SELECT PORTFOLIO SERVICING, INC., as agent for U.S. BANK NATIONAL ASSOCIATION v. NANCY M. NEEDEL and PETER NEEDEL.

This case is before this Court on remand from the Massachusetts Appeals Court in order to determine whether U.S. Bank National Association (“U.S. Bank”) owns the loan secured by a mortgage given by defendants Nancy and Peter Needel. See Select Portfolio Servicing, Inc. v. Needel, No. 12-P-757, 83 Mass. App. Ct. 1130 (May 10, 2013).

On the undisputed facts, exhibits, and stipulations, as well as the Summary Judgment Order, I now decide the case, making the following findings of fact and rulings of law.

PROCEDURAL BACKGROUND

This case commenced on June 21, 2007 with the filing of the verified complaint by Select Portfolio Servicing, Inc. (“SPS”), as agent for U.S. Bank. SPS asserted three grounds for relief in the verified complaint. Count I requested that this Court declare that defendant Peter Needel ratified the mortgage and is liable under the mortgage. Count II requested reformation of the mortgage such that the mortgage encumbers the interests of both Nancy and Peter Needel. Count III requested, in the alternative, that this Court declare that the plaintiff is equitably subrogated to a pre-existing mortgage, which was discharged by payment of funds from the proceeds of plaintiff’s mortgage. The prior mortgage was granted by both Nancy and Peter Needel and encumbered both their interests in the property.

The Needels filed their answer and counterclaim on July 16, 2007. Count I of the counterclaim claimed a violation of G. L. c. 209, § 1. Count II alleged that SPS’s actions related to attempting to publish notice to foreclose on the defendants’ property violated the covenant of good faith and fair dealing. Count III alleged that the Needels suffered emotional distress as a result of SPS’s attempt to foreclose on the property. Count IV asserted violations of Mass. R. Civ. P. 11 and G.L. c. 231 § 6F, stating that the plaintiff’s pleadings are frivolous.

On November 4, 2008, SPS submitted Plaintiff’s Motion for Partial Summary Judgment for Count III of its complaint. Defendants filed their opposition and cross- motion for summary judgment on January 2, 2009. On April 22, 2009, the Court issued its Decision Allowing-In-Part and Denying-In-Part Plaintiff’s Motion for Partial Summary Judgment and Denying Defendant’s Cross-Motion for Summary Judgment (the “Summary Judgment Order”). In the Summary Judgment Order, the Court denied the Needels’ motion for summary judgment against SPS. The Court allowed SPS’s motion for partial summary judgment in part. It dismissed with prejudice Counts I, II, and III of the Needels’ counterclaim, and dismissed Count IV of the counterclaim without prejudice. The Court allowed SPS’s motion for partial summary judgment under Count III of its complaint in part. The Court held that the mortgage held by SPS’s principal is subrogated to the previous mortgage in the amount paid to discharge the previous mortgage, $443,392.04, and that SPS as agent shall enjoy the full rights and remedies of that mortgage, as to the interests of both defendants in the property, to recover that amount. The Court found, however, that the record was insufficient to determine the amount of interest secured by that mortgage based on the mortgage amount of $443,392.04, and other charges (including payments of insurance premiums and real estate taxes made to protect the lender’s security). That was an issue of fact to be determined at trial. Counts I and II of the verified complaint remained open.

On November 6, 2009, the Needels filed their Suggestion of Bankruptcy. On November 17, 2011, the Needels’ bankruptcy proceeding was dismissed.

The case was tried to the Court in Boston on March 6, 2012. Counsel for the plaintiff agreed to dismiss Counts I and II of the verified complaint, and the only issue determined at trial was the amount of interest and other charges secured by the mortgage based on the mortgage amount of $443,392.04. Exhibits 1 through 9 were agreed and introduced into evidence. Undisputed facts numbers 1 through 7, as found by the Court in the Summary Judgment Order to be without substantial controversy, Mass. R. Civ. P. 56(d), were read into the record. Counsel for the defendants stipulated that the total amount secured under the subrogated mortgage is $937,529.36, representing $443,392.04 in principal, $398,593.18 in interest, and $95,544.14 in escrow advances. Judgment entered on March 7, 2012, and an amended judgment entered on March 14, 2012. In the amended judgment, it was ordered and adjudged that (a) the mortgage given to New Century Mortgage Corporation, dated November 5, 2001 and recorded in the Middlesex South Registry of Deeds (“Registry”) at Book 34063, Page 154, is subrogated to the mortgage given to Full Spectrum Lending, Inc., recorded in the Registry at Book 32129, Page 168 (“Full Spectrum Mortgage”), in the amount of $937,529.36 (representing $443,392.04 in principal, $398,593.18 in interest, and $95,544.14 in escrow advances), and that said amount is secured by the mortgagee’s title, as to the interests of both defendants, of the Full Spectrum Mortgage; (b) counts I and II of the verified complaint are dismissed with prejudice; and (c) the counterclaim is dismissed with prejudice.

