Citibank, N.A., as Trustee for the MLMI Trust Serie s 2006-HE5 v. Mumley, No. S1087-09 CnC (Toor, J., S ept. 1, 2011)

[The text of this Vermont trial court opinion is un official. It has been reformatted from the origina l. The accuracy of the text and the accompanying data included in the Vermont trial cou rt opinion database is not guaranteed.] V ERMONT S UPERIOR C OURT C HITTENDEN U NIT C IVIL D IVISION │ CITIBANK, N.A., AS TRUSTEE FOR │ THE MLMI TRUST SERIES 2006-HE5 │ Plaintiff │ │
v. │ Docket No. S1087-09 CnC │ GEORGE R. MUMLEY, JR., and STACEY L. │ MUMLEY, MORTGAGE ELECTRONIC │ REGISTRATION SYSTEMS, INC. (MERS), │ AS NOMINEE FOR FIELDSTONE │ MORTGAGE COMPANY, ESTATE OF │ JANICE C. GINGRAS, AND ANY OTHER │ OCCUPANTS OF 852 ROUTE 7 SOUTH, │ MILTON, VERMONT │ Defendants │ │

RULING ON MOTION TO VACATE JUDGMENT AND ON MOTION F OR SANCTIONS In this foreclosure case, Defendants George and Sta cey Mumley (Defendants) have filed a motion for sanctions against Plaintiff Citibank, N.A., as trustee for the MLMI Trust Series 2006-HE5 (Citibank), on the grounds that Citibank f ailed to comply with the requirements of the foreclosure mediation statute. Pursuant to V.R.C.P . 60(b), Defendants have also filed a motion to vacate the March 9, 2010 Judgment Order and Decr ee of Foreclosure by Judicial Sale. Citibank opposes both motions. Grant C. Rees, Esq. represents Citibank; Grace B Pazdan, Esq. represents Defendants. I. Procedural History2

Plaintiff Citibank, N.A. (Citibank) filed its compl aint for foreclosure in this case on August 25, 2009. 1 The complaint alleged that Defendants had execute d a promissory note in favor of Fieldstone Mortgage Company, and included a copy of an “Adjustable Rate Note” (the Note) as Exhibit 1. The Note identifies the “Lende r” as Fieldstone Mortgage Company (Fieldstone). The Note does not contain any endors ement either to Citibank or in blank. The complaint also alleged that the Note is secured by a mortgage deed to Mortgage Electronic Registration Systems, Inc. (MERS) as “nominee” for Fieldstone. The complaint goes on to allege that MERS assigned the Note and the mortgage deed to Citibank by an Assignment dated August 20, 2009. On February 5, 2010, this court granted Citibank’s motion for default judgment and issuance of a clerk’s accounting. On March 9, 2010 , the court issued a Judgment Order and Decree of Foreclosure by Judicial Sale. On July 16 , 2010, Defendant Stacey Mumley filed a request for foreclosure mediation pursuant to 12 V. S.A. § 4632. 2 On July 23, 2010, the court sent a letter to the parties requiring them to conf er and agree on a mediator. In an entry filed on November 1, 2010, the court stayed action on Citiba nk’s motion for issuance of a certificate of non-redemption due to the ongoing mediation. On March 2, 2011, Stacey Mumley filed a letter seek ing a sanction against Citibank, alleging that no one from Citibank participated in the mediation scheduled for September 23,

1 The court granted Citibank’s November 24, 2009 mot ion to amend the complaint to substitute the Estate of Janice C. Gingras (the Estate) for Defendant Janice C. Gin gras. The Estate filed an answer on December 15, 2 009 asserting that Janice Gingras was dissolved of the Mortgage deed between George R. Mumley, Jr. and Sta cey L. Mumley shortly after the purchase of the property.

