You are on page 1of 44

STATE OF MAINE

SUPREME JUDICIAL COURT


SITTING AS THE LAW COURT

LAW COURT DOCKET NO. PEN-2016-316

FEDERAL NATIONAL MORTGAGE ASSOCIATION,


Plaintiff/Appellant,
v.
PATRICIA W. DESCHAINE and PAUL J. DESCHAINE,
Defendants/Appellants

ON APPEAL FROM THE MAINE SUPERIOR COURT


PENOBSCOT COUNTY – DOCKET NO. 2013-RE-140

AMICUS BRIEF OF
NATIONAL CONSUMER LAW CENTER
NATIONAL ASSOCIATION OF CONSUMER ADVOCATES
JEROME FRANK LEGAL SERVICES CORPORATION, AND
MAINE ATTORNEYS SAVING HOMES

L. Scott Gould – Bar No. 8798 Thomas A. Cox – Bar No. 1248
25 Hunts Point Road P.O. Box 1314
Cape Elizabeth, Maine 04107 Portland, Maine 04104
(207) 799-9799 sgould@maine.rr.com (207) 749-6671 tac@gwi.net

Attorney for: Attorney for:


National Consumer Law Center Maine Attorneys Saving Homes
National Association of Consumer Advocates

Jeffrey Gentes, Esq. – Connecticut Bar No. 101097


Jerome Frank Legal Services Corporation
P.O. Box 209090, New Haven, CT 05520
TABLE OF CONTENTS

TABLE OF AUTHORITIES ………………………………………….....… i

STATEMENT OF THE ISSUE ………………………………………….. 1

STATEMENT OF FACTS………………………………………................. 2

SUMMARY OF ARGUMENT ………………………………………....... 3

ARGUMENT ……………………………………………………................ 6

I. The finality principles underlying res judicata should


bar plaintiffs from bringing repetitive foreclosure suits
against borrowers after an initial suit has been dismissed
with prejudice. ........................................................................... 7

A. There do not exist, and there should not be created,


any exceptions to the doctrine of res judicata. ............ 7

B. The right to accelerate a debt differs fundamentally


from the power of the state to permit acceleration
as a remedy. ................................................................... 12

C. Johnson v. Samson, which bars relitigation of


accelerated mortgage loans, remains a soundly-
reasoned precedent that should continue to be
followed. ......................................................................... 15

II. Upholding Johnson v. Samson in residential foreclosure


cases will provide a needed incentive for banks and their
attorneys to correct a systemic lack of diligence. ................. 19

A. The principal beneficiaries of a free house will be


Maine communities and the legal system. ................... 19

B. No change in rules of claim preclusion is warranted


because Maine foreclosure statutes and rules are
neither burdensome nor difficult to follow. ............... 22

i
C. Securitization changed the mortgage market and
generated incentives for careless foreclosure
practices. ........................................................................ 25

D. Negligence, cut-rate legal practices, and occasional


incompetence explain litigation failures in suits
brought on behalf of out-of-state banks and GSEs. .... 27

E. The owners of Maine mortgages are not without


remedies when res judicata rules are enforced and
their cases are dismissed with prejudice. .................... 31

III. Conclusion. ............................................................................... 32

ii
TABLE OF AUTHORITIES

CASES

Bank of America, N.A. v. Da Hem,


RE-11-505 (Me. Super. Ct., Cumberland, Dec. 13, 2013) .............. 29

Bank of America v. Greenleaf,


2014 ME 89, 96 A.3d. 700 ........................................................ 10, 24

Bank of America, N.A. v. Pinette,


2016 VT 71, 149 A.3d 479 ........................................................ 26, 28

Bank of America v. Reynolds,


RE-15-088 (Me. Super. Ct. York, Dec. 2016) ................................... 5

Bank of New York v. Dyer,


2016 ME 10, 130 A.3d 966 ............................................................. 24

Bank of New York v. Richardson,


2011 ME 38, 15 A.3d ........................................................................23

Bartram v. U.S. Bank,


__So.3d __, 2016 WL 6538647 ...................................................... 16

Bayview Loan Servicing, LLC v. Bartlett,


2014 ME 37, 87 A.3d 741 ................................................................ 24

Blance v. Alley,
1997 ME 124, 697 A.2d 828 ............................................................. 9

Cenlar FSB v. Malenfant,


2016 VT 93, 151 A.3d 778 ............................ 17, 18, 19, 26, 27, 28 30

CitiMortgage, Inc. v. Chartier,


2015 ME 17, 111 A.3d 39 ................................................................ 24

Chase Home Finance LLC v. Higgins,


2009 ME 136, 985 A2d 508 ....................................................... 22, 23

iii
Connecticut National Bank v. Kendall,
617 A.2d 544 ................................................................................ 9, 11

Deutsche Bank National Trust Co. v. Batchelor,


BRIDC-RE-15-037 (Me. Dist. Ct., Bridgton, July 29, 2016) .......... 30

Deutsche Bank National Trust Company v. Meldrum,


Mem-16-1 (Jan. 12, 2016 ................................................................. 24

Deutsche Bank Nat’l Trust Co. v. Wilk,


2013 ME 79, 76 A.3d 363 ................................................................ 24

Emerson v. Lewiston, Augusta & Waterville St. Ry.,


116 Me. 61, 100 A. 3 ......................................................................... 8

Federated Dep’t Stores, Inc. v. Moitie,


452 U.S. 394, 101 S.Ct. 2424, 69 L.Ed.2d 103 ...................... 7, 27, 32

Fleet National Bank v. Liberty,


2004 ME 36, 845 A.2d 1183 ............................................................ 21

Foss v. Whitehouse,
94 Me. 491, 48 A. 109 ....................................................................... 8

Heiser v. Woodruff,
327 U.S. 726, 66 S.Ct. 853, 90 L.Ed. 970 ......................................... 8

Homeward Residential, Inc. v. Gregor,


2015 ME 108, 122 A.3d 94 .................................................. 24, 25, 29

HSBC Bank v. Murphy,


2011 ME 59, 19 A.3d 815 ..........................................,,,,,,,,,,,,.......... 31

Johnson v. Samson Constr. Corp.,


1997 ME 220, 704 A.2d 866 ..................................................... passim

JPMorgan Chase Bank, N.A. v. Morneault,


Mem-14-171 (Dec. 23, 2014) .......................................................... 24

iv
Mottram v. State,
263 A.2d 715, 720 ............................................................................. 9

NationstarMortgage, LLC v. Anderson,


Mem-14-177 (Dec. 16, 2014) .......................................................... 24

Nationstar Mortgage, LLC v. Halfacre,


2016 ME 97, ¶ 6, 143 A.3d 136 ................................................. 24, 31

Nationstar Mortgage, LLC v. Nelson,


Mem-14-118 (Sept. 23, 2014) .......................................................... 24

Nevada v. United States,


463 U.S. 110, 103 S.Ct. 2906, 77 L.Ed.2d 509 ................................. 7

Pillsbury v. Kesslen Shoe Co.,


136 Me. 235, 7 A.2d 898 ................................................................... 8

Pushard v. Bank of America, N.A.,


Law Docket BCD-16-247 ............................................................... 17

Southern Pacific Railroad v. United States,


168 U.S. 1, 18 S.Ct. 18, 42 L.Ed. 355 ................................................ 7

Singleton v. Greymar Assoc.,


882 So. 2d 1004 .................................................................... 15, 16, 30

Snyder v. Exum,
315 S.E.2d 216 ................................................................................. 15

Stadler v. Cherry Hill Developers, Inc.,


150 So. 2d 468 ................................................................................. 15

U.S. Bank Nat’l Assn. v. Craig,


Mem-14-214 (Dec. 16, 2014) .......................................................... 24

