Homeward Residential, Inc. v. Marianne A. Gregor

MAINE SUPREME JUDICIAL COURT Reporter of Decisions

Decision: 2015 ME 108

Docket: Wal-14-386

Argued: June 17, 2015

Decided: August 11, 2015

Panel: ALEXANDER, MEAD, GORMAN, JABAR, and HUMPHREY, JJ.

HOMEWARD RESIDENTIAL, INC.1

v.

MARIANNE A. GREGOR

ALEXANDER, J.

[¶1] Marianne A. Gregor appeals from a judgment entered in the District

Court (Belfast, R. Murray, J.) denying Homeward Residential, Inc.’s foreclosure

claim. Gregor contends that the court erred by (1) stating in its judgment that

“[t]he parties may relitigate issues discussed herein in a future action,”

(2) admitting in evidence a witness’s description of a computer printout to support

a finding of the amount due on the loan, and (3) finding that Homeward

Residential was in possession of the promissory note. We vacate the judgment and

remand for an entry of a dismissal without prejudice.

1

Before trial in this matter, Homeward Residential, Inc.’s interest in the mortgage was apparently

assumed by Ocwen Loan Servicing, LLC, as discussed later in this opinion. There has been no motion

for substitution of party, and for clarity of case references, the name of the case is not changed, though the

rulings in this opinion shall bind Ocwen equally.

2

I. CASE HISTORY

[¶2] Viewing the findings and evidence in the light most favorable to the

court’s judgment, the case history is derived from the judgment and trial record.

See Botka v. S.C. Noyes & Co., Inc., 2003 ME 128, ¶ 15, 834 A.2d 947. The

history of the transaction is confusing because of the many assignments and

transfers of interest and differing uses of terminology, not always well

documented, that the various financial services providers elected to engage in

subsequent to the original, and apparently standard, promissory note and mortgage

transaction.

[¶3] In this opinion, we use the term “promissory note” to refer to the

document by which the homeowner promises to pay the debt owed, although some

sources call this document the “mortgage note.” We use the term “mortgage” to

refer to the document memorializing the agreement that certain real property will

secure the debt referenced in the promissory note, although some sources call this

document the “mortgage agreement” or “mortgage deed.”

A. The Original Transaction and Subsequent Assignments

[¶4] On May 31, 2002, Marianne A. Gregor and George J. Wulff2 executed

a promissory note in the amount of $80,000 to SUN MORTGAGE – New England,

2

George Wulff was named as Marianne Gregor’s co-defendant in the underlying complaint for

foreclosure. Although Wulff communicated to the court a request for mediation, he did not otherwise

appear in or defend the action. Wulff’s name remains on the promissory note and he has not been

3

Inc.3 On the same day, Gregor signed a mortgage on property in Knox securing

the debt. The mortgage listed Sun Mortgage as the “Lender,” and by it Gregor

“mortgage[d], grant[ed] and convey[ed] the [Knox property] to Lender.”4 The

mortgage was recorded in the Waldo County Registry of Deeds.

[¶5] The record reflects that the mortgage was assigned or transferred at

least eight times subsequent to its creation. Only five assignments or transfers of

the mortgage were recorded in the Registry of Deeds. The eight assignments or

transfers indicated in the available record were as follows:

n On May 31, 2002, the same day that Gregor signed the mortgage,

Sun Mortgage assigned its interest in the mortgage to RBMG, Inc.

This assignment was recorded in the Registry.

n On June 4, 2002, RBMG assigned “all its rights, title, and interest”

in the mortgage to the Federal National Mortgage Association

dismissed from the litigation, but any reference to “Gregor” is to Gregor only, because Wulff has not

appealed from the judgment or participated in the appeal. See Bank of Am., N.A. v. Greenleaf,

2014 ME 89, ¶ 2 n.2, 96 A.3d 700.

3

Each entity’s name is written as it appears in the trial record.

