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

Plaintiff Select Portfolio Servicing, Inc. (SPS), as agent for U.S. Bank National Association (U.S. Bank), appears before this court for the third time, after a second remand from the Massachusetts Appeals Court, in order to determine whether the introduction of a blank assignment into evidence effects SPS's ability to prove it holds a debt that it was allowed to subrogate to a prior mortgage given by defendants Nancy and Peter Needel (Needels), tenants by the entirety of property known as 19 Radcliffe Road in Belmont (Property). U.S. Bank's right to foreclose on the Property under the power of sale and the effect of an assignment in blank on its ability to foreclose is not at issue. What is at issue is whether holding the Needels' mortgage loan as part of a pool of mortgage loans, gives SPS, as agent for U.S. Bank, the right to equitable subrogation. For reasons discussed more fully below, I confirm my previous findings at trial that U.S. Bank holds the New Century debt and that SPS, as agent for U.S. Bank, has a right to subrogation.

PROCEDURAL HISTORY

This case commenced on June 21, 2007 with the filing of the verified complaint by SPS. 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 (Trombly, J.) 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 (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 (Foster, J.) on March 6, 2012. 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 (Trombly, J.) in the Summary Judgment Order to be without substantial controversy, Mass. R. Civ. P. 56(d), were read into the record. 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 (New Century Mortgage), 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 (Foster, J.) 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. The Decision and Judgment after Remand was issued and entered on May 14, 2014 (2014 Decision). In the judgment, it was again ordered and adjudged that (a) the New Century Mortgage is subrogated to the Full Spectrum Mortgage in the amount of $1,026,415.90 (representing $443,392.04 in principal, $487,479.72 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' Motion to Strike/Motion for Reconsideration and for Directed Finding was also denied.

The defendants filed their notice of appeal on June 12, 2014, and the appeal was entered in the Appeals Court as case no. 2014-P-1275 on August 20, 2014. On March 16, 2015, the appeal was transferred to the Supreme Judicial Court (SJC) sua sponte, and the appeal was entered in the SJC as case no. SJC-11837 on March 18, 2015. During the course of appellate proceedings, SPS and its counsel learned that the Assignment from New Century to U.S. Bank had initially been executed in blank by New Century before it was completed with the name of the assignee, U.S. Bank. On April 15, 2015, counsel for SPS reported this fact to the SJC. On July 23, 2015 the SJC remanded the appeal to the Appeals Court to proceed under case no. 2014- P-1275. On November 19, 2015 the Appeals Court issued a Memorandum and Order Pursuant to Rule 1:28 vacating the Judgment after Remand and remanding "this matter to the Land Court to reopen the case in order to allow the introduction of the blank assignment in evidence and to consider what, if any, impact that piece of evidence has on the case." Select Portfolio Servicing, Inc. v. Needel, No. 2014-P-1275, 88 Mass. App. Ct. 1113 (Nov. 19, 2015).

The Appeals Court's rescript was entered in this court on December 23, 2015. A status conference was held on January 22, 2016, where the Court stated that "all findings of fact [from the 2014 Decision] apart from assignment remain undisturbed" and ordered the plaintiff to file a copy of the assignment in blank that is at issue on remand. On January 22, 2016, a copy of the assignment executed "in blank" was filed by the plaintiffs. On March 11, 2016, SPS filed Plaintiff's Motion for Summary Judgment, Plaintiff's Consolidated Statement of Material Facts Relating to its Motion for Summary Judgment, and Plaintiff's Memorandum in Support of Motion for Summary Judgment. Also on March 11, 2016, the Needles filed an Omnibus Motion for Sanctions of the Defendants Nancy and Peter Needel, Defendants' First Request for Production of Documents to Select Portfolio Servicing Relative to Defendant's Omnibus Motion for Sanctions, Defendants' First Request for Production of Documents to U.S. Bank National Association Relative to Defendant's Omnibus Motion for Sanctions, and Memorandum of Law of the Defendants Nancy and Peter Needel in Support of Omnibus Motion for Sanctions and the Associated Discovery Initiatives.

