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                  THE SUPREME COURT OF NEW HAMPSHIRE

                              ___________________________

Hillsborough-southern judicial district
No. 2018-0047


                                   WAYNE SABATO

                                          v.

                FEDERAL NATIONAL MORTGAGE ASSOCIATION

                           Argued: January 10, 2019
                          Opinion Issued: May 3, 2019

      Smith-Weiss Shepard, P.C., of Nashua (Robert M. Shepard and Tanya L.
Spony on the brief, and Mr. Shepard orally), for the plaintiff.


      Flagg Law, PLLC, of Portsmouth (Jonathan M. Flagg on the brief and
orally), for the defendant.

      HICKS, J. The plaintiff, Wayne Sabato, appeals, and the defendant,
Federal National Mortgage Association (FNMA), cross-appeals, orders of the
Superior Court (Temple, J.) in this action brought by the plaintiff to establish
his homestead right in the subject property. We affirm.

       The following facts were recited by the trial court in its orders. In 2001,
the plaintiff’s wife, Cheryl A. Sabato, acquired the subject property in Pelham
(the property). She took title by a warranty deed that acknowledged she was a
“married person,” and granted a purchase money mortgage to a party not
identified in the record (the original mortgage), which the plaintiff did not sign.
Both Cheryl and the plaintiff have resided at the property since 2001.
      In January 2002, Cheryl refinanced the original mortgage, executing a
new mortgage securing the amount of $173,250 to HomeVest Mortgage
Corporation (the first mortgage). The plaintiff did not sign the first mortgage,
which was immediately assigned to CitiMortgage, Inc. The original mortgage
was discharged approximately four months later and is not at issue in this
appeal. All of the foregoing transactions were recorded in the registry of deeds.

      In 2005, Cheryl granted a mortgage to National City Bank to secure a
home equity line of credit with a maximum principal amount of $65,000 (the
second mortgage). Both Cheryl and the plaintiff signed the second mortgage.
National City Bank was acquired by PNC Bank National Association, which
assigned the second mortgage to Situs Investments, LLC (Situs) in 2013.
Meanwhile, in 2011, the first mortgage was assigned by CitiMortgage, Inc. to
FNMA.

       In 2014, Situs foreclosed its mortgage, and purchased the property at the
foreclosure auction for $64,872.01, taking title subject to the first mortgage.1
Situs then sold its interest in the property to FNMA. Accordingly, FNMA now
holds title to the property as well as the first mortgage thereon.

      In 2016, FNMA notified the Sabatos that they might be evicted from the
property. The plaintiff then filed the instant action seeking to establish his
homestead right in the property. Both parties moved for summary judgment.
The plaintiff contended that foreclosure of the second mortgage did not affect
his homestead right because he had not waived that right in the first mortgage.
FNMA argued that, because the plaintiff waived his homestead interest in the
second mortgage, he could not now assert any homestead right.

      The court denied both motions, concluding that the summary judgment
record was insufficient to decide the issues before it as a matter of law. Both
parties moved for reconsideration, supplying additional evidence.

      Based upon the new evidence and concessions by FNMA at the motions
hearing, the trial court denied FNMA’s motion but granted the plaintiff’s motion
in part. The court concluded that “prior to the execution of the second
mortgage, the plaintiff had an unencumbered homestead right.” The court also
concluded that, “[u]nder settled New Hampshire law, the plaintiff’s signature
was sufficient to waive his homestead right relative to the second mortgage.”
That waiver, the court determined, was “only to the extent necessary to enforce
the second mortgage.”



1 The issue of whether Situs, as foreclosing mortgagee, exercised due diligence to obtain a fair
price at auction is not before us. See Murphy v. Financial Development Corp., 126 N.H. 536, 541
(1985).


                                              2
       The court then ruled:

              In this case, the second mortgage at issue was a home equity
       line of credit with a maximum principal balance of $65,000, and
       the foreclosure auction winner paid $64,872.01 as consideration
       for the foreclosure deed. Thus, assuming that the $120,000
       statutory exemption applies, it appears that some portion of the
       plaintiff’s homestead exemption still exists and must be set-off
       before FNMA owns the property free and clear. . . . The Court finds
       that the plaintiff is entitled to $120,000 less the amount owed on
       the note secured by the second mortgage at the time of the
       foreclosure sale. In the event FNMA seeks to partition the property
       instead of paying this amount, FNMA may request a hearing on
       this issue.2

(Footnotes omitted.) Subsequent motions for reconsideration by both parties
were denied, and both parties now seek appellate review.

