MAINE SUPREME JUDICIAL COURT                                       Reporter of Decisions
Decision: 2015 ME 19
Docket:   Fed-14-263
Argued:   February 12, 2015
Decided:  March 3, 2015

Panel:       ALEXANDER, MEAD, GORMAN, JABAR, and HJELM, JJ.



 BANKRUPTCY ESTATE OF JOHN B. EVEREST AND SUSAN E. EVEREST

                                         v.

                         BANK OF AMERICA, N.A. et al.

GORMAN, J.

         [¶1] Pursuant to 4 M.R.S. § 57 (2014) and M.R. App. P. 25, the United

States District Court for the District of Maine (Hornby, J.) has certified a question

of state law for our review:

         Where

              a. a junior mortgagee obtains a Maine District Court judgment
              of foreclosure and sale against a debtor/mortgagor (the senior
              mortgagee not being a party to the action) and the judgment
              provides that proceeds shall go first to the junior mortgagee,
              next to a still more junior mortgagee, and last to the
              debtor/mortgagor;

              b. the statutory equity of redemption expires on the junior
              mortgage foreclosure but the junior mortgagee fails to conduct
              a foreclosure sale pursuant to the judgment;

              c. the senior mortgagee in a separate action in Maine District
              Court seeks judgment of foreclosure and sale against the same
              debtor/mortgagor and also names the junior mortgagee as a
2

               party-in-interest and serves both the mortgagor and the junior
               mortgagee;

               d. the mortgagor and the junior mortgagee both fail to appear in
               the second action and are defaulted, and

               e. the resulting judgment of foreclosure and sale (now final)
               provides that proceeds go first to the senior mortgagee, then to
               state tax authorities, and “Last, to the [debtor/mortgagor] or any
               other party appearing in this action,” thereby not including the
               second mortgagee who did not appear,

               f. the proceeds of such a sale will pay the full amount due to
               both the senior mortgagee and the state tax authorities, and still
               have excess remaining,

         does the junior mortgagee who failed to appear in the second lawsuit
         and is not named as a distributee in the resulting judgment have any
         right under Maine law to excess proceeds from that foreclosure sale in
         any manner, either directly, or through a lien on the mortgagor’s
         interest, or on some other basis; or do the excess proceeds belong
         exclusively to the debtor/mortgagor (now succeeded by the trustee in
         bankruptcy)? (If the junior mortgagee has a right to share in the
         proceeds, the nature of such a right will affect this federal court’s
         determination whether the mortgagor/debtor’s intervening bankruptcy
         filing has impaired that right, as it would, for example, if the only
         right were to a deficiency judgment on the underlying Note, as
         contrasted with a lien.)

We answer the certified question as follows: “The junior mortgagee who failed to

appear in the senior foreclosure and was not named as a distributee in the resulting

judgment does not have any rights to the excess proceeds from that foreclosure

sale.”
                                                                                   3

                                   I. BACKGROUND

      [¶2] Susan E. Everest owned real estate in Kennebunk. Howison v. Bank of

Am., N.A., No. 2:14–CV–05–DBH, 2014 WL 2472117, at *1 (D. Me.,

June 2, 2014). On February 17, 2009, as holder of a second mortgage (the junior

mortgage) that Everest granted on the premises, Bank of America filed a complaint

in the Maine District Court to foreclose the junior mortgage (the junior

foreclosure).     Id.    Bank of America named a third mortgagee as the

party-in-interest and Everest as the defendant. Id. On May 10, 2010, the court

(Biddeford, Foster, J.) entered a foreclosure judgment (the junior judgment) in

favor of Bank of America and against Everest and the third mortgagee. Id.

      [¶3] Just over two months later, on July 23, 2010, Everest filed a petition for

relief pursuant to Chapter 7 of the United States Bankruptcy Code with the

Bankruptcy Court of the District of Maine, and William H. Howison (the Trustee)

was appointed as trustee to the bankruptcy estate. Id. at *2. Neither the Trustee

nor Everest ever exercised the equity of redemption on the junior foreclosure, and

it has expired.    Id.   Bank of America failed to conduct a public sale of the

mortgagor’s equity of redemption pursuant to the junior mortgage. Id.

