SPF HOLDINGS, LLC v. U.S. BANK NATIONAL ASSOCIATION.

Defendant U.S. Bank National Association holds a senior mortgage ("Mortgage #1") on a residential property at 132 Quincy Street in Brockton, Massachusetts. U.S. Bank moves under Rule 12(b)(6), Mass. R. Civ. P., to dismiss the complaint of plaintiff SPF Holdings, LLC, the holder of a second mortgage (the "SPF Mortgage") on the same property. SPF claims that its mortgage deserves to be ahead of Mortgage #1. The Court agrees with U.S. Bank that SPF's claims, as currently cast, don't present a case for expunging or subordinating Mortgage #1, and thus the Court dismisses SPF's complaint.

Here are the facts alleged in SPF's complaint, all of which this Court must accept as true for purposes of U.S. Bank's motion. In 2002, the then-owner of 132 Quincy Street, Parker W. Bates, signed a $97,046 promissory note in favor of Harborside Financial Network, Inc. To secure his obligations to repay the note, Mr. Bates granted to Harborside Mortgage #1. Harborside simultaneously assigned Mortgage #1 to Mortgage Electronic Registration Systems, Inc. ("MERS"), as nominee for U.S. Bank. On October 1, 2002, both Mortgage #1 and its assignment to MERS were recorded at the Plymouth County Registry of Deeds (the "Registry").

SPF believes that Mortgage #1 has peculiar features. The date that appears on the first page of the mortgage document is "September 16, 2002." That date doesn't appear on page 14 of the Mortgage, where the signature of "Parker Bates" appears. On that same page 14, next to Bates's purported signature, is a blank for a "Witness" to sign; no one signed that blank. On page 15 of the Mortgage, this certificate appears (underlined text handwritten):

COMMONWEALTH OF MASSACHUSETTS, Plymouth County ss:

On this 24th day of September, 2002, before me personally appeared PARKER W. BATES to me known to be the person(s) described in and who executed the foregoing instrument, and acknowledged that he/she/they executed the same as his/her/their free act and deed.

My Commission Expires: 2/26/04 Sean E. McCafferty [cursive signature]

Notary Public

Sean E. McCafferty [printed name]

In 2007, Mr. Bates obtained a home-equity line of credit from Sovereign Bank. To secure his obligations to repay his draws on the line of credit, Bates granted Sovereign what became a second mortgage on 132 Quincy Street ("Mortgage #2"). Six years later, Bates died. His obligations relating to Mortgages ##1-2 were unsatisfied. Shortly after his death, by a document recorded at the Registry in May 2013 (the "MERS Assignment"), MERS purported to assign Mortgage #1 to U.S. Bank. "Kim Kintop, Assistant Secretary" signed the MERS Assignment on behalf of MERS. Like Mortgage #1, the MERS Assignment contains a notary's certificate. It says this (underlines and emphases in original):

State of WISCONSIN

County of MILWAUKEE

On APRIL 19, 2013, before me, Dorothy Mae Hawley, a Notary Public, personally appeared Kim Kintop, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies) and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of Wisconsin that the foregoing paragraph is true and correct.

Dorothy Mae Hawley [cursive signature]

(Notary name): Dorothy Mae Hawley

Commission Expires: 8/28/2016

Commission No: 8/28/16 [handwritten] [Ms. Hawley's Notarial Seal]

In November 2015, thinking that it held Mortgage #1 by virtue of the MERS Assignment, U.S. Bank began to foreclose on 132 Quincy Street. The bank's efforts including recording at the Registry, in 132 Quincy Street's title, an Affidavit Regarding Compliance with MGL c. 244, § 35B and § 35C, and an Order of Notice. U.S. Bank didn't complete its foreclosure efforts, but Santander (still the holder of Mortgage #2) was more persistent: in February 2016, Santander foreclosed on 132 Quincy Street. Its foreclosure notices warned interested purchasers of 132 Quincy Street, however, that they would be taking title subject to Mortgage #1.

In March 2017, Santander recorded at the Registry a foreclosure deed conveying 132 Quincy Street to Randolph REI Group, LLC. In April 2017, Randolph REI granted to Stage Point Fund, LLC the SPF Mortgage. Stage Point subsequently assigned to SPF the SPF Mortgage.

In June 2018, U.S. Bank took what SPF regarded as steps to re-initiate foreclosure efforts on 132 Quincy Street. In November 2018, SPF filed in this Court a five-count complaint against U.S. Bank. The bank removed the action to federal court, but that court remanded the case to this Court in March 2019.

In Count I of its complaint, SPF asks for a declaration that Mortgage #1 contains several defects that make the mortgage void. In Count II, SPF seeks a declaration that the MERS Assignment and, by extension, Mortgage #1 are defective. In Count III, SPF claims that it is entitled to equitable subordination of Mortgage #1 because U.S. Bank "unreasonably delay[ed] the foreclosure proceedings" it commenced in November 2015. In Counts IV-V, SPF requests additional declaratory and injunctive relief, but SPF admitted at argument on U.S. Bank's motion to dismiss that everything in Counts IV-V depends on SPF stating a claim somewhere in Counts I, II or III.

