Anthony BUCCI et al. v. LEHMAN BROTHERS BANK, FSB et al.
No. 2010-146-Appeal.
Supreme Court of Rhode Island.
April 12, 2013.
68 A.3d 1069
Charles C. Martorana, Esq., for Defendants.
Present: SUTTELL, C.J., GOLDBERG, FLAHERTY, ROBINSON, and INDEGLIA, JJ.
OPINION
Justice FLAHERTY, for the Court.
In this case, we are asked to determine whether a nominee of a mortgage lender, who holds only legal title to the mortgage, but who is not the holder of the accompanying promissory note, may exercise the statutory power of sale and foreclose on the mortgage. On May 15, 2007, Anthony Bucci borrowed $249,900 from Lehman Brothers Bank, FSB (Lehman Brothers) to finance the purchase of a home, and he signed an adjustable rate note (note) that evidenced the debt. On that same date, he and his wife, Stephanie Bucci (collectively, the Buccis or plaintiffs) executed a mortgage on the property that secured the loan.1 Like many loans in the modern era of lending, even though the note was made payable to the lender—in this case Lehman Brothers—the mortgage was granted to Mortgage Electronic Registration Systems, Inc. (MERS), as nominee for the lender and the lender‘s successors and assigns. In October 2008, the plaintiffs ceased making loan payments, thereby defaulting on the note. Sometime thereafter, MERS initiated foreclosure proceedings. A foreclosure sale was scheduled, but the day before it was to take place, the plaintiffs commenced an action seeking a declaratory judgment and injunctive relief, in which they sought to prevent MERS from exercising the power of sale contained in the mortgage. The trial justice denied the plaintiffs’ request, and judgment was entered on behalf of the defendants on September 21, 2009. The plaintiffs timely appealed to this Court. For the reasons set forth in this opinion, we affirm the judgment of the Superior Court.
I
Facts and Travel
A
MERS
To begin, we believe that it is important to an understanding of this case to set forth a description of MERS and the role that it plays in the mortgage industry. In 1993, several major participants in the lending community collaborated to form a national electronic registration system that would track the transfer of ownership interests in residential loans (the MERS® System). MERSCORP, Inc. v. Romaine, 8 N.Y.3d 90, 828 N.Y.S.2d 266, 861 N.E.2d 81, 83 (2006). The MERS System was developed to allow for more efficient transfers of those interests in the primary and secondary mortgage markets. Jackson v. Mortgage Electronic Registration Systems, Inc., 770 N.W.2d 487, 490 (Minn. 2009).
The primary mortgage market consists mainly of home loans that are made to
In order to take advantage of the MERS® System, lenders and other entities must become members of MERSCORP, Inc. (MERSCORP), the corporation that owns the system. MERSCORP is also the parent company of defendant MERS. Bellistri, 2010 WL 2720802, at *6. In a typical MERS transaction, when a loan is made by a member of MERSCORP, the member will be designated as the lender in the promissory note, and MERS will be named in the mortgage as the mortgagee, acting as nominee for the lender and the lender‘s successors or assigns. Jackson, 770 N.W.2d at 490. Whenever a note is sold, assigned, or otherwise transferred to another MERSCORP member, MERS remains as the mortgagee of record. As a result, there is no need to record an assignment of the mortgage in the land evidence records. Id. It is only when a loan is transferred to a nonmember that an assignment of the mortgage must be executed and recorded. Id. at 491. Consequently, loans can be transferred more quickly and economically, and each transfer can be tracked on the MERS® System.2 Id. The typical MERS loan, as just described, was exactly the type of transaction that occurred between plaintiffs and defendants in the matter that confronts this Court.
B
The Note and Mortgage
In this case, the note included a promise by Mr. Bucci to pay “to the order of [Lehman Brothers],” and it further provided that “[Lehman Brothers] may transfer this Note.” The mortgage document defined “Borrower” as plaintiffs Anthony and Stephanie Bucci and further provided that the “Borrower is the mortgagor under this Security Instrument.” The mortgage document also provided that “MERS is a separate corporation that is acting solely as a nominee for Lender“—which the mortgage document defined as Lehman Brothers—“and Lender‘s successors and assigns.” It went on to say in clear and unequivocal language that “MERS is the mortgagee under this Security Instrument.”