      [¶4] On August 10, 2010, People’s United Bank (Peoples United), the

holder of a first mortgage (the senior mortgage), obtained from the Bankruptcy

Court a relief from stay so that it could proceed with its own foreclosure action.
4

Id. On October 29, 2010, Peoples United began its foreclosure lawsuit (the senior

foreclosure) in the Maine District Court, naming Maine Revenue Services and

second mortgagee Bank of America as parties-in-interest and Everest as a

defendant. Id. Despite being properly served with process, both Everest and Bank

of America defaulted. Id. On March 22, 2011, the court (Foster, J.) entered a

foreclosure judgment (the senior judgment) on Peoples United’s mortgage. Id.

That judgment stated that “the proceeds of a foreclosure sale of the real estate were

to be paid (after deducting costs of the sale) first to Peoples United to the extent of

its debt, then to Maine Revenue Services for tax liens, then to the ‘Defendant or

any other party appearing in this action.’” Id.

      [¶5] In late June 2011, the Trustee learned of the imminent foreclosure sale

from the senior foreclosure.      Id.   Although the Trustee had abandoned the

bankruptcy estate’s interest in the premises as of August 30, 2010, and the

bankruptcy case had been closed since November 2, 2010, on July 7, 2011, the

Trustee filed motions in the Bankruptcy Court to revoke his abandonment of the

property and reopen the bankruptcy case. Id. The Bankruptcy Court reopened the

case and, on July 20, 2011, granted the Trustee’s motion to revoke the

abandonment. Id.

      [¶6]   On July 21, 2011, Bank of America purchased Peoples United’s

interest in Everest’s senior mortgage debt and obtained an assignment of the
                                                                                     5

Peoples United loan and senior mortgage documents and the senior judgment. Id.

Peoples United postponed the foreclosure sale. Id.

      [¶7] Next, the Trustee appeared in the senior foreclosure lawsuit by filing a

motion to substitute himself for Everest. Id. The court granted that motion on

August 25, 2011. Id.

      [¶8] On September 29, 2011, Bank of America filed a motion seeking to

substitute itself in place of Peoples United as the plaintiff in the senior foreclosure

and, at the same time, moved for relief from the senior judgment pursuant to M.R.

Civ. P. 60(b), with the stated intention of dismissing the senior foreclosure case.

Id. The Trustee filed an objection to the Rule 60(b) motion, stating that “Bank of

America had failed to provide evidence that would support its requested relief

[pursuant to] Rule 60(b).” Id. In an order dated January 31, 2012, the court

(Janelle, J.) granted the motion for substitution and denied Bank of America’s

Rule 60(b) motion, stating,

      [T]here is no rule providing that it is the prerogative of a party for
      whom judgment was entered to have that judgment set aside. Rather,
      . . . [Bank of America] must satisfy 60(b)(6)’s standard, which
      requires a showing of ‘extraordinary circumstances.’ [Bank of
      America] has not shown such extraordinary circumstances, and
      instead has predicated its motion on the conclusory assertion that
      setting aside the Foreclosure Judgment would serve the interests of
      justice. [Bank of America] has adduced no evidence to support that
      assertion.
6

Id. at *2-3. We dismissed Bank of America’s untimely appeal from that order. Id.

There has been no public sale pursuant to either foreclosure judgment. Id.

      [¶9] On July 3, 2012, the Trustee filed a motion in the Bankruptcy Court

seeking “authority to sell the premises free and clear of liens, claims, interests, and

encumbrances.” Id. Bank of America objected. Id. The Trustee then commenced

an adversary proceeding “to determine the relative rights of the parties in the

[p]roperty.” Id. On August 15, 2012, the Bankruptcy Court consolidated the

adversary proceeding with the sale motion. Id.

      [¶10] In the Bankruptcy Court, the parties proceeded on a stipulated record.

Id. For the purposes of those proceedings, the parties stipulated that “the value of

the premises is $709,700, an amount sufficient to result in proceeds being paid to

the Trustee for Everest’s creditors if the [senior judgment] awards her any amount

after Peoples United’s secured obligation and Maine Revenue Services’ tax lien are

paid in full (but not enough to result in proceeds for the Trustee if Bank of

America is paid).” Id. at *4. In addition, the parties agreed that under a sale

pursuant to the senior foreclosure, “Maine Revenue Services will have priority to

all but Peoples United’s interest.” Id. at *2 n.3.

