The Plaintiff law firm, Russell & Associates, LLC (Russell), filed its Verified Complaint in this action on March 25, 2010, seeking declarations as to the priority of certain liens it claimed to hold on the real property known and numbered as 1040 Broadway (Route 1 North) in Saugus, Massachusetts (the Property). The Property, which was once owned by Interested Party Link Development, LLC, is approximately 23 acres in size and includes one registered parcel and three unregistered parcels.
At the time Russell commenced this lawsuit, Russell and Defendant RFF Family Partnership, LP (RFF) both held mortgages granted by Link on the Property. In addition to Russells claim to hold a first priority attorneys lien on the Property, [Note 1] the Verified Complaint also seeks declaratory judgments that the mortgage on the registered parcel given by Link to Defendant Desert Pine, LLC, a/k/a Desert Palm, LLC (Desert Pine) and later assigned to Russell, was in first position priority against the registered parcel; and that the mortgage on the unregistered parcels given by Link to Desert Pine and later assigned to Russell was a first or second priority lien against the unregistered parcels. RFF did not file any counterclaims. However, among the affirmative defenses asserted in RFFs Answer were that Plaintiff has no lien on the Property, and that Plaintiffs alleged mortgage interest has been expressly subordinated to RFFs mortgage.
The day after the Verified Complaint was filed, RFF foreclosed on its mortgage and purchased the Property (including the registered parcel) at the foreclosure auction. [Note 2] Counsel for the two active parties remaining in this case, Russell and RFF, [Note 3] have since represented to the court that the sole remaining controversy in the instant case centers on the relative priorities of the mortgage liens Link granted to RFF and Desert Pine on the registered parcel. [Note 4]
Defendant RFF filed its Motion for Summary Judgment on April 16, 2014, seeking judgment in its favor on the grounds that Russell no longer has standing to prosecute its mortgage priority claim, either because (a) the mortgage assignment to Russell was void as a result of it not having been executed with proper authority, or (b) Russell has now re-assigned its mortgage interest back to the original mortgagee, Desert Pine. In the alternative, RFF argues that it is entitled to summary judgment declaring either that (a) Russell never acquired a valid mortgage interest in the registered parcel, [Note 5] or (b) Russells mortgage interest was subordinated to RFFs mortgage lien by the original mortgagee, Desert Pine, and therefore did not survive the foreclosure of RFFs mortgage.
Russell filed its Opposition to RFFs Motion for Summary Judgment on June 2, 2014. In the Opposition, Russell argues that the undisputed facts in the summary judgment record require judgment to enter against RFF, declaring that Russell held a valid mortgage by assignment that survived RFFs foreclosure as a priority lien. The principal thrust of Russells Opposition is that, as a matter of law, the unregistered subordination agreement cannot affect title to registered land, and thus did not alter the relative priorities of the encumbrances of record for the registered parcel. Additionally, Russell asserts that it has standing to prosecute its claim because the real party in interest, Desert Pine, as present holder of the subject mortgage, has ratified Russells continuing prosecution of the case.
A hearing on RFFs Motion for Summary Judgment was conducted on February 23, 2015. Although Russell had filed a written Opposition, counsel for Plaintiff inexplicably failed to appear for the summary judgment hearing. No other party filed papers in support of or in opposition to RFFs Motion for Summary Judgment, and no other party appeared at the hearing.
Now, after considering RFFs and Russells respective submissions, the pleadings in the case, and the arguments presented at the hearing by Defendant RFFs counsel, I find that RFF is entitled, on the basis of the undisputed material facts set forth below, to summary judgment in its favor, declaring that Desert Pine is not entitled to invoke the protections of the registration statute to claim that the subject mortgage remains an enforceable lien on the registered parcel beyond any surplus proceeds from the RFF foreclosure.
UNDISPUTED MATERIAL FACTS
Based upon the pleadings, depositions, and affidavits provided by the parties, I find that the following material facts are undisputed.
1. By Foreclosure Deed from Saugus Holding, LLC, dated August 2, 2005, Link Development, LLC (Link) acquired approximately 23 acres of land, consisting of three unregistered parcels and one registered parcel, abutting Route 1 in Saugus, Massachusetts (the Property). The foreclosure deed was recorded at the Southern Essex District Registry of Deeds [Note 6] in Book 25981, Page 401 on August 14, 2006, and filed with the Registry District [Note 7] as Document No. 472369 on October 10, 2006.
