United States District Court, D. Massachusetts
Gail Dein, United States Magistrate Judge
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.
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
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.
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.
of the foregoing, it is hereby ORDERED that:
Magistrate Judge's Report and Recommendation (Docket No.
60) is ADOPTED and INCORPORATED pursuant to 28 U.S.C.
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
parties shall, by April 12, 2017, report whether they consent
to trial before the Magistrate Judge.
AND RECOMMENDATION ON DEFENDANTS' MOTION FOR SUMMARY
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"),  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 Home Affordable 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).
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.
STATEMENT OF FACTS
following facts, which are relevant to the defendants'
motion for summary judgment, are undisputed unless otherwise
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.
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 this litigation,
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.).
Smyths' Mortgage Loan
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).
Note was secured by a Mortgage on the Smyths' home in
Middleboro. (See Def. Ex. E). Mortgage Electronic
Registration Systems, Inc. ("MERS"),  acting as a
nominee for the lender and the lender's successors and
assigns, was named as the mortgagee of record, (Id.
at 1; 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
2010 Mortgage Loan Modification
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. (PI. Ex. C ¶
2). Upon receipt of the completed application, Wells Fargo
evaluated the plaintiffs for a loan modification. (See PF
¶ 1; PI. 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. (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).
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 Smyths submitted their
application. According to Wells Fargo, none of its records
indicate that the parties discussed HAMP or that the
plaintiffs' were seeking a HAMP modification. (See PI.
Ex. A at 2-3). On the other hand, Mr. Smyth claims that at or
around the time he was submitting his application for a
modification, he spoke to a Wells Fargo employee who told him
that all of the available modifications were HAMP
modifications. (Def. Ex. B at 46-47). In any event, there is
no dispute that the modification Wells Fargo offered the
Smyths was an in-house, proprietary modification rather than
a HAMP loan. (See PF ¶ 37; DR¶37).
Smyths accepted the defendant's offer, and on January 12,
2010, the parties entered into a written Loan Modification
Agreement. (DF ¶ 30; Def. Ex. K). It is undisputed that
the Smyths reviewed the terms of the Loan Modification
Agreement prior to signing it, and understood that it altered
the terms of their mortgage loan. (DF ¶¶ 28-29). As
detailed in the Agreement, the modification converted the
plaintiffs' loan from an adjustable rate loan to a fixed
rate loan, and capitalized the outstanding arrearages. (See
Def. Ex. K). However, the Loan Modification Agreement
contained no mention of HAMP, and did not purport to modify
the loan pursuant to the federal HAMP program. (See
the lack of any reference to HAMP in the Loan Modification
Agreement, the Smyths claim that they did not realize that
the 2010 modification was not a HAMP modification until they
consulted with counsel in 2013. (PF ¶ 37; PI. Ex. C
¶ 5). They also claim that they were eligible for a HAMP
modification in 2010, and that a HAMP loan would have been
more favorable than the in-house modification they received
from Wells Fargo. (See PF ¶¶ 18-21, 43-44). As
described below, this court finds that the Smyths' claims
relating to the 2010 loan modification are
time-barred. In any event, there is no dispute that the
Smyths voluntarily entered into the Loan Modification
Agreement with Wells Fargo, and accepted the terms contained
therein. (See DF ¶¶ 28-30).
August 3, 2011, MERS, "as Nominee for Mortgage Lenders
Network USA, Inc., its Successors and Assigns, "
assigned the plaintiffs' Mortgage to defendant "U.S.
Bank, National Association, as Trustee for RASC
2006-EMX1." (DF ¶ 12; PF ¶ 25; DR ¶ 25).
Thus, according to the record on summary judgment, the
defendants held both the Mortgage on the plaintiffs' home
and the underlying promissory Note as of August 2011. (See DF
¶¶ 7, 12). As described below, the plaintiffs are
attempting to dispute U.S. Bank's status as the holder of
the Note and the Mortgage, but this court finds that they
have failed to create a genuine question of fact on this
Application for a Second Loan Modification
After receiving the 2010 modification, the Smyths continued
to struggle to pay their mortgage loan. (DF ¶ 31). On
September 29, 2010, they filed for Chapter 7 bankruptcy
protection. (DF ¶ 32; Def. Ex. L). In their bankruptcy
petition, the plaintiffs listed the current value of their
real property as $239, 000, and the amount of their mortgage
debt as $263, 526.52. (DF ¶ 33; Def. Ex. M at Page 13 of
41). On December 29, 2010, the Smyths received a discharge
from the Bankruptcy Court. (DF ¶ 35). While this
relieved the Smyths from any personal liability on the
discharged debt, it did not alter the mortgagee's rights
in the property, including the right to pursue foreclosure.
See Best v. Nationstar Mortg., LLC, 540 B.R. 1, 9
(1st Cir. BAP 2015) ("Fundamentally, a discharge merely
releases a debtor from personal liability on the discharged
debt; when a creditor holds a mortgage lien or other interest
to secure the debt, the creditor's rights in collateral,
such as foreclosure rights, survive or pass through the
bankruptcy." (quotations and citation omitted)).
Smyths remained unable to make their mortgage payments, and
by the spring of 2011, they had defaulted on their modified
mortgage loan. (See DF ¶ 36; PI. Ex. C ¶ 14).