The operative language of the mortgage document read as follows:
“* * * Borrower does hereby mortgage, grant and convey to MERS, (solely as nominee for Lender and Lender‘s
successors and assigns) and to the successors and assigns of MERS, with Mortgage Covenants upon the Statutory Condition and with the Statutory Power of Sale, the [mortgaged] property * * * ” “* * * ”
“Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender‘s successors and assigns) has the right to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property, and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument.”
The mortgage document further provided that
“[t]he Note or a partial interest in the Note (together with this Security Instrument) can be sold one or more times without prior notice to Borrower[.] A sale might result in a change in the entity (known as the ‘Loan Servicer‘) that collects Periodic Payments due under the Note and this Security Instrument and performs other mortgage loan servicing obligations under the Note, this Security Instrument, and Applicable Law[.] There also might be one or more changes of the Loan Servicer unrelated to a sale of the Note[.]”
Additionally, the mortgage document stated that
“Lender shall give notice to Borrower prior to acceleration following Borrower‘s breach of any covenant or agreement in this Security Instrument * * *. If the default is not cured on or before the date specified in the notice, Lender at its option may * * * invoke the STATUTORY POWER OF SALE and any other remedies permitted by Applicable Law.”
The mortgage document also required that, “[i]f Lender invokes the STATUTORY POWER OF SALE, Lender shall mail a copy of a notice of sale to Borrower.”
C
Travel
After Mr. Bucci defaulted on the note, defendant Aurora Loan Services, LLC (Aurora), the loan servicer3 at the time, sent Mr. Bucci a letter notifying him that the loan was in default, that he had the right to cure the default, and that “Aurora * * * may start legal action to foreclose on the Mortgage.” When the note was not brought current, MERS, as the mortgage holder and named mortgagee under the mortgage and as nominee for the beneficial owner of the note, initiated foreclosure proceedings by sending out notices of foreclosure. A foreclosure sale was scheduled for July 10, 2009.
One day before the scheduled foreclosure sale, plaintiffs filed a verified complaint in the Superior Court, seeking declaratory and injunctive relief. Specifically, plaintiffs launched a fusillade of claims, asking
The plaintiffs argued that the language of the mortgage did not authorize MERS to foreclose. Specifically, they pointed to a provision that said “Lender * * * may invoke the STATUTORY POWER OF SALE,” and they asserted that this language precluded MERS from foreclosing because the mortgage defined Lehman Brothers as the lender, not MERS. Furthermore, they asserted that Lehman Brothers never designated MERS as its nominee because, although the mortgage named MERS as nominee, Lehman Brothers never signed the mortgage.
Additionally, plaintiffs argued that MERS was prohibited from foreclosing by
The defendants responded by filing objections to plaintiffs’ prayers for declaratory and injunctive relief. They also filed a memorandum in which they argued that MERS was permitted to foreclose by the clear language of the mortgage and that its doing so would not violate the statutes cited by plaintiffs. For further support, defendants provided the court with an affidavit of Cheryl R. Marchant, a Vice President of Aurora, the servicer of the note.
On July 9, 2009, the trial justice ordered that the scheduled foreclosure be stayed until further order of the court. On July 14, 2009, he conducted a hearing on the issue of whether MERS had the legal right to foreclose the mortgage by exercising the statutory power of sale contained therein, or whether injunctive relief should be granted to enjoin defendants from foreclosing.5
D
Superior Court Decision
The trial justice filed a written decision on August 25, 2009. In his decision, he distilled the controversy to two questions of law: (1) whether MERS had the contractual right to foreclose under the note and mortgage; and (2) whether MERS had the statutory authority to do so. As to the first issue, the trial justice found that plaintiffs, by executing the mortgage deed, “specifically granted ‘the Statutory Power of Sale’ to MERS, as nominee for Lender and Lender‘s successors and assigns.” The trial justice quoted the provision of the mortgage that said that “if necessary to comply with law or custom, MERS (as nominee for Lender and Lender‘s successors and assigns) has the right to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property * * *.” The trial justice concluded that the language in the mortgage, cited by plaintiffs, which provided the lender with the right to invoke the statutory power of sale, did “not negate the previous language in the Mortgage directly granting MERS * * * the right to” foreclose and sell the property.