U. S. Bank v. Gullotta,
2008 Ohio 6268, 399 N.E. 2d 987 ................................................... 18

v
U.S. Bank Nat’l Assn. v. Sawyer,
2014 ME 81, 95 A. 3d 608 ............................................................... 24

U.S. Bank, Nat’l Assn.v. Tannenbaum,


2015 ME 141, 126 A.3d 734 ............................................................ 24

U.S. Bank Nat’l Assn. v. Winne,


Mem-14-121 (Sept. 25, 2014) .......................................................... 24

Wells Fargo Bank, N.A. v. Girouard,


2015 ME 108, 122 A.3d 216 ........................................................... 24

Wilmington Savings Fund Society, FSB v. Joyce,


RE-15-041 (Me. Super. Ct. Cumberland, Aug. 1, 2016) .................... 5

Wilmington Trust Co. v. Sullivan-Thorne,


2013 ME 94, 81 A. 3d 371 ................................................................. 9

RULES

M.R. Civ. P. 11 ........................................................................................... 30

M.R. Civ. P. 59 ....................................................................................... 2, 31

M.R. Civ. P. 60(b) .................................................................................. 2, 31

STATUTES

14 M.R.S. § 741 .................................................................................... 20, 21

14 M.R.S. § 6111(1) ................................................................................... 17

14 M.R.S. §§ 6321 et seq. .......................................................................... 12

vi
TREATISES

1 Field, McKusick & Wroth,


Maine Civil Practice § 41.5 at 576 (2d ed. 1970) .............................. 11

18 Wright, Miller et al.,


Federal Practice & Procedure § 4415 at 379 (2nd ed. 2002) ............... 8

OTHER AUTHORITIES

Adam J. Levitin,
The Paper Chase: Securitization, Foreclosure, and the
Uncertainty of Mortgage Title, 63 Duke L.J. 637 ............................ 25

Bangor Daily News,


MaineHousing switches mortgage servicer to Rhode Island
housing authority, Dec. 12, 2017 .................................................... 23

Beckman,
Guess How Many Americans Struggle to Come Up with $400,
The Motley Fool, June 5, 2016 ........................................................ 20

Board of Governors of the Federal Reserve System,


Mortgage Debt Outstanding, March 2017 ......................................... 4

Campbell,
Can We Trust Trustees? Proposals for Reducing Wrongful
Foreclosures, Cath. U. L. Rev. 103, n. 213 (2013) ............................. 5

Chief Justice Leigh I. Saufley,


Maine Judicial Branch: The State of the Judiciary—A Report
to the Joint Convention of the First Regular Session of the
127th Legislature (February 24, 2015) ............................................ 21

Comments of The National Consumer Law Center and


The National Association of Consumer Advocates,
The Alternative Mortgage Servicing Compensation
Discussion Paper ............................................................................. 26

vii
CoreLogic,
Mortgage Servicing: Foundation for a Sound Housing Market,
October 2014 ..................................................................................... 5

Fannie Mae,
Allowable Foreclosure Attorney Fee Exhibit, 2016 ....................... 26

Federal Housing Finance Authority,


Joint Mortgage Servicing Compensation Initiative ................. 26, 27

Keil & Nguyen,


The Bailout Tracker, Pro Publica, updated Mar. 6, 2017 ................ 27

Kroll,
Fannie and Freddie’s Foreclosure Barons; How fishy
foreclosures earned millions for lawyers like David J. Stern—
and made the housing crisis even worse. Mother Jones,
August 4, 2010 ................................................................................. 29

M. Wachpress, et al.,
Comment, In Defense of “Free Houses, 125 Yale L.J. 1115,
(Feb. 2016) ........................................................................... 13, 22, 31

Thompson,
Foreclosing Modifications: How Servicer Incentives Discourage
Loan Modifications, 86 Washington Law Review 755 .................... 25

Weintraub,
Learn Why Many Short Sales Fail, the balance, Aug. 9, 2016 ........ 20

viii
STATEMENT OF THE ISSUE

Whether the Court should create a special exception to established rules of

res judicata to allow relitigation of residential foreclosure cases initially dismissed

with prejudice.

1
STATEMENT OF FACTS

This appeal arises out of the second of two foreclosure actions involving the

same note and mortgage. In the first action, commenced in December 2011,

Federal National Mortgage Association (“FNMA” or “Fannie Mae”) alleged in its

complaint that the Deschaine’s default began with their failure to make the

monthly payment due on January 1, 2011 and continued with their failure to make

any payments coming due thereafter. (App.143-145, ¶ 9). FNMA then alleged it

had accelerated their loan and that the entire outstanding balance was due. (App.

143, ¶ 11). The District Court issued a scheduling order in February, 2012

requiring the filing of witness and exhibit lists (App. 149). When FNMA failed to

comply, the court issued an order on June 12, 2012 warning that continuing failure

by FNMA to comply by June 29, 2012 could result in dismissal of its complaint

with prejudice. (App. 152). FNMA still did not take action. Consequently, on July

11, 2012, the court ordered the dismissal of the first foreclosure action with

prejudice. (App. 154). FNMA did not utilize M.R. Civ. P. 59(e) to seek

reconsideration or amendment of that judgment, nor did it appeal or seek relief

pursuant to M.R. Civ. P. 60(b). Instead, in September, 2013 it filed a second

foreclosure action in Superior Court

2
FNMA’s second complaint alleged that the Deschaine’s default began with

their failure to make the payment due on February 1, 2011 and continued with their

failure to make any payments coming due thereafter. (App. 167-168, ¶ 9). As it had

in the first complaint, FNMA declared the entire outstanding balance of the loan to

be due. (App. 167, ¶ 11). Subsequently, FNMA filed an amended complaint

attempting to assert additional facts and asserting two additional causes of action—

a claim for “foreclosure of equitable mortgage,” and a claim for unjust enrichment.

(App. 24-29).

In December 2015, the Deschaines moved for summary judgment on res

judicata grounds. (App. 52). FNMA objected and cross-moved for summary

judgment for foreclosure. (App. 63). By order dated June 13, 2016, the Superior

Court denied FNMA’s cross motion and granted the Deschaine’s summary

judgment on res judicata grounds, holding that FNMA’s two added causes of

action were likewise barred on res judicata grounds. This appeal ensued.

3
SUMMARY OF ARGUMENT

FNMA’s appeal places directly in issue the question whether principles of

res judicata announced in Johnson v. Samson Constr. Corp., 1997 ME 220, ¶ 6,

704 A.2d 866, should be followed in cases involving foreclosures of residential

mortgages, in particular when the initial actions do not reach trial, but are

dismissed with prejudice due to violations of court orders or other lender

misconduct. This amicus brief argues that Samson should remain the law in

Maine, that this widely-respected decision should apply to the instant litigation,

and that the Superior Court’s holding should be upheld as a carefully-considered,

appropriate, even necessary, application of the doctrine that Samson enunciates.

Historically, Maine lenders who service and foreclose on loans which they

originate have seldom had difficulty obtaining foreclosure judgments. This

circumstance was evident during the Savings & Loan Crisis of the late 1980s and

early 1990s, and has been evident during the foreclosure crisis of the past few

years. Even when Maine banks sell loans that they originate and act as servicers

for their buyers such as Fannie Mae and Freddie Mac, they invariably succeed in

obtaining foreclosure judgments.

