DEUTSCHE BANK NATIONAL TRUST COMPANY v. REILLY (2020)

MEMORANDUM AND ORDER PURSUANT TO RULE 23.0

In this postforeclosure summary process action, the former homeowner, Sean Reilly, appeals from a summary judgment awarding possession to the foreclosing entity, Deutsche Bank National Trust Company (Deutsche Bank, or trustee). Deutsche Bank acquired Reilly's mortgage when acting as trustee for a pool of mortgage-backed securities. Reilly claims that the foreclosure is invalid because Deutsche Bank never received a proper assignment of the mortgage, inasmuch as the original mortgagee (New Century Mortgage Company) did not execute a written assignment of the mortgage before it declared bankruptcy in 2007. While New Century's agent did execute an assignment to Deutsche Bank in 2015 (prior to the foreclosure), Reilly claims that the 2015 assignment is void because, as a result of the 2008 bankruptcy, New Century no longer held the mortgage in 2015. But while the factual circumstances here may be unusual, for the reasons that follow we agree that the judge properly granted summary judgment of possession.

Background.⁴ Reilly obtained a $161,000 mortgage loan from New Century on February 1, 2006. The loan was secured by a mortgage on Reilly's two-unit property at 99-101 Granby Street in Springfield. The mortgage, granted to New Century, was recorded at the Hampden County Registry of Deeds in February 2006.

Deutsche Bank contends that Reilly's loan was sold by New Century in June of 2006, and became one of a pool of mortgage loans that was assigned to a securitized trust, for which Deutsche Bank was trustee. In the summary judgment record, the evidence of this sale came primarily from the affidavit of Ronaldo Reyes, a Deutsche Bank Vice President. Reyes averred that the Reilly “loan” was conveyed to Deutsche Bank, as trustee, on June 30, 2006. As documentary evidence, Reyes attached (1) the “Pooling and Servicing Agreement” (PSA) for the trust, and (2) an “extraction” from the PSA's list of pooled loans, which appears to identify the Reilly loan as one of the loans assigned to the pool.⁵

Although the “loan” was transferred in 2006, there was no written assignment of the Reilly mortgage from New Century to Deutsche Bank in 2006. In 2007, New Century declared bankruptcy. The bankruptcy court thereafter confirmed a bankruptcy plan for New Century which took effect in 2008, and under that plan “all Assets” of New Century were transferred to a different entity, a liquidating trust.⁶

Foreclosure and procedural history. Reilly has not made any payments on the loan since 2007. New Century took no steps toward foreclosure until August of 2015, when Ocwen Financial Corporation (Ocwen), acting as “attorney in fact” for New Century, purported to execute an assignment of the Reilly mortgage to Deutsche Bank, which was then recorded.⁷ That same month Ocwen, acting as the loan servicing agent, sent Reilly a notice of default. Deutsche Bank then proceeded to foreclose on the property. It conducted the foreclosure sale on May 24, 2016, at which it was the purchaser.

When Reilly thereafter did not vacate the Granby Street property, in February of 2017 Deutsche Bank initiated this postforeclosure summary process action.⁸ In July of 2018, Deutsche Bank moved for summary judgment. In support of the motion, Deutsche Bank submitted the Reyes affidavit and an affidavit from an Ocwen employee, Benjamin Verdooren; both affidavits state that the Reilly “loan” was assigned to Deutsche Bank under the 2006 PSA. The Verdooren affidavit also states that a “recorded version of the assignment of the mortgage conveyed to the Trust was recorded on August 5, 2015.”

In his memorandum in opposition to summary judgment, Reilly challenged Deutsche Bank's authority to foreclose. In particular, Reilly asserted that New Century did not validly transfer the mortgage to Deutsche Bank prior to the 2008 transfer of “all Assets” of New Century to a bankruptcy liquidation trust. Accordingly, Reilly asserted, New Century had no mortgage rights to assign Deutsche Bank in 2015.

In October of 2018, the motion judge allowed Deutsche Bank's motion for summary judgment. She stated in her order that “[t]he only reasonable inference to be drawn from the summary judgment record is that the subject mortgage loan (consisting of the mortgage and the note) was transferred to the plaintiff Trust on June 30, 2006. As such, the defendant's mortgage was no longer an asset of New Century Mortgage when it filed bankruptcy.” Judgment accordingly entered for Deutsche Bank. Reilly appeals.

Discussion. From Deutsche Bank's perspective, this is a straightforward case. New Century is the original mortgagee. New Century assigned the loan, including the note and the mortgage, to Deutsche Bank. The mortgage assignment was documented and recorded in 2015, before the foreclosure. The chain of title is accordingly clear, Deutsche Bank submits.

Not so fast, says Reilly. He points out that there was no written assignment of the mortgage in 2006, and that a written assignment is required to transfer title to the mortgage. See U.S. Bank Nat'l Ass'n v. Ibanez, 458 Mass. 637, 653 (2011). New Century declared bankruptcy in 2007, and all its “assets” transferred to another entity in 2008. Accordingly, New Century had nothing to assign in 2015, Reilly argues, when the written assignment was executed by its agent Ocwen. The 2015 assignment is thus void.

