Smyth v. America's Servicing Co.

EDWARD SMYTH and GAIL SMYTH, Plaintiffs, v. AMERICA'S SERVICING COMPANY,a division of WELLS FARGO BANK, N.A., et al., Defendants.

CIVIL ACTION NO. 14-13472-MLW

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

March 1, 2017

C.A. No. 14-13472-MLW

ORDER

WOLF, D.J.

March 30, 2017

On July 22, 2014, Edward and Gail Smyth filed this action in the Plymouth Superior Court for the Commonwealth of Massachusetts alleging that defendants engaged in unfair and deceptive conduct in connection with the Smyth's attempts to modify their mortgage loan pursuant to the Home Affordable Modification Program ("HAMP"). In particular, the Smyths allege that in 2010, defendants misrepresented their eligibility for a HAMP modification and deceived them into accepting an unaffordable "in-house" modification instead. The Smyths also allege that between 2011 and 2013, after they defaulted on their 2010 loan, defendants deceived them into spending a year and a half applying for a second modification to avoid foreclosure, even though defendants knew that investor restrictions on the loan prohibited a second modification and that the application was futile.

The Smyths claimed violations of Mass. Gen. Laws Chapter 93A (Count I), lack of standing to foreclose (Count II), breach of fiduciary duty (Count III), breach of the implied covenant of good faith and fair dealing (Count IV), and misrepresentation (Counts V and VI). Defendants subsequently removed the case to this court. The case was referred to Magistrate Judge Judith Dein for full pretrial purposes, including a report and recommendation on any dispositive motions. See Docket No. 26. On July 1, 2016, defendants moved for summary judgment. See Docket No. 38.

The Magistrate Judge issued her Report and Recommendation on March 1, 2017. See Docket No. 60. In it, she concludes that defendants are entitled to judgment as a matter of law on counts II, III, and IV because defendants have standing to foreclose, and did not breach any fiduciary duty or implied covenant. In addition, she concludes that plaintiffs' claims in counts I, V, and VI are time-barred to the extent that they arise from the 2010 mortgage loan. However, she also concludes that a reasonable jury could find that defendants' actions concerning the second loan modification constituted common-law misrepresentation and violated Chapter 93A. Accordingly, she recommends that the defendants' motion be allowed as to counts II, III, and IV and denied as to counts I, V, and VI to the extent that she did not recommend that they be found to be time-barred.

The time period for objections to the Report and Recommendation has expired. No objections have been filed. In any event, the court has reviewed the Magistrate Judge's reasoning and finds it to be thorough, thoughtful, and persuasive. Therefore, the Report and Recommendation is being adopted.

In view of the foregoing, it is hereby ORDERED that:

1. The Magistrate Judge's Report and Recommendation (Docket No. 60) is ADOPTED and INCORPORATED pursuant to 28 U.S.C. §636.

2. For the reasons stated in the Report and Recommendation, the defendants' Motion to for Summary Judgment (Docket No. 38) is ALLOWED with respect to Counts II, III, and IV, alleging lack of standing to foreclose, breach of fiduciary duty, and breach of the covenant of good faith and fair dealing. The motion is DENIED with respect to Counts I, V, and VI, alleging violations of Mass. Gen. Laws Chapter 93A and common-law misrepresentation, to the extent that the Magistrate Judge did not recommend that they be found to be time-barred.

3. The parties shall, by April 12, 2017, report whether they consent to trial before the Magistrate Judge.

/s/_________

UNITED STATES DISTRICT JUDGE

REPORT AND RECOMMENDATION ON DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

DEIN, U.S.M.J.

I. INTRODUCTION

The plaintiffs, Edward and Gail Smyth (the "Smyths"), are the owners of a home located in Middleboro, Massachusetts. They have brought this action against America's Servicing Company, a division of Wells Fargo Bank, N.A.; Wells Fargo Home Mortgage, Inc. (referred to collectively with America's Servicing Company as "Wells Fargo"); and U.S. Bank, N.A., as Trustee for Residential Asset-Backed Pass-Through Certificates Series 2006-EMX1 ("U.S. Bank"),¹ claiming that the defendants engaged in unfair, deceptive and otherwise unlawful conduct in connection with the Smyths' efforts to modify their mortgage loan pursuant to the HomeAffordable Modification Program ("HAMP") and avoid a foreclosure on their property. In particular, the Smyths allege that the defendants acted unlawfully by misrepresenting their eligibility for a favorable HAMP modification in early 2010, and deceiving them into accepting an unaffordable, "proprietary" modification instead. They further allege that after it became clear that they were unable to meet their payment obligations under the terms of the proprietary modification, the defendants again acted improperly by inducing the Smyths to apply for a second modification and then, after a year and a half application process, denying their application on the grounds that the first modification rendered them ineligible for relief under HAMP. By their Complaint, the plaintiffs have asserted claims against the defendants for violations of the Massachusetts Consumer Protection Act, Mass. Gen. Laws ch. 93A ("Chapter 93A") (Count I), lack of standing to foreclose (Count II), breach of fiduciary duty (Count III), breach of the implied covenant of good faith and fair dealing (Count IV), intentional misrepresentation (Count V) and negligent misrepresentation (Count VI).

