US BANK N.A., as successor trustee of the Washington Mutual Mortgage Pass-Through Certificates WMALT Series 2006-6 Trust v. KATHLEEN WHITENETT and HOMEWARD RESIDENTIAL INC.

Introduction

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.

Facts

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 seller’s two existing mortgages and a series of commissions and charges, and (3) net the seller a substantial profit.

Defendant Kathleen Whitenett is Ms. Raymond’s daughter and the person who signed the documents in Ms. Raymond’s 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 property’s 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 holder’s 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 Servicemember’s 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 seller’s 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. Raymond’s daughter and, prior to the April 3, 2006 closing, the seller’s tenant at the property. She was the person purportedly authorized by the Raymond power of attorney to act on Ms. Raymond’s 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 mother’s 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.

Analysis

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 grantee’s 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. Raymond’s 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. Raymond’s 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 stranger’s request. Moreover, it skips over the fact that Ms. Whitenett had signed her mother’s 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”).

Conclusion

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.