The defendants filed their notice of appeal on April 5, 2012, and the appeal was entered in the Appeals Court as case no. 2012-P-0757 on May 9, 2012. The Appeals Court issued its Memorandum and Order Pursuant to Rule 1:28 on May 10, 2013. Select Portfolio Servicing, Inc. v. Needel, No. 12-P-757, 83 Mass. App. Ct. 1130 (May 10, 2013) (Memorandum and Order). In the Memorandum and Order, the Appeals Court held:

The attachments to the complaint establish that Select is the servicing agent for all debt owed to U.S. Bank, and also that U.S. Bank is the assignee of a loan pool purchased from New Century. However, the inclusion of the Needels’ loan in that pool remains undocumented in the record as it now stands; manifestly we cannot require the Needels to do more than put the plaintiff to its proof under these circumstances.

Accordingly, we vacate that portion of the judgment determining the issue of U.S. Bank’s successor status.

Id., slip op. at 4-5 (footnotes omitted). The Appeals Court ordered: “That portion of the judgment determining that U.S. Bank has demonstrated its ownership of the debt is vacated, and the case is remanded for further proceedings consistent with this memorandum and order. The judgment is otherwise affirmed.” Id., slip op. at 6.

The Appeals Court’s rescript was entered in this court on June 11, 2013. At the hearing on Defendant’s Motion to Compel Discovery Pursuant to Mass. R. Civ. P. 37, on October 2, 2013, the court found “that the issue on remand from the Appeals Court is whether the Needels’ loan was included in the pool of loans that U.S. Bank purchased from New Century.” A pretrial conference was conducted on November 19, 2013.

The case was tried to the court on February 6, 2014. A court reporter, Pamela J. St. Amand, was sworn to transcribe the testimony and proceedings. Exhibits 1 through 13 were admitted. Exhibits 1 through 9 consist of the exhibits that were admitted at the trial on March 6, 2012. Exhibit 10 consists of the parties’ statement of agreed facts. The court heard testimony from Diane Weinberger.

On March 11, 2014, the plaintiff filed Select Portfolio’s Proposed Findings of Fact and Rulings of Law. The same day, the defendants filed Defendants’ Motion to Strike/Motion for Reconsideration and for Directed Finding and the Post-Trial Memorandum of Law of Defendants Nancy and Peter Needel in Support of Motion to Strike/Motion for Reconsideration and Motion for Directed Finding. The court heard closing argument on March 14, 2014, and took the case under advisement. This decision follows.

FACTUAL FINDINGS

Based on the undisputed facts, exhibits, testimony at trial, and my assessment of the credibility of the witness, as well as the facts found at previous proceedings that were affirmed by the Memorandum and Order, I make the following findings of fact.

1. Nancy and Peter Needel own the property known as and numbered 19 Radcliffe Road, Belmont, Massachusetts, as tenants by the entirety (“Property”). As referenced in the Full Spectrum Mortgage and the New Century Mortgage (see infra), the Needels’ deed to the Property is recorded in the Middlesex South Registry of Deeds (“Registry”) at Book 15444, Page 414. Exh. 10.

2. On or about December 5, 2000, the Needels gave a mortgage on the Property to Full Spectrum Lending, Inc., securing repayment of a promissory note in the original principal amount of $440,000 (“Full Spectrum Mortgage”). The Full Spectrum Mortgage is recorded in the Registry at Book 32129, Page 168. Exhs. 2, 10.

