U.S. Bank N.A. v. Williams

U.S. BANK N.A., SUCCESSOR TRUSTEE TO BANK OF AMERICA, N.A.,SUCCESSOR TO LASALLE BANK N.A., AS TRUSTEE ON BEHALF OF THEHOLDERS OF THE WASHINGTON MUTUAL MORTGAGE PASS-THROUGH CERTIFICATES,WMALT SERIES 2, Plaintiff, v. ARTHUR G. WILLIAMS, ANNA WILLIAMS, andARROW MORTGAGE CORPORATION, Defendants.

Civil Action No. 4:17-CV-40145-DHH

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

October 30, 2020

REPORT AND RECOMMENDATION

Hennessy, M.J.

Plaintiff U.S. Bank, N.A. ("U.S. Bank"), successor Trustee to Bank of America, N.A. ("BOA"), successor to LaSalle Bank, N.A. ("LaSalle"), as trustee on behalf of the holders of the Washington Mutual Mortgage Pass-Through Certificates, WMALT 2005-5 ("the Trust"), filed this action to quiet title in a parcel of real estate owned by defendants Arthur G. Williams and Anna Fragale (collectively, "The Williamses").¹ The parcel is located at 8 Vista Circle, Rutland, Massachusetts ("the Property"), and the mortgage on the Property secured a loan by defendant Arrow Mortgage Corporation ("AMC"). U.S. Bank filed a motion for a default judgment againstAMC and the Williamses. [Dkt. No. 44]. Subsequently, U.S. Bank filed a motion for entry of a consent judgment as to the Williamses. [Dkt. No. 69]. For the reasons stated below, the undersigned recommends that U.S. Bank's motion for default judgment be GRANTED as to AMC and DENIED AS MOOT as to the Williamses. The undersigned further recommends the motion for entry of a consent judgment with the Williamses be GRANTED.

I. BACKGROUND

A. Procedural History

U.S. Bank, a Delaware entity with a principal place of business in Minnesota, commenced the instant diversity action by filing a verified complaint against the Williamses in this court on November 6, 2017. [Dkt. No. 1]. Pursuant to Fed. R. Civ. P. 4(c), 4(e)(1), the Williamses were served with summonses and copies of the complaint. [Dkt. No. 5]. On January 22, 2018, after the time allotted for the Williamses to respond to the complaint had lapsed, U.S. Bank requested that the Clerk of Court enter default pursuant to Fed. R. Civ. P. 55(a). [Dkt. No. 6]. On March 1, 2018, the Clerk entered Notices of Default against the Williamses. [Dkt. Nos. 7, 8]. On March 20, 2018, U.S. Bank moved this court for entry of a default judgment. [Dkt. No. 10].

Thereafter, the mailed Notices of Default were returned as undeliverable. [Dkt. Nos. 13-14]. The court then instructed U.S. Bank to report whether service of U.S. Bank's motion for a default judgment was successful. [Dkt. No. 15]. U.S. Bank reported successful service of its motion for a default judgment, but did not address service of U.S. Bank's request for entry of default. [Dkt. No. 17]. After further court instruction, U.S. Bank reported in a supplemental affidavit successful service of its request for entry of default. [Dkt. No. 21]. Following a hearing in which U.S. Bank acknowledged that joinder and service of AMC, a Massachusetts entity, hadnot been attempted, the court ordered U.S. Bank to amend its complaint to join AMC as a necessary party pursuant to Fed. R. Civ. P. 19. [Dkt. No. 24].

In response to the court's order, U.S. Bank amended its complaint to include AMC as a defendant, and narrowed its request for relief to only equitable quiet title. [Dkt. No. 30]. On January 15, 2019, the court denied U.S. Bank's original motion for a default judgment without prejudice because U.S. Bank's amended complaint mooted its original complaint on which the motion for a default judgment depended. [Dkt. No. 32]. U.S. Bank sent a copy of the amended complaint and summons to each of the defendants; none replied or personally appeared in court, and so U.S. Bank again requested entry of default, which the Clerk entered on December 26, 2019. [Dkt. Nos. 37-41]. On January 13, 2020, in accord with Fed. R. Civ. P. 55(b)(2), U.S. Bank filed a second motion for entry of a default judgment, and an equitable order quieting title to reflect U.S. Bank as the lawful assignee and mortgagee of record on the Property. [Dkt. Nos. 44-46].

On July 13, 2020, this court ordered U.S. bank to provide evidence that the Trust is the current lawful holder of the note U.S. Bank seeks to enforce in its default action. [Dkt. No. 48]. On August 21, 2020, U.S. Bank submitted a response to this court's order. [Dkt. Nos. 53-54]. On September 15, 2020, this court scheduled a hearing on the possession history of the promissory note in question. [Dkt. No. 55]. On October 15, 2020, U.S. Bank filed a motion to approve a consent judgment with the Williamses. [Dkt. No. 69]. The agreement for judgment stipulates that U.S. Bank is the mortgagee of record on the Property and waives its right to a deficiency judgment against the Williamses. [Dkt. No. 70].

B. Note and Mortgage Transfers

The Williamses purchased the Property by quitclaim deed in 2002. [Dkt. No. 30 ¶ 9; Ex. A]. In 2005, the Williamses borrowed from AMC, and signed a promissory note for, $282,500.[Dkt. No. 30 ¶ 10; Ex. B]. To secure the loan, the Williamses gave a mortgage on the Property to Mortgage Electronic Registration Systems, Inc. ("MERS"). [Dkt. No. 30 ¶ 14; Ex. C]. The mortgage named AMC as the lender and MERS as the mortgagee. [Dkt. No. 30, Ex. C]. On June 23, 2006, the Williamses executed a Corrective Mortgage, which was recorded in the Worcester County (Worcester District) Registry of Deeds in Book 39322, Page 367. [Dkt. No. 30 ¶15; Ex. D]. The Corrective Mortgage named AMC as the mortgagee. [Dkt. No. 30, Ex. D].

