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Paulding v. New Penn Financial, LLC

United States District Court, D. Massachusetts

January 11, 2018




         This is an action to prevent a mortgage foreclosure. Plaintiffs Leo and Victoria Paulding (1) seek a declaratory judgment that their mortgage is void because the original lender was not licensed to extend mortgage loans in Massachusetts and (2) assert claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of Mass. Gen. Laws Chapter 93A against the present mortgagee and its present and former loan servicers.

         Defendants have filed a joint motion to dismiss the complaint. For the reasons set forth below, that motion will be granted in part and denied in part.

         I. Background

         A. Factual Background

         The facts are set forth as alleged in the complaint, except as otherwise noted.

         Leo and Victoria Paulding are co-owners of a property at 3 Glacier Path, East Sandwich, Massachusetts. (Am. Compl. ¶¶ 1, 6). The Pauldings purchased the property on December 5, 2006. (Id. ¶ 10). To do so, they borrowed $585, 000 secured by a mortgage on the property. (Id.)

         Defendant New Penn Financial, LLC d/b/a Shellpoint Mortgage Servicing (“Shellpoint”) is the current servicer or subservicer of the Pauldings' mortgage. (Id. ¶¶ 8, 37). Defendant Bank of America, N.A. is the former servicer and successor to Countrywide Home Loans. (Id. ¶ 7). Defendant The Bank of New York Mellon f/k/a the Bank of New York (“BNY Mellon”) is the trustee for the Certificateholders of CWALT, Inc., Alternative Loan Trust 2006-J8, Mortgage Pass-Through Certificates, Series 2006-J8 (the “Trust”), the trust that currently holds the mortgage. (Id. ¶¶ 9, 29).[1]

         According to the complaint, the source of the mortgage loan was “America's Wholesale Lender, ” which purported to be a New York corporation; “America's Wholesale Lending was a non-existent, fictitious legal entity that was never incorporated anywhere in the United States and was not authorized to conduct business in the Commonwealth of Massachusetts”; and the funds for their loan came from Countrywide Home Loans, which was later purchased by Bank of America. (Compl. ¶¶ 7, 10-13, Ex. A).[2]

         The 2006 mortgage agreement designated Mortgage Electronic Registration Systems (“MERS”) as the “nominee for the Lender (AWL) and Lender's successors and assigns.” (Id. ¶ 14, Ex. A). MERS assigned the mortgage to BNY Mellon, as trustee, in September 2012. (Id. ¶ 15, Ex. B).

         The complaint alleges that on August 21, 2014, Bank of America entered into a settlement agreement with the Department of Justice requiring it to forgive portions of certain borrowers' mortgage loan balances. (Id. ¶¶ 24-25). According to the complaint, the Trust that owns the Paulding's mortgage was explicitly listed in the settlement agreement as one whose mortgages were to be reduced under the settlement, and the settlement did not require borrowers to be in arrears on their mortgage to be eligible for forgiveness as long as the mortgage was owned by one of the listed trusts. (Id. ¶¶ 27-28).

         The Pauldings defaulted on their mortgage payments on December 1, 2015. (Id. ¶ 31). According to the complaint, they did so because the interest rate of their adjustable-rate loan increased, and they could no longer afford their payments. (Id.).

         On January 30, 2016, the Pauldings submitted a Loss Mitigation Application package to Bank of America. (Id. ¶ 32). They allege that based on the monthly household income provided in that application of $12, 086, they were eligible for a modified monthly mortgage payment of approximately $3, 021 and a reduced loan balance of $337, 500 (the fair market value of the property). (Id. ¶ 33, 39). Instead, on April 6, 2016, they were offered a capitalized loan modification with a monthly payment of $4, 071 and a capitalized modification balance of $582, 000. (Id. ¶ 34). The Pauldings considered that unfair and deceptive conduct and sent Bank of America a demand letter pursuant to Mass. Gen. Laws ch. 93A requesting (1) $244, 500 (the difference between the balance of their mortgage and the fair market value of their home) and/or (2) a modification under the Home Affordable Modification Program (“HAMP”) Tier 2 or the DOJ settlement to reduce their loan to $337, 500. (Id. ¶ 36, Ex. F).