The concerns raised in this brief do not arise from the practices of Maine

banks or their attorneys. Rather the concerns arise from practices in the national

mortgage market, in which securitized trusts and two “Government Sponsored


4
Entities” (or “GSEs”), Fannie Mae and Freddie Mac, dominate the market for

ownership residential mortgage debt.1 These trusts and GSE’s employ a mortgage

servicing model that relies heavily upon mortgage servicers who do not own or

have a financial stake in the mortgages they service. When the volume of defaults

and foreclosures exploded in 2007 and 2008, the servicing industry was

unequipped to meet the crisis.2 Loan owners and their servicers turned to law

firms willing to operate as “foreclosure mills”3 with mass production practices.

The consequence, which continues to this day, has been frequent and repeated

instances of lawyer negligence and misconduct, resulting in numerous

adjudications adverse to the mortgage owners. Yet these owners have been willing

to tolerate occasional adverse judgments because they win the vast majority of

their cases on the cheap: most homeowners don’t have counsel and therefore don’t

realize they should object to the admission of deficient evidence offered by the

plaintiffs’ firms.4 Decisions of the Law Court and Maine’s lower courts since the

1
See Board of Governors of the Federal Reserve System, Mortgage Debt Outstanding, March 2017 at
https://www.federalreserve.gov/econresdata/releases/mortoutstand/current.htm (last visited March 27,
2017)
2
CoreLogic, Mortgage Servicing: Foundation for a Sound Housing Market, October 2014
3
“The term ‘foreclosure mill’ describes large firms that handle foreclosures in bulk and that regularly file
or produce inaccurate or incomplete documentation to support the foreclosures.” Campbell, Can We Trust
Trustees? Proposals for Reducing Wrongful Foreclosures, 63 Cath. U. L. Rev. 103, n. 213 (2013).

4
Several attorneys for national servicers have sought continuances for want of qualified
witnesses when one of your amici authors, a volunteer with Maine Attorneys Saving Homes, has
entered an appearance on the day of trial. See Bank of America, N.A. v. Reynolds, RE-15-088
5
mortgage crisis demonstrate with almost clocklike regularity that the GSEs and

trusts are unwilling to conform their business models to Maine’s foreclosure rules

and laws. FNMA now asks the Court to permit a manifold expansion of lenders’

doubtful business practices by working an epochal change in long-established

claim preclusion rules, allowing mortgagees to “unaccelerate” and re-litigate

foreclosure cases that have been dismissed with prejudice. Such a sea-change in

the doctrine of res judicata would not only invite still more abuses by the lenders’

servicers and foreclosure mill attorneys, it could radically expand the volume of

foreclosure litigation, while at the same time bringing ruin not only to homeowners

but to Maine communities. The Court should reject this invitation. Rather than

reversing Maine’s long-established rules of claim preclusion, the Court should

allow the doctrine of res judicata to continue operating as intended. Lenders and

their mortgage servicers who are aggrieved can reform their practices and also seek

relief from the bulk-rate law firms they employ.

(Me. Super. Ct. York, Dec. 28, 2016) (plaintiff’s lawyer appeared at time scheduled for trial with
trial witness, but when confronted by defense counsel, admitted that he was not prepared to
prove his case; court entered judgment for the defendant); Wilmington Savings Fund Society,
FSB v. Joyce, RE-15-041 (Me. Super. Ct. Aug. 1, 2016) (when confronted at trial by defense
counsel, the plaintiff’s lawyer abandoned efforts to continue trial presentation and moved for
dismissal without prejudice; court dismissed with prejudice).
6
ARGUMENT

I. The finality principles underlying res judicata should bar plaintiffs


from bringing repetitive foreclosure suits against borrowers after an
initial suit has been dismissed with prejudice.

A. There do not exist, and there should not be created, any


exceptions to the doctrine of res judicata.

Maine claim preclusion law has remained consistent for decades and is

essentially the same as that adhered to in the federal courts. In 1983, Chief Justice

Rehnquist, writing for the United Stated Supreme Court, stated:

But what we said with respect to this doctrine [of res judicata] more
than eighty years ago is still true today; it ensures “the very object for
which civil courts have been established, which is to secure the peace
and repose of society by the settlement of matters capable of judicial
determination. Its enforcement is essential to the maintenance of social
order; for, the aid of judicial tribunals would not be invoked for the
vindication of rights of person and property, if ... conclusiveness did
not attend the judgments of such tribunals.

Nevada v. United States, 463 U.S. 110, 129, 103 S.Ct. 2906, 2917-2918, 77

L.Ed.2d 509 (1983), citing Southern Pacific Railroad v. United States, 168 U.S. 1,

49, 18 S.Ct. 18, 27, 42 L.Ed. 355 (1897).

These principles are so fundamental that they must not be subjected to

exceptions. Accordingly, in Federated Dep’t Stores, Inc. v. Moitie, 452 U.S. 394,

101 S.Ct. 2424, 69 L.Ed.2d 103 (1981), the Supreme Court rejected an effort by

the 9th Circuit Court of Appeals to engraft a “simple justice” exception onto the

established rule for a party who failed to appeal an adverse outcome where other
7
plaintiffs in similar actions against common defendants did successfully appeal.

The Supreme Court stated that “‘[s]imple justice’ is achieved when a complex

body of law developed over a period of years is evenhandedly applied.” Id. at 401.

The Court went on to state that “[t]here is simply ‘no principle of law or equity

which sanctions the rejection by a federal court of the salutary principle of res

judicata.’” Id. (quoting Heiser v. Woodruff, 327 U.S. 726, 733, 66 S.Ct. 853, 90

L.Ed. 970 (1946)). The Supreme Court’s rejection of the 9th Circuit’s effort to

create a “simple justice” exception lead one commentator to note that Federated

Dep’t Stores “virtually extinguishes the prospect that a general fairness exception

will be engrafted on claim-preclusion rules.” 18 Wright, Miller et al., Federal

Practice & Procedure § 4415 at 379 (2nd ed. 2002).

Maine’s res judicata doctrine is consistent with principles announced

Federated Dep’t Stores and other federal decisions. This Court has stated that “[i]t

is against public policy that controversies should not have an end; the public

should not be called on to bear the expense of two trials where one will suffice.

Nor should parties be called on to pay the bills for two suits where only one is

necessary.” Pillsbury v. Kesslen Shoe Co., 136 Me. 235, 238 (1939). See also

Emerson v. Lewiston, Augusta & Waterville St. Ry., 116 Me. 61, 66 (1917),

quoting Foss v. Whitehouse, 94 Me. 491, 497 (1901) (“The [res judicata] doctrine

is based on the legal maxims that, ‘A man should not be twice vexed for the same
8
cause’ and that ‘[i]t is for the public good that there should be an end of

litigation’”). Nor should the courts “be clogged by repetitious presentations of

identical issues.’” Blance v. Alley, 1997 ME 125 ¶ 4, 697 A.2d 828, quoting

Mottram v. State, 263 A.2d 715, 720 (Me. 1970). Instead, application of the

doctrine ”is justified by concerns for judicial economy, fairness to litigants, and the

stability of final judgments.” Connecticut National Bank v. Kendall, 617 A.2d 544,

546 (Me. 1992).

In determining whether to apply the doctrine of res judicata in successive

litigation, Maine courts must find that the same parties or their privies were

involved in both actions, that a valid prior judgment was entered in the prior

action, and that matters presented in the second action were or might have been

litigated in the first. Wilmington Trust Co. v. Sullivan-Thorne, 2013 ME 94, ¶ 7,

81 A. 3d 371. If these conditions have been met, res judicata must bar the second

action. Amici Curiae discover no exception to this bar, regardless of the nature of

the litigation.

In the matter now before the Court there is no dispute that the parties were

and are the same. FNMA instead challenges the other factors bearing on res

judicata by contending (1) that the District Court dismissal of the initial suit could

not have been with prejudice, and therefore did not constitute a valid final

judgment, because FNMA did not have standing to bring the litigation, (2) that
9
different events of default characterized the second suit, and, (3) that in any event

the Deschaine’s obligations were not accelerated because they possessed an

inchoate right to cure their default until entry of a foreclosure judgment.