2. The Certificate of Organization of Link was filed with the Secretary of the Commonwealth (the Secretary) on August 18, 2005, naming Essam Al Tamimi (Al Tamimi) as its sole manager, as its sole member authorized to execute documents to be filed with the Secretary of the Commonwealth, and as its sole member authorized to execute documents to be recorded in the registry of deeds or filed in the Land Court. The Certificate lists Stuart H. Sojcher (Sojcher) as Links resident agent for service of process. The Certificate was signed by Sojcher as Authorized Person.
3. To fund Links purchase of the Property, Sojcher, representing himself as Duly Authorized and not individually, executed on behalf of Link a Commercial Real Estate Promissory Note in favor of Desert Pine LLC (Desert Pine) for $2,000,000.00, dated August 20, 2005 (the Desert Pine Note).
4. To secure the Desert Pine Note, Sojcher also executed a mortgage on the Property in favor of Desert Pine, which was dated August 20, 2005 and ultimately recorded with the Registry of Deeds in Book 25981, Page 408 on August 14, 2006 (the Desert Pine Mortgage). Sojcher purported to sign the Desert Pine Mortgage on behalf of Link, as Duly Authorized and not individually.
5. The Property Description attached as Exhibit A to the Desert Pine Mortgage describes all four parcels comprising the Property, including the registered parcel. However, the Desert Pine Mortgage was not filed with the Registry District.
6. The following year, on September 29, 2006, Sojcher executed a mortgage on the Property in favor of Desert Palm LLC as security for a Commercial Real Estate Promissory Note of even date hereof in the original principal amount of $2,000,000.00. [Emphasis added.] Sojcher purported to sign the Desert Palm Mortgage on behalf of Link, as Duly Authorized. The Desert Palm Mortgage was not recorded but was filed with the Registry District as Document No. 472371 on October 10, 2006 (the Desert Palm Mortgage). [Note 8]
7. Although the Desert Palm Mortgage refers to the Commercial Real Estate Promissory Note of even date hereof, the Promissory Note referenced is actually the Desert Pine Note. Similarly, naming Desert Palm LLC as mortgagee instead of Desert Pine LLC was done in error.
8. The Desert Pine Mortgage and the Desert Palm Mortgage were part of the same transaction both mortgages were given to secure the same $2 million loan from Desert Pine for Links acquisition of the Property. Although both Mortgages describe the entire Property, only the Desert Palm Mortgage was filed with the Registry District so as to create an encumbrance on the registered parcel.
9. According to a certification by the Secretary, dated October 2, 2006, a certificate of organization of a Limited Liability Company was filed by Desert Pine LLC on September 29, 2006, listing Stuart H. Sojcher as its sole manager, its sole person authorized to execute documents filed with the Secretarys office, and its sole person authorized to act with respect to real property listed in the filing. This certification was filed in the Registry District on October 10, 2006. [Note 9]
10. On March 22, 2007, an Amended and Restated Certificate of Organization for Desert Pine, dated October 13, 2006 and signed by Jeffrey B. Karll (Karll) on March 21, 2007, was filed with the Secretary. It lists Karll as the agent for service of process, and as having sole authority as Manager to execute documents filed with the Secretary, and to execute and record instruments purporting to affect an interest in real property. The Amended Certificate recites that as of the date hereof the LLC has One (1) Manager, and also recites that by vote of the members[,] Karll was elected to be manager on October 12, 2006. The Amended Certificate identifies Karll and Al Tamimi as the members of Desert Pine.
11. On October 15, 2007, Karll, as Manager of Link, granted a mortgage on the Property (including the registered parcel) to RFF to secure a $1,400,000.00 loan, which mortgage was recorded at the Registry of Deeds in Book 27256, Page 488 and also filed with the Registry District as Document No. 483516 on October 16, 2007 (the RFF Mortgage). [Note 10]
12. Also on October 15, 2007, Karll, as Manager of Desert Pine, executed a document entitled Subordination Agreement, which expressly subordinates the Desert Pine Mortgage to the RFF Mortgage (the Desert Pine Subordination). The Desert Pine Subordination was recorded at the Registry of Deeds in Book 27256, Page 471 on October 16, 2007, but was not filed with the Registry District.
13. This time signing as Manager of Desert Pine LLC formerly known as Desert Palm LLC (emphasis added), Karll executed a second Subordination Agreement on October 17, 2007, expressly subordinating the Desert Palm Mortgage to the RFF Mortgage (the Desert Palm Subordination). The Desert Palm Subordination was neither recorded at the Registry of Deeds, nor filed with the Registry District.
14. Pursuant to a litigation settlement agreement among Karll, Desert Pine, and Russell, Karll signing as Manager of Desert Pine LLC, sometimes known as Desert Palm, LLC executed an Assignment of Real Estate Mortgage, dated February 26, 2009, assigning the Desert Palm Mortgage to Russell (the Desert Palm Assignment). The Desert Palm Assignment, which was filed with the Registry District as Document No. 496296 on the same date, was made to satisfy Russells legal fees.
