MARILYN SANTIAGO [Note 1] vs. ALBA MANAGEMENT, INC., & another. [Note 2]

MCHUGH, J. After recovering a judgment on behalf of his minor daughter against the defendant, Alba Management, Inc. (Alba), Ramon Santiago commenced this action to obtain a declaratory judgment that Alba has both legal and equitable title to a parcel of real estate against which Santiago wishes to levy.

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A judge of the Superior Court allowed Santiago's motion for summary judgment and entered the declaration he sought. Alba and Windsor Realty, LLC (Windsor), appeal, contending that the record discloses that title to the property is held by Windsor. We disagree and affirm.

Background. The present action follows a suit Santiago brought against Alba in the Housing Court, as father and next friend of his minor daughter, Marilyn, to recover for lead poisoning. On November 1, 2007, Santiago and Alba entered an agreement for judgment in that suit for $300,000, but the judgment stated that Santiago could only attempt to collect the judgment from "any interest that Alba now has or may have in the property located at 177 Elm Street, Holyoke, Massachusetts" (the property). The agreement also stated that Alba denied it had any current interest in the property, while Santiago maintained that Alba was the owner.

In an effort to resolve that dispute, Santiago commenced the present action for declaratory relief seeking to establish Alba's ownership. Windsor, which claims to have obtained title to the property through a series of transfers, was made a defendant in the declaratory judgment action.

Viewed in the light most favorable to Alba and Windsor, see, e.g., Lyons v. Nutt, 436 Mass. 244, 245 (2002), the record shows that, on February 9, 1988, an entity known as Coats & Luke Associates Limited Partnership granted the First National Bank of Boston a mortgage (the Coats & Luke mortgage) on the property and ten other parcels of land in Holyoke to secure payment of two notes, one in the amount of $4,475,524 on which it was the obligor and the other in the amount of $524,476 on which a man named Lebner was the obligor. The mortgage was upon the statutory condition and contained a statutory power of sale. See G. L. c. 183, §§ 20, 21.

On December 4, 1992, the bank assigned the Coats & Luke mortgage to Alba. Four days later, Alba made peaceable entry on the property for "breach of condition(s) of [the] mortgage" and took possession of it. [Note 3] A certificate of entry was recorded the same day.

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On February 16, 1996, more than three years after its peaceable entry, Alba purported to assign the Coats & Luke mortgage on the property to Sylvan Corp., as trustee of the Appleton & Elm Realty Trust (Sylvan, trustee). Thereafter, two more purported transfers occurred. On April 30, 2002, Sylvan, describing itself as the holder of the Coats & Luke mortgage, executed what it described as a "foreclosure deed" granting the property to Sylvan Corp., free of the trust, for consideration of $50,000. The deed recited that the mortgage debt had not been paid, that Sylvan, as trustee, had sold the property at public auction, [Note 4] and that the auction had been preceded by appropriate published notices of sale. [Note 5] On October 16, 2002, Sylvan Corp. executed a quitclaim deed purporting to convey the property to Windsor for $960,000.

Alba and Windsor moved to dismiss Santiago's complaint, and Santiago moved for summary judgment. After a hearing, a judge of the Superior Court issued a written memorandum denying the motions. Santiago moved for reconsideration, and after a second hearing, the judge, concluding that "as a matter of law, there was no mortgage in existence for Alba to assign to Sylvan," issued a second memorandum allowing Santiago's motion for summary judgment, ordering entry of a declaratory judgment stating that Alba has owned the property continuously since December 9, 1995, and explaining her reasoning for both actions. This appeal followed entry of the judgment.

Discussion. Understanding why the motion judge was correct is aided by a brief discussion of basics. First of all, under the Massachusetts title theory of mortgages, see Murphy v. Charlestown Sav. Bank, 380 Mass. 738, 747 (1980), a mortgage "splits the title in two parts: the legal title, which becomes the mortgagee's, and the equitable title, which the mortgagor retains." Maglione v. BancBoston Mort. Corp., 29 Mass. App. Ct. 88, 90 (1990). See Atlantic Sav. Bank v. Metropolitan Bank & Trust Co., 9 Mass. App. Ct. 286, 288 (1980). The object of the split is twofold and has important consequences.

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"The first important object . . . is to give to the mortgagee an effectual security for the payment of a debt; another, is to leave to the mortgagor . . . the full control, disposition and ownership of the estate. . . . [The mortgage] is for all intents and purposes security for a debt, not an estate. Until foreclosure, the interest of the mortgagee is a right to acquire an estate in the land rather than an actual estate. . . .

"The effect of the exercise of the power of sale [is] to terminate the estate of the mortgagor by forever barring him and those claiming under him from all right and interest in the mortgaged premises, which he had before the sale, and transferring an absolute estate to the mortgagee. The mortgagee could purchase at the sale and the transaction is of the same character and legal effect as in the case of purchase by a stranger.

