MARY BISHAY and BAHIG BISHAY, Plaintiffs, v. U.S. BANK, NATIONAL ASSOCIATION, as Trustee for Asset Backed Securities Corporation Home Equity Loan Trust, Series OOMC 2006-HE5, Asset Backed Pass-Through Certificates, Series OOMC 2006-HE5, Defendant

Introduction

Mary Bishay is the sole owner of the property located at 4 Yew Drive, Norwood, Massachusetts (the property), where she has been residing with her husband Bahig Bishay, the co-plaintiff in this action. Ms. Bishay gave a note and a mortgage on the property in the original principal amount of $446,250.00 on April 25, 2006. The note and the mortgage were eventually assigned to the defendant U.S. Bank, National Association, as Trustee for Asset Backed Securities Corporation Home Equity Loan Trust, Series OOMC 2006-HE5, Asset Backed-Pass Through Certificates, Series OOMC 2006-HE5 (U.S. Bank). Ms. Bishay has not paid the debt as obligated, and the note was accelerated in 2006. U.S. Bank would like to foreclose on the mortgage. The problem, as outlined by the Bishays, is that U.S. Bank's custodian lost the note. At issue in the Bishays' cross-motion for summary judgment are three questions: (1) Does a lost note affidavit from the noteholder's agent suffice to make the noteholder a holder of the note for the purposes of foreclosure? (2) Is the mortgage obsolete under the Obsolete Mortgage Statute, G.L. c. 260, § 33? (3) Does the statute of limitations for notes bar foreclosure of the mortgage? U.S. Bank asks in its motion a fourth question: Does it have the authority to exercise its power of sale under the mortgage? As set forth below, the answer to each of these four questions is, respectively, (1) yes, (2) no, (3) no, and (4) yes.

Procedural History

Mary Bishay and Bahig Bishay (the Bishays) filed their Subsequent to Registration Verified Complaint Seeking Declaratory and Injunctive Relief (Complaint) on May 7, 2018. Following the Citation issued on November 19, 2019, U.S. Bank, National Association, as Trustee for Asset Backed Securities Corporation Home Equity Loan Trust, Series OOMC 2006- HE5, Asset Backed-Pass-Through Certificates, Series OOMC 2006-HE5 (U.S. Bank) filed its Answer and Counterclaim on January 4, 2019 (Counterclaim). On January 11, 2019, the Bishays filed Petitioners' Motion to Strike Answer and Counterclaim Presented by Respondent for Lack of Standing. On January 15, 2019, the court stayed this motion and ordered the parties to appear for a case management conference. On January 18, 2019, U.S. Bank filed Defendant's Opposition to Plaintiffs' Motion to Strike Answer and Counterclaim. After the case was transferred from Judge Vhay to Judge Foster, the case management conference was held on February 22, 2019. The Defendant's Motion for Summary Judgment, Memorandum of Law in Support of Defendant U.S. Bank National Association's Motion for Summary Judgment, Defendant's Statement of Undisputed Material Facts Pursuant to Land Court Rule 4 (Facts), and Defendant's Appendix (Def. App.) were filed on November 1, 2019. The Bishays filed Plaintiffs' Motion for Summary Judgment and Plaintiffs' Opposition to Defendant's Motion for Summary Judgment (Plaintiffs' Cross-Motion for Summary Judgment), Plaintiffs/Petitioners' Brief (including Plaintiffs' Record Appendix (Pl. App.)), Concise Statement of the Undisputed Material Facts Reflecting No Genuine Issues to Be Tried, and the Affidavit of Bahig Bishay on December 2, 2019. The Bishays filed Plaintiffs' Response to Defendant's Statement of Undisputed Material Facts Pursuant to Land Court Rule 4 (Pl. Resp.) on December 6, 2019. On December 20, 2019, U.S. Bank filed Defendant's Opposition to Plaintiffs' Cross-Motion for Summary Judgment Pursuant to Land Court Rule 4, Defendant's Memorandum of Law in Support of Its Opposition to Plaintiffs' Cross-Motion for Summary Judgment, and Defendant's Response to Plaintiffs' Statement of Undisputed Facts. The Defendant's Motion for Summary Judgment Hearing and the Defendant's Cross-Motion for Summary Judgment were heard on January 8, 2020, and taken under advisement. This Memorandum and Order follows.

Summary Judgment Standard

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 is to draw "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). Where the non-moving party bears the burden of proof, the "burden on the moving party may be discharged by showing that there is an absence of evidence to support the non-moving party's case." Kourouvacilis v. General Motors Corp., 410 Mass. 706 , 711 (1991), citing Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); see Regis College, 462 Mass. at 291-292.

