CITIZENS BANK, N.A, f/k/a RBS CITIZENS, N.A., Plaintiff, v. CAROLYN M. TEEHAN, Defendant

Introduction

Plaintiff Citizens Bank, N.A., f/k/a RBS Citizens, N.A. ("the Bank") commenced this action with the filing of a verified complaint ("the Complaint") on March 21, 2019. In the Complaint, the Bank seeks an adjudication that it is the equitable subrogee of a mortgage granted by Anne M. Teehan ("Anne") and her son, John D. Teehan ("John D."), to Citizens Bank of Massachusetts encumbering property located at 30 Spring Garden Street, Dorchester ("the Property"), which secured a promissory note signed by Anne and her daughter, defendant Carolyn M. Teehan ("Carolyn"). The result of such an adjudication would be to encumber Carolyn's interest in the Property. The Bank and Carolyn have cross-moved for summary judgment, and a hearing on those motions was held on September 15, 2020. This decision, granting summary judgment in favor of the Bank, follows.

Undisputed Facts

The following facts established in the record and pertinent to the motion and cross motion for summary judgment are undisputed or are deemed admitted for the purposes of the cross-motions.

1. Anne and her husband John J. Teehan ("John J.") acquired the Property as tenants by the entirety by deed dated November 27, 1962 and recorded in the Suffolk County Registry of Deeds ("the Registry") at Book 7700, Page 304. Joint Appendix In Support Of Plaintiff Citizens Bank, N.A. f/k/a RBS Citizens, N.A's Motion For Summary Judgment And Opposition To Defendant's Cross-Motion For Summary Judgment ("App.") Ex. 1.

2. John J. died on March 23, 1981. App. Ex. 2.

3. Anne conveyed the Property to herself and John D. as joint tenants with rights of survivorship by deed dated October 23, 1989 and recorded in the Registry at Book 15899, Page 311. App. Ex. 3.

4. On December 26, 2006, Anne and John D. executed a mortgage in favor of Citizens Bank of Massachusetts on the Property ("the 2006 Mortgage") to secure a $75,000 promissory note signed by Anne and Carolyn on the same date ("the 2006 Note"), which mortgage was recorded on January 17, 2007 in the Registry at Book 41140, Page 128. App. Exs. 4, 5A.

5. The 2006 Note contained an interest rate of 7.190%, reflected that it was secured by a mortgage of even date, and stated that "for value received, the undersigned (jointly and severally if more than one) promise to pay to the above named Lender or order, the principal sum of $75,000.00." App. Ex. 5A.

6. Carolyn understood that she and her mother were both responsible for the repayment of the 2006 Note. App. Ex. 11 at p. 18, ll. 21-23.

7. The proceeds from the 2006 Note were "mostly" used to renovate the first floor of the house at the Property to make it habitable for Anne. App. Ex. 11 at p. 16, ll. 22-23.

8. By deed dated December 16, 2006, before the 2006 Note and the 2006 Mortgage, but not recorded in the Registry until February 2, 2007 at Book 41241, Page 133 ("the 2006 Deed"), Anne conveyed a life estate in the Property to herself with the remainder interest to Carolyn. App. Ex. 6.

9. The Bank was formerly known as RBS Citizens, N.A. App. Ex. 12; Defendant's Response To Plaintiff's Statement Of Undisputed Facts And Additional Statement Of Undisputed Facts ("D. SOUF") ¶ 1.

10. On March 18, 2011, Anne granted a mortgage in favor of the Bank on the Property ("the 2011 Mortgage") to secure a $100,000 note ("the 2011 Note" and, together with the 2011 Mortgage, "the 2011 Loan"), which mortgage was recorded on March 23, 2011 in the Registry at Book 47727, Page 275. App. Ex. 7.

11. Prior to providing Anne with the 2011 Loan, the Bank engaged a licensed appraiser, The Appraisers Group, to provide an appraisal report of the Property. D. SOUF ¶ 9; App. Ex. 5B.

12. The appraisal report, dated November 15, 2010, listed the "Owner of Public Record" as "Anne and Carolyn Teehan," identified the 2006 Deed as the current legal description of the Property and the "Property Rights Appraised" as fee simple. A copy of the 2006 Deed was provided to the Bank as part of the report. D. SOUF ¶¶ 11, 13.

13. A subsequent report provided by The Appraisers Group titled "Appraisal Update and/or Completion Report" and dated March 11, 2011 also identified the 2006 Deed as the current deed to the Property. D. SOUF ¶ 14.

14. As a condition of providing the 2011 Loan, the Bank required that a portion of the loan proceeds be used to pay off the 2006 Note. See D. SOUF ¶ 15.

