MISC 12-465911

January 29, 2013


Foster, J.


Plaintiff Brian Pehl filed his Complaint on June 13, 2012. Defendant Bank of America, N.A. (BANA) filed its Answer on July 7, 2012. Defendant Mortgage Electronic Registration System, Inc. (MERS) filed its Answer on July 17, 2012. A Case Management Conference was held on July 19, 2012. Mr. Pehl filed his Amended Complaint on August 20, 2012. Plaintiff’s Motion to Join Jonathan H. Pehl as Necessary and Indispensable Party was allowed on September 11, 2012. Defendant Jonathan H. Pehl filed his Answer on September 13, 2012. On October 15, 2012, Pehl filed his Summary Judgment Motion and Defendants Countrywide Bank, N.A. (CWB), Countrywide Home Loans, Inc. (CHL), CWABS, Inc. (CWABS), BANA, MERS, The Bank of New York Trust Company (BONY Trust), The Bank of New York Trustee (BONY) (collectively, the Banks), and Phillip A. Italiano filed their Motion to Dismiss Amended Complaint. Pehl filed a Motion to Deny the Defendant Banks’ Motion to Dismiss on November 15, 2012. On November 19, 2012 the defendant Banks and Italiano filed their Opposition to Plaintiff’s Motion for Summary Judgment and Cross-Motion for Summary Judgment. Pehl filed his Opposition to Defendant Banks’ Cross-Motion for Summary Judgment on December 3, 2012. Hearing on these motions was held on December 13, 2012. At the hearing, Italiano’s portion of the Motion to Dismiss Amended Complaint was allowed, and all claims against Italiano were dismissed with prejudice. Because the legal grounds for the Banks’ Motion to Dismiss Amended Complaint and Cross-Motion for Summary were essentially the same, I am treating the remainder of the motions before me as Cross-Motions for Summary Judgment. The Cross-Motions for Summary Judgment were taken under advisement.

Summary judgment may be entered if the “pleadings, depositions, answers to interrogatories, and responses to requests for admission . . . together with affidavits . . . show that there is no genuine issue of 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, I am 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 Coll. v. Town of Weston, 462 Mass. 280 , 284 (2012), quoting Augat, Inc. v. Liberty Mut. Ins. Co., 410 Mass. 117 , 120 (1991). “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).

I find that the following material facts are not in dispute:

1. On May 10, 2006, “Countrywide, N.A.” financed the property at 15 Hapgood Way, Shrewsbury, MA (the Property). Two mortgages, each dated May 10, 2006 and securing promissory notes for $344,000 and $43,000, were recorded in the Worcester County Registry of Deeds (registry) at Book 38965, Pages 113 and 131, on May 15, 2006. On each mortgage, CWB was listed as lender, MERS was listed as mortgagee/nominee, and Jonathan Pehl was mortgagor. The mortgage in the amount of $344,000 will hereinafter be referred to as the “First Mortgage”.

2. A “Pooling and Servicing Agreement” dated July 1, 2006 was entered among CWABS, CHL, Park Monaco, Inc., Park Sienna, LLC, Countrywide Home Loans Servicing, LP, BONY, and BONY Trust (the PSA).

3. On July 27, 2007, Jonathan Pehl as mortgagor gave a second mortgage on the Property, entitled “Mortgage Deed” (Second Mortgage), to plaintiff Brian Pehl as mortgagee. The Second Mortgage was in the amount of $81,500 and secured the construction cost of improvements that Pehl made on the Property. The Second Mortgage was recorded in the registry at Book 41577, Page 107 on July 27, 2007.

4. On June 9, 2008 the First Mortgage in the amount of $344,000 was modified by the execution of a Loan Modification Agreement between Jonathan Pehl and CWB.

5. On October 4, 2011 an Assignment of Mortgage of the First Mortgage (the Assignment) was executed by MERS, acting as nominee for the originating lender, CWA, to BANA, successor by merger to BAC Home Loan Servicing, LP, FKA Countrywide Home Loan Servicing, LP. The Assignment was recorded in the registry at Book 48001, Page 232 on October 24, 2011.