2 Vermont’s Foreclosure Mediation Statute, 12 V.S.A. §§ 4631–4637, became effective on July 1, 2010. O n certain conditions that were met in this case, the new legi slation explicitly requires mediation in foreclosur e actions even after judgment has been entered. See id. § 4636 (“The court shall, on request of a party prior to judgment or on request of a party and showing of good cause after judgment, require mediation in any foreclosure acti on on a mortgage on any dwelling house of four units or les s that is occupied by the owner as a principal resi dence that was commenced prior to the effective date of this subch apter but only up to 30 days prior to the end of th e redemption period.”).3

2010. She further alleged that shortly after the s cheduled mediation, Defendants received a letter indicating that given the recent nationwide events surrounding Bank of America and its mortgage practices, the mortgage servicer would be suspending mediation. She asserted that the mediator contacted Defendants in January 2011 to re commence mediation and set a February 16 deadline for Citibank to respond, but Citibank did not do so. The mediator filed a mediation report on March 9, 2 011, stating that no settlement was reached. The report indicates that neither the mor tgagee nor the mortgage servicer were present, although Attorney Rees was present as mortgagee’s c ounsel. The report also indicates that there was no one present with authority to agree to a pro posed settlement, loan modification, or dismissal of the foreclosure action, nor was there real-time access to the mortgagors’ account information or records relating to consideration of the Home Affordable Modification Program (HAMP). Finally, the report states that (1) the le nder’s representative failed to attend the mediation; (2) the lender failed to mediate in good faith by failing to attend and by failing to participate in any subsequent mediation session; an d (3) the lender failed to provide the documentation required by the Foreclosure Mediation Statute. Attorney Pazdan entered her appearance for Defendan ts on April 11, 2011, and filed a supplemental motion for sanctions. The court held a hearing on the mediator’s report and on the request for sanctions on April 13, 2011. On May 2, Defendants filed a motion to vacate the judgment. II. Defendants’ Motion to Vacate4

Defendants’ motion to vacate is filed pursuant to V.R.C.P. 60(b)(4), (5), and (6). 3 The court discusses each potential ground for relief fr om judgment in turn.

3 Defendants initially sought relief pursuant to V.R .C.P. 60(b)(1) (excusable neglect), but now concede that that excusable neglect cannot form the basis for relief from judgment in this case because their motion was filed on May 2, 2011—more than one year from the date of jud gment.5 A. Rule 60(b)(4): Standing In their motion to vacate, Defendants assert that C itibank failed to plead or establish standing to foreclose on their home. They argue th at, at most, Citibank alleged that MERS had assigned the mortgage to Citibank, but that such an assignment is legally insufficient to transfer ownership of a mortgage note. In opposition, Citib ank contends that its complaint was “typical” of foreclosure complaints filed in Vermont prior to events that had brought current issues of foreclosure to the forefront. Citibank argues that Defendants’ standing claim “dissipate[s]” because Citibank can, in its opposition to Defendan ts’ motion, show a chain of possession and negotiation of the Note. Citibank also argues that it should be permitted to correct any deficiency pursuant to V.R.C.P. 17 and Korda v. Chi cago Insurance Co., 2006 VT 81, ¶ 16, 180
Vt. 173. Specifically, Citibank asserts that a “client imagi ng system” contained more than one copy of the Note: one included a stamped blank endo rsement from Fieldstone and one did not. Citibank acknowledges that it attached the un-endor sed version to its complaint. Attached to Citibank’s opposition is what appears to be the sam e document, except that it bears an endorsement in blank. There is no indication as to the date of the endorsement. Citibank has also attached the affidavit of Justin Wilson, a “Li tigation Specialist” with Citibank’s servicer BAC Home Loans Servicing (BAC), who states he has p ersonal knowledge of the servicing of the Defendants’ loan based on his review of books a nd records kept in the course of BAC’s business. Wilson says that Citibank is in possessi on of the original Note and that the Note was endorsed in blank in conjunction with a Pooling and Servicing Agreement. Wilson says that Citibank is in possession of the original Note and that the Note was endorsed in blank in conjunction with a Pooling and Servicing Agreement on September 1, 2006.6