15. At the time the Desert Palm Assignment was filed with the Registry District, the Desert Palm Subordination would not have appeared in the Land Court records for the registered parcel, and consequently, the Land Court records would have shown the Desert Palm Mortgage in a superior position to the RFF Mortgage.
16. Russell filed its complaint in the instant action on March 25, 2010, in anticipation of RFF conducting a foreclosure sale scheduled for the following day.
17. RFF did foreclose on March 26, 2010 and, as high bidder at the auction, acquired the Property itself (including the registered parcel) by a Foreclosure Deed dated June 22, 2011. The Foreclosure Deed was recorded at the Registry of Deeds at Book 30487, Page 341, and filed with the Registry District as Document No. 520867 on June 24, 2011. As of that date, the Desert Pine Subordination was on record in the Registry of Deeds. The Desert Palm Subordination had still not been filed with the Registry District, however, and the Land Court records would still have shown the Desert Palm Mortgage in a superior position to the RFF Mortgage.
18. As part of a settlement of further litigation among Russell, Karll, Desert Pine, and Link, during the course of this case, Russell assigned its interest in the Desert Palm Mortgage back to Desert Pine by an Assignment of Real Estate Mortgage, dated July 30, 2012 and filed at the Registry District as Document No. 548876 on December 18, 2013.
Summary judgment is appropriate when there are no genuine issues of material fact, and viewing the evidence in the light most favorable to the nonmoving party, the moving party is entitled to judgment as a matter of law. Opara v. Massachusetts Mut. Life Ins. Co., 441 Mass. 539 , 544 (2004); Mass. R. Civ. P. 56(c). In moving for summary judgment, a party is required to first demonstrate by reference to the pleadings, depositions, answers to interrogatories, admissions, or affidavits that there are no genuine issues of material fact, and to further demonstrate entitlement to judgment on those undisputed facts as a matter of law. Ng Brothers Construction, Inc. v. Cranney, 436 Mass. 638 , 644 (2002); Mass. R. Civ. P. 56(c). [A] party moving for summary judgment in a case in which the opposing party will have the burden of proof at trial is entitled to summary judgment if he demonstrates that the party opposing the motion has no reasonable expectation of proving an essential element of that partys case. [Note 11] Kourouvacilis v. Gen. Motors Corp., 410 Mass. 706 , 716 (1991).
For the reasons discussed more fully below, when viewed in the light most favorable to Plaintiff as the nonmoving party, the undisputed material facts in the instant case do not support entry of summary judgment dismissing the case due to Plaintiffs lack of standing. The record also does not support the entry of summary judgment declaring the Desert Palm Mortgage void or otherwise unenforceable for failure to secure a debt, merger, or execution without authority.
Further, although there were insufficient undisputed facts upon which to determine whether the Desert Palm Mortgage survived the RFF foreclosure as a superior lien in 2011, such determination is no longer of any consequence in light of the re-assignment of that Mortgage to Desert Pine, and Desert Pines ratification of Russells prosecution of this action. More specifically, RFF has failed to establish sufficient undisputed facts to demonstrate that Russell had actual knowledge of the unregistered subordination agreement when it accepted the assignment of the Desert Palm Mortgage. But, even if the facts permitted me to determine that the Desert Palm Mortgage had survived the RFF foreclosure because Russell lacked knowledge of the unregistered Desert Palm Subordination, any status Russell may have had under the land registration statute as a good faith purchaser is of no consequence now that the Desert Palm Mortgage has been reassigned to Desert Pine, the same party that executed that Desert Palm Subordination in favor of RFF. In light of that re-assignment to Desert Pine, the undisputed facts do support entry of summary judgment declaring that, to the extent, if any, the Desert Palm Mortgage may have survived the RFF foreclosure prior to its re-assignment to Desert Pine, Desert Pine is not entitled to invoke the statutory protections of G.L. c. 185, § 46, to claim that the Desert Palm Mortgage is a valid first lien on the registered parcel.
I find on the basis of the undisputed facts that Russells continued prosecution of this action has been ratified by the true party in interest, Defendant Desert Pine. Accordingly, I reject RFFs argument that Russells Complaint must be dismissed for lack of standing because it is not a real party in interest as required by Mass. R. Civ. P. 17(a).
One purpose of Rule 17(a) is to prevent forfeiture of an action. Berman v. Linnane, 434 Mass. 301 , 305 (2001). To that end, the final sentence of Rule 17(a) reads,
[n]o action shall be dismissed on the ground that it is not prosecuted in the name of the real party in interest until a reasonable time has been allowed after objection
Id. (emphasis added).