U.S. Bank argues that SPF states no lawful claim whatsoever. The bank further contends that SPF doesn't have standing to contest Mortgage #1 or the MERS Assignment. While the Court disagrees with the bank's view that a second mortgagee's standing to challenge a first mortgage is limited, see Sullivan v. Kondaur Capital Corporation, 85 Mass. App. Ct. 202 , 206 (2014) (any holder of an interest in property, such as a mortgagor, has standing to challenge assignments on which defendant's purported title depends); Kirk v. MacDonald, 21 Mass. App. Ct. 21 , 24-25 (1985) (attaching creditor has sufficient interest in attached real estate to challenge mortgagee's foreclosure efforts); Pehl v. Countrywide Bank, N.A., 21 LCR 58 , 59-60 (2013) (Foster, J.) (holder of second mortgage has standing to challenge assignments on which first mortgagee's purported title depends), the Court agrees that Counts I, II and III don't state claims against U.S. Bank upon which this Court may grant SPF relief.

SPF first argues that the notary's acknowledgement on Mortgage #1 is defective under G.L. c. 183, §§ 29-30. Chapter 183, § 29 provides (emphasis added): "No deed shall be recorded unless a certificate of its acknowledgement or of the proof of its due execution, made as hereinafter provided, is endorsed upon or annexed to it, and such certificate shall be recorded at length with the deed to which it relates. . . ." Massachusetts mortgages like the one Mr. Bates signed constitute "deeds" within the meaning of § 29. See Bank of America, N.A. v. Casey, 474 Mass. 556 , 561 n. 10 (2016). But c. 183, § 30(a), provides little in the way of detail as to how one located within the commonwealth "acknowledge[s]" deeds for purposes of § 29. Section 30(a) provides only this: "The acknowledgement of a deed . . . shall be by one or more of the grantors. . . . The officer before whom the acknowledgement is made shall endorse upon or annex to the instrument a certificate thereof. Such acknowledgement may be made [i]f within the commonwealth, before a justice of the peace or notary public."

SPF admits in its complaint that Mr. Bates was the "grantor" of Mortgage #1, and Mortgage #1 (attached to SPF's complaint) bears a notary public's endorsement. So the acknowledgement on Mortgage #1 appears to satisfy § 30(a)'s requirements. But greater support for the validity of that acknowledgment comes from the "statutory appendix of forms of instruments relating to real estate" appearing in c. 183, forms that c. 183, § 42 expressly states are a non-exclusive means "for taking acknowledgements to deeds" and other purposes. Among the statutory forms is Form 13, an "Acknowledgement of Individual acting in his Own Right." The form reads in full:

(Caption specifying the state and place where the acknowledgement is taken.)

On this day of 19 , before me personally appeared A B (or A B and C D), to me known to be the person (or persons) described in and who executed the foregoing instrument, and acknowledged that he (or they) executed the same as his (or their) free act and deed.

(Signature and title of officer taking acknowledgement. Seal, if required.)

Mortgage #1's acknowledgment tracks Form 13 almost verbatim, but SPF insists that the acknowledgment is defective. SPF first points out, despite the notary's statement that "before me personally appeared PARKER W. BATES to me known to be the person(s) described in and who executed the foregoing instrument," that the acknowledgement doesn't recite that the notary reviewed anything that established Mr. Bates's identity. Requirements concerning review of identity papers have appeared since the time Bates signed Mortgage #1, but they weren't in effect in 2002. See Executive Order No. 455 (03-13) (requiring notaries to review identity documents starting February 18, 2004); Revised Executive Order No. 455 (04-04) (extending compliance date to May 19, 2004). Moreover, Executive Order No. 455 doesn't purport to amend c. 183, §§ 29-30. Hence, even if the Executive Order applied retroactively to Mortgage #1, failure to comply with the Order wouldn't make Mortgage #1's acknowledgement defective for purposes of §§ 29-30. See In re Kelley, 498 B.R. 392, 401 (1st Cir. B.A.P. 2013) (acknowledgment's failure to specify, in accordance with the Order, identity documents presented to notary doesn't void the acknowledgement under §§ 29-30).

SPF next points to the uncertainty surrounding when Mr. Bates signed Mortgage #1: was it the date appearing on the first page of Mortgage #1 (September 16, 2002), the date on which the notary acknowledged Mortgage #1 (September 24, 2002), or some other date (given that the page on which Bates's purported signature appears bears no date)? It's true that the acknowledgement doesn't state when Bates signed Mortgage #1 as his "free act and deed." But SPF presents no authority that c. 183, §§ 29-30 require a notary or justice of the peace to perform the act of acknowledgement (which, according to Form 13, establishes only that a person known to the notary said that he or she signed a document as his or her "free act and deed") contemporaneously with, or within any particular period following, the grantor's execution of the document. Had 132 Quincy Street been registered land, the Registry would not have rejected Mortgage #1 on account of whether Bates signed Mortgage #1 on September 24, 2002 or some other date. See Land Court Guidelines on Registered Land, Guideline No. 1 ("An acknowledgement should be dated; however, the date of the acknowledgement may be either before or after the date of execution appearing on the instrument (regardless of the length of time).").

