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Case Law Updates: Maine

Posted By USFN, Tuesday, May 1, 2018
Updated: Tuesday, May 1, 2018

May 1, 2018

by Eva M. Massimino
Bendett & McHugh, PC
USFN Member (Connecticut, Maine, Vermont)

Last year came to a tumultuous close mortgage creditors in Maine. In a series of three cases from the Maine Supreme Court, it has become clear that: (1) mortgage creditors only have one chance to properly accelerate the loan; (2) a loan is still deemed accelerated even when the statutory demands required were noncompliant with local statute; (3) judgment will enter in favor of a borrower if a servicer fails to present a witness with knowledge of the record-keeping practices of a prior servicer; and (4) an adverse judgment for any reason will have res judicata effect and potentially result in discharge of the mortgage.

Federal National Mortgage Association v. Deschaine, 2017 Me. 190 — The first of the three notable cases was decided on September 7, 2017. In Deschaine, the Maine Supreme Court upheld a superior court’s judgment barring foreclosure because a prior foreclosure action on the mortgage was dismissed with prejudice as a sanction. The Court held that once a promissory note is accelerated, the payments required by the note become indivisible, and there can be no new default under the note and mortgage. As such, the Court held that where a foreclosure was dismissed with prejudice, the foreclosing plaintiff cannot thereafter assert a continuing default on the note to defeat a res judicata defense to foreclosure.

In the subject case, the plaintiff filed its first foreclosure against property owned by the defendant in 2011, alleging a default date of January 2011. The first foreclosure action was dismissed with prejudice. Thereafter, in 2013, the plaintiff commenced its second foreclosure, alleging a default beginning February 2011. The lower court accepted Deschaine’s defense, which claimed that the second foreclosure was barred by the principles of res judicata. An appeal ensued.

Relying on precedent, the Court upheld the lower court opinion, stating: “Fannie Mae ‘cannot avoid the consequences of [the prior dismissal]’ by alleging grounds for foreclosure that are different from those alleged in the 2011 action — in other words, by ‘attempting to divide a contract which became indivisible when [it] accelerated the debt in the first lawsuit.’”

Pushard v. Bank of America, N.A., 2017 Me. 230 — The Maine Supreme Court’s next opinion was released on December 12, 2017. In Pushard, the Court held that a judgment in favor of the borrowers, which denied the bank foreclosure due in part to a defective statutory demand, has res judicata effect.
In this case, the bank filed a foreclosure against the Pushards in 2011, wherein the bank alleged that a notice of default was provided in accordance with the law. The superior court found, however, that the bank’s notice of default was defective for failure to meet statutory requirements. Additionally, the superior court determined that the bank failed to prove a breach of condition of the mortgage as well as the amount due. As a result, judgment was entered for the Pushards in 2014, and neither party appealed. Rather, the Pushards filed a second action in the superior court to obtain discharge of the mortgage and an order prohibiting the bank from enforcing the note and mortgage. Judgment in the second action was entered for the bank, and the Pushards appealed.

The Court in Pushard necessarily considered the effect of the judgment in the bank’s foreclosure action, which had been entered in favor of the Pushards. The bank contended that the judgment in the foreclosure action should not have res judicata effect as the acceleration clauses of the note and mortgage were not appropriately triggered in compliance with Maine statute, which indicates that a mortgagee “may not accelerate maturity” until a demand pursuant to the section was sent and, hence, the bank could not have accelerated the loan. (See 14 M.R.S.A. § 6111.)

The bank’s argument did not prevail and the Court held, “We do not interpret section 6111 as a prohibition on a mortgagee’s choice to exercise an acceleration clause …. When the Bank chose to [accelerate], ‘the contract became indivisible’ and ‘[t]he obligations to pay each installment merged into one obligation to pay the entire balance due on the note.’” The Court’s opinion ends with a remand of the case to the trial court “to enter a judgment declaring that the note and mortgage are unenforceable and that the Pushards hold title to their property free and clear of the Bank’s mortgage encumbrance.” It is now clear that an adverse judgment in a foreclosure case may result in a free house for the borrower and a big loss for the creditor.

Key Bank National Association v. Estate of Eula W. Quint, 2017 Me. 237 — On December 21, 2017, the Supreme Court entered its last significant holding of the year. In Quint, the bank brought a foreclosure action against the Estate of Eula Quint (Estate) as well as Vickie L. Kilton (Kilton). Despite having failed to defend against the foreclosure action, Kilton, through counsel, appeared on the day of trial. Counsel for the bank called a witness from the current servicer to testify as to the business records kept in the regular course of that servicer’s business with regard to the loan subject to foreclosure. However, the outstanding principal balance on the loan could not be established without relying on records of a prior servicer, which had been incorporated into the business records of the current servicer. The witness was able to authenticate records created and maintained by the current servicer, but could not establish that he had any personal knowledge of the record-keeping practices of the prior servicer. Judgment was entered for Kilton and the Estate. The bank appealed.

The Supreme Court affirmed the decision of the lower court, holding that the bank did not properly establish the business records exception for integrated business records of the former servicer. Relying on precedent, the Supreme Court indicated that in order to admit integrated records, the current servicer must present witnesses who can demonstrate knowledge not only of the transmission, receipt, integration, and reliance on records from the former servicer but also knowledge of the regular business practices of that former servicer for the creation and maintenance of the records prior to transfer.

Since the current servicer’s witness was unable to present testimony to establish the past servicer’s business practices, a proper foundation was not laid for admitting that earlier servicer’s loan records, and they were therefore inadmissible. In order to ensure that integrated business records are admissible, testimony should be presented of one or more witnesses with knowledge of the business practices of each prior servicer whose records are necessary to establish the essential elements of foreclosure. As seen in Pushard, failing to prove any allegation in a foreclosure may result in the underlying note and mortgage becoming unenforceable.

Closing Words — Servicers and their counsel must proceed with caution to ensure that all foreclosure documentation and evidence are flawless, and that the proper qualified witnesses appear and be ready to testify at trial.

Copyright © 2018 USFN. All rights reserved.
Spring USFN Report

Note for consideration of the USFN Award of Excellence: This article is a "Feature."


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