4

As part of the transaction, and in terms common to promissory note and mortgage transactions,

Gregor agreed to pay reasonable attorney fees should there be any default on the note. If a proper

plaintiff demonstrating standing to enforce the note and the mortgage appears, the trial court may have to

determine whether reasonable attorney fees may include the fees and costs incident to tracking and

sorting out the numerous assignments and transfers of the note and mortgage subsequent to the original,

single loan transaction for which Gregor undertook to pay attorney fees upon default.

4

(“Fannie Mae”). This assignment was not recorded in the

Registry.

n On an unknown date, whatever remaining interest RBMG had in

the mortgage, if any, was assumed by NetBank, purporting to be

RBMG’s successor in interest, perhaps after a takeover of RBMG.

At the trial, Homeward Residential presented no documentation

regarding the assumption of RBMG’s interest by NetBank. There

is no indication that this assumption of interest was recorded in the

Registry.

n On an unknown date,5 NetBank, purporting to be RBMG’s

successor in interest, assigned the mortgage—or whatever

remainder interest RBMG had in the mortgage—to Mortgage

Electronic Registration Systems, Inc. (“MERS”).6 This

assignment was recorded in the Registry. This was the fourth

assignment or transfer of an interest in the mortgage, and the last

assignment before default.

5

The court found that the date was unknown, and the trial exhibit bears no date. However, the

foreclosure complaint attached the series of recorded assignments, and the copy of the assignment to

MERS shows at the bottom of the page (cut off in the trial exhibit) that the Waldo County Registry of

Deeds received the assignment to MERS on November 13, 2006.

6

At trial, Homeward Residential failed to offer any evidence that NetBank had any legal interest in

the mortgage to assign to MERS, aside from the mortgage assignment itself, upon which was stamped

“NetBank AS SUCCESSOR IN INTEREST TO RBMG, INC.”

5

n On September 1, 2010, MERS assigned the mortgage to IXIS Real

Estate Capital Inc. This assignment was recorded in the Registry.

n On August 1, 2011, IXIS assigned the mortgage to Bank of

America, N.A. This assignment was recorded in the Registry.

n On October 23, 2012, Bank of America assigned the mortgage to

Homeward Residential, Inc. This assignment was recorded in the

Registry.

n On an unknown date before the trial in this action, Homeward

Residential and its interest in the mortgage were taken over by or

merged into Ocwen Loan Servicing, LLC. There is no indication

in the record that this transfer of ownership and interest was

recorded in the Registry.

[¶6] Each of the five assignments recorded in the Waldo County Registry of

Deeds states that the assignor is assigning all of its interest in the mortgage to the

assignee. The nature of those interests, after the unrecorded assignment of the

mortgage to Fannie Mae, is unclear. Fannie Mae has not appeared in this

proceeding, and the record does not include any documentation from Fannie Mae

authorizing any other entity to appear on its behalf as its agent, loan servicer, or in

any other capacity.

6

B. The Default and Subsequent Court Action

[¶7] Gregor stopped making payments on the mortgage in June 2009. On

November 10, 2010, IXIS sent Gregor a notice of default and right to cure. When

Gregor had not cured the default by October 17, 2011, Bank of America,

purportedly having been assigned the mortgage by IXIS, filed a complaint for

foreclosure. Homeward Residential was later substituted as plaintiff, consistent

with the last recorded mortgage assignment.

[¶8] In August 2013, after the discovery deadline, Gregor moved for leave

to serve requests for admissions upon Homeward Residential. Gregor argued that,

during discovery, Homeward Residential produced the Fannie Mae mortgage

assignment, which Gregor asserted called into question Homeward Residential’s

ownership of the mortgage and standing to conduct this foreclosure action. Gregor

sought admissions that Fannie Mae is the owner of the promissory note and

mortgage and that Homeward Residential sent a copy of the Fannie Mae mortgage

assignment to Gregor during discovery. The court (Worth, J.) granted the motion.