FNMA’s contention that it lacked standing to bring the initial litigation is

beyond the scope of this brief.5 But directly in issue is whether res judicata bars a

second foreclosure suit after the dismissal of the first suit with prejudice. In

Johnson v. Samson Construction, a contractor defaulted on a commercial mortgage

which contained a clause mandating acceleration of the entire debt following an

uncured default. When Johnson failed to file a report required by the trial court,

that court dismissed the suit with prejudice. Eight months later, Johnson sued

again, contending that res judicata applied only to defaults in payment occurring

prior to the filing of his first complaint. Writing for a unanimous court, Justice

Lipez, applied a transactional test to define a cause of action, noting that

“‘[a] prior judgment bars a later suit arising out [of] the same operative
facts even though the second suit relies on a legal theory not advanced
in the first case, seeks different relief than that sought in the first case,
and involves evidence different from the evidence relevant to the first
case.’”

5
The Superior Court rejected FNMA’s contention because the initial litigation was brought prior to the
Court’s decision in Bank of America v. Greenleaf, 2014 ME 89, 96 A.3d. 700, in which the Court decided
that when acting solely as a nominee for the lender for purposes of recording mortgages, MERS lacks
authority to assign them. Id. at ¶ 12. (App. at 18, n.1). The Superior Court also applied its understanding
that 33 M.R.S. § 508, enacted after Greenleaf, cured any defect in the powers MERS possessed to transfer
mortgages. (App, at 18, n. 2).

10
Samson, ¶ 6, quoting Connecticut Nat’l Bank v Kendall, 617 A.2d 544, 547 (Me.

1992). Because Johnson accelerated Samson’s payments following default, the

note, which had been payable thitherto in installments, became indivisible.

Accordingly, all payments became due in the first foreclosure suit, whether they

had accrued or not. Further, citing 1 Field, McKusick & Wroth, Maine Civil

Practice § 41.5 at 576 (2d ed. 1970), the Court observed that the dismissal with

prejudice of the initial suit, although flowing from Johnson’s procedural default

rather than from a loss at trial, was nonetheless an adjudication on the merits. Id.

Therefore, because the parties were the same in both actions, and because the claim

was indivisible, the principles of res judicata barred Johnson’s second suit.

FNMA contends that Samson should not apply to it because the Deschaine

acceleration clause was optional, inchoate, and intrinsically capable of

reinstatement (Appellant’s Brief at 24, n. 9 and 26, n. 10), and because a Florida

decision referred to in Samson was later reversed (Appellant’s Brief at 26-27, n.

11). Amici Curiae submit for reasons set forth below that none of FNMA’s

contentions should bar application of Samson to this or similar Maine foreclosure

cases.

11
B. The right to accelerate a debt differs fundamentally from the
power of the state to permit acceleration as a remedy.

The maxim, ubi ius ibi remedium, expresses the idea that for every legal

right there should be a legal remedy. The maxim also serves to remind that rights

and remedies are different. A creditor has the right to a debtor’s payment of a

debt, but the state determines whether the debt can be collected through judicial

process. A statute of limitations, for example, may intervene to bar a judicial

remedy, even though the debt continues to be owed. In the context of foreclosures,

an acceleration clause in the parties’ mortgage note expresses the lender’s right to

declare the entire obligation due if the mortgagor defaults in payment.6

Acceleration is a contractual right for which foreclosure under 14 M.R.S. §§ 6321

et seq. is a statutory remedy. The state can prevent or control how the remedy is

exercised, but absent illegality, incapacity, other disabling condition, or a statutory

duty, it cannot alter or interdict the parties’ rights to accelerate as expressed in their

agreement.

This distinction is important for two reasons. First, once a creditor

accelerates a debt evidenced by a note, the state may prevent foreclosure of the

6
The Deschaine “Uniform Instrument” note provides in Section 7(c):
If I am in default, the Note Holder may send me a written notice telling me that if I do not
pay the overdue amount by a certain date, the Note Holder may require me to pay
immediately the full amount of Principal that has not been paid and all the interest that I
owe on that amount.
(App. at 95).
12
mortgage interest which secures that debt, but it cannot “un-exercise” the creditor’s

acceleration of the debt. Second, as discussed in Section E, below, because

acceleration is a contractual right, courts err when they treat the right as if it were a

remedy.

FNMA contends (without evidence in the instrument itself) that acceleration

clauses of the kind in the Deschaine’s mortgage note are inchoate until entry of a

foreclosure judgment, because until such time, mortgagors have the power to

require discontinuation of the litigation by bringing past due payments current.

(Appellant’s Brief at 23-24.) On this basis, FNMA reasons that the District

Court’s dismissal of the initial suit with prejudice had the effect of invalidating its

acceleration because the “acceleration never ripened into a legal obligation to pay

the accelerated balance.” (Appellant’s Brief at 26, n 10). In essence, FNMA’s

argument is that the state’s exercise of its remedial power to dismiss the

foreclosure suit undid FNMA’s exercise of its acceleration rights arising under the

note. But consider the implications of this conflated approach to rights and

remedies. If a mortgagee’s suit does not reach trial because of a procedural

default, such as occurred in this case and in Samson, the creditor would be at

liberty to sue repeatedly until a final judgment entered in its favor. Each loss until

that time would only bar the creditor from re-litigating prior defaults. Moreover,

because FNMA contends that acceleration would always remain inchoate until
13
entry of a “final judgment ruling that FNMA established the default,” (Appellant’s

Brief at 23-24, n. 9, and 26, n. 10), the logical conclusion of its argument is that

even a plenary trial in which judgment entered for the homeowner would not

prevent FNMA from re-litigating. Res judicata would only preclude it from

bringing suit for past-due payments sought in prior litigation. There is no Maine

precedent to support this argument.

FNMA argues as well that Samson is distinguishable because the

acceleration clause in that case was mandatory, while acceleration of the Deschaine

mortgage was optional. (Appellant’s Brief, p 23-24, n. 9 and 26, n. 10, referring to

Section 22 of the FNMA Uniform Instrument with MERS, App. at 116). From this

FNMA reasons that it could accelerate or de-accelerate as an intrinsic right, just as

it could choose to reinstate the mortgage. Without question, a mortgagee can

confer a benefit upon a mortgagor, just as the payee of an instrument can forgive

the debt. But when FNMA contends that Section 22 of the mortgage permits it to

de-accelerate a mortgage debt, it is not conferring favors. No mortgagor would

knowingly enter an agreement that permits the mortgagee to accelerate, decelerate,

and sue repeatedly until it wins a judgment. The Court should not be wooed by

FNMA into accepting its proposed construction of the clause. In each of its three

pleadings, FNMA alleged that full acceleration of the Deschaine’s debt had

occurred. (App. at 26, ¶ 22; 143, ¶ 11; 167 ¶ 11). Once triggered, the optional
14
acceleration clause differed not a whit from the mandatory clause in Samson, save

that the Deschaines had the contractual ability to reinstate their mortgage as a

condition subsequent.

C. Johnson v. Samson, which bars relitigation of accelerated


mortgage loans, remains a soundly-reasoned precedent that
should continue to be followed.

FNMA questions whether Samson remains a valid precedent, in that a

Florida decision Samson cites approvingly has since been overturned. In Stadler v.

Cherry Hill Developers, Inc., 150 So. 2d 468 (Fla. Dist. Ct. App. 1963), Florida’s

Second District held that an election to accelerate an installment contract “puts all

future payments in issue and forecloses successive suits.” Id. at 472. Samson

followed Stadler’s reasoning, as well as reasoning in a Virginia case,7 in deciding

that res judicata barred Johnson’s second suit because the mortgage’s acceleration

clause, once triggered, merged each installment into a single debt, whether or not

the installments had accrued. Samson, ¶ 8.