15. On March 23, 2011, $67,082.22 of the 2011 Loan proceeds were used to pay off the 2006 Note. See Statement of Material Facts in Support of Plaintiff's Motion for Summary Judgment ("SOUF") ¶ 8 and App. Ex. 5B.

16. The discharge of the 2006 Mortgage was recorded on April 21, 2011 in the Registry at Book 47829, Page 129. App. Ex. 8.

17. Carolyn made regular automatic payments on the 2006 Mortgage from a joint account she shared with Anne. SOUF ¶¶ 12, 15.

18. Carolyn was unaware that Anne had taken out the 2011 Loan until after Anne's death. See SOUF ¶ 14.

19. Anne died on September 17, 2016. App. Ex. 9.

20. Carolyn was unaware that her debt on the 2006 Mortgage had been paid off in 2011 with proceeds from the 2011 Loan until after Anne's death. See SOUF ¶ 13.

21. Carolyn continued making automatic payments from the joint account on what she believed was the 2006 Note after the debt was discharged in 2011, those payments instead being paid towards the 2011 Loan. See SOUF ¶¶ 15, 17.

22. On December 21, 2018, John D. conveyed his interest in the Property to Carolyn by a deed recorded on the same date in the Registry at Book 60565, Page 55. App. Ex. 10.

23. Prior to that time, Carolyn had understood, wrongly, that John D.'s interest in the Property was released in 2006 and believed that, from 2006 forward, she owned the Property "completely." App. Ex. 11 at p. 11, ll. 3-13; p.19, ll. 4-9; and p. 24, ll. 11-18.

Summary Judgment Standard

Generally, summary judgment may be entered if the "pleadings, depositions, answers to interrogatories, and responses to requests for admission ... together with the affidavits ... show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Mass. R. Civ. P. 56(c). In viewing the factual record presented as part of the motion, the court draws "all logically permissible inferences" from the facts in favor of the non-moving party. Willitts v. Roman Catholic Archbishop of Boston, 411 Mass. 202 , 203 (1991). Where both parties have moved for summary judgment, the evidence is viewed "in the light most favorable to the party against whom judgment is to enter." Eaton v. Federal Nat'l Mtge. Ass'n, 93 Mass. App. Ct. 216 , 218 (2018), quoting Albahari v. Zoning Bd. of Appeals of Brewster, 76 Mass. App. Ct. 245 , 248 n.4 (2010). "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).

Discussion

The issue presented here is whether the Bank is entitled to be equitably subrogated to the position of Citizens Bank of Massachusetts' 2006 Mortgage, the debt it secured having been satisfied with funds provided by the 2011 Loan from the Bank. The doctrine of equitable subrogation is an exception to the traditional rule governing priority in mortgages, that "first in time is first in right." E. Boston Sav. Bank v. Ogan, 428 Mass. 327 , 329 (1998) ("Ogan"). In plain terms, equitable subrogation allows for a new mortgage given by the mortgagor, who used the proceeds from the debt secured by the new mortgage to extinguish an earlier mortgage, to receive the same priority once given to the earlier mortgage. [Note 1]

The analysis of this case is guided by the Supreme Judicial Court's decision in Ogan. There, the issue was whether the doctrine of equitable subrogation, which had previously been applied to a refinancing transaction, also applied when a mortgage was extinguished as part of a sale. The property at issue was originally subject to a first mortgage granted by both co-tenants to East Boston Savings Bank and to a second mortgage encumbering only the one-half undivided interest of one of the co-tenants granted to Lois J. Ogan ("Ogan"). Upon the sale of the property to a third-party buyer, the balance of the first mortgage was discharged using funds provided by the buyer's lender, East Boston Savings Bank again, and funds provided by the buyer. However, the closing attorney never discovered Ogan's prior mortgage, which, after closing, held a first position of record on the property. East Boston Savings Bank and the buyer brought suit seeking a declaration that Ogan's mortgage was equitably subordinated to the second East Boston Savings Bank mortgage and to the buyer's equity interest in the property. The Land Court (Scheier, J.) awarded the relief requested and Ogan appealed. The Supreme Judicial Court transferred the case on its own motion.

As a threshold matter, the Ogan court noted that "[w]e have long held that our courts have broad power over mortgages," 428 Mass. at 328, and that "[s]ubrogation is among those long-recognized powers." 428 Mass. at 329. The court then delineated five factors to be used in assessing whether equitable subrogation is appropriate:

(1) [T]he subrogee made the payment to protect his or her own interest, (2) the subrogee did not act as a volunteer, (3) the subrogee was not primarily liable for the debt paid, (4) the subrogee paid off the entire encumbrance, and (5) subrogation would not work any injustice to the rights of the junior lienholder.

