Case Style: Summers v. Financial Freedom
Case Number: 14-1930
Judge: Jeffrey R. Howard
Court: United States Court of Appeals For the First Circuit
Plaintiff's Attorney: Carleen N. T. Aubee
Defendant's Attorney: Harris K. Weiner, Salter McGowan
Description: The relevant facts are, for all intents and purposes,
undisputed. On November 4, 1977, the decedent and Charlotte T.
Albeitsam took title as joint tenants with rights of survivorship
to residential property at 11 Sundance Street, Warwick, Rhode
Island (the Property). Following Albeitsam's death, the decedent
entered into a reverse mortgage with Financial Freedom Senior
Funding Corp. The mortgage instrument provided in pertinent part
that the full amount of the debt would become due and payable upon
the death of the borrower.
On September 25, 2009, Financial Freedom Senior Funding
Corp. assigned the mortgage to Mortgage Electronic Registration
Systems, Inc. (MERS) as a nominee of Financial Freedom
Acquisition.2 The decedent died intestate on December 8, 2009.
Her son and daughter applied for letters of administration and,
pursuant to statute, the estate was duly advertised and notice was
given to creditors. See R.I. Gen. Laws § 33-11-5.1. Neither
Financial Freedom nor MERS filed a claim in the probate
proceedings. See id. § 33-11-5. The estate was duly administered
and closed, and the Warwick Probate Court granted the decedent's
interest in the Property to the plaintiffs.
In late 2010, the plaintiffs received a notice of
foreclosure. That notice was published in accordance with statute.
See id. § 34-27-4. Foreclosure proceedings went forward, MERS
reassigned the mortgage to Financial Freedom, and Financial 1 As an alternative to full payment, the borrower may elect to sell the property for the lesser of the mortgage balance or 95% of the property's appraised value. This alternative was never elected, so we do not discuss it further.
2 Another company bearing the Financial Freedom appellation, Financial Freedom Senior Servicing Corp., was one of the firms that from time to time serviced the mortgage. For ease in exposition, we do not hereafter distinguish among the companies that bear the "Financial Freedom" name, but instead refer to them collectively as "Financial Freedom."
Freedom recorded the foreclosure deed granting the Property to it
in November of 2011.
Dismayed by this turn of events, the plaintiffs invoked
diversity jurisdiction, see 28 U.S.C. § 1332(a), and repaired to
the United States District Court for the District of Rhode Island.
Their suit sought to contest both the validity of the serial
mortgage assignments and the foreclosure itself. During pretrial
discovery, Brinah Court dropped out of the case. See Fed. R. Civ.
After the close of discovery, Financial Freedom moved
for summary judgment. See Fed. R. Civ. P. 56(a). The district
court, ruling ore tenus, granted summary judgment over Steven
Summers' objection. This timely appeal followed.3
The appellant's challenge is two-fold: first, he argues
that the district court erred in determining that he lacked
standing to contest the mortgage assignments; second, he argues
that in any event, Financial Freedom's failure to file a claim in
the probate proceedings pretermitted its right to foreclose on the
Property. Since this is a diversity case, we look to federal law
for guidance on procedural matters (such as the summary judgment
Only Steven Summers has appealed. To avoid any confusion, we henceforth refer to him as "the appellant."
framework) and to state law (here, Rhode Island law) for the
substantive rules of decision. See Hanna v. Plumer, 380 U.S. 460,
473 (1965); Mason v. Telefunken Semiconductors Am., LLC, 797 F.3d
33, 38 (1st Cir. 2015).
A. Reverse Mortgages.
Before turning to the issues sub judice, we think that
an explanation of the idiosyncratic nature of reverse mortgages
may assist the reader. A reverse mortgage is a loan or line of
credit available to a person over the age of 62 who has equity in
real estate, typically the person's home. The loan provides the
borrower with cash (usually in the form of a single lump-sum
payment) and is secured by the borrower's equity in the real
estate. There are no monthly payments; instead, the loan is due
and payable in full when the borrower dies, sells the home, or no
longer uses the home as her principal residence. See generally
R.I. Gen. Laws § 34-25.1.
The standard reverse mortgage has an additional feature:
the underlying loan is typically on a non-recourse basis (that is,
the borrower has no personal liability for repayment of the funds
advanced). Put another way, the lender agrees to look exclusively
to the mortgaged property for repayment.
With this foundation in place, we confront the
appellant's twin claims of error. We note, though, that the
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reverse mortgage that the decedent obtained from Financial Freedom
was cast in the conventional mold.