In a reply filed May 27, 2011, Defendants argue tha t the foreclosure judgment against them is void because Citibank did not have standing to foreclose. Defendants maintain that Citibank has presented no evidence that it was the holder of the note at the time it filed its complaint. Defendants argue that Wilson cannot hav e personal knowledge of Citibank’s alleged acquisition of the Note in September 2006 because B AC was not involved with the mortgage loan until May 2010. Defendants conclude that the judgment should be vacated pursuant to V.R.C.P. 60(b)(4). In a letter filed August 1, 201 1, Defendants call the court’s attention to the recent decision in U.S. Bank National Ass’n v. Kimb all, 2011 VT 81. Although this case involves a number of factual cir cumstances similar to those in Kimball, there is one significant difference: the i ssue of standing in Kimball was raised in a motion for summary judgment prior to the entry of j udgment. In this case, by contrast, a final judgment has already been entered. Defendants move to vacate that judgment pursuant to V.R.C.P. 60(b)(4) on the grounds that Citibank was not entitled to enforce the Note at the time it brought its complaint and therefore lacked standing , thus depriving the court of jurisdiction and rendering the judgment void. Whatever the merits of Defendants’ claim that Citib ank was not entitled to enforce the Note when it brought its complaint, Defendants cann ot now collaterally attack the March 9, 2010 judgment on jurisdictional grounds. See Nemaizer v. Baker, 793 F.2d 58, 65 (2d Cir. 1986) (“Even if a court does not expressly rule on matter s relating to its exercise of jurisdiction, if the parties could

have challenged the court’s power to hear a case, then res judicata principles serve to bar them from later challenging it collaterally. ”); Donley v. Donley, 165 Vt. 619, 620 (1996) (mem.) (“A judgment is not void on standing or juri sdictional grounds when a party had a prior opportunity to contest on those grounds but failed to do so.”); 11 Wright, Miller, Kane &7

Marcus, Federal Practice and Procedure: Civil 3d § 2862 (“[A] court’s determination that it has jurisdiction of the subject matter is binding on th at issue, if the jurisdictional question actually was litigated and decided, or if a party had an opp ortunity to contest subject-matter jurisdiction and failed to do so.” (footnotes omitted)); 13B Wri ght et al., Federal Practice and Procedure: Juris. 3d § 3531.15 (“[I]t is possible that a final judgment might be subject to a motion to vacate or collateral attack for want of standing. Ordinari ly such attacks should be rejected, even if the Article III requirements of standing were not met. Other defects of federal subject-matter jurisdiction do not establish that a judgment is vo id, and standing should be no different.” (footnotes omitted)). The court therefore does not reach Citibank’s argument premised on V.R.C.P. 17 and Korda. 4

B. Rules 60(b)(5) and 60(b)(6): Alleged Injustice Defendants argue that they are entitled to relief from judgment under V.R.C.P. 60(b)(5) and 60(b)(6) because they say that Citibank’s servi cing agents willfully violated the federal HAMP guidelines and Vermont’s Foreclosure Mediation Statute. Citibank maintains that allegations of improper participation in the HAMP m ediation process are insufficient to warrant vacating the judgment because Defendants have made no showing that they are eligible for a HAMP loan modification and because Defendants have themselves refused to participate in mediation and have taken actions calculated to frus trate a proper HAMP resolution. Citibank also asserts that Defendants’ argument regarding Ci tibank’s allege failure to participate in HAMP mediation pursuant to Vermont’s Foreclosure Me diation Statute fails because (1) there is no cause of action afforded to borrowers under HAMP and (2) the federal HAMP program preempts the Vermont Mediation Statutes. In reply, Defendants contend that they do not seek

4 The court does note, however, that the Kimball Cou rt seemed to suggest that such an argument might ga in traction where, unlike in that case, the mortgagee does not squander its opportunity to raise it. See Kimball, 2011 VT 81, ¶ 19.8

redress under HAMP, and that HAMP explicitly requir es participating servicers to comply with all federal, state and local laws related to HAMP. Although Defendants seek relief under both V.R.C.P . 60(b)(5) and 60(b)(6), it is not clear that Rule 60(b)(5) applies in this case. See Annotation, Construction and Application of Rule 60(b)(5) of Federal Rules of Civil Procedure, Autho rizing Relief from Final Judgment where its Prospective Application is Inequitable, 117 A.L.R. Fed. 419, § 6[c] (1994) (collecting cases in which courts held that judgments or orders requirin g forfeiture or foreclosure are not prospective, and hence are not subject to review under the inequ itable–prospective–application clause of Rule 60(b)(5) of the Federal Rules of Civil Procedure). Even assuming that Rule 60(b)(5) does apply, however, Defendants’ “injustice” argument is the sa me under both Rule 60(b)(5) and 60(b)(6), and thus it makes sense to perform the analysis und er the latter subsection. Under Rule 60(b)(6), relief from judgment is avail able for “any other reason justifying relief from the operation of the judgment.” V.R.C. P. 60(b)(6). This is a “catch-all provision” that is “designed to give the court flexibility to see that the rule serves the ends of justice.” Reporter’s Notes, V.R.C.P. 60. The rule “is intend ed to prevent hardship or injustice and thus [is] to be liberally construed and applied.” Sandg ate Sch. Dist. v. Cate, 2005 VT 88, ¶ 7, 178 Vt. 625 (mem.) (internal quotation omitted). On the ot her hand, out of concern for certainty and finality of judgments, there are limits on when rel ief is available. Richwagen v. Richwagen, 153 Vt. 1, 4 (1989). Thus Rule 60(b)(6) may not be use d to relieve a party from a free, calculated, and deliberate choice. Sandgate, 2005 VT 88, ¶ 7. Rule 60(b)(6) is to be used “sparingly” to accomplish justice in “extraordinary situations.” Riehle v. Tudhope, 171 Vt. 626, 627 (2000) (mem.).9