Following the default, Wells Fargo sent them correspondence
encouraging them to apply for another loan modification, and
promising to review them for a modification based on the
information they submitted. (PF ¶ 6; DR ¶ 6; PI.
Ex. C ¶ 14). In 2011, the Smyths submitted an
application for a second loan modification from Wells Fargo.
(DF ¶ 37). They also engaged Neighborhood Assistance
Corporation of America ("NACA") to work with the
defendant on their behalf. (DF ¶ 38; Def. Ex. B at 22).
The record establishes that the Smyths engaged in a lengthy
process to obtain a new loan modification from Wells Fargo.
It also establishes that their efforts were futile from the
outset because investor restrictions on the loan did not
allow for a second modification.
2011 and 2013, the Smyths, either individually or through
NACA, remained in frequent contact with Wells Fargo in an
effort to obtain another loan modification. (PF ¶ 5; DR
¶ 5). According to Mr. Smyth, the process involved
significant time and effort on his part because it required
him to respond to repeated requests for paperwork, send
numerous facsimiles and handle a substantial volume of email
correspondence. (See PF ¶ 7; DR ¶ 7). He also
contends that throughout the process, Wells Fargo continued
to assure him that he and his wife would be reviewed for a
loan modification based upon the information he submitted,
and that they would receive a modification if they qualified.
(PF ¶¶ 6, 33 PI. Ex. C ¶ 22).
of the discovery in this litigation, Wells Fargo produced
internal records reflecting its handling of the Smyths'
application for a second loan modification. Those records
contain notes from June 24, 2011, which read in relevant part
OVER 100.00% OF MORTGAGE PAYMENT. BASED ON INV/BUS RULES,
LOAN CANNOT BE CONSIDERED FOR OTHER OPTIONS IN ER. UNABLE TO
RECOMMEND CREDIT COUNSELOR.
(PI. Ex. R). Based on this evidence, the plaintiffs contend
that the defendants knew, as of June 2011, that investor
restrictions on their mortgage loan would preclude Wells
Fargo from offering them a second modification, and that it
was unfair and deceptive to encourage the Smyths to continue
to pursue a modification under those circumstances. (PI. Opp.
Mem. (Docket No. 46) at 15). The defendants dispute this
interpretation, and insist that the note refers to
restrictions on Wells Fargo's ability to offer the
plaintiffs a repayment plan, "which allows the borrower
to catch up on delinquent payments under the existing loan,
" but has nothing to do with a modification, "which
results in entirely new loan terms." (DR ¶ 46
(quoting Dovle v. CitiMorteage. Inc., 32 Mass. L.
Rptr. 312, 2014 WL 4373558, at *7 (Mass. Super. Ct. Aug. 11,
2014)). Accordingly, the defendants argue that the note
"does not indicate that the loan was [not] eligible for
a loan modification due to investor restrictions." (DR
¶ 46). For the reasons described below, this court finds
that this evidence raises a disputed issue of fact that
should be resolved at trial.
Fargo performed a review of the Smyths' completed
application on January 18, 2013. (PF ¶ 9). The review
included assessments for eligibility under HAMP, and
indicated that the Smyths passed the HAMP "Tier 2 -
NPVTest." (PF ¶¶ 10, 15; PI. Ex. E at Bates
No. 312).An NPV, or "Net Present Value"
test is performed after the servicer determines that the
borrower's mortgage meets certain criteria for
eligibility under HAMP, and it "determines whether or
not the loan modification would be an economically efficient
and desirable transaction." Regal v. Wells Fareo
Bank, N.A., - F.Supp.3d ---, 2016 WL 4699679, at *4 (D.
Mass. Sept. 7, 2016). In this case, Wells Fargo's
evaluation indicated that the Smyths could qualify for an NPV
positive HAMP modification with a term of 276 months, an
interest rate of 4.00%, and a monthly principal and interest
payment of $1, 177.59. (PF ¶ 16; PI. Ex. E at Bates No.
315). Nevertheless, on February 6, 2013, Wells Fargo notified
the plaintiffs that they did "not meet the investor
requirements" of the available mortgage assistance
program because they had "exceeded the number of
modifications allowed by the investor." (PI. Ex. D).
Thus, after a year and a half of work by the parties to avoid
a foreclosure on the Smyths' property, the defendants
informed the plaintiffs that their 2010 loan modification
disqualified them from obtaining any additional relief.
about March 5, 2013, the Smyths received a letter from Wells
Fargo's outside counsel. (PI. Ex. L). The letter informed
the plaintiffs that their mortgage loan was in default, that
Wells Fargo had accelerated the loan and that Wells Fargo had
instructed counsel to initiate foreclosure proceedings,
(id.). In connection with their present action, the Smyths
are seeking to establish that the defendants lack standing to
foreclose on their property because they are not the rightful
holders of the Mortgage or the underlying promissory Note.
For the reasons detailed below, this court finds that the
defendants are entitled to judgment as a matter of law on
9, 2013, Wells Fargo responded to an inquiry regarding the
Smyths' mortgage loan. (PI. Ex. B). In its letter, the
defendant provided a more detailed explanation for the
decision to deny the Smyths' application for a second
loan modification. Specifically, as Wells Fargo explained:
[Wells Fargo] services its mortgage loans on behalf of
secondary market investors. All workout arrangements are
based on a review of the homeowner's financial
information and the investor's guidelines. [Wells Fargo]
must comply with the home preservation standards of the