Docket No.:No. 12-SP-0638
Parties:FEDERAL NATIONAL MORTGAGE ASSN, Plaintiff v. CYNTHIA L. REYNOLDS, Defendant
Judge:/s/ David D. Kerman
Date:March 20, 2013
NORTHEAST DIVISION
RULINGS AND ORDER
In this post-foreclosure summary process case, the defendant defends and counterclaims under Gen.L. c.93A, in part that the plaintiff Federal National Mortgage Association and its predecessor the Bank of America (Countrywide’s successor) unfairly and deceptively refused to modify her loan in accordance with the federal Home Affordable Modification Program [HAMP], and that the Bank of America steered her instead to the Home Saver Forbearance Program [HSFP], which is a program intended for borrowers who are not qualified for the HAMP program and which has less generous terms, and then offered her an “unfair” and “predatory” modification loan that would have required payments greater than 50% of her $1,616 per month gross pension income [Doc.#26 Deft.Affd. p.3, p.22]. See, Commonwealth v. Fremont Investment & Loan, 452 Mass. 733, 739, 897 N.E.2d 548, 554 (2008). See also, Bosque v. Wells Fargo, 762 F.Supp.2d 342, 354 (D.Mass. Saylor, J., 2011); Morris v. BAC Home Loans Servicing, LP, 775 F.Supp.2d 255, 260 (D.Mass. Saris, J., 2011). And see, the “Predatory Home Loan Practices Act,” Gen.L. c.183C (imposing requirements and limitations for “high-cost home mortgage loans”). See especially Gen.L. c.183C s.3 (requiring housing finance counseling); c.183C s.4 (requiring lender’s reasonable belief in the obligor’s ability to make scheduled payments; based on income, obligations, employment, and financial resources other than the borrower’s equity in the dwelling; presumption of borrower’s ability if monthly payments on the loan, combined with payments for all other debt, do not exceed 50% of borrower’s documented and verified monthly gross income); c.183C s.s.5-12 (prohibited terms). The defendant moves for partial summary judgment on her c.93A claim.
The plaintiff responds that, although the Bank of America by its letter dated June 20, 2009, determined (without explanation) that the defendant was not qualified under the HAMP program, the Home Saver program was actually more favorable to the defendant, in that her payments were reduced by 50% to the monthly amount of $649.21 as set forth in the Home Saver Payment Forbearance Agreement dated July 20, 2009, although her payments under the HAMP program, calculated at 33% of her income, would have been $932.02 ($719.01 without escrow) per month as stated in the Bank of America notice dated October 21, 2009. The plaintiff also points out that the “Predatory Home Loan Practices Act,” Gen.L. c.183C, does not directly apply to this case because this case does not involve a “high-cost home mortgage loan” as defined by c.183C s.2. The plaintiff moves for summary judgment on all of the defendant’s claims and also on its claim for possession of the dwelling premises.
It is obvious that the Home Saver Forbearance Program was not more favorable to the borrower than the Home Affordable Modification Program, because the Home Saver program is a “Forbearance” program that suspends foreclosure for a period of only six months, and does not afford permanent “Modification” relief. However, it is unclear on the summary judgment record whether appropriate HAMP relief was actually offered by the Bank of America notice dated October 21, 2009 (after it refused such relief by its letter dated June 20, 2009). Thus, summary judgment cannot be awarded either party on the defendant’s Chapter 93A claim.
The record nevertheless shows that the plaintiff’s motion for summary judgment should be denied and the cross motion by the defendant for dismissal of the complaint allowed.
This is so because the “Notice of Intention to Foreclose” by Countrywide Bank dated October 17, 2008, did not comply with the requirements of Gen.L. c.183 s.21 (“first complying with the terms of the mortgage and with the statutes relating to the foreclosure of mortgages by the exercise of a power of sale”) and c.244 s.35A and with the terms of the mortgage (p.22 governing the Statutory Power of Sale, referring repeatedly to “Applicable Law”).
The statute, Gen.L. c.244 s.35A(c)(5), required that “the name of any current and former mortgage broker or mortgage loan originator for such mortgage or note securing the residential property” be included in the notice. The notice in this case acknowledged that “applicable law requires the disclosure of the following information” but then misinformed the borrower that “The mortgage broker(s) associated with this loan are/were [we were unable to ascertain this information]” and that “The mortgage loan originator(s) associated with this loan are/were [we were unable to ascertain this information].”
The Gen.L. c.244 s.35A notice dated October 17, 2008, which was on the letterhead of “Countrywide Bank Serviced by Countrywide” and which was given by “Countrywide Home Loans Servicing LP (hereinafter “Countrywide”)” as servicing agent on behalf of the “Noteholder” (which was unnamed) referred to “your loan documents.” It was obviously known to the author of the notice from the “loan documents” that “Countrywide Bank, FSB” was the “mortgage loan originator” as “Countrywide Bank, FSB” was the original “Lender” described in the “Mortgage” dated January 25, 2008. The conclusion is inescapable that the author of the notice was not in fact “unable to ascertain this information” and that the representations to the contrary were false when made.