Facts

1. On October 30, 2003, Mary Bishay, f/k/a Mary Costello, became the sole owner of the property by a deed registered with the Norfolk County Registration District of the Land Court as Document No. 999983, as noted on Certificate of Title No. 166200. Bahig Bishay, the co-Plaintiff, is married to Mary Bishay and resides at the property. Facts ¶ 1, Pl. Resp. ¶ 1, Def. App. Exh. A-1. Facts ¶ 1, Pl. Resp. ¶ 1, Def. App. Exh. A-1.

2. On April 25, 2006, Mary Bishay executed a note (Note) in the original principal amount of $446,250.00 in favor of H&R Block Mortgage Corporation, which was secured by the mortgage to H&R Block Mortgage Corporation. The Mortgage was registered with the Norfolk County Registration District of the Land Court on May 5, 2006, as Document No. 1101366, as noted on Certificate of Title No. 166200 (Mortgage). Facts ¶¶ 2, 4, 5, Pl. Resp. ¶¶ 2, 4, 5, Def. App. Exhs. A-2, A-3, Pl. App. RA-10, 30.

3. The Mortgage has an expiration dated June 1, 2036, on the face of the Mortgage. Facts ¶ 9, Pl. Resp. ¶ 9, Def. App. Exh. A-3, Pl. App. RA-10.

4. The Note was endorsed to Option One Mortgage Corporation, and thereafter endorsed by Option One to blank. Facts ¶ 3, Pl. Resp. ¶ 3, Def. App. Exh. A-2, Pl. App. RA-30.

5. On November 9, 2007, the Mortgage was assigned to Option One Mortgage Corporation, as registered on November 26, 2007, with the Norfolk County Registry of Deeds, District of the Land Court as Document No. 1142195, as noted on Certificate of Title No. 166200. Facts ¶ 6, Pl. Resp. ¶ 7, Def. App. Exh. A-4, Pl. App. RA-23.

6. On March 3, 2009, the Mortgage was further assigned to U.S. Bank, National Association, as Trustee for the Certificate Holders of Asset Backed Securities Corporation Home Equity Loan Trust, Series OOMC 2006-HE5, as registered on March 10, 2009, with the Norfolk County Registry of Deeds, District of the Land Court as Document No. 1169804, as noted on Certificate of Title No. 166200. Facts ¶ 7, Pl. Resp. ¶ 7, Def. App. Exh. A-5, Pl. App. RA-24.

7. On May 3, 2006, Wells Fargo Bank, as the document custodian for U.S. Bank, took possession of the original Note. Facts ¶ 11, Pl. Resp. ¶ 11.

8. The Mortgage and Note were deposited into U.S. Bank Trust per the terms of the Pooling and Servicing Agreement dated July 1, 2006. Facts ¶ 10, Pl. Resp. ¶ 10, Def. App. Exh. A-7.

9. On June 29, 2010, Mary Bishay and Bahig Bishay received by certified mail a notice of default from attorney Chad A. Morrone, acting on behalf of U.S. Bank as holder of the Mortgage and Note, declaring that the maturity date of the Note had been accelerated as of that date. The Note and Mortgage have been in default due to Mary Bishay's failure to make payments since October 2008. Facts ¶ 20, Pl. Resp. ¶ 20, Pl. App. Exh. A-10, Pl. App. RA-105.

10. On July 15, 2010, the Mortgage was assigned to U.S. Bank, as registered on September 1, 2010, with the Norfolk County Registry District of the Land Court as Document No. 1207103, as noted on Certificate of Title No. 166200. Facts ¶ 8, Pl. Resp. ¶ 8, Def. App. Exh. A-6, Pl. App. RA-26.

11. On August 6, 2010, Wells Fargo released the collateral file, including the original Note to the mortgage loan servicer, American Home Mortgage/Homeward Residential. Facts ¶ 12, Pl. Resp. ¶ 12.

12. In December 2012, after acquiring American Home Mortgage/Homeward Residential, Ocwen Loan Servicing, LLC became the loan servicer on behalf of U.S. Bank. Facts ¶¶ 13, 14, Pl. Resp. ¶¶ 13, 14.

13. On August 11, 2017, Ocwen Loan Servicing, LLC performed a diligent search of the file, looking for the original Note, but could not locate it. Facts ¶ 16, Pl. Resp. ¶ 16.

14. On October 23, 2017, Ocwen Loan Servicing, LLC executed a "Lost Note Affidavit" (lost note affidavit). Facts ¶ 17, Pl. Resp. ¶ 17, Def. App. Exh. A-9, Pl. App. RA-27.

15. Until the original Note was found to have been lost or destroyed, the various authorized agents of U.S. Bank retained possession of the Note. Facts ¶ 18, Pl. Resp. ¶ 18.