      [¶11] On November 12, 2013, the Bankruptcy Court (Haines, J.) announced

its findings and, on November 13, 2013, entered judgment in favor of Bank of

America. Id. at *4. The Trustee filed a timely notice of appeal. Id.
                                                                                     7

          [¶12] The United States District Court for the District of Maine (Hornby, J.)

issued an order dated June 2, 2014, indicating that it disagreed with the Bankruptcy

Court and intended to vacate the order and remand the case. Id. at *7. Rather than

doing so, however, the court determined that it would certify the question to us

because the question is “determinative of the cause” in the present case and deals

with an unsettled state law question. Id. The court certified the question, as stated

in ¶ 1.

                                    II. DISCUSSION

A.        Acceptance of the Federal Question

          [¶13] “Title 4 M.R.S. § 57 authorizes, but does not require, us to consider a

certified question of state law posed by a federal court in certain circumstances.”

Fortin v. Titcomb, 2013 ME 14, ¶ 3, 60 A.3d 765. “We may consider the merits of

a certified question from the United States District Court and, in our discretion,

provide an answer if (1) there is no dispute as to the material facts at issue;

(2) there is no clear controlling precedent; and (3) our answer, in at least one

alternative, would be determinative of the case.” Dinan v. Alpha Networks Inc.,

2013 ME 22, ¶ 11, 60 A.3d 792.

          [¶14] We have stated that “wherever reasonably possible, the state court of

last resort should be given opportunity to decide state law issues on which there are
8

no state precedents which are controlling or clearly indicative of the developmental

course of the state law” because this approach

      (1) tend[s] to avoid the uncertainty and inconsistency in the exposition
      of state law caused when federal [c]ourts render decisions of [s]tate
      law which have an interim effectiveness until the issues are finally
      settled by the state court of last resort; and (2) minimize[s] the
      potential for state-federal tensions arising from actual, or fancied,
      federal [c]ourt efforts to influence the development of [s]tate law.

Id. ¶ 12 (quotation marks omitted).

      [¶15]    Here, there are no material facts in dispute, there is no clear

controlling precedent on point, and our answer to the certified question will also be

determinative of the case because it will ultimately decide who is entitled to the

proceeds of the senior foreclosure sale. Therefore, we agree to consider this

certified question.

B.    Junior Foreclosure

      [¶16] In order to answer the certified question, we must first classify the

nature of the right Bank of America received from its junior foreclosure. We

review questions of law, including those certified to us by the federal court,

de novo. Fortin, 2013 ME 14, ¶ 7, 60 A.3d 765. “In Maine, foreclosure is a

creature of statute,” Bank of Am., N.A. v. Greenleaf, 2014 ME 89, ¶ 8, 96 A.3d 700,

and 14 M.R.S. § 6321 (2014) governs the commencement of a foreclosure action.

The relevant portion of section 6321 states:
                                                                                   9

      After breach of condition of any mortgage other than one of the first
      priority, the mortgagee or any person claiming under the mortgagee
      may proceed for the purpose of foreclosure by a civil action against
      all parties in interest, except for parties in interest having a superior
      priority to the foreclosing mortgagee, in either the Superior Court or
      the District Court in the division in which the mortgaged premises or
      any part of the mortgaged premises is located. Parties in interest
      having a superior priority may not be joined nor will their interests be
      affected by the proceedings, but the resulting sale under section 6323
      is of the defendant or mortgagor’s equity of redemption only. The
      plaintiff shall notify the priority parties in interest of the action by
      sending a copy of the complaint to the parties in interest by certified
      mail.

(Emphasis added.)

      [¶17] We have explained the nature of the equity of redemption as follows:

      In ordinary cases the mortgagor conveys to the mortgagee the title to
      real estate as security for a debt. There remains in the mortgagor the
      right to pay the debt, and thereby redeem the property mortgaged.
      The process of foreclosure cuts off this right, and vests the title
      absolutely in the mortgagee. The same thing is true of a second
      mortgage, which is but a mortgage of the equity of redemption. The
      whole equity [of redemption] is conveyed to the mortgagee, the same
      as the whole title is conveyed to the first mortgagee. The right
      remaining in the mortgagor is a right to redeem the equity of
      redemption. That right carries with it, as an incident to it, a right to
      redeem the first mortgage. Now when the second mortgagee
      forecloses the mortgagor, the whole equity of redemption vests in him,
      precisely as the whole estate vests in the first mortgagee after
      foreclosure, and he alone is entitled to redeem the first mortgage.

