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Citadel Realty, LLC v. Endeavor Capital North, LLC

Appeals Court of Massachusetts, Suffolk

March 19, 2018

CITADEL REALTY, LLC
v.
ENDEAVOR CAPITAL NORTH, LLC, & others.[1]

          Heard: November 7, 2017.

         Civil action commenced in the Superior Court Department on January 29, 2016. A special motion to dismiss was heard by William F. Sullivan, J.

          Jonas A. Jacobson for the plaintiff.

          Scott K. DeMello (Rosemary A. Traini also present) for the defendants.

          Wolohojian, Massing, & Wendlandt, JJ.

          WENDLANDT, J.

         This appeal presents occasion to clarify the scope of this court's review of an interlocutory order denying a special motion to dismiss brought pursuant to G. L. c. 184, § 15, the lis pendens statute. Here, the defendants sought to dismiss the entire action, including (1) one claim supporting the memorandum of lis pendens and affecting title, and (2) other claims that were not the basis for the lis pendens. We hold that our review is limited to those portions of the interlocutory order supporting the memorandum of lis pendens.

         Citadel Realty, LLC (Citadel), filed a complaint in the Superior Court against the defendants, seeking to void the foreclosure sale of Citadel's real property in the Dorchester section of Boston (property). In addition, Citadel sought damages and reformation of the underlying mortgages. Following the filing of its verified amended complaint, Citadel filed a motion for approval of a memorandum of lis pendens, pursuant to G. L. c. 184, § 15(b), which was allowed. The defendants filed a motion opposing the approval of the memorandum of lis pendens and seeking to dismiss the complaint, which was, in part, a special motion to dismiss pursuant to G. L. c. 184, § 15(c) . The motion was denied. The defendants filed the present interlocutory appeal from the denial of their motion to dismiss, purporting to appeal the motion judge's decision declining to dismiss both the claim supporting the lis pendens and affecting title, and the claims that did not support the lis pendens.

          Background.

         We set forth the facts from the verified pleadings and affidavits that were before the judge. G. L. c. 184, § 15(c) . In 2011, Mario Lozano approached Endeavor Capital, LLC (Endeavor), [2] seeking a loan in connection with the property. Endeavor and Lozano entered into a term sheet, pursuant to which Citadel[3]borrowed $250, 000 from one of the Endeavor subsidiaries.[4] The loan was secured by a first mortgage (2011 mortgage) on the property and was guaranteed by Lozano personally. The 2011 mortgage had a six-month term, a fourteen percent interest rate, and was subject to a six percent origination fee.

         Citadel was unable to repay the principal within the six-month term. Thereafter, Citadel entered into a series of six-month extensions with Endeavor Capital Funding, LLC (ECF). Each time, Citadel was unable to refinance with another lender, and was under the threat of foreclosure. Each time, Citadel paid another six percent fee, and increased the principal balance. All told, Citadel paid $121, 742.06 in interest-only payments, but was unable to repay the principal before termination of the last extension.

         In 2014, Lozano approached Endeavor to discuss a potential refinancing. Lozano entered into a second term sheet with Endeavor, pursuant to which Citadel entered into a new mortgage agreement (2014 mortgage) with another Endeavor subsidiary as determined by Endeavor.[5] This loan had a principal of $384, 000 and was secured by a new first mortgage on the property. Like the 2011 mortgage, the 2014 mortgage had a six-month term, a fourteen percent interest rate, and was subject to a six percent origination fee. The loan was used, as the parties had agreed, to pay the outstanding principal of the 2011 loan;[6] however, no discharge of the 2011 mortgage was recorded at the registry of deeds.

         Citadel defaulted on the 2014 mortgage and foreclosure proceedings commenced.[7] In May, 2015, the foreclosure sale of the property was held. One of the Endeavor subsidiaries, Endeavor High Yield Mortgage Fund, LLC (EHYMF), both conducted the sale and submitted the winning bid of $475, 000.[8]

         In January, 2016, Citadel filed a verified amended complaint against the Endeavor subsidiaries, seeking a declaratory judgment that the foreclosure sale was void because the Endeavor subsidiaries' failure to discharge the 2011 mortgage violated their duty to conduct the sale in good faith and with reasonable diligence (declaratory judgment count) . See U.S. Bank Natl. Assn. v. Ibanez, 458 Mass. 637, 647 n.16 (2011). Citadel claimed that because no discharge of the 2011 mortgage had been recorded in the registry of deeds, the appearance of the mortgage in the chain of title dissuaded otherwise interested bidders from bidding on the property, thereby allowing EHYMF to purchase the property for itself at a price that was lower than its market value. In addition, the complaint sought damages and reformation of the underlying mortgages on the grounds that (a) the Endeavor subsidiaries violated G. L. c. 183, § 55; (b) both mortgages were unconscionable; (c) the Endeavor subsidiaries were unjustly enriched; and (d) the Endeavor subsidiaries violated G. L. c. 93A. Citadel moved, pursuant to G. L. c. 184, § 15(b), for approval of a memorandum of lis pendens to be recorded against the property. Citadel argued that the declaratory judgment count constituted a claim of right to title to real property. The Endeavor subsidiaries opposed the motion and filed a motion to dismiss all of the counts of the amended complaint. That ...


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