In a document dated November 1, 2013, Homeward7 Residential responded to the

request for admissions by stating that Fannie Mae “is the owner of the loan

evidenced by the note . . . and the mortgage . . . that are the subject of this lawsuit”;

7

Counsel responding to the request for admissions actually referred to his client as “Homewood

Residential, Inc.,” but this appears to be a typographical error, as the October 23, 2012, assignment from

Bank of America is clearly to “Homeward Residential, Inc.”

7

that Homeward Residential “is not the owner of the loan that is the subject of this

lawsuit”; and that Homeward Residential sent a copy of the Fannie Mae mortgage

assignment to Gregor during discovery.

[¶9] On February 11, 2014, the court (R. Murray, J.) held a bench trial. The

sole witness at trial was a loan analyst from Ocwen, which, she testified, is the

current servicer of the mortgage. The loan analyst testified that “Ocwen was first a

servicer for Homeward [Residential] and then there was a merger between the

two,” and “Ocwen kind of consumed Homeward [Residential].” The precise

nature of the relationship between Ocwen and Homeward Residential remained

unclear throughout the hearing. At times, the loan analyst and Homeward

Residential’s counsel identified both Ocwen and Homeward Residential as being

“the plaintiff” in the action.

[¶10] At trial, the court admitted in evidence, among other exhibits, a copy

of the original promissory note;8 a copy of the original mortgage; the series of

recorded mortgage assignments; the unrecorded mortgage assignment from RBMG

to Fannie Mae; an Ocwen computer printout purporting to show the amount due on

the loan; and a copy of Homeward Residential’s responses to Gregor’s requests for

admissions.

8

After examining the original of the promissory note, the court permitted plaintiff’s counsel to retain

the original and provide a copy for the court record. The promissory note was indorsed in blank.

8

[¶11] On August 20, 2014, the court entered judgment for Gregor but, in its

order, made factual findings, including a finding that Gregor owes a total of

$119,302.51 on the note. The court also found that Homeward Residential was

entitled to enforce the promissory note because its counsel possessed the original

note at trial and the note was indorsed in blank. The court determined, however,

that Homeward Residential had not established that it had standing to foreclose on

the mortgage, citing Bank of America, N.A. v. Greenleaf, 2014 ME 89,

96 A.3d 700, due to the prior assignment of the mortgage to Fannie Mae.

[¶12] In its judgment, the court stated that it was “reserving the right for

both parties to relitigate the issues discussed herein so that this action does not act

as a bar to future action.” The entry of the judgment read: “Judgment for

Defendant. The parties may relitigate issues discussed herein in a future action.”

Gregor brought this timely appeal. See 14 M.R.S. § 1901 (2014); M.R. App. P. 2.

II. LEGAL ANALYSIS

[¶13] “We’ve lost our way in these foreclosure cases.” Homeward

Residential’s counsel expressed this opinion at oral argument. Indeed, the way has

been lost, but not through fault of the courts. The financial services industry,

through the practice of securitization,9 spawning a byzantine mass of assignments,

9

Although there are variations in securitization practice, “there is still a core standard transaction”

when securitization takes place:

9

transfers, and documentation, has made it difficult for subsequent assignees to

demonstrate that they have standing to bring foreclosure claims and prove the

elements necessary to prevail in a foreclosure action in a manner compliant with

the laws governing foreclosure, see 14 M.R.S. §§ 6321-6325 (2013).10 In this

process, some entities in the chain of assignments disappear, or their records are

lost, making it difficult or impossible to acquire necessary records that qualify for

admission under the business records exception to the hearsay rule, M.R.

Evid. 803(6), in order to prove ownership of the mortgage, proper notice of

defaults, and sums due and paid.

First, a financial institution (the “sponsor” or “seller”) assembles a pool of mortgage

loans either made (“originated”) by an affiliate of the financial institution or purchased

from unaffiliated third-party originators. Second, the pool of loans is sold by the sponsor

to a special-purpose subsidiary (the “depositor”) that has no other assets or liabilities and

is little more than a legal entity with a mailbox. This is done to segregate the loans from

the sponsor’s assets and liabilities. Third, the depositor sells the loans to a passive,

specially created, single-purpose vehicle (SPV), typically a trust in the case of

residential-mortgage securitization. The trustee will then typically convey the mortgage

notes and security instruments to a document custodian for safekeeping. The SPV issues

certificated debt securities to raise the funds to pay for the loans. As these debt securities

are backed by the cash flow from the mortgages, they are called mortgage-backed

securities (MBS).