On April 11, 2016, SPS filed Plaintiff's Memorandum in Opposition to Defendants' Omnibus Motion for Sanctions and Affidavit for Derek B. Domian, Esq. (Domian Aff.). Also on April 11, 2016, the Needels filed Defendants' Opposition to Plaintiff's Motion for Summary Judgment and Request for the Entry of Summary Judgment in their Favor, Rule 56(f) Affidavit of Gordon N. Schultz, Defendants' Response to Plaintiff's Statement of Material Facts in Opposition to Plaintiff's Motion for Summary Judgment and Statement of Additional Facts in Support Defendants' Request for Summary Judgment in their Favor, and Defendants' Memorandum of Law in Opposition to Plaintiff's Motion for Summary Judgment and in Support Defendants' Request for the Entry of Summary Judgment in their Favor. On April 21, 2016, the Needels filed Defendants' Reply Memorandum to Plaintiff's Opposition to Defendants' Omnibus Motion for Sanctions and SPS filed Plaintiff's Reply Memorandum in Support of Motion for Summary Judgment. On April 22, 2016, the Needels filed the Affidavit of Gordon N. Schultz in Support of Reply Memorandum to Plaintiffs' Opposition to Defendants' Omnibus Motion for Sanctions.

On April 28, 2016, a hearing on the Motion for Summary Judgment and Motion for Sanctions was held, and the motions were taken under advisement. This Memorandum and Order on the Motion for Summary Judgment follows.

SUMMARY JUDGMENT STANDARD

Generally, summary judgment may be entered if the "pleadings, depositions, answers to interrogatories, and responses to requests for admission . . . together with the affidavits . . . show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Mass. R. Civ. P. 56(c). In viewing the factual record presented as part of the motion, the court draws "all logically permissible inferences" from the facts in favor of the non-moving party. Willitts v. Roman Catholic Archbishop of Boston, 411 Mass. 202 , 203 (1991). "Summary judgment is appropriate when, 'viewing the evidence in the light most favorable to the nonmoving party, all material facts have been established and the moving party is entitled to a judgment as a matter of law.'" Regis College v. Town of Weston, 462 Mass. 280 , 284 (2012), quoting Augat, Inc. v. Liberty Mut. Ins. Co., 410 Mass. 117 , 120 (1991).

UNDISPUTED FACTS

In addition to the facts found at previous proceedings that were affirmed by the Appeals Court's Memorandum and Order and in my 2014 Decision (which are incorporated here by reference, except fact no. 5 which is struck), the following facts are undisputed based on the record before me:

1. On or about November 19, 2001, New Century executed an Assignment of the New Century Mortgage in blank (Assignment). The Assignment was executed by Magda Soloranzo, who purports to be the assistant vice president/shipping manager of New Century, and was notarized by Jamie M.W. Sanchez.

2. The Assignment was later completed with the name of the assignee, U.S. Bank. The completed Assignment was recorded on May 1, 2003 in the Middlesex South Registry of Deeds at Book 39019, Page 415. Exh. 11.

DISCUSSION

At the 2014 trial after remand, the sole issue was whether the Needel loan was in a pool of loans held by U.S. Bank as Trustee of the 2002-HE1 Trust. In my Decision in that trial, I found, based on testimony introduced at trial, the Pooling and Servicing Agreement (PSA) and other documents, that SPS is the servicing agent for U.S. Bank and the loan was in fact in the pool of loans conveyed to U.S. Bank by the PSA:

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.

Select Portfolio Servicing, Inc. v. Needel, 22 LCR 202 , 205-206 (2014). I found credible the testimony of Diane Weinberger, an employee of SPS who "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." Id. I stand by these findings; they are not changed by the fact that the Assignment was endorsed in blank. The testimonial evidence establishes, and I reiterate my finding of fact and conclusion of law, that U.S. Bank at least acquired the New Century debt, even if it did not acquire legal title to the New Century Mortgage.