The court concludes that this is not such an “extr aordinary situation.” Defendants seek to vacate the judgment on equitable grounds because th ey say that Citibank has failed to participate in mandatory mediation. Defs.’ Reply at 5 (filed M ay 27, 2011). Vermont statutory law already provides a process for addressing noncompliance wit h Vermont law governing mediation in foreclosure actions. See 12 V.S.A. § 4635. Indeed, Defendants simultaneous ly seek sanctions pursuant to § 4635. The court believes the allegat ions of noncompliance and any remedy for such noncompliance should be analyzed under the fra mework of § 4635. The court therefore turns now to that analysis. III. Defendants’ Motion for Sanctions The court begins with some additional factual back ground drawn from the parties’ competing motions on the issue of sanctions. After Stacey Mumley filed a request for foreclosure mediation, the parties agreed to use Br ian P. Hehir, Esq. as mediator. Mediation was scheduled for September 23, 2010. On September 13, 2010, Defendants sent the financial documents required by statute to the mediator. Def endants went to the September 23 mediation session, as did the mediator and Attorney Rees. At that session, Attorney Rees informed Defendants and the mediator that he had been unable to secure a representative of his client with settlement authority to participate in the mediatio n session. As a result, the parties agreed to reschedule the session. Defendants worked with the mediator to try to reschedule the mediation session, but Citibank declined to participate in an y subsequent mediation. On or about February 23, 2011, Citibank’s servicin g agent, BAC Home Loans, sent Defendants a HAMP denial letter. The letter stated that Defendants were not eligible for a HAMP loan modification because “[b]ased on the NPV results the owner of your loan has not approved a modification.” Defendants assert that B AC Home Loans used several incorrect10

figures in the HAMP-related net-present-value (NPV) test that it ran, and that the use of incorrect NPV inputs likely skewed the NPV test results in fa vor of foreclosure and against loan modification. In a letter dated April 23, 2011, BAC Home Loans S ervicing wrote to the Mumleys advising them to disregard the February 23, 2011 le tter because it contained incorrect information. With the errors allegedly fixed, BAC Home Loans sent Defendants a revised HAMP denial letter, also dated April 23, 2011, whic h again concluded that Defendants were not eligible because “[b]ased on the NPV results the ow ner of your loan has not approved a modification.” Defendants did not appeal the April 23 denial. Citibank asserts that Defendants have not disputed the information contained in the April 23 denial. Defendants maintain that the NPV inputs used in the corrected NPV test are still faulty. Defendants believe that they would qualify for a HAMP loan modification if BAC Home Lo ans used the correct inputs, including a lower arrearage to account for what Defendants say is BAC’s unjustified delay in processing the application. On May 4, 2011, Attorney Rees emailed Attorney Paz dan and requested an opportunity to participate in a further attempt to achieve a me diated resolution either through a proper and thorough HAMP analysis or through another “in house ” program. On May 5, 2011, Attorney Pazdan emailed attorney Rees and stated that “[t]he Mumleys are not interested in mediation given the tortured history of this case. If your c lients want to make a reasonable loan modification offer, they would consider it.” Defendants argue that they have been seriously prej udiced by Citibank’s failure to participate in the statutorily-mandated foreclosure mediation process, resulting in delay of their HAMP application and accrued interest, fees, and co sts, a reduction in the likelihood that they11