Adam J. Levitin, The Paper Chase: Securitization, Foreclosure, and the Uncertainty of Mortgage Title,

63 Duke L.J. 637, 671-72 (2013) (footnotes omitted).

10

The foreclosure statutes have since been amended and a new section has been added. See, e.g.,

P.L. 2013, ch. 521, § B-1 (effective Aug. 1, 2014) (enacting section 6326) (codified at 14 M.R.S. § 6326

(2014)). One such amendment (effective October 15, 2015) amends section 6321 to require that, “[i]n

order to state a claim for foreclosure upon which relief can be granted, the complaint must contain a

certification of proof of ownership of the mortgage note.” P.L. 2015, ch. 229, § 1. The stated purpose of

the amendment is to require the plaintiff in a foreclosure action to identify the owner of the promissory

note at the outset of the litigation “when the parties most need that information as they engage in

mediation and loan modification efforts.” Summary, Comm. Amend. A to L.D. 401, No. H-257 (127th

Legis. 2015). The additional language will provide a defendant with relief pursuant to M.R.

Civ. P. 12(b)(6) if a complaint does not certify such proof.

10

[¶14] The law, the rules of evidence, and court processes have not become

more complicated in these matters. Applying established law, however, has

become more problematic as courts address the problems the financial services

industry has created for itself.11 See, e.g., Greenleaf, 2014 ME 89, ¶¶ 8-17, 24-27,

96 A.3d 700. We address those problems again today.

11

Among those problems is the difficulty of establishing that records and documents are reliable

enough to be admitted in evidence and to be used by a court as a basis for judgment. We discussed this

issue in Greenleaf, 2014 ME 89, 96 A.3d 700, but pause again here to note that, even if Homeward

Residential/Ocwen had been able to establish its standing, the evidence it presented to support its claim

was wholly inadequate.

The well-recognized business records exception to the hearsay rule, M.R. Evid. 803(6), governs

“[t]he admissibility of a business record . . . [and] dictates both (1) what foundation must be laid to admit

such evidence . . . and (2) the type of witness required to lay that foundation.” Greenleaf, 2014 ME 89,

¶ 25, 96 A.3d 700 (discussing M.R. Evid. 803(6) (Tower 2014), which was in effect prior to the Maine

Rules of Evidence’s restyling in 2015). The foundation must be laid by a witness who is a “custodian or

another qualified witness.” M.R. Evid. 803(6); Greenleaf, 2014 ME 89, ¶ 25, 96 A.3d 700. “A qualified

witness is one who was intimately involved in the daily operation of the business and whose testimony

showed the firsthand nature of his or her knowledge.” Bank of Me. v. Hatch, 2012 ME 35, ¶ 7,

38 A.3d 1260 (alteration omitted); see also Greenleaf, 2014 ME 89, ¶ 25, 96 A.3d 700. In making

foundational findings, the court may only consider evidence established prior to the exhibit’s admission in

evidence. Greenleaf, 2014 ME 89, ¶ 26 n.15, 96 A.3d 700.

The loan analyst that Homeward Residential/Ocwen offered was simply not qualified to lay the

foundation necessary to admit the printout. Her testimony did not establish that she had any firsthand

knowledge of Ocwen’s practices that led to the creation of the document, let alone that she was

“intimately involved in the daily operation of the business.” Hatch, 2012 ME 35, ¶ 7, 38 A.3d 1260.

The loan analyst testified that her job at Ocwen is to “review business records on defaulted loans

. . . in preparation for legal proceedings.” She testified that her knowledge of both Ocwen’s auditing

procedures, which verify the accuracy of the prior servicers’ records, and Ocwen’s daily operations,

which include collecting payments and making entries in the computer system regarding payments and

debts, came secondhand through her training, not from observation or participation in making the entries.