Here, Desert Pine, a named Defendant, has ratified Russells prosecution of this action. Karll Aff. ¶ 38. Allowing Russell to continue prosecuting the case is thus fully consistent with the underlying purpose of Rule 17(a) ? to protect defendants from duplicative claims and ensure that judgment has the proper preclusive effect. See Massachusetts Ass'n of Indep. Ins. Agents & Brokers, Inc. v. Comm'r of Ins., 373 Mass. 290 , 297 (1977) (The purpose of the real party in interest requirement of Rule 17(a) is to assure that a defendant is only required to defend an action brought by a proper plaintiff and that such an action must be defended only once. (citing J. W. Smith & H. B. Zobel, Rules Practice § 17.2 (1975))).
Validity of the Desert Palm Assignment
RFF first argues that the assignment of the Desert Palm Mortgage to Russell is void, because Jeffrey Karll did not have the authority to execute the assignment and that, in any event, the Desert Palm Mortgage itself is void since Stuart Sojcher did not have the corporate authority to grant the Desert Palm Mortgage on behalf of Link. Russell counters that the assignment and mortgage are validated either by statute or by ratification.
RFFs challenge to the validity of the Desert Palm Assignment to Russell fails because, on its face, the Desert Palm Assignment indicates that it was executed before a notary public by Jeffrey Karll as Manager of Desert Pine, LLC, sometimes known as Desert Palm, LLC. Pursuant to G.L. c. 183, § 54B, an assignment of a mortgage, executed before a notary public, by a person purporting to hold the position of an officer, agent, asset manager, or other similar office or position of the entity which holds the mortgage, is binding upon that entity without the need for any corporate vote affirming the persons authority to execute the assignment, or any further evidence of their status as such officer. G.L. c. 183, § 54B; see Sullivan v. Kondaur Capital Corporation, 85 Mass. App. Ct. 202 , 212 (2014); Bank of New York Mellon Corp. v. Wain, 85 Mass. App. Ct. 498 , 503 (2014). Therefore, as neither Russell (the assignee) nor Desert Pine (the assignor) disclaim Karlls authority as manager of Desert Pine, LLC sometimes known as Desert Palm, LLC to execute the assignment to Russell, the Court will not look behind the assignment instrument.
Validity of the Desert Palm Mortgage
Authority of Sojcher
With respect to RFFs challenge to the validity of the Desert Palm Mortgage based on Sojchers lack of authority, the parties focus their arguments on G.L. c. 156C, § 15, the statutory provision dealing with the execution and amendment of certificates of organization. Section 15(a) sets forth the general rule that certificates filed with the office of the Secretary must be executed by a manager or authorized person specified in the certificate of organization, as amended. Section 15(b) allows an authorized person, as defined in § 15(a), to act through an agent when signing a certificate or amendment to be filed with the office of the Secretary. [Note 12]
Pointing to the statutory authority of LLC principals to act through their agents, and the lack of a requirement for documentation of the agency relationship to be filed with the office of the Secretary, Plaintiff argues that Sojchers authority to grant the Desert Palm Mortgage is established by the Certificate of Amendment of Link Development filed with the Secretary of States Office on September 29, 2006, identifying Sojcher as Manager of the LLC. [Note 13] RFF, however, contends that Sojcher was neither a manager of Link nor otherwise authorized to file the Certificate of Amendment ? Al Tamimi being the sole manager of Link at the time ? and that, as a result, the September 29, 2006 amendment was ineffective.
Although the question of Sojchers authority to file the amendment to the Link certificate of organization and thus his authority to execute the Desert Palm Mortgage on behalf of Link presents a factual dispute, the dispute is not ultimately material. This is because the Desert Palm Mortgage was ratified by Links successor manager, Jeffrey Karll when, as manager of Desert Pine LLC formerly known as Desert Palm LLC, he signed the Desert Palm Subordination and again when he executed the assignment to Russell. See Linkage Corp. v. Trustees of Boston University, 425 Mass. 1 , 18 (1997) (Where an agent lacks actual authority to agree on behalf of his principal, the principal may still be bound if the principal acquiesces in the agents action, or fails promptly to disavow the unauthorized conduct after disclosure of material facts. Ratification relates back, and has the same effect, as a prior grant of authority by the principal to the agent.). [Note 14] Thus, even if Sojcher did not have actual authority to execute the Desert Palm Mortgage, Links grant of that Mortgage was ultimately ratified by Link through Karlls actions.