I reject the plaintiff’s arguments, that the defendant somehow waived the requirement of good notice by participating in the Bank of America Home Saver Forbearance program, or that the defendant was not prejudiced because Gen.L. c.244 s.35A(a) provided “The right to cure a default of a required payment shall be granted once during any 5 year period, regardless of the mortgage holder.” The plaintiff or its predecessor was required to give a factually correct and legally sufficient notice. It is well established that strict compliance with the terms of the mortgage and with applicable statutes is required for a non-judicial foreclosure under a power of sale, and that actual prejudice resulting from defects and irregularities in foreclosure procedures need not be shown in order to challenge the validity of the ensuing deed and title.
See my rulings in EMC Mortgage LLC v. Rivera, N.E.Hsg.Ct. No. 11-SP-3842 (October 3, 2012); FHLMC v. Bisnath, N.E.Hsg.Ct. No. 11-SP-4131 (December 17, 2012); FHLMC v. Sensini, N.E.Hsg.Ct. No. 12-SP-0871 (December 31, 2012); Reem Property LLC v. Rosales, N.E.Hsg.Ct. No. 12-SP-2241 (January 23, 2013); MHFA v. Meas, N.E.Hsg.Ct. No. 12-SP-1908 (January 23, 2013); FNMA v. Jusufi, N.E.Hsg.Ct. No. 12-SP-3099 (January 23, 2013); Deutsche Bank v. Colon, N.E.Hsg.Ct. No. 12-SP-2689 (February 21, 2013); FHLMC v. McIntosh, N.E.Hsg.Ct. No. 11-SP-4387 (February 21, 2013); FHLMC v. Medina, N.E.Hsg.Ct. No. 11-SP-1883 (February 25, 2013); Deutsche Bank v. Gomez, N.E.Hsg.Ct. No. 12-SP-3619 (March 13, 2013); FNMA v. Ehiabhi, N.E.Hsg.Ct. No. 11-SP-4771 (March 13, 2013); FHLMC v. Mumin, N.E.Hsg.Ct. No. 12-SP-0533 (March 13, 2013). See also, Bravo-Buenrostro v. OneWest Bank, Suffolk Super.Ct. No. 11-03961 (Fahey, J., May 31, 2011).
I acknowledge but respectfully disagree with the several Land Court and District Court decisions that reached a different result. Randle v. GMAC, 2010 WL 3984714 (Land Ct. Piper, J., October 12, 2010); Deutsche Bank v. Jepson, 2012 WL 605598 (Land Ct. Piper, J., February 24, 2012); Conti v. Wells Fargo Bank, 2012 WL 2094375 (Land Ct. Sands, J., June 11, 2012); Bank of New York v. Smith, Quincy Dst.Ct. No. 1256-SU-0893 (Coven, J., January 22, 3013, rev’g December 11, 2012); FNMA v. Elias, Quincy Dst.Ct. No. 1256-SU-0552 (Coven, J., January 30, 3013, rev’g October 23, 2012).
Enter judgment dismissing the complaint.
/s/ David D. Kerman
Associate Justice
March 20, 2013
Docket No.:No. 12-CV-0148
Parties:ROSELAINE M. LABONTE Plaintiff – v.- ONE WEST BANK Defendant
Judge:/s/ David D. Kerman, Associate Justice
Date:May 8, 2013
NORTHEAST DIVISION
RULINGS AND ORDER
This is a civil equity action brought by Roselaine M. Labonte, 71 years of age, who is the surviving spouse of Arthur R. Labonte, who conveyed an “Adustable Rate Home Equity Conversion Second Mortgage” (or “Reverse Mortgage”) in their home at 93 Lois Street, Haverhill, that is the subject of this case and controversy.
The four defendants are: (1) Jack Belles, a real estate broker said to be an agent or employee of or doing business as Town and Country Mortgage of Plainville, Massachusetts; (2) Jill Couinard, said to be an agent or employee of or doing business as CCCS Money Management International of Bangor, Maine; (3) Financial Freedom Senior Funding Corporation of Atlanta, Georgia, the lender and original mortgagee; and (4) its assignee, the One West Bank FSB of Pasadena, California.
The complaint filed on May 11, 2012, and the proposed amended complaint filed on March 4, 2013, and April 11, 2013, allege six causes of action, for: (1) fraud and deceit, (2) resulting trust, (3) breach of contract, (4) violation of the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. s.2601 et seq., (5) violation of the Consumer Protection Act, Gen.L. c.93A s.2(a), and (6) injunction and specific performance.
On May 17, 2012, I allowed the plaintiff’s motion for a preliminary injunction, preventing a foreclosure auction sale of the premises, and requiring use and occupancy payments on an interim interlocutory basis, preserving the status quo that was previously negotiated by the parties. On December 19, 2012, the Chief Justice of the Trial Court issued an order under Gen.L. c.211B s.9 of transfer and assignment of the case to the Superior Court.
Before the court are motions by the defendants to dismiss or for summary judgment under MRCvP Rules 12(b)(6) and 56, and the plaintiff’s motion to amend the complaint, to remove Couinard as a party defendant as she is expected to testify favorably to the plaintiff, and to supplement the complaint with claims under Chapter 93A. After hearing, I rule and order as follows:
1.The plaintiff’s motion to amend the complaint must be denied, as it appears that plaintiff’s counsel sent courtesy copies of his two c.93A demand letters dated October 31, 2012, and November 27, 2012, only to defendants’ counsel and not to the defendants themselves. Sending courtesy copies to opposing counsel was altogether appropriate, but Gen.L. c.93A s.9(3), requires that, as a prerequisite to suit, appropriate written demands for relief be sent to the prospective defendants themselves. There is no ethical prohibition against doing so. See, the “authorized by law” exception of Supreme Judicial Court Rule 3:07, Massachusetts Rules of Professional Conduct, Rule 4.2 “Communication with Person Represented by Counsel,” Comment [1] (“Counsel could also prepare and send … written demands required by such laws as Chapter 93A”).