The matter is before the court on the "Defendants' Motion for Summary Judgment" (Docket No. 38), by which the defendants are seeking summary judgment, pursuant to Fed. R. Civ. P. 56, on all of the plaintiffs' claims. As detailed below, this court finds that the defendants are entitled to judgment as a matter of law on the Smyths' claims for lack of standing to foreclose, breach of fiduciary duty and breach of the implied covenant of good faith and fair dealing, but that disputed issues of material fact preclude summary judgment on the claims for misrepresentation and violations of Chapter 93A. Therefore, and for all the reasons set forth herein, this court recommends to the District Judge to whom this case is assigned that the defendants' motion for summary judgment be ALLOWED IN PART and DENIED IN PART.

II. STATEMENT OF FACTS²

The following facts, which are relevant to the defendants' motion for summary judgment, are undisputed unless otherwise indicated.³

The Parties

The plaintiff, Edward Smyth, is a real estate appraiser. (DF ¶ 17). During the time period relevant to this litigation, he operated his own real estate business. (DF ¶ 18). Mr. Smyth's wife, plaintiff Gail Smyth, is a jewelry artist. (DF ¶ 21). Although Mrs. Smyth has a history of employment as a medical technician, she has not worked outside the home since about 1991, when she was physically assaulted at work and developed serious anxiety. (DF ¶¶ 22-24; Def. Ex. C at 12-15). The plaintiffs are owners of a home located in Middleboro, Massachusetts. (See Def. Ex. E). This case concerns the Smyths' efforts to obtain a mortgage loan modification under HAMP, and to save their home from foreclosure.

Defendant Wells Fargo is authorized, pursuant to a power of attorney, to conduct business with respect to loans held by U.S. Bank. (DF ¶ 16). At all times relevant to thislitigation, Wells Fargo has been the servicer of the plaintiffs' mortgage loan. (DF ¶ 15). It also has served as the document custodian for defendant U.S. Bank. (Id.).

The Smyths' Mortgage Loan

On November 4, 2005, the plaintiffs entered into an adjustable rate mortgage loan transaction with Mortgage Lender's Network U.S.A., Inc. ("MLN") by executing a promissory note ("Note") in the amount of $260,000. (DF ¶ 1; Def. Ex. A). MLN indorsed the Note to EMAX Financial Group, LLC ("EMAX"), which specially indorsed the Note to Residential Funding Corporation. (DF ¶¶ 2-3; PF ¶¶ 26, 28; DR ¶ 28). Residential Funding then indorsed the Note to "U.S. Bank National Association as Trustee WITHOUT RECOURSE." (DF ¶ 4; Def. Ex. A at Page 7 of 7). Wells Fargo, as custodian for U.S. Bank, acquired the Note on December 29, 2005. (DF ¶ 7; Def. Ex. D at 2).

The Note was secured by a Mortgage on the Smyths' home in Middleboro. (See Def. Ex. E). Mortgage Electronic Registration Systems, Inc. ("MERS"),⁴ acting as a nominee for the lender and the lender's successors and assigns, was named as the mortgagee of record. (Id. at1; DF ¶ 9). Pursuant to the Mortgage, MERS had the right to invoke the statutory power of sale. (DF ¶ 10). However, nothing in the Mortgage required the mortgagee to modify or to consider modifying the mortgage loan. (DF ¶ 11).

The 2010 Mortgage Loan Modification

Wells Fargo began servicing the plaintiffs' Mortgage in about March 2007. (Def. Ex. D at 3). That same year, the Smyths defaulted on their loan. (DF ¶ 25). In an effort to be proactive and save their home from foreclosure, the Smyths applied to Wells Fargo for loss mitigation when they were still less than three months in arrears. (Pl. Ex. C ¶ 2). Upon receipt of the completed application, Wells Fargo evaluated the plaintiffs for a loan modification. (See PF ¶ 1; Pl. Ex. A at 5). As part of its evaluation, the defendant ran the Smyths' information through the so-called "waterfall" test, which requires a loan servicer to apply a series of steps aimed at reducing monthly mortgage payments to 31 percent of the homeowners' gross monthly income.⁵ (See id.). In January 2010, Wells Fargo approved the plaintiffs for a permanent loan modification, which met the criteria of the waterfall test. (PF ¶ 1).

At the time the Smyths applied for the loan modification, Wells Fargo was a participating servicer under the HAMP program. (PF ¶ 2). However, it is unclear whether the parties discussed that program at the time the...