3. On or about November 5, 2001, Nancy Needel executed a new mortgage of the Property, granted to New Century Mortgage Corporation (“New Century”) and securing repayment of a promissory note in the original principal amount of $485,000 (“Note”). That mortgage is recorded in the Registry at Book 34063, Page 154 (“New Century Mortgage”). Exhs. 1, 10.

4. As part of the New Century Mortgage loan agreement and refinancing transaction, New Century dispersed $443,392.04 to Full Spectrum Lending, Inc., to satisfy and discharge the Full Spectrum Mortgage in full. Exhs. 3, 10.

5. On or about November 19, 2001, New Century Mortgage assigned the New Century Mortgage, Note, and associated claim to “U.S. Bank, as Trustee under the applicable agreement” by an Assignment of Mortgage executed by Magda Solorzano, Assistant Vice President/Shipping Manager of New Century (“Assignment”). The Assignment was recorded in the Registry at Book 39019, Page 415, on May 1, 2003. Exh. 11.

6. U.S. Bank received the New Century Mortgage as Trustee of the Asset Backed Securities Corporation Home Equity Loan Trust 2002-HE1 (“2002-HE1 Trust”), the entity identified on the Assignment. Exhs. 11, 12.

7. On or about January 29, 2002, Select Portfolio (under its former name, Fairbanks Capital Corporation), U.S. Bank, Asset Backed Securities Corporation, and Long Beach Mortgage Company executed a Pooling and Servicing Agreement (“PSA”) dated as of January 1, 2002 that created the 2002-HE1 Trust. The PSA was filed with the Securities and Exchange Commission (“SEC”) on February 14, 2002 in a Form 8-K dated January 24, 2002. Exh. 12 at 1, 144-148 [Note 1]; Tr. 18-19.

8. The PSA assigned to the 2002-HE1 Trust a number of pooled and securitized mortgage loans. The assigned mortgage loans are listed in a Mortgage Loan Schedule identified as Schedule I in the PSA, that is not included in the SEC filing. Part A of Schedule I identified the mortgage loans assigned to the 2002-HE1 Trust that were originated by New Century. Exh. 12 at 5, 22-23, 51-53; Exh. 13.

9. The PSA appointed U.S. Bank as Trustee of the 2002 HE-1 Trust. Exh. 12 at 44.

10. The PSA appointed SPS, by its former name Fairbanks Capital Corp., as Servicer of the mortgage loans identified in Part A of the Mortgage Loan Schedule. SPS is the Servicer of the applicable mortgage loans under the terms of the PSA. Exh. 12 at 38; Tr. 18-21.

11. The PSA assigns the loans and mortgages set forth in the Mortgage Loan Schedule to U.S. Bank and calls for the delivery of the Mortgage Loan Schedule to U.S. Bank. Exh. 12 at 19, 51-53.

12. At trial SPS called Diane Weinberger, a fourteen-year employee of SPS and a director in SPS’s Contested Default Management Department. Ms. Weinberger has knowledge of SPS’s records and record-keeping practices. She authenticated both the PSA and its Mortgage Loan Schedule as records kept by SPS. I credit Ms. Weinberger’s testimony. Exhs. 12, 13; Tr. 17-18, 21, 25, 27, 31-32.

13. SPS maintains, as electronic files, records of the loans it services in the regular course of its servicing business. Tr. 21

14. SPS maintains records of the PSAs it enters into with the trustees of trusts containing pooled loans in good faith and in the regular course of its servicing business. Tr. 21-22.

15. SPS requests and receives mortgage loan schedules from trustees in the regular course of its servicing business, and maintains them in good faith and in the regular course of its servicing business. It does so, among other reasons, so that it can identify the particular loans it services and establish its standing in enforcement proceedings. Tr. 22-24, 33.

16. SPS, as part of the regular course of its servicing business, requested and received the Mortgage Loan Schedule of the 2002-HE1 Trust from U.S. Bank and maintained a record of the Mortgage Loan Schedule and its association with its parent PSA. Tr. 32-34.

17. SPS maintains the PSA and its Mortgage Loan Schedule in good faith and in the regular course of its servicing business. Tr. 25-28.

18. The PSA and its Mortgage Loan Schedule were created and maintained in SPS’s records before the current action began. Tr. 34-35.

19. SPS received and maintained in the regular course of its servicing business the PSA and its Mortgage Loan Schedule at or about the time of the pooling and servicing of the loans that SPS handled. Tr. 32-33.