Security for a Debt
RFF argues alternatively that the Desert Palm Mortgage is void because it does not secure a debt. The terms of the Desert Palm Mortgage state that the mortgage agreement is intended to serve as security for a Commercial Real Estate Promissory Note of even date hereof. The Desert Palm Mortgage is dated September 29, 2006. It is undisputed that there is no promissory note dated September 29, 2006. However, I reject RFFs argument that this fact compels the conclusion that the Desert Palm Mortgage does not secure a debt.
The uncontroverted affidavits and deposition testimony in the Summary Judgment record establish that the intent of the parties in executing the Desert Pine Note, the Desert Pine Mortgage, and the Desert Palm Mortgage was to secure the purchase price of the Locus with a mortgage on all four parcels comprising the Property. The two mortgages were intended, together, to secure the single $2,000,000.00 debt described in the Desert Pine Note. Even RFF acknowledges in its proposed statement of facts that execution and registration of the Desert Palm Mortgage, almost one year after the execution and recording of the Desert Pine Mortgage, was intended to remedy the fact that the Desert Pine Mortgage on the Property, although recorded, was not registered and therefore did not encumber the registered parcel. Accordingly, RFFs argument that the Desert Palm Mortgage is invalid because it does not secure a debt, fails.
RFF alternatively argues that, because they have the same officers, Link and Desert Pine, LLC, should be treated as a single entity, and that, as a result, the mortgage interest in the registered land parcels and the right of redemption have merged, thereby extinguishing the Desert Palm Mortgage. Russell counters that the merger argument has been waived by RFFs failure to plead merger as an affirmative defense. Whether or not the defense of merger was waived is ultimately of no consequence, however, because RFF has failed to demonstrate sufficient undisputed facts to support summary judgment in its favor on this issue.
A necessary prerequisite to RFFs merger argument is that Link Development, LLC and Desert Pine, LLC are to be treated as a single entity. Doing this would require the Court to disregard the corporate forms of the LLCs and to focus, instead, on the individuals behind the respective LLCs. Disregarding the corporate form is an equitable tool to be used in rare situations . . . where such disregard is necessary to provide a meaningful remedy for injuries and to avoid injustice. Lipsitt v. Plaud, 466 Mass. 240 , 253 (2013). Courts are to consider twelve factors in deciding whether to look past the corporate form. Id. RFF, as moving party, however, has simply not demonstrated the facts necessary to justify such an extraordinary remedy. RFFs Summary Judgment Motion includes only general assertions that the two LLCs are controlled by the same individuals, but does not explain how these facts fit into the twelve-factor test. Accordingly, this Court declines to look past the separate, legal existences of Link Development, LLC and Desert Pine, LLC to find an extinguishment by merger.
Priority of the Mortgage Liens and Effect of the RFF Foreclosure
The remaining issue to be addressed in RFFs Summary Judgment Motion is whether the Desert Palm Mortgage survived the foreclosure of the RFF Mortgage as a priority lien because an instrument signed on behalf of Desert Pine, expressly subordinating the Desert Palm Mortgage on the registered parcel to the RFF Mortgage, was never filed with the Registry District. RFF argues that, regardless that it was never filed with the Registry District, the Desert Palm Subordination is a contract between the parties that is binding on Desert Pine pursuant to G.L. c. 185 § 57 (No deed, mortgage or other voluntary instrument purporting to convey or affect registered land shall take effect as a conveyance or bind the land, but shall operate only as a contract between the parties . (emphasis added)). Plaintiff contends that the Desert Palm Subordination was ineffective, relying principally upon the plain statutory language of the land registration statute, G.L. c. 185, § 46, which protects good faith purchasers of registered land from encumbrances not already registered at the time they acquire their interests. Because the Desert Palm Subordination was never filed with the Registry District, Plaintiff reasons, the Desert Palm Mortgage retained its priority position and survived the RFF foreclosure.
Consistent with the purposes of land registration, [Note 15] the registration statute requires that a decree of registration and the subsequent certificates of title issued thereunder shall set forth , in such manner as to show their relative priority, all mortgages, liens, attachments and other encumbrances to which the land or the owners estate is subject . G. L. c. 185, § 47. Of particular relevance to the Desert Palm Subordination, G.L. c. 185, § 67 provides that [a] mortgage deed, and all instruments which assign, extend, discharge and otherwise deal with the mortgage, shall be registered and shall take effect upon the title only from the time of registration (emphasis added). Moreover, G.L. c. 185, § 57 provides that
[n]o deed, mortgage or other voluntary instrument purporting to convey or affect registered land shall take effect as a conveyance or bind the land, but shall operate only as a contract between the parties, and as evidence to the recorder or assistant recorder to make registration. The act of registration only shall be the operative act to convey or affect the land, and in all cases the registration shall be made in the office of the assistant recorder for the district or districts where the land lies. [Emphasis added.]
