Santos v. U.S. Bank Nat'l Ass'n

89 Mass.App.Ct. 687

54 N.E.3d 548

Milton R. SANTOS¹

v.U.S. BANK NATIONAL ASSOCIATION, trustee² & others.³

No. 15–P–334.

Appeals Court of Massachusetts, Suffolk.

Argued Feb. 24, 2016.

Decided July 8, 2016.

Michael J. Traft (Robert Graves with him) for the plaintiff.

Sean R. Higgins, Boston, (Michael Stanley with him) for the defendants.

Present: KATZMANN, MILKEY, & BLAKE, JJ.

KATZMANN, J.

The plaintiff mortgagor Milton R. Santos appeals from orders of a Superior Court judge dismissing his claim that the mortgagee and mortgage servicing defendants violated G.L. c. 244, § 35A, and granting summary judgment to the defendants on his claim that U.S. Bank National Association (U.S. Bank) negligently processed his loan modification applications made pursuant to the Home Affordable Modification Program (HAMP). We affirm.

Background. We recite the facts alleged in Santos's complaint as supplemented by the undisputed facts in the summary judgment record and descriptions of HAMP from case law.

1. HAMP.⁴ “HAMP was part of Congress's response to the financial and housing crisis that struck the country in the fall of 2008.” Spaulding v. Wells Fargo Bank,

N.A.,

714 F.3d 769, 772 (4th Cir.2013). Acting under authority conferred by the Emergency Economic Stabilization Act of 2008 (EESA), 12 U.S.C. §§ 5201 et seq. (and specifically the Troubled Asset Relief Program [TARP], 12 U.S.C. §§ 5211 –5241 ), and in conjunction with the Federal Housing Finance Agency, the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac), the Secretary of the Treasury (Secretary) introduced the Making Home Affordable Program in February, 2009. HAMP, which is administered by Fannie Mae, is part of this initiative. Markle v. HSBC Mort. Corp. (USA), 844 F.Supp.2d 172, 176 (D.Mass.2011).

“HAMP aims to provide relief to borrowers who have defaulted on their mortgage payments or who are likely to default by reducing mortgage payments to sustainable levels.... Under HAMP, loan servicers receive incentive payments for each permanent loan modification completed.... Mortgage lenders approved by Fannie Mae must participate in HAMP.... Lenders servicing mortgages not owned or guaranteed by Fannie Mae or Freddie Mac may elect to participate in HAMP by executing a Servicer Participation Agreement with Fannie Mae in its capacity as financial agent for the United States.” Id. at 176–177. “Loan servicers receive a $1,000 payment for each permanent modification, in addition to other incentives.” Young v. Wells Fargo Bank, N.A., 717 F.3d 224, 229 (1st Cir.2013).

“The Secretary negotiated Servicer Participation Agreements (SPAs) with dozens of home loan servicers.... Under the terms of the SPAs, servicers agreed to identify homeowners who were in default or would likely soon be in default on their mortgage payments, and to modify the loans of those eligible under the program.” Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 556 (7th Cir.2012). On August 20, 2009, U.S. Bank executed an SPA with Fannie Mae. “The Department of the Treasury and Fannie Mae have issued a series of directives that provide guidance to mortgage servicers implementing HAMP. Under the guidelines, servicers may identify and solicit borrowers who are in default on their mortgage payments, or soon will be, and evaluate their eligibility to participate in HAMP.” Markle, 844 F.Supp.2d at 177.

“HAMP urges banks and loan servicers to offer loan modifications to eligible borrowers with the goal of reducing [their] mortgage payments to sustainable levels, without discharging any of the underlying debt.” Young, 717 F.3d at 228 (quotation omitted). Under the guidelines, HAMP-eligible homeowners are offered a trial period plan (TPP) in which the homeowner undertakes to pay modified mortgage payments for a three-month trial period. “The standard-form TPP represents to borrowers that they will obtain a permanent modification at the end of the trial period if they comply with the terms of the agreement.” Markle, 844 F.Supp.2d at 177. Freddie Mac “is the sole compliance agent responsible for enforcing HAMP.” Spaulding, 714 F.3d at 774.

“Perhaps not surprisingly, given the large stakes for financially stressed homeowners, and in light of widespread media reports of bureaucratic bungling (and worse) on the part of lenders, mortgage servicers, and their myriad agents, HAMP has given rise to a large number of civil claims by mortgagors against financial industry firms.” Ibid.

