ELLIOT E. STONE, Trustee of Elliot E. Stone Realty Trust v. JEFFREY I. STONE.

Elliot E. Stone, Trustee of Elliot E. Stone Realty Trust ("Elliot") [Note 1] filed his Petition to Amend Certificate of Title by Expunging Mortgage, pursuant to G. L. c. 240, § 15 on January 26, 2017. Elliot claims that a mortgage he granted to his brother, the respondent Jeffrey I. Stone ("Jeffrey") in 1994 has become obsolete and unenforceable by the passage of time, and thus should be expunged from the Certificate of Title. Jeffrey, on the other hand, argues that the limitations period applicable to the mortgage has not yet passed, and that he still retains his right to foreclose on the mortgage.

In the petition, Elliot alleges that he is the owner of the registered property at 265-273 Moody Street, Waltham, Middlesex County (the "Property"), as described in Certificate of Title No. 180667, and seeks an order declaring the mortgage held by his brother Jeffrey, registered with the Middlesex County (Southern District) Registry District of the Land Court ("Registry") as Document Number 965399, discharged as a matter of law pursuant to G. L. c. 260, § 33, the "obsolete mortgage" statute, and expunging the mortgage from his Certificate of Title.

On February 17, 2017, Jeffrey filed his Opposition and Motion to Dismiss the Petition to Amend Certificate of Title. Elliot filed an opposition, and a hearing on the motion to dismiss was held on June 27, 2017, following which the court took the matter under advisement. For the reasons stated below, Jeffrey's motion to dismiss is ALLOWED, and the petition will be dismissed.

FACTS

The court considers various recorded instruments submitted with the petition and the motion to dismiss, and other materials outside the pleadings including undisputed matters in the respondent's affidavit. Based on these documents, the court accepts as true the following facts for the purposes of consideration of the motion to dismiss:

1. Petitioner Elliot Stone, as the trustee of the Elliot E. Stone Realty Trust, is the owner of the registered Property at 265-273 Moody Street in Waltham, as shown on Certificate of Title No. 180667. The declaration of trust is dated February 3, 1986, and was recorded with the Registry as Document No. 699861.

2. On December 27, 1994, Elliot signed a promissory note and granted a mortgage to Jeffrey, to memorialize a debt owed by Elliot to Jeffrey, in the principal amount of $275,000.00. The mortgage was recorded with the Registry as Document No. 965399 and was noted on Certificate of Title No. 180667.

3. The original promissory note is now missing. The mortgage reads in relevant part as follows:

[T]o secure payment . . . in the principal sum of Two Hundred Seventy Five Thousand 00/100 ($275,000.00) Dollars, evidenced by its Note of even date herewith, bearing interest from date on outstanding balance at Eighteen (18%) Percent per annum, said principal and interest being payable as provided in said Note, which Note is secured hereby by a certificate thereon. Said Note and all of its terms are incorporated herein by reference and this conveyance shall secure any and all extensions thereof, however evidenced.

4. As shown above, the mortgage incorporates the due date of the original promissory note by reference only; the due date is not stated on the face of the mortgage document itself.

5. On January 30, 1996, Elliot and Jeffrey signed a "Loan Modification and Extension Agreement," allowing Elliot to pay down the loan with $125,000.00 plus an interest payment of $2,250.00 up front, while extending the due date of the remaining principal sum of $150,000.00 and all unpaid interest to December 27, 1996. The loan modification document was not recorded.

6. Jeffrey further contends that the payment called for in the Loan Modification and Extension Agreement was never made. Elliot, on the other hand, claims to have dutifully performed all obligations under the agreement. The dispute between the parties on this issue is not material to the court's decision.

7. In the affidavit filed together with the motion to dismiss on February 27, 2017, Jeffrey acknowledges that he has not been able to locate the original promissory note.

STANDARD OF REVIEW

In considering a motion to dismiss filed pursuant to Mass. R. Civ. P. 12 (b)(6) [Note 2], the court accepts as true the well-pleaded factual allegations and reasonable inferences drawn therefrom, Marram v. Kobrick Offshore Fund, Ltd., 442 Mass. 43 , 45 (2004), but does not accept "legal conclusions cast in the form of factual allegations." Iannacchino v. Ford Motor Co., 451 Mass. 623 , 633 (2008), quoting Schaer v. Brandeis Univ., 432 Mass. 474 , 477 (2000). Mass. R. Civ. P. 12(b) provides that "[i]f, on any motion . . . to dismiss for failure of the pleading to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56." White v. Peabody Constr. Co., 386 Mass. 121 , 126 (1982). The court may, however, also take into account matters of public record and documents integral to, referred to, or explicitly relied on in the complaint, whether or not attached, without converting the motion to a motion for summary judgment. Marram v. Kobrick Offshore Fund, Ltd., supra, 442 Mass. at 45 n.4; Schaer v. Brandeis Univ., supra, 432 Mass. at 477; Reliance Ins. Co. v. City of Boston, 71 Mass. App. Ct. 550 , 555 (2008); Shuel v. DeIeso, 16 LCR 329 , 329 (2008) (Long, J.). "A complaint only survives a motion to dismiss if it includes enough factual heft 'to raise a right to relief above the speculative level.'" Revere v. Massachusetts Gaming Comm'n, 476 Mass. 591 , 609 (2017), quoting Iannacchino v. Ford Motor Co., supra, 451 Mass. at 636.