The plaintiff may renew her motion to amend upon a showing that the statutorily required demands were mailed or delivered to the defendants (or that defendants’ counsel accepted receipt of them on behalf of their clients) and that reasonable relief was not tendered. See, York v. Sullivan, 369 Mass. 157, 161-165, 338 N.E.2d 341, 345-347 (1975); Jacobs v. Yamaha Motor Corp., 420 Mass. 323, 326, 649 N.E.2d 758, 761 (1995) (amendment allowed during trial); Parker v. D’Avolio, 40 Mass.App. 394, 397 fn.4, 664 N.E.2d 858, 860 fn.4 (1996) (amendment allowed three years after filing of complaint); Rodi v. SNESL 389 F.3d 5, 19-20 (1st Cir.2004) (affirming dismissal of c.93A count but directing that plaintiff be afforded leave to amend).
2.I disagree with the contentions that the plaintiff’s complaint and proposed amended complaint do not plead common law fraud and deceit with sufficient particularity as required by MRCvP Rule 9(b); and that the claims alleged are not above the speculative level and not plausible as required by MRCvP Rules 8(a)(2) and 12(b)(6) and the doctrine of Iannacchino v. Ford Motor Co., 451 Mass. 623, 635-636, 888 N.E.2d 879, 889-890 (2008).
3.I agree with the defendants’ contentions: (1) that a conveyance by one as nominee trustee conveys her individual interest as well, Kaufman v. Federal Nat. Bank, 287 Mass. 97, 191 N.E. 422 (1934); (2) that a spouse may convey or encumber his interest held as tenant by the entirety, Coraccio v. Lowell Five Cents Sav. Bank, 415 Mass. 145, 612 N.E.2d 650 (1993); (3) that an agency relationship between a broker and a lender is not to be lightly presumed, Brown v. Carlson, Middlesex Superior Court No. 07-1624, 26 Mass.L.Rptr. 61, 2009 WL 2914191, 70 UCC Rep.Serv.2d 163 (Billings, J., September 1, 2009); and (4) that unlike a claim for fraud in the factum, a claim for fraud in the inducement does not lie against a bona fide purchaser for value, Brown v. Carlson, Middlesex Superior Court No. 07-1624, 26 Mass.L.Rptr. 61, 2009 WL 2914191, 70 UCC Rep.Serv.2d 163 (Billings, J., September 1, 2009).
4.At this stage of the proceedings, I cannot determine that, after appropriate, reasonable, written discovery, the plaintiff will be unable to show: (1) that there were agency relationships, either actual or by apparent authority, linking all defendants including Financial Freedom Senior Funding to the supposedly fraudulent transaction; (2) that the plaintiff was a first-party, or intended third-party beneficiary, to the contract that supposedly was breached; (3) that One West Bank was not in fact a bona fide purchaser for value of the loan and mortgage; (4) that there were continuing violations of continuing obligations and duties on the part of the defendants that tolled expiration of the respective statutes of limitations; and (5) that she is in a position to return the Reverse Mortgage loan proceeds thus to demand rescission of the transaction (or to demand and negotiate a life estate or long-term lease) that would dispose of this litigation.
On the present record all pending motions are denied without prejudice to renewal after completion of discovery, as provided by MRCvP Rule 56(f).
/s/ David D. Kerman, Associate Justice
May 8, 2013
Docket No.:No. 10-CV-0124
Parties:MARIANA DEEZCURRA Plaintiff – v.- SOVEREIGN BANK Defendant
Judge:/s/ David D. Kerman, Associate Justice
Date:April 12, 2013
NORTHEAST DIVISION
RULINGS AND ORDER
The plaintiff in this civil equity action is Mariana DeEzcurra who lives with her two school age daughters in a single family home located at 574 Haverhill Street in Rowley. The plaintiff and her former husband Andrew J. Diskes (who were divorced by judgment nisi dated June 7, 2012) purchased the home on October 30, 1998. The purchase was financed in part by a $150,000 first mortgage loan from the Heritage Cooperative Bank and in part by a gift of money from the plaintiff’s family.
On December 9, 2005, the plaintiff’s husband borrowed $292,000 from the Monument Mortgage Company, Inc. which on the same day assigned the loan to the Sovereign Bank which is the defendant in this matter. Except for repayment of the Heritage Cooperative Bank loan, the plaintiff herself received no part of the funds all of which went to her husband’s business the Neverland Theater in Beverly. Only the husband, not the wife, signed the promissory note. Both signed the mortgage.