Although Lehman Brothers no longer held the note at the time this case was heard in the Superior Court, the trial justice nonetheless found that MERS had the contractual authority to foreclose because the mortgage named MERS as the nominee of Lehman Brothers and its “successors and assigns.” The trial justice, relying on the affidavit of Cheryl R. Marchant, found that “[t]he Note ha[d] been indorsed in blank and [wa]s currently held by LaSalle [Bank, NA (LaSalle)] as custodian for the beneficial owner of the Note * * *.” He then found that LaSalle was acting in a trustee capacity for the owner of the note and that that owner was indeed a “successor or assign” of Lehman Brothers. See
Moreover, although Lehman Brothers never signed the mortgage designating MERS as its nominee, the trial justice nonetheless found that it had authorized MERS to act in this capacity when it disbursed the loan funds to plaintiffs. The trial justice reasoned that “[i]f Lehman [Brothers] had not approved of MERS acting as its nominee, [it] would not have disbursed the loan proceeds to the Buccis.”6
The trial justice then went on to address plaintiffs’ statutory arguments. First, he found that
The trial justice then addressed
The trial justice determined that MERS was legally authorized to foreclose the Buccis’ mortgage by exercising the statutory power of sale. Therefore, he denied their request for declaratory and injunctive relief. Judgment was entered on September 21, 2009, and plaintiffs timely appealed to this Court.
II
Discussion
To begin, we shall set out some well-settled principles of real property law regarding mortgages. Generally, there are two operative documents to a real estate loan transaction—a promissory note and a mortgage. The promissory note evidences the obligation of the borrower to repay the monies that have been lent, and the mortgage (or mortgage deed) acts as security for that debt. See generally Pawtucket Institution for Savings v. Gagnon, 475 A.2d 1028, 1030 (R.I. 1984);
A
Standard of Review
This Court has held that “[a] decision to grant or deny declaratory or injunctive relief is addressed to the sound discretion of the trial justice and will not be disturbed on appeal unless the record demonstrates a clear abuse of discretion or the trial justice committed an error of law.” Hagenberg v. Avedisian, 879 A.2d 436, 441 (R.I. 2005) (citing DiDonato v. Kennedy, 822 A.2d 179, 181 (R.I. 2003)).
We also have held that “[a]n agreed statement of facts operates to submit a controversy for consideration when both parties have agreed upon the ultimate facts.” Hagenberg, 879 A.2d at 441 (quoting Randall v. Norberg, 121 R.I. 714, 717, 403 A.2d 240, 242 (1979)). In such a case, “our scope of review of the trial justice‘s decision is narrowly defined.” Id. (quoting Randall, 121 R.I. at 717, 403 A.2d at 242). Thus, “the court has no independent fact-finding function and its role is limited to applying the law to the agreed-upon facts.” Id. (quoting Randall, 121 R.I. at 717–18, 403 A.2d at 242).
Additionally, we have held that “whether a contract is clear and unambiguous is a question of law.” Beacon Mutual Insurance Co. v. Spino Brothers, Inc., 11 A.3d 645, 648 (R.I. 2011) (citing Irene Realty Corp. v. Travelers Property Casualty Co. of America, 973 A.2d 1118, 1122 (R.I. 2009)). Furthermore, after “a contract is determined to be clear and unambiguous, then ‘the meaning of its terms constitute a question of law for the court * * *.’ ” Young v. Warwick Rollermagic Skating Center, Inc., 973 A.2d 553, 558 (R.I. 2009) (quoting Cassidy v. Springfield Life Insurance Co., 106 R.I. 615, 619, 262 A.2d 378, 380 (1970)). “This Court reviews a trial justice‘s conclusions on questions of law de novo.” Beacon Mutual Insurance Co., 11 A.3d at 649 (citing International Brotherhood of Police Officers v. City of East Providence, 989 A.2d 106, 108 (R.I. 2010)). “Accordingly, we review a trial justice‘s interpretation of a contract de novo.” Id. (citing Irene Realty Corp., 973 A.2d at 1122).
Likewise, this Court reviews issues of statutory interpretation de novo. Reynolds v. Town of Jamestown, 45 A.3d 537, 541 (R.I. 2012). “When a statute is clear and unambiguous we are bound to ascribe the plain and ordinary meaning of the words of the statute and our inquiry is at an end.” Town of Burrillville v. Pascoag Apartment Associates, LLC, 950 A.2d 435, 445 (R.I. 2008) (quoting Unistrut Corp. v. State Department of Labor and Training, 922 A.2d 93, 98 (R.I. 2007)). “However, when a statute is susceptible of more than one meaning, we employ our well-established maxims of statutory construction in an effort to glean the intent of the Legislature.” Id. (quoting Unistrut Corp., 922 A.2d at 98–99).