       “In reviewing the trial court’s rulings on cross-motions for summary
judgment, we consider the evidence in the light most favorable to each party in
its capacity as the nonmoving party and, if no genuine issue of material fact
exists, we determine whether the moving party is entitled to judgment as a
matter of law.” Maroun v. Deutsche Bank Nat’l Trust Co., 167 N.H. 220, 224-
25 (2014) (quotation omitted). “If our review of that evidence discloses no
genuine issue of material fact and if the moving party is entitled to judgment as
a matter of law, then we will affirm the grant of summary judgment.” Id. at
225 (quotation omitted). We review both the trial court’s application of the law
to the facts and its statutory interpretation de novo. Polonsky v. Town of
Bedford, 171 N.H. 89, 93 (2018).

       The plaintiff contends that the trial court erred in ruling that his
homestead exemption must be reduced by the amount outstanding on the
second mortgage. He argues that the second mortgage “does not reduce or
eliminate [his] homestead exemption since [he] did not waive his homestead
right in the First Mortgage, which remains in full force and effect. The Second
Mortgage is subject to, and subordinate to, the First Mortgage and the
outstanding homestead right of [the plaintiff].”



2 The trial court made clear in a footnote that its assumption “that the $120,000 statutory
exemption applies” related to the applicable amount and was not an assumption as to whether
the exemption itself applies. That amount was increased from $100,000 to $120,000 by
statutory amendment in 2015. See Laws 2015, 57:1. Neither party has asked us to determine
whether the current or former amount is applicable, and both treat $120,000 as the operative
amount. Accordingly, we assume without deciding that the $120,000 exemption amount
applies.


                                            3
       FNMA also contends that the trial court erred, but in the opposite
direction. It asserts that “the homestead exemption is $0.00 because the
homestead was completely waived in the mortgage which is the subject of this
appeal and the other mortgage has nothing to do with this matter.” FNMA,
therefore, contends that the trial court erred in ruling that to obtain title free
and clear of the plaintiff’s homestead right, FNMA must pay him the difference
between $120,000 and the amount due on the second mortgage.

     In order to resolve the issues on appeal, we must construe the statutory
homestead exemption.

      The interpretation and application of statutes present questions of
      law, which we review de novo. In matters of statutory
      interpretation, we are the final arbiters of the legislature’s intent as
      expressed in the words of the statute considered as a whole. When
      examining the language of a statute, we ascribe the plain and
      ordinary meaning to the words used. We do not construe statutes
      in isolation; instead, we attempt to do so in harmony with the
      overall statutory scheme.

Maroun, 167 N.H. at 225 (citations omitted). “Statutory homestead protections
are universally held to be liberally construed to achieve their public policy
objective.” Id.

        The homestead exemption statute, RSA chapter 480 (2013 & Supp.
2018), provides that “[e]very person is entitled to $120,000 worth of his or her
homestead, or of his or her interest therein, as a homestead.” RSA 480:1
(Supp. 2018). “The statutory protection of the homestead right” applies not
only to the homeowner, but “also extends to spouses who occupy the
homestead but are not title owners of the property.” Maroun, 167 N.H. at 226.
The homestead statute further provides that “[t]he homestead right is exempt
from attachment during its continuance from levy or sale on execution, and
from liability to be encumbered or taken for the payment of debts, except in the
. . . cases” listed in paragraphs I through V of that section. RSA 480:4 (Supp.
2018). The instant case involves paragraph III, which provides an exception
“[i]n the enforcement of mortgages which are made a charge thereon according
to law.” RSA 480:4, III. That paragraph, in turn, implicates RSA 480:5-a,
which provides that “[n]o deed shall convey or encumber the homestead right,
except a mortgage made at the time of purchase to secure payment of the
purchase money, unless it is executed by the owner and wife or husband, if
any, with the formalities required for the conveyance of land.” RSA 480:5-a
(2013).

       To address the parties’ arguments on appeal, we must examine the effect
of the plaintiff’s waiver of homestead in the second mortgage, as well as his



                                        4
lack of waiver in the first. We rely upon our own case law and cite cases from
other jurisdictions to the extent they do not conflict with New Hampshire law.