DISCUSSION

Elliot asks the court to declare the mortgage obsolete and thus discharged as a matter of law on two separate grounds. First, Elliot argues that the mortgage is subject to the 5-year limitations period pursuant to G. L. c. 260, § 33, the "obsolete mortgage" statute, and that Jeffrey failed to foreclose on the mortgage, record a document asserting nonsatisfaction, or record an extension within five years after the debt matured, as required by the statute. Alternatively, Elliot contends that the underlying debt that the mortgage purports to secure is subject to the 20-year limitations period under G. L. c. 260, § 1. He argues that, since the limitations period on enforcement of the note has passed, and Jeffrey is now barred from collecting on the note, the mortgage loses its validity and is therefore unenforceable. Each of these arguments is addressed below.

A. The mortgage is subject to the 35-year limitations period, and therefore is not obsolete.

G. L. c. 260, § 33 provides that "[a] power of sale in any mortgage of real estate shall not be exercised and an entry shall not be made nor possession taken nor proceeding begun for foreclosure of any such mortgage after the expiration of, in the case of a mortgage in which no term of the mortgage is stated, thirty-five years from the recording of the mortgage or, in the case of a mortgage in which the term or maturity date of the mortgage is stated, five years from the expiration of the term or from the maturity date, unless an extension of the mortgage, or an acknowledgment or affidavit that the mortgage is not satisfied, is recorded before the expiration of such period." The statutory language is unambiguous, and whether there is a maturity date stated in the mortgage is crucial in determining which limitations period, five years or thirty-five years, applies to the mortgage. See Harvard 45 Assocs., LLC v. Allied Props. & Mtges., Inc., 80 Mass. App. Ct. 203 , 208 (2011) (holding that mortgage providing on its face that it was to be due and payable on August 31, 2001 is subject to a 5-year limitations period).

In the present case, the mortgage incorporates "by reference" the due date of the note, but does not state the due date anywhere on the face of the mortgage document. The petitioner relies on Deutsche Bank v. Fitchburg Capital LLC to argue that the maturity date, despite not being stated explicitly on the face of the mortgage, is sufficiently referenced so as to incorporate the due dates and other terms of the underlying debt. Deutsche Bank v. Fitchburg Capital, LLC, 471 Mass. 248 (2015). More specifically, the petitioner argues that the date set forth in the loan modification document, December 27, 1996, is an agreed date on which the debt becomes payable, and as a result becomes the maturity date of the mortgage itself. Hence, the petitioner contends that the mortgage should be subject to the 5-year limitations period. The petitioner's reliance on Deutsche Bank is misplaced; the facts in Deutsche Bank are distinguishable, and the petitioner seeks a broader interpretation of its holding than it can support. The Supreme Judicial Court held in Deutsche Bank that the term or maturity date of an underlying obligation can become the term or maturity date of the mortgage only when "stated on the face of the mortgage." Deutsche Bank v. Fitchburg Capital, LLC, supra, 471 Mass. at 257. In fact, the petitioner's interpretation contradicts the holding that was affirmed in Deutsche Bank, to the effect that imposing the stricter 5-year limitations period only when the term or maturity date is clearly set forth on the face of the mortgage itself, instead of forcing the mortgage holder to search for this information outside the record title, creates "a greater level of certainty and consistency for members of the public." Deutsche Bank Nat'l Trust Co. v. Fitchburg Capital, LLC, 21 LCR 559 , 563 (2013) (Foster, J.), aff'd Deutsche Bank v. Fitchburg Capital, LLC, supra, 471 Mass. 248 . Furthermore, the requirement that the term be stated on the face of the mortgage "ensures that the enforcement period is clear from the record, affording the discharge process greater efficiency." Id. The mortgage held to be subject to the 5-year limitations period in Deutsche Bank contained clear language indicating the maturity date of the debt: "it is to secure payment of a promissory note that is to be paid no later than December 31, 2003." Id. In the present case, however, the mortgage merely provides for "said principal and interest being payable as provided in said [note]," without stating explicitly the date to which the mortgage refers. Neither the due date for the original note nor the modified due date is stated anywhere on the face of the mortgage, and neither date is ascertainable as a matter of record title. Therefore, the holding in Deutsche Bank does not support the petitioner's argument that the 5-year statute of limitations applies even when the maturity date is not stated on the face of the mortgage.