For example, when asked what was the basis of her knowledge of Ocwen’s procedures for incorporating

in its records the records of the loan’s prior servicers, the loan analyst testified: “We have to know how

prior servicer records become a part of our records. So I was actually told that information. I don’t

remember it step by step, it’s a very detailed process, but the gist of it, yes.”

The record is devoid of evidence to support a finding that the loan analyst was a witness qualified

to lay the foundation for the computer printout’s admission.

11

A. Jurisdiction, Justiciability, and Standing

[¶15] At oral argument, Gregor stated that there has been a lack of clarity on

the issue of whether a party’s standing affects a court’s jurisdiction. We do not

agree, but will begin by addressing this issue.

[¶16] Standing is properly labeled an issue of “justiciability.” Madore v.

Me. Land Use Regulation Comm’n, 1998 ME 178, ¶ 8, 715 A.2d 157.

“Justiciability requires a real and substantial controversy, admitting of specific

relief through a judgment of conclusive character.” Witham Family Ltd. P’ship v.

Town of Bar Harbor, 2015 ME 12, ¶ 7, 110 A.3d 642. “Courts can only decide

cases before them that involve justiciable controversies.” Id. (quoting Lewiston

Daily Sun v. Sch. Admin. Dist. No. 43, 1999 ME 143, ¶ 12, 738 A.2d 1239).

[¶17] We have recognized before that the words “jurisdiction” and

“jurisdictional” are understood to have “‘many, too many, meanings,’” and that

“[c]ourts ‘have been less than meticulous’ in using the term[s].” Landmark Realty

v. Leasure, 2004 ME 85, ¶ 7, 853 A.2d 749 (quoting Kontrick v. Ryan,

540 U.S. 443, 454 (2004)). The word “jurisdiction” most properly encapsulates

only “‘prescriptions delineating the classes of cases (subject-matter jurisdiction)

and the persons (personal jurisdiction) falling within a court’s adjudicatory

authority.’” Id. (quoting Kontrick, 540 U.S. at 455).

12

[¶18] We have stated before that standing issues are “jurisdictional,” see,

e.g., Stull v. First Am. Title Ins. Co., 2000 ME 21, ¶ 11, 745 A.2d 975, but that

observation is shorthand for the statement that standing affects a party’s capacity to

invoke a court’s jurisdiction, see Brink’s, Inc. v. Me. Armored Car & Courier

Serv., Inc., 423 A.2d 536, 537 (Me. 1980). We have made a similar observation in

other foreclosure cases. See, e.g., Greenleaf, 2014 ME 89, ¶ 9, 96 A.3d 700

(“Without possession of or any interest in the note, [a party] lack[s] standing to

institute foreclosure proceedings and [may] not invoke the jurisdiction of our trial

courts.” (quoting Mortg. Elec. Registration Sys., Inc. v. Saunders, 2010 ME 79,

¶ 15, 2 A.3d 289)).

[¶19] Standing does not affect the court’s subject-matter jurisdiction over

foreclosures; 14 M.R.S. § 6321 grants subject-matter jurisdiction of all foreclosure

cases to our trial courts. A party may not invoke that jurisdiction without standing,

however, which is also required by section 6321. Cf. Brink’s, Inc.,

423 A.2d at 537 (noting that the first sentence of a now repealed and replaced

statute granted subject-matter jurisdiction to this Court to hear appeals of Public

Utilities Commission decisions and that the second sentence “define[d] the class of

persons [that] ha[d] standing to invoke [that] jurisdiction”).

[¶20] Just as a court may notice and act on issues of jurisdiction at any time,

so may a court notice and act on issues relating to its authority at any time, on its

13

own motion or on the motion of a party. Francis v. Dana-Cummings, 2007 ME 16,

¶ 20, 915 A.2d 412; see also Nemon v. Summit Floors, Inc., 520 A.2d 1310, 1312

(Me. 1987) (“We will entertain a question of standing at any time.”).

