In re Harris

In re: RONEY HARRIS, Debtor

Case No. 08-31056-HJB

UNITED STATES BANKRUPTCY COURT DISTRICT OF MASSACHUSETTS WESTERN DIVISION

May 26, 2016

Chapter 7

REPORT AND RECOMMENDATION

Referred to me by the United States District Court for the District of Massachusetts (the "District Court") are cross-motions for summary judgment filed by Roney Harris, the debtor in this previously-closed Chapter 7 bankruptcy case ("Harris"), and PHH Mortgage Corporation ("PHH").¹ PHH holds a promissory note executed by Harris, together with rights in a mortgage covering real property owned by Harris to secure payment of that note. Through these summary judgment motions, the parties seek a ruling on whether, as a matter of law, PHH's actions following the closure of the underlying bankruptcy caseviolated various provisions of the United States Bankruptcy Code² - namely, § 524(a)(2) (the "discharge injunction"), § 362(a) (the "automatic stay") and § 522(c) (the prohibition against collection of certain claims against exempt property). I offer the following Report and Recommendation to the District Court pursuant to its Order of Reference dated July 29, 2015 (Mastroianni, J.).

I. FACTS AND TRAVEL OF THE CASE

While PHH and Harris may each quibble with certain factual allegations raised by the other, the facts material to the outcome of the present contest are not in dispute.

In February 2004, Harris obtained a loan from BMC Mortgage Co. in MA ("BMC") to purchase real property located at 615 White Street in Springfield, Massachusetts (the "Property"). As security for payment of the promissory note (the "Note"), Harris granted BMC a mortgage on the Property (the "Mortgage"). The Mortgage was duly recorded in the Hampden County Registry of Deeds on February 13, 2004. That was apparently the last time (until recently) both the Note and the Mortgage were held by the same entity. BMC eventually endorsed the Note over to Cendant Mortgage Corporation ("Cendant"). Cendant later merged with (or was subsumed into) PHH; and PHH is now, and at all relevant times has been, the holder of the Note.³

While BMC endorsed the Note to Cendant alone, it was far more generous with respect to the Mortgage. BMC assigned the Mortgage to two different entities. First, BMC assigned the Mortgage to Mortgage Electronic Registration Systems, Inc. ("MERS"), as nominee for Wachovia Mortgage Corporation, and that assignment was duly recorded. On the same day, BMC also executed an assignment of the Mortgage to Cendant. But, as later determined in the Bankruptcy Court, the assignment to Cendant was a nullity, as BMC had no remaining rights in the Mortgage to give to Cendant (since the Mortgage had already been assigned to MERS). Cendant then purported to assign the Mortgage to MERS, which in turn purported to assign the Mortgage to PHH. And it is upon this chain of assignments (which really assigned nothing) that PHH originally, and for many years, based its claim of ownership of the Mortgage. Meanwhile, the first assignment from BMC to MERS was essentially reversed when MERS assigned the Mortgage back to BMC. And so it was, in reality, BMC, and not PHH, that was the true holder of the Mortgage during most of the ensuing travails.

Those travails began in late 2007, when Harris stopped making payments on the Note. Upon default, PHH, believing it held the Mortgage by assignment, initiated foreclosure proceedings. Those proceedings were stayed when Harris filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code on July 21, 2008 (the "Bankruptcy Case").

A. The Bankruptcy Case and the Bankruptcy Court's July 19, 2010 Judgment

In the Bankruptcy Case, PHH moved for relief from the automatic stay imposed by§ 362, seeking permission to continue its foreclosure proceedings with respect to the Property (the "Motion for Relief from Stay"). Harris opposed the Motion for Relief from Stay by filing a written objection and by commencing an adversary proceeding (the "Adversary Proceeding") against PHH alleging, inter alia, that PHH was not the rightful holder of the Mortgage. At the conclusion of a consolidated evidentiary hearing held before the Bankruptcy Court on both the Motion for Relief from Stay and the Adversary Proceeding (the "Hearing"), it was determined that PHH was not the holder of the Mortgage by way of assignment for the reasons outlined above. Accordingly, the Motion for Relief from Stay was denied on grounds that PHH had no standing to request relief to proceed to foreclose on the Mortgage. A ruling in Harris's favor in the Adversary Proceeding also entered as follows:

judgment is entered for the Plaintiff insofar as the Court rules that . . . the Defendant PHH Mortgage Corporation did not hold a valid and perfected mortgage on property of the Debtor located at 615 White Street, Springfield, Massachusetts on the date of the commencement of the case.