B. Standing to Challenge the Assignments.
Standing is a threshold question in every case. See
Warth v. Seldin, 422 U.S. 490, 498 (1975). The existence of
standing "is a legal question and, therefore, engenders de novo
review." Culhane v. Aurora Loan Servs. of Neb., 708 F.3d 282, 289
(1st Cir. 2013) (quoting Me. People's All. & Nat. Res. Def. Council
v. Mallinckrodt, Inc., 471 F.3d 277, 283 (1st Cir. 2006)). A
plaintiff suing in federal court normally must shoulder the burden
of establishing standing. Id.
With respect to this issue, we do not write on a pristine
page. In Lister v. Bank of America, N.A., 790 F.3d 20, 24-25 (1st
Cir. 2015), we explicated the nature of a mortgage under Rhode
Island law. "Rhode Island is a title-theory state, in which 'a
mortgagee not only obtains a lien upon the real estate by virtue
of the grant of the mortgage deed but also obtains legal title to
the property subject to defeasance upon payment of the debt.'"
Id. (quoting Bucci v. Lehman Bros. Bank, FSB, 68 A.3d 1069, 1078
(R.I. 2013)). A reverse mortgage fits within this construct.
We have ruled "that a mortgagor has standing to challenge
the assignment of a mortgage on her home to the extent that such
a challenge is necessary to contest a foreclosing entity's status
qua mortgagee." Culhane, 708 F.3d at 291. This means that a
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mortgagor (or a party standing in the mortgagor's shoes) only has
standing to challenge an invalid, ineffective, or otherwise void
mortgage. See Wilson v. HSBC Mortg. Servs., Inc., 744 F.3d 1, 9
(1st Cir. 2014); Woods v. Wells Fargo Bank, N.A., 733 F.3d 349,
354 (1st Cir. 2013); Culhane, 708 F.3d at 291; Mruk v. MERS, 82
A.3d 527, 536 (R.I. 2013). The flip side of this proposition is
that "a mortgagor does not have standing to challenge shortcomings
in [a mortgage] assignment that render it merely voidable at the
election of one party but otherwise effective to pass legal title."
Culhane, 708 F.3d at 291. The Rhode Island Supreme Court has
embraced this void/voidable distinction with respect to real
estate mortgages. See Inventach v. Superior Fire Ins. Co., 138 A.
39, 42 (R.I. 1927); Bishop v. Kent & Stanley Co., 41 A. 255, 257
(R.I. 1898); see also Clark v. MERS, 7 F. Supp. 3d 169, 175 (D.R.I.
In the first instance, then, we must determine whether
the challenged mortgage assignments are void or voidable. In Rhode
Island, a valid mortgage or any of its assignments must be signed,
acknowledged by notarization, delivered, and recorded. See R.I.
Gen. Laws § 34-11-1. It is not necessary that the mortgage and
the note that it secures be held by the same entity. See Bucci,
68 A.3d at 1088.
In the case at hand, two assignments of the mortgage
took place. The summary judgment record shows that each assignment
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complied with the necessary formalities: the relevant documents
were distinguished by signature, notarization, delivery, and
recordation. The record is equally clear that the parties to the
assignments treated them as valid. Although the appellant
questions whether the assignors possessed the requisite authority
to execute the assignments, the summary judgment record contains
no evidence sufficient to create a genuine issue of material fact
in this regard. Unsupported allegations are not enough. See
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986)
(requiring "significantly probative" evidence to defeat a properly
documented summary judgment motion).
That ends this aspect of the matter. On this record,
the assignments are not void but, at worst, merely voidable. It
follows that the district court did not err in concluding that the
appellant lacked standing to challenge them.
The appellant demurs, suggesting that the Rhode Island
Supreme Court's decision in Chhun v. MERS, 84 A.3d 419 (R.I. 2014),
requires a different result. We think not.
In Chhun, the court, reviewing a dismissal for failure
to state a claim upon which relief can be granted, allowed a
challenge to the assignment of a mortgage to go forward. See id.
at 423. Chhun is easily distinguishable from the case at hand.
First, this case was heard on summary judgment, not on a motion to
dismiss — and the burden on the appellant was correspondingly
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heavier. See García-Catalán v. United States, 734 F.3d 100, 104
(1st Cir. 2013) (distinguishing between standard for surviving
motion to dismiss and standard for surviving summary judgment);
Palazzo v. Big G Supermkts., Inc., 292 A.2d 235, 237 (R.I. 1972)
(same, applying Rhode Island law).
