchasing the property with the expectation of assigning his bid to Thomas Belekewicz. Pehoviak testified that he had used Belekewicz to finance a number of prior transactions. Under the terms of the memorandum of sale, Pehoviak was required to pay the balance of the purchase price (less his $10,000 deposit) by March 21, 2006, or by April 5, 2006, if “the Buyer elect(s) to finance the purchase of the subject property.”

On March 16, 2006, a representative from Attorney Arthur Brecher's office informed Deutsche Bank's counsel of Pehoviak's assignment of his bid to Belekewicz. Attorney Brecher, who appeared to be acting on behalf of Pehoviak and Belekewicz, also requested documentation that Deutsche Bank had sent the required notice of foreclosure, under G.L. c. 244, § 14, to the Internal Revenue Service (IRS).⁴ It is undisputed that prior to the foreclosure sale Deutsche Bank sent the required notice of foreclosure to the IRS, received a waiver of notice from Armstrong, and had the documentation on file.

On March 16, 2006, Deutsche Bank's counsel at Ablitt & Charlton, P.C. (Ablitt & Charlton), Attorney Deirdre Cavanaugh, responded that an assignment of Pehoviak's bid was prohibited under the memorandum of sale without the “express written consent of [Deutsche Bank]” and that Deutsche Bank would not consent to Pehoviak's proposed assignment to Belekewicz. Counsel for Deutsche Bank also informed Attorney Brecher that she considered Pehoviak's attempted assignment a repudiation of his intent to perform under the memorandum of sale and asked that Pehoviak confirm this intent within twenty-four hours. Pehoviak's counsel responded within the twenty-four-hour period that he did not intend to repudiate Pehoviak's right to purchase the property, agreed that the bid could not be assigned without Deutsche Bank's consent, and confirmed that the property should be deeded to Pehoviak. Attorney Brecher once again requested documentation that the required statutory notices had been sent to the IRS.

Deutsche Bank claims that “the trial evidence actually showed that Deutsche Bank's counsel did respond to Attorney Brecher's March 16, 2006 request and sent documents in counsel's file at that time, believed to be the green card for the I.R.S. and the waiver received from Armstrong.” In fact, Attorney Steven Ablitt, of Ablitt & Charlton, testified, “I don't know exactly what my paralegal would have sent 'em. My understanding was whatever he requested, we sent to him.”⁵ Thus, Attorney

[5 N.E.3d 949]

Ablitt had no personal knowledge that the two notices were actually sent.⁶

From March 17, 2006, to April 5, 2006, counsel for Pehoviak repeatedly requested documentation that the required notices had been sent to both the IRS and Armstrong and emphasized Pehoviak's continued commitment to completing the sale.⁷ Attorneys for Deutsche Bank testified that they determined not to provide the documentation of the notice and waiver of notice to Pehoviak because they did not believe Pehoviak was serious about concluding the sale. Deutsche Bank now argues they were under no obligation to send the documentation to Attorney Richard LeClair, III, because he first contacted counsel for Deutsche Bank after the memorandum of sale's required closing time of March 21, 2006.⁸ Deutsche Bank also claims that Attorney Brecher and his client, Belekewicz, were “strangers to the deal,” and Attorney Ablitt testified that he allegedly sent the documents to Attorney Brecher only as a “professional courtesy.” In sum, Deutsche Bank argues it did not have to provide documentation of the IRS and Armstrong notices because Pehoviak did not close within what Deutsche Bank claims was the required fifteen days, and he was therefore in breach of the memorandum of sale.⁹

However, when counsel for Deutsche Bank responded to Attorney LeClair's first facsimile transmission of March 21, 2006, LeClair was not informed that the conveyance was past the fifteen-day deadline and thus untimely, nor was Pehoviak's compliance with the closing requirements demanded at that time. Indeed, Attorney LeClair was given no reason to believe that the transaction was cancelled due to untimeliness. Rather, the electronic mail communication focused on Deutsche Bank's position that Pehoviak had repudiated the contract by an attempted assignment.

On April 18, 2006, Deutsche Bank notified Pehoviak's attorney that Pehoviak was in default on the sale. Deutsche Bank then purchased the property for $528,215.80. Consequently, there was no payment of Commerce's subordinate mortgage.

[5 N.E.3d 950]

Prior to this notification, on April 10, 2006, Pehoviak filed the instant action against Deutsche Bank and the mortgagors seeking damages and specific performance.¹⁰ The complaint alleged that “the transfer of the premises was to occur on April 5, 2006.” On May 26, 2006, Commerce learned of the suit and moved to intervene as a plaintiff, alleging negligence on the part of Deutsche Bank. The motion to intervene was allowed. A Superior Court judge initially granted summary judgment for Deutsche Bank, and thereafter, Deutsche Bank and Pehoviak settled. Commerce pursued an appeal, and this court, in an unpublished memorandum and order pursuant to Appeals Court rule 1:28, reversed the grant of summary judgment. Pehoviak v. Deutsche Bank Natl. Trust Co., 79 Mass.App.Ct. 1101, 2011 WL 722613 (2011). In reversing the grant of summary judgment, this court held that “[t]he exercise of the power of sale by the foreclosing mortgagee and the attendant obligation to act in good faith and with reasonable diligence necessarily includes those actions necessary to complete and close the sale.” Id. We concluded, therefore, that the issues “[w]hether Deutsche Bank's actions were reasonable and the exercise of a sound discretion, and whether they caused a sale that would otherwise have been completed to fall through,” were jury questions. Id. (citation omitted).

After the jury-waived trial which followed, the judge found that Deutsche Bank “did not act in good faith and did not use reasonable diligence in exercising the statutory power of sale, and that Commerce Bank was harmed by Deutsche Bank's breach of its duty.”

2. Discussion. Deutsche Bank's argument that it did not breach its duty to act with good faith and reasonable diligence because it gave timely and proper notice to subsequent junior lienholders in compliance with G.L. c. 244, § 14, is unfounded. “[I]n exercising a power of sale, a mortgagee is bound to exercise both good faith and reasonable diligence, and cannot shelter himself behind a mere literal compliance with the terms of the power.”...