". . . .

"When the [mortgagee buys] at the foreclosure sale and [gives] a deed to [himself], [the mortgagee] end[s] the equity of redemption of the mortgagor, and [becomes] responsible for the application of the purchase price as though [he] had received it upon a foreclosure sale to a stranger, and [is] bound to apply it to the payment of the mortgage debt."

Charlestown Five Cents Sav. Bank v. White, 30 F. Supp. 416, 418-419 (D. Mass. 1939). "Once the mortgagee has purchased the property by foreclosure deed, '[t]he land [is] no longer mortgaged land. With relation thereto the [mortgagee] [is] no longer the mortgagee thereof holding title thereto for security, but [is] the owner thereof free from the mortgage.' " Ideal Fin. Servs., Inc. v. Zichelle, 52 Mass. App. Ct. 50, 61 (2001), quoting from Natick Five Cents Sav. Bank v. Bailey, 307 Mass. 500, 504 (1940).

Foreclosure by sale, however, is only one of the ways in which a mortgagee can take advantage of the security the mortgage provides. Foreclosure can also be effected, as it was in this case, by the mortgagee's peaceable entry, proper filing of a certificate

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memorializing that entry, and passage of time. [Note 6] See G. L. c. 244, § 1. [Note 7] That method of foreclosure leads to the same result.

"A mortgagor is entitled to possession until there is a default. . . . But in the event of default a mortgagee is entitled to take immediate possession by an open and peaceable entry on the mortgaged premises, which if continued for three years would be effective to foreclose the mortgage."

Joyner v. Lenox Sav. Bank, 322 Mass. 46, 52 (1947). The three- year holding period begins to run when the mortgagee records a proper memorandum or certificate of entry. See G. L. c. 244, §§ 1, 2. When a proper memorandum or certificate is filed, the mortgagor's failure to redeem within the three years "shall forever foreclose the right of redemption." G. L. c. 244, § 1. See Swift v. Mendell, 8 Cush. 357, 358 (1851); Wornat Dev. Corp. v. Vakalis, 403 Mass. 340, 345-346 (1988) ("In Massachusetts, a mortgagee who makes a peaceable entry, records a certificate of entry, and retains possession for three years, extinguishes the mortgagor's right of redemption"). When the right of redemption is foreclosed, the mortgage has done its work and the property is no longer mortgaged land. Instead, the former mortgagee owns the legal and equitable interests in the property and the mortgage no longer exists.

Application of those basic principles means that on February 16, 1996, when Alba purported to assign the mortgage to Sylvan, there simply was no mortgage to assign. More than three years had passed since Alba filed the certificate of peaceable entry. The equity of redemption was gone and with it the mortgage. At that point, Alba owned the property in fee.

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There is no merit to Alba's claim that entry of summary judgment in Santiago's favor was improper because Santiago failed to show affirmatively that the mortgage debt had been paid in full. [Note 8] Indeed, a post-foreclosure deficiency is a common occurrence because "[w]hen a mortgage is foreclosed by entry and possession for three years, the mortgage debt is discharged [only] 'to the extent of the value of the land at that time.' " Boston v. Gordon, 342 Mass. 586, 593 (1961), quoting from Morse v. Merritt, 110 Mass. 458, 460 (1872). Additional portions of the mortgage debt may also be discharged during the mortgagee's occupancy after the peaceable entry. During that occupancy, "the mortgagee is under a duty to account for the rents and profits, and is entitled to be allowed for all amounts expended in reasonable repairs and improvements and for lawful taxes paid." Joyner v. Lenox Sav. Bank, 322 Mass. at 52. [Note 9] The net rents and profits during occupancy, therefore, may become additional payments on the debt.

Nevertheless, a mortgage does not somehow survive foreclosure because some portion of the underlying debt remains unpaid when foreclosure occurs. "[I]n a mortgage, the note is the primary document, and the mortgage itself is only security for the payment of the note." Eno & Hovey, Real Estate Law § 9.3 (4th

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ed. 2004). See Private Lending & Purchasing, Inc. v. First Am. Title Ins. Co., 54 Mass. App. Ct. 532, 537 (2002). Indeed, the right to foreclose, by sale, by peaceable entry, or otherwise, arises only if the underlying debt has not been paid, see G. L. c. 183, §§ 20, 21; G. L. c. 244, §§ 1, 2, so it would be anomalous, to say the least, for a foreclosure to proceed after a pre-foreclosure satisfaction of the mortgage debt. And, as explained earlier in our discussion, once a foreclosure after peaceable entry has occurred, the mortgage no longer exists because the mortgagee owns both the legal and equitable title to the land.

Judgment affirmed.