B
Analysis
On appeal, plaintiffs list myriad reasons why they believe the trial justice erred in his decision; however, distilled to their essence, their arguments can be con-
1
Mootness
This Court has said “that the principle of mootness applies in actions for equitable relief, and that declaratory judgment will not be rendered on moot questions.” Boyer v. Bedrosian, 57 A.3d 259, 272 (R.I. 2012) (citing Town of Scituate v. Scituate Teachers’ Association, 110 R.I. 679, 684, 296 A.2d 466, 469 (1972)). In describing the mootness doctrine, “[w]e ‘ha[ve] consistently held that a case is moot if the original complaint raised a justiciable controversy, but events occurring after the filing have deprived the litigant[s] of a continuing stake in the controversy.’ ” Id. (quoting State v. Medical Malpractice Joint Underwriting Association, 941 A.2d 219, 220 (R.I. 2008)). Furthermore, “[i]f this Court‘s judgment would fail to have a practical effect on the existing controversy, the question is moot, and we will not render an opinion on the matter.” City of Cranston v. Rhode Island Laborers’ District Council, Local 1033, 960 A.2d 529, 533 (R.I. 2008).
Before this Court, plaintiffs argue that this case is moot because MERS has issued an internal policy change whereby “[n]o foreclosure proceeding may be initiated * * * in the name of [MERS],” and “[t]he Certifying Officer must execute an assignment of the Security Interest from MERS before initiating foreclosure proceedings.” Furthermore, plaintiffs inform us that Aurora is no longer the servicer of the Bucci loan and that Lehman Brothers no longer holds the note. Therefore, plaintiffs argue that any decision made by this Court would be merely hypothetical, because the parties no longer have an ongoing stake in the outcome of this case.
The defendants respond by arguing that, despite the change in the identities of the servicer and lender, MERS continues to be the mortgagee, and its ability to exercise its rights under the mortgage remain in question. Furthermore, defendants contend that MERS‘s voluntary cessation of foreclosure proceedings, through its inter-
This Court has had few opportunities to address whether a defendant‘s voluntary cessation of allegedly improper conduct will render a case moot, but we have discussed the issue on occasion. In Tanner v. Town Council of East Greenwich, 880 A.2d 784, 794 n. 11 (R.I. 2005), “[w]e note[d], without determining, that the voluntary cessation of an activity may not necessarily moot the remedy of injunctive relief.” Then recently, in Boyer, we said, “it is well recognized that ‘[a] defendant‘s voluntary cessation of allegedly unlawful conduct ordinarily does not suffice to moot a case.’ ” Boyer, 57 A.3d at 281 (quoting Friends of the Earth, Inc. v. Laidlaw Environmental Services (TOC), Inc., 528 U.S. 167, 174 (2000)).
In describing the reason behind this rule, the United States Supreme Court has said that “[t]he voluntary cessation of challenged conduct does not ordinarily render a case moot because a dismissal for mootness would permit a resumption of the challenged conduct as soon as the case is dismissed.” Knox v. Service Employees International Union, Local 1000, — U.S. —, 132 S.Ct. 2277, 2287, 183 L.Ed.2d 281 (2012). Thus, if the court were to dismiss the case as moot, it “would * * * leave ‘[t]he defendant * * * free to return to his old ways.’ ” Friends of the Earth, Inc., 528 U.S. at 189 (quoting City of Mesquite v. Aladdin‘s Castle, Inc., 455 U.S. 283, 289 n. 10 (1982)).
“In accordance with this principle, the standard * * * for determining whether a case has been mooted by the defendant‘s voluntary conduct is stringent: ‘A case might become moot if subsequent events made it absolutely clear that the allegedly wrongful behavior could not reasonably be expected to recur.’ ” Friends of the Earth, Inc., 528 U.S. at 189 (quoting United States v. Concentrated Phosphate Export Assn., Inc., 393 U.S. 199, 203 (1968) (emphasis added)). Therefore, “[t]he ‘heavy burden of persua[ding]’ the court that the challenged conduct cannot reasonably be expected to start up again lies with the party asserting mootness.”8 Id. (quoting Concentrated Phosphate Export Assn., Inc., 393 U.S. at 203).