Judgment, Adversary Proceeding No. 08-3022, ECF No. 173, July 19, 2010 (the "2010 Judgment"). Judgment in favor of PHH was entered on all of Harris's remaining claims asserted against PHH in the Adversary Proceeding. Notably, however, at the conclusion of the Hearing, PHH's request that the Bankruptcy Court opine on whether PHH could proceed postpetition "to obtain a corrective assignment" of the Mortgage was specifically rejected, as the matter was not before the Bankruptcy Court and any statement in that regard would have amounted to an advisory opinion. See July 19, 2010 Hr'g Transcript 6:24-7:11, Adversary Proceeding ECF No. 175, Jan. 21, 2012.

No further action was taken with regard to the Property during the pendency of the Bankruptcy Case. Harris received a discharge of his prepetition debts pursuant to § 727on December 30, 2008. The Chapter 7 trustee filed a Report of No Distribution on January 10, 2011, indicating that the bankruptcy estate had been fully administered and no property was available for distribution to creditors. And the Bankruptcy Case was finally closed on July 22, 2011.

B. The State Court and District Court Proceedings

Immediately after the Bankruptcy Case was closed, PHH again initiated foreclosure proceedings with respect to the Property, and on August 11, 2011 mailed to Harris a "Notice of Mortgage Foreclosure Sale" (the "Foreclosure Notice"). The Foreclosure Notice informed Harris that:

Pursuant to Massachusetts General Laws, Chapter 244, Section 14, as amended, enclosed is a copy of the Notice of Mortgagee's Sale of Real Estate. Also enclosed is a Deficiency Notice.⁴

This notice is provided to you because an examination of the record title shows that you held an interest of record in the property thirty (30) days prior to the sale.

If you want to reinstate or payoff the mortgage, you may order a reinstatement or payoff 24 hours a day on-line . . . . Please follow the instructions contained on the web page. . . . You may also contact us during business hours to request a reinstatement or payoff by calling . . . .

Motion for Summary Judgment, Ex. S, D. Mass. Case No. 3:13-vc-30015-MGM, ECF No. 96, Nov. 3, 2015; Bankruptcy Case ECF No. 123. The attached "Notice of Mortgagee's Sale of Real Estate" stated:

By virtue and in execution of the Power of Sale contained in a certain mortgage given by Roney L. Harris to BMC Mortgage Co. in MA, dated February 13, 2004 . . . of which mortgage PHH Mortgage Corporation is the present holder, for breach of the conditions of said mortgage and for the purpose of foreclosing, the same will be sold at Public Auction at 2:00 p.m. on September 12, 2011 . . . .

Id.

In response, Harris filed suit in the Superior Court Department of the Massachusetts Trial Court (the "Superior Court") seeking (1) an injunction against the pending foreclosure; (2) damages arising out of PHH's attempt to foreclose on the Property; and (3) a declaration that the Mortgage on the Property was void. PHH, in turn, filed a complaint to quiet title in the Superior Court, seeking a ruling that would allow it to eventually proceed with the foreclosure as the holder of the Note with the right to compel an assignment of the Mortgage from the then-present holder of the Mortgage (BMC). Ultimately, the two cases pending in the Superior Court were consolidated (together, the "Superior Court Case"). PHH apparently conceded its then-present lack of standing to foreclose, prompting the Superior Court to rule in Harris's favor "solely on the issue of standing to proceed with a foreclosure sale." Order on the Plaintiff's Motion for Summary Judgment, Harris v. PHH Mortg. Corp., Civil Action No. 11-00699 (Mass. Super. Ct. Dec. 5, 2012), attached as Ex. L to Motion for Summary Judgment, D. Mass. Case No. 3:13-vc-30015-MGM, ECF No. 96; Bankruptcy Case ECF No. 123. The Superior Court clarified, however, that it "d[id] not rule that PHH will never be able to perfect standing, merely that it does not currently have the requisite standing to proceed under G.L. c. 244, § 14 [the Massachusetts foreclosure statute]." Id.

Approximately one month later, in January 2013, Harris filed yet another lawsuit against PHH (and others), this time in the federal District Court, alleging, inter alia, that PHH was violating the discharge injunction established by § 524 of the Bankruptcy Code by attempting to foreclose on the Property and attempting to gain ownership of theMortgage through the quiet title action.⁵ The District Court declined to stay the Superior Court Case and the remaining issues before the Superior Court were tried in June and July 2014.

But no ruling from the Superior Court was immediately forthcoming, and the parties grew impatient. They proceeded to file cross-motions for summary judgment on the issues pending before the District Court (the "Harris Summary Judgment Motion," the "PHH Summary Judgment Motion," and, together, the "Summary Judgment Motions"). While the Superior Court ultimately rendered its decision,⁶ its ruling (that PHH now holds the Mortgage and is entitled to foreclose upon it) was only...