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

494 F.Supp.3d 68

Scott R. WHELDEN and Nicole C. Whelden, Plaintiffs

v.U.S. BANK NATIONAL ASSOCIATION and Select Portfolio Servicing, Inc., Defendants

CIVIL ACTION NO. 20-CV-10177

United States District Court, D. Massachusetts.

Signed October 13, 2020

David J. Rhein, Harmon Law Offices, Newton, MA, for Plaintiffs.

David Joseph Rhein, Concord, MA, pro se.

Donald W. Seeley, Jr., Jeffrey D. Adams, Parker Ibrahim & Berg LLP, Boston, MA, for Defendants.

MEMORANDUM & ORDER

ZOBEL, S.D.J.

Plaintiffs Scott and Nicole Whelden filed suit in Nantucket Superior Court against defendant U.S. Bank National Association (U.S. Bank), as successor Trustee for WAMU Mortgage Pass-Through Certificates, Series 2007-HY6, and defendant Select Portfolio Servicing, Inc. (SPS) to prevent foreclosure on their home. Defendants removed the action to this court and now move to dismiss all counts pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim.

I. Factual Background

The following facts are derived from plaintiffs’ complaint and the exhibits filed therewith:

On March 30, 2007, plaintiffs granted a mortgage, secured by their home, to Washington Mutual Bank for an $800,000 loan. The mortgage was subsequently assigned to defendant U.S. Bank. Defendant SPS is the loan servicer.

The mortgage has been in default since 2014. In October 2018, plaintiffs submitted a loan modification application to SPS, and in the same month, sought to sell a subplot of the property to raise the funds to reinstate the mortgage. At the time, the amount required to cure the default was $388,793. Plaintiffs sent the signed offer to purchase a subplot for $420,000 to SPS, which orally agreed to the sale on the condition that the Nantucket Zoning Board approved it. Plaintiffs hired counsel and procured appraisals and surveys to obtain the authorization. The Zoning Board approved the sale which was nonetheless aborted because SPS would only agree to the mortgage reinstatement if plaintiffs paid over the full $420,000 subplot sale price, not the $388,793 due.

In March 2019, plaintiffs received a cash offer for $1.3 million to purchase the entire property. The mortgage payoff amount was then approximately $1 million. Plaintiffs submitted the offer to SPS and attempted to reduce the mortgage payoff to $800,000 "to account for late fees, interest, penalties and attorney fees accrued while Defendants failed to adequately review the loan modification and sub-plot offer."

In April 2019, SPS informed plaintiffs that it would not proceed with the loan modification application because they could not process it at the same time as the payoff. On May 28, 2019, SPS notified plaintiffs that they could retain a maximum of $3,000 after the payoff and that a short sale might be possible. From May to October 2019, defendants requested, and plaintiffs provided, additional documents and information to process the sale. In October 2019, SPS closed the short sale listing period without approving the $1.3 million offer to purchase and scheduled the property for foreclosure. Plaintiffs filed this suit on January 3, 2020 to enjoin the sale.

II. Legal Standard

"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. lqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal citations omitted). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. The inquiry is usually limited to the facts alleged in the complaint, incorporated into the complaint, or susceptible to judicial notice, In re Colonial Mortg. Bankers Corp., 324 F.3d 12, 15 (1st Cir. 2003), but the court may also consider other documents the authenticity of which is not disputed by the parties, documents central to the plaintiff's claim, and documents sufficiently referred to in the complaint, Watterson v. Page, 987 F.2d 1, 3 (1st Cir. 1993).

III. Discussion

a. Negligence (Count I) and Negligent Infliction of Emotional Distress (Count VIII)

To sustain a claim for negligence under Massachusetts law, plaintiffs must show: (1) a legal duty owed by defendants to plaintiffs; (2) a breach of that duty; (3) proximate or legal cause; and (4) actual damage or injury. See Jorgensen v. Mass. Port Auth., 905 F.2d 515, 522 (1st Cir. 1990). Count I alleges that defendants had a duty of good faith and reasonable diligence in the foreclosure process. Plaintiffs claim defendants breached that duty by failing to evaluate their request for loan modification and by failing to properly respond to the offer to purchase a subplot of the property and the offer to purchase the entire property. They claim they spent thousands of dollars in getting the subplot approved by the zoning board and defending against foreclosure proceedings because of defendants’ breach.

