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Hsbc Bank Usa,N.A. v. Ana Mendoza


December 23, 2010


Appeal from the Superior Court of the District of Columbia (CAB 2762-04) (Hon. Melvin R. Wright, Trial Judge)

The opinion of the court was delivered by: Glickman, Associate Judge:

Argued March 23,2010

Before GLICKMAN, THOMPSON, and OBERLY, Associate Judges.

HSBC Bank USA, N.A. ("HSBC") appeals from the denial of its application pursuant to Superior Court Civil Rule 24 (a)(2) to intervene as of right in a suit for breach of a contract to sell real property.*fn1 By intervening, HSBC seeks to protect its rights under a deed of trust and an equitable lien on the property. We hold that leave to intervene should have been granted.


The litigation before us concerns the disposition of property located at 526 Tuckerman Street in Northwest Washington, D.C. The house at that address was appellee Ana Mendoza's residence. In April 2004, appellee Tina Zewde sued Mendoza in Superior Court for breaching a contract to sell the house. In her complaint, Zewde requested specific performance of the contract or, in the alternative, monetary damages.

At the time the suit was filed, Mendoza had a pre-existing mortgage on the Tuckerman Street property. In June 2004, she refinanced that mortgage by borrowing $170,000 from Chase Manhattan Mortgage Corp. ("Chase") and executing a deed of trust on the property in Chase's favor to secure the loan. Chase promptly recorded its deed of trust in the land records of the District of Columbia. When it did so, Chase may have been unaware of Zewde's lawsuit to compel the sale of the property, and it was not on constructive notice of that suit, because Zewde did not file a notice of lis pendens until several months later, in March 2005.*fn2

The suit still was pending in September 2007, when Mendoza allegedly executed a deed conveying her Tuckerman Street property to one Juan Rodriguez for $370,000. Rodriguez recorded that deed in the District of Columbia land records. To finance his purchase of the property, Rodriguez borrowed $370,000 from HSBC. The loan was secured by a deed of trust signed by Rodriguez and also recorded in the land records. HSBC professes to have been unaware of the lis pendens or the litigation between Zewde and Mendoza when it made the loan and took its security interest in the property.

From the proceeds of HSBC's loan to Rodriguez, $174,807.09 was paid to Chase to release its deed of trust encumbering the Tuckerman Street property. Chase duly recorded a release of its lien and sent the release to Mendoza as the putative seller of the property. In addition, according to the settlement statement from the HSBC-Rodriguez loan closing, another creditor of Mendoza received $12,300.00 of the loan proceeds, and $160,713.21 was disbursed to Mendoza herself.

The validity of Rodriguez's title to the Tuckerman Street property and the deed of trust he granted HSBC is controverted and unresolved. Mendoza, who apparently cannot read or write English, claims that Rodriguez defrauded her; that she did not knowingly sign the deed conveying her property to him; and that she received none of the money that was to have been paid to her from the proceeds of HSBC's loan. She acknowledges that Chase was paid off, but claims she knew nothing of Rodriguez's transactions before Chase notified her that it had released its lien. Mendoza also represents, without contradiction, that Rodriguez disappeared after the loan closing and that the parties have been unable to find him.

Not long after he received the HSBC loan, Rodriguez defaulted on his payments, and the trustees under the deed of trust he provided HSBC commenced a foreclosure action against the Tuckerman Street property. The foreclosure was scheduled to take place on April 3, 2008, but Zewde and Mendoza jointly applied in their pending case in Superior Court for a temporary restraining order ("TRO") to prevent it. That application was served on the trustees. The court granted, and subsequently extended, the TRO, and the trustees cancelled the foreclosure sale.

HSBC, which had not been a party to the TRO proceedings, moved pursuant to Civil Rule 24 (a)(2) to intervene as of right in the lawsuit in order to protect its interest in the Tuckerman Street property. In its motion and accompanying pleading,*fn3 HSBC asserted it had both a security interest in the property granted by its putative owner of record, Rodriguez, and an equitable lien on the property arising, under principles of equitable subrogation,*fn4 from its payment of $174,807.09 to discharge the pre-existing encumbrance held by Chase in return for an encumbrance of equivalent priority. HSBC acknowledged that its deed of trust might be contingent (assuming the validity of the earlier-recorded notice of lis pendens, which HSBC did not challenge) on the outcome of Zewde's suit against Mendoza. But HSBC argued that its equitable lien was not contingent on that outcome, because it had the same priority as the Chase lien it replaced, which Chase had recorded before Zewde recorded her lis pendens. HSBC argued that its ability to protect its interest in the property had been impaired already by the TRO and could be impaired further when the court entered a final judgment in the case.*fn5 Intervention was necessary, HSBC contended, because neither Zewde nor Mendoza could be counted on to represent its interests; indeed, HSBC pointed out, they had moved to enjoin it from foreclosing on the Tuckerman Street property and each of them would benefit from taking title to that property free of encumbrance. Accordingly, in its proposed counterclaim and cross-claim against Zewde and Mendoza, HSBC sought a declaration of the validity of its deed of trust (in the principal amount of $370,000) or, in the alternative, of its equitable lien (in the amount of $174,807.09), among other relief.

