HSBC Bank USA, N.A. v. Palacio

98 Mass.App.Ct. 1118

157 N.E.3d 114 (Table)

HSBC BANK USA, N.A., trustee,¹

v.Raelisa PALACIO & another.²

19-P-1375

Appeals Court of Massachusetts.

Entered: November 5, 2020.

MEMORANDUM AND ORDER PURSUANT TO RULE 23.0

In this post-foreclosure summary process eviction action, a judge of the Housing Court issued a judgment awarding possession of real property to the plaintiff, HSBC Bank USA, N.A., as Indenture Trustee for the Registered Noteholders of Renaissance Home Equity Loan Trust 2007-1 (HSBC). On appeal, the defendants, Raelisa and Pedro Palacio, contend, among other things, that the judge erred by granting summary judgment because the assignment of their mortgage was invalid and the notice of default was defective. The judge concluded that the Palacios lacked standing and that their complaint was barred by res judicata. The Palacios also appeal from the order denying their motion for reconsideration. We affirm.

Background. 1. The loan and default. The Palacios purchased a home in the city of Lynn in 2004. When the payments on their original mortgage became unmanageable, they decided to refinance. On December 12, 2006, the Palacios obtained a loan secured by a mortgage on their home.

In March 2009, the loan was securitized and assigned to HSBC. A written assignment was recorded. Ocwen Loan Servicing, LLC (Ocwen) had been the servicer of the mortgage loan since 2007. In August 2008, the Palacios defaulted on the loan; they have not made any payments on the loan since that default.

2. Prior proceedings. On June 24, 2014, Ocwen sent the Palacios a notice of default specifying the past due amount and stating that the Palacios had the right to cure their default by paying the past due amount within 150 days. HSBC then filed a complaint in the Land Court to determine the Palacios' military status, an early step in the foreclosure process. Judgment entered in that matter in February 2016.

On May 18, 2016, HSBC sent the Palacios a notice of intent to foreclose. On June 8, 2016, the Palacios filed a verified complaint against HSBC and Ocwen in the Essex Superior Court (Superior Court action) challenging HSBC's right to foreclose and alleging defects in the foreclosure process. Specifically, the Palacios alleged that (1) HSBC did not have the legal right to foreclose because the assignment of the Palacios' loan was invalid; (2) Ocwen acted unfairly or deceptively by serving a notice of default that did not establish a full chain of title for the mortgage; (3) HSBC slandered the Palacios' title to their home by recording an invalid assignment; and (4) HSBC waited too long to initiate foreclosure proceedings. The Palacios sought a preliminary injunction to stop the foreclosure sale. A judge denied the injunction request.

On June 13, 2016, HSBC conducted a foreclosure sale at which it purchased the Palacios' property. HSBC recorded a foreclosure deed in the Essex County registry of deeds. In September 2017, a judge dismissed in the Superior Court action three of the four counts of the Palacios' complaint. A judge entered summary judgment in the Superior Court action in HSBC's favor on the final count in October 2018.

3. This summary process action. In December 2018, HSBC sent the Palacios a notice of transfer of ownership. HSBC subsequently served a seventy-two-hour notice to quit on the Palacios. Shortly thereafter, HSBC initiated summary process eviction proceedings in the Northeast Housing Court. The Palacios filed an answer in which they asserted that the foreclosure sale was invalid because it was performed by a "non-attorney and non-notary," and that HSBC never acquired legal title to the mortgage note. They also asserted a counterclaim for fraudulent, unfair, and deceptive business practices under G. L. c. 93A.

On April 18, 2019, HSBC filed a summary judgment motion. After a hearing, the judge concluded, among other things, that the Palacios did not have standing to challenge the validity of the assignment of their mortgage to HSBC, and that their defenses and counterclaims were barred by the doctrine of res judicata.⁴ The Palacios filed a motion for reconsideration, which was denied. They appealed from the judgment and the order denying the motion for reconsideration.

Discussion. On appeal, the Palacios argue that the judge erred by granting HSBC's summary judgment motion because their affirmative defenses and counterclaims challenging HSBC's right to foreclose and certain aspects of the foreclosure process raised triable issues of fact.

"We review a grant of summary judgment de novo to determine ‘whether, 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.’ " Pinti v. Emigrant Mtge. Co., 472 Mass. 226, 231 (2015), quoting Juliano v. Simpson, 461 Mass. 527, 529–530 (2012). Here, there are no disputed issues of material fact. The arguments that the Palacios have made about the validity of the foreclosure are legal arguments. Accordingly, it was not error to resolve this matter via summary judgment.

1. Standing. The motion judge properly dismissed the Palacios' challenge to the assignment of the mortgage for lack of standing. Borrowers have standing to challenge defects in the assignment of their mortgage only where the defect renders the assignment "void, not merely voidable." Bank of N.Y. Mellon Corp. v. Wain, 85 Mass. App. Ct. 498, 502 (2014). See Strawbridge v. Bank of N.Y. Mellon, 91 Mass. App. Ct. 827, 832 (2017) ; Sullivan v. Kondaur Capital Corp., 85 Mass. App. Ct. 202, 205–206 (2014). In Massachusetts, "a mortgage is a transfer of legal title in a property to secure a debt." U.S. Bank Nat'l Ass'n v. Ibanez, 458 Mass. 637, 649 (2011). Accordingly, a foreclosing entity must establish that they hold the underlying mortgage note at the time of foreclosure. Id. at 651. Because an assignment that is voidable is still effective to pass legal title, see Barrasso v. New Century Mtge. Corp., 91 Mass. App. Ct. 42, 46-47 (2017), the fact that an assignment is voidable does not prevent the foreclosing entity from making the requisite showing that it holds the mortgage note.

Thus, "a mortgagor in default has no legally cognizable stake in whether there ... might be latent defects in the assignment process." Bank of N.Y. Mellon Corp., 85 Mass. App. Ct. at 502. In other words, a defect in the assignment does not impact the right of a lender such as HSBC to foreclose; a defect in assignment is a matter between the lender making the assignment and HSBC. Because the Palacios are not impacted by any claimed defect, they do not have a right to challenge it, and therefore lack standing.

2. Res judicata. The judge correctly found that all of the Palacios' defenses and counterclaims were barred by res judicata. " ‘Res judicata’ is the generic term for various doctrines by which a judgment in one action has a binding effect in another. It comprises ‘claim preclusion’ and ‘issue preclusion.’ " Duross v. Scudder Bay Capital, LLC, 96 Mass. App. Ct. 833, 836–837 (2020), quoting Heacock v. Heacock, 402 Mass. 21, 23 n.2 (1988). The doctrine that is relevant here, claim preclusion, is based on "[c]onsiderations of fairness and the requirements of efficient judicial administration [which] dictate that an opposing party in a particular action as well as the court is entitled to be free from continuing attempts to relitigate the same claim" (citation omitted). Baby Furniture Warehouse Store, Inc. v. Meubles D & F Ltée, 75 Mass. App. Ct. 27, 33 (2009). Accordingly, claim preclusion "makes a valid, final judgment conclusive on the parties and their privies, and bars further litigation of all matters that were or should have been adjudicated in the action" (emphasis added). Heacock, supra at 23.

"The invocation of claim preclusion requires three elements: (1) the identity or privity of the parties to the present and prior actions, (2) identity of the cause of action, and (3) prior final judgment on the merits." Santos v....