The plaintiff says that the loan was a “nontraditional” and “unconventional” “Alt-A” and “ARM 5-1 No-Doc Loan”; that the loan was made in disregard of Sovereign’s own residential loan guidelines and of prudent lending standards; that neither Monument nor Sovereign asked for information about the borrower’s income (he had none) and both had information about his substantial indebtedness (which was $316,378) [Doc.#1 Exh.D]; that neither Monument nor Sovereign considered the borrower’s ability to repay; that Monument collected transaction fees of $2,707.56 [Doc.#1 Exh.E] and Sovereign collected fees of $4,015 [Doc.#1 Exh.E, F]; that Monument had no financial interest in the loan except to collect fees; that the only basis upon which Monument and Sovereign entered into the transaction was that the then appraised $495,000 fair market value of the property that was given as collateral exceeded the amount of the $292,000 loan; that this was a “predatory” loan; made for the sole purpose of “equity stripping”; that there was no hope of repayment; that the loan was “structurally unfair” and “doomed to foreclosure”; and that Monument and Sovereign, in so doing, committed negligence, breach of covenant of good faith and fair dealing, and unfair and deceptive acts and practices in violation of the Consumer Protection Act, Gen.L. c.93A s.2(a).
On October 31, 2007, the husband filed a petition for personal bankruptcy and obtained a Chapter 7 discharge of his debts on February 7, 2008. Thereafter, he submitted several requests for refinancing and modification which Sovereign rejected.
On April 27, 2010, Sovereign sent the plaintiff and her then husband notice that it intended to conduct a foreclosure auction sale of the home on May 27, 2010. On May 12, 2010, the plaintiff filed suit in this court, and after the Chief Justice of the Trial Court issued an order under Gen.L. c.211B s.9 of transfer and assignment to the Superior Court on May 17, 2010, I issued on May 18, 2010, an interlocutory order prohibiting the May 27, 2010, auction sale. On May 21, 2010, the plaintiff’s attorney sent Sovereign Bank a letter demanding relief under Chapter 93A.
The plaintiff filed motion for default judgment on May 23, 2012, and the defendant filed motion to remove default and for judgment on the pleadings on May 24, 2012. At the hearing of the case on December 12, 2012, counsel agreed that I should consider the motions as cross motions for dismissal and for judgment under MRCvP Rules 12(b)(6) and 56. The underlying facts stated above are derived from the plaintiff’s affidavits and exhibits. They are not controverted by the defendant. After consideration of the record and the arguments by counsel, I deny the defendant’s motion and I also deny the motion by the plaintiff, except for the rulings stated below. My reasons and conclusions are as follows:
1.Tender of relief. Sovereign contends that in response to the plaintiff’s demand for an affordable loan modification, or refinancing with another lender at fair value, or for a deed in lieu of foreclosure with a reasonable stay of occupancy, it offered the plaintiff and her former husband a reasonable modification of the loan which constituted a reasonable tender of settlement of the plaintiff’s Chapter 93A claim such that it is entitled to dismissal of this lawsuit. It is well established that an offer of settlement, if reasonable, operates as a defense under Gen.L. c.93A s.9(3). See, Kohl v. Silver Lake Motors, Inc., 369 Mass. 795, 343 N.E.2d 375, 90 A.L.R.3d 1342 (1976). However, neither Sovereign’s proposed loan modification nor its response to the plaintiff’s Chapter 93A demand letter has been made a part of the record in this case. Thus, I am in no position to judge the reasonableness of the offer and summary judgment cannot be awarded to Sovereign on that ground.
2.Unfair loan. The plaintiff says that the loan was a “predatory loan” and that it was unfair and deceptive as in the case of Commonwealth v. Fremont Investment & Loan, 452 Mass. 733, 739, 897 N.E.2d 548, 554 (2008). I do not now decide the question whether this was a “predatory loan” such that a court sitting in equity should enjoin its enforcement by foreclosure of the mortgage of the collateralized property. I am unable to determine on the present state of the record whether the facts and circumstances as they existed on December 9, 2005, when the loan was made, show a combination of characteristics that qualified the loan as “unfair” under c.93A s.2(a), as in the Fremont case, or whether instead there are material differences. I note that there are striking similarities but also some differences: (1) the loan here as in Fremont was a ARM loan, but here the introductory 6.250% rate was fixed for five years not three; (2) the introductory 6.250% rate here may or may not have been at least 3% below the fully indexed rate; (3) the debt-to-income ratio here as in Fremont clearly exceeded 50%; and (4) the loan-to-value ratio here as in Fremont may have been 100%, but here there was no prepayment penalty.
Instructive may be the “Refinancing in the borrower’s interest” statute, Gen.L. c.183 s.28C, and the implementing “Determination and Documentation of Borrower’s Interest” regulations by the Commissioner of Banks, 209 C.M.R. s.53.00 et seq., which prohibit a lender from knowingly making a home loan if the home loan pays off all or part of an existing home loan that was consummated within the prior 60 months or other debt of the borrower, unless the refinancing is in the borrower’s interest. The “borrower’s interest” standard is narrowly construed, and the burden is upon the lender to determine and demonstrate that the refinancing is in the borrower’s interest. The law and regulations require that the lender use sound underwriting practices, and that the lender consider at least the following factors: whether the borrower’s new monthly payment is lower than the total of all monthly obligations being financed, taking into account the costs and fees; whether there is a change in the amortization period of the new loan; whether the borrower receives cash in excess of the costs and fees of refinancing; whether the borrower’s note rate of interest is reduced; whether there is a change from an adjustable to a fixed rate loan, taking into account costs and fees; whether the refinancing is necessary to respond to a bona fide personal need or an order of a court of competent jurisdiction; and the time it takes to recoup the costs of refinancing, taking into account the costs and fees.