Smith v. Varney, 309 A.2d 229, 232 (Me. 1973) (emphasis added) (quotation marks

omitted).
10

      [¶18] When Bank of America obtained the junior foreclosure judgment on

May 10, 2010, what it received was Everest’s equity of redemption for the senior

mortgage. Bank of America did not sell this interest within the specified time

period pursuant to 14 M.R.S. § 6323 (2014), nor did it appear in the senior

foreclosure to assert its interest in redeeming the senior mortgage within the

redemption period. Howison, 2014 WL 2472117, at *1-2. As we discussed almost

ten years ago, in order to assert its rights, the junior mortgagee must appear in the

senior foreclosure action:

      By the terms of section 6321 a sale of property that has been judicially
      foreclosed does not convey the premises free and clear of a recorded
      interest if the holder of that interest is not made a party to the action.
      Naming the junior mortgagee as a party in interest in a foreclosure
      action and serving of process provides notice of the imminent
      foreclosure proceedings. Once notified of the senior mortgagee’s
      intention to foreclose against the property, the junior mortgagee has
      the opportunity to appear in the action and have the court determine,
      pursuant to section 6322 . . . the “order of priority and those amounts,
      if any, that may be due to other parties that may appear.” Section
      6322 also provides that after a hearing, if the court determines a
      breach of a condition in the primary mortgage has occurred, “a
      judgment of foreclosure and sale shall issue providing that if the
      mortgagor, his successors, heirs and assigns do not pay the sum that
      the court adjudges to be due and payable, with interest within the
      period of redemption, the mortgagee shall proceed with a sale as
      provided.” The same right of redemption is preserved to the junior
      mortgagee by section 6205.
                                                                                11

U.S. Dep’t of Hous. & Urban Dev. v. Union Mortg. Co., 661 A.2d 163, 165-66

(Me. 1995) (emphasis added). In light of Bank of America’s inaction, the question

is whether it nonetheless retained any right to redemption.

C.    Senior Foreclosure

      [¶19] On October 29, 2010, Peoples United, the holder of the senior

mortgage, filed a foreclosure complaint pursuant to section 6321, which states in

relevant part:

      After breach of condition in a mortgage of first priority, the
      mortgagee or any person claiming under the mortgagee may proceed
      for the purpose of foreclosure by a civil action against all parties in
      interest in either the Superior Court or the District Court in the
      division in which the mortgaged premises or any part of the
      mortgaged premises is located, regardless of the amount of the
      mortgage claim.

(Emphasis added.) Despite being properly served with process, Bank of America

failed to appear in the action and was defaulted. On March 22, 2011, Peoples

United was granted a foreclosure judgment pursuant to 14 M.R.S. § 6322 (2014),

which states in relevant part:

      [T]he court shall determine whether there has been a breach of
      condition in the plaintiff's mortgage, the amount due thereon,
      including reasonable attorney’s fees and court costs, the order of
      priority and those amounts, if any, that may be due to other parties
      that may appear and whether any public utility easements held by a
      party in interest survive the proceedings.
12

(Emphasis added.) As required by section 6322, the court established amounts and

set priorities due. It ordered that the proceeds of the foreclosure sale were to be

paid first to Peoples United, then to Maine Revenue Services, and, finally, to the

“Defendant or any other party appearing in this action.”                 Howison,

2014 WL 2472117, at *2 (quotation marks omitted). Everest was the defendant in

the senior foreclosure and Bank of America did not appear in the action. Id.

      [¶20] “Upon expiration of the period of redemption, if the mortgagor or the

mortgagor’s successors, heirs or assigns have not redeemed the mortgage, any

remaining rights of the mortgagor to possession terminate.” 14 M.R.S. § 6323;

see also 14 M.R.S. § 6205 (2014). Put another way,

      [w]hen that equity of redemption has been lost by the expiration of the
      statutory period, nothing remains in the mortgagor except the
      contingency that exceptional circumstances may exist which will
      entitle him to equitable relief. His legal title was conveyed when he
      executed the mortgage and his equitable title disappeared with the
      expiration of the period of redemption.

