MATTHEW DENN, INSURANCE COMMISSIONER OF THE STATE OF DELAWARE, AS RECEIVER OF NATIONAL HERITAGE LIFE INSURANCE COMPANY v. FATU MILLER. NATION ONE MORTGAGE COMPANY, INC., Party-in-Interest.

This action was filed on March 26, 2009 by the Plaintiff seeking to recover possession of real property pursuant to a writ of entry under Mass. G.L. c. 237, to quiet title thereto under G.L. c. 240, §§6-10A, for declaratory judgment under G.L. c.231A, §§1-9, and on general principles of equity. On January 8, 2010, the Defendant, Fatu Miller, filed a motion for summary judgment on the Plaintiff’s complaint and on her counterclaim asking the court to rule that she took title to the subject property free and clear of any mortgage interest now claimed by the commissioner.

After reviewing the record, this court finds the following facts:

1. The Plaintiff, Matthew Denn (“Denn”), is the Insurance Commissioner of the State of Delaware, and in that capacity is the Receiver of National Heritage Life Insurance company (“NHL”) in Liquidation. As Insurance Commissioner, Denn is the holder of a mortgage (the “Mortgage”) secured by the real estate located at 19 Canton Street, Worcester, Massachusetts (the “Property”) and recorded with the Worcester District Registry of Deeds at Book 11097, Page 122. [Note 1]

2. The Defendant, Fatu Miller (“Miller”), is record title holder of the Property, and an individual residing therein, having purchased it in 2005.

3. Nation One Mortgage Company (“Nation One”), as Party-in-interest, is the holder of two mortgages on the Property granted by the Defendant upon her purchase thereof. Said mortgages together amount to the full purchase price of the Property ($300,000) and are recorded with the Registry of Deeds at Book 35934, Page 41 and Book 35934, Page 57.

4. E. Perry King and Terry A. King (the “Kings”) executed and delivered a mortgage in the amount of $112,000.00 to the Home National Bank of Milford (“HNBM”) on January 27, 1988. The Mortgage was secured by the Property and recorded with the Registry in Book 11097, Page 122. The Kings failed to make any payments after January 27, 1989.

5. On January 1, 1990 HNBM was determined to be insolvent by the Office of the Comptroller of the Currency, and on June 1, 1990 the FDIC recorded a Declaration of Insolvency and Appointment of Receiver for the HNBM which was recorded with the Registry on July 3, 1990 in Book 12875, Pages 161-165.

6. By assignment of mortgage dated March 29, 1994, the FDIC assigned its interest in the King Mortgage to South Star Management Company (“SSMC”) but did not record it with the Registry.

7. SSMC assigned its interest in the Mortgage to National Housing Exchange, Inc. (“NHE”), Inc. by assignment of mortgage dated March 29, 1994 but did not record it with the Registry.

8. On September 15, 1997 and October 21, 1997, the Insurance Commissioner as receiver of NHL, recorded two Judgments by Default which had been entered in her favor by the Suffolk Superior Court in Case No. 97 - 02013B, Donna Lee H. Williams, Insurance Commissioner of the State of Delaware, as Receiver of National Heritage Life Insurance Company in Liquidation vs. National Housing Exchange, Inc. (“NHE”), APX Mortgage Services, Inc., Resource Asset Management, Inc., and South Star Management Corporation,(the ”Judgments”). This action had been brought by the Receiver in order to give certain foreign judgments full force and effect in Massachusetts. The Default Judgments terminated all right, title and interest of NHE in certain listed mortgages, including within the indices a specific reference to the Property and the Mortgage at issue in this case, and vested those rights with the Insurance Commissioner. The Judgments were not marginally referenced to any specific deeds, mortgages or assignments.

9. The Kings transferred the Property to Mansour and Nader Gaval (the “Gavals”) in consideration of $110,000 by a deed dated July 15, 2002 and recorded with the Registry on August 9, 2002 in Book 27191, Page 112. The Gavals were represented in the transaction by Attorney Alan Mason, who also acted as notary public.

10. Shortly after the sale of the Property to the Gavals, the Kings, along with their Attorney, Alan Mason, submitted fraudulent affidavits to, and thereafter received a Satisfaction of Mortgage from the FDIC, on or about July 19, 2002, as recorded with the Registry on August 2, 2002 in Book 27135, Page 365.

11. The Gavals subsequently transferred the Property to Sandra Katz for consideration of $205,000 by a deed dated December 19, 2003 and recorded with the Registry on January 28, 2004, in Book 32728, Page 33.