The Williamses stopped making payments on the loan and entered default on June 1, 2009. [Dkt. No. 30 ¶ 27]. On January 8, 2016, mortgage servicer Select Portfolio Servicing, Inc. ("SPS"), sent the Williamses a 150-day notice of right to cure and notice of right to request a modified mortgage loan. [Dkt. No. 30 ¶ 29; Ex. J]. On June 6, 2016, the Williams' right to cure expired. [Dkt. No. 30 ¶ 30; Ex. J].

1. Note Transfers

The promissory note ("the Williams note") that the Williamses signed on April 21, 2005 promised to repay the loan from AMC. [Dkt. No. 30, Ex. B]. AMC endorsed the Williams note to Washington Mutual Bank, FA ("WAMU"). [Dkt. No. 30, Ex. B]. Subsequently, WAMU endorsed the note in blank and without recourse via stamp and signature.² [Dkt. No. 30 ¶ 12; Ex. B ("Pay to the order of ___ without recourse")]. On June 1, 2005, WAMU entered into a pooling and servicing agreement ("PSA") with LaSalle that created the Trust. [Dkt. No. 54 ¶ 13; Ex. E]. The agreement named WAMU as the "servicer," which gave it power "to service and administer the Mortgage Loans on behalf of the Trust." [Dkt. No. 54, Ex. E § 3.01]. WAMU was also named the initial custodian of the Trust assets. [Dkt. No. 54, Ex. E § 1.01]. The Williams note was sold to the Trust. [Dkt. No. 54 ¶ 13; Ex. F]. On October 17, 2008, LaSalle merged withBOA, making BOA successor trustee by merger. [Dkt. No. 73, Ex. A]. On September 25, 2008, WAMU failed and, with assistance from the Federal Deposit Insurance Corporation ("the FDIC"), JPMorgan Chase Bank N.A. ("JPMorgan") acquired WAMU's banking operations, including WAMU's obligations as custodian of the Trust assets. [Dkt. No. 54, ¶ 17]; see also 12 U.S.C. §§ 1821(d)(2)(A)(i), 1821(d)(2)(B)(i). Hence, on July 21, 2009, JPMorgan possessed the Williams Note endorsed in blank by WAMU. [Dkt. No. 54, ¶ 19]. On January 14, 2010, an attorney representing JPMorgan recorded the Williams note with the Worcester County Registry of Deeds. [Dkt. No. 30, Ex. F]. On January 16, 2010, JPMorgan assigned the Williams note to BOA, as noted above the successor trustee for the Trust. [Dkt. No. 30, Ex. G].

On December 30, 2010, U.S. Bank acquired BOA's securitization trust administration business. [Dkt. No. 73, Ex. B]. By an Assignment and Assumption Agreement, U.S. Bank succeeded BOA as the trustee for the Trust. [Dkt. No. 73, Ex. B]. A schedule to such agreement includes the Trust (of which the Williams note is a part) as an asset assigned to U.S. Bank. [Dkt. No. 73, Ex. C, p. 30]. On May 3, 2013, U.S. Bank, in its capacity as trustee for the Trust, appointed JPMorgan as the Trust's servicer. [Dkt. No. 54, Ex. A at 4]. On May 11, 2016, JPMorgan released the Williams note to SPS, an entity authorized to service the subject mortgage loan on behalf of U.S. Bank. [Dkt. No. 54 ¶¶ 2, 20].³ On May 18, 2017, SPS released the original Williams note to Doonan, Graces & Longoria, LLC ("Doonan") for the purposes of this litigation. [Dkt. No. 54 ¶ 21]. U.S. Bank included the original promissory note to the Williams mortgage in its submission to the court and avers that it is the lawful holder of the endorsed-in-blank Williams note. [Dkt. No. 30 ¶ 13].

2. Assignments of the Mortgage

As stated above, in 2005, the Williamses signed the initial mortgage listing AMC as the lender and MERS as the mortgagee ("2005 Original Mortgage"). [Dkt. No. 30, Ex. C]. On June 23, 2006, the Williamses executed a corrective mortgage that changed the mortgagee from MERS to AMC ("2006 Corrective Mortgage"). [Dkt. No. 30 ¶ 15; Ex. D]. Despite no longer being the mortgagee of record, MERS assigned the 2006 Corrective Mortgage to BOA on November 5, 2009.⁴ [Dkt. No. 30 ¶ 17; Ex. E].

In the affidavit from counsel for JPMorgan recording the note with the registry of deeds, JPMorgan's attorney averred that AMC assigned the 2006 Corrective Mortgage to WAMU, but that the assignment could not be located. [Dkt. No. 30, Ex. F]. The January 14, 2010 affidavit further asserted that JPMorgan rightfully owned the 2006 Corrective Mortgage because it held the promissory note endorsed in blank. [Dkt. No. 30, Ex. F]. When JPMorgan transferred the Williams note to BOA on January 16, 2010, it also purported to assign the 2006 Corrective Mortgage. [Dkt. No. 30 ¶ 22; Ex. G]. On December 1, 2016, BOA assigned the 2006 Corrective Mortgage to U.S. Bank. [Dkt. No. 30 ¶ 32; Ex. K]. Though BOA did assign U.S. Bank the 2006 Corrective Mortgage in 2016, U.S. Bank contends that the chain of...