         The complaint alleges that, in May 2016, Bank of America transferred the “servicing” of the loan to Shellpoint. (Id. ¶ 37; see also Id. ¶ 7 (calling Bank of America the “former servicer”)). As the underlying mortgage loan had been assigned to BNY Mellon in 2012, a transfer of the full servicing rights would mean that, from May 2016 onward, Bank of America had no further rights or obligations with respect to the Pauldings' mortgage. Elsewhere, however, the complaint calls Shellpoint the “servicer” or “servicing agent” for Bank of America, (id. ¶¶ 41, 78); calls Shellpoint a “sub-servicer” of Bank of America that is bound by Bank of America's servicing-related commitments, (id. ¶¶ 37, 44); and speaks of Bank of America as remaining an “investor” on the loan, with supervisory responsibilities over Shellpoint, (id. ¶¶ 37, 42, 85). Taking these allegations in the light most favorable to plaintiffs, the Court will assume that the complaint is alleging that Bank of America remained the “servicer” on the loan-that is, the party owning the servicing rights-and Shellpoint became a “subservicer” on the loan-that is, a party with the contractual right to receive a fee from the servicer in exchange for the performance of day-to-day servicing functions-and thereby an agent of Bank of America. See Fogg v. Ocwen Loan Servicing, LLC, 2015 WL 1565229, at *10 (D. Me. Apr. 8, 2015).

         On August 17, 2016, the Pauldings submitted another Loss Mitigation Application package, this time to Shellpoint, stating that their monthly household income was $11, 892. (Am. Compl. ¶ 38). According to the complaint, this should have entitled them to a monthly mortgage payment of $2, 937 and a reduced loan balance of $337, 500. (Id. ¶ 39). Instead, they were offered a capitalized modification which “raised their mortgage payment to $3, 268 from its existing payment of $3, 150 and did nothing to address the Plaintiffs' ‘underwater' status on their loan.” (Id. ¶ 40).

         The complaint alleges that on November 14, 2016, Ezra Bailey, a representative of Shellpoint, falsely told plaintiffs' counsel that neither Shellpoint nor Bank of America were participating in HAMP or the DOJ settlement, and Shellpoint had no obligation to comply with those programs. (Id. ¶ 44).

         Following that conversation, the Pauldings sent a Chapter 93A demand letter to Shellpoint, requesting the same relief they requested from Bank of America in their previous Chapter 93A demand letter. (Id. ¶ 45).

         On July 10, 2017, Shellpoint sent the Pauldings a foreclosure acceleration letter. (Id. ¶ 23, Ex. D).

         B. Procedural Background

         Plaintiffs filed the complaint on April 10, 2017, in state court. (Notice of Removal ¶ 1). Defendants removed the case to federal court, and subsequently filed a motion to dismiss the complaint for failure to state a claim. Plaintiffs responded by filing an amended complaint, and defendants then filed a new motion to dismiss the amended complaint. Neither party requested a hearing on the motion.

         The amended complaint contains seven counts. Count 1 seeks a declaratory judgment that “the plaintiffs' 2006 mortgage is void because America's Wholesale Lender was never incorporated in New York, never registered as a d/b/a in Massachusetts by Countrywide or Bank of America and was never licensed to conduct business as a lender in the Commonwealth, ” in violation of Mass. Gen. Laws ch. 255E, § 2. (Am. Compl. ¶¶ 46-51). Count 2 seeks a declaratory judgment that “the plaintiffs' 2006 mortgage [is] void because the 2012 assignment from MERS to Bank of New York was invalid on its face.” (Id. ¶¶ 52-56). Counts 3 and 4 allege that the defendants breached the implied covenant of good faith and fair dealing and the mortgage agreement, respectively, by (1) sending an inaccurate foreclosure acceleration letter and (2) filing a foreclosure petition in the Land Court prior to sending the acceleration letter, publishing a notice of mortgage sale in the local newspaper, and filing an affidavit of compliance with the registry of deeds. (Id. ¶¶ 57-68). Counts 5 and 6 allege that Bank of America and Shellpoint, respectively, engaged in unfair and deceptive trade practices in violation of Chapter 93A by failing to offer the Pauldings a modification under HAMP or the DOJ settlement. (Id. ¶¶ 69-81). Count 7 alleges that Bank of America's refusal to offer a modification under the DOJ settlement was a breach of the implied covenant of good faith and fair dealing. (Id. ¶¶ 82-87).[3]

         II. Stand ...

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