[¶21] Here, the court properly determined that Homeward

Residential/Ocwen lacked standing to bring the foreclosure action pursuant to

section 6321. The plaintiff in a foreclosure action must demonstrate that it is the

holder of the promissory note and the owner of the mortgage, or that it is claiming

under the holder and owner. Greenleaf, 2014 ME 89, ¶¶ 9, 10, 12, 96 A.3d 700.

Homeward Residential/Ocwen admitted that it does not own the mortgage, and did

not offer evidence that it was claiming under the owner of the mortgage.

Homeward Residential/Ocwen conceded in its responses to Gregor’s requests for

admissions that Fannie Mae owns the mortgage.

[¶22] The court also did not clearly err in finding that, because Homeward

Residential/Ocwen had a copy of the Fannie Mae assignment in its file for the

mortgage, it was more likely than not that each entity assigned the mortgage after it

was assigned to Fannie Mae had actual knowledge of the unrecorded assignment.

See 33 M.R.S. § 201 (2014); Spickler v. Ginn, 2012 ME 46, ¶ 10, 18, 40 A.3d 999

(interpreting 33 M.R.S. § 201 to provide that when a party chooses not to record a

deed, that deed trumps the interest in the same property of the grantor, the

grantor’s heirs and devisees, and any person having “actual notice” of the

14

unrecorded conveyance, even if the later person records her deed, as long as she

had actual notice of the unrecorded deed at the time she recorded the deed). Any

plaintiff claiming to have an interest in the mortgage superior to that of Fannie

Mae would have been required to join Fannie Mae as a necessary party. See M.R.

Civ. P. 19. No effort at joinder was initiated here.

[¶23] Finally, Ocwen’s witness’s testimony called into question whether

Homeward Residential continued to exist. Therefore, the record wholly supports

the court’s determination that Homeward Residential/Ocwen failed to demonstrate

that either had standing to maintain the foreclosure action.

[¶24] Although the court maintained jurisdiction over the parties and

subject matter, it could not decide the merits of the case when the plaintiff lacked

standing pursuant to section 6321. See Witham Family Ltd. P’ship, 2015 ME 12,

¶ 7, 110 A.3d 642 (“Courts can only decide cases before them that involve

justiciable controversies.”). Instead, the court could only dismiss the action.

Because the court addressed the merits of the complaint for foreclosure in its

judgment, we vacate the judgment in its entirety and remand for an entry of a

dismissal without prejudice.

B. Other Issues on Appeal

[¶25] Because the case is being dismissed without prejudice, with the entire

judgment being vacated, we reject Gregor’s claim that the statement in the

15

judgment that the parties may relitigate the issues in a future action opens the door

to future litigation that would otherwise be closed. In any future litigation against

Gregor regarding this mortgage, the plaintiff—whoever that may be—will have to

establish both the amount due and Gregor’s responsibility for paying that amount.

[¶26] The court correctly determined that Homeward Residential/Ocwen

lacked standing to pursue the foreclosure claim. However, the court erred when it

made findings and entered judgment for Gregor rather than dismissing the action

for lack of standing. Therefore, we vacate the judgment in its entirety—including

the court’s statement to the effect that the parties may relitigate the issues in a

future action—and remand for an entry of a dismissal without prejudice.

The entry is:

Judgment vacated. Remanded for an entry of a

dismissal without prejudice.

On the briefs:

Thomas A. Cox, Esq., Portland, for appellant Marianne A.

Gregor

David W. Merritt, Esq., Houser & Allison, APC, Boston,

Massachusetts, for appellee Homeward Residential, Inc.

L. Scott Gould, Esq., Cape Elizabeth, for amici curiae Jerome

N. Frank Legal Services Organization and Nation Consumer

Law Center

16

At oral argument:

Thomas A. Cox, Esq., for appellant Marianne A. Gregor

William Fogel, Esq., Portland, for appellee Homeward

Residential, Inc.

Belfast District Court docket number RE-2011-108

FOR CLERK REFERENCE ONLY