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Ahsan v. Homebridge Financial Services, Inc.

United States District Court, D. Massachusetts

September 24, 2019

SAMUEL AHSAN, Plaintiff,
v.
HOMEBRIDGE FINANCIAL SERVICES, INC., Defendant.

          MEMORANDUM OF DECISION AND ORDER

          TIMOTHY S. HILLMAN DISTRICT JUDGE.

         Background

         Samuel Ahsan (“Ahsan” or “Plaintiff”) filed suit against Homebridge Financial Services, Inc. (“Homebridge” or “Defendant”) alleging claims for: rescission of a loan agreement based on mutual mistake (Count I); rescission of a loan agreement based on improper influence on appraiser (Count II); Lender Liability (Count III); and violation of the Massachusetts Consumer Protection Act, Mass.Gen.L. Ch. 93A (“Chapter 93A”)(Count IV) .

         This action involves a loan that Plaintiff obtained from Homebridge under a program overseen by the U.S. Department of Housing and Urban Development (“HUD”) which allows borrowers to obtain financing for the purchase and rehabilitation of distressed property in a single loan. Such loans may be insured by the Federal Housing Administration (“FHA”). This Memorandum of Decision and Order addresses Defendant’s Motion To Dismiss (Docket No. 14). For the reasons set forth below, that motion is granted.

         Standard of Review

         On a Rule 12(b)(6) motion to dismiss, the Court “must assume the truth of all well-plead[ed] facts and give plaintiff the benefit of all reasonable inferences therefrom.” Ruiz v. Bally Total Fitness Holding Corp., 496 F.3d 1, 5 (1st Cir. 2007) (citing Rogan v. Menino, 175 F.3d 75, 77 (1st Cir. 1999)). To survive a motion to dismiss, the plaintiff must state a claim that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955 (2007). That is, “[f]actual allegations must be enough to raise a right to relief above the speculative level, ... on the assumption that all the allegations in the complaint are true (even if doubtful in fact).” Id. at 555 (internal citations omitted). The standard “requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Id.

         “The plausibility standard is not akin to a ‘probability requirement, ’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937 (2009) (quoting Twombly, 550 U.S. at 556). Dismissal is appropriate if plaintiff’s well-pleaded facts do not “possess enough heft to show that plaintiff is entitled to relief.” Ruiz Rivera v. Pfizer Pharm., LLC, 521 F.3d 76, 84 (1st Cir. 2008) (internal quotations and original alterations omitted). “The relevant inquiry focuses on the reasonableness of the inference of liability that the plaintiff is asking the court to draw from the facts alleged in the complaint.” Ocasio-Hernàndez v. Fortuño-Burset, 640 F.3d 1, 13 (1st Cir. 2011).

         Facts[1]

         Housing and Urban Development Insurance Requirements

         Pursuant to Section 203(k) of the National Housing Act (the “Section 203 program”), the Secretary of HUD is authorized to insure mortgage loans to assist in the rehabilitation of single-family homes. 12 U.S.C. § 1709(k) (the “Act”). The Act permits “homeowners to finance both” the cost of the house and the improvements into one loan insured by the federal government. See Id., at §1709 (k). HUD takes several steps to evaluate the value of the property prior to insuring the loan. See U.S. Department of Housing And Urban Development Handbook 4000.1 (2016), https://www.hud.gov/sites/ documents/40001HSGH.PDF (“HUD Handbook”), at 379. Those steps are summarized below:

(1) the mortgagee must hire a consultant from the FHA 203(k) Consultant Roster to “inspect the property and prepare the Work Write-Up and Cost Estimate.” The Work Write-Up explains each needed repair, and the work necessary to fix the same. The Cost Estimate details the expected cost of each repair. The total cost of repairs is then added to the cost of the property to determine the amount of the loan required.
(2) the mortgagee must hire an appraiser from the “FHA Appraiser Roster” to determine projected rental income of the property. The appraiser determines the projected rental income by first creating an “estimate of fair market rent from all units.” Then the appraiser subtracts from that rate “the greater of the Appraiser’s estimate for vacancies and maintenance, or twenty-five percent of the fair market rent.” The remaining amount is the projected rental income of the entire property.
(3) HUD calculates the “Net Self-Sufficiency Rental Income” based on the reports of the consultant and the appraiser. The Net Self Sufficiency Rental Income is the appraised rental income remaining after deducting the (1) principal payment on the loan, (2) interest on the loan, (3) taxes on the property, and (4) insurance (“PITI”). HUD requires that the PITI number be less than or equal to the monthly Net Self Sufficiency Rental Income. Id. Put another way, the PITI divided by the monthly Net Self-Sufficiency Rental Income (projected rental income minus PITI) must not exceed 100% to qualify for HUD insurance of the loan.
(4) Prior to the loan being approved, the borrower must sign the HUD-92700-A, 203(k) Borrower’s Acknowledgment. The Borrower’s Acknowledgment includes a provision that HUD “does not warrant the condition or the value of the property.” The provision also states that the buyer is “responsible to have an independent consultant and/or professional home inspection service ...

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