16. The Note was not transferred to any other entity and no further endorsement were made on the Note after it became lost. Facts ¶ 19, Pl. Resp. ¶ 19.

17. U.S. Bank seeks to foreclose on the Mortgage. Facts ¶ 22, Pl. Resp. ¶ 22.

Discussion

U.S. Bank seeks to exercise its power of sale under G.L. c. 244, § 14, to foreclose the Mortgage. In order to do so, it must "hold[] the mortgage and also either hold[] the mortgage note or [be] acting on behalf of the note holder." Eaton v. Federal Nat'l Mtge. Ass'n, 462 Mass. 569 , 571 (2012). It is undisputed that U.S. Bank holds the Mortgage by the 2010 assignment. The Bishays raise three reasons why, they claim, U.S. Bank cannot exercise the power of sale and foreclose. First, they argue that U.S. Bank cannot rely on the lost note affidavit to show that it holds the Note. Second, they argue that foreclosure on the Mortgage is time-barred by the Obsolete Mortgage Statute, G.L. c. 260, § 33. Finally, they argue that U.S. Bank cannot foreclose on the Mortgage because enforcement of the Note is barred by the six-year statute of limitations in G.L. c. 106, § 3-118(a). [Note 1]

Lost Note

General Laws c. 106, § 3-301, provides that a person may enforce a note if the person is "(i) the holder of the [note], (ii) a nonholder in possession of the [note] who has the rights of a holder, or (iii) a person not in possession of the [note] who is entitled to enforce the [note] pursuant to ... 3-309." Id. The Note having been lost and therefore not in its possession, U.S. Bank relies on § 3-301(iii) for its power to enforce the Note. That provision requires U.S. Bank to meet the standard for enforcing lost notes under G.L. c. 106, § 3-309. Section 3-309 provides that in situations in which a note gets lost, destroyed or stolen, the person not in possession of the note is "entitled to enforce it 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." G. L. c. 106, § 3-309(a). A person looking to enforce the terms of a lost note under the authority of § 3-309(a) must be able to show actual physical possession of the note before it was lost or destroyed. Zullo v. HMC Assets, LLC, 25 LCR 400 , 405 (2017) (Foster, J.); see In re Harborhouse of Gloucester, LLC, 505 B.R. 365, 372 (Bankr. D. Mass. 2014), aff'd 523 B.R. 749 (B.A.P. 1st Cir. 2014) (under Massachusetts law there is a requirement of actual possession of the negotiable instrument at the time of loss in order for a party to enforce the instrument).

U.S. Bank contends that it is entitled to enforce the terms of the lost Note at issue because it had been in possession of the Note up to the time it was lost, as required by G. L. c. 106, §§ 3-301 and 3-309. While it was not the entity to physically hold the Note itself, U.S. Bank argues that it was still in possession of the original Note through its agents starting on May 3, 2006, when Wells Fargo Bank, as the document custodian for U.S. Bank as Trustee, took possession of the original Note, before releasing it to the mortgage loan servicer American Home Mortgage/Homeward Residential on August 6, 2010. In December 2012, after acquiring American Home Mortgage/Homeward Residential, Ocwen Loan Servicing, LLC became the loan servicer on behalf of U.S. Bank. It was then determined on August 11, 2017, following a diligent search of the file, that Ocwen Loan Servicing, LLC, as an agent for U.S. Bank, could not locate the Note anymore. Therefore, U.S. Bank claims, it constructively possessed the Note through its agents starting with Wells Fargo on May 3, 2006, up to the time the Note was lost and declared as such through the lost note affidavit dated October 23, 2017. The Bishays argue that U.S. Bank cannot rely on its agents to show that it had possession of the Note; rather, they maintain, because U.S. Bank never had actual possession of the Note, it cannot use the lost note affidavit.

This very question of whether an entity could rely on its agent to show it held a lost note when it was the agent who lost the note was at issue in Deutsche Bank National Trust v Moynihan, No. 15-CV-14155–MBB, 2016 WL 4098579, at *13 (D. Mass. July 28, 2016) ("the issue therefore reduces to whether the term 'person' in section 3-309 includes the person's agents, i.e., whether section 3-309 displaces Massachusetts principles of common law agency.") Finding that nothing in G.L. c. 106, §§ 3-301 and 3-309, specifically required abandonment of common law principles of agency, the District Court in Moynihan held that the statute did not preclude a person from enforcing a lost note when, at the time the loss occurred, the person had constructive possession, through its agent. Id. This Court agrees. Based on the undisputed evidence, U.S. Bank had constructive possession of the Note through its agents when the Note was lost. U.S. Bank is therefore allowed to rely on the lost note affidavit as authority to enforce the terms of the Note.