       “The general rule regarding priority among competing mortgages, in the
absence of a statutory provision to the contrary, is ‘prior in tempore, potior in
jure (first in time, superior in right).’ That is, a mortgage acquired first takes
priority over subsequent mortgages on the same property.” Leroux v. Bank of
N.H., 132 N.H. 547, 549 (1989) (quoting 55 Am. Jur. 2d Mortgages § 323
(1971)) (citation omitted). Thus, ordinarily, the first mortgage given to
HomeVest Mortgage Corporation and now held by FNMA would have had
complete priority over the later second mortgage given to National City Bank
and assigned to Situs. Here, because the plaintiff did not sign the first
mortgage, which was not made at the time of purchase, that mortgage did not
comply with RSA 480:5-a, and, therefore, did not convey or encumber his
homestead interest in the property. See Maroun, 167 N.H. at 226-27. Thus,
upon foreclosure, the plaintiff’s homestead right had priority over the first
mortgage. See Manchester Sav. &c. Ass’n v. Emery-Waterhouse, 102 N.H. 233,
238 (1959) (because debtor’s “homestead right [was] exempt as against the
attaching creditors,” attaching creditors would be entitled to their share of
foreclosure proceeds “less the value of his homestead right”).

       The plaintiff concedes, however, that he signed the second mortgage as
“‘husband of Cheryl A. Sabato.’” Accordingly, the trial court ruled, and we
affirm, that he waived his homestead right as to the second mortgage. See
Maroun, 167 N.H. at 228 (holding that “homestead rights, like other statutory
rights, may be waived by the holder of the right, unless such a waiver would be
against public policy or some constitutional or statutory restriction”); RSA
480:4, III, :5-a. That waiver made the value of the plaintiff’s homestead right
available to Situs, by “levy or sale on execution,” RSA 480:4, to satisfy the
plaintiff’s indebtedness to it. See Walpole Savings Bank v. French, 105 N.H.
407, 408, 409 (1964) (holder of mortgage given by both husband and wife on
property they jointly owned foreclosed and satisfied its mortgage from “the full
value of” the homestead right, over which its claim was “paramount”).
Accordingly, the waiver gave Situs’s second mortgage priority over the first
mortgage up to the value of the plaintiff’s homestead right ($120,000). See
Browning et al. v. Harris et al., 99 Ill. 456, 460, 462 (1881) (noting that in a
prior case the court held that “where the owner of a homestead had executed
three mortgages upon the homestead premises, the first of which contained no
sufficient waiver or release of the right of homestead, and the other two did,
that the latter had priority over the first to the extent of [the homestead right,
which was then] $1000”). When Situs foreclosed its second mortgage, it
stepped into first position up to a maximum of $120,000 because it, unlike the
first mortgagee, had access to the value of the homestead right, and that right,
as previously noted, had priority over the first mortgage. See Acadian Bank v.
Foret, 602 So. 2d 1097, 1098 (La. Ct. App. 1992) (noting that “the amount of
the homestead exemption is . . . reserved from the sale proceeds for the


                                       5
homeowner, or in his stead, the highest ranking mortgag[ee] whose mortgage
contains a waiver of the homestead exemption”); Hess v. Eselin, 194 N.W. 469,
470-71 (Neb. 1923) (where debtor gave mortgage to bank after judgment
creditor levied upon the subject property, but debtor had waived homestead in
the mortgage, “the mortgage simply [took] the place of the homestead interest”
upon sheriff’s sale).

       Because it is reasonable to assume that Situs did not bid more than the
amount it was owed, we will assume, for purposes of analysis only, that its bid
of $64,872.01 satisfied the indebtedness under the second mortgage note.
Thus, as in French, “the mortgage was satisfied without resort to the full value
of [the homestead] right.” French, 105 N.H. at 409. Had the property sold for
more than the indebtedness under the second mortgage note, the surplus
proceeds up to the remaining balance of the plaintiff’s homestead exemption
would have been exempt from the first mortgage and payable to the plaintiff
before FNMA, as holder of the first mortgage, received any proceeds. See id.;
Shaver v. Williams, 87 Ill. 469, 473 (1877); Acadian Bank, 602 So. 2d at 1098.
Here, however, there was no surplus, and we must, therefore, determine
whether the balance of the plaintiff’s homestead exemption remained as an
interest in the property or was extinguished by the foreclosure sale.

