Summers v. Financial Freedom Acquisition LLC

United States Court of Appeals
For the First Circuit

No. 14-1930

STEVEN SUMMERS,

Plaintiff, Appellant,

BRINAH COURT,

Plaintiff,

v.

FINANCIAL FREEDOM ACQUISITION LLC,

Defendant, Appellee,

FINANCIAL FREEDOM SENIOR FUNDING CORP. and
FINANCIAL FREEDOM SENIOR SERVICING CORP.,

Defendants.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND

[Hon. John J. McConnell, Jr., U.S. District Judge]

Before

Howard, Chief Judge,
Selya and Thompson, Circuit Judges.

Carleen N. T. Aubee for appellant.
Harris K. Weiner, with whom Salter McGowan Sylvia & Leonard,
Inc., was on brief, for appellee.
October 23, 2015
 SELYA, Circuit Judge. Plaintiff-appellant Steven

Summers and his sister Brinah Court inherited a house from their

mother, Rosalie Summers (the decedent). The rub was that, during

her lifetime, the decedent had obtained and reaped the benefits of

a reverse mortgage. That mortgage, which contained an acceleration

clause and power of sale, became due and payable upon her death.

After they inherited the property, the plaintiffs sought

to take it free and clear of the mortgage lien even though the

mortgage debt remained unpaid. They argued, among other things,

that the mortgage was unenforceable because the mortgagee had

failed to file a claim in the decedent's estate. Ruling on this

question of first impression under Rhode Island law, the district

court disagreed. So do we: the piper must be paid.

I. BACKGROUND

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

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that the full amount of the debt would become due and payable upon

the death of the borrower.1

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."

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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.

P. 41(a).

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

II. ANALYSIS

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

3Only Steven Summers has appealed. To avoid any confusion,
we henceforth refer to him as "the appellant."

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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.

2014).

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.

§ 522(c)(2).

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.

App. 1968).

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

proceedings).

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.

III. CONCLUSION

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.

Affirmed.

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