The Florida decision that rejected Stadler is peculiar. In Singleton v.

Greymar Assoc., 882 So. 2d 1004 (Fla. 2004), rather than grappling with the effect

7
Snyder v. Exum, 315 S.E.2d 216 (Va. 1984). Snyder, which has not been overturned, determined that a
landlord was barred from repetitive suits for past-due rent because a mandatory acceleration clause
required a single action. Hence when the landlord failed to sue for un-accrued rents in his initial suit, the
clause prevented him from seeking them in a succeeding suit. The Snyder reasoning applies equally well
to optional acceleration clauses. Once invoked, such a clause requires that all of the creditor’s claims be
litigated in a single action or they will be barred.
15
of an exercised acceleration clause upon a divisible contract, the Florida Supreme

Court simply ignored the clause. Following the state’s Fourth District, which

decided that res judicata does not apply when alleged dates of default differ from

one suit to the next (because it thought each default required different proof), the

Florida Supreme Court held that successive foreclosure suits can be maintained

“whether or not the mortgagee [seeks] to accelerate.” Id. at 1008. Missing in the

court’s analysis is the simple fact that separate dates of default do not exist if a

mortgagee accelerates. All past and future payments merge and immediately come

due exactly, exactly as FNMA demanded of the Deschaines in each complaint.

Recently, the Florida Supreme Court did consider the effect of an

acceleration clause, but with no better insight than it used in ignoring the clause in

Singleton. In Bartram v. U.S. Bank, __So.3d __, 2016 WL 6538647 (Nov. 3,

2016) (rehearing denied Mar. 16, 2017, 2017 WL 1020467) the court decided that

the effect of an involuntary dismissal, even with prejudice, does not bar the

mortgagee from subsequent litigation, because dismissal (inexplicably) revokes the

mortgagee’s acceleration. Id. at 3. Res judicata therefore does not apply.

Not surprisingly, the position FNMA urges the Law Court to embrace is

essentially the same as Florida announced in Singleton and Bartram: acceleration,

a bargained-for right between mortgagor and mortgagee, is to be ignored or

neutralized, lest the mortgagee be denied a remedy. As a consequence, a


16
mortgage’s acceleration clause guarantees an upside for the mortgagee in every

case. If it wins by default or at trial, the mortgagee takes the property. If it loses,

even for reasons egregious enough to be dismissed with prejudice, the mortgagee

can sue again and again until it wins.8

The Vermont Supreme Court has also had occasion recently to consider

the doctrine of res judicata in the context of residential mortgages. In Cenlar FSB

v. Malenfant, 2016 VT 93, 151 A.3d 778 (2106), the court upheld a dismissal with

prejudice by the trial court when the mortgagee failed to appear at a status

conference. But in so doing, the Malenfant majority applied res judicata to bar a

second action only because the lender did not take steps to reinstate the

mortgagor’s obligation after acceleration of the note. Id. at ¶ 2. The majority, that

is, found it as easy to manipulate an acceleration clause as if it were a legislature

fashioning a remedy. It seemed to the court that in cases such as Samson, where

8
As this brief is being written, a Law Court decision is pending in the matter of Pushard v. Bank of
America, Law Docket BCD-16-247. One issue in that case involves the question whether the
mortgagee’s acceleration of the mortgage failed because of a defect in its notice of default. Somewhat
inartfully, 14 M.R.S. § 6111(1) provides that a "mortgagee may not accelerate maturity of the unpaid
balance of the obligation or otherwise enforce the mortgage” without a compliant notice of default. The
intendment of the legislation is to bar an action for foreclosure until the mortgagor has been adequately
apprised of his or her rights. But as written, the legislation confuses the right to acceleration with the
remedy by which the right is vindicated. Bank of America seeks to take advantage of this confusion by
claiming acceleration did not occur, such that res judicata would not bar a second action. Yet it is self-
evident from the Pushard pleadings that the bank did exercise its right. The Court should hold the bank
to its election, barring some other reason to allow re-trials when default notices are defective.

17
the first suit is dismissed, the lender’s acceleration is effectively invalidated.9 Id. at

¶ 24. By the very act of dismissing the case, the lower court “unaccelerates” the

note. Id. at ¶ 31. Thus, to Vermont’s majority, the bell could be unrung,

automatically reinstating the installment payment provision, and allowing the

lender to accelerate again and sue again for any future default. Id. at ¶ 11.

The majority’s dicta in Malenfant has yet to be applied. A dissent in

Malenfant argues cogently that it should not be. Observing that the persistently

sloppy practices of the law firm handling the plaintiff’s litigation in Malenfant are

“inconsistent with every one of the policy reasons that underlie the doctrine of

claim preclusion,” the dissent urges the majority to “send a clear message to

counsel and its clients that . . . they [cannot] file foreclosure action after

foreclosure action until they finally win.” Id. at ¶ 49, ¶ 51.

Samson is not an outlier among the decisions dealing with accelerated

mortgages. For example, in U. S. Bank v. Gullotta, 2008 Ohio 6268, 399 N.E. 2d

987, the Ohio Supreme Court reasoned that when a lender accelerates the

obligation to pay principal in an installment debt, separate suits on each missed

payment are precluded. Id. at ¶¶ 29-31. The question left begging is why cases

9
“In other words, the adjudication against the lender with prejudice, or ‘on the merits,’ requires us to
treat the first judgment as essentially determining that the lender did not establish a default on the note by
borrowers as of the date alleged.” Id. at ¶ 26.
18
such as Singleton, Bartram and Malenfant struggle so mightily to bend the

ordinarily rules of claim preclusion? If the courts’ analyses are sound, then why

not forego res judicata when plaintiffs accelerate any kind of installment debt?

Why treat chattel paper differently, or a promissory note payable on demand (the

latter being conceptually identical to an accelerated installment note). The answer

is scarcely concealed in the decisions themselves, and that is discernible dread that

a homeowner may get a free house.

II. Upholding Johnson v. Samson in residential foreclosure cases will


provide a needed incentive for banks and their attorneys to correct a
systemic lack of diligence.

A. The principal beneficaries of the so-called “free house” will be


Maine communities and the legal system.

The practical downside to res judicata, muses the Malenfant majority, is that

the lender will lose repayment of a significant loan, “while yielding the borrowers

a free, or deeply discounted, house.” Malenfant at ¶ 8. To the court in Singleton, a

“seeming variance with traditional law” is justified because of the “unique nature

of the mortgage obligation”—a homeowner might otherwise not keep making

mortgage payments. Id. at 1007.

One of the authors of this brief is a former urban economist. In his

experience, homebuyers typically purchase at the tops of their incomes, signing

mortgages for as much as they can possibly afford. They do this to put down roots

19
in a community, to have room for hoped-for children, to locate near good schools,

to own a home in retirement. They are not scoff-laws or they would not have

qualified for mortgages. But because they’re stretched, a job loss, an illness,

divorce, or the death of a co-mortgagee can quickly lead to financial ruin.10 When

that happens, efforts homeowners make to free themselves from debt through

devices such as short sales will often fail because of roadblocks put up by lenders

and their servicers.11 Even abandoning a home will not improve their credit if their

mortgagees fail to act.12 If they stay in residence, they may feel ashamed and

trapped, suffering adverse consequences to their health.13 Meanwhile their homes

deteriorate, and so do their communities.14

Jettisoning res judicata would only aggravate these conditions.