The problem with Reilly's syllogism is the assertion that Reilly's mortgage remained a New Century “asset” in 2008, simply because New Century had not by that time executed a written assignment of the mortgage. To the contrary, we conclude that the Reilly mortgage was not an “asset” of New Century at that time. Reilly does not dispute that in June of 2006, New Century sold Reilly's “loan,” and that the “loan” was thereafter transferred to Deutsche Bank, as trustee, in 2006. Without attempting to conclusively define the word “loan” (the briefs, as well as the PSA, are less than crystal clear on this issue), what is clear is that the “loan” that was sold in 2006 at least included the mortgage note. Indeed, Reilly also does not contest that Deutsche Bank held his note by 2006.⁹

Reilly points out, however, that because the mortgage had not also been assigned in writing in 2006, the ownership of the note and mortgage had become separated. But as matter of Massachusetts law, the mortgage note holder has the right to the mortgage even though the mortgage has not yet been formally transferred to it by written assignment. The Supreme Judicial Court explained this in Ibanez, 458 Mass. at 652:

“In Massachusetts, where a note has been assigned but there is no written assignment of the mortgage underlying the note, the assignment of the note does not carry with it the assignment of the mortgage. Barnes v. Boardman, 149 Mass. 106, 114 (1889). Rather, the holder of the mortgage holds the mortgage in trust for the purchaser of the note, who has an equitable right to obtain an assignment of the mortgage, which may be accomplished by filing an action in court and obtaining an equitable order of the assignment. Id.” (Emphasis added.)

The Supreme Judicial Court further explained these principles in Eaton v. Federal Nat'l Mtge. Ass'n, 462 Mass. 569, 576 (2012), where it noted that “a mortgage separated from the underlying debt that it is intended to secure is ‘a mere technical interest’ ” (citation omitted). In holding in Eaton that the mortgage holder had no power to foreclose unless it also held the note, the court described “the role of a ‘bare’ mortgagee as equitable trustee for the note holder” (emphasis added). Id. at 578.

Applying these principles, we conclude that the Reilly mortgage was not an “asset” of New Century when New Century declared bankruptcy in 2007. Rather, New Century had previously transferred the Reilly loan, and New Century's relationship to the mortgage was as trustee of a resulting trust. It follows that the Reilly mortgage was not transferred to the bankruptcy liquidating trust, but rather remained with New Century, such that New Century's agent, Ocwen, could execute the necessary assignment in 2015.¹⁰ Since the 2015 assignment was valid, Deutsche Bank properly foreclosed and properly was granted judgment of possession.¹¹

Judgment affirmed.

FOOTNOTES

4.   The facts are taken from the undisputed facts in the summary judgment record.

5.   The information on the PSA list matches the name, loan amount, and property address for the Reilly loan.

6.   The bankruptcy plan that was adopted by the Bankruptcy Court order defines “Assets” as follows:“ ‘Assets’ means the assets of each of the Debtors, of any nature whatsoever, including, without limitation, all property of the Estates under and pursuant to section 541 of the Bankruptcy Code, Cash, Causes of Action, rights, interests and property, real and personal, tangible and intangible, including all files, book and records, of the Estates.”

7.   The Bankruptcy Court issued a “Second Confirmation Order” on November 20, 2009, which among other things authorized Ocwen to continue to act under a power of attorney executed by New Century in March 2005. The order stated that such previously executed powers of attorney would have binding effect on “the Liquidating Trustee, the Liquidating Trust, and the Estates and may be recorded by the holder of such power of attorney with full force and effect notwithstanding the dissolution of the Debtors.”

8.   Deutsche Bank initially filed two lawsuits -- relating to each of the two units at 99-101 Granby Street -- in the District Court. The lawsuits were transferred to the Housing Court, and thereafter consolidated.

9.   The Reyes affidavit and the PSA establish that the Reilly loan was part of the pool assigned to Deutsche Bank, and Reilly has put forward no facts, at summary judgment, that would raise a genuine issue as to these facts.

10.   The plaintiff has not asserted that as a matter of Federal bankruptcy law, the bare legal title to the mortgage must have been transferred by New Century to the liquidating trust in 2008. Neither party has briefed the Federal bankruptcy law in this court. We note, however, that 11 U.S.C. § 541(b) states that “[p]roperty of the [bankruptcy] estate does not include (1) any power that the debtor may exercise solely for the benefit of an entity other than the debtor” (emphasis supplied). Although we need not decide the bankruptcy law under the circumstances, we do not consider section 541(b), or section 541(d), to be inconsistent with our view that the “technical” interest of bare legal title did not transfer from New Century under the 2008 order.

11.   Our conclusion that the mortgage was properly assigned by New Century in 2015 obviates Reilly's remaining arguments. As noted, Reilly did not contest that New Century transferred the “loan,” in particular the note, in 2006, nor did he contest that Deutsche Bank, as trustee, received the note in 2006. Rather, all of Reilly's arguments were directed at showing that the mortgage was not also transferred, by any writing, at that time. But while this point may be correct, it does not follow that the mortgage remained an “asset” of New Century such that it transferred in bankruptcy.