This is a case about the validity of a mortgage where, in an unusual twist, it is the party holding the mortgage, [Note 1] long in breach, that seeks a declaration of its invalidity, and the party currently living at the property, [Note 2] who has made no payments towards the mortgage obligations and lacks the financial capacity to do so, that wants it declared valid and enforceable.
The case was tried before me, jury-waived. Based on my assessment of the credibility, weight, and inferences to be drawn from the evidence, I find and rule as follows.
Plaintiff US Bank N.A., as successor trustee of the Washington Mutual Mortgage Pass-Through Certificates WMALT Series 2006-6 Trust (hereafter, the Trust), [Note 3] is the current holder by assignment of an April 3, 2006 mortgage to American Brokers Conduit, purporting to be on the property at 306 Marshall Street in Paxton. That mortgage, as well as a junior mortgage now allegedly held by defendant Homeward Residential Inc., [Note 4] was granted in the name of Joan Raymond at a closing she did not attend and whose documents she did not sign. Instead, the closing proceeded using her purported power of attorney, and the funds from the loans associated with those mortgages ($384,013.38), plus a small amount of cash ($2,614.11), were used to (1) obtain a deed from the seller (Time Financial LLC) with Ms. Raymond as grantee, (2) pay off the sellers two existing mortgages and a series of commissions and charges, and (3) net the seller a substantial profit.
Defendant Kathleen Whitenett is Ms. Raymonds daughter and the person who signed the documents in Ms. Raymonds name citing the power of attorney. Ms. Whitenett was also the prior owner of the 306 Marshall Street property, but had lost it to foreclosure where it was purchased by Stanley Cherny. Mr. Cherny later deeded the property to Time Financial (the seller at the closing), which he co-owned with another individual, David Romanoff. Despite becoming the propertys owner, Mr. Cherny never evicted Ms. Whitenett, and she and her family continued to live there under some sort of tenancy arrangement.
The use of the power of attorney at the closing was problematic at best. It mis-spelled the name of person it purported to authorize (Ms. Whitenett) surely someone whose name would have been correctly spelled by her own mother. It described American Brokers Conduit as the seller rather than the lender. It described the transaction as a refinance when it was, in fact, a purported purchase by a new owner using new loans. It described Ms. Raymond as collecting money from the transaction rather than spending money to acquire the property. And, in sharp contrast to the usual practice, the closing attorney (from the same firm that drafted the power of attorney) did not obtain an affidavit from the person purporting to hold the power attesting that, to the best of the holders knowledge, the person who granted the power was still alive, [Note 5] competent at the time the power was granted, and had not subsequently revoked it. Nonetheless, the closing went forward and the loan funds were disbursed. At some point thereafter the Trust acquired the note and mortgage from American Brokers Conduit [Note 6] and, by April 19, 2007 at the latest (the date the original Servicemembers Civil Relief Act case was filed), [Note 7] the loan was in default. [Note 8]
According to the Trust, it first learned the reason for that default during the course of the Servicemember proceedings. Ms. Raymond had been dead for many days at the time the mortgage was granted. [Note 9] Indeed, as the evidence at trial showed, Ms. Raymond had been terminally ill and in hospice care for many months before the closing. [Note 10] Her final days (March 22-31, 2006) were spent at the 306 Marshall Street property where Ms. Whitenett lived. [Note 11] According to Ms. Whitenett, whose testimony on this point I believe, Ms. Raymond had no outside visitors, and was not even conscious, [Note 12] on the day the power of attorney allegedly was signed (March 31 the same day she died). [Note 13] In fact, Ms. Raymond had not signed the power of attorney [Note 14] and had no knowledge of, or involvement in, either the mortgages or the deed. [Note 15] Indeed, how Ms. Raymond could ever have qualified for loans of this size (over $384,000 a 99% financing of the purchase price) is difficult to discern. [Note 16] The evidence showed, however, that it was the seller (Time Financial LLC) and the sellers principals (Stanley Cherny and David Romanoff), through an entity those principals owned (Elite Financial Group), that (1) arranged the Raymond loans and the property appraisal and credit report those loans were based on, (2) arranged for their law firm to draft the Raymond power of attorney and conduct the closing, and (3) paid that firm both its legal fee and (to an entity the principal of that law firm managed, Cornerstone Realty Group) an additional $23,100 commission. [Note 17] What appears to have occurred, the Trust contends, was a multi-level fraud with the Trust as its victim. [Note 18]
After initially seeking equitable subrogation to the mortgages that were paid from the proceeds of its loan, [Note 19] and perhaps in recognition of the hurdles such subrogation would face, [Note 20] the Trust has now changed its theory and seeks to void its mortgage entirely, claiming that its borrower, Ms. Raymond, [Note 21] had no title to the property and thus could not grant a mortgage or transfer an interest to anyone. See Third Amended Complaint (Aug. 19, 2013). The Trust presently takes this position because, in the interim, it has obtained a deed directly from Time Financial. The validity of that deed is not at issue in this lawsuit [Note 22] only the Raymond-related instruments and the relief that should be granted if they are invalidated.