This statute does not directly apply because the home loan in this case was not made within 60 months of the prior existing home loan or other debt of the borrower. Still, the law and regulations may help to inform a court’s judgment in determining whether a home loan was unfair under c.93A s.2(a). However, I am unable to determine on the present record whether Sovereign failed to consider the required factors as they existed on December 9, 2005, when the loan was made, that may qualify the loan as “unfair” under c.93A s.2(a).
Instructive also may be the “Predatory Home Loan Practices Act,” Gen.L. c.183C, which imposes requirements and limitations for “high-cost home mortgage loans.” The statute requires housing finance counseling, s.3; requires the lender’s reasonable belief in the obligor’s ability to make scheduled payments, s.4; that must be based on income, obligations, employment, and financial resources other than the borrower’s equity in the dwelling, s.4; establishes a presumption of the borrower’s ability if monthly payments on the loan, combined with payments for all other debt, do not exceed 50% of the borrower’s documented and verified monthly gross income, s.4; and prohibits certain onerous terms, s.s.5-12.
This statute also does not directly apply because the loan in this case was not a “high-cost home mortgage loan” as defined by c.183C s.2. Still, the provisions of Gen.L. c.183C s.4 may be relevant to the question of unfairness under c.93A s.2(a). Indeed, in Commonwealth v. Fremont Investment & Loan, 452 Mass. 733, 742, 748-749, 897 N.E.2d 548, 555, 559-560 (2008), the Court found the “Predatory Home Loan Practices Act” relevant to the “concept of unfairness” of c.93A s.2(a) “as an established, statutory expression of public policy that it is unfair for a lender to make a home mortgage loan secured by the borrower’s principal residence in circumstances where the lender does not reasonably believe that the borrower will be able to make the scheduled payments and avoid foreclosure.” Again, however, I am unable to determine on the present record whether Sovereign “violated an established concept of unfairness in issuing [the loan on December 9, 2005,] without meaningful consideration of [the borrower's] ability to repay.”
3.Unfair foreclosure. Although I do not decide whether the loan itself was “unfair” under c.93A s.2(a), I do decide that Sovereign cannot foreclose on the mortgage in order to enforce the full $292,000 value of its promissory note (plus interest and collection costs). It is clear that Sovereign cannot recover or collect on the note itself, as the note is not enforceable against the wife (who did not sign it), and also is not enforceable against the husband (who obtained a discharge of the obligation in bankruptcy). It is also clear that a foreclosure sale to a third party for the present fair market value of the property would yield no more than $185,000 (“about $150,000 according to the “Determination of Value” by Caldwell Banker dated June 12, 2012 [Doc.#30 Exh.6]), not anything near the $292,000 value of the promissory note. In these circumstances, Sovereign must consider reasonable alternatives to avoid foreclosure, in accordance with reasonable loss mitigation standards. Sovereign’s duties of good faith and fair dealing require that it not employ unfair acts or practices and that it act reasonably with the plaintiff in connection with its debt collection activities.
(1)Consent order
The plaintiff relies on a Consent Order and Stipulation No. NE-11-17 dated April 13, 2011, between the Office of Thrift Supervision and Sovereign Bank that was imposed as the result of a cease-and-desist enforcement proceeding under 12 U.S.C. s.1818(b) for unsafe or unsound banking practices relating to Sovereign’s residential property mortgage servicing and its initiation and handling of foreclosure proceedings [Doc.#25 Exh.J]. I note that in Commonwealth v. Fremont Investment & Loan, 452 Mass. 733, 738, 747-748, 897 N.E.2d 548, 553, 559 (2008), a similar consent agreement was entered into by Fremont with the FDIC.
The Order contains findings by OTS of certain deficiencies on the part of Sovereign and states that Sovereign neither admits nor denies the findings [Page 2]. The Stipulation provides that no person other than the parties shall have any benefit or legal or equitable right, remedy or claim under the Stipulation or Order [Page 4 Paragraph 12].
The Order requires that Sovereign establish a Comprehensive Action Plan with effective “Loss Mitigation Activities” including without limitation “special forbearances, modifications, short refinances, cash-for-keys, and deeds-in-lieu of foreclosure” [Pages 4-5 Paragraph 8]. The plaintiff says that Sovereign is not in compliance with the Order; that Sovereign devotes inadequate resources to its loss mitigation activities; that Sovereign’s foreclosures yield on average less than 70% of the original loan principal balances; that its foreclosures occur unnecessarily and unfairly, with disproportionate frequency compared to its loss mitigation activities; and that Sovereign’s deficiencies and noncompliances cause it to refuse appropriate loss mitigation relief in her particular case. I am unable to determine on the present summary judgment record whether this is so.
(2)Unsigned note
Although it is clear that Sovereign cannot legally recover the full value (or any portion) of the note from the wife who did not sign it, the plaintiff points to no law that directly prohibits attempts to collect on a note from a person who did not sign it and is not liable for it.
