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Regal v. Wells Fargo Bank, N.A.

United States District Court, D. Massachusetts

September 7, 2016

FRANCINE REGAL, Plaintiff,
v.
WELLS FARGO BANK, N.A. Defendant.

          MEMORANDUM AND ORDER

          DOUGLAS P. WOODLOCK UNITED STATES DISTRICT JUDGE

         This is a civil action between plaintiff Francine Regal and defendant Wells Fargo Bank, N.A. (apparently misidentified in the Complaint as Wells Fargo Corporation), in which Regal alleges that Wells Fargo violated federal and state laws in its mortgage and subsequent foreclosure of a property she owned. Wells Fargo has filed a motion to dismiss Regal's complaint pursuant to Rule 12(b)(6) for failure to state a claim upon which relief may be granted.

         I. BACKGROUND

         A. Factual Background

         Francine Regal is the owner and occupant of a home in Everett, Massachusetts. [Regal Complaint, Dkt. No. 1, Exh. 1, ¶ 1]. In August of 2004, she borrowed money from Lighthouse Mortgage secured with an adjustable-rate mortgage on the property. [Id. ¶ 5]. The terms of this mortgage included a fixed rate of 4% for one year, followed by an adjustable rate thereafter. [Id. ¶ 6]. The plaintiff asserts that the loan amount of $396, 000 exceeded the value of the property, and, without providing any figures, that the monthly payments exceeded 50% of her monthly income. [Id. ¶ 6]. Wells Fargo contends, however, and the plaintiff does not dispute the underwriter's appraisal, that the house was worth $420, 000 at the time of the mortgage, and provides a worksheet with an estimate to support the contention. See Wells Fargo Memorandum in Support of Motion to Dismiss, 203(K) Maximum Mortgage Worksheet, Dkt. No. 8, Exh. C.[1]

         After the first year, the rate of the mortgage was adjustable by the mortagee, Lighthouse. The rate was pegged to the United States Treasury Securities weekly average yield rate with a constant maturity of one year. [Wells Fargo Memorandum in Support of Motion to Dismiss, Dkt. No. 8, 3]. This rate was then added to a fixed baseline of 2.25%. [Id.]. At some point, Lighthouse Mortgage was acquired by Wells Fargo Bank, N.A., the defendant in this action, which assumed control over Regal's mortgage in the process.

         Regal thereafter defaulted on the mortgage. [Id.]. In an effort to rehabilitate the mortgage, she submitted a Home Affordable Mortgage Program (“HAMP”) loan modification application to Wells Fargo on June 20, 2011. [Id.]. Wells Fargo denied the HAMP application on February 20, 2012, providing Regal with nothing by way of explanation. [Compl. ¶ 13]. Wells Fargo did, however, offer a repayment plan for the loan, an offer that was rejected by Regal. [Id.]. Wells Fargo then commenced foreclosure proceedings. On May 8, 2014, Regal filed the complaint initiating this action in the Middlesex County Superior Court. On June 9, 2014, Wells Fargo removed the case to this Court.

         II. ANALYSIS

         Regal's complaint alleges three claims for relief. The First Claim for Relief alleges that Wells Fargo violated its duties under HAMP and its Servicer Participation Agreement with the United States Department of the Treasury; Regal alleges that in this connection she was injured as a third-party beneficiary of the Agreement. The Second Claim seeks relief under Massachusetts General Laws Chapter 93A § 9. Regal alleges that Wells Fargo's failure to modify her loan under HAMP guidelines was an unfair and deceptive business practice giving rise to liability under Chapter 93A. Regal's Third Claim for Relief alleges that Wells Fargo violated Chapter 93A § 2 in offering the loan originally, because the loan, as structured, was and is predatory within the meaning of Massachusetts consumer protection laws. I will address all three claims, although in the opposition memo, plaintiff's counsel only presses the first. I take a comprehensive approach not only in the interests of completeness, but also specifically because the disbarment of plaintiff's attorney for misconduct in other mortgage foreclosure matters, see Note 4 infra, raises the specter of inadequate assistance of counsel in this case and consequently more judicial attentiveness appears warranted.

         A. Legal Standard

         In order to survive a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (citation and internal quotation marks omitted). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not ‘show[n]' - ‘that the pleader is entitled to relief.'” Maldonado v. Fontanes, 568 F.3d 263, 269 (1st Cir. 2009) (quoting Iqbal, 129 S.Ct. at 1949). I “must accept all well-pleaded facts alleged in the Complaint as true and draw all reasonable inferences in favor of the plaintiff.” Watterson v. Page, 987 F.2d 1, 3 (1st Cir. 1993). While I am “generally limited to considering facts and documents that are part of or incorporated into the complaint, ” I “may also consider documents incorporated by reference in the [complaint], matters of public record, and other matters susceptible to judicial notice.” Giragosian v. Ryan, 547 F.3d 59, 65 (1st Cir. 2008) (citation and internal quotation marks omitted) (alteration in original); see also Note 1 supra.

         B. Third-Party HAMP Claim

         In her First Claim for Relief, Regal asserts that she is an intended third-party beneficiary of the Service Participation Agreement Wells Fargo signed to recognize its undertaking with Treasury to abide by HAMP guidelines in restructuring eligible loans. She argues that, because she met the requirements for eligibility under HAMP, Wells Fargo's refusal to modify her loan constitutes a violation of HAMP and a breach of the SPA. Attendant on this argument is the proposition that, if the denial of refinancing is indeed a violation, then, as an intended third party beneficiary of the SPA, Regal is entitled to damages as a result of Wells Fargo's purported breach.