The plaintiffs assert that the case is moot because MERS has amended its internal rules such that “[n]o foreclosure proceeding may be initiated * * * in the name of [MERS],” and the mortgage must be assigned to another entity “before initiating foreclosure proceedings.” In our opinion, this is merely a voluntary cessation by MERS of the activity that plaintiffs have challenged—the initiation of foreclosure proceedings. Therefore, “[t]he ‘heavy burden of persua[ding]’ th[is] [C]ourt that the challenged conduct cannot reasonably be expected to start up again lies with” plaintiffs. Friends of the Earth, Inc., 528 U.S. at 189 (quoting Concentrated Phosphate Export Assn., Inc., 393 U.S. at 203). We conclude, however, that plaintiffs have failed to provide us with any indication that MERS “cannot reasonably be expected to” reinitiate foreclosure proceedings if this case were dismissed as moot. Id. In other words, plaintiffs have not made it “absolutely clear”
2
Contractual Authority for MERS to Foreclose and Exercise the Power of Sale
i
Contractual Relationship between Plaintiffs and MERS
The plaintiffs argue that the trial justice erred when he “ruled that MERS had the contractual [authority] to invoke the statutory power of sale.” In his decision, the trial justice found that “the [m]ortgage specifically granted ‘the Statutory Power of Sale’ to MERS,” and therefore, that MERS had the contractual authority to exercise that power. We agree with the reasoning of the trial justice.
Within the mortgage is a provision that says: “Borrower does hereby mortgage, grant and convey to MERS, (solely as nominee for Lender and Lender‘s successors and assigns) and to the successors and assigns of MERS, with Mortgage Covenants upon the Statutory Condition and with the Statutory Power of Sale, the [mortgaged] property * * * ” The mortgage further provides:
“Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender‘s successors and assigns) has the right to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property * * *.”
These provisions are clear and leave no room for interpretation. The plaintiffs explicitly granted the statutory power of sale and the right to foreclose to MERS, and consequently, MERS has the contractual authority to exercise that right.
Although there is a later provision in the mortgage that empowers the “Lender” to invoke the statutory power of sale, in our opinion the trial justice was correct when he found that that subsequent provision did “not negate the previous language in the [m]ortgage directly granting MERS * * * the right to” foreclose and sell the property. Thus, plaintiffs have agreed to grant MERS the power of sale.
ii
Relationship between MERS and the Note Holder
The plaintiffs next argue that Lehman Brothers never authorized MERS—contractually or as an agent—to act on its behalf because Lehman Brothers never signed the mortgage that named MERS as its nominee. Furthermore, they contend that none of Lehman Brothers’ successors or assigns authorized MERS to act on their behalf. Therefore, they assert that the trial justice erred when he found that Lehman Brothers had properly designated MERS as its nominee.10
While the contractual issue that was discussed in the previous section dealt with the relationship between plaintiffs and MERS, the argument discussed in this section focuses on the link between MERS and Lehman Brothers (and its successors and assigns). Thus, plaintiffs now attack the soundness of the second relationship in the contractual triangle among themselves, MERS, and the owner of the note. However, in our opinion, this second relationship is as robust as the first.11
A nominee relationship is akin to that of a principal and agent. See Culhane v. Aurora Loan Services of Nebraska, 826 F.Supp.2d 352, 370 (D.Mass. 2011) (“The term ‘nominee’ in fact connotes a narrow form of agency * * *.“). We have held that the existence of an agency relationship is a question of fact. See, e.g., Credit Union Central Falls v. Groff, 966 A.2d 1262, 1268 (R.I. 2009) (“Whether an attorney-client relationship has formed is a question of fact governed by the principles of agency.“); Baker v. ICA Mortgage Corp., 588 A.2d 616, 617–18 (R.I. 1991) (refraining from recognizing the existence of an agency relationship, but remanding the matter to the Superior Court to resolve that question of fact). See also
At trial in the Superior Court, the trial justice inquired as to whether the parties could agree on a stipulation of facts. The plaintiffs’ counsel responded by saying “I am willing to, I think, agree to most everything that [MERS and Aurora‘s counsel] has presented from a factual point of view.” In addition, plaintiffs’ counsel said: “Maybe [the Marchant affidavit] would be the basis for a factual agreement.” He later told the trial justice: “I‘d think that my brother and I might be able to agree on Paragraphs 1 through 14” of that affidavit. In paragraph five of the affidavit, Marchant states that “[t]he Note has been indorsed in blank and is currently held by LaSalle as the custodian for the beneficial owner of the Note and/or its agents (in-
2
Statutory Authority for MERS to Foreclose and Exercise the Power of Sale
The plaintiffs offer an array of statutory arguments to support their position that MERS may not foreclose and exercise the statutory power of sale. First, they contend that
i
Section 18-10-1
The plaintiffs cite to
“[a]ny trust company or national banking association doing business in this state * * * may * * * cause any stock, shares, bonds, debentures, notes, mortgages, or other securities in any corporation, business trust, or association, or any other personal property held in any capacity, to be registered and held in the name of a nominee or nominees of the trust company or national banking association * * *.”