There are, however, “unfairness” and “unreasonableness” limitations imposed upon rights to collect debts from persons who are not liable. Instructive is the state “Debt collection in an unfair, deceptive or unreasonable manner” statute, Gen.L. c.93 s.49, which provides: “No one who is a creditor or an attorney for a creditor, or an assignee of a creditor, of a natural person present or residing in Massachusetts who has incurred a debt primarily for personal, family or household purposes shall collect or attempt to collect such debt in an unfair, deceptive or unreasonable manner. For the purposes of this section, such collection or attempt to collect shall be deemed unfair, deceptive or unreasonable if: (a) The creditor communicates, threatens to communicate, or implies the fact of such debt or alleged debt to a person other than the person who might reasonably be expected to be liable therefor, *** Failure to comply with the provisions of this section shall constitute an unfair or deceptive act or practice under the provisions of chapter ninety-three A. (emphasis added). See also, the Attorney General’s “Debt Collection Regulations,” 940 C.M.R. s.s.7.06(1)(a), 7.07(2), (8), (16); and the Banking Commissioner’s “Unfair Practices” regulations, 209 C.M.R. s.s.18.14(2), 18.16(2)(a), 18.17(1).
These laws show that any and all collection activities are not permitted, and support the proposition that a creditor’s attempt to collect the full value of a note, from a person who did not sign it, can constitute debt collection in an “unfair” or “unreasonable” manner, as would amount to an “unfair” act or practice within the meaning of Gen.L. c.93A s.2(a).
Foreclosure proceedings are debt collection activities under the “Debt collection in an unfair, deceptive or unreasonable manner” statute, Gen.L. c.93 s.49. See, Islam v. Option One Mortgage Corp., 432 F.Supp.2d 181, 198-199 (D.Mass. 2006); In re Lacey, 480 B.R. 13, 50-53 (D.Mass.2012); In re Porst, 480 B.R. 97, 110-111 (D.Mass.2012). A violation of the state “Debt collection in an unfair, deceptive or unreasonable manner” statute, Gen.L. c.93 s.49, or the Attorney General’s “Debt Collection Regulations,” 940 C.M.R. 7.00 et seq., is actionable under the Consumer Protection Act, Gen.L. c.93A s.2(a) and s.9. See, Koonce v. Aldo Realty Trust, 8 Mass.App. 199, 201, 392 N.E.2d 549, 551 (1979); McGrath v. Mishara, 386 Mass. 74, 78-79, 82, 434 N.E.2d 1215, 1219, 1221 (1982); Dean v. Compass Receivables Management Corp., 148 F.Supp.2d 116, 119 (D.Mass. 2001).
Foreclosure proceedings are also held to be debt collection activities within the meaning of the federal “Fair Debt Collection Practices Act,” 15 U.S.C. s.1692a et seq. See, Pettway v. Harmon Law Offices, P.C., 2005 WL 2365331 (D.Mass. Stearns, J., 2005) at *4-*5; In Re Hart, 246 B.R. 709 (D.Mass. 2000); Shapiro & Meinhold v. Zartman, 823 P.2d 120 (Colo. 1992), aff’g 811 P.2d 409 (Colo.App.1990). And it is established that a violation of the federal “Fair Debt Collection Practices Act,” 15 U.S.C. s.1692a et seq., see especially s.1692f (unfairness), constitutes a per se violation of Chapter 93A. See, Martin v. Sands, 62 F.Supp.2d 196, 199, 201 (D.Mass. 1999); Dean v. Compass Receivables Management Corp., 148 F.Supp.2d 116, 119 (D.Mass. 2001).
In the circumstances of this case, as explained below, Sovereign cannot use the device of foreclosure upon the plaintiff’s home for the sole purpose of collecting the full value of the note from the wife who did not sign it.
(3)Note discharged in bankruptcy
Although it is clear that Sovereign cannot legally recover the full value (or any portion) of the note from the husband who obtained a discharge of the obligation in bankruptcy, the plaintiff points to no law that directly prohibits attempts to collect on a note from a person who obtained a discharge of the obligation in bankruptcy and is no longer liable for it.
It is the established law that the debt is the principal and the mortgage an incident, that the mortgage is always subject to the note, and that the mortgage is for the sole purpose of securing the loan. See, Culhane v. Aurora Loan Services, 708 F.3d 282, 292 (1st Cir. 2013), aff’g 826 F.Supp.2d 352 (D.Mass.2011); Eaton v. FNMA, 462 Mass. 569, 575-578, 969 N.E.2d 1118, 1124-1126 (2012). However, it is also established that an adjudication of bankruptcy, in and of itself, does not prevent the creditor’s exercise of the right of foreclosure. See, Harlow Realty Co. v. Cotter, 284 Mass. 68, 187 N.E. 118 (1933).
There are, however, “unfairness” and “unconscionable” limitations imposed upon rights to collect debts following bankruptcy. Instructive are the Attorney General’s “Debt Collection Regulations,” 940 C.M.R. s.7.07(7), and the Banking Commissioner’s “Unfair Practices” regulation, 209 C.M.R. s.18.17(10), which prohibit, as an unfair or deceptive act or practice, and as unfair or unconscionable means, efforts to collect or attempt to collect any debt by the solicitation or obtaining an affirmation of an obligation by debtor who has been adjudicated bankrupt, without clear and conspicuous disclosure of the nature and consequences of affirmation. See also, the federal Bankruptcy Code, 11 U.S.C. s.524 “Effect of Discharge.” And see, Bessette v. Avco Financial Services, Inc., 230 F.3d 439 (1st Cir. 2000), observing that a post-discharge reaffirmation agreement of pre-petition debt is binding only if made in compliance with the specific conditions set forth in s.524.