2. Santos's mortgage history. On April 28, 2006, Santos purchased a residential property in Revere (property) for $368,000. He financed the purchase with two mortgage loans that together covered

100 percent of the purchase price.⁵ After an assignment from the initial lender, Santos's first mortgage in the amount of $294,400 was held by U.S. Bank, as trustee for a securitized pool of mortgages, and serviced by Wells Fargo Bank, N.A., doing business as America's Servicing Company.

Santos defaulted on his mortgage in 2008. Between 2009 and 2010, the defendants evaluated Santos several times for a permanent loan modification under HAMP. Despite Santos's participation in a three-month HAMP TPP, the defendants ultimately denied all of Santos's applications for a permanent loan modification under HAMP. In April, 2010, the defendants offered Santos an in-house modification (that is, not a HAMP modification) that Santos declined.

On July 22, 2010, the defendants foreclosed on the mortgage and purchased the property at the foreclosure sale for $212,415.

3. Procedural history. Subsequent to foreclosure, on March 7, 2011, the defendants initiated a summary process action in the District Court. Santos answered the summary process complaint, asserting, inter alia, that he was in the process of bringing a case in Superior Court against the defendants for various claims, including a violation of G.L. c. 244, § 35A.⁶

On March 29, 2011, Santos in fact filed a verified complaint in Superior Court alleging that the defendants negligently failed to adhere to HAMP guidelines in processing his loan modification applications (count I) and seeking a declaration that the foreclosure was invalid because the defendants failed to send him notice of his ninety-day right to cure prior to foreclosure in violation of G.L. c. 244, § 35A(a ) (count II).⁷ In his prayer for relief, Santos sought, inter alia, orders declaring the foreclosure void and restoring title to his name. The complaint noted the pendency of eviction proceedings in the “Housing Court.”

Meanwhile, the summary process action in District Court proceeded, culminating in a judgment in favor of U.S. Bank for possession on December 1, 2011. Santos's appeal from the judgment of possession was dismissed.⁸

The defendants moved to dismiss the Superior Court action pursuant to Mass.R.Civ.P. 12(b)(6), 365 Mass. 754 (1974), on June 7, 2011, before the resolution of the summary process action. Where that motion apparently remained pending beyond the conclusion of the summary process case, the defendants ultimately filed a supplemental memorandum in support of dismissal after the District Court judgment issued.

In an order dated January 3, 2013, the Superior Court judge dismissed Santos's § 35A claim on the basis of claim preclusion where the claim could have been brought in the summary process action between the identical parties. However, the judge denied the defendants' motion to dismiss Santos's negligence claim, allowing it to proceed based on her conclusions that, under Federal law, Santos is a third-party beneficiary under the SPA between Fannie Mae and U.S. Bank and that, as a third-party beneficiary, Santos could pursue a claim for negligent performance of the duties imposed by the SPA. However, when the case later came before her for summary judgment on the negligence claim, the same judge granted summary judgment in favor of the defendants on the basis that, under the economic loss theory as articulated in FMR Corp. v. Boston Edison Co., 415 Mass. 393, 395, 613 N.E.2d 902 (1993), Santos had not presented evidence of a legally cognizable injury that would support his negligence claim.

Discussion. Although the orders on appeal arise from different stages of the litigation, we review the allowance of motions to dismiss and motions for summary judgment de novo. “We review a grant of summary judgment de novo to determine whether, viewing the evidence in the light most favorable to the nonmoving party, all material facts have been established and the moving party is entitled to a judgment as a matter of law.... De novo review also applies to the judge's dismissal of the plaintiffs' complaint under Mass.R.Civ.P. 12(b) ... (6).” Pinti v. Emigrant Mort. Co., 472 Mass. 226, 231, 33 N.E.3d 1213 (2015) (quotation omitted). To survive a motion to dismiss, the complaint must include “factual ‘allegations plausibly suggesting’ ... an entitlement to relief.” Iannacchino v. Ford Motor Co., 451 Mass. 623, 636, 888 N.E.2d 879 (2008), quoting from Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 557, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

Although the judge did not have the benefit of some of the recent opinions of the Supreme Judicial Court in the mortgage context, we are satisfied that the § 35A claim was properly dismissed under the circumstances here where Santos should have litigated it in the summary process action. Because we agree with the overwhelming weight of authority that borrowers cannot maintain negligence actions against lenders for failure to adhere to HAMP guidelines, we conclude that Santos's negligence claim should have been dismissed pursuant to the rule 12(b)(6) motion and was therefore properly, if belatedly, resolved in the defendants' favor on summary judgment.

1. Right to cure violation. Santos contends that the defendants failed to provide him with notice of his right to cure the mortgage default as required under G.L. c. 244, § 35A. The judge correctly...