12. In a complaint submitted during the course of a prior lawsuit entitled Steve Nader Gaval and Mansour Gaval v. Alan Mason Esquire, and d/b/a Alan Mason Legal Services, Inc., and Terry A. King and E. Perry King in the Worcester Superior Court, the Gavals stated that Katz had actual notice that the Property was encumbered by the Mortgage and that the Gavals, for that reason, sold the property to Katz at a substantially lower price than they would have otherwise been able to obtain were the Property unencumbered.

13. By a letter dated July 8, 2004, the Insurance Commissioner notified Katz that she would initiate foreclosure proceedings on the Property if the balance of $248,471.47 owed on the Mortgage was not paid within 30 days.

14. Katz filed a declaratory judgment action in Worcester Superior Court on or about October 27, 2004 seeking a declaration that she acquired the property free and clear of the Mortgage. The Insurance Commissioner filed a counter-claim against the FDIC, E. Perry King, and Attorney Mason alleging that the FDIC was negligent in discharging the Mortgage, and that the Kings and Attorney Mason had obtained the discharge fraudulently.

15. The FDIC removed the case to the United States District Court for Massachusetts on January 21, 2005. Katz transferred the property to Defendant Miller by a deed with quitclaim covenants dated March 18, 2005 in consideration of $300,000, and the District Court dismissed the Insurance Commissioner’s complaint by order dated November 21, 2007, allowing Miller to be substituted as the defendant in counterclaim and remanding the case back to Worcester Superior Court. The action was then dismissed by the Insurance Commissioner, who filed the instant action in the Land Court.

16. In a signed affidavit filed with the United States District Court for Massachusetts, Sandra Katz testified that she purchased a title insurance policy from Connecticut Attorneys Title Insurance Companies (“CATIC”) with regard to the Property. Katz further testified that CATIC performed said title search and, as a result, she became aware of the Mortgage and of the fact that the FDIC, which appeared as the record holder at the time, had discharged the Mortgage by recording a Satisfaction of Mortgage on or about August 1, 2002.

STANDARD OF REVIEW

Summary judgment is granted where there are no issues of material fact and when the moving party is entitled to judgment as a matter of law. Mass. R. Civ. P. 56(c); Cassesso v. Comm’r of Corr., 390 Mass. 419 , 422 (1983); Cmty. Nat’l Bank v. Dawes, 369 Mass. 550 , 553 (1976). The moving party bears the burden of demonstrating affirmatively the absence of a triable issue, and its entitlement to judgment as a matter of law. Pederson v. Time, Inc., 404 Mass. 14 , 16-17 (1989). In viewing the record before it, the court reviews “the evidence in the light most favorable to the nonmoving party.” Donaldson v. Farrakhan, 436 Mass. 94 , 96 (2002). This court finds no material facts in dispute such that said disputed facts would affect the outcome of the suit.

DISCUSSION

In the present action, the Insurance Commissioner of Delaware, as receiver of NHL, seeks to foreclose upon the Mortgage of the 19 Canton Street Property. It is undisputed that the Insurance Commissioner is the rightful holder of said Mortgage which purports to encumber the Property, and indeed, the Commissioner has been successful in foreclosing other mortgages received in the same manner. The Mortgage was given by HNBM to the Kings in 1988 to finance the purchase of the 19 Canton Street Property. It is also undisputed that while the Kings were owners of the Property, they stopped making payments on the Mortgage and thereby defaulted. It is further undisputed that the Mortgage remained unsatisfied though the Property changed hands several times.

It is noteworthy that former attorney Alan Mason [Note 2] acted as both buyer’s and seller’s counsel, and notary public for the sale from the Kings to the Gavals. Thereafter he, and subsequently the Kings, filed fraudulent affidavits with the FDIC claiming the Mortgage had been satisfied in 1991 so as to receive a discharge of the Mortgage. Alan Mason continued his legal involvement with Property as notary in the Gaval’s sale to Katz, and was a defendant in cases filed by the Gavals and Katz, respectively.

A bona fide purchaser for value is "[o]ne who has purchased property for value without any notice of any defects in the title of the seller." Black's Law Dictionary 161 (5th ed. 1979).

Inadequacy of the Record as Constructive Notice

The Plaintiff argues that both Miller and her predecessor in interest, Katz, had constructive notice by virtue of the Judgments recorded with the Registry. In 2002, at the time the discharge was received, the FDIC was no longer legal holder of the Mortgage, however, due to the unrecorded assignments of the Mortgage in 1994, namely from the FDIC to SSMC and from SSMC to NHE, the FDIC appeared on the record as the holder of the Mortgage. While it is true that the Mortgage did appear in the indices attached to the Recorded Default Judgments, the Judgments were only indexed under the following names: National Housing Exchange, Inc., APX Mortgage Services, Inc., Resource Asset Management, Inc., National Heritage Life Insurance Co., Delaware State of Insurance Commissioner, and South Star Management Corporation. The Judgments were not marginally referenced to any document in the Registry from which a person doing a title search on the 19 Canton Street Property might discover that the Mortgage was actually outstanding.