As the Plaintiff’s Motion for Summary Judgment and the Defendants’ Cross-Motion for Summary Judgment address the same issues, they are discussed together.

Pehl raises three counts in his amended complaint. Count one alleges that the Banks did not register the assignments as required by G.L. c. 185, § 67. Count two alleges that MERS failed to secure the debt owed in violation of G.L. c. 183, § 3. Count three seeks a declaratory judgment, without specifying what declaration is sought. General Laws c. 185, § 67, only applies to registered land. The Property is not registered, and therefore Pehl does not a state a claim under count one. General Laws c. 183, § 3, provides that an “estate or interest in land created without an instrument in writing . . . shall have the force and effect of an estate at will only, and no estate or interest in land shall be assigned, granted or surrendered unless by such writing or by operation of law.” Id. All the mortgage interests and assignments at issue are in writing, and therefore Pehl does not state a claim under count two.

Count three can be construed as seeking a declaration that Pehl’s Second Mortgage is in first priority position, over the First Mortgage. Pehl argues in his Motion for Summary Judgment that on the record before the court, it is clear that the Second Mortgage should take priority over the First Mortgage as a matter of law. In his attempt to overcome the well-established basic principle “first in time, first in right,” East Boston Savings Bank v. Ogan, 428 Mass. 327 , 329 (1998), Pehl makes four arguments. First, he argues that the bifurcation of the First Mortgage and the note for the loan that the First Mortgage secures (the Note) renders the First Mortgage invalid. Second, he argues that MERS as the nominee of a lender does not have the rights of a mortgagee. Third, he alleges that there was a breach of the PSA. Fourth, he argues that the Assignment from MERS to BANA is invalid. Pehl contends that based on each of the foregoing reasons, the First Mortgage is invalid and of no consequence, which in turn means that the Second Mortgage is in first priority position.

The Banks argue in their motion that Pehl has no reasonable expectation of proving the legal elements of his case and as a matter of law the First Mortgage is in first position. The Banks contend that Pehl has no standing to challenge any of the assignments of the First Mortgage or to challenge the priority of the First Mortgage.

Standing. In arguing that Pehl has no standing to challenge the First Mortgage or the Assignment, the Banks point to the general rule that “a person who is not a party to a contract or an intended third-party beneficiary of a contract lacks standing to challenge or enforce that contract.” Harvard Law Sch. Coalition for Civil Rights, 413 Mass. 66 , 70-71 (1992); Oum v. Wells Fargo Bank, N.A., 842 F. Supp. 2d 407, 413 (D. Mass 2012); In re Marron, 462 B.R. 364, 374 (Bankr. D. Mass. 2012). However, in a recent decision, this court disagreed with the proposition that only those who are parties to an assignment or third party beneficiaries of an assignment have standing to challenge it. Abate v. Freemont Investment & Loan, 20 LCR 630 (2012). In Abate, the court held that a mortgagor’s equity of redemption was a property interest that gave him standing to challenge whether the entity purporting to foreclose on that interest actually held the mortgage title, either as original mortgagee or by assignment. Id. at 634. Pehl’s interest in the Second Mortgage is similarly a property interest, and he is entitled to protect that property interest. In this action, Pehl is seeking to establish that his mortgagee interest in the Second Mortgage is in first position, and he has standing to assert any legally viable claim that would lead to that result.

Bifurcation of the First Mortgage and Note. Relying on Eaton v. Federal Nat’l Mtge. Ass’n, 462 Mass. 569 (2012), Pehl claims that the bifurcation of the First Mortgage and Note renders the First Mortgage a nullity “unless it secures an obligation.” Id. at 585. He argues that the function of a mortgage is “to employ an interest in real estate as security for the performance of some obligation” and therefore subsequent splitting of the mortgage and note (the obligation to repay the loan) renders the mortgage null. See Restatement (Third) of Property (Mortgages) § 1.1 (1997); Eaton, 462 Mass. at 584, 585. Thus, Pehl maintains, the bifurcation of the First Mortgage from the Note nullifies the First Mortgage, putting his Second Mortgage in first position.

