Court: District Court, D. Massachusetts; June 12, 2014; Federal District Court
Jacquelyn Stokes defaulted on her home mortgage loan with Wells Fargo Bank, N.A. and Deutsche Bank National Trust Company, which led to a scheduled foreclosure sale for her property on December 11, 2013. Stokes filed a lawsuit on December 9, 2013, claiming violations of Massachusetts right-to-cure notice laws, common-law negligence, and the Massachusetts Consumer Protection Act. Stokes initially mortgaged her home on April 20, 2006, and fell behind on payments in 2009 but managed to cure the default after receiving a notice from Wells Fargo. Stokes defaulted again in June 2012 and sought loan modifications, including a repayment plan, but was informed she did not qualify. Despite submitting multiple loan-modification applications, she was denied, with Wells Fargo citing an investor guideline prohibiting multiple modifications within five years, a claim Stokes contests due to a lack of supporting evidence. No foreclosure sale has occurred, and the defendants have moved for judgment on the pleadings, which will be partially granted and partially denied.
In March 2013, Stokes was instructed by a Wells Fargo representative to send a $12,000 payment to reinstate her loan, which she did on March 11. Subsequently, another representative informed her that the bank would not accept the payment, which was returned to her. By March 22, Wells Fargo communicated to Stokes's housing counselor that all loss mitigation options had been exhausted. On May 28, her counselor provided evidence of Stokes having $14,672.90 available to repay her mortgage, but Wells Fargo declined the payment, claiming they had learned of a decrease in Stokes's income, which she contested, stating her income had actually increased. Throughout this process, Wells Fargo repeatedly assured Stokes of her eligibility for a repayment plan if her loan was 180 days or fewer past due. On July 2, 2013, Stokes submitted another request for loan modification and repayment plan, complying with additional information requests from the bank on seven occasions. By August 29, Wells Fargo stated she was ineligible for a loan modification, believing her payment was affordable. On November 1, it was communicated that Stokes was denied a loan modification due to exceeding the maximum allowed modifications and being over 180 days delinquent. Stokes was informed on November 8 that foreclosure was scheduled for December 11.
Stokes filed her case on December 9, 2013, in Suffolk Superior Court, which was removed to federal court on December 11. The amended complaint alleges violations of Massachusetts laws regarding the right-to-cure notice, the right to apply for a loan modification, negligent failure to grant a loan modification, and violations of the Massachusetts Consumer Protection Act. Due to pending litigation, the defendants did not proceed with foreclosure. On April 4, 2014, the defendants filed a motion for judgment on the pleadings, which is assessed similarly to a motion to dismiss under Rule 12(b)(6). The court must view the facts in the light most favorable to the plaintiff, and the complaint must present plausible claims to survive the motion. The plausibility standard requires more than mere speculation about unlawful conduct; it necessitates sufficient factual allegations to suggest entitlement to relief.
Defendants have filed a motion to dismiss the entire complaint, arguing three main points: (1) Claims under Section 35A and Section 35B should be dismissed as the plaintiff is not entitled to notice, a right to cure, or a loan modification until December 20, 2014; (2) They cannot be held liable for negligence since they do not owe a duty to modify the plaintiff's loan, and the negligence claim is barred by the economic-loss doctrine; (3) The Chapter 93A claim fails as it is essentially a repetition of the other claims.
Regarding the Section 35A claim, Massachusetts law permits mortgagees to foreclose without prior judicial approval if there is a default, including nonpayment. Under Massachusetts General Laws Chapter 244, Section 35A, mortgagors have the right to cure defaults, requiring mortgagees to notify mortgagors of this right and to wait a specified period before proceeding with foreclosure. Significant amendments to Section 35A were made in 2010, changing the right to cure from once every five years to once every three years and extending the waiting period for foreclosure after a right-to-cure notice from 90 to 150 days in certain cases.
The 2009 right-to-cure notice received by the plaintiff failed to meet statutory requirements by inadequately identifying the mortgage loan originator and improperly stating the mortgagee's identity. Although the defendants argue that the notice substantially complied with the statute, the plaintiff contends that any violation of Section 35A must be strictly addressed prior to initiating foreclosure.