will qualify for a HAMP loan modification or other foreclosure prevention options, and an increased difficulty in curing their mortgage defau lt. They also assert that Citibank’s failure to participate in mediation meant they did not have an opportunity to correct alleged inaccuracies in the NPV test inputs. Defendants seek one of two se ts of relief. The first set or relief they seek consists of (1) an order requiring Citibank to redu ce their mortgage arrears by one-half; (2) an order requiring Citibank to modify their mortgage n ote according to the HAMP guidelines; and (3) attorney’s fees and costs. Alternatively, Defe ndants seek (1) an order tolling interest, fees and costs on their account after September 23, 2010 and an order requiring the parties to participate in foreclosure mediation. Citibank acknowledges that the HAMP evaluation pro cess was protracted, but argues that sanctions are not available to Defendants because ( 1) Defendants have unclean hands because Defendants refused to participate in the very media tion process that they now demand; (2) no cause of action inures to Defendants under HAMP; an d (3) Vermont’s statutes addressing HAMP mediation are preempted by the federal HAMP pr ogram. In reply, Defendants argue that: (1) they rejected Citibank’s most recent offe r to mediate because Citibank’s servicing agent had consistently failed to follow through on its ob ligations under HAMP and its obligation to participate in mediation, and Defendants did not be lieve Citibank would actually engage in mediation in a timely manner and in accordance with the statute; (2) Defendants seek sanctions under 12 V.S.A. § 4635 and are not raising a cause of action under HAMP; and (3) HAMP explicitly requires participating servicers to comp ly with all federal, state and local laws related
to HAMP. The court concludes that sanctions are available t o Defendants. Under Vermont law, the court may impose sanctions if the court makes a det ermination of noncompliance or if the12

mediator’s report includes a statement under 12 V.S .A. § 4634(b)(6) 5 that a person required to attend the mediation failed to attend, make a good faith effort to mediate, or supply required documentation. See 12 V.S.A. § 4635(b). Both of those conditions are met in this case. Here, the court need not hold a hearing to determine that the mortgagee and servicer did not comply with the obligations under 12 V.S.A. § 4633(a). It is undisputed that Citibank did not use or consider the NPV calculations “during” any mediatio n, but only produced those calculations after the scheduled mediation dates. In any case, the mediator’s report in this case includes all three of the statements listed in 12 V.S.A. § 4634( b)(6)(A). Citibank’s arguments to the contrary are unconvinc ing. To the extent that Citibank asserts that Defendants’ later refusal to mediate c alls into question whether their motivation is obtaining a proper HAMP outcome or just obtaining s anctions in hopes of reducing their mortgage debt, the court believes that sanctions ar e appropriate and will put the parties on a path toward the “proper” HAMP outcome. The court agrees with Defendants that it is irrelevant whether HAMP itself creates a cause of action for s anctions. The court also agrees with Defendants that Vermont’s Foreclosure Mediation Sta tutes are not preempted by the federal HAMP program. Citibank cites no case specifically so holding. To the extent Citibank is concerned that Vermont’s Foreclosure Mediation Stat ute requires overly burdensome real-time live interaction with lenders and thus creates an o bstacle to the accomplishment of HAMP’s purposes, the court disagrees. Requiring mediatio n is designed to assure the application of HAMP, not to undermine it. See 12 V.S.A. § 4631(a). Nor does the court believe t hat requiring mediation—especially where the mediator may authori ze appearance by telephone or

5 Section 4635(b)’s reference to subdivision 4704(b) (6) is plainly intended to be a reference to § 4634 (b)(6). See Historical and Statutory Notes, 12 V.S.A. § 4634 (n oting that § 4634 was added as § 4704, but was rede signated as § 4634 by Legislative Counsel).13

videoconference, 12 V.S.A. § 4633(e)—is so burdenso me that it obstructs national banks’ powers to conduct activities authorized under feder al law. The court concludes that the appropriate sanction in this case is to toll interest, fees and costs on Defendants’ account after September 23, 20 10, and to order the parties to participate in foreclosure mediation. Order Defendants’ motion to vacate is denied. Defendants ’ motion for sanctions is granted. Interest, fees and costs on Defendants’ account aft er September 23, 2010 are tolled, and the parties are ordered to participate in foreclosure m ediation within 60 days. A status conference will be scheduled after that date. Dated at Burlington this 1st day of September 2011.

______________________________ Helen M. Toor Superior Court Judge