The plaintiff makes a point of stating that the present case is the only foreclosure which was carried out based on the Judgments in which the failure to marginally note was an issue, even though none of the properties indexed in the Judgments were marginally noted to any documents in the Registry. Plaintiff, citing an 1888 case, further claims that it was not the Insurance Commissioner’s responsibility to have the Judgments marginally noted, but that it was, instead, the duty of the Register or assistant Register. I disagree because the failure of either party would not shift liability to Miller or Katz. It is the opinion of this court that the Plaintiff’s reliance on 1800s case-law is misplaced with respect to the failure to make marginal notations, as it was not a failure to record the Judgments; rather, it appears that the Plaintiffs neglected to request marginal notations to link the Judgments to the affected deeds. Plaintiff notes that in other similar cases he has been able to foreclose despite the lack of marginal references regarding the Judgments. However, in this case, it appears that the failure to record the assignments of the Mortgage, the failure to make marginal notations regarding the Judgments, and the fraudulent discharge all combined to make it highly unlikely that someone performing a title search in good faith and with due diligence would discover the Mortgage. "It is the policy of our laws that a purchaser of land, by examining the registry of deeds, may ascertain the title of his grantor." Dow v. Whitney, 147 Mass. 1 , 6 (1888). See also Lamson & Co. v. Abrams, 305 Mass. 238 , 244 (1940).

Actual Notice of the Encumbrance and the Defendant’s Good Faith

When Katz purchased the property from the Gavals, even if they had notified her of outstanding title defects as they asserted in their complaint, the title search performed by CATIC in 2003 showed the Mortgage to have been duly discharged by the record-title holder, the FDIC, shortly after the purchase by the Gavals. It has not been suggested or asserted that Miller was on actual notice that the mortgage had persisted despite the Discharge. Indeed, "a person claiming that another is not a bona fide purchaser has the burden of proof." Richardson v. Lee Realty Corp., 364 Mass. 632 , 634 (1974): The fact that Miller obtained mortgages for the sum of $300,000 in order to finance her purchase of the property, coupled with the fact that she was purchasing the Property for nearly triple the price paid by the Gavals, and $100,000 more than paid by Katz, speaks to Miller’s good faith. It is important to note that Miller’s awareness of pending litigation does not act as “actual notice” so as to bar her from being considered a bona fide purchaser. Katz’s purchase of the property, though described by the Gavals as being for “less consideration than could have been obtained were the property unencumbered,” was not a purchase made with actual notice of the encumbrance because of the recorded Discharge. A subsequent grantee without notice can be a bona fide purchaser, entitling him to “rely with certainty upon the fact that no instrument which does not appear of record and of which he does not have actual notice” will spoil his claim of ownership. Fanger v. Leeder, 327 Mass. 501 , 506 (1951).

In the absence of allegations of bad faith on the part of Fatu Miller, or indeed the suggestion of possible benefits from acquiring said encumbered property, this court is inclined to believe Miller acted in good faith and without actual notice of the Mortgage.

Plaintiff has failed to explain why the liability should not fall on the Kings, who sold the Property without satisfying the mortgage; on Alan Mason, who obtained the fraudulent discharge; or on the FDIC, which negligently issued the Discharge. Upon each sale, the sellers were enriched by nearly $100,000 despite the Mortgage, yet Plaintiff now argues that Miller, now liable for $300,000 in mortgages that she placed on the Property, should be saddled with the extra burden of $248,471.47. This court remains unconvinced.

Essentially, Plaintiff Denn is asking this court to hold Fatu Miller accountable in spite of a plethora of failures of due diligence and arguably fraudulent actions. This court refuses to do so, finding that, regardless of the muddied waters of history surrounding the Property, the Mortgage, the Kings, the Gavals, and especially Alan Mason, Fatu Miller obtained mortgages on said property for $300,000 and purchased the Property from a bona fide purchaser under the impression that the property was free-and-clear of other encumbrances. She, too, was a bona-fide purchaser for value and is thus protected from liability, regardless of the misdeeds and mistakes of others.

CONCLUSION

Having ruled that summary judgment is appropriate in this action, the court FINDS and RULES that Fatu Miller is the owner of the subject Property at 19 Canton Street subject only to the two mortgages she granted to Nation One Mortgage Company Inc., at the time she purchased it. Her title to the property known as 19 Canton Street in Worcester is not subject to the Mortgage given by E. Perry King and Terry A. King to the Home National Bank of Milford, dated January 27, 1988 and recorded in Book 11097, Page 122.

Judgment to Issue Accordingly.

Charles W. Trombly, Jr.

Justice

Dated: June 10, 2010