Reinstatement of a mortgage following dismissal of a foreclosure suit would be of

10
Beckman, Guess How Many Americans Struggle to Come Up with $400, The Motley Fool, June 5,
2016.

11
Weintraub, Learn Why Many Short Sales Fail, The Balance, Aug. 9, 2016. at
https://www.thebalance.com/top-reasons-why-short-sales-fail-1799204 (last visited Mar. 26, 2017).

12
National servicers often allow non-performing Maine mortgages to lie dormant for years because of
Maine’s long statute of limitations. See 24 M.R.S. § 741 and Fleet National Bank v. Liberty, 2004 ME
36, 845 A.2d 1183

13
M. Wachpress, et al., Comment, In Defense of “Free Houses, 125 Yale L.J. 1115, 1125-1126. And
n. 45 & 46 (Feb. 2016).

14
Id. at p. 1125 and n. 44.

20
little benefit to a homeowner who would not have defaulted in the first place if the

payments were affordable. Mounting legal fees and accumulating interest charges

would soon place any chance of preserving ownership though a loan modification

beyond reach. Meanwhile the lender could sue repeatedly, or, as sometimes

happens now, do nothing while the debt accumulates, the property deteriorates and

the homeowner’s credit is destroyed. In Maine, as distinct from almost every other

state, a lender can wait an astonishing twenty years to bring suit after a cause of

action has accrued.15

Ample evidence demonstrates the destructiveness of foreclosures not just on

homeowners but also on communities.16 Dispensing with res judicata will only

aggravate the problem, because interminable litigation will lead to still more blight

than now, making it difficult for communities to recover. Meanwhile courts will

be swinging doors for lenders trying do-overs. Maine dockets are already

crowded, recently requiring Law Court justices to conduct trials.17 But if Samson

is followed, if res judicata is applied consistently to every kind of controversy, an

15
See 24 M.R.S. § 741 and Fleet National Bank v. Liberty, 2004 ME 36, 845 A.2d 1183.

16
See, e.g., M. Wachpress, In Defense of “Free Houses, supra n. 14 at 1125 (observing that prolonged
foreclosure proceedings create negative social externalities, depressing surrounding homes’ resale value,
reducing local governments’ tax revenues, and increasing criminal activity (citing Geoffrey Walsh, Nat’l
Consumer Law Ctr., State and Local Foreclosure Mediation Programs: Can They Save Homes? (2009)).

17
Chief Justice Leigh I. Saufley, Maine Judicial Branch: The State of the Judiciary—A Report to the
Joint Convention of the First Regular Session of the 127th Legislature (February 24, 2015)

21
occasional free house will be a small price to pay for the sake of an efficient and

just judicial system and stronger Maine communities.18 As for the cost of a free

house, that should be borne by the servicers and attorneys for the GSE’s and

national banks, whose conduct in repeatedly ignoring or abusing Maine’s

foreclosure statutes, procedural rules, and decisions of the Law Court causes the

adverse outcomes. Any change in Maine’s res judicata rules that relieves the lender

of the cost of conducting foreclosures on the cheap results in a windfall for the

lenders, because “[t]he risk of losing foreclosures should already have been

internalized in the price of current mortgages.”19

B. No change in rules of claim preclusion is warranted because Maine


foreclosure statutes and rules are neither burdensome nor difficult to
follow.

The Law Court should not create a special foreclosure exception to

established claim preclusion principles because (1) it is not difficult for diligent

lawyers representing foreclosure plaintiffs to avoid dismissals with prejudice and

defense judgments, and (2) the creation of a foreclosure exception will incentivize

the GSE’s, national banks and servicers to continue, and perhaps even increase,

their abuses of the Maine foreclosure process.

18
M. Wachpress, et al., Comment, In Defense of “Free Houses,” 125 Yale L.J. 1115 (Feb. 2016).

19
Id. at 1127.

22
In 2009, the Court provided an explicit roadmap for the proper prosecution

of foreclosure cases in Chase Home Finance LLC v. Higgins, 2009 ME 136, 985

A2d 508. That decision did not create new law; rather, it collected from statutory

and common law sources the seven elements of required proof for a Maine

residential foreclosure action, Id. ¶ 13. These seven elements are not difficult to

prove separately or collectively. This is evident from the fact that, since the

beginning of the present foreclosure crisis in 2007, there have not been any

reported or unpublished decisions from this Court in which a Maine-based lender

has suffered a defense judgment after trial or a dismissal with prejudice. Nor has

research revealed any such reported decisions at the trial level. Moreover, Maine-

based banks service not only loans they own, but also loans owned by others, such

as Fannie Mae, Freddie Mac and the Maine State Housing authority.20 Yet only the

national loan owners, their national mortgage servicers and their lawyers

demonstrate persistent failures to comply with Maine’s requirements. Only these

litigants are experiencing adverse adjudications upon the merits. 21

20
For example, Camden National Bank serviced mortgages owned by the Maine State Housing Authority
until the end of 2016. Bangor Daily News, MaineHousing switches mortgage servicer to Rhode Island
housing authority, Dec. 12, 2017.

21
See:
• Bank of New York v. Richardson, 2011 ME 38, 15 A.3d 756 (trial court dismissal with prejudice
due to bank’s failure to appear at mediation; appeal dismissed as interlocutory);
• Nationstar Mortgage, LLC v. Stuart, Cum-13-120 (Feb. 27, 2013, Gorman, J.) (trial court
dismissal with prejudice; appeal dismissed as untimely);
23
• Deutsche Bank Nat’l Trust Co. v. Wilk, 2013 ME 79, 76 A.3d 363 (plaintiff failed to prove that it
was the assignee of the mortgage; Law Court vacates judgment for plaintiff, and remands for
order denying judgment of foreclosure);
• Bayview Loan Servicing, LLC v. Bartlett, 2014 ME 37, 87 A.3d 741 (trial court dismissal with
prejudice due to plaintiff’s failure to appear at three mediation sessions; dismissal with prejudice
affirmed);
• U.S. Bank Nat’l Assn. v. Sawyer, 2014 ME 81, 95 A. 3d 608 (trial court dismissal with prejudice
for failure to mediate in good faith and failure to meet its burden at show cause hearing; dismissal
with prejudice affirmed);
• Bank of America, N.A. v. Greenleaf, 2014 ME 89, 96 A.3d 700 (post-trial judgment of foreclosure
vacated due to failure of bank to offer admissible evidence of amount owing and due to plaintiff’s
failure to prove ownership of mortgage);
• Nationstar Mortgage, LLC v. Nelson, Mem-14-118 (Sept. 23, 2014) (affirms trial judgment for
defendant due to plaintiff’s reliance upon witness not qualified to authenticate business records);
• U.S. Bank Nat’l Assn. v. Winne, Mem-14-121 (Sept. 25, 2014) (affirms trial judgment for
defendant due to lack of credibility of plaintiff trial witness and failure to offer evidence required
by M.R. Evid. 803(6));
• NationstarMortgage, LLC v. Anderson, Mem-14-177 (Dec. 16, 2014) (remanded for entry of
judgment for defendant due to plaintiff’s failure to prove standing);
• U.S. Bank Nat’l Assn. v. Craig, Mem-14-166 (Dec. 16, 2014) (affirms trial court judgment for
bank due to inadmissibility of bank business records);
• JPMorgan Chase Bank, N.A. v. Morneault, Mem-14-171 (Dec. 23, 2014) (remanded for entry of
judgment for defendant due to plaintiff’s lack of standing);
• CitiMortgage, Inc. v. Chartier, 2015 ME 17, 111 A.3d 39 (trial judgment for plaintiff vacated due
to plaintiff’s defective default notice; remanded for entry of judgment for defendant);
• Homeward Residential Inc. v. Gregor, 2015 ME 108, 122 A.3d 947 (trial judgment for defendant
due to plaintiff’s failure to prove ownership of mortgage; judgment vacated due to lack of
standing and remanded for dismissal without prejudice);
• Wells Fargo Bank, N.A. v. Girouard, 2015 ME 116, 122 A.3d 216 (case remanded for entry of
judgment for defendant due to plaintiff’s failure to prove delivery of legally sufficient
default/cure notice);
• U.S. Bank, Nat’l Assn.v. Tannenbaum, 2015 ME 141, 126 A.3d 734 (affirms trial judgment for
defendant due to defective default/cure notice and vacates trial court order allowing parties to
relitigate all issues in future action);
• Deutsche Bank National Trust Company v. Meldrum, Mem-16-1 (Jan. 12, 2016) (trial judgment
for defendant in first foreclosure action; second action dismissed with prejudice on res judicata
grounds; Law Court vacates dismissal with prejudice and remands for dismissal without prejudice
due to plaintiff’s lack of standing);
• Bank of New York v. Dyer, 2016 ME 10, 130 A.3d 966 (trial judgment for defendant without
prejudice due to plaintiff’s lack of standing; affirmed); and,
• Nationstar Mortgage, LLC v. Halfacre, 2016 ME 97, 143 A.3d 136 (trial judgment for defendant
in first action on grounds of plaintiff’s unclean hands, summary judgment for defendant in second
action on res judicata grounds; remanded for dismissal in second action due to plaintiff’s lack of
standing, with suggestion that trial court might consider sanctions under M.R. Civ. P. 11(a))