The Obsolete Mortgage Statute

Under the Massachusetts Obsolete Mortgage Statute,

[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.

G. L. c. 260, § 33. Thus, a mortgage becomes obsolete and is automatically discharged five years after the expiration of the term or maturity date of either the mortgage or the note as stated on the face of the mortgage, or thirty-five years after recording if no term is stated. Id.; Deutsche Bank Nat'l Trust Co. v. Fitchburg Capital, LLC, 471 Mass. 248 , 253-254 (2015).

The Mortgage states on its face that it secures the Note and states the Note's maturity date of June 1, 2036. Thus, the Mortgage will not be deemed discharged under the Obsolete Mortgage Statute until June 1, 2041. The Bishays argue that the acceleration of the Note on June 29, 2010, also accelerated the maturity date of the Mortgage for purposes of the Obsolete Mortgage Statute, and have requested this Court to declare the Mortgage discharged. This argument was made and rejected in Nims v. Bank of N.Y. Mellon, 97 Mass. App. Ct. 123 (2020). The Appeals Court in Nims held that the notion that acceleration of the note triggers the running of the Obsolete Mortgage Statute was at odds with the purpose and design of the statute, which establishes dates at which old mortgages will be deemed discharged so as to quiet title, and not to shorten the period of enforceability of mortgages before their maturity date or term has been reached. Id. at 128-129; see Hayden v. HSBC Bank USA, Nat'l Ass'n, 956 F.3d 69, 71 (1st Cir. 2020) (also holding that nothing in the text of the Obsolete Mortgage Statute supports the assertion that the acceleration of the maturity date of a note affects the five-year limitations period of a mortgage). [Note 2] The Mortgage is not obsolete under the Obsolete Mortgage Statute.

Statute of Limitation

The Bishays argue that U.S. Bank cannot foreclose on the Mortgage because enforcement of the Note is barred by the six-year statute of limitations in G. L. c. 106, § 3-118(a). Section 3- 118(a) provides that "an action to enforce the obligation of a party to pay a note payable at a definite time must be commenced within six years after the due date or dates stated in the note or, if the due date is accelerated, within six years after the accelerated due date." Id. U.S. Bank accelerated the Note on June 29, 2010, thereby setting a new payment date as of that date. The Bishays argue that because the Note became unenforceable on June 29, 2016, it cannot be relied upon to foreclose the Mortgage.

It has long been the law that a mortgage can still be foreclosed upon even if the statute of limitations has run on the underlying note, so long as the debt remains unpaid. Thayer v. Mann, 19 Pick. 535 , 537 (1837) (finding that 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). Therefore, § 3-118 does not apply to mortgage foreclosures. A "mortgage is not a negotiable instrument, and is not a note. It is, instead, 'a transfer of legal title to the mortgage property … made in order to secure a debt [which is] defeasible when the debt is paid.'" Duplessis v. Wells Fargo, N.A. as Trustee, 91 Mass. App. Ct. 1125 , 2017 WL 2332709 (May 30, 2017) (unpublished opinion), at *2, quoting Eaton, 462 Mass. at 575. A foreclosure of a mortgage is an action in rem. While § 3-118(a) may bar enforcement of a note against the obligor, it does not bar in rem proceedings against the property, such as a foreclosure. See id. at *3. As long as the debt evidenced by the note remains unpaid, the mortgagee can foreclose, even if the note is otherwise unenforceable under the statute of limitations. See Stone v. Stone, 25 LCR 526 (2017) (Speicher, J.) (although respondent would have been barred by the statute of limitations from collecting on the promissory note in a contract action, the mortgage remained enforceable, for the debt had not been paid).

Here, assuming the Note is unenforceable under the statute of limitations, it is undisputed that the debt evidenced by the Note has not been fully paid. U.S. Bank is therefore not barred by the statutory limitations period in G. L. c. 106, § 3-118(a) from seeking to foreclose the Mortgage.

In short, U.S. Bank holds the Mortgage. It holds the Note through the lost note affidavit. The Mortgage is not obsolete or time-barred. U.S. Bank may exercise the power of sale in the Mortgage and move to foreclose under G.L. c. 244, § 14.

Conclusion

For the foregoing reasons, the Defendant's Motion for Summary Judgment is ALLOWED and the Plaintiff's Cross-Motion for Summary Judgment Motion is DENIED. It is hereby ORDERED that the Complaint is DISMISSED with prejudice. It is further ORDERED and DECLARED on the Counterclaim that U.S. Bank holds both the Note and the Mortgage and is entitled to exercise the power of sale under the Mortgage. [Note 3]

SO ORDERED