As previously noted, defendant Kathleen Whitenett is Ms. Raymonds daughter and, prior to the April 3, 2006 closing, the sellers tenant at the property. She was the person purportedly authorized by the Raymond power of attorney to act on Ms. Raymonds behalf, and signed the papers in that capacity at the closing. She did so, she said, only because she was instructed to do so by the lawyers, and only after telling them that her mother was dead. [Note 23] She and her family have continued to live at the property post-closing. They are currently paying nothing towards the mortgage obligations, and have no records to indicate they have ever made such payments. On an estoppel-based theory which she concedes has no precedent, Ms. Whitenett wants the Raymond conveyance and mortgages declared valid and effective the result of which would be to put the property, in part, in her name (she is one of her mothers four children and heirs) and, since the mortgages are years in default and she lacks the means to pay them, putting their resolution into a bankruptcy proceeding she would immediately file.
Homeward Residential was duly served but has never appeared in this action. The Third Amended Complaint and other pleadings served upon it, however, have put it on full notice of the relief sought by the parties who have appeared and, having been defaulted, [Note 24] it is bound by the rulings in this proceeding.
Other facts are set forth below.
The facts in this case may be complicated, but the essential fact and the law applicable to that fact are not. The mortgage to the Trust is invalid because Ms. Raymond never had an interest in the property to encumber. A valid conveyance of property has two elements: delivery by the grantor and acceptance by the grantee. Hawkes v. Pike, 105 Mass. 560 , 563 (1870); Meigs v. Dexter, 172 Mass. 217 , 218 (1898). The deed from Time Financial to Ms. Raymond failed both tests. Ms. Raymond was dead at the time of the April 3, 2006 conveyance, and she never assented to such delivery in any event. Indeed, as the evidence showed, she was entirely ignorant of the transaction. See Frankowich v. Szczuka, 321 Mass. 75 , 77 (1947) (delivery requires that the grantee by his conduct assent to the conveyance); Graves v. Hutchinson, 39 Mass. App. Ct. 634 , 640 (1996) (same); Caron v. Wadas, 1 Mass. App. Ct. 651 , 654 (1974) ([T]he recording of a deed without the knowledge or consent of the grantee is not effective to pass title; a deed becomes effective only upon its acceptance by the grantee. The acceptance may be actual or it may be implied from the grantees conduct. But there can be acceptance by conduct only if the grantee had knowledge of the conveyance at the time he acted.) (citing Juchno v. Toton, 338 Mass. 309 , 311 (1959)).
The fact that the deed is dated March 23, 2006 a day on which Ms. Raymond was still alive is irrelevant, for two reasons. First, [i]f a date be written in the deed, it is not conclusive The real date of a deed is the time of its delivery . . . . Ashkenazy v. R.M. Bradley & Co., 328 Mass. 242 , 248 (1952). The closing attorney, Ms. Gaboury, testified unequivocally that she was holding that deed in escrow pending the April 3 closing at which the purchase proceeds were to be received. It was not to be delivered until that payment was made, see Fairbanks v. Metcalf, 8 Mass. 230 , 239 (1811) and, of course, was never delivered because Ms. Raymond was dead on that date. Second and more fundamentally, since Ms. Raymond was ignorant of the transaction and thus never intended to accept a conveyance, the deed was ineffective regardless of its date. See Frankowich, Graves, Caron, and Juchno, supra.
Ms. Whitenett contends that the deed should nonetheless be deemed accepted and delivered, on two theories. The first is a ratification by Ms. Raymonds estate, [Note 25] and the second is based on a theory of estoppel. Neither works.
For any ratification to take place, the principal must have known of the transaction. See Perkins v. Rich, 11 Mass. App. Ct. 317 , 322 (1981). Here, Ms. Raymond had no such knowledge.