Pehl’s reliance on Eaton is misplaced. He misinterprets the above-quoted language as meaning that a mortgage and note must stay united indefinitely for the mortgage to maintain its validity as a security instrument. The valid execution of a mortgage and note followed by a bifurcation of the two does not render the mortgage null and void. The holding in Eaton does not address the validity of mortgages but rather what is necessary for a “mortgagee,” as a foreclosing entity, to properly foreclose pursuant to the Massachusetts foreclosure statutes. Eaton, 462 Mass. at 586. In its holding, to be applied prospectively, Eaton construed the term “mortgagee” in G.L. c. 244, § 14, to mean a mortgagee that holds both the mortgage and the underlying note or is an authorized agent of the note holder prior to the commencement of the foreclosure process. Eaton, 462 Mass. at 584-586. The splitting of a mortgage and note once a valid mortgage has been recorded does not invalidate or otherwise void the mortgage, and the priority of a recorded mortgage is not affected by such a split.

Here, it is undisputed that the First Mortgage from Jonathan Pehl as mortgagor to MERS as mortgagee was properly executed and subsequently recorded on May 15, 2006. The alleged bifurcation of the First Mortgage and the Note did not occur until after the First Mortgage was recorded. The Second Mortgage on the Property given by defendant Jonathan Pehl as mortgagor to Pehl as mortgagee was not recorded until June 27, 2007, over a year after the recording of the First Mortgage. The First Mortgage is valid, and has priority over the Second Mortgage. Pehl’s argument that the post-recording bifurcation of the First Mortgage and the Note destroys the First Mortgagee’s priority is without legal merit.

MERS as Mortgagee. Pehl argues that MERS’s rights as nominee for a lender are limited to the ability to record a mortgage. This is incorrect. Under Massachusetts law, MERS may function as a mortgagee of record, i.e., as nominee for the note holder. Culhane v. Aurora Loan Servs. Of Neb., 826 F. Supp. 2d 352, 368-371 (D. Mass. 2011); Kiah v. Aurora Loan Servs., LLC, 2011 WL 841282 at *4 (D. Mass. Mar. 4, 2011). As nominee, MERS may exercise a mortgagee’s traditional rights, including the right to assign mortgages, and MERS had the right to properly assign the First Mortgage to BANA. Deutsche Bank Nat’l Trust, Co. v. Cicchelli, 19 LCR 461 , 463 (2011) (noting MERS’s status as nominee for the lender gave it the authority to assign a mortgage); Deutsche Bank National Trust Co. v. Butler, 20 LCR 147 , 147-148 (2011), citing BAC Home Loans Servicing LP v. Kay, Land Court Case No. 10 MISC 428719, Mem. and Order on Def. [‘s] Mot. to Dismiss (Dec. 22, 2010) (Long, J.); Culhane, 826 F. Supp. 2d at 371; Kiah, 2011 WL at *4. Pehl’s argument that the First Mortgage is a nullity because MERS could not act as mortgagee fails. The First Mortgage is valid and maintains its position as the priority lien on the Property.

Pooling and Servicing Agreement. Pehl contends that defendant CWB violated its commitment to the Securities Exchange Commission (SEC) by failing to properly transfer interests contained in the mortgage pursuant to the PSA. Therefore, Pehl argues, the alleged violation of the terms of the PSA invalidates the First Mortgage and places the Second Mortgage in first position. Pehl fails to provide a legal basis for this claim. In any event, while Pehl has standing to seek to establish the priority of the Second Mortgage, he does not have standing to do so by enforcing the PSA. In Abate, the court, in discussing standing to challenge an assignment, explained the distinction between void and voidable instruments: [Note 1]