20. The Mortgage Loan Schedule is the schedule of loans held by New Century Mortgage Corporation that are included in the 2002 HE-1 Trust as described in the PSA. Exh. 12 at 5; Exh. 13; Tr. 30-32.

21. The Mortgage Loan Schedule identifies the New Century Mortgage loan as one of the mortgage loans included in the 2002 HE-1 Trust. It identifies the unique loan number of the New Century Mortgage loan (533472), which is also listed on the New Century Mortgage and the Assignment. It identifies the servicing account number assigned to the loan by SPS under its previous name (2443943), which is also shown on the payment history report and escrow reports maintained by or prepared for SPS. It shows the borrower’s name (Needel), the original loan amount ($485,000), the loan balance as of January 2002, and the next scheduled payment date. Exhs. 1, 6, 8, 11, 13; Tr. 28-30, 34-35.

22. No payments have been made on the loan secured by the New Century Mortgage since September 12, 2003. Exh. 10.

23. This Court, in its Summary Judgment Order, ordered the New Century Mortgage equitably subrogated to the Full Spectrum Mortgage.

24. As of March 7, 2012, the amount of interest accrued under the terms of the Full Spectrum Mortgage, based on the payoff amount of $443,392.04, was $398,593.18. Exh. 10.

25. As of March 7, 2012, SPS had advanced the amount of $95,544.14 to pay real estate taxes and insurance on the Property (the “escrow advances”). Paragraph 9 of the Full Spectrum Mortgage provides that “Lender may do and pay for whatever is reasonable or appropriate to protect Lender’s interest in the Property and rights under this Security Instrument,” and that “[a]ny amounts disbursed by Lender under this Section 9 shall become additional debt of Borrower secured by this Security Instrument.” Pursuant to Paragraph 9 of the Full Spectrum Mortgage, the amount of escrow advances constituting additional debt secured by the equitably subrogated mortgage is therefore $95,544.14. Exhs. 2, 10.

26. As of March 7, 2012, the total amount secured by the equitably subrogated mortgage was $937,529.36. Amended Judgment.

27. Since March 7, 2012, interest has accrued under the terms of the Full Spectrum Mortgage in the amount of $3,389.28 per month, or $112.93 per day in a 30-day month and $109.33 per day in a 31-day month. Exh. 10.

28. The total amount secured by the equitably subrogated mortgage is $1,026,415.90 ($443,392.04 in principal, $487,479.72 in accrued interest, and $95,544.14 in escrow advances).

DISCUSSION AND RULINGS OF LAW

I find that SPS, as agent for U.S. Bank, has supplied adequate proof of U.S. Bank’s ownership of the New Century Mortgage loan, thereby resolving the sole issue before the Court on remand from the Appeals Court. See Select Portfolio Servicing, Inc. v. Needel, 83 Mass. App. Ct. 1130 (2013). As proof of ownership, SPS submitted in evidence at trial 1) the duly executed and recorded Assignment of Mortgage from New Century to U.S. Bank as Trustee of the 2002-HE1 Trust, which assigns the New Century Mortgage, Note, and loan; and 2) the Pooling and Servicing Agreement and its Mortgage Loan Schedule, under which the New Century Mortgage, Note, and loan were assigned to the 2002-HE1 Trust, of which U.S. Bank is Trustee.

THE ASSIGNMENT

At trial SPS submitted the Assignment, recorded in the Registry at Book 39019, Page 415, documenting the conveyance of the New Century Mortgage from New Century to U.S. Bank as Trustee. The Assignment recites that it assigns to U.S. Bank not only the New Century Mortgage, but also the Note and the claim secured by the Note and New Century Mortgage. The Assignment taken as a whole demonstrates that U.S. Bank received the mortgage as trustee of the 2002-HE1 Trust. The Assignment from the record holder of the mortgage is sufficient to demonstrate that U.S. Bank held the New Century Mortgage as Trustee of the 2002-HE1 Trust. See M & T Bank v. Murillo, 22 LCR 31 , 33 (2014); U.S. Bank Nat. Ass’n v. Ibanez, 458 Mass. 637 , 651 (2011).

