Summers v. Fin. Freedom Acquisition LLC

• Decision Date: 23 October 2015
• Docket Number: No. 14–1930.,14–1930.
• Citation: 807 F.3d 351
• Parties: Steven SUMMERS, Plaintiff, Appellant, Brinah Court, Plaintiff, v. FINANCIAL FREEDOM ACQUISITION LLC, Defendant, Appellee, Financial Freedom Senior Funding Corp. and Financial Freedom Senior Servicing Corp., Defendants.
• Court: U.S. Court of Appeals — First Circuit

807 F.3d 351

Steven SUMMERS, Plaintiff, Appellant,

Brinah Court, Plaintiff,

v.FINANCIAL FREEDOM ACQUISITION LLC, Defendant, Appellee,Financial Freedom Senior Funding Corp. and Financial Freedom Senior Servicing Corp., Defendants.

No. 14–1930.

United States Court of Appeals, First Circuit.

Oct. 23, 2015.

Carleen N.T. Aubee, for appellant.

Harris K. Weiner, with whom Salter McGowan Sylvia & Leonard, Inc., was on brief, for appellee.

Before HOWARD, Chief Judge, SELYA and THOMPSON, Circuit Judges.

SELYA, Circuit Judge.

Plaintiff-appellant Steven Summers and his sister Brinah Court inherited a house from their mother, Rosalie Summers (the decedent). The rub was that, during her lifetime, the decedent had obtained and reaped the benefits of a reverse mortgage. That mortgage, which contained an acceleration clause and power of sale, became due and payable upon her death.

After they inherited the property, the plaintiffs sought to take it free and clear of the mortgage lien even though the mortgage debt remained unpaid. They argued, among other things, that the mortgage was unenforceable because the mortgagee had failed to file a claim in the decedent's estate. Ruling on this question of first impression under Rhode Island law, the district court disagreed. So do we: the piper must be paid.

I. BACKGROUND

The relevant facts are, for all intents and purposes, undisputed. On November 4, 1977, the decedent and Charlotte T. Albeitsam took title as joint tenants with rights of survivorship to residential property at 11 Sundance Street, Warwick, Rhode Island (the Property). Following Albeitsam's death, the decedent entered into a reverse mortgage with Financial Freedom Senior Funding Corp. The mortgage instrument provided in pertinent part that the full amount of the debt would become due and payable upon the death of the borrower.¹

On September 25, 2009, Financial Freedom Senior Funding Corp. assigned the mortgage to Mortgage Electronic Registration Systems, Inc. (MERS) as a nominee of Financial Freedom Acquisition.² The decedent died intestate on December 8, 2009. Her son and daughter applied for letters of administration and, pursuant to statute, the estate was duly advertised and notice was given to creditors. See R.I. Gen. Laws § 33–11–5.1. Neither Financial Freedom nor MERS filed a claim in the probate proceedings. See id. § 33–11–5. The estate was duly administered and closed, and the Warwick Probate Court granted the decedent's interest in the Property to the plaintiffs.

In late 2010, the plaintiffs received a notice of foreclosure. That notice was published in accordance with statute. See id. § 34–27–4. Foreclosure proceedings went forward, MERS reassigned the mortgage to Financial Freedom, and Financial Freedom recorded the foreclosure deed granting the Property to it in November of 2011.

Dismayed by this turn of events, the plaintiffs invoked diversity jurisdiction, see 28 U.S.C. § 1332(a), and repaired to the United States District Court for the District of Rhode Island. Their suit sought to contest both the validity of the serial mortgage assignments and the foreclosure itself. During pretrial discovery, Brinah Court dropped out of the case. See Fed.R.Civ.P. 41(a).

After the close of discovery, Financial Freedom moved for summary judgment. See Fed.R.Civ.P. 56(a). The district court, ruling ore tenus, granted summary judgment over Steven Summers' objection. This timely appeal followed.³

II. ANALYSIS

The appellant's challenge is two-fold: first, he argues that the district court erred in determining that he lacked standing to contest the mortgage assignments; second, he argues that in any event, Financial Freedom's failure to file a claim in the probate proceedings pretermitted its right to foreclose on the Property. Since this is a diversity case, we look to federal law for guidance on procedural matters (such as the summary judgment framework) and to state law (here, Rhode Island law) for the substantive rules of decision. See Hanna v. Plumer, 380 U.S. 460, 473, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965) ; Mason v. Telefunken Semiconductors Am., LLC, 797 F.3d 33, 38 (1st Cir.2015).

A. Reverse Mortgages.

Before turning to the issues sub judice, we think that an explanation of the idiosyncratic nature of reverse mortgages may assist the reader. A reverse mortgage is a loan or line of credit available to a person over the age of 62 who has equity in real estate, typically the person's home. The loan provides the borrower with cash (usually in the form of a single lump-sum payment) and is secured by the borrower's equity in the real estate. There are no monthly payments; instead, the loan is due and payable in full when the borrower dies, sells the home, or no longer uses the home as her principal residence. See generally R.I. Gen. Laws § 34–25.1–1.