The estoppel theory is premised on an argument that the Trust intended a mortgage on the property, received payments on that mortgage, and thus cannot repudiate it now. It too fails, for a number of reasons. First, there was no evidence that the Trust actually received any payments on the mortgage. Second, the loan and mortgage were intended for Ms. Raymond, not Ms. Whitenett or Ms. Raymonds other heirs. Third, estoppel is an equitable remedy and depends upon the clean hands of the party asserting it. See Snow v. Blount, 182 Mass. 489 , 491 (1903) (participation in fraud, even though the person did not initiate that fraud, barred the equitable relief sought). As noted above, although not the prime driver in the underlying events, Ms. Whitenett was not an innocent bystander. Her story that her first knowledge of the transaction came when she was called by the attorneys to attend the closing and, once there, simply signed the papers they put in front of her, is not believable. No rational person signs papers of such consequence on nothing more than a strangers request. Moreover, it skips over the fact that Ms. Whitenett had signed her mothers name to a deed to the property some days before, showing at least some degree of knowledge and involvement. [Note 26] Fourth, something cannot be created out of nothing. For a mortgage to exist, the grantor must have had an interest to mortgage. Ms. Raymond never had any such interest, and thus any mortgage with her as grantor could never validly exist. See Bongaards v. Millen, 440 Mass. 10 , 15 (2003) (where grantor lacks title a mutual intent to convey and receive title to the property is beside the point).
For the foregoing reasons and the reasons set forth in the Memorandum and Order on the Parties Cross-Motions for Summary Judgment (Jun. 7, 2013), the purported conveyance of the 306 Marshall Street property from Time Financial LLC to Joan Raymond by deed recorded in the Worcester Registry of Deeds at Book 38700, Page 228; the Power of Attorney purportedly granted by Joan Raymond to Cathleen Whitenett recorded at the Registry in Book 38700, Page 230; the mortgage purportedly granted on the 306 Marshall Street property by Ms. Raymond to Mortgage Electronic Registration Systems Inc., recorded at the Registry in Book 38700, Page 232 and currently held by plaintiff US Bank N.A.; the junior mortgage purportedly granted on that property by Ms. Raymond to Mortgage Electronic Registration Systems Inc., recorded at the Registry in Book 38700, Page 248 and currently held by Homeward Residential Inc.; and the purported deed of that property from Ms. Raymond to Kathleen Whitenett recorded at the Registry in Book 40688, Page 342); are each NULL, VOID, AND OF NO EFFECT.
Judgment shall enter accordingly.
[Note 1] Plaintiff US Bank N.A., as successor trustee of the Washington Mutual Mortgage Pass-Through Certificates WMALT Series 2006-6 Trust.
[Note 2] Defendant Kathleen Whitenett.
[Note 3] US Bank, as trustee, was substituted as the plaintiff in the Third Amended Complaint (Aug. 19, 2013). According to the testimony at trial, its predecessor plaintiffs were the previous trustees. The Trust is a mortgage-backed securities entity of the type discussed in US Bank N.A. v. Ibanez, 458 Mass. 637 (2011).
[Note 4] Homeward Residential was substituted for prior defendant American Home Mortgage Servicing Inc. in the Third Amended Complaint.
[Note 5] The death of the principal terminates the agency granted by a power of attorney. See Brown v. Cushman, 173 Mass. 368 , 372-73 (1899).
[Note 6] The record does not indicate if the Trust provided the funds for the American Brokers Conduit loan, or simply later purchased the note and mortgage. Since the Trust has now withdrawn its equitable subrogation claims, where its knowledge and participation would have been important factors to consider (see n. 20 below), the question is a moot one.
[Note 7] The original Servicemembers proceeding was filed April 19, 2007 and shortly thereafter, for undisclosed reasons, voluntarily dismissed. See Washington Mutual Bank v. Whitenett, Land Court Case No. 07 MISC. 345737. A second Servicemembers proceeding was filed on September 20, 2007and is still pending. Washington Mutual Bank v. Whitenett, Land Court Case No. 07 MISC. 358544.
[Note 8] Given the usual time lag in the filing of Servicemember proceedings actions to determine if a borrower facing foreclosure is entitled to the benefits of the Servicemember Civil Relief Act, see HSBC Bank USA Inc. v. Matt, 464 Mass. 193 , 196-197 (2013) the loan was likely in default considerably in advance of that date, and perhaps from the beginning. See discussion below.
[Note 9] The closing took place on April 3, 2006. Ms. Raymond had died three days earlier, on March 31.
[Note 10] According to her death certificate, she had acute leukemia.
[Note 11] See testimony of Kathleen Whitenett, which I credit on these points.
[Note 12] Ms. Whitenett testified that the last day on which her mother was able to have a conversation was either March 27 or 28.
[Note 13] See testimony of Kathleen Whitenett, which I credit on these points.