These laws show that any and all collection activities are not permitted, and support the proposition that a creditor’s attempt to collect the full value of a note, from a person who obtained a discharge of the obligation in bankruptcy, can constitute debt collection by the use of “unfair” or “unconscionable” means, as would amount to an “unfair” act or practice within the meaning of Gen.L. c.93A s.2(a).
To be sure, this is not an egregious case of “wrongful foreclosure” like other cases where a creditor by foreclosure attempts by lawful means to unlawfully leverage something that is not due. To be distinguished are cases like Morse v. Mutual Fed. Sav. & Loan Ass’n of Whitman, 536 F.Supp. 1271, 34 UCC Rep.Serv. 230 (D.Mass. 1982), where the mortgagee wrongfully attempted foreclosure proceedings in willful misuse of its power of sale for the ulterior purpose of collecting on the mortgagor’s bad check indebtedness; where, although a note that was given for the amount of husband’s bad check indebtedness had not been paid either by the husband or by the wife, who had become surety on the note, the mortgagee bank was not entitled to freeze or attach the parties’ joint checking account and dishonor checks as a “set off”; and where the mortgagee was willfully or knowingly unfair in causing new financing of mortgaged property to fall through by refusing a discharge except upon payment of an amount greater than that due under the mortgage. Nor is this a case like Kattar v. Demoulas, 433 Mass. 1, 739 N.E.2d 246 (2000), where conduct occasioning a foreclosure as retribution for the plaintiff’s refusal to testify was held actionable under c.93A s.11; and where it was held that foreclosure of a mortgage, even on an actual default, if conducted in bad faith to the detriment of the mortgagor, was unlawful.
Still, in the circumstances of this case, as explained below, Sovereign cannot use the device of foreclosure upon the plaintiff’s home for the sole purpose of collecting the full value of the note from the husband who obtained a discharge of the obligation in bankruptcy.
(4)Yield at foreclosure
Highly relevant to the question of “unfairness” in foreclosure is the recent enactment of St.2012 Ch.194, approved August 3, 2012, entitled “An Act Preventing Unlawful and Unnecessary Foreclosures.” The new statute adds special protections to “certain mortgage loans” which Gen.L. c.244 s.35B(a) defines:
“Certain mortgage loan”, a loan to a natural person made primarily for personal, family or household purposes secured wholly or partially by a mortgage on an owner-occupied residential property with 1 or more of the following loan features: (i) an introductory interest rate granted for a period of 3 years or less and such introductory rate is at least 2 per cent lower than the fully indexed rate; (ii) interest-only payments for any period of time, except in the case where the mortgage loan is an open-end home equity line of credit or is a construction loan; (iii) a payment option feature, where any 1 of the payment options is less than principal and interest fully amortized over the life of the loan; (iv) the loan did not require full documentation of income or assets; (v) prepayment penalties that exceed section 56 of chapter 183 or applicable federal law; (vi) the loan was underwritten with a loan-to-value ratio at or above 90 per cent and the ratio of the borrower’s debt, including all housing-related and recurring monthly debt, to the borrower’s income exceeded 38 per cent; or (vii) the loan was underwritten as a component of a loan transaction, in which the combined loan-to-value ratio exceeded 95 per cent; provided, however, that a loan shall be a certain mortgage loan if, after the performance of reasonable due diligence, a creditor is unable to determine whether the loan has 1 or more of the loan features in clauses (i) to (vii), inclusive; and provided, further, that loans financed by the Massachusetts Housing Finance Agency, established in chapter 708 of the acts of 1966 and loans originated through programs administered by the Massachusetts Housing Partnership Fund board established in section 35 of chapter 405 of the acts of 1985 shall not be certain mortgage loans. (emphasis added).
It is clear that the loan in this case qualifies as a “certain mortgage loan” as defined by Gen.L. c.244 s.35B(a)(iv), if for no other reason, because “the loan did not require full documentation of income or assets.”
The law was not in effect on December 9, 2005, when the loan was made and assigned, and it also was not in effect on April 27, 2010, when Sovereign sent the plaintiff and her then husband notice that it intended to conduct a foreclosure auction sale of the home on May 27, 2010. However, it is not clear that the new law does not apply to this case. The law, St.2012 Ch.194, contains an emergency preamble which made the Act effective immediately upon its enactment when the law was approved on August 3, 2012. The law, St.2012 Ch.194 Sec.9, provides that Gen.L. c.244 s.35B and s.35C shall take effect on November 1, 2012. And the law, St.2012 Ch.194 Sec.7, provides that the provisions of Gen.L. c.244 s.35B shall apply to any person receiving notice under Gen.L. c.244 s.35A after the effective date of the Act; but also provides that if a creditor has sent the right to cure notice under Gen.L. c.244 s.35A after the effective date of the Act, the creditor shall send the notice required by Gen.L. c.244 s.35B if the borrower would otherwise qualify for the notice.
