by Sonia J. Buck, Esq.^[1]

Brock & Scott, PLLC *

USFN Member (NC, RI, AL, CT, FL, GA, KY, ME, MD, MA, MI, NH, NJ, OH, PA, SC, TN, CT, VA)

On July 18, 2023, in the unanimous decision of KeyBank National Association v. Keniston et al., 2023 ME 38, the Maine Law Court reexamined its prior holding in MTGLQ Investors, L.P. v. Alley, 2017 ME 145, 166 A.3d 1002 that, in a foreclosure action where the sole signer of the promissory note is deceased, it is necessary to probate the decedent’s estate, even when there is a surviving joint tenant. In Alley, the Law Court dismissed a foreclosure complaint where it named neither the debtor nor the debtor’s estate, holding that the debtor was a necessary party. Id. at ¶4, 8. Keniston now limits the Alley decision, making it clear that a note signor’s estate need not be named as a party in an in rem foreclosure where there is a surviving joint tenant or other non-borrower owner of the property.

Frederick Keniston, the signer of the note, died in 2011. The mortgage continued to be paid each month, but eventually went into default in 2018 and was placed into foreclosure. The Alley decision states that a foreclosure complaint must account for both the debt interest as well as the mortgage interest. Accordingly, in Keniston, in addition to naming as a defendant the surviving joint tenant and co-mortgagor, KeyBank obtained from the Maine Probate Court an Order Determining the Heirs of the Estate of Frederick Keniston[2] and named the heirs as parties[3] in the foreclosure, to account for the sole note signer’s interest as was required under Alley.

After a contested bench trial, the court dismissed KeyBank’s complaint, ruling that the debtor or the debtor’s estate was a necessary party and was not properly represented in the action, despite naming the estate’s heirs pursuant to the Order Determining Heirs.

On appeal, KeyBank argued that the Alley holding is of limited application and should not apply to Keniston, where, by operation of law, the property vested in the surviving joint tenant upon Frederick’s death. Probate of his estate was therefore unnecessary as no interest in the property would have passed to the estate. Id. at ¶9. KeyBank argued that “the trial court erred in relying on Alley to determine that either Frederick or his estate was a necessary party to the case.”  Id. at ¶10. The Law Court agreed. Id.

Acknowledging that the heirs were named due to the Alley holding, the Law Court ruled that “the heirs were not proper parties because they never had an interest in the property, nor could they be liable on the debt.” Id. at ¶9. The Law Court, therefore, overruled Alley “to the extent it implies the debtor or the debtor’s estate must be a party to every foreclosure case.” Id. at ¶14. The Court further stated that “the trial court erred in holding that KeyBank needed to enforce the note against Frederick’s estate and that either Frederick or his estate was a necessary party. This action may proceed in rem against the property, joining as parties all who have any interest in the mortgage or property.” Id. at ¶19.

The Keniston case will streamline the Maine foreclosure process where the sole note signer has passed, provided there is a surviving joint tenant. The decision will limit the need to open probate and will reduce the number of defendants to be named in similar cases.