[Note 14] According to Ms. Whitenett, the signature on the power of attorney bears no resemblance to Ms. Raymonds. Having reviewed it in comparison with other documents indisputably bearing Ms. Raymonds signature, I concur.
[Note 15] See testimony of Kathleen Whitenett, which I credit on these points. See also the discussion in n. 16, below.
[Note 16] Neither the loan application nor loan approval documents were offered into evidence at trial.
[Note 17] The long-time client relationship between Mr. Cherny, Mr. Romanoff, their various companies, and the attorneys who closed this transaction (The Law Office of Daniel J. Nigro) was disclosed in the testimony of the attorney from that firm, Melissa Gaboury, who conducted the April 3, 2006 closing. Ms. Gaboury also testified to Messrs. Cherny and Romanoffs ownership of Elite Financial Group.
The HUD-1 Settlement Statement from the April 3 closing shows that: (1) the two new loans, both with Ms. Raymond as borrower, totaled $384,013.38 and thus provided over 99% of the purchase price, (2) the borrowers cash contribution towards the purchase was only $2,614.11 (I have put borrowers in quotation marks because the actual source of that cash remains a mystery), (3) Elite Financial Group brokered both of the Raymond loans (both originally with American Brokers Conduit, with one now held by the Trust and the other by Homeward Residential Inc.), received a $4,379.38 premium and $395 processing fee for doing so, and was paid for the credit report and property appraisal on which those loans were based, (4) the existing loans and mortgages on the property were paid off in full (for the significance of this, see n. 16 below), (5) Elite Financial paid the fees charged by the Nigro Law Office to conduct the closing, as well as the propertys unpaid trash and electric bills, (6) the Nigro Law Office prepared and recorded the power of attorney, (7) Cornerstone Realty Group received a $23,100 commission in connection with this transaction (for what is unknown), and (8) even after all these disbursements, Time Financial (Messrs. Cherny and Romanoff) received $64,351.25 in cash from the transaction over $56,000 more than Mr. Cherny had paid for the property the preceding year.
The Secretary of States Corporations Division Business Entity Summary identifies Daniel J. Nigro as one of the two managers of Cornerstone Realty Group.
[Note 18] Although I am hesitant to draw complete conclusions in the absence of testimony from Messrs. Cherny and Romanoff (neither of whom was called to testify at trial), the back story to the Raymond transaction is consistent with this contention by the Trust and evidences the likely motivation. Mr. Cherny and Mr. Romanoff, through Time Financial, not only reaped $64,351.25 in cash at the closing (a $56,000 profit over and above their purchase price) and, through Elite Financial, an additional $4,379.38 broker premium and $395 processing fee, but also escaped a situation which had serious potential consequences for Mr. Cherny, as follows:
Defendant Kathleen Whitenett (Ms. Raymonds daughter) was the prior owner of the property, but had lost it to foreclosure. Mr. Cherny purchased it for $329,000 at the foreclosure auction in his individual name, borrowing the money to do so. But the loans he obtained to make that purchase were based on false representations. His primary loan, in the amount of $263,200, required him to use the house personally as his second home, keeping it available at all times for his exclusive use, and expressly prohibited rental. See Mortgage, Cherny to Mortgage Electronic Registration Systems Inc. as nominee for Countrywide Home Loans Inc., recorded in the Worcester Registry of Deeds at Book 35930, Page 90 (Mar. 21, 2005). His second loan, a $32,900 line of credit, had the same requirements and prohibition. See Mortgage (Line of Credit), Cherny to Mortgage Registration Systems Inc. as nominee for Countrywide Bank, recorded in the Worcester Registry of Deeds at Book 35930, Page 108 (Mar. 21, 2005). In truth, Mr. Cherny never lived at the house. Ms. Whitenett and her family continued to occupy it as Mr. Chernys tenants. The evidence did not disclose if they stayed current on their rent. Given their strained financial circumstances, it is unlikely they did so.
On September 6, 2005, Mr. Cherny deeded the property to Time Financial, an LLC he owned with Mr. Romanoff. By express contractual provision in his mortgages, that conveyance required his lenders prior written assent. There was no evidence he obtained it. The penalty in the mortgages for making un-assented transfers was immediate acceleration of the loans. Mr. Chernys conveyance of the property to Time Financial thus put him at risk of personal liability for the immediate repayment of the full amount of both loans (so did his rental of the property). It is thus not surprising that he sought to sell the property as quickly as possible. If Ms. Whitenett was behind on her rent, this would have been an additional reason.