SPF's real issue with Mortgage #1 is that, in SPF's eyes, "perhaps Bates was not the signatory at all." SPF's Opposition to Defendant's Motion to Dismiss, 9 (emphasis in original). That would mean that Mortgage #1 is a product of fraud. But SPF's complaint doesn't allege that someone committed fraud in 2002 (or at any other time). If SPF wants to claim fraud, it must allege the pertinent circumstances with particularity. See Rule 9(b), Mass. R. Civ. P.; see also Mitchell v. U.S. Bank, N.A., 22 LCR 120 , 131 (2014) (Foster, J.). SPF's complaint doesn't do that. SPF thus fails to state a claim that Mortgage #1 is ineffective.

SPF then attacks the MERS Assignment. SPF builds its attack on the fact that the notary's certificate in the MERS Assignment fails to state that MERS executed the Assignment as MERS's free act and deed. SPF's reasoning seems to be this: first, "the assignment of a mortgage is a conveyance of an interest in land that requires a writing signed by the grantor." U.S. Bank National Association v. Ibanez, 458 Mass. 637 , 649 (2011). Second, as noted earlier, § 29 provides that "[n]o deed shall be recorded" unless it contains a proper acknowledgment. Third, an "assignment" is a deed for purposes of § 29. See Guideline No. 1 ("deed" under § 29 is broadly defined to include assignments of mortgages). Fourth, the essential feature of a valid acknowledgement under §§ 29-30 is its recital that the grantor has acted of his, her, or its "free act and deed." See McQuatt v. McQuatt, 320 Mass. 410 , 413 (1946); see also c.183 App., Form 15 (form "Acknowledgement of a Corporation or Joint Stock Association"; contains certification that signer "acknowledged said instrument to be the free act and deed of said corporation (or association)"). Fifth, since the MERS Assignment lacks a proper acknowledgment, the Assignment's invalid.

SPF cites no authority for the last of these propositions. That's because § 29 doesn't set standards for the creation of assignments and other deeds; by its terms, it regulates only the recording of such instruments. (Not that § 29 always works even in its narrower sense: SPF's complaint attaches a recorded version of the MERS Assignment.) That an assignment doesn't meet §§ 29-30's recording standards doesn't mean that the assignment is invalid or void. See Azevado v. U.S. Bank N.A., 167 F.Supp.3d 166, 171 (D. Mass. 2016) (applying Massachusetts law); see also Ibanez, 458 Mass. at 651 (assignment to a party that has commenced foreclosure proceedings under the assigned instrument need not be "in recordable form at the time of the [party's] notice of sale or the subsequent foreclosure sale, although recording is likely the better practice"). SPF thus fails to state a claim that the MERS Assignment is invalid.

SPF's final claim, that it's entitled to equitable subordination of Mortgage #1, likewise fails. SPF is correct that, under the right circumstances, the courts may invoke the doctrine of equitable subordination in order to adjust priorities among mortgages. See East Boston Sav. Bank v. Ogan, 428 Mass. 327 , 328 (1998). SPF cites no instance, however, in which the Massachusetts courts have elevated a junior mortgage's priority solely on the basis of a senior mortgagee's alleged delay in the exercise of its rights. Equitable subrogation typically requires the junior mortgagee to have done something (or to have suffered something) that gratuitously benefits the senior mortgagee. See id. at 330. SPF alleges no such benefit here. In fact, Ogan has this to say about junior mortgagees: "A second mortgage . . . accepts risks inherent in that security. These included, for instance, a renewal or extension of time for payment on the original mortgage. Actions like these cannot be considered prejudicial to the junior mortgagee and, in fact, do not require the approval of the junior mortgagee." Id. at 331 (citations omitted).

Ogan contrasts such extensions or renewals with a modification of the first mortgage that "unduly prejudice[s]" the junior mortgagee; in such situations, subrogation may be available. Id.

SPF doesn't allege that it conferred any benefit on U.S. Bank, or that U.S. Bank's conduct caused SPF undue prejudice. SPF also hasn't alleged facts that it took its mortgage in 132 Quincy Street by mistake. SPF's complaint admits that when Santander Bank advertised the foreclosure sale that ultimately led to Santander's deed to Randolph REI (and, by extension, the SPF Mortgage), Santander told the world that the sale was subject to Mortgage #1. A review of the Registry's records pertaining to 132 Quincy Street at the time SPF accepted its mortgage also disclosed that U.S. Bank had started foreclosure proceedings, but hadn't finished them. Under these circumstances, equitable subordination of Mortgage #1 isn't available under Massachusetts law.

Order of dismissal to issue accordingly.