The Needels argue that because the Assignment of the New Century Mortgage to U.S. Bank as Trustee of the 2002-HE1 Trust occurred about two months before the formation of the 2002-HE1 Trust, the Assignment is invalid. They cite New York law and the terms of the PSA for the proposition that the 2002-HE1 Trust did not exist as of the time of the Assignment.

The parties have not brought a Massachusetts case on this issue to my attention, and courts in other jurisdictions facing similar situations have reached conflicting results. Compare, e.g., Luna v. Brownell, 185 Cal. App. 4th 668, 674-675 (2010) (quitclaim deed transferring property to trustee of trust not yet created is not void if executed in anticipation of trust’s creation and if trust is thereafter created); Heartland, L.L.C. v. McIntosh Racing Stable, L.L.C., 219 W. Va. 140, 147 (2006) (deed executed in anticipation of creation of grantee “as a corporation, limited liability company, or other legal entity entitled to hold real property” is not void if entity is thereafter properly created and deed is properly delivered to entity), with Gifford v. Linnell, 157 N.C. App. 530, 534 (2003) (deed transferring property to trustee of trust created three days after deed’s execution void for lack of grantee).

Massachusetts courts have, however, been willing to excuse such irregularities in analogous settings. See Rotch’s Wharf Co. v. Judd, 108 Mass. 224 , 227-28 (1871) (deed conveying property to a corporation after its charter but before its organization admissible evidence of title); Copp v. Hague, 1994 Mass. App. Div. 11 , 12 (1994) (contract between individual and promoter acting on behalf of corporation not yet in existence later enforceable against the corporation where the parties understood the promoter to be contracting on behalf of the corporation and where the corporation availed itself of the benefits of the agreement). Where the formation of the 2002-HE1 Trust and the Assignment of the New Century Mortgage to it were obviously intended to be part of a unified transaction, I will not frustrate the intent of the assignor and assignee, especially given that the 2002-HE1 Trust was formed both shortly after the assignment of the mortgage and long before any legal action was brought by the Needels. The Assignment was clearly “executed in anticipation of the creation of the trust” and the trust was “in fact created thereafter.” Luna, 185 Cal. App. 4th at 675.

The Needels also argue that the Assignment is invalid because it was executed in blank. They are correct in asserting that such an assignment would fail. See Ibanez, 458 Mass. at 652. But the Needels have not put forward any evidence that the facially valid Assignment was actually executed in blank. On its face, the Assignment as recorded is complete. It names the assignee, and is executed by an officer of New Century. See id. (assignment is in blank if it does not name assignee). That the 2002-HE1 Trust did not yet exist at the time of the execution of the Assignment is immaterial, as the parties easily could have entered the name of the trust on the Assignment with an eye toward the trust’s formal institution two months later. And the fact that the terms of the PSA discuss the possibility of blank assignments does not necessitate a finding that this particular assignment was executed in blank. Without more, the Needels’ allegation is insufficient to raise any concerns about the unambiguous words on the face of the Assignment.

THE PSA

At trial SPS submitted the PSA that created the 2002-HE1 Trust of which U.S. Bank is Trustee. The PSA contains language of present assignment that assigns to U.S. Bank as Trustee of the 2002 HE-1 Trust the loans listed in the Mortgage Loan Schedule. SPS also submitted the PSA’s associated Mortgage Loan Schedule that documents the pool of mortgages transferred to the 2002 HE-1 Trust. This schedule identifies the New Century Mortgage as one assigned to the 2002-HE1 Trust by loan number, servicing account number, and name of the borrower (“NEEDEL”). The listed loan number is the same one that appears on the New Century Mortgage and the Assignment. Such “unique information” is sufficient to identify the assignment of the New Century Mortgage to U.S. Bank, and demonstrates that the New Century Mortgage, Note and loan were part of the pool of loans conveyed by the PSA to U.S. Bank as Trustee of the 2002-HE1 Trust. M&T Bank v. Murillo, 22 LCR 31 , 33 (2014); see Ibanez, 458 Mass. at 651.

The Needels have submitted a Motion to Strike/Motion for Reconsideration and for Directed Finding in support of their contention that the Mortgage Loan Schedule should not have been admitted into evidence. They argue that SPS has failed to properly authenticate the Mortgage Loan Schedule and to lay a foundation for the Mortgage Loan Schedule’s admission into evidence as a business record.