24
C. Securitization changed the mortgage market and generated
incentives for careless foreclosure practices.

The securitization of mortgage debt lies at the heart of careless practices in

the lending industry. Citing Adam J. Levitin, The Paper Chase: Securitization,

Foreclosure, and the Uncertainty of Mortgage Title, 63 Duke L.J. 637, 670, n. 131

(2013), the Law Court recently summarized the essential elements of the

securitization process in Homeward Residential, Inc. v. Gregor, 2015 ME 108, n.

9, 122 A.3d 947. Missing from this summary, however, is recognition of the fact

that national loan owners, such as FNMA, do not service their own loans. They

employ independent mortgage servicers, just as FNMA employed Seterus, Inc. to

service the Deschaine loan in this case.

Significantly, the servicers “stand apart and separate from the original

lenders and from the current owners of the loans—the trusts and their investors.”

Thompson, Foreclosing Modifications: How Servicer Incentives Discourage Loan

Modifications, 86 Washington Law Review 755, 765 (2011). Most of servicers’

income for servicing residential mortgages comes from an annual percentage

payment based upon the outstanding principal balance of loans that they service.

This is generally “25 basis points annually for prime fixed rate loans …and 50

basis points for subprime loans.” Id. at p. 807. With respect to the Deschaine loan,

FNMA claimed in its motion for summary judgment that the outstanding principal

25
balance of the loan was $122,712.93. (App. 87). Thus, the annual payment to

Seterus amounted to no more than $614 for servicing the loan, hardly enough to

induce it to closely monitor the activities of the law firm it hired to foreclose. This

problem is compounded by the fact that FNMA sets a flat fee for lawyers who

foreclose the loans it owns,22 thus incentivizing them to take on large volumes of

foreclosures in order to reap profits, while investing as little lawyer effort as

possible in each case.

The faulty lawyer practices in Vermont, evidenced in Malenfant, the earlier

similar Vermont case of Bank of America, N.A. v. Pinette, 2016 VT 71, 149 A.3d

479, and here in Maine, as discussed in supra note 21, are a product of this system.

Put succinctly, “[t]he existing model for servicer compensation is broken.”

Comments of The National Consumer Law Center and The National Association

of Consumer Advocates, The Alternative Mortgage Servicing Compensation

Discussion Paper,23 2011.

22
See Fannie Mae Allowable Foreclosure Attorney Fee Exhibit at
https://www.fanniemae.com/content/guide_exhibit/allowable-attorney-trustee-foreclosure-fees.pdf (last
visited March 26, 2017).

23
Paper found at Federal Housing Finance Authority, Joint Mortgage Servicing Compensation Initiative
at https://www.fhfa.gov/PolicyProgramsResearch/Policy/Documents/Joint-Mortgage-Servicing-
Compensation-Initiative/130_DianeThompson.pdf

26
It is precisely because of servicer compensation strictures and resulting lack

of lender oversight that cases such as the Deschaine’s are brought or prosecuted

with insufficient care and eventually dismissed with prejudice, all while wasting

the resources of the judicial system. It should be the responsibility of the

securitization industry to revise its faulty business model, and not that of the

judicial system to prop up that business model by relaxing claim preclusion rules.

“‘Simple justice’ is achieved when a complex body of law developed over a period

of years is evenhandedly applied. … There is simply ‘no principle of law or equity

which sanctions the rejection by a [ ] court of the salutatory principle of res

judicata.’” Federated Dept. Stores v. Moitie, 452 U.S. 394, 401, 101 S.Ct. 2424,

2429, 69 L.Ed.2d 103.

D. Carelessness and cut-rate legal practices explain litigation


failures in suits brought on behalf of out-of-state banks and
GSE’s.

The amici are mindful of the dangers and unpleasantness of engaging in

argument about the conduct of counsel. Certainly, the oft-cited comment by Judge

Frank Coffin is to be considered gravely, one of his strong “likes” being “a brief

that contains not one pejorative adjective or innuendo concerning one’s

opponent…”24 However, when the untoward conduct of counsel directly affects

24
Frank N. Coffin, On Appeal, W.W. Norton & Company 1994, p. 120.
27
resolution of an issue on appeal, as it does in this one, discussion of it is

unavoidable. Justice John Dooley of the Vermont Supreme Court, who authored

the dissent in Malenfant, recognized this unfortunate truth. There, he noted that it

was the conduct of the lender’s counsel that led to the court’s decision on the

matter of res judicata. Justice Dooley observed that “the default here was not

caused by lender; instead it was caused by the inaction of lender’s lawyers.”

Malenfant, ¶ 47.

The fault complained of by Justice Dooley was the same as in the present

controversy; namely, failure of FNMA’s lawyers to comply with a trial court order

to file their witness and exhibit list. The law firm whose conduct the justice chided

was Shechtman Halperin Savage, LLP, based in Pawtucket, Rhode Island. That

firm represents FNMA in this appeal, and also represented FNMA in the initial

foreclosure action against the Deschaines, in which the trial court dismissed its suit

with prejudice. Justice Dooley observed that the Shechtman firm’s failures, which

led to the second foreclosure filing in Malenfant, were similar to the firm’s

repetitive filings and failures in another matter decided by the Vermont Supreme

Court only two months earlier in Bank of America, N.A. v. Pinette, 2016 VT 71,

149 A.3d 479. Despite the firm’s persistent failings, Justice Dooley noted that the

firm advertised itself as having conducted thousands of foreclosures throughout

28
New England,25 leading him to characterize the firm as “apparently…a foreclosure

mill.”26 Criticism of the sort leveled by Justice Dooley was by no means new.

Fannie Mae was soundly criticized back in 201027 for its use of law firms called

foreclosure mills.