Duprey v. Eagle Lake Water & Sewer Dist., 615 A.2d 600, 604 (Me. 1992)

(quotation marks omitted).

      [¶21]    Starting on March 22, 2011, and ending on approximately

June 20, 2011, the ninety-day period of redemption on the senior mortgage ran

pursuant to 14 M.R.S. § 6322. Everest did not exercise her right of redemption

during this time.   Id.   Bank of America also did not exercise any right of
                                                                                13

redemption it might have had despite its default. Howison, 2014 WL 2472117, at

*2.   Pursuant to section 6323, when the period of redemption for the senior

foreclosure expired, no equity of redemption remained with the property.

Therefore, any rights Bank of America had in the property vis-à-vis the junior

foreclosure disappeared.

      [¶22] The remaining interests in the property are governed by the judgment

of foreclosure in the senior foreclosure case. See 14 M.R.S. § 6324 (2014) (stating

that after the expiration of the period of redemption foreclosure sale proceeds

should be disbursed “in accordance with the provisions of the judgment.”); see also

Restatement (Third) of Prop.: Mortgages § 7.1 (1997) (“It is a fundamental

principle of mortgage law that a valid judicial foreclosure of a senior mortgage

terminates not only the owner’s title and equitable redemption rights, but also all

other junior interests whose holders were made parties defendant.”).

D.    Conclusion

      [¶23] By failing to appear in the senior foreclosure action, Bank of America

jeopardized the rights it had obtained through the junior foreclosure.

14 M.R.S. § 6322. To the extent that Bank of America had any rights that survived

the senior foreclosure judgment, those rights expired at the conclusion of the

period of redemption. 14 M.R.S. § 6323.
14

         [¶24] Bank of America seems to suggest that the fact that Peoples United

served the senior foreclosure complaint on a corporate representative instead of

counsel somehow excuses its failure to appear in the senior foreclosure, and we

should create an alternative procedure to allow Bank of America to exercise its

expired right of redemption vis-à-vis the senior judgment. There is simply no

support in Maine law for this assertion, as the United States District Court points

out.1 Bank of America had multiple opportunities to assert its interest in the senior

foreclosure through appearance, a Rule 60(b) motion, and a direct appeal, and, in

fact, it utilized, unsuccessfully, two of these options.

         The entry is:

                         We answer the certified question as follows: “The
                         junior mortgagee who failed to appear in the senior
                         foreclosure and was not named as a distributee in
                         the resulting judgment does not have any rights to
                         the excess proceeds from that foreclosure sale.”




     1
       In its brief to us, Bank of America also argues that, as the now-senior mortgagee, it could allow
itself, as the junior mortgagee and holder of the equity of redemption, to redeem the senior mortgage
pursuant to 14 M.R.S. § 6323 (2014) which allows “[t]he mortgagee, in its sole discretion, [to] allow the
mortgagor to redeem or reinstate the loan after the expiration of the period of redemption but before the
public sale.” This question is not before us. We have been called upon only to determine Bank of
America’s rights to “excess proceeds” from the senior foreclosure sale, and we do not reach the issue of
Bank of America’s rights pursuant to section 6323.
                                                                            15

On the briefs:

        Aaron P. Burns, Esq., and Joshua R. Dow, Esq., Pearce & Dow,
        LLC, Portland, for appellant William H. Howison, Chapter 7
        Trustee of the Bankruptcy Estate of John B. and Susan E.
        Everest

        Janet T. Mills, Attorney General, and Thomas A. Knowlton,
        Asst. Atty. Gen, Office of the Attorney General, Augusta, for
        appellee Maine Revenue Services

        William A. Fogel, Esq., Portland, for appellee Bank of America
        N.A.

At oral argument:

        Aaron P. Burns, Esq., for appellant William H. Howison,
        Chapter 7 Trustee of the Bankruptcy Estate of John B. and
        Susan E. Everest

        Thomas A. Knowlton, Asst. Atty. Gen. for appellee Maine
        Revenue Services

        William A. Fogel, Esq., for appellee Bank of America N.A.



U.S District Court for the District of Maine docket number 2:14-cv-05-DBH
FOR CLERK REFERENCE ONLY
