Schwartz v. HomEq Servicing agent for Deutsche Bank National T

UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
In re 	: 	Chapter 7
SIMA SCHWARTZ a/k/a, 	: 	CASE NO. 06-42476-JBR
SIMA M. SHWARTZ 	:
DEBTOR 	:
SIMA SCHWARTZ 	:
PLAINTIFF, 	:
v. 	: 	Adversary Pro. No. 07-4098
DEUTSCHE BANK NATIONAL TRUST 	:
COMPANY, AS TRUSTEE and HOMEQ 	:
SERVICING AGENT FOR 	:
DEUTSCHE BANK NATIONAL TRUST 	:
COMPANY, AS TRUSTEE 	:
DEFENDANTS. 	:
MEMORANDUM OF DECISION ON MOTION FOR SUMMARY JUDGMENT
This matter came before the Court for hearing on the Defendants’ Motion for
Summary Judgment [docket #32] and the Objection of the Debtor thereto [# 42]. The
multi-count complaint revolves around the Debtor’s allegation that the prepetition
foreclosure sale conducted by Defendant Deutsche Bank’s agents, was invalid while the
Defendants allege they can now demonstrate that Deutsche Bank was the mortgagee at
the time the foreclosure proceedings were done and the sale conducted.
FACTS
The background is set forth in the Court’s Memorandum of Decision [Chapter 7
Case No. 06-42476; docket # 84], and need not be repeated here, The facts relevant to
the summary judgment motion are straightforward and not in dispute. On April 19, 2007
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1As discussed below, both HomEq and Deutsche filed motions for relief to evict
the Debtor based on the fact that Deutsche Bank had conducted a foreclosure sale of
the property prepetition.
2
this Court entered an Order denying the Motion for Relief of HomEq Servicing
Corporation (“HomEq”), one of the Defendant’s herein, in the Chapter 7 bankruptcy
case [Chapter 7 Case No. 06-42476; docket # 85].1 In the accompanying Memorandum
of Decision, the Court explained that HomEq and Deutsche Bank failed to prove that
Deutsche Bank had the right to commence its foreclosure action on the Debtor’s
property. The Court noted:
In the current culture of buying and selling notes and security
instruments, it is not uncommon for notes and mortgages to
be assigned, often more than once. When the role of a
servicing agent acting on behalf of a mortgagee is thrown
into the mix it is no wonder that it is often difficult for
unsophisticated borrowers to be certain of the identity of
their lenders and mortgagees. On more than one occasion
this Court has heard Debtors complain that they did not
know where they were supposed to send their mortgage
payments. In fact the Court has observed instances in which
attorneys representing alleged mortgagees or their servicing
agents did not know whether the client was a mortgagee or a
serving agent, or how their client came to acquire its role.
When this pro se Debtor put found herself in just such a
situation, she challenged whether the correct party brought
and conducted the foreclosure proceedings. When HomEq
was required to prove its authority to conduct the sale, and
despite having been given ample opportunity to do so, what
was produced instead was jumble of documents and
conclusory statements, some of which are not supported by
the documents and indeed even contradicted by them.
Despite having been given two separate opportunities to demonstrate that the
proper party initiated and conducted the foreclosure proceedings, neither HomeEq or
Deutsche Bank could do so. In fact, the documents provided by HomeEq and/or the
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2The Court never addressed whether the mortgage was valid nor did it rule that
the mortgagee, whoever that party might be, was unable to commence a new
foreclosure action.
3Whether Deutsche Bank was the mortgagee by assignment at the time its
Motion for relief was denied, is not material to this matter.
4The Debtor argues that the Court’s finding that the foreclosure sale was not valid
with respect to the Motion for Relief is the “law of the case.” “As most commonly
defined, the doctrine [of the law of the case] posits that when a court decides upon a
rule of law, that decision should continue to govern the same issues in subsequent
stages in the same case.” In re Williams, 190 B.R. 728, 736 (D.R.I.1996). See also
3
Deutsche Bank provided the basis for the contrary conclusion. Moreover as noted in
the Court’s Memorandum of Decision, no party requested an evidentiary hearing and
neither HomEq or Deutsche Bank appealed the April 19, 2007 Order. Consequently the
Court did not grant relief to evict the Debtor because the Bank failed to show that the
proper party initiated and prosecuted the foreclosure action and therefore failed to
demonstrate that the foreclosure was valid. 2 Therefore the foreclosure proceeding was
invalid. The Defendants now argue, however, that they can demonstrate that the
foreclosure was validly commenced and conducted.
DISCUSSION
Summary judgment may be granted if there are no material facts in dispute. Fed.
R. Bankr. P. 7056, incorporating Fed. R. Civ. P. 56. As there are no disputes of any
material facts, 3 summary judgment is an appropriate context in which to address the
Defendants’ argument.
It is too late for the Defendants to argue that the foreclosure was commenced
and conducted by the proper party. They are barred by the principle of collateral
estoppel. 4 As the First Circuit noted in Grella v. Salem Five Cent Sav. Bank, 42 F.3d
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Whitehouse v. LaRoche, 277 F.3d 568, 573 (1st Cir. 2002).