Adverse outcomes, which have resulted from the Shechtman firm’s conduct

in Vermont, have also been in frequent evidence in Maine. For example, in a case

well known to the Court, Homeward Residential, Inc. v. Gregor, 2015 ME 108,

122 A.3d 947, the Shechtman firm admitted before trial that the Fannie Mae owned

that loan and was an assignee of the mortgage, but put forth a trial witness who

falsely claimed otherwise, and failed in the remainder of its proof by offering

evidence described by this Court as “wholly inadequate.” Id. at n.11. The

Shectman firm’s handling of the February 11, 2014 trial in Gregor was no

aberration; rather it was a part of its ongoing practices as evidenced by similar

defense verdicts it suffered shortly before trial in Homeward Residential v. Gregor

and repeated not long after. Less than two months before that trial, in Bank of

America, N.A. v. Da Hem, RE-11-505 (Me. Super. Ct., Cumberland, Dec. 13,

25
See http://www.shslawfirm.com/practice-areas/foreclosure-and-default-servicing/ (last visited March
22, 2017)

26
For definition see fn. 3 above.
27
Kroll, Fannie and Freddie’s Foreclosure Barons; How fishy foreclosures earned millions for lawyers
like David J. Stern—and made the housing crisis even worse. Mother Jones, August 4, 2010
29
2013), the trial court a defense judgment when the Shectman firm attempted to

offer evidence that fit the “wholly inadequate” description. Then, not long after the

court’s decision in Homeward Residential, the Shechtman firm made an equally

deficient evidentiary presentation and again suffered a defense judgment, in

Deutsche Bank National Trust Co. v. Batchelor, BRIDC-RE-15-037 (Me. Dist. Ct.

Bridgton, July 29, 2016). In the case now before this Court, the dismissal with

prejudice of FNMA’s first attempted foreclosure resulted from another failure of

the Shechtman firm, this being its failure to file a witness and exhibit list, even

after being warned that a failure to do so could result in precisely the outcome that

finally occurred.

The carelessness which caused these adverse outcomes is not limited to a

single firm. The adverse outcomes cited in supra note 21 are spread principally

among four firms, each of which Justice Dooley would likely describe as a

foreclosure mill. What is critical is that Maine’s trial judges should not be

deprived of the power to sanction careless conduct, especially the power to dismiss

with prejudice when that conduct is sufficiently negligent or egregious.

Consider the consequence if this Court should rule otherwise. If the Court

were to create a new rule for foreclosure cases similar to the rule adopted by

Florida in Singleton, 882 So. 2d at 1005, or to that proposed by Vermont in

Malenfant, 2016 VT 93 at ¶ 11, a foreclosure plaintiff whose first action was


30
dismissed for failure to heed a scheduling order or submit a report of conference,

as happened, respectively, in this case and in Samson, could declare a “new

acceleration” and bring a second suit, or perhaps a third or fourth, despite being

dismissed successively with prejudice. Maine’s dockets would become as crowded

as an erstwhile Androscoggin log-jam. Periodically, the Law Court has suggested

that trial courts should consider the application of M.R. Civ. P. 11 sanctions as a

remedy for foreclosure case abuses. See HSBC Bank v. Murphy, 2011 ME 59, ¶¶

15 & 18, 19 A.3d 815 and Nationstar Mortgage, LLC v. Halfacre, 2016 ME 97, ¶

6, 143 A.3d 136. However, that rule is limited to the improper signing of

pleadings. It is not available to sanction the kind of conduct discussed in this brief.

Moreover, trial courts are reluctant to impose this sanction, just as Maine attorneys

are reluctant to ask for it. What is needed is a full-throated refusal by this Court to

accommodate sloppy legal practices by a Law Court declaration that the claim

preclusion rules announced in Samson continue to apply to every kind of civil

litigation in this state.

E. The owners of Maine mortgages are not without remedies when


res judicata rules are enforced and their cases are dismissed with
prejudice.

If a foreclosure plaintiff believes that a trial judge has abused his or her

discretion in dismissing an action with prejudice, it should file a M.R. Civ. P. 59

motion to reconsider or amend the judgment. If that motion fails, the plaintiff
31
should appeal. Failing on appeal, the plaintiff can seek relief from judgment

pursuant to M.R. Civ. P. 60(b). What should not be permitted is a relaxation of

claim preclusion rules for plaintiffs in foreclosure cases, permitting them to

relitigate instead of being forced to follow post-dismissal rules that bind every

other civil litigant. Res judicata surely justified the trial court’s decision to bar the

second foreclosure action in Deschaine. By upholding its decision, the Law Court

will serve the principles of res judicata by conserving judicial resources,

preventing repetitive litigation, and bringing final resolution to disputes.28

III. Conclusion.

When the United States was on the verge of economic collapse in 2008,

fueled largely by a mortgage crisis, our government enacted the Troubled Asset

Relief Program (TARP) to rescue the financial system. Over $116 billion of this

$700 billion program was used to bail out FNMA29. Now this GSE is asking for

another bailout, this time by the Law Court, a bailout in which time-honored

28
To the extent FNMA seeks to shift the consequences of a bar to further litigation, it may have
a remedy against trial counsel. But there is reason to believe FNMA and other major lenders
have already discounted the possibility of losses. See, e.g., M. Wachpress, et al., Comment, In
Defense of “Free Houses, 125 Yale L.J. 1115, 1127 (Feb. 2016). Moreover, FNMA recently boasted of
$12.3 billion in profits during 2016, suggesting it can absorb an occasional loss. See
http://www.fanniemae.com/portal/media/financial-news/2017/2016-financial-results-10k-
6520.html (last visited March 23, 2017)
29
Keil & Nguyen, The Bailout Tracker, Pro Publica, updated Mar. 6, 2017

32
principles of claim preclusion are to be cast aside so that FNMA and other major

lenders and servicers can avoid changes to their business models. Those models

have led to the creation of “foreclosure mills,”—legal practices that depend on

high caseload volumes to offset low per-case payments, one result of which has

been numerous instances of poorly-handled litigation. Just as the United States

Supreme Court once rejected an effort by the 9th Circuit Court of Appeals to carve

an exception to established federal rules of res judicata, in order to spare a litigant

from the consequences of a decision of its own making,30 so too should this court

reject efforts by FNMA to create an exception to preclusion rules in Maine because

of failures of its own making. The decision of the Superior Court should be

upheld, leaving the claim preclusion rules announced in Samson comprehensive

and intact.

Dated this 29th day of March, 2017.

30
See Section I.A. above discussing Federated Dept. Stores v. Moitie, 452 U.S. 394, 101 S.Ct. 2424, 69
L.Ed.2d 103, in which the Supreme Court declined to find a fairness exception to the doctrine of res
judicata).
33
Respectfully submitted,

__________________________________
L. Scott Gould, Esq., Maine Bar No. 8798
25 Hunts Point Road
Cape Elizabeth, Maine 04017
(207) 799-9799
sgould@maine.rr.com

Attorney for Amici Curiae


National Consumer Law Center
National Association of Consumer
Advocates

___________________________________
Jeffrey S. Gentes, Esq. CT Bar No. 101097
Yale Law School
P.O. Box 208215
New Haven, CT 06520
(203) 436-9407
jeffrey.gentes@yale.edu

Attorney for Amicus Curiae


Jerome Frank Legal Services Corporation

Thomas A. Cox, Esq., Maine Bar No. 1248


P.O. Box 1314
Portland, Maine 04104
(207) 749-6671

Attorney for Amicus Curiae


Maine Attorneys Saving Homes

34
CERTIFICATE OF SERVICE

On this 29th day of March, 2017, the undersigned certifies that he


caused to be served two copies of the foregoing Amicus Brief on counsel for
Appellants and two copies on counsel for Appellee by mailing the same, first class
postage prepaid, addressed as follows:

Jeffrey J. Hardiman, Esq.


Dean J. Wagner, Esq.
Shechtman Haperin Savage, LLP
1080 Main Street
Pawtucket, RI 01860

James F. Cloutier, Esq.


Cloutier, Conley & Duffett, P.A.
465 Congress Street, Suite # 800
Portland, Maine 04101

________________________
Thomas A. Cox