In opposition, Mendoza argued that HSBC lacked a significantly protectable interest to justify intervention because, under the doctrine of lis pendens, any security interest it had in the Tuckerman Street property was subject to and contingent on the outcome of the lawsuit.*fn6 Furthermore, she argued, if the court were to allow HSBC to intervene, Rodriguez would become an indispensable party, and the entire action would have to be dismissed because he could not be found and served with process.

In a two-sentence order entered on May 5, 2009, the court denied HSBC leave to intervene on the ground that it "is not an indispensable party and [it] has legal rights which will not be ripe until the litigation in this matter has been resolved." The court did not address HSBC's claim to a non-contingent equitable lien or the significance of Rodriguez's absence. HSBC immediately appealed the ruling to this court.

II.Civil Rule 24 (a)(2) provides:

Upon timely application anyone shall be permitted to intervene in an action: . . . (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant's ability to protect that interest, unless the applicant's interest is adequately represented by existing parties.

The Rule thus sets out four "factors that a trial court must consider in determining whether to grant or deny a motion to intervene" as of right: "timeliness, interest, impairment of interest, and adequacy of representation."*fn7 When these criteria are satisfied, intervention "shall be permitted."*fn8 Moreover, our cases have reiterated that Rule 24 (a)(2) "should be liberally interpreted."*fn9 In other words, "[a]ny doubt concerning the propriety of allowing intervention should be resolved in favor of the proposed intervenors because it allows the court to resolve all related disputes in a single action."*fn10 Where the trial court's ruling on a motion to intervene as of right involves a question of law, appellate review is de novo, while "'to the extent [the ruling] is based on questions of fact, it is ordinarily reviewed for abuse of discretion.'"*fn11

Turning to the relevant factors, there is no dispute as to the timeliness of HSBC's application. We therefore pass on to the other three criteria, each of which is disputed.

The first question is whether HSBC claims a cognizable "interest" in the Tuckerman Street property that is the subject of the action. "[W]e have adopted a 'broad reading' of the word 'interest' because it is 'primarily a practical guide to disposing of lawsuits by involving as many apparently concerned persons as is compatible with efficiency and due process.'"*fn12 Nonetheless, "Rule 24 (a) impliedly refers not to any interest the applicant can put forward, but only to a legally protectable one."*fn13 HSBC asserts two interests in the property: (1) its recorded deed of trust in the principal amount of $370,000, and (2) an equitable lien in the amount it paid to satisfy the Chase mortgage, i.e., $174,807.09.

The trial court's determination that the first asserted interest was not "ripe" enough to support intervention is defensible. Rodriguez recorded his deed to the Tuckerman Street property and HSBC recorded its deed of trust from Rodriguez two years after Zewde's lis pendens filing. That filing put them both on constructive notice of the pending litigation between Zewde and Mendoza over the Tuckerman Street property. Rodriguez and HSBC therefore took their respective interests in the property subject to the rights of Zewde and Mendoza as finally determined in the litigation.*fn14 The outcome of that litigation may be a judgment awarding specific performance of the sale of the property to Zewde, thereby invalidating Rodriguez's and HSBC's contingent interests. As HSBC's interest based on the deed of trust is contingent on the outcome of the litigation, and HSBC arguably has no right to protect its interest from that outcome, the interest may be insufficient to support HSBC's intervention.*fn15 However, we need not decide whether the contingent security interest granted to HSBC by Rodriguez is sufficient to support intervention, because the equitable lien on the Tuckerman Street property that HSBC claims is a non-contingent interest that satisfies the requirements of Rule 24 (a)(2).