The plaintiffs argue that this section precludes MERS from holding a mortgage in a nominee capacity because MERS is neither a trust company, nor a national banking association. Thus, they contend, MERS may not hold the mortgage as a nominee because the statute does not specifically grant it this right. However, we do not construe the statute as precluding MERS from acting as a nominee simply because it authorizes other entities to do so. Therefore, we conclude that this section has no effect on MERS‘s ability to act in a nominee capacity.
ii
Section 34-11-22 and MERS‘s Status as Mortgagee
The plaintiffs next contend that MERS is not a true mortgagee, but rather that it is a “nominee mortgagee,” an amorphous creature that they maintain is not contemplated by any Rhode Island statute. Because MERS is not a true mortgagee, they argue, it may not exercise the statutory power of sale contained in
“The following power shall be known as the ‘statutory power of sale’ and may be incorporated in any mortgage by reference:
(Power)
“But if default shall be made in the performance or observance of any of the foregoing or other conditions, or if breach shall be made of the covenant for insurance contained in this deed, then it shall be lawful for the mortgagee or his, her or its executors, administrators, successors or assigns to sell * * * the premises hereby granted or intended to be granted, or any part or parts thereof, and the benefit and equity of redemption of the mortgagor and his, her or its heirs, executors, administrators, successors and assigns therein, at public auction * * *.”
As defendants have correctly framed it, the right to exercise the power of sale in a mortgage is derived from contract, not statute. Thurber v. Carpenter, 18 R.I. 782, 784, 31 A. 5, 6 (1895) (describing the right to exercise the power of sale in a mortgage as “a matter of contract“); see also
This Court has recognized that, in such private transactions, “competent persons shall have the utmost liberty of contracting and that their agreements voluntarily and fairly made shall be held valid and enforced in the courts[] unless a violation of the law or public policy is clear and certain.” Gorman v. St. Raphael Academy, 853 A.2d 28, 38 (R.I. 2004) (quoting Wechsler v. Hunt Health Systems, Ltd., 216 F.Supp.2d 347, 354–55 (S.D.N.Y. 2002) (emphasis added)). In our opinion, the designation of MERS as grantee of the mortgage, as nominee for the lender, was not a “clear and certain” violation of
The Legislature has made it explicit that the power of sale provision contained in
We hold that the trial justice was correct when he found that “MERS is the mortgagee because the Mortgage executed by [plaintiffs] so states,” and “[t]he fact that MERS acts in a nominee capacity for the lender and the lender‘s successors and assigns does not diminish MERS‘s role as mortgagee[,] nor [does it] create[] a new legal term ‘nominee mortgagee,’ ” which has never been recognized by this Court. Therefore, MERS‘s designation as nominee under the mortgage, albeit as the holder of legal title only, does not proscribe its authority to exercise the power of sale under the provisions of
iii
Whether the Mortgagee and the Note Owner Must be the Same Entity
In plaintiffs’ final line of argument, they concede that none of the statutes governing mortgagees explicitly prohibit MERS from foreclosing a mortgage and exercising the statutory power of sale. Rather, they contend that these statutes, as well as case law, implicitly prohibit MERS from doing so. Specifically, they argue that the legislation regulating mortgagees requires that there be unity in the note holder and mortgagee and that an entity like MERS, which holds the mortgage but not the note, is, as a result, prohibited from foreclosing on the mortgage. The defendants respond by reiterating that contractual agreements that are entered into voluntarily are to be enforced unless they clearly violate the law or some well-defined public policy. They contend that the mortgage in this case does neither.
The plaintiffs cite a plethora of statutes that they contend support their position; each of those statutes employs the term “mortgagee.”14 According to plaintiffs, all of these statutes either (1) place obligations on a “mortgagee” that MERS does not itself fulfill, but which are instead fulfilled by the note holder or a servicer; or (2) more generally imply that the mortgagee and note owner must be one and the same. We are fully aware that these statutes were originally enacted during a time when the mortgagee and note holder were almost always the same entity. In the modern world of lending, however, that is no longer the case. Thus, we are confronted with the same problem with which many courts before us have struggled—the “difficulty of attempting to shoehorn a modern innovative instrument of commerce into nomenclature and legal categories which stem essentially from the medieval English land law.” Mortgage Electronic Registration Systems, Inc. v. Revoredo, 955 So.2d 33, 34 (Fla. Dist. Ct. App. 2007). Nonetheless, and despite the feudal roots of these enactments, we do not construe them to preclude an entity like MERS from acting as a nominee on behalf of the note owner.