Ogan, 428 Mass. at 330. However, because equitable subrogation was "a broad equitable remedy," id., quoting Mort v. United States, 86 F.3d 890, 894 (9th Cir. 1996), it "may apply even where one or more of these factors is absent." Id. Among other things, the court noted that "subrogation will not apply to the extent that it prejudices the intervening mortgagee." 428 Mass. at 330. So, for example, "[t]he payor is subrogated only to the extent that the funds disbursed are actually applied toward the payment of the prior lien." Id., quoting Restatement, supra at § 7.6 comment e, at 520. The court also noted that "[t]he court must also examine the actions of the subrogee," and that "[t]he degree of knowledge attributable to a subrogee concerning the existence of the intervening mortgage may nullify equitable subrogation." 428 Mass. at 331. The court, however, declined to establish any bright line test, either as to whether the subrogee's actual or constructive knowledge of the intervening encumbrance was disqualifying, id. ("We are persuaded by the reasoning of courts that not only allow subrogation where the subrogee has actual or constructive knowledge of the intervening mortgage, but also look to equity to decide if subrogation is inappropriate."), or whether a subrogee's negligence or other behavior was disqualifying, 428 Mass. at 331-332 ("Subrogee culpability, like their level of knowledge concerning the intervening liens, is not susceptible to a clear rule that might distinguish acts that negate the use of subrogation from those that do not.").

In the case before it, the Ogan court found that all five factors described by it had been met. In particular, regarding any injustice to the junior lien holder, the court noted that, after subrogation, Ogan would be behind a first mortgage of $130,000, as opposed to being behind the original first mortgage in the amount of $176,948.65. 428 Mass. at 333. The court also noted that "[i]f equitable subrogation is not applied, [Ogan] will be unjustly enriched because she will ascend to first priority through no act of her own." 428 Mass. at 334. Finally, the court found that "[o]ver-all considerations of fairness support this decision. The plaintiffs expected to have first priority and paid a price that reflected that expectation. They had only constructive notice of the defendant's mortgage and mistakenly overlooked it. The error is not egregious enough to defeat their claim for equitable subrogation." Id.

Applying these legal principles to the present facts, it is evident that the Bank: (1) paid off the 2006 Mortgage to protect its own interest; (2) did not act as a volunteer because it was protecting its own interest, Ogan, 428 Mass. at 330 n.4; (3) was not liable for the debt; and (4) paid off the entire remaining balance of the 2006 Mortgage, thus satisfying Ogan's first four factors. SOUF ¶ 8; App. Exs. 5B, 8. Regarding the fifth factor—injustice to the rights of the junior lien holder or, in this case, the equity owner—Carolyn argues that she will be materially prejudiced if subrogation is applied here because she would then "be subject to foreclosure for debt she did not incur and of which she had no knowledge." Defendant's Memorandum Of Law In Support Of Opposition To Plaintiff's Motion For Summary Judgement And Defendant's Cross-Motion For Summary Judgement, p. 9. In support of this contention, Carolyn relies primarily on the ruling in Wells Fargo Bank, N.A. v. Comeau, 92 Mass. App. Ct. 462 (2017).

In Comeau, the court was asked to impose an obligation on the surviving spouse ("Nancy") to pay the balance of a note that her deceased husband ("William") became obligated to pay when he refinanced their home, where Nancy was not a party to either the old note or the new note or new mortgage, but had signed the mortgage securing the old note. Id. at 463-64. The Comeau court focused its analysis exclusively on equitable considerations, finding, first, that the lender had received what it had bargained for, 92 Mass. App. Ct. at 467 ("The law did not forbid William from mortgaging only his interest in the property, and the law did not forbid Washington Mutual from taking such an interest as security."), and second, that the lender had failed to avail itself of another remedy in the form of a claim against William's estate. 92 Mass. App. Ct. at 468 ("It could have made a claim against William's estate for the balance of the note but chose not to. In our view, the law does not allow Wells Fargo to enlist the aid of a court to transfer to Nancy the obligation of William to pay the note, simply because that is Wells Fargo's remaining avenue to recover its funds."). According to the Comeau court:

[u]ltimately, the purpose of equitable subrogation is to prevent unjust enrichment. And as the judge below stated, "Nancy may have been enriched ..., but she was not unjustly enriched." While Nancy's interest in the property was no longer at risk of being terminated in the event of a future foreclosure relating to the 2003 mortgage, it was William's liability on the 2003 note that was extinguished by the 2005 loan, not Nancy's, because she was not liable on either note. Neither William nor Nancy engaged in any improper or deceptive acts that led to Washington Mutual releasing Nancy's interest in the property and relying solely on William's interest for security.

