NationsBanc Mortgage Corp. v. Eisenhauer

Citations: 49 Mass. App. Ct. 727; 733 N.E.2d 557; 2000 Mass. App. LEXIS 609Docket: No. 97-P-2061

Court: Massachusetts Appeals Court; July 27, 2000; Massachusetts; State Appellate Court

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On April 28, 1992, the Resolution Trust Corporation (RTC), acting as conservator for ComFed Savings Bank, initiated a legal action in the Land Court against Paul and Mary Eisenhauer, John W. Kelleigh, Charles Farrell, and the IRS to clear a title cloud on their property at 45 Woodland Drive, Marlborough. The complaint claimed a mortgage on the property had been mistakenly discharged, seeking a judgment to declare the discharge void and the mortgage obligations still valid. The complaint was amended multiple times, substituting parties including KeyCorp and later NationsBanc Mortgage Corporation. Kelleigh was removed from the case, Farrell ceased participation after answering, and the IRS defaulted.

At a pretrial conference on June 14, 1995, Mary asserted that Paul was incompetent due to mental illness, leading to the appointment of Henry H. Thayer as guardian ad litem. The guardian reported Paul's inability to provide relevant information for the case. Following a trial, the judge found that both the mortgage and note were properly discharged and dismissed the complaint, ruling that NationsBanc did not prove any mistake occurred. NationsBanc appealed the dismissal.

Subsequently, on November 8, 1996, the guardian sought compensation for his expenses, which NationsBanc opposed. On February 20, 1997, the judge ordered NationsBanc to pay $25,589 for the guardian's fees. NationsBanc appealed this order and sought to stay it, which the judge granted on May 8, 1997, while requiring NationsBanc to pay 6% annual interest on the ordered amount.

The background includes that the Eisenhauers purchased the property in 1972 for $57,000 and refinanced with a $100,000 loan from ComFed in 1984, secured by a mortgage. Paul, a real estate appraiser, experienced declining mental capacity following heart surgery in 1983, with Mary managing household bills and mortgage payments.

Mary made sporadic mortgage payments between 1984 and 1991. Due to poor payment history, ComFed notified them on April 3, 1987, of their loan default and impending foreclosure. ComFed filed a complaint in the Land Court on July 24, 1990, under the Soldiers and Sailors Civil Relief Act for foreclosure permission. A judgment was granted, and the sale was scheduled for April 3, 1992. In early 1991, Mary, upon receiving foreclosure notice, found a mortgage discharge document from ComFed dated August 4, 1986, which she recorded on February 4, 1991. Prior to the foreclosure, RTC, as conservator for ComFed, was informed of the recorded discharge and subsequently filed a complaint against the Eisenhauers, asserting the discharge was recorded in error and claiming an outstanding balance of $96,142.08.

The general rule allows equity to reinstate a mistakenly discharged mortgage if intervening lienors' rights are unaffected. NationsBanc, which filed the complaint, bore the burden to prove the discharge was a mistake. The judge ruled NationsBanc did not meet this burden, and NationsBanc contested several factual findings, alleging sufficient evidence of mistake. On appeal, findings of fact cannot be overturned unless clearly erroneous, with deference to the trial court's credibility assessments. The appellate court may not reverse a plausible account of the evidence even if they would have weighed it differently, and the choice between two permissible views of the evidence is not clearly erroneous.

The appellant bears the burden of proving that an appellate court's finding is clearly erroneous. A key judicial finding established that ComFed had protocols ensuring mortgage discharges were issued only after debts were settled. This was supported by the testimony of Virginia S. Landers, a former assistant vice-president at ComFed, who was responsible for executing mortgage discharges. Although NationsBanc claimed chaotic conditions in the pay-off department during the summer of 1986 contributed to potential errors, Landers did not affirm that this chaos led to disregarding established procedures. The relevant cancellation date of the note was November 25, 1985, making the summer conditions irrelevant.

The judge ruled that under G. L. c. 106, § 3-605, a holder may discharge obligations by surrendering the instrument, thus finding an unambiguous surrender since the Eisenhauers received both the cancelled note and the mortgage discharge. Legal precedents indicate that any cancellation must be intentional for it to be effective, creating a rebuttable presumption of discharge when the debtor possesses the cancelled note. NationsBanc contended that the judge erred by not recognizing the rebuttable presumption and by failing to consider whether NationsBanc had rebutted it. However, the judge's findings indicated that he rejected NationsBanc's claim of mistake, implying that it had not successfully rebutted the presumption. The judge's evaluation of witness credibility and evidence is given significant deference, as he directly observed the proceedings.

The judge’s findings were upheld as reasonable based on the evidence presented. NationsBanc failed to prove a mistake regarding the discharge of the mortgage and cancellation of the note. Several documents were excluded from evidence, initially allowed de bene, but later ruled inadmissible under the business records exception to the hearsay rule (G. L. c. 233, § 78). The excluded documents included: 

1. **Exhibits 18 and 22**: Mortgage loan ledger sheets from ComFed, transferred through RTC and KeyCorp to NationsBanc. The custodian for NationsBanc could not establish the necessary reliability since she had not worked for ComFed or RTC, leading the judge to exclude these records as they were not made by NationsBanc.

2. **Exhibits 19, 20, and 21**: Documents created by NationsBanc or KeyCorp but based on ComFed’s information. The judge deemed them inadmissible due to hearsay issues, as NationsBanc did not demonstrate that the initial source had personal knowledge or a duty to accurately report the information. Additionally, these records were created after the commencement of the civil proceedings, failing the foundational requirement for admissibility.

3. **Exhibit 24**: Included documents marked during Landers' deposition but not produced by her. There was insufficient testimony to classify these as business records under G. L. c. 233, § 78, leading to their exclusion as well.

In summary, the judge did not err in excluding the documents, as they did not meet the criteria for admissibility under the hearsay rule.

Landers was not the custodian of the records, and the keeper of records for NationsBanc did not provide testimony regarding the evidence in question, leading to the determination that these documents were inadmissible. NationsBanc contested the appointment of a guardian ad litem for Paul, claiming the judge lacked authority; however, NationsBanc had initially agreed to this appointment and only objected after the guardian submitted his bill, thus waiving any objection. The judge had the authority to appoint a guardian ad litem under G. L. c. 201, § 34, which permits such appointments when a person under disability has interests in legal rights or property. The judge also had the authority under G. L. c. 201, § 35, to determine the reasonable expenses and counsel fees of the guardian ad litem, affirming the order for NationsBanc to cover these costs. The judgment dismissing NationsBanc's complaint and the order allowing the guardian's expense request dated February 20, 1997, were both affirmed. The court noted that there were no intervening lienors. Regarding the holder of an instrument, G. L. c. 106, § 3-605 allows for discharge of any party without consideration, without affecting the title to the instrument in question. This section was revised and renumbered to G. L. c. 106, § 3-604, effective February 12, 1998, but the new section does not apply here. The court found that even if the disallowed evidence had been admitted, it would not have conclusively proven the execution of a discharge. The procedures in place for discharging mortgages and canceling notes were deemed thorough and competent, undermining the plaintiff's claims of error. NationsBanc also challenged the judge's order for additional six percent interest on the expenses from February 20, 1997, but as the plaintiff did not appeal this order, it was not subject to review. The court noted that the plaintiff sought a final judgment rather than a stay, which would have automatically delayed payment subject to interest, indicating no detriment from the judge's decision.