The question on remand now is whether the blank Assignment from New Century to U.S. Bank affects SPS's ability to subrogate the New Century Mortgage to the Full Spectrum Mortgage. The Needels argue that the purpose of equitable subrogation is solely to adjust the priorities of mortgages, and thus, absent holding a valid mortgage, the doctrine cannot be invoked. Therefore, they argue, whether or not U.S. Bank holds the New Century debt, SPS does not have standing to request equitable subrogation since its principal, U.S. Bank, does not hold the New Century Mortgage due to the invalid blank Assignment from New Century. See U.S. Bank v. Ibanez, 458 Mass. 637 , 652 (2011) ("We have long held that a conveyance of real property, such as a mortgage, that does not name the assignee conveys nothing and is void; we do not regard an assignment of land in blank as giving legal title in land to the bearer of the assignment."). SPS counters that whether U.S. Bank holds the New Century Mortgage is immaterial for purposes of equitable subrogation and all that is necessary is that, as I found, U.S. Bank holds the loan that New Century gave to the Needels, intending to receive a priority security interest in the Property by paying off the Full Spectrum Mortgage. The relevant question for equitable subrogation is not, however, whether U.S. Bank holds a valid mortgage. There is already a valid mortgage on the Property, namely, the New Century Mortgage. The question is whether SPS, as agent for U.S. Bank, can seek subrogation based on its interest in the New Century Mortgage. By U.S. Bank's holding the debt from the loan given by New Century, its agent, SPS, has standing to request subrogation, and its ability to do so is not affected by the blank Assignment.

"Subrogation is an old term, rooted in equity, and semantically stemming from words meaning 'ask under.' Today we use the parallel phrase, 'stand in the shoes of.'" National Shawmut Bank of Boston v. New Amsterdam Cas. Co., 411 F. 2d 843, 844 (1st Cir. 1969) (applying Massachusetts law). "Subrogation is the substitution of one person in place of another, whether as a creditor, or as the possessor of any other rightful claim, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies or securities." Jackson Co. v. Boylston Mut. Ins. Co., 139 Mass. 508 , 510 (1885). It is an equitable adjustment of rights, where by a party who pays an obligation on behalf of another creditor can succeed to the rights of the party it has paid (the creditor) against the primarily responsible party. Safety Ins. Co. v. Massachusetts Bay Transp. Auth., 58 Mass. App. Ct. 99 , 103 (2003), citing Frost v. Porter Leasing Corp., 386 Mass. 425 , 426-427 (1982); Provident Coop. Bank v. James Talcott, Inc., 358 Mass. 180 , 189 (1970) (where lender advances funds to pay debts of borrower to another creditor in mistaken belief that lender will obtain first lien on the borrower's property, subrogation is an equitable remedy for damage the lender suffers resulting from the mistake); Wells Fargo Bank, Nat'l Assoc. v. Nat'l Lumber Co., 76 Mass. App. Ct. 1 , 5–6 (2009); see also East Boston Sav. Bank v. Ogan, 428 Mass. 327 , 330 (1998), quoting § 7.6(a) of the Restatement (Third) of Property (Mortgages) for the principle that "[o]ne who fully performs an obligation of another, secured by a mortgage, becomes by subrogation the owner of the obligation and the mortgage to the extent necessary to prevent unjust enrichment. Even though the performance would otherwise discharge the obligation and the mortgage, they are preserved and the mortgage retains its priority in the hands of the subrogee."

In determining if equitable subrogation is permitted, courts look to the actions of the mortgagee that paid off the prior mortgage and whether it fully performed the obligations of another under the prior mortgage to protect its own interests. East Boston Sav. Bank, 428 Mass. at 330; Wells Fargo v. Premier Capital, No. 11-P-583, 2012 WL 165030, at *1-2 (Mass. App. Ct. Jan. 19, 2012). The Supreme Judicial Court has stated that for equitable subrogation to apply "a court must determine [that] '(1) the subrogee made the payment to protect his or her own interest, (2) the subrogee did not act as a volunteer, (3) the subrogee was not primarily liable for the debt paid, (4) the subrogee paid off the entire encumbrance, and (5) subrogation would not work any injustice to the rights of the junior lienholder.'" East Boston Sav. Bank, 428 Mass. at 330, quoting from Mort v. United States, 86 F.3d 890, 894 (9th Cir. 1996). In ascertaining whether each of the five factors for equitable subrogation as referenced in East Boston Sav. Bank are satisfied, it is proper to look at New Century, the entity that gave the loan and took the mortgage, not U.S. Bank. The Needels do not dispute that the Property was subject to the enforceable Full Spectrum Mortgage. New Century paid off the Full Spectrum Mortgage to protect its own interest and obtain a first priority mortgage. New Century was not a volunteer since the payoff was part of a refinancing transaction requested by Nancy Needel. New Century was not liable for the debt paid, but paid off the entire debt to Full Spectrum. Finally, there are no junior lienholders to be prejudiced by the application of equitable subrogation.

