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Federal National Mortgage Association v. Small Holmes

United States District Court, D. Maryland

September 19, 2018




         This Report and Recommendation addresses the Motion for Default Judgment filed by Plaintiff, Federal National Mortgage Association (“Fannie Mae”), against Defendants Jana C. Small Holmes, Kristine Small, Rikki Drykerman, and the Unknown Heirs at Law of Etherine Small. (ECF No. 22) Defendants have not filed a response, and the time for doing so has passed. See Loc. R. 105.2.a. On September 5, 2018, in accordance with 28 U.S.C. § 636 and Local Rules 301 and 302, Judge Chuang referred this case to me for a report and recommendation on Plaintiff's Motion. I find a hearing unnecessary. See Fed. R. Civ. P. 55(b)(2); Loc. R. 105.6 (D. Md. 2014). I respectfully recommend that the Court GRANT the Plaintiff's Motion for Default Judgment.


         In 1999, Dennis Small and Etherine Small purchased 1906 Linden Avenue, Baltimore, Maryland 21217 (the “property”) as joint tenants. (ECF No. 1). Less than two years later, Dennis Small filed for Chapter 7 bankruptcy. Unbeknownst to Dennis and Etherine Small, this bankruptcy severed the joint tenancy, leaving the two holding the property as tenants in common.[1]

         On September 25, 2003, Dennis and Etherine Small, as tenants in common, granted a deed of trust on the property to secure a loan of $124, 800 (the “First Deed of Trust”). On August 23, 2006, Etherine Small died, causing her interest in the property to pass to her heirs. Erroneously believing that he acquired her interest through rights of survivorship and therefore had full rights to the property, Dennis Small, on November 16, 2006, granted a deed of trust to secure a $195, 000 refinance loan from BNC Mortgage, Inc. (the “Second Deed of Trust”). BNC Mortgage paid off the holder of the First Deed of Trust to obtain first lien priority. The parties to the Second Deed of Trust never discovered Dennis Small's bankruptcy and, as a result, did not realize that he was unable to grant full interest in the property as contemplated by the Second Deed of Trust.

         On January 8, 2008, Dennis Small granted yet another deed of trust on the property to secure a $224, 600 refinance loan from Countrywide Bank (the “Third Deed of Trust”) that was used to pay off the Second Deed of Trust and ensure first lien priority was maintained. As with the Second Deed of Trust however, Dennis Small was the sole grantor such that the Third Deed of Trust is also infirm. In the interim, Countrywide Bank's interest in the Third Deed of Trust is now with Plaintiff, and Dennis Small has died, with his interest in the property in the hands of his estate's personal representative, Defendant Rikki Drykerman. Etherine Small's interest is held by the remaining Defendants.

         On June 9, 2017, Fannie Mae filed suit to clarify its rights under the Third Deed of Trust. (ECF No. 1). Defendant Drykerman, on behalf of Mr. Small's estate, was served on July 20, 2017. (ECF Nos. 1, 12). The Court permitted alternative methods of service on the Defendant Unknown Heirs of Etherine Small. (ECF No. 3). Service by posting on the property, mailing process to the property, and by publication was completed by May, 2, 2018. (ECF No. 13). In its endeavor to identify and locate the heirs of Etherine Small, Plaintiff identified two grandchildren: Kristine Small and Jana C. Small Holmes. (ECF No. 3). The Court permitted alternative service by first-class mail on Kristine Small and Jana C. Small which was on completed on April 12, 2018. (ECF Nos. 10, 11).

         No answer or responsive pleadings were filed within the requisite time period. Upon the Plaintiff's Motion, the Clerk entered an order of default against the Defendants on May 24, 2018. (ECF Nos. 14-17). On June 11, 2018, Plaintiff filed the pending Motion for Default Judgment. (ECF No. 22). Plaintiff seeks an order declaring that the Third Deed of Trust is equitably subrogated to the rights of the First Deed of Trust to the extent it was satisfied - $120, 583.97. (ECF No. 22).


         A. Standard for Entry of Default Judgment

         In determining whether to award a default judgment, the Court accepts as true the well-pleaded factual allegations in the Complaint as to liability. Entrepreneur Media, Inc. v. JMD Entm't Grp., LLC, 958 F.Supp.2d 588, 593 (D. Md. 2013) (citing Ryan v. Homecomings Fin. Network, 253 F.3d 778, 780 (4th Cir. 2001)). Nonetheless, the Court must consider whether the unchallenged facts constitute a legitimate cause of action because a party in default does not admit mere conclusions of law. United States v. Redden, No. 09-cv-2688-WDQ, 2010 WL 2651607, at *2 (D. Md. June 30, 2012) (citing Ryan, 253 F.3d at 790). Although the Fourth Circuit has a “strong policy that cases be decided on the merits, ” United States v. Shaffer Equip. Co., 11 F.3d 450, 453 (4th Cir. 1993), default judgment “is appropriate when the adversary process has been halted because of an essentially unresponsive party.” S.E.C. v. Lawbaugh, 359 F.Supp.2d 418, 421 (D. Md. 2005). If the Court determines that liability is established, the Court must then determine the appropriate amount of damages or other relief. CGI Fin., Inc., v. Johnson, No. 12-cv-1985-ELH, 2013 WL 1192353, at *1 (D. Md. Mar. 21, 2013). The Court does not accept factual allegations regarding damages as true, but rather must make an independent determination regarding such allegations. Entrepreneur Media, Inc., 958 F.Supp.2d at 593.

         Federal Rule of Civil Procedure 55 establishes the Court's legal framework for resolving this matter. “If, after entry of default, the plaintiff's complaint does not specify a ‘sum certain' amount of damages, the court may enter a default judgment against the defendant pursuant to Fed.R.Civ.P. 55(b)(2).” Entrepreneur Media, Inc., 958 F.Supp.2d at 593. A plaintiff's assertion of a sum in a complaint does not make the sum “certain” unless the plaintiff claims liquidated damages; otherwise, the complaint must be supported by affidavit or documentary evidence. Redden, 2010 WL 2651607, at *2. Rule 55(b)(2) provides that “the court may conduct hearings or make referrals . . . when, to enter or effectuate judgment, it needs to . . . determine the amount of damages.” The Court is not required to conduct an evidentiary hearing to determine damages; it may rely on affidavits or documentary evidence in the record to determine the appropriate sum. See, e.g., Mongue v. Portofino Ristorante, 751 F.Supp.2d 789, 795 (D. Md. 2010).

         B. Liability

         The doctrine of equitable subrogation provides “that one who pays the mortgage of another and takes a new mortgage as security will be subrogated to the rights of the first mortgagee as against any intervening lienholder.” G.E. Capital Mortg. Services, Inc. v. Levenson, 338 Md. 227, 237-38 (1995). Volunteers or intermeddlers are not entitled to equitable subrogation, but if one “pays the debtor's claim due to mistake or fraud, subrogation is available.” Fishman v. Murphy ex rel. Estate of Urban, 433 Md. 534, 552 (2013), citing Hill v. Cross Country Settlements, LLC,402 Md. 281, 313 (2007). Equitable subrogation “may apply even in the absence of an express or implied agreement.” Id. at 553. Importantly, this Court (in accordance with other jurisdictions) has recently recognized that the doctrine may be applied to a series of refinancing loans. See Wells Fargo Bank, N.A. for Soundview Home Loan Tr. 2007-OPT1, Asset-Backed Certificates, Series 2007-OPT1 v. First Am. Title Ins. Co., CV WMN-15-2882, 2017 WL 3868693, at *6 (D. Md. ...

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