The standard reverse mortgage has an additional feature: the underlying loan is typically on a non-recourse basis (that is, the borrower has no personal liability for repayment of the funds advanced). Put another way, the lender agrees to look exclusively to the mortgaged property for repayment.

With this foundation in place, we confront the appellant's twin claims of error. We note, though, that the reverse mortgage that the decedent obtained from Financial Freedom was cast in the conventional mold.

B. Standing to Challenge the Assignments.

Standing is a threshold question in every case. See Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975). The existence of standing "is a legal question and, therefore, engenders de novo review." Culhane v. Aurora Loan Servs. of Neb., 708 F.3d 282, 289 (1st Cir.2013) (quoting Me. People's All. & Nat. Res. Def. Council v. Mallinckrodt, Inc., 471 F.3d 277, 283 (1st Cir.2006) ). A plaintiff suing in federal court normally must shoulder the burden of establishing standing. Id.

With respect to this issue, we do not write on a pristine page. In Lister v. Bank of America, N.A., 790 F.3d 20, 24–25 (1st Cir.2015), we explicated the nature of a mortgage under Rhode Island law. "Rhode Island is a title-theory state, in which ‘a mortgagee not only obtains a lien upon the real estate by virtue of the grant of the mortgage deed but also obtains legal title to the property subject to defeasance upon payment of the debt.’ " Id. (quoting Bucci v. Lehman Bros. Bank, FSB, 68 A.3d 1069, 1078 (R.I.2013) ). A reverse mortgage fits within this construct.

We have ruled "that a mortgagor has standing to challenge the assignment of a mortgage on her home to the extent that such a challenge is necessary to contest a foreclosing entity's status qua mortgagee." Culhane, 708 F.3d at 291. This means that a mortgagor (or a party standing in the mortgagor's shoes) only has standing to challenge an invalid, ineffective, or otherwise void mortgage. See Wilson v. HSBC Mortg. Servs., Inc., 744 F.3d 1, 9 (1st Cir.2014) ; Woods v. Wells Fargo Bank, N.A., 733 F.3d 349, 354 (1st Cir.2013) ; Culhane, 708 F.3d at 291 ; Mruk v. MERS, 82 A.3d 527, 536 (R.I.2013). The flip side of this proposition is that "a mortgagor does not have standing to challenge shortcomings in [a mortgage] assignment that render it merely voidable at the election of one party but otherwise effective to pass legal title." Culhane, 708 F.3d at 291. The Rhode Island Supreme Court has embraced this void/voidable distinction with respect to real estate mortgages. See Inventasch v. Superior Fire Ins. Co., 48 R.I. 321, 138 A. 39, 42 (1927) ; Bishop v. Kent & Stanley Co., 20 R.I. 680, 41 A. 255, 257 (1898) ; see also Clark v. MERS, 7 F.Supp.3d 169, 175 (D.R.I.2014).

In the first instance, then, we must determine whether the challenged mortgage assignments are void or voidable. In Rhode Island, a valid mortgage or any of its assignments must be signed, acknowledged by notarization, delivered, and recorded. See R.I. Gen. Laws § 34–11–1. It is not necessary that the mortgage and the note that it secures be held by the same entity. See Bucci, 68 A.3d at 1088.

In the case at hand, two assignments of the mortgage took place. The summary judgment record shows that each assignment complied with the necessary formalities: the relevant documents were distinguished by signature, notarization, delivery, and recordation. The record is equally clear that the parties to the assignments treated them as valid. Although the appellant questions whether the assignors possessed the requisite authority to execute the assignments, the summary judgment record contains no evidence sufficient to create a genuine issue of material fact in this regard. Unsupported allegations are not enough.See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249–50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (requiring "significantly probative" evidence to defeat a properly documented summary judgment motion).

That ends this aspect of the matter. On this record, the assignments are not void but, at worst, merely voidable. It follows that the district court did not err in concluding that the appellant lacked standing to challenge them.

The appellant demurs, suggesting that the Rhode Island Supreme Court's decision in Chhun v. MERS, 84 A.3d 419 (R.I.2014), requires a different result. We think not.

In Chhun, the court, reviewing a dismissal for failure to state a claim upon which relief can be granted, allowed a challenge to the assignment of a mortgage to go forward. See id. at 423. Chhun is easily distinguishable from the case at hand. First, this case was heard on summary judgment, not on a motion to dismiss—and the burden on the appellant was correspondingly heavier. See García–Catalán v. United States, 734 F.3d 100, 104 (1st Cir.2013) (distinguishing between standard for surviving motion to dismiss and standard for surviving summary judgment); Palazzo v. Big G Supermkts., Inc., 110 R.I. 242, 292 A.2d 235, 237 (1972) (same, applying Rhode Island law).

Second, the record here—unlike in Chhun, 84 A.3d at 423 —fails to delineate particular facts tending to show the...