In Butler [v. Deutsche Bank Trust Co. of Americas], the court noted that Massachusetts law draws a useful distinction between void and voidable assignments. Butler, 2012 WL 3518560, at *7, citing Service Mtge. Corp. v. Welson, 293 Mass. 410 , 413 (1936); Murphy v. Barnard, 162 Mass. 72 , 77 (1894); McCarty v. Murray, 3 Gray 578 , 580 (1854). If an assignment is void, then the mortgage was never assigned to the assignee, and the assignee does not hold the legal title necessary for it to be able to foreclose. Butler, supra. Where “a grantor has nothing to convey . . . [t]he purported conveyance is a nullity, notwithstanding the parties’ intent.” Bongaards v. Millen, 440 Mass. 10 , 15 (2003). A voidable assignment, on the other hand, does not become void unless someone with the authority or right to void it does so. Abate may challenge any assignment on the grounds that it is void, or that it has been voided. He may challenge an assignment on the grounds that it is voidable, however, only if he is a party entitled to void the assignment. Thus, for example, if an assignment is made pursuant to a contract that gives one of the parties to the contract the right to void the assignment, only that party or its beneficiary, successor, or assignee can exercise that right and void the assignment. The distinction between a void and voidable assignment and the determination of who is entitled to void an assignment turn on the specific circumstances of each situation. Abate, 20 LCR at 634.

To the extent that a violation of the PSA might make the First Mortgage voidable, the only person with the authority to void the First Mortgage on those grounds would be a party to or third party beneficiary of the PSA or that party’s successors or assigns. Although the facts relating to the PSA remain in dispute, Pehl conceded that he is not a party to or third party beneficiary of the PSA. He does not have standing to enforce the PSA, and therefore any allegations regarding the PSA do not state a claim upon which relief can be granted.

Assignment from MERS to BANA. Pehl argues that subsequent assignments and transfer of interest, specifically the Assignment from MERS to BANA, were invalid for several reasons. He states that MERS does not have authority to make legal assignments. However, as previously discussed, MERS as mortgagee had the right to assign the First Mortgage. Culhane, 826 F. Supp. 2d at 379; Kiah, 2011 WL at *4. Therefore, this argument fails and does not support the notion that any assignments made by MERS are invalid.

In any event, Pehl has no standing or legal basis to challenge the Assignment from MERS by which BANA now currently holds the First Mortgage. He appears to argue that because the October 24, 2011 Assignment from MERS to BANA was recorded four years after recordation of his Second Mortgage, that the Second Mortgage takes priority. This argument fails to recognize that subsequent assignments of mortgages do not affect the position of the original mortgage. Rather, a mortgage may be assigned by a mortgagee and “[t]hereupon the assignee holds all rights to the mortgage.” A.L. Eno, Jr., & W.V. Hovey, Real Estate Law § 9.49 (4th ed. 2004), citing Lamson & Co. v. Adams, 305 Mass. 238 , 240-241 (1940). The assignee steps into the shoes of the original mortgagee and holds all of the same rights including the right of priority based on the original date of recording of the mortgage. That date secures the position of the mortgage against future lien holders regardless of the path the mortgage may take following execution. [Note 2] Lamson, 305 Mass. at 241. The subsequent Assignment in 2011 of the First Mortgage does not affect its position, and therefore does not place Pehl’s 2007 Second Mortgage in first position. Moreover, to the extent that Pehl is arguing that the October 24, 2011 Assignment was ineffective in assigning the First Mortgage from MERS to BANA, it still has no bearing on the priority of the First Mortgage. “An attack on the assignment has no effect on the validity of the underlying mortgage.” In re Marron, 462 B.R. at 374. Because nothing about the Assignment affects the priority of the First Mortgage or the Second Mortgage, Pehl does not have standing to challenge the Assignment.

Counts one and two of the Amended Complaint do not state a claim upon which relief can be granted. With respect to count three, as a matter of law, the Banks’ First Mortgage takes priority over Pehl’s Second Mortgage because (a) the First Mortgage is valid, and nothing has rendered it void, and (b) the First Mortgage was both executed and recorded prior to the execution or recordation of the Second Mortgage. The Plaintiff’s Motion for Summary Judgment is hereby DENIED and the Defendant Bank’s Cross-Motion for Summary Judgment is hereby ALLOWED. The amended complaint is dismissed.

Judgment accordingly.


[Note 1] In Abate, the relevant instrument was an assignment, but the principle can be applied to whatever relevant instrument a plaintiff is seeking to have declared void.

[Note 2] There are exceptions to this general rule (for example, equitable subordination), but none are at issue in this case.