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Federal National Mortgage Association v. Smith

United States District Court, D. Maine

October 9, 2019




         On October 18, 2018, this two-count complaint for foreclosure (Count I) and unjust enrichment (Count II) was brought by Federal National Mortgage Association (“FNMA”) against Defendants Sheldon A. Smith[1], Bryco Funding, Inc., and Mortgage Electronic Registration Systems, Inc. (“MERS”) as nominee for Bryco Funding, Inc.

         On January 22, 2019, the Clerk issued an Order to Show Cause stating that, although a month had passed since Mr. Smith's deadline to answer or file a responsive pleading, FNMA had not moved for entry of default. Order to Show Cause (ECF No. 13). On January 30, 2019, FNMA filed a Motion for Default Judgment as to Mr. Smith. (ECF Nos 14). The next day, FNMA filed a Motion for Default as to Mr. Smith. The Clerk entered an Order of Default on January 31, 2019. (ECF No. 17).

         On January 16, 2019, FNMA filed the executed Summons for Mortgage Electronic Registration Systems, Inc. and Bryco Funding, Inc. Executed Summons (ECF No. 12). On February 4, 2019, a Scheduling Order issued. (ECF No. 19). FNMA then filed a Consented-To Motion to Substitute Party pursuant to Rule 25(c). The motion provided that on July 3, 2018, MERS as nominee for Bryco Funding Inc. assigned the Smith mortgage to Bank of America, N.A., and on December 28, 2018, Bank of America, N.A., in turn assigned the mortgage to ABS Loan Trust V.[2] The substance of the motion was that because MERS no longer has an interest in Mr. Smith's mortgage, but ABS Loan Trust V did, substitution was warranted. (ECF No. 20). MERS, the only party that had entered an appearance, consented to the motion, which was granted. (ECF No. 21).

         On March 18, 2019, FNMA filed a Motion to Dismiss Bryco Funding, Inc. asserting that on July 3, 2018, Martha Correa, Assistant Vice President of Bryco Funding, executed a quitclaim assignment conveying all Bryco's rights to Bank of America N.A.. (ECF Nos. 25, 25-1). That motion remains under advisement.

         In its motion for default judgment, FNMA erroneously claimed that it is entitled to a default judgment without a hearing because Mr. Smith has not appeared. Pl.'s Mot. for Default J. 6-7 (ECF No. 14). “In Maine foreclosure is a creature of statute.” Bank of Am., N.A. v. Greenleaf, 96 A.3d 700, 708 (Me. 2014). To foreclose on Mr. Smith's real property, FNMA elected to proceed under 14 M.R.S. §§ 6321, et seq., and therefore it “must comply strictly with all steps required by statute.” Greenleaf, 96 A.3d at 708 (quoting Chase Home Fin. LLC v. Higgins, 985 A.2d 508, 511 (Me. 2009)). The Maine foreclosure statute specifically requires that I hold a hearing to determine “whether there has been a breach of condition in the mortgage, the amount due thereon, including reasonable attorney's fees and court costs, the order of priority and those amounts, if any, that may be due to other parties that may appear and whether any public utility easements held by a party in interest survive the proceedings.” 14 M.R.S. § 6322.

         After reviewing the Complaint and the motion for default judgment, I found that on the record presented FNMA could not establish its entitlement to foreclosure under Maine law. Prior to scheduling a hearing on the motion for default judgment, I directed FNMA to provide me with additional evidence, including:

(1) explain how MERS, as Nominee for Bryco Funding Inc. (“Bryco”), had the authority under Maine law to effectively execute a Subordination Agreement dated June 2013, Ex. F to Pl.'s Mot. for Default J. (ECF No. 14-6). See Greenleaf, 96 A.3d 700 and Mortg. Elec. Registration Sys., Inc. v. Saunders, 2 A.3d 289 (Me. 2010); [and]
(2) if the Subordination Agreement is valid, provide the Plaintiff's position on what entity currently holds the Bryco mortgage note, explain the priority of the Bryco mortgage, and file on the docket a copy of the Bryco mortgage note dated in March of 2007;

Procedural Order 3 (ECF No. 26).

         FNMA filed a Response to my Order requesting additional evidence. (ECF No. 27). Thereafter, I issued an Order denying FNMA's motion for default judgment and again identifying the deficiencies in the evidence that made it premature to schedule a foreclosure hearing as required by the Maine statute. That Order stated, in part:

Although it appears that the Plaintiff may have the right to foreclose the mortgage and note originally given by the Smiths to Green Tree Servicing LLC on July 22, 2013, it is not clear that such mortgage has priority over the mortgage given by the Smiths to Bryco Funding Inc. on March 12, 2007. First, it appears that the Plaintiff has the basic Greenleaf problem of whether MERS had the authority to act on behalf of the mortgagee Bryco Funding Inc. under Maine law when it executed the Subordination Agreement on June 25, 2013. The Bryco Funding mortgage has the same language as the mortgage in Greenleaf regarding MERS authority, nevertheless the Law Court held that the assignment executed by MERS was ineffective and, therefore, Bank of America had no standing to foreclose. Bank of America v. Greenleaf, 96 A.3d 700 (Me. 2014).
In addition to the basic Greenleaf problem with the 2013 Subordination Agreement, it is unexplained in the record how MERS had the authority, presumably under California law, to subordinate the senior mortgage years after Bryco Funding Inc. was discharged in a Chapter 7 bankruptcy and suspended as a California corporation. Also without explanation is how Martha Correa, who is identified as a Bank of America employee, created the Quitclaim Assignment and on July 3, 2018, executed the Quitclaim Assignment as an “Assistant Vice President” of the defunct corporation Bryco Funding Inc.

         Order Denying Default Judgment 1-2 (ECF No. 35). I then gave FNMA two months- until October 4, 2019-to file a memorandum addressing my concerns and explaining how on the record before me it was entitled ...

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