B. The mortgage is still valid even if the collection of the underlying debt is time-barred.

The petitioner also relies on dicta in Deutsche Bank that "a mortgage ultimately depends on the underlying debt for its enforceability," to argue that a creditor can no longer foreclose on a mortgage if he is barred from collecting the underlying debt by the statute of limitations. Deutsche Bank v. Fitchburg Capital, LLC, supra, 471 Mass. at 254, quoting Eaton v. Federal Nat'l Mtge. Ass'n, 462 Mass. 569 , 577-578 (2012). According to the loan modification agreement, the debt, being payable in December 1996, would have been barred from collection by the end of 2016 pursuant to the 20-year statute of limitations set forth in G. L. c. 260, § 1. Therefore, the petitioner argues that without a valid underlying debt that can be collected from the petitioner, the mortgage should be unenforceable as well. Again, however, the petitioner's argument is premised on an over-broad interpretation of the holding in Deutsche Bank, and fails in the face of well-established case law.

A mortgage is an interest in real property that secures a creditor's right to repayment, such that should the debtor fail to timely repay the debt, or otherwise default on his obligations, the creditor can foreclose on the mortgage and recover. See Johnson v. Home State Bank, 501 U.S. 78, 82 (1991). In other words, the promissory note and the mortgage co-exist, and as such provide the creditor "a double remedy, one upon his deed, to recover the land, another upon the note, to recover a judgment and execution for the debt." Thayer v. Mann, 36 Mass. 535 , 537 (1837). The mortgage is "to be and remain in full force until the debt shall be paid." Id.

Although Jeffrey would be barred by the statute of limitations from collecting on the promissory note in a contract action, the mortgage remains enforceable, for the debt has not been paid. See id.; Munroe v. Stanley, 220 Mass. 438 , 443 (1915) ("The statute of limitations does not extinguish the debt, it merely bars the remedy."). This is true in other contexts as well. The Supreme Court has held that even a bankruptcy discharge "extinguishes only one mode of enforcing a claim – namely, an action against the debtor in personam – while leaving intact another – namely, an action against the debtor in rem." Johnson v. Home State Bank, supra, 501 U.S. at 82. When the debt remains unpaid, the mortgage is still "in full force," and the creditor is entitled to recover the land, i.e. to foreclose on the mortgage. See Thayer v. Mann, supra, 36 Mass. at 537. To hold otherwise is to render the "double remedy" secured by both the mortgage and the note meaningless. Id. Therefore, even assuming the validity of the loan modification document showing the correct due date, and the applicability of the 20-year statute of limitations to the obligations under the underlying note, the petitioner is not entitled to have the mortgage expunged on the ground that collection of the underlying debt in a contract action is time-barred.

C. The respondent is not precluded from foreclosing on the mortgage by the loss of the note.

Neither the petitioner nor the respondent raised the issue of whether the mortgage is still enforceable by the respondent Jeffrey Stone, given that the original promissory note is missing. In the interest of completeness in evaluating the validity of the mortgage in dispute, the issue is nonetheless addressed here.

In Massachusetts, a real estate mortgage is both a transfer of legal title to the property and the security for an underlying obligation; the title granted in the mortgage is defeasible when the debt is paid. See U.S. Bank Nat'l Ass'n v. Ibanez, 458 Mass. 637 , 649 (2011). In case the mortgage and the underlying note are separated, the holder of the mortgage holds the mortgage in trust for the owner of the note. Id. Hence, a foreclosing mortgagee does not need to have physical possession of the underlying note, as long as he acts "as the authorized agent of the note holder, to stand 'in the shoes' of the 'mortgagee.'" Eaton v. Federal Nat'l Mtge. Ass'n, supra, 462 Mass at 585. Where one is not able to provide physical proof of the underlying note to a mortgage, he may rely on a "lost note affidavit" as evidence of possession of the note or authority to act on behalf of the note holder. Zullo v. HMC Assets, LLC, 25 LCR 400 , 403-406 (2017) (Foster, J.). To that end, an enforceable lost note affidavit must meet the standard set forth in G. L. c. 106, § 3-309:

(a) A person not in possession of an instrument is entitled to enforce the instrument if (i) the person was in possession of the instrument and entitled to enforce it when loss of possession occurred, (ii) the loss of possession was not the result of a transfer by the person or a lawful seizure, and (iii) the person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process.

G. L. c. 106, § 3-309.

According to respondent's affidavit, he is no longer able to locate the note. If he seeks to foreclose on the mortgage, he will need to prove uninterrupted possession of the promissory note before the loss of the note occurred, pursuant to G. L. c. 106, § 3-309(a). In other words, if he remains the holder of the note or one who, as mortgagee, is properly acting on behalf of the holder of the note, and he can comply with the requirements of G. L. c. 106, § 3-309(a), he will not be precluded from foreclosing on the mortgage by reason of not being in physical possession of the note. The court has not been asked to, and does not rule, on whether Jeffrey can meet these requirements, nor is the present record sufficient to allow the court to rule on such compliance.

CONCLUSION

For the reasons stated above, the respondent's motion to dismiss is ALLOWED.

Judgment will enter in accordance with this memorandum and order.

So Ordered.