In a recent case that bears striking similarities to the one at bar, the Supreme Judicial Court of Massachusetts came to that same conclusion. Eaton, 969 N.E.2d at 1129–31. In that case, the plaintiff took out a loan and executed a promissory note made payable to the lender. Id. at 1121. She also executed a mortgage that named MERS, and its successors and assigns, as the mortgagee, “solely as nominee” of the lender and its successors and assigns. Id. at 1121–22, 1128. The mortgage granted MERS the statutory power of sale and the right to foreclose. Id. at 1122. MERS then assigned the mortgage to another entity that later sold the mortgaged property at a foreclosure sale, after there had been a default on the note. Id. The issue that was before the court was whether the statutes regulating foreclosures required that the foreclosing mortgagee also hold the underlying note. Id. at 1121.
The court pointed out that several of the statutes in the Massachusetts General Laws that deal with mortgage foreclosures were drafted as though the mortgagee and note holder would be the same entity. Eaton, 969 N.E.2d at 1128–29. However, in rendering its decision, the court said:
“we do not conclude that a foreclosing mortgagee must have physical possession of the mortgage note in order to effect a valid foreclosure. There is no applicable statutory language suggesting that the Legislature intended to proscribe application of general agency principles in the context of mortgage foreclosure sales. Accordingly, we interpret [the Massachusetts General Laws governing mortgage foreclosures] to permit one who, although not the note holder himself, acts as the authorized agent of the note holder, to stand ‘in the shoes’ of the ‘mortgagee’ as the term is used in these provisions.”15 Id. at 1131.
Similarly, we do not believe that our General Assembly “intended to proscribe [the] application of general agency principles in the context of mortgage foreclosure sales.” Eaton, 969 N.E.2d at 1131. Therefore, we interpret the term “mortgagee” in our statutes in a similar fashion as did the Supreme Judicial Court of Massachusetts. Thus, it is our opinion that none of the statutes that plaintiffs rely upon prohibit MERS from foreclosing on the Bucci mortgage, because in so doing, MERS would be acting as an agent on behalf of the note owner. Furthermore, under our reading of these statutes, any of the obligations placed upon a “mortgagee” may be fulfilled by either the mortgage holder or the owner of the note, provided that an agency relationship exists between the two.
To support their respective arguments regarding the various statutory provisions, the parties cite to case law that this Court will now address. Both plaintiffs and defendants point out the principle of property law providing that a mortgage and note are inseparable. See, e.g., Carpenter v. Longan, 16 Wall. 271, 83 U.S. 271, 274, 21 L.Ed. 313 (1872). The parties differ, however, in their assessment of whether the transactional structure in this case violates that principle. The plaintiffs contend that the rule is violated because MERS holds the mortgage but does not hold the note. By contrast, defendants argue that “MERS, as nominee, stands in the shoes of the note owner * * * with respect to the mortgage such that there is no separation.”
Recently, the United States Court of Appeals for the First Circuit has recog-
“there is no reason to doubt the legitimacy of the common arrangement whereby MERS holds bare legal title as mortgagee of record and the noteholder alone enjoys the beneficial interest in the loan.
“The law contemplates distinctions between the legal interest in a mortgage and the beneficial interest in the underlying debt. These are distinct interests, and they may be held by different parties.” Id. at 292.
The court went on to further describe the legal arrangement between MERS and the lender.
“Where—as at the inception of this loan—the mortgage and the note are held by separate entities, an equitable trust is implied by law. * * * Under such an arrangement, the mortgagee is an equitable trustee who holds bare legal title to the mortgaged premises in trust for the noteholder.” Id. at 292.
Finally, the First Circuit concluded that “MERS‘s role as mortgagee of record and custodian of the bare legal interest as nominee for the member-noteholder, and the member-noteholder‘s role as owner of the beneficial interest in the loan, fit comfortably with each other and fit comfortably within the structure of Massachusetts mortgage law.” Id. We believe that they reside comfortably within the law of our state as well.