Under the doctrine of equitable subrogation, a lender who pays off a pre-existing mortgage and takes a new mortgage as security for the loan will be subrogated to the rights of the first mortgagee as against any intervening lienholders, even if the lender is on constructive notice of the existence of the junior liens.*fn16 In other words, the lender steps into the shoes of the mortgagee whom it has paid off and receives that mortgagee's priority over subsequent liens. The subrogation extends to the amount paid to satisfy the earlier indebtedness.*fn17 Under these principles, when HSBC paid off the Chase mortgage in full, it assumed Chase's position in the chain of title to the Tuckerman Street property, acquiring an equitable lien having the same priority vis-a-vis other encumbrances that the Chase mortgage had. And because Chase recorded its deed of trust before Zewde recorded her lis pendens notice, HSBC's equitable lien has priority over Zewde's claim and hence is not contingent on the outcome of the lawsuit between Zewde and Mendoza. A non-contingent equitable lien on property that is the subject of a lawsuit is a sufficiently protectable interest for purposes of intervention as of right under Rule 24 (a)(2).*fn18

We also are persuaded that HSBC has demonstrated that the disposition of the lawsuit between Zewde and Mendoza may as a practical matter impair or impede its ability to protect its equitable interest in the Tuckerman Street property. "'To satisfy this element of the intervention test, a would-be intervenor must show only that impairment of its substantial legal interest is possible if intervention is denied. This burden is minimal.'"*fn19 To carry its burden in this regard, HSBC relies chiefly on the impairment it already has suffered: the trial court's entry, in its absence, of the TRO that prevented it from foreclosing on the property.*fn20 Although that TRO is no longer in effect, and it was entered when HSBC was attempting to foreclose on the basis of its deed of trust rather than its equitable lien, HSBC argues that its ability to institute foreclosure proceedings continues to be stymied, as a practical matter, as a result of the trial court's TRO ruling and its effect on the trustees' willingness to act. Essentially, HSBC fears that in its absence, the parties would succeed in urging the trial court to enjoin any future foreclosure attempt. Lending some credence to that concern, Mendoza has asserted on appeal that she anticipates "assert[ing] appropriate defenses" against enforcement of the equitable lien, "including, but not limited to: (1) mistake of fact, (2) undue influence, and (3) violations of the D.C. Consumer Protection Procedures Act."*fn21 Consequently, whether or not the ultimate disposition of the lawsuit will result in a judgment prejudicial to HSBC's interests,*fn22 the impairment of HSBC's ability to protect its interest in the Tuckerman Street property by enforcing its equitable lien is being impeded in the interim. This is enough, we conclude, to support its intervention as of right.*fn23 Indeed, appellee conceded at oral argument that Chase would have been entitled to intervene in the litigation based on its mortgage had that mortgage not been paid off. In seeking to protect its equitable lien, HSBC stands in Chase's shoes.

The final factor bearing on an application to intervene as of right -- whether the applicant's interest is adequately represented by existing parties -- "is satisfied if the applicant shows that representation of his interest 'may be' inadequate; and the burden of making that showing should be treated as minimal."*fn24 This is true even if there is a significant overlap between the would-be intervenor's interest and that of a party: "if the [movant]'s interest is similar to, but not identical with, that of one of the parties, a discriminating judgment is required on the circumstances of the particular case, although intervention ordinarily should be allowed unless it is clear that the party will provide adequate representation for the [movant]."*fn25 In this case, no existing party supports HSBC's claims of a security interest in the property; Zewde and Mendoza both opposed HSBC's effort to foreclose and would be expected to do so in the future. That is sufficient to support HSBC's intervention. Even where the circumstances of a case make for a close decision, we err on the side of permitting intervention when no existing party favorably views the movant's interest.*fn26

Lastly, Mendoza contends that HSBC's intervention would not serve the goal of judicial economy because it would necessitate adding Rodriguez as an indispensable party under Civil Rule 19,*fn27 and the existing parties' alleged inability to locate Rodriguez and serve him with process would oblige the trial court to dismiss the lawsuit. This contention is unpersuasive. In the first place, the absence of a party who should be joined if it is feasible to do so does not necessarily mean the action cannot proceed among the existing parties before the court. Civil Rule 19 (b) commits that question to the trial judge's discretion.*fn28 At this stage, therefore, the issues surrounding the claimed need for Rodriguez's joinder and his alleged disappearance are properly for the trial court, which has not yet considered them, rather than for this court. Moreover, the premise that Rodriguez's disappearance precludes his joinder as a party because personal service of process cannot be accomplished also appears to be mistaken. District of Columbia law permits service of process by publication in lieu of personal service upon a defendant who cannot be found in "actions that have for their immediate object the enforcement or establishment of any lawful right, claim, or demand to or against any real or personal property within the jurisdiction of the court."*fn29

III. Conclusion

HSBC satisfies the test for intervention as a matter of right. HSBC's application was not untimely; it claims a valid equitable interest in the Tuckerman Street property that pre-dates the lis pendens filing; as a practical matter, the lawsuit impedes HSBC's efforts to foreclose on the property and thereby protect its interest; and HSBC's interest is not adequately represented by the existing parties to the lawsuit. Accordingly, the denial of the motion to intervene is Reversed.

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