111 A.3d 655
Me.2015Background
- Susan Everest owned property subject to a senior mortgage (Peoples United) and a junior mortgage (Bank of America). Bank of America obtained a junior foreclosure judgment in May 2010 but did not hold a sale or redeem the senior mortgage.
- Everest filed Chapter 7 bankruptcy in July 2010; the trustee initially abandoned the property but later revoked the abandonment and reopened the estate in July 2011.
- Peoples United obtained relief from the bankruptcy stay and filed a senior foreclosure in October 2010; both Everest and Bank of America were served but defaulted. A senior foreclosure judgment (March 2011) prioritized proceeds to Peoples United, then Maine Revenue Services, then the defendant or others appearing in the action (Bank of America was not listed).
- Bank of America purchased Peoples United’s loan and judgment in July 2011, moved to substitute in the senior action and to set aside the senior judgment under Rule 60(b); the court allowed substitution but denied the Rule 60(b) relief.
- No public sale under either foreclosure occurred. The bankruptcy trustee sought authority to sell free and clear; litigation proceeded through the Bankruptcy Court, District Court (which certified a question), and the Maine Supreme Judicial Court.
Issues
| Issue | Plaintiff's Argument (Trustee/Everest) | Defendant's Argument (Bank of America) | Held |
|---|---|---|---|
| Whether a junior mortgagee who failed to appear in a senior foreclosure and was not named a distributee in the senior judgment has any right to excess proceeds from a senior foreclosure sale | Trustee: Bank of America lost any redeeming interest by failing to appear; excess proceeds belong to debtor (estate) | Bank of America: Its junior foreclosure vested equity of redemption in it and it retained a right to share in excess proceeds (or a lien/deficiency claim) despite not appearing | Held: No. A junior mortgagee who failed to appear and was not named as a distributee has no rights to excess proceeds from the senior foreclosure sale. |
Key Cases Cited
- Smith v. Varney, 309 A.2d 229 (Me. 1973) (explains that a second mortgage forecloses the equity of redemption and vests that equity in the junior mortgagee)
- U.S. Dep’t of Hous. & Urban Dev. v. Union Mortg. Co., 661 A.2d 163 (Me. 1995) (holding that a junior mortgagee must appear in the senior foreclosure to preserve rights and have amounts/priorities determined)
- Duprey v. Eagle Lake Water & Sewer Dist., 615 A.2d 600 (Me. 1992) (describes loss of mortgagor’s equitable title upon expiration of the statutory redemption period)