Because the lender retained equitable title to the mortgage and passed that equitable title to each of its successors and assigns, including the current owner, the mortgage and note have never been separated as plaintiffs contend. Instead, the note and the equitable interest in the mortgage have always remained unified, and the mortgage has “followed the note.” Furthermore, the holder of the legal title to the mortgage—MERS—always has acted as an agent of the owner of the equitable title. In our opinion, this transactional structure is consistent with the law of this state.
Legal title refers to that which “evidences apparent ownership but does not necessarily signify full and complete title or a beneficial interest.”
Comment e. to that section provides further guidance. That comment says that “in general a mortgage is unenforceable if it is held by one who has no right to enforce the secured obligation.”
“This result is changed if [the mortgage holder] has authority from [the note owner] to enforce the mortgage on [the note owner]‘s behalf. For example, [the mortgage holder] may be a trustee or agent of [the note owner] with responsibility to enforce the mortgage at [the note owner]‘s direction. [The mortgage holder]‘s enforcement of the mortgage in these circumstances is proper. * * * The trust or agency relationship
may arise from the terms of the assignment, from a separate agreement, or from other circumstances. Courts should be vigorous in seeking to find such a relationship, since the result is otherwise likely to be a windfall for the mortgagor and the frustration of [the note owner]‘s expectation of security.” Id. at 385–86.
Here, MERS was attempting to enforce the mortgage “[o]n behalf of the owner of the note, a party that is unquestionably “entitled to enforce the obligation the mortgage secures.”
III
Conclusion
For the reasons set forth in this opinion, we affirm the judgment of the Superior Court, and the papers in this case may be remanded thereto.
The plaintiffs also argue that the trial justice erred by considering the economic impact that his decision would have if he had granted their requests for injunctive and declaratory relief. However, we see no merit in this contention either. After a thorough review of the record, we can find nothing that would suggest that the trial justice was swayed by any potential economic impacts of his decision. He never discussed any economic considerations in his decision, and all his conclusions are supported by sound legal analysis. Therefore, we can discern no error on the part of the trial justice regarding this argument.
Notes
“The following condition shall be known as the ‘statutory condition‘, and may be incorporated in any mortgage by reference:
“(Condition)
“Provided, nevertheless, and this conveyance is made upon the express condition, that if the mortgagor or his or her heirs, executors, administrators or assigns shall pay to the mortgagee or his or her heirs, executors, administrators, or assigns the principal and interest of that certain promissory note bearing even date with this deed and secured by this deed, and shall perform every other obligation secured by this deed, at the time provided in the promissory note or in this deed, and shall pay all taxes and assessments of every kind levied or assessed upon or in respect of the mortgaged premises, then this deed, as also the promissory note, shall become and be absolutely void to all intents and purposes whatsoever.”
“The following power shall be known as the ‘statutory power of sale’ and may be incorporated in any mortgage by reference:
“(Power)
“But if default shall be made in the performance or observance of any of the foregoing or other conditions, or if breach shall be made of the covenant for insurance contained in this deed, then it shall be lawful for the mortgagee or his, her or its executors, administrators, successors or assigns to sell, together or in parcels, all and singu-lar the premises hereby granted or intended to be granted, or any part or parts thereof, and the benefit and equity of redemption of the mortgagor and his, her or its heirs, executors, administrators, successors and assigns therein, at public auction upon the premises, or at such other place, if any, as may be designated for that purpose in this deed, or in the published notice of sale first by mailing written notice of the time and place of sale by certified mail, return receipt requested, to the mortgagor, at his or her or its last known address, at least twenty (20) days for mortgagors other than individual consumer mortgagors, and at least thirty (30) days for individual consumer mortgagors, prior to first publishing the notice, including the day of the mailing in the computation; second, by publishing the same at least once each week for three (3) successive weeks in a public newspaper published daily in the city in which the mortgaged premises are situated * * *.”
Nonetheless, even if plaintiffs had not waived this argument, we believe it to be meritless.
“Any trust company or national banking association doing business in this state when acting as executor, administrator, guardian, conservator, testamentary trustee, or trustee under any other instrument, whether alone or jointly with an individual or individuals, may, with the consent of the individual fiduciary or fiduciaries, if any, who are authorized to give consent, cause any stock, shares, bonds, debentures, notes, mortgages, or other securities in any corporation, business trust, or association, or any other personal property held in any capacity, to be registered and held in the name of a nominee or nominees of the trust company or national banking association, which nominee or nominees may be an individual or individuals, a partnership, or a corporation, without mention of the trust or fiduciary relationship in the certificate or other instrument or document representing the property or evidencing the title to the property.”