         In order to analyze Regal's claim, it will be useful first to examine the history of HAMP and its related programs. HAMP is a subpart of the Making Home Affordable Program, enacted in February 2009 as part of the government's response to the financial crisis. “The goal of HAMP is to provide relief to borrowers who have defaulted on their mortgage payments or who are likely to default”; this is to be done by reducing mortgage payments to sustainable levels, without discharging any of the underlying debt.” Bosque v. Wells Fargo Bank, N.A., 762 F.Supp.2d 342 (D. Mass. Jan. 26, 2011).

         Many banks that owned or serviced home mortgages (including Wells Fargo) agreed to modify terms of eligible mortgages in exchange for billions of dollars from the United States government through the Trouble Asset Relief Program (“TARP”). In order to qualify to participate in the program for loans not owned, securitized or guaranteed by Fannie Mae or Freddie Mac (i.e. owned, securitized, or serviced by financial institutions that are not government-sponsored enterprises (“GSEs”) like Fannie Mae and Freddie Mac), these banks were required to sign Servicer Participation Agreements (“SPAs”) that committed the banks to certain standards with respect to refinancing of eligible loans in exchange for incentive payments for successful refinancings. The SPAs are contracts between each bank and the Department of the Treasury, which promulgates rules under HAMP as to how banks should refinance home mortgages so as to avoid unnecessary foreclosures. The banks solicit refinancing applications from potentially-eligible individual mortgagors, and make a determination as to whether or not to offer them refinancing.

         The question of what rights HAMP gave individual homeowners was, at the outset, not well understood. At least one Massachusetts Superior Court Judge concluded that homeowners seeking to refinance their mortgages under HAMP guidelines were intended third-party beneficiaries to SPAs between Treasury and banks. See Parker v. Bank of Am., N.A., No. 11-1838, 2011 WL 6413615 (Mass. Super. Ct. Dec. 16, 2011). However, that interpretation, as recognized by the Superior Court judge in Parker, id. at 7, stands contrary to the consensus among courts in this District and elsewhere that Congress never intended to give homeowners a private right of action under HAMP or any of its related programs. “Although HAMP was generally designed to benefit homeowners, it does not follow necessarily that homeowners like the plaintiff[] are intended third-party beneficiaries of the contracts between servicers and the government.” Teixeira v. Fed. Nat'l Mortg. Ass'n, No. 10-cv-11649, 2011 WL 3101811, at *2 (D. Mass. July 18, 2011) (citing Klamath Water Users Protective Ass'n v. Patterson, 204 F.3d 1206, 1212 (9th Cir. 1999)).

         The First Circuit adopted this consensus approach in MacKenzie v. Flagstar Bank, FSB, 738 F.3d 486 (1st Cir. 2013), where the MacKenzies, commenced an action against Flagstar Bank after the bank initiated foreclosure proceedings against them.

         The First Circuit concluded that HAMP did not provide a private right of action to aggrieved borrowers. The court decided that the standard HAMP SPAs do “‘not give any indication that the parties intended to grant qualified borrowers the right to enforce the contract.'” MacKenzie, 738 F.3d at 492 (1st Cir. 2013) (quoting Teixeira, 2011 WL 3101811, at *2).

         This approach aligns with the general presumption that government contracts ordinarily do not give private citizens the right to sue as third-party beneficiaries. As a result, “it would be unreasonable for a borrower to rely on the HAMP guidelines as evidence of intent to extend a right of enforcement to third-party beneficiaries. . . .” Markle v. HSBC Mortg. Corp. (USA), 844 F.Supp.2d 172, 182 (D. Mass. July 12, 2011). If homeowners “were third-party beneficiaries, every homeowner-borrower in the United States who has defaulted on mortgage payments or is at risk of default could become a potential plaintiff.” Id.

         This case is no exception. The SPA Wells Fargo signed with Treasury, Fannie Mae and Freddie Mac, included a provision identifying those to whom the agreement applies. The SPA here was expressly intended to “inure to the benefit of and be binding upon the parties to the Agreement and their permitted successors-in-interest.” Nothing in the contract at issue, and nothing in HAMP more generally, provides a basis for concluding that servicers, banks or the government intended that homeowners like Regal were entitled to sue under HAMP or the SPAs. Regal may have sought to benefit from the contract between Treasury and Wells Fargo, but there is nothing to indicate that she was an intended beneficiary, with an interest cognizable in litigation. Therefore, to the extent that she relies on HAMP directly for any particular federal cause of action, such a claim fails, and must be dismissed.

         The question whether violations of HAMP guidelines can serve as part of the underlying basis for a separate state law claim, however, is a distinct matter to which I now turn.

         C. Massachusetts General Laws Chapter 93A Claim

         In her complaint, Regal asserts two separate claims - (1) a HAMP violation and (2) a predatory loan violation - under Chapter 93A of the Massachusetts General Laws. Overall, Chapter 93A is a consumer protection law that prohibits “unfair or deceptive acts or practices in the conduct of any trade or commerce.” Mass. Gen. L. c. 93A § 2. The statute provides a private right of action for individuals to assert claims if they believe they have been wronged by such a deceptive practice. Id. at § 9. “Chapter 93A is ‘a statute of broad impact which creates new substantive rights and provides new procedural devices for the enforcement of those rights.'” Kattar v. Demoulas, 433 Mass. 1, 12, (2000) (quoting Slaney v. Westwood Auto, Inc., 366 Mass. 688, 693 (1975). What is unfair or deceptive requires careful analysis; “Massachusetts courts ...


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