Second, the record here — unlike in Chhun, 84 A.3d at
423 — fails to delineate particular facts tending to show the
invalidity of the challenged assignments.
C. The Effect of the Probate Process.
The appellant's lack of standing to challenge the
validity of the mortgage assignments does not end our journey.
The appellant also contends that Financial Freedom lost its right
to foreclose by failing to file a claim in the probate proceedings.
See R.I. Gen. Laws § 33-11-5. This is a challenge to the enduring
effectiveness of the mortgage itself (no matter who owns it) and,
on the facts of this case, the appellant has standing to maintain
that challenge. We explain briefly.
The appellant inherited an interest in the Property
following the completion of probate. Financial Freedom
subsequently sought to foreclose on the same Property — and that
attempted foreclosure constitutes a concrete and particularized
injury to the appellant. After all, there is a direct causal link
between the challenged action (the attempt to foreclose) and the
threatened harm (the loss of the Property through foreclosure).
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Rhode Island law controls here, so the appellant, who has a
personal stake in the outcome, has the right to ensure that the
foreclosure conforms with the law. See Culhane, 708 F.3d at 291;
Mruk, 82 A.3d at 536.
We review the district court's entry of summary judgment
on this claim de novo, taking the facts and all reasonable
inferences therefrom in the light most flattering to the non
movant (here, the appellant). See Houlton Citizens' Coal. v. Town
of Houlton, 175 F.3d 178, 184 (1st Cir. 1999). We are not married
to the district court's rationale but may validate its summary
judgment order on any ground made manifest by the record. See
Culhane, 708 F.3d at 291.
Because the Rhode Island Supreme Court has not addressed
whether probate extinguishes a real estate mortgage, our task is
to vaticinate how that court would likely rule if faced with the
issue. See Wheeling & Lake Erie Ry. Co. v. Keach (In re Montreal,
Me. & Atl. Ry., Ltd.), 799 F.3d 1, 10 (1st Cir. 2015). In
predicting the path that a state court would probably follow, we
start with settled principles of state law and fill the gaps by
considering supplementary sources, such as persuasive authority
from other jurisdictions and the teachings of learned treatises.
See id.; Bos. Reg'l Med. Ctr., Inc. v. Reynolds (In re Bos. Reg'l
Med. Ctr., Inc.), 410 F.3d 100, 108 (1st Cir. 2005).
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The appellant's contention requires us to explore the
intersection (if any) between mortgage foreclosures and the
probate process. The Rhode Island Supreme Court frequently has
looked to the common law for guidance with respect to issues of
property jurisprudence, see, e.g., Zuba v. Pawtucket Credit Union,
941 A.2d 167, 171 (R.I. 2008); Ruffel v. Ruffel, 900 A.2d 1178,
1188 (R.I. 2006), so we begin our analysis by tracing how the
common law historically has characterized foreclosure.
Foreclosure is an equitable remedy. See Benitez v. Bank
of Nova Scotia, 125 F.2d 519, 520 (1st Cir. 1942); Walsh v. Morgan,
198 A. 555, 562 (R.I. 1938). "The land is the real defendant in
[a foreclosure] proceeding." Hunt v. Darling, 59 A. 398, 399 (R.I.
1904). A foreclosure, though not literally a proceeding in rem,4
"is in the nature of such a proceeding, and is not intended
ordinarily to act in personam." Burgess v. Souther, 2 A. 441, 443
(R.I. 1885). Absent a statute to the contrary, a mortgagee can
both sue the parties to the mortgage at common law and pursue
foreclosure. See Hunt, 59 A. at 399. If a deficiency results
4 Strictly speaking, it may be more appropriate to classify a foreclosure as a quasi in rem proceeding rather than an in rem proceeding. See, e.g., Freeman v. Alderson, 119 U.S. 185, 187 (1886). Here, however, linguistic precision is not at a premium. Hence, we use a shorthand and refer throughout to foreclosure as an in rem proceeding.
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from a foreclosure sale, an action on the mortgage note normally
will lie to recover that deficiency. See Burgess, 2 A. at 443.
We find much the same dichotomy between the encumbered
property and the underlying debt in the venerable structures of
maritime law. Admiralty long has recognized the feasibility of
separating the mortgage res from the associated debt. See, e.g.,
46 U.S.C. § 31325(b)(1) (authorizing enforcement of mortgage
through in rem action against the ship).
These hoary tenets have persisted substantially intact
to the present day. A compelling analogy can be found in the realm
of bankruptcy law. There, a creditor may recover the deficiency
on a mortgage loan through "an action against the debtor in rem,"
notwithstanding the debtor's discharge in bankruptcy. Couture v.