In order to authenticate the Mortgage Loan Schedule as belonging to the PSA that created the 2002-HE1 Trust, SPS called Diane Weinberger, an employee of SPS. As a fourteen-year employee of SPS and a director in SPS’s Contested Default Management Department, Ms. Weinberger possessed more than sufficient knowledge of SPS’s regular business practices to authenticate the PSA and its Mortgage Loan Schedule and to testify to SPS’s business practices.

Ms. Weinberger explained that SPS regularly requests and receives mortgage loan schedules from trustees. She explained that SPS requested and received the Mortgage Loan Schedule of the 2002-HE1 Trust from U.S. Bank. Finally, she explained that SPS maintained an electronic record of the Mortgage Loan Schedule at issue and its association with the PSA that created the 2002-HE1 Trust.

The Mortgage Loan Schedule itself unambiguously identifies the New Century Mortgage loan as among the loans pooled in the 2002-HE1 Trust. Nothing on the face of the Mortgage Loan Schedule or in the way it was handled or maintained casts doubt on this conclusion. The Needels persist that, under the terms of the PSA, the Mortgage Loan Schedule should have included additional information. Whether or not this is true is a matter to be settled between the parties to the PSA and at most impugns only their adherence to the literal terms of their own agreement, not the authenticity of the business record itself. For the purposes of the instant action—in other words, for the purposes of identifying the New Century Mortgage loan as among the pooled loans in the 2002-HE1 Trust—the information present on the Mortgage Loan Schedule is sufficient.

The Mortgage Loan Schedule qualifies as a business record admitted under the business records exception to the hearsay rule. G.L. c. 233 § 78; Beal Bank, SSB v. Eurich, 444 Mass. 813 , 816 (2005). While the Mortgage Loan Schedule was provided to SPS by U.S. Bank, Ms. Weinberger testified that SPS has a business practice of regularly requesting mortgage loan schedules from trustees, as it did in the present case, and that the document was maintained by SPS in the ordinary course of SPS’s business prior to this action. This is unsurprising considering that SPS services loans for U.S. Bank.

Much of what was said in Beal Bank therefore applies to the present action. In Beal Bank the Supreme Judicial Court allowed a bank to introduce into evidence computer printouts of records from the bank’s loan servicer, EPS. The Court explained: “[T]his is not a case where the bank is simply receiving information from another business. Rather, EPS is the bank's servicing agent; it has a business duty accurately to report the information to the bank; and the bank routinely accesses and relies on that information.” Id. at 817.

Although the situation in the present case is the reverse of the one in Beal Bank, with the servicer is introducing the bank’s records that the servicer maintains, the same business relationship is present. SPS routinely accesses and relies on information provided by its clients so that it can effectively service their loans. I find that the Mortgage Loan Schedule is a business record, especially in light of the Supreme Judicial Court’s admonition that G.L. c. 233, § 78, the codification of the business records exception to the hearsay rule, “should be interpreted liberally to permit the receipt of relevant evidence,” Beal Bank, 444 Mass. at 817, quoting Wingate v. Emery Air Freight Corp., 11 Mass. App. Ct. 982 , 983 (1981), rev’d on other grounds, 385 Mass. 402 (1982).

AMOUNT SECURED

In the amended judgment, the amount of principal, interest, and escrow advances secured by the equitably subrogated mortgage as of March 7, 2012 was determined to be $937,529.36. Since that date, an additional $88,886.54 in interest has accrued. The total amount of principal, interest, and escrow advances secured as of the date of this Decision, May 12, 2014, is therefore $1,026,415.90.

CONCLUSION

Accordingly, the Needels’ Motion to Strike/Motion for Reconsideration and for Directed Finding is DENIED. I find that U.S. Bank, as Trustee of the 2002-HE1 Trust, holds the New Century Mortgage and Note, comprising the mortgage loan, as successor- in-interest to New Century.

Judgment shall therefore enter in favor of SPS on its original claim for equitable subrogation, for the reasons set forth in this Court’s Decision dated March 7, 2012, in the total amount of $1,026,415.90 ($443,392.04 in principal, $487,479.72 in accrued interest, and $95,544.14 in escrow advances), which has been updated from this Court’s previous judgment to reflect additional accrued interest.

Judgment and Order accordingly.