On the basis of the above-quoted statutory language alone, Plaintiff should prevail in light of RFFs undisputed failure to file the Desert Palm Subordination with the Registry District. However, that failure is not necessarily dispositive here. In order to merit the protections of the land registration statute, a party must satisfy the requirement of good faith and must not have actual knowledge of the claimed unregistered interest. Jackson v. Knott, 418 Mass. 704 , 713 (1994) (citing G.L. c. 185, § 46 and Killam v. March, 316 Mass. 646 (1944) [Note 16] ); Commonwealth Electric Company v. MacCardell, 450 Mass. 48 , 51 (2007) (citing Calci v. Reitano, 66 Mass. App. Ct. 245 , 249 (2006)); see also In re Woodman, 497 B.R. 668, 674 (Bankr. D. Mass. 2013) (Purchasers who actually know or should have known about pre-existing encumbrances on the real estate not reflected on the certificate of title cannot be said to have taken the land in good faith, and therefore do not take title free of such encumbrances under Mass. Gen. Laws c. 185 § 46.).
Here, Link granted the Desert Palm Mortgage as a first mortgage on the registered parcel in 2006, to secure the $2,000,000.00 loan reflected by the Desert Pine Note. Subsequently, Link also granted the RFF Mortgage on the Property (including the registered parcel) as security for an additional loan of $1,400,000.00. The RFF Mortgage was both recorded at the Registry of Deeds and filed in the Registry District on October 16, 2007. The uncontroverted evidence in the summary judgment record also demonstrates that Link agreed to give the RFF Mortgage first priority on the Property Karll as Manager of Desert Pine, executed the Desert Pine Subordination and two days later, Karll as Manager of Desert Pine, LLC, formerly known as Desert Palm, LLC executed the Desert Palm Subordination. But as already noted, only the Desert Pine Subordination was recorded, and only in the Registry of Deeds. Neither the Desert Pine Subordination nor the Desert Palm subordination was ever filed with the Registry District. [Note 17]
Thus, at the time that Karll, as Manager of Desert Pine LLC, sometimes known as Desert Palm LLC, assigned the Desert Palm Mortgage to Russell in 2009, the Registry Districts record of encumbrances on the registered land parcel would have indicated that the Desert Palm Mortgage was in a superior position to the RFF Mortgage. Similarly, when the RFF Mortgage was foreclosed on March 26, 2011, the record of encumbrances would have shown the Desert Palm Mortgage in a superior position to the RFF Mortgage, as it also would have done in June, 2011 when RFFs foreclosure deed to itself ultimately was filed with the Registry District. Under these facts, and if Russell had no actual knowledge of the off-record, Desert Palm Subordination, Russell might have been in the position of a bona fide purchaser under G.L. c. 185, § 46, to thereby invoke the statutory protections to claim that the Desert Palm Mortgage survived the foreclosure as a priority lien. Due to subsequent events, however, the court need not reach the question of Russells knowledge or lack of knowledge in 2011 in order to decide RFFs Motion for Summary Judgment.
On July 30, 2012, over a year after the RFF foreclosure and more than two years after filing its Complaint in this matter, Russell assigned its interest in the Desert Palm Mortgage back to Desert Pine. This post-foreclosure assignment, which was filed with the Registry District on December 18, 2013, bears on the two key questions presented in RFFs summary judgment motion: first, did the Desert Palm Mortgage survive the RFF foreclosure as a priority lien or was it extinguished by the foreclosure as a junior lien such that Russells assignment back to Desert Pine conveyed nothing; and second, if the Desert Palm Mortgage did survive foreclosure, can Desert Pine as the current holder (and now the real party in interest in this case) avoid the consequences of the Desert Palm Subordination of which it unquestionably had actual knowledge to claim that the Desert Palm Mortgage survived the RFF foreclosure as a senior lien?
The answer to the first question depends on whether Russell lacked actual knowledge of the Desert Palm Subordination, when it accepted the assignment of the Desert Palm Mortgage as consideration for unpaid legal services. If Russell had actual knowledge of the Desert Palm Subordination, it could not legitimately claim that the Desert Palm Mortgage retained a superior position solely on the basis that the Desert Palm Subordination was never filed with the Registry District. But this question I am unable to resolve on the record. There are too many disputed facts to permit a determination as to Russells knowledge regarding the unregistered subordination or whether the assignment of the Desert Palm Mortgage to Russell was made for real consideration. Nevertheless, as noted above it is unnecessary to determine Russells knowledge now that the true party in interest here is no longer Russell, but Desert Pine.