Pawtucket Credit Union, 765 A.2d 831, 833 (R.I. 2001) (citing
Johnson v. Home State Bank, 501 U.S. 78, 84 (1991)); see 11 U.S.C.
We add, moreover, that the Rhode Island Supreme Court
has often consulted the Restatements to bring clarity to state
law, see, e.g., Bucci, 68 A.3d at 1088; Jerome v. Probate Court of
Barrington, 922 A.2d 119, 122 (R.I. 2007), and we think it
noteworthy that this splitting of in rem and in personam liability
is consonant with the Restatement's declaration that a "mortgage
is enforceable whether or not any person is personally liable for
that performance." Restatement (Third) of Property: Mortgages
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§ 1.1 (1997). This dichotomy is also consistent with section 3
814 of the Uniform Probate Code, which authorizes payment of a
mortgage even if a claim has not been filed in the decedent's
estate. And, finally, no less an authority than the United States
Supreme Court has noted that the lender's "right to foreclose on
the mortgage can be viewed as a 'right to an equitable remedy' for
the debtor's default on the underlying obligation." Johnson, 501
U.S. at 84.
The case law elsewhere, see, e.g., Mortg. Invs. Corp. v.
Battle Mtn. Corp., 70 P.3d 1176, 1181 (Colo. 2003); Bank of Tokyo
Co. v. Urban Food Malls Ltd., 650 N.Y.S.2d 654, 661 (App. Div.
1996); Stephens v. LPP Mortg., Ltd., 316 S.W.3d 742, 746 (Tex.
App. 2010); Bank of Sun Prairie v. Marshall Dev. Co., 626 N.W.2d
319, 323 (Wis. Ct. App. 2001), confirms our intuition that the
Rhode Island Supreme Court, if faced with the question, would hold
that the right to foreclose should be treated as separate and
distinct from the right to collect the underlying debt. The upshot
is that though the failure to file a claim in probate proceedings
may extinguish personal liability on the note secured by the real
estate mortgage, that failure does not extinguish the mortgage
itself. Consequently, such a failure does not interfere with the
mortgagee's right to foreclose.
We believe it follows that, in Rhode Island, a mortgagee
need not make a monetary claim against an estate in probate
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proceedings in order to retain its in rem rights to proceed against
the real property that secures the mortgage debt. In other words,
"it is immaterial that the holder of [an] encumbrance does not
present a claim against the estate but prefers to look to the
future enforcement of his lien against the specific encumbered
property only." In re Estate of Dolley, 71 Cal. Rptr. 56, 61 (Ct.
In a last-ditch endeavor to efface the force of this
reasoning, the appellant jerry-rigs a statute of limitations
argument. He asserts that the failure to submit a claim to the
probate court within the statutorily prescribed period, see R.I.
Gen. Laws § 33-11-5, bars Freedom Financial from later foreclosing
against the Property to satisfy the underlying debt.
The appellant is fishing in an empty pond. The statute
of limitations applicable to foreclosures in Rhode Island is the
general 20-year statute of limitations. See R.I. Gen. Laws § 9
1-17; see also Wallbaum v. Martin, 234 A.2d 369, 370 (R.I. 1967).
The limitations period associated with the probate claim-filing
statute, see R.I. Gen. Laws § 33-11-5, does not apply. Cf. Higgins
v. Mycroft, 92 A.2d 727, 729 (R.I. 1952) (indicating that mortgage
enforcement proceedings are separate and apart from probate
We summarize succinctly. After the decedent passed away
and the mortgage balance remained unpaid, it was to the scaffold
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of property law that Financial Freedom turned. It properly
exercised its right of foreclosure, and that in rem proceeding was
wholly independent of the probate process.
For the reasons elucidated above, we predict that the
Rhode Island Supreme Court, were it confronted with the question,
would conclude that the failure to file a claim in the probate
court would not bar a mortgagee holding a reverse mortgage on real
property from collecting the balance due through the equitable
remedy of foreclosure. The probate process does not extinguish a
real estate mortgage but, rather, only extinguishes personal
liability for the underlying debt.
Outcome: We need go no further. We hold that the appellant lacks
standing to challenge the interstitial mortgage assignments; and
though he does have standing to challenge the effectiveness of the
mortgage itself on a different ground, that challenge is fruitless.
Despite its eschewal of the probate claim-filing process,
Financial Freedom retained the right to enforce its reverse
mortgage through foreclosure.