U.S. Dept. of Housing and Urban Development v. Union Mortg. Co., Inc., 7328

• Decision Date: 12 July 1995
• Docket Number: No. 7328,Docket No. KEN-94-894,7328
• Citation: U.S. Dept. of Housing and Urban Development v. Union Mortg. Co., Inc., 661 A.2d 163 (Me. 1995)
• Parties: UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT v. UNION MORTGAGE COMPANY, INC. DecisionLaw
• Court: Maine Supreme Court

Page 163

661 A.2d 163

UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT v.UNION MORTGAGE COMPANY, INC.

Decision No. 7328.

Law Docket No. KEN-94-894.

Supreme Judicial Court of Maine.

Submitted on Briefs June 7, 1995.

Decided July 12, 1995.

Brett D. Baber, Michael A. Hodgins, Rudman & Winchell, Bangor, David R. Collins, Asst. U.S. Atty., U.S. Atty's Office, Portland, for plaintiff.

Stanley Greenberg, Greenberg & Greenberg, Portland, for defendant.

Before WATHEN, C.J., and ROBERTS, GLASSMAN, CLIFFORD, DANA and LIPEZ, JJ.

GLASSMAN, Justice.

Union Mortgage Company, Inc.(Union) appeals from the judgment of the District Court¹(Augusta, Perry, J.) following a trial on the complaint of the United States Department of Housing and Urban Development(HUD)² against Union seeking a foreclosure of Union's interest in certain real property located in Randolph.Union contends that, because HUD's predecessor in interest failed to name Union as a party in interest in its original civil proceeding for the foreclosure and sale of the property, the trial court erred in denying Union's right to participate in a new foreclosure sale.We agree, and accordingly, we vacate the judgment.

The record reveals the following undisputed facts: In January 1989, RCR Services, Inc.(RCR) initiated a foreclosure action of its recorded first mortgage in the amount of $45,153 on property for which Union held a recorded junior mortgage in the amount of $9,900 without naming Union as a party in interest in that proceeding.In January 1990, RCR obtained a judgment of foreclosure and conducted a foreclosure sale in June 1990, at which time RCR purchased the property for $80,520.26, the amount of the outstanding debt to RCR.

In February 1993, RCR filed a complaint, pursuant to 14 M.R.S.A. § 6321 (Supp.1994), alleging that RCR's mortgage was entitled to priority over Union's recorded junior mortgage and seeking to foreclose Union's interest in the property.After a trial, the District Court issued a judgment of foreclosure on August 23, 1994.From the judgment of the trial court, concluding that the action was a "reforeclosure" within the purview of 14 M.R.S.A. §§ 6321-6325 (Supp.1994), and determining that Union's interest would be adequately protected by permitting Union to redeem the property on payment to HUD of $80,520.26 within ninety days from the entry of the judgment, Union appeals.

Union contends that providing an omitted junior mortgagee in a subsequent action to foreclose its interest only with the right to redeem deprives the omitted mortgagee of the right to appear at the sale, to bid and to protect its interest.HUD responds that if a second sale were to occur Union would have to bid in excess of $80,520.26 to purchase the property.Accordingly, it argues that by providing Union the right to redeem the property on the payment to HUD of $80,520.26, Union is provided the same protection it would have received had it been joined in the original proceeding.

We review the trial court's construction of a statutory scheme as a matter of law.Spiller v. State, 627 A.2d 513, 515(Me.1993).The foreclosure by civil action provided by 14 M.R.S.A. §§ 6321-6325 as an alternative method to the foreclosure process provided in 14 M.R.S.A. §§ 6201 and 6203(1980& Supp.1994)(foreclosure with and without possession) is specifically subject to section 6205(1980).³The statutory civil foreclosure procedure preserves two fundamental rights to a junior mortgagee: the right to redeem the property from the senior mortgagee and the right to participate in a public foreclosure sale and to receive any surplus proceeds after the senior mortgage has been satisfied.

Following a breach of a condition of a mortgage of first priority, section 6321 provides that the mortgagee may foreclose against all parties in interest and further provides:

The complaint must allege with specificity the plaintiff's claim by mortgage on such real estate, describe the mortgaged premises intelligibly ... state the amount due on the mortgage, state the condition broken and by reason of such breach demand a foreclosure and sale.Service of process on all parties in interest and all proceedings must be in accordance with the Maine Rules of Civil Procedure."Parties in interest" include ... mortgagees ... as reflected by the indices in the registry of deeds and the documents referred to therein affecting the mortgaged premises, through the time of the recording of the complaint or the clerk's certificate.Failure to join any party in interest does not invalidate the action nor any subsequent proceedings as to those joined.

14 M.R.S.A. § 6321.

By the terms of section 6321 a sale of property that has been judicially foreclosed does not convey the premises free and clear of a recorded interest if the holder of that interest is not made a party to the action.Naming the junior mortgagee as a party in interest in a foreclosure action and serving of process provides notice of the imminent foreclosure proceedings.Once notified of the senior mortgagee's intention to foreclose against the property, the junior mortgagee has the opportunity to appear in the action and have the court determine, pursuant to section 6322(Supp.1994), the "order of priority and those amounts, if any, that may be due to other parties that may appear."Section 6322 also provides that after a hearing, if the court determines a breach of a condition in the primary mortgage has occurred, "a judgment of foreclosure and sale shall issue providing that if the mortgagor, his successors, heirs and assigns do not pay the sum that the court adjudges to be due and payable, with interest within the period of redemption, the mortgagee shall proceed with a sale as provided."The same right of redemption is preserved to the junior mortgagee by section 6205.

On the expiration of the period of redemption, and after the mortgagee publishes notice, the mortgagee must hold a public sale, sell the property to the highest bidder, and deliver a deed of sale to the purchaser.§ 6323(1)(Supp.1994).The statute specifically provides that the mortgagee and any party in interest may bid at the sale and the deed conveys the premises "free and clear of all interests of the parties in interest joined in the action."§ 6323(1).In foreclosure proceedings conducted prior to January 1, 1995, there is no statutory requirement to notify the original parties in interest to the...