        Pursuant to RSA 479:26, upon the recording of the foreclosure deed and
affidavit in compliance with paragraph I of that section, “title to the premises
. . . pass[ed] to the purchaser free and clear of all interests and encumbrances
which do not have priority over such mortgage.” RSA 479:26, I, III (2013). As
between the first and second mortgage, the first had priority; thus, the first
mortgage was not extinguished by the foreclosure, and Situs took title subject
to it. With respect to the second mortgage, the plaintiff’s waiver of homestead
allowed the second mortgage to encumber that right and take priority over it.
The preliminary issue we must determine, then, is to what extent the second
mortgage encumbered that right.

       The trial court concluded, in a ruling challenged by FNMA on appeal,
that “the plaintiff waived his homestead right only to the extent necessary to
enforce the second mortgage.” That ruling is consistent with language
employed by courts in other jurisdictions. See In re Butler, 271 B.R. 807, 810
(Bankr. E.D. Tenn. 2001) (noting that “the Debtor, as permitted by Tennessee
law, waived her entitlement to claim her homestead exemption to the extent of
the amount of the mortgages encumbering the Residence at the
commencement of her bankruptcy case”); Virgin v. Virgin, 91 Ill. App. 188, 204
(App. Ct. 1900) (noting that when the appellant joined her husband in
executing nine mortgages on the subject property, “she thereby released . . .
her homestead estate therein, to the extent of the liens created thereby”);
Gordon v. Deavitt, 78 A. 113, 115-16 (Vt. 1910) (citing Michigan case for
proposition that “the execution of a mortgage upon the homestead by husband
and wife operates to release the homestead right only to the extent necessary to


                                       6
satisfy the mortgage, and that the law will not construe the mortgage into an
agreement to carry an increased liability”). Moreover, the ruling is logically
consistent with French’s holding that following a foreclosure sale that satisfied
the mortgage “without resort to the full value of” the homestead exemption, the
debtor and his wife “each retained a homestead right” in surplus proceeds.
French, 105 N.H. at 409. Accordingly we affirm the trial court’s ruling that the
plaintiff’s homestead waiver extended only so far as necessary to enforce the
second mortgage.

        Conversely, we cannot conclude that, except to the extent necessary to
enforce the second mortgage, the plaintiff’s homestead right could be
considered an “interest[ or] encumbrance[] which do[es] not have priority over
such mortgage.” RSA 479:26, III. In other words, any portion of the exemption
left after satisfying the second mortgage, which continues to exist in either the
surplus, French, 105 N.H. at 409, or, we now hold, in the property, is not
subordinate to the mortgage and is not extinguished by the foreclosure. In so
holding, we necessarily reject both parties’ positions as to the value of the
plaintiff’s present homestead interest and agree with the trial court that he
retains as a homestead interest the difference between $120,000 and the
amount owed on the second mortgage note at the time of the foreclosure sale.

       The plaintiff contends, however, that reducing his homestead right by the
amount due on the second mortgage note contravenes our precedent that a
homestead waiver in one mortgage “cannot be interpreted to act upon any
other conveyance or encumbrance.” Maroun, 167 N.H. at 227. We find no
conflict. The waiver of the plaintiff’s homestead exemption in the second
mortgage did not impute a waiver into the first mortgage; rather, the waiver in
the second mortgage merely gave the second mortgagee the right to step into
the plaintiff’s shoes with respect to his priority over the first mortgage up to the
value of the homestead exemption. See Hess, 194 N.W. at 471.

       The plaintiff also contends that because Situs took with notice of the lack
of a homestead waiver in the first mortgage, “the conveyance of the home by
[Situs] is subject to the [entire] outstanding homestead right.” Situs’s
knowledge of the first mortgage’s lack of homestead waiver does not change our
analysis. Situs had no reason to seek to remedy the lack of waiver in the first
mortgage as it would not improve its position.3 The first mortgagee has no
grounds for complaint; its mortgage was always subject to the homestead
exemption, and it should make no difference whether the value of the
exemption is claimed by the plaintiff, the second mortgagee, or both of them in
part. See id.