The Massachusetts Supreme Judicial Court in Schumacher established that a homeowner facing foreclosure can file an equitable action in Superior Court to enjoin the foreclosure if the mortgage holder fails to provide proper notice or does not wait the required time period. Specifically, if a mortgagor demonstrates a violation of Section 35A, the mortgage holder must issue the necessary notice and allow the borrower the opportunity to cure the default before resuming foreclosure proceedings. If a homeowner is a defendant in an eviction summary process but does not challenge the foreclosure beforehand, they may counterclaim for Section 35A violations, needing to prove that such violations made the foreclosure fundamentally unfair to obtain equitable relief.
The case highlights that homeowners can delay foreclosure by indicating inadequate right-to-cure notice before foreclosure, while those who wait until after foreclosure must demonstrate that the mortgagee's violations rendered the process fundamentally unfair. In the case at hand, the plaintiff defaulted in 2009, received a right-to-cure notice, and successfully cured her default through a loan modification. Although the notice had a minor technical flaw, it was sufficient, as the plaintiff exercised her right to cure. After defaulting again in 2012, she did not receive another right-to-cure notice. Under the version of Section 35A applicable at her first default, she could only cure again after five years, while the current statute allows for a three-year wait. The court must now determine if the amendment to Section 35A retroactively affects the timeline for exercising the right to cure.
Under the previous version of Section 35A, mortgagors had the right to cure a mortgage default once every five years, necessitating mortgagees to send a notice of that right only once every five years. The 2010 amendments to Section 35A reduced this period to three years, allowing borrowers to address delinquent payments more frequently and preventing repetitive requests for notice. The current statute mandates that mortgagees send a right-to-cure notice every three years prior to taking action to accelerate or foreclose on a loan. A sunset provision in the amendments will revert the period back to five years on January 1, 2016. In this case, the plaintiff received a right-to-cure notice under the older statute on December 20, 2009, which was governed by the five-year period. The defendants argue that the plaintiff is not entitled to another notice until five years have passed, while the plaintiff asserts that the 2010 amendments retroactively apply, requiring a new notice after three years. Thus, under her interpretation, a homeowner who received a notice in 2009 would be eligible for a new notice in 2012, while a homeowner receiving a notice currently would wait until 2019 for another notice, as the law would then revert to a five-year period.
Plaintiff asserts that the three-year cure period established by the amendments is retroactive to 2007 and expired in 2013. Defendants argue that a mortgagor receiving a right-to-cure notice before August 7, 2010, cannot cure until five years have elapsed, while those defaulting between that date and January 1, 2016, would face a three-year restriction. Massachusetts statutory interpretation mandates that statutory language be interpreted according to its plain meaning, unless such interpretation leads to illogical outcomes. The plaintiff claims the amendments' language, intent, and sunset provision indicate a retroactive shortening of the cure period for notices received in 2009 or earlier. However, the amendments do not explicitly state they are retroactive, and the Massachusetts Office of Consumer Affairs has declared them non-retroactive. The Epps case supports this interpretation, as it dealt with a foreclosure prior to the amendments without contradicting this understanding. The plaintiff argues that if the legislature intended different expiration periods for notices before and after the amendment's effective date, it would have explicitly stated so. Legislative history does not indicate retroactivity, and while the statute's preamble suggests an immediate effect to protect citizens, the plaintiff fails to provide evidence supporting a retroactive application aimed at benefiting those who had already defaulted. Lastly, the plaintiff argues that not applying retroactivity contradicts the amendments’ sunset provision.
The plaintiff argues that not applying the amendments retroactively contradicts the intent of the 2010 amendment, designed to enhance protections for homeowners until 2016. She claims that the defendants' interpretation would allow mortgagors to repeatedly exercise their right to cure, while her view asserts that such protections ceased in 2013, conflicting with legislative intent. The defendants assert a more reasonable interpretation: mortgagors notified before the amendments must wait five years to cure again, while those notified after must wait three years. This interpretation aligns with the amendment's language and avoids confusion for mortgagees, establishing clear timelines. Consequently, the plaintiff is not entitled to a right-to-cure notice under Section 35A until December 20, 2014, leading to the dismissal of her Section 35A claims.
Regarding Chapter 35B of Massachusetts General Laws, which requires a notice of rights for loan modification, the plaintiff acknowledges compliance with her initial modification but seeks another based on her right to cure under Section 35A. Since she is not entitled to a right to cure until after December 20, 2014, she also cannot claim a loan modification under Section 35B