92 Mass. App. Ct. at 468 (emphasis added).

Carolyn insists that the only distinguishing fact in this case, that Carolyn was a party to the 2006 Note that was paid off by the Bank, does not alter the result that was reached in Comeau. This court disagrees. After considering the equities as described above, the fact that Nancy was not obligated on either note appears to have been outcome determinative in Comeau. Application of the doctrine of equitable subrogation there would have worked an injustice on Nancy. It works no similar injustice on Carolyn, who was obligated on the 2006 Note.

Having determined that the five factors outlined in Ogan have been met here, the court must still consider a balancing of the equities. Ogan, 428 Mass. at 329, quoting Massachusetts Hosp. Life Ins. Co. v. Shulman, 299 Mass. 312 , 316 (1938) ("The question whether to apply subrogation depends on a balance of the interests of the competing mortgagees because 'the right to subrogation rests in equity.'"). In support of her position, Carolyn argues that the Bank had Notice, either actual or constructive, of Anne's life estate when it proceeded with the 2011 Loan and that such knowledge should be fatal to the Bank's claim for subrogation. However, even when there is actual knowledge of an intervening interest, the court must still determine if "the subrogee acted with sufficient knowledge to merit denying subrogation where it would otherwise be the correct result." Ogan, 428 Mass. at 331. There is nothing in the undisputed material facts to support Carolyn's contention that the Bank "willfully" chose to ignore the results of the appraiser's report. Rather, it appears that the Bank was at most negligent. [Note 2] And "[n]egligence of one which does not induce a change of position in the other is not a bar to recovery in cases of subrogation." Ogan, 428 Mass. at 332, quoting Worcester N. Sav. Inst. v. Farwell, 292 Mass. 568 , 574 (1935). As there is no evidence that Carolyn changed her position because of the Bank's negligence, any failure of the Bank to diligently verify the status of title is immaterial.

Carolyn also points to case law that she claims shows that courts have rejected the application of equitable subrogation in several prior cases with similar facts. While the cited cases have some factual similarities, they are distinguishable. See, e.g., Provident Funding Associated, LP v. Martin, Mass. Super. 1581 CV 0077 (2017) (equitable subrogation not applied to extinguish a recorded life tenancy where (1) plaintiff's claim failed to satisfy fourth and fifth Ogan factors and (2) the lender refused to go forward with a loan modification that had been offered by it and accepted by the borrowers absent agreement by a third party to subordinate her life estate); Financial Freedom Acquisition, LLC v. LaRoche, 32 Mass. L. Rep. 540 (2015) (court declined to apply equitable subrogation where the party whose interest the lender sought to encumber was not a party to the transaction and received no meaningful benefit from it); BAC Home Loans Servicing, L.P. v. Savankham, 24 LCR 733 , 735 (2016) (parties whose interest the lender sought to encumber were not parties to either the first loan or its subsequent refinance, and the lender failed to establish that subrogation would not work an injustice to those parties).

As with Carolyn's claim about the Bank's negligence, there is nothing to the Bank's contention that Carolyn and her family "manipulated" title to the Property. Both the 1989 deed to John D. and Anne and the 2006 Deed of a life estate to Anne and remainder to Carolyn were of record at the time of the 2011 Loan.

In the end, the Bank made a mistake. To leave the parties in the position occasioned by that mistake would result in Carolyn being relieved of her obligations under the 2006 Note by virtue of its repayment from proceeds from the 2011 Loan through no act of her own, see Ogan, 428 Mass. at 334, and having the benefit of the improvements to the Property that were funded by the 2006 Note. In contrast, applying equitable subrogation here results in Carolyn being where she understood herself to be for a decade or more after the 2006 Note was executed: the sole owner of property encumbered by the 2006 Mortgage and with a continuing obligation to repay that debt. That is the equitable result.

Conclusion

For the reasons set forth above, Plaintiff's Motion For Summary Judgment is ALLOWED IN PART and DENIED IN PART, and Defendant's Cross-Motion For Summary Judgment is DENIED. Judgment will enter on the Complaint declaring that the Bank is entitled to be placed in the position of record formerly held by Citizens Bank of Massachusetts as first mortgagee under the 2006 Mortgage, as of the date and time the 2006 Mortgage discharge was recorded, but only to the extent of the $67,082.22 disbursed by the Bank to pay off the 2006 Note.

SO ORDERED.