     Finally, the plaintiff, having waived his homestead right in the second
mortgage, has no grounds to complain that the second mortgagee has availed

3   In fact, given our holding here, it would weaken its position.


                                                   7
itself of the homestead to satisfy its mortgage and left him unable to assert his
entire homestead exemption against the first mortgagee. The Louisiana Court
of Appeal in Acadian Bank addressed a contention similar to the plaintiff’s
here. There, the first lien on the debtors’ property was a judgment lien and the
second was a mortgage in which they waived their homestead exemption.
Acadian Bank, 602 So. 2d at 1047. Following foreclosure of the mortgage, the
debtors argued that, because the judgment creditor ranked above the
foreclosing mortgagee, “the homestead exemption in the amount of $15,000
should be deducted from the sale proceeds and given to them before [the
judgment creditor’s claim] is satisfied.” Id. at 1098. The court rejected the
argument:

      In the case sub judice, the claim against the homestead exemption
      is a waiver of the entire exemption in favor of [the mortgagee],
      therefore the entire amount of the homestead exemption, $15,000,
      goes to satisfy that claim.

            There is no provision in the law to allow the debtor to defeat
      the waiver of the homestead exemption simply because the creditor
      with the homestead exemption waiver ranks below a higher
      ranking creditor which has no homestead waiver. This argument
      has no merit.

Id. at 1099. For the foregoing reasons, we reject the plaintiff’s challenge to the
trial court’s decision.

       In its challenge to the trial court’s orders, FNMA argues that no New
Hampshire court has ever “required the successful bidder at auction to then
meet with the former owners, or anyone having any interest in the property,
and compensate them for their interest, unless there is a bid in excess of the
total debt of the mortgage foreclosed on,” and there is no such excess bid in
this case. Our decision here, however, does nothing more than recognize that
the remainder of the plaintiff’s homestead interest continues to exist in the
property and that in order to clear that interest from its title, FNMA must
either, as the trial court ruled, pay the plaintiff its value or partition the
property. Cf. Boissonnault v. Savage, 137 N.H. 229, 230, 232-33 (1993)
(noting that “RSA 480:3-a does not entitle the [wife] to occupy the . . . premises
and preclude [a judgment creditor of her husband] from seeking partition, at
which time the homestead right may be accommodated”). The foreclosure here
was expressly subject to the first mortgage on the property, which any
purchaser at auction would have had to pay off and discharge in order to
obtain clear title. The plaintiff’s remainder homestead interest is not
dissimilar.

     Nevertheless, FNMA contends that if we affirm, “no one would lend in
New Hampshire because they would not be able to liquidate at a foreclosure


                                        8
auction.” FNMA argues, essentially, that buyers would not bid at auction if
they had to contend with the possibility of homestead rights that would have to
be bought out post-foreclosure. We are not persuaded. A successful bidder
would have to pay off any superior interest in any case.

       Finally, FNMA argues that “[w]hen Plaintiff signed the second mortgage,
he in fact DEEDED his interest in the property to [FNMA’s] predecessor with
warranty covenants” and, therefore, “he must now warrant and defend the title
that [FNMA] holds, even to the extent of discharging any claim to title to the
property, be it homestead or otherwise.” We disagree. Notwithstanding that
New Hampshire is a “title theory” state, see Land America Commonwealth Title
Ins. Co. v. Kolozetski, 159 N.H. 689, 692 (2010), the plaintiff’s signing of the
second mortgage did not “deed” anything to the second mortgagee as the
plaintiff did not own the property and had no title or estate to convey. We long
ago recognized that “[t]he homestead right is merely an inchoate right, which is
not assignable until the homestead is set out and assigned in specific property.
It then becomes a vested estate.” Lake v. Page, 63 N.H. 318, 319 (1885); see
RSA 480:8-a (2013) (setting forth procedure by which the superior court “may
appoint appraisers and cause the homestead right to be set off, and a record of
the proceedings being made in the registry of deeds, the right shall be
established as against all persons”); see also Maroun, 167 N.H. at 228 (noting
that RSA 480:1 “casts the homestead right as a personal privilege, which the
homeowner and spouse are entitled to exercise”). The plaintiff’s signature on
the second mortgage merely waived his entitlement to exercise his homestead
right against the second mortgage. Maroun, 167 N.H. at 228. For all of the
foregoing reasons, we reject both parties’ challenges to the trial court’s orders
and affirm.

                                                  Affirmed.

      LYNN, C.J., and BASSETT and HANTZ MARCONI, JJ., concurred.




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