Given that Desert Pine once again holds the Desert Palm Mortgage, the summary judgment record does permit a determination on the second question. It was Desert Pine, the original mortgagee, which agreed to subordinate the Desert Palm Mortgage to the RFF Mortgage as part of a larger transaction in which Link obtained construction financing for the Property from RFF. By subordinating its mortgage to RFFs, Desert Pine would have expected that, in the event of a foreclosure, its mortgage lien would be extinguished beyond the amount of any surplus proceeds from a foreclosure of RFFs lien. [Note 18] Although never filed with the Registry District, the Desert Palm Subordination operates as a contract between the parties. See G.L. c. 185, § 57. Consequently, even if Russell, as assignee, might have claimed a priority mortgage lien on the registered parcel because the Desert Palm Subordination was not filed with the Registry District, Desert Pine who took the Mortgage back with actual knowledge that it had signed the Desert Palm Subordination, cannot rely upon G.L. c. 185, § 46 to avoid the consequences of that subordination.
RFF has failed to show entitlement to judgment as a matter of law that Russell lacks standing to pursue this Complaint or that the Desert Palm Mortgage is void or otherwise unenforceable for failure to secure a debt, merger, or execution without authority. RFF, however, is entitled to a declaratory judgment that Desert Pine is not entitled to invoke the protections of the registration statute to enforce the Desert Palm Mortgage as a first priority lien against the registered parcel.
Judgment shall enter accordingly.
[Note 1] Plaintiffs Verified Complaint included a claim for declaratory judgment that it held a statutory attorneys lien on the Property with first priority, as well as an order requiring the Recorder to accept Plaintiffs certificate of attorneys lien for filing. In an Order dated December 3, 2010, this Court allowed in part and denied in part RFFs Special Motion to Dismiss, dismissing Plaintiffs claims that it held a priority lien on the Property in the form of an attorneys lien, but denying the Special Motion to Dismiss as to Plaintiffs claim that its mortgage held by assignment has priority over RFFs mortgage. The Appeals Court affirmed the December 3, 2010 order on December 22, 2011 in Case No. 2011-P-0552.
[Note 2] Subsequent to the foreclosure sale, RFF initiated a malpractice complaint in Superior Court against its closing attorneys, alleging, inter alia, that as a result of their failure to file a subordination agreement for the registered parcel, RFFs mortgage was behind Desert Pines mortgage. RFF also filed a lawsuit against Link and others in the District Court of Massachusetts, seeking a mortgage deficiency payment and breach of contract damages. The District Court found that there was a surplus from the foreclosure sale and ordered RFF to hold the surplus in escrow pending a determination of the rightful owner of that surplus by a court of competent jurisdiction or by agreement.
[Note 3] Neither Russell nor RFF have held a lien on the Property since 2012. RFF foreclosed on its mortgage lien in 2011, the day after this lawsuit was commenced. Russell re-assigned the mortgage it held to Desert Pine in 2012, as part of a settlement agreement in yet a third lawsuit involving the Property. No Party, however, has ever attempted to amend the pleadings to reflect the changed circumstances by adding or substituting parties or asserting new claims.
[Note 4] Based upon the representations made by Plaintiffs counsel, the court deems any remaining claims set forth in the Complaint to have been waived.
[Note 5] RFF advances three principle theories for the mortgage being void or otherwise unenforceable: the mortgage was executed without proper authority, the mortgage did not secure a debt, or the mortgage has been extinguished by merger.
[Note 6] Hereafter, all references to the Registry of Deeds are to the Southern Essex District Registry of Deeds.
[Note 7] Hereafter, all references to the Registry District are to the Southern Registry District of Essex County.
[Note 8] There is documentation in the summary judgment record of subsequent attempts to clarify that the names Desert Pine LLC and Desert Palm LLC refer to the same entity. Defendants do not present any evidence sufficient to dispute this fact. In order to distinguish between the two related mortgages, this Decision will continue referring to Desert Palm in the context of the mortgage, subordination, and assignment affecting the registered parcel of land; but such reference is not intended to confer Desert Palm with any status as an entity independent of Desert Pine.
[Note 9] The Summary Judgment record includes a copy of a complaint filed by Link against Sojcher and others in Suffolk Superior Court on December 15, 2006, in which Link alleges that Link was established as an LLC on August 18, 2005 and that Links sole member is Al Tamimi. It also alleges that Desert Pine was registered as an LLC in Idaho on January 25, 2005 with Al Tamimi listed as sole member, that Sojcher was instructed to register Desert Pine as a foreign LLC in Massachusetts listing Al Tamimi as member and manager, and that Sojcher was instructed to protect Desert Pines interests by recording a $2,000,000.00 mortgage against the Property in consideration of the funding provided to Link for purchase of the Property. Among Sojchers alleged misdeeds was his registration of Desert Pine with the Secretary, naming himself as manager but listing no members.