Defendants nonetheless assert that plaintiffs’ negligence claim is barred by the economic loss doctrine, which holds that "[i]n the context of ordinary negligence claims in tort actions ... ‘purely economic losses are unrecoverable ... in the absence of personal injury or property damage.’ " Cummings v. HPG Int'l., Inc., 244 F.3d 16, 24 (1st Cir. 2001) (quoting FMR Corp. v. Boston Edison Co., 415 Mass. 393, 613 N.E.2d 902, 903 (1993) ). Moreover, "the mere relationship between mortgage holder or servicer and borrower does not give rise to a fiduciary duty to the latter." Shaw v. BAC Home Loans Servicing, LP, No. 10-11021-DJC, 2013 WL 789195, at *4 (D. Mass. Mar. 1, 2013).

Plaintiffs do not assert any non-economic loss and fail to show that defendants owed them a duty of care. Thus, the motion to dismiss is allowed as to Count I.

Plaintiffs’ failure to show that defendants owed them a duty of care also precludes a claim for negligent infliction of emotional distress (Count VIII). See Penney v. Deutsche Bank Nat'l Tr. Co., No. 16-CV-10482-ADB, 2017 WL 1015002, at *6 (D. Mass. Mar. 15, 2017) (citing Jupin v. Kask, 447 Mass. 141, 849 N.E.2d 829, 834-35 (2006) ) ("The first element of NEID, negligence, requires that the Defendants owe a duty to the Plaintiffs."). Accordingly, the motion is allowed as to Count VIII.

b. Violation of M.G.L. c. 244 § 35B (Count II)

Under Mass. Gen. Laws ch. 244, § 35B(b), creditors for "certain mortgage loans" must take "reasonable steps and ma[ke] a good faith effort to avoid foreclosure" before publishing notice of a foreclosure sale under Mass. Gen. Laws ch. 244, § 14. Plaintiffs assert that defendants violated § 35B when they failed to consider their October 2018 application for loan modification.

Defendants contend that plaintiffs do not set forth facts to establish that their loan was a "certain mortgage" under § 35B. Plaintiffs offer a July 19, 2018 affidavit wherein SPS certified under pains and penalties of perjury that "[t]he requirements of M.G.L. Chapter 244 Section 35B have been complied with" for plaintiffs’ mortgage. In addition, plaintiffs allege that they made interest-only payments from May 1, 2007 to April 1, 2014. Section 35B(a) defines a certain mortgage loan as one where, inter alia, there were interest-only payments for any period of time. Plaintiffs have sufficiently alleged that they had a certain mortgage loan entitled to § 35B protection.

A separate question is whether defendants met the § 35B requirements.¹ The statute provides that a creditor has made reasonable, good faith efforts to avoid foreclosure if the creditor 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; and (iii) the interests of the creditor, including, but not limited to, investors." M.G.L. c. 244, § 35B(b). The creditor enjoys a presumption of good faith and reasonable steps if, inter alia, it issues a written summary of its analysis when denying a loan modification application. M.G.L. c. 244, § 35B(b)(2). Plaintiffs allege that defendants violated § 35B because they did not supply a detailed written denial. The motion to dismiss does not dispute this fact. Defendants maintain that they nonetheless made reasonable good faith efforts to help plaintiffs avoid foreclosure because they agreed to release a part of their security interest for $420,000, which would have allowed plaintiffs to sell a subplot of the property and reinstate the mortgage.

However, whether U.S. Bank's offer to release a portion of their security interest for $420,000 constituted "reasonable steps and good faith efforts" is a contested question of fact, and cannot, therefore, support dismissal of Count II.

c. Violation of Paragraphs 19 and 22 of the Mortgage Contract (Count III) and Breach of Contract (Count VII)

The mortgage contract provides that the borrower has a right to reinstate the defaulted mortgage after acceleration if the borrower:

(a) pays lender all sums which would then be due under this Security Instrument and the Note as if no acceleration had occurred;

(b) cures any default of any other covenants and agreements;

(c) pays all expenses incurred in enforcing this Security Instrument ...; and

(d) takes such action as Lender may reasonably require to assure that Lender's interest in the Property and rights under this Security Instrument, shall continue unchanged.

Compl., Ex. A at ¶ 19 (emphasis added). Plaintiffs claim that defendants violated Paragraph 19 by charging $420,000 to reinstate the mortgage instead of the $388,793 owed. This allegation falls short. A reinstatement by subplot sale would have violated the plain meaning of paragraph 19(d) as it would have altered the lender's security interest in the property. Defendants’ proposal to release their security interest in exchange for $420,000 and reinstatement was a separate offer that plaintiff...