But regardless whether the law directly applies, the newly enacted provisions provide helpful guidance in determining the question whether foreclosure of the loan would be “unfair” under c.93A s.2(a). The legislative judgments, that certain acts and practices are to be prohibited, and that other acts and practices are to be required, constitute compelling evidence that informs judicial judgment about what acts and practices if committed, and what acts and practices if avoided or refused, constitute “unfair or deceptive acts or practices” that are to be regarded as unlawful within the meaning of the Consumer Protection Act, Gen.L. c.93A s.2(a). See, Commonwealth v. Fremont Investment & Loan, 452 Mass. 733, 897 N.E.2d 548 (2008), relying on legislation enacted after certain “presumptively unfair” loans were made, as well as on state and federal regulatory guidance, in determining “standards of unfairness” under c.93A s.2(a), and in upholding an injunction requiring that a lender explore alternatives to foreclosure. See, Schubach v. Household Finance Corp., 375 Mass. 133, 376 N.E.2d 140 (1978), holding that “unfairness” under c.93A s.2(a) is to be measured not simply by determining whether particular conduct is lawful, but also by analyzing the particular effect of particular conduct upon consumers, in upholding denial of a creditor’s motion to dismiss a consumers’ suit under c.93A alleging “distant forum abuse” despite compliance with statutory venue requirements.
Instructive are several provisions: Gen.L. c.244 s.35B(b) provides that a creditor cannot publish the statutory notice of foreclosure sale under Gen.L. c.244 s.14, upon “certain mortgage loans” for owner-occupied residential property “unless it has first taken reasonable steps and made a good faith effort to avoid foreclosure” and that “A creditor shall have taken reasonable steps and made a good faith effort to avoid foreclosure if the creditor has considered: (i) an assessment of the borrower’s ability to make an affordable monthly payment; (ii) the net present value of receiving payments under a modified mortgage loan as compared to the anticipated net recovery following foreclosure ….” Gen.L. c.244 s.35B(b) speaks of “reasonable loss mitigation actions” and repeatedly refers to the creditor’s obligation to consider “the anticipated net recovery that would result from foreclosure” and “the borrower’s current ability to make affordable payments.” Gen.L. c.244 s.35B(b)(2)(ii), encourages “a modified mortgage loan that achieves the borrower’s affordable monthly payment” that may include “reduction in principal, reduction in interest rate or an increase in amortization period.” Gen.L. c.244 s.35C(h) provides that in an offer to purchase by a nonprofit entity no creditor shall require as a condition of sale an “agreement … limiting ownership or occupancy of the residential property by the borrower.” (emphasis added).
Even if the enactments do not directly apply, the new provisions provide considerable support for the proposition that a mortgage-holding creditor is required, in order to avoid “unfairness” under c.93A s.2(a), to take “reasonable steps” and make “a good faith effort to avoid foreclosure” without conditions “limiting ownership or occupancy of the residential property by the borrower.” Thus under c.93A, if not directly by the new Act, a creditor may not refuse to consider a “modified mortgage loan” that may include a “reduction in principal, reduction in interest rate, or an increase in amortization period,” especially if the modification with the reduced principal, reduced interest rate, or increased amortization period, would nevertheless yield more than the “anticipated net recovery following foreclosure.” To do otherwise, would be to disregard “reasonable loss mitigation” standards, and thus would amount to “unfair” conduct within the meaning of c.93A s.2(a).
In this case it is significant (if the plaintiff’s allegations are correct) that Sovereign’s foreclosures on average yield less than 70% of the original loan balances, and that a foreclosure in this case would yield no more than 63% if sold at $185,000, and likely 51% if sold at fair market value of $150,000.
Fremont teaches that legislative enactments that do not directly apply may nonetheless express public policy and inform judicial judgments about what acts and practices are to be regarded as “unfair” within the meaning of the Consumer Protection Act, Gen.L. c.93A s.2(a). Schubach teaches that although certain acts or practices may be generally permitted by statute, those same acts or practices, in particular circumstances, may be regarded as “unfair” and thus prohibited by the Consumer Protection Act, Gen.L. c.93A s.2(a). Applying these principles I reach the following conclusions and issue the following rulings:
1.Sovereign has a duty to avoid unfairness in its debt collection acts and practices.
2.To perform that duty Sovereign has a duty to take reasonable steps and to make a good faith effort to avoid unnecessary foreclosure.
3.To perform that duty Sovereign must compare the anticipated yield from non-foreclosure loss mitigation actions to the anticipated net recovery that would result from foreclosure.
4.To perform that duty Sovereign must take reasonable loss mitigation actions that may include a reduction in principal, a reduction in interest rate, or an increase in amortization period.
5.Sovereign cannot require as a condition of sale or refinancing an agreement limiting ownership or occupancy of the residential property by the mortgagor or her family members.
6.Sovereign has no duty to lend or refinance to the plaintiff, no duty to sell the mortgaged property to her, and no duty to sell to the plaintiff or to anyone else for less than fair market value.
7.However, Sovereign cannot insist, as a condition of sale to the plaintiff, that she pay the full unpaid “make-whole” amount of the mortgage and promissory note, or that she pay more than fair market value for the property.
8.Sovereign cannot boycott or blacklist or freeze out the plaintiff as a potential buyer of the property due to her status as a mortgagor, or due to her status as the former wife of the borrower, or due to Sovereign’s inability to collect the full unpaid “make-whole” amount of the mortgage and promissory note.
ORDER
The motion by the plaintiff for default judgment filed on May 23, 2012, and the motion by the defendant to remove default and for judgment on the pleadings filed on May 24, 2012, are treated as cross motions for dismissal and for judgment under MRCvP Rules 12(b)(6) and 56, and, except for the rulings stated above, both motions are denied.
/s/ David D. Kerman, Associate Justice
April 12, 2013