Thus, that the Assignment of the New Century Mortgage was endorsed in blank is of no consequence to whether the New Century Mortgage can be subrogated to the Full Spectrum Mortgage. It can. What the Needels really argue is that the Assignment in blank means U.S. Bank does not hold the New Century Mortgage, and that the failure to hold the New Century Mortgage deprives its agent SPS of standing to seek subrogation of that mortgage. This is incorrect. In general, standing focuses on the character of the parties and seeks to ensure that only real parties in interest present matters for judicial determination. See Ozonoff v. Berzak, 744 F.2d 224, 227 (1st Cir. 1984). "Courts are not established to enable parties to litigate matters in which they have no interest affecting their liberty, rights or property." Razin v. Razin, 332 Mass. 754 , 754 (1955), quoting Hogarth-Swann v. Weed, 274 Mass. 125 , 132 (1931); HSBC Bank USA, N.A. v. Matt, 464 Mass. 193 , 199 (2013). As I found at trial, U.S. Bank holds the loan that is secured by the New Century Mortgage on the Needels' Property. SPS, as agent for U.S. Bank, has an interest in the subrogation of the New Century Mortgage because U.S. Bank holds the New Century debt, which is sufficient to confer standing. Moreover, holding the loan gives U.S. Bank the right to an equitable assignment of the New Century Mortgage, which is further justification of its standing to subrogate. See Gleason v. Dyke, 22 Pick. 390 , 394 (1839); Morris v. Bacon, 123 Mass. 58 , 59 (1877); Commonwealth v. Reading Sav. Bank, 137 Mass. 431 , 443- 444 (1884); Jeevanandam v. Santander Bank, N.A., No. MICV201408234, 2014 WL 7641545, at *1 (Mass. Super. Nov. 25, 2014). While U.S. Bank would need to hold a valid mortgage if SPS, as its agent, was attempting to foreclose on the Property, in this proceeding SPS does not seek to foreclose or enforce the New Century Mortgage, but rather seeks only to proceed on its claim of equitable subrogation to the Full Spectrum Mortgage, limited to the amount paid by New Century to discharge the Full Spectrum Mortgage (plus interest and costs). Thus, U.S. Bank is not now required to hold the mortgage for subrogation to apply.

Reason and authority support these views. As its name makes clear, the doctrine of equitable subrogation is based in equity. It serves to prevent unjust enrichment and avoid one from receiving an unearned windfall at the expense of another. See Hare v. LPP Mtge. Ltd., No. MICV2011-01571-C, 2013 WL 951152, at *4 (Mass. Super. Mar. 8, 2013). If the Needels were permitted to escape liability for debt owed on the Full Spectrum Mortgage by virtue of the prior blank Assignment to U.S. Bank, the holder of that debt, they would be unjustly enriched, a result which the law has never looked upon favorably. "Equitable subrogation rests, doctrinally, on the principle that it is fair to make property subject to a mortgage of the same tenor and amount as that originally undertaken or assumed by the property owner, and that it would be unfair to leave that owner's property free of the intended replacement mortgage, solely because of error, or fraud by third parties." Norwest Bank Minnesota, N.A. v. McKinnon, 15 LCR 672 , 675 (2007). The Needels' obligations under the Full Spectrum Mortgage were fully performed by New Century, such that New Century, and now U.S. Bank as current holder of the debt from the loan, should be subrogated to the position of the prior mortgage to prevent the Needels from being unjustly enriched. See Hare, 2013 WL 951152, at *4. My findings that U.S. Bank holds the New Century loan, and that SPS as its agent is entitled to subrogate the New Century Mortgage to the Full Spectrum Mortgage, remain undisturbed.

In the 2014 Decision and accompanying judgment, the amount of principal, interest, and escrow advances secured by the equitably subrogated mortgage as of May 12, 2014 was determined to be $1,026,415.90. Additional interest on the principal and other charges have accrued since the date of that judgment. The parties are to confer and file within 14 days an agreed updated judgment including the additional interest and charges that have since accrued.

CONCLUSION

Accordingly, SPS's Motion for Summary Judgment is ALLOWED and the Needels' Motion for Summary Judgment is DENIED. Within 14 days of the date of this Memorandum and Order, the parties are to file with the Court an agreed updated judgment that includes the additional interest and charges that have accrued since this Court's 2014 Decision.

SO ORDERED