4
26, 30 -31 (1st Cir. 1994),
We have explained that there are two different aspects of res
judicata -claim preclusion and collateral estoppel (also called
issue preclusion). The essential elements of claim
preclusion are: (1) a final judgment on the merits in an earlier
action; (2) an identity of parties or privies in the two suits;
and (3) an identity of the cause of action in both suits. Once
these elements are established, claim preclusion also bars
the relitigation of any issue that was, or might have been,
raised in respect to the subject matter of the prior litigation.
The principle of collateral estoppel, or issue preclusion, bars
relitigation of any factual or legal issue that was actually
decided in previous litigation between the parties, whether
on the same or a different claim. When there is an identity of
the parties in subsequent actions, a party must establish four
essential elements for a successful application of issue
preclusion to the later action: (1) the issue sought to be
precluded must be the same as that involved in the prior
action; (2) the issue must have been actually litigated; (3) the
issue must have been determined by a valid and binding
final judgment; and (4) the determination of the issue must
have been essential to the judgment. An issue may be
“actually” decided even if it is not explicitly decided, for it
may have constituted, logically or practically, a necessary
component of the decision reached in the prior litigation.
(Internal citations and quotation marks omitted).
Although the Grella court went on to address the scope of a hearing on a motion
for relief and held that principles of collateral estoppel did not bar a trustee from later
pursuing a preference claim against the creditor, the case is distinguishable from the
instant one. First the court noted the summary nature of the proceeding and the speed
with which motions for relief are generally determined. In this case, however, HomEq
filed its Motion for Relief on December 7, 2006. At the first hearing on the Motion, held
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5Deutsche Bank continues to mistakenly argue that denial of the Motion for Relief
was based on its failure to record an assignment of the mortgage to it from the previous
mortgagee. The Court expressly stated it was not the lack of recordation that was the
issue but the Bank’s complete failure to demonstrate that it indeed was the mortgagee
5
on January 4, 2007, relief was denied with the notation that “NO EVIDENCE THAT THE
MOVING PARTY IS PROPER MOVING PARTY.” 	On January 8, 2007 Deutsche Bank
filed a new Motion for relief with respect to the same property. The Debtor filed a timely
objection on the grounds that Deutsche Bank was not the proper party to have
commenced and conducted the foreclosure and the Court scheduled a hearing for
February 1, 2007. Deutsche Bank subsequently sought and obtained a continuance of
the hearing so it could re-serve the Motion for Relief and all of its attachments on the
Debtor. At the same time Deutsche Bank filed a response to the Debtor’s Objection and
attached additional documents relevant to the prepetition foreclosure sale. The Motion
for Relief was continued to February 8, 2007 and shortly before and at the hearing,
Deutsche filed more documents to buttress its Motion. At the hearing, however, the
Court voiced the same concerns as it had previously, namely that Deutsche Bank
presented no evidence that it held the mortgage at the time the foreclosure proceedings
were commenced and the sale conducted. The Court, however, took the matter under
advisement and gave Deutsche Bank the opportunity to further supplement its
pleadings. The Bank did and provided the Court with documents it argued
demonstrated its compliance with Massachusetts law in foreclosing on the property.
The Debtor again responded. Following that last volley of pleadings, the Court issued
its Memorandum of Decision and the Order denying relief because Deutsche Bank still
did not demonstrate that it had an interest in the property. 5 That requirement that the
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when the relevant acts were undertaken.
6
moving party have an interest is crucial to any motion for relief. “[H]earings [on motions
for relief] do not involve a full adjudication on the merits of claims, defenses, or
counterclaims, but simply a determination as to whether a creditor has a colorable claim
to property of the estate.” Id. at 32. The court acknowledged that such a holding
comported with the legislative history and quoted the following excerpt from the history:
[A]t all hearings on relief from the stay, the only issue will be
the claim of the creditor and the lack of adequate protection
or existence of other cause for relief from the stay. This
hearing will not be the appropriate time at which to bring in
other issues, such as counterclaims against the creditor on
largely unrelated matters. Those counterclaims are not to be
handled in the summary fashion that the preliminary hearing
under this provision will be. Rather, they will be the subject
of more complete proceedings by the trustees to recover
property of the estate or to object to the allowance of a
claim.... The Senate report reiterates this explanation, but
also adds: However, this would not preclude the party
seeking continuance of the stay from presenting evidence on
the existence of claims which the court may consider in *33
exercising its discretion. What is precluded is a
determination of such collateral claims on the merits at the
hearing.
Id. at 32-33, quoting H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 344 (1977), reprinted
in 1978 U.S.Code Cong. & Admin.News 5787, at 6300 (emphasis added by Grella
court) and S.Rep. No. 95-989, 95th Cong., 2d Sess. 55, reprinted in 1978 U.S.Code
Cong. & Admin.News 5787, at 5841 (emphasis added by Grella court). There is
nothing collateral about a party moving for relief demonstrating that it has the requisite
colorable interest in the property. In determining the motion for relief, the Court did
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6Without having some interest in the property, whether as a mortgagee or
servicer, a creditor lacks standing to prosecute a motion for relief.
7See Fed. R. Bankr. P. 9023 and 9024.
7
more than simply consider Deutsche Bank’s interest; it adjudicated it.6
Because Deutsche and HomEq failed to appeal the orders denying their
respective Motions for Relief and because the time to seek relief from the order has
long since expired, 7 the Motion for Summary Judgment is DENIED. A separate order
will issue.
Dated: February 23, 2009 	____ 	________________
____ 	__
Joel B. Rosenthal
United States Bankruptcy Judge
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