[Note 10] The RFF Mortgage was not put in the record by the parties. Accordingly, the court takes judicial notice of the RFF Mortgage as recorded and registered. See Schaer v. Brandeis University, 432 Mass. 474 , 477 (2000) (in deciding a dispositive motion, a judge may take into account matters of public record, orders, items appearing in the record of the case, and exhibits attached to the complaint (internal quotation marks omitted)).
[Note 11] As the party claiming to hold a priority lien, Russell has the burden of proof that the mortgage it held by assignment had priority over the RFF Mortgage and survived the foreclosure of the RFF Mortgage.
[Note 12] Section 15 (a) provides:
Each certificate required by this chapter to be filed in the office of the state secretary shall be executed: (1) by any manager if the limited liability company has managers or by any other authorized person set forth in the certificate of organization or any amendment thereto; (2) if the limited liability company has not been formed, by the person or persons forming the limited liability company; or (3) if the limited liability company is in the hands of a receiver, trustee, or other court-appointed fiduciary, by such receiver, trustee or fiduciary.
Section 15 (b) provides:
Unless otherwise provided in the operating agreement, any person may sign any certificate or amendment thereto by an agent, including an attorney-in-fact. An authorization, including a power of attorney, to sign any certificate or amendment thereto need not be in writing, need not be sworn to, verified or acknowledged, and need not be filed in the office of the state secretary .
[Note 13] This document, titled Certificate of Amendment of Link Development, LLC was filed with the Secretary of the Commonwealth on September 29, 2006, Filing Number 200656917710. This document is referred to obliquely in RFFs Motion for Summary Judgment, but neither party has provided a copy of the document. As it is a public record on file with the Secretary of the Commonwealth, the Court may take judicial notice of the document, which speaks for itself. Schaer, 432 Mass. at 477.
[Note 14] Notably, while Karll did take action to disavow Sojchers granting of the BD Lending Trust Mortgage on behalf of Link, there is no evidence that Karll ever attempted to disavow Socjhers granting of the Desert Palm Mortgage on behalf of Link.
[Note 15] It is the intent and purpose of the Massachusetts land registration system to provide a method for making titles to land certain, indefeasible, and readily ascertainable; [t]he finality and unassailability of registered title is a cornerstone of the registered land system. Feinzig v. Ficksman, 42 Mass. App. Ct. 113 , 116 (1997) (citations omitted). Thus, holders of certificates of title hold their interests in the registered land free from all encumbrances except those noted on the certificate. G. L. c. 185, § 46. A subsequently issued transfer certificate bears the same conclusive effect as the original certificate. Michaelson v. Silver Beach Imp. Assn., Inc., 342 Mass. 251 , 260 (1961).
[Note 16] In Killam, the Supreme Judicial Court held that under the good faith requirement in G.L. c. 185, § 46, a purchaser of previously registered land took subject to an unregistered lease for more than seven years of which he had actual notice, although it was not noted on his certificate of title.
[Note 17] As noted previously, supra note 2, RFF subsequently sued its closing attorneys for failing to file the instrument. However, there is nothing in the summary judgment record to explain why RFF did not take steps to correct the failure before it foreclosed.
[Note 18] See Murphy v. Wachovia Bank of Delaware, N.A., 88 Mass. App. Ct. 9 , 14 (2015) (There is well established case law that recognizes an equitable lien in the surplus proceeds of a foreclosure sale in junior mortgagees (emphasis supplied). The junior mortgagee is considered to be the mortgagor's successor or assignee, and, hence, entitled to surplus proceeds under the terms of G.L. c. 183, § 27. (citing First Colonial Bank for Sav. v. Bergeron, 38 Mass. App. Ct. 136 , 138 (1995), Dennett v. Perkins, 214 Mass. 449 , 451 (1913), and Pilok v. Bednarski, 230 Mass. 56 , 58 (1918))).
This well-established law was also recognized in RFF Family P'ship, LP v. Link Dev., LLC, No. CIV. 11-10968- NMG, 2013 WL 3990776, at *2 (D. Mass. Aug. 2, 2013) (Under Massachusetts law, the surplus proceeds of a foreclosure sale by a senior mortgagee pass by equitable lien to junior lienholders. The foreclosing party becomes the trustee of those surplus funds for the benefit of the junior mortgagees. (internal citations omitted)).