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Khalsa v. Sovereign Bank, N.A.

Appeals Court of Massachusetts, Suffolk

January 11, 2016

GURU JIWAN SINGH KHALSA & another[1]
v.
SOVEREIGN BANK, N.A.

HEARD: November 2, 2015.

Civil action commenced in the Superior Court Department on January 8, 2013. The case was heard by Robert B. Gordon, J., on motions for summary judgment.

James L. Rogal for the defendant.

Leonard M. Singer for the plaintiffs.

Present: Milkey, Carhart, & Massing, JJ.

MASSING, J.

To effect a valid foreclosure sale, the foreclosing mortgage holder must also hold the underlying note or be acting on behalf of the note holder. Eaton v. Federal Natl. Mort. Assn., 462 Mass. 569, 571 (2012) (Eaton). This appeal requires us to consider how a mortgagee may show that it is acting "as the authorized agent of the note holder, " id. at 586, for summary judgment purposes.

On cross motions for summary judgment, a judge of the Superior Court entered a declaratory judgment in favor of the plaintiff borrowers, Khalsa and Kaur, and against the defendant mortgagee, Sovereign Bank, N.A. (Sovereign), declaring that the foreclosure sale of the plaintiffs' residence was void because Sovereign had failed to show that it was acting as the authorized agent of the note holder, Federal Home Loan Mortgage Corporation (Freddie Mac). Sovereign appeals. Because the summary judgment materials create a genuine issue of fact concerning Sovereign's authorization to foreclose on Freddie Mac's behalf, we vacate the judgment and remand the case for further proceedings.

Background.

On April 2, 2008, the plaintiffs executed a promissory note payable to Sovereign in the original principal amount of $274, 000 to finance the purchase of their home in Millis. To secure the note, the plaintiffs granted Sovereign a mortgage on the property. Shortly thereafter, Freddie Mac purchased the note from Sovereign, retaining Sovereign as servicer of the note and mortgage.

On April 22, 2011, Sovereign notified the plaintiffs that they were in default on their loan for nonpayment. Sovereign held a foreclosure sale on January 18, 2013. Although Sovereign held itself out as the "Lender" in the default notice, the note had been indorsed in blank, and at the time of the sale, Freddie Mac had physical possession of the note. See G. L. c. 106, § 3-205(b), inserted by St. 1998, c. 24, § 8 ("When indorsed in blank, an instrument becomes payable to bearer and may be negotiated by transfer of possession alone until specially indorsed"). Sovereign purchased the property at the foreclosure auction and sold its bid to Freddie Mac.

Meanwhile, the plaintiffs had filed a complaint in the Superior Court on January 8, 2013, seeking to enjoin the foreclosure sale and a declaration that Sovereign was not entitled to foreclose because, among other alleged deficiencies, "Sovereign Bank does not have authority from the holder of the mortgage note given by the plaintiffs." After a hearing on the plaintiffs' application for a preliminary injunction on January 17, 2013, a judge denied relief, and the foreclosure sale went forward the following day. On November 5, 2013, a different judge denied Sovereign's first motion for summary judgment. Acting on subsequently-filed cross motions for summary judgment, on September 9, 2014, a third judge allowed the plaintiffs' motion, denied Sovereign's motion, and declared the foreclosure void.

Evidence of Sovereign's authority to foreclose.

The only contested issue in this case is whether Sovereign, which was the holder of the mortgage but not the note, acted with Freddie Mac's authority to conduct the foreclosure sale. On this point, in connection with its first motion for summary judgment, Sovereign submitted the affidavit of Alan L. Norris, a default operations analyst at Sovereign.[2] Based on his review of Sovereign's file concerning the plaintiffs' mortgage, Norris stated "to the best of [his] knowledge and belief" that Freddie Mac purchased the plaintiffs' loan on May 13, 2008, "with Sovereign retaining the servicing of the Loan." He added, "Sovereign is the mortgagee of record, the servicer of the Loan, and the holder of the Note."[3] He asserted in his affidavit that "[t]he relationship between Freddie Mac and the ...


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