Ms. Whitenetts occupancy, however, presented a problem. It would require a summary process eviction action should she refuse to move, and such an action would also involve notice to the mortgagees, who would thus learn that Mr. Cherny did not live in the home and had transferred its ownership, triggering immediate repayment. Ms. Whitenetts occupancy, however, also presented an opportunity. Since she wanted to continue living in the house, she had an incentive to cooperate in the events that unfolded.
As previously noted, I believe Ms. Whitenetts testimony that her mother knew nothing of the Raymond purchase or loans. It fits with all the other facts and, among other indicia of credibility, was against Ms. Whitenetts interest to so testify (her case would have been aided had her mother intended to purchase the property). It is inconceivable that Ms. Raymond would have put a purchase in motion, presumably in aid of her daughter (who would continue to live there, and would have to make the mortgage payments after Ms. Raymonds death), without telling her daughter about it.
I have problems with much of Ms. Whitenetts other testimony, however, particularly her suggestion that she was an innocent bystander. The Joan Raymond signature on the March 28, 2006 deed from Joan Raymond to Ms. Whitenett, not recorded until nearly a year later (February 20, 2007) (by whom is unknown), was clearly signed by Ms. Whitenett herself. I say this because it is identical to the Joan Raymond signature Ms. Whitenett wrote on the April 3, 2006 HUD-1 Settlement Statement, and identical to the Joan Raymond signature Ms. Whitenett wrote on the Trusts mortgage, both of which were made under the purported authority of the Joan Raymond power of attorney. (See discussion below of Ms. Whitenetts role at the April 3, 2006 closing). Unlike the HUD-1 and the mortgage, however, the March 28 deed does not purport to have been signed for Ms. Raymond under a power of attorney. Rather, the notarys certification states that Ms. Raymond herself signed that deed in the notarys presence, using a Massachusetts Identification Card as proof of identity. Clearly, either the notary gave a false certification, Ms. Whitenett posed as her mother using her mothers identification cards (the ones in evidence have pictures from a time when Ms. Raymond looked much like Ms. Whitenett today), or both.
Whatever her involvement, though, Ms. Whitenett could not have been the moving force behind the Raymond purchase and loans. As the evidence showed, the financing, the documents, and the other logistics were clearly the sellers actions. I can see Ms. Whitenett being pleased at the potential outcome and thus persuaded to participate. But I observed her closely during her testimony, and I cannot see her as a planner to any degree whatsoever.
It is unfortunate that neither Mr. Cherny nor Mr. Romanoff were called to testify at trial. It is also unfortunate that the notaries who attested the Joan Raymond signatures on the suspect documents (the March 28, 2006 Raymond to Whitenett deed, and the March 31, 2006 Raymond power of attorney, neither of which were actually signed by Ms. Raymond) did not testify either. The Trust claims that, despite the best efforts of its private investigator, the notaries could not be found.
[Note 19] See Verified Complaint (Aug. 16, 2008), Amended Complaint (Jul. 17, 2008), and Second Amended Complaint (Nov. 13, 2009). Summary judgment on those claims was denied because they presented genuine issues of material fact.
[Note 20] [Equitable] [s]ubrogation allows one party who paid the debt of another to be entitled to the rights, remedies, or security enjoyed by the original creditor, provided an injustice would not be imposed on any junior lienholder. Wells Fargo Bank N.A. v. National Lumber Co., 76 Mass. App. Ct. 1 , 5 (2009) (internal citations and quotations omitted). It is an equitable doctrine, however, and is not applied automatically. Among other things, it requires the court to examine the subrogees knowledge and behavior before applying it. Id. at 5-8. And even if applicable, other remedies, including title insurance and malpractice actions, may be available or more appropriate depending upon the circumstances. Id. at 5. n.4.
[Note 21] The loan was issued in her name.
[Note 22] The Trust anticipates that there may be a subsequent, rescission-based lawsuit between the parties to sort out their respective liabilities and damages. I take no position on the merits or outcome of such a proceeding or any collateral effect the rulings in this case may have.
[Note 23] The closing attorney, Ms. Gaboury, denies being told this, or otherwise knowing that Ms. Raymond was dead.
[Note 24] See Entry of Default against defendant Homeward Residential Inc. (Oct. 11, 2013) (entering default, but deferring entry of default judgment against Homeward Residential until the resolution of the case between the appearing parties).
[Note 25] Ms. Raymonds estate is not a party to this action, and it is unclear who has authority to speak for it. For present purposes, I assume that Ms. Whitenett has such authority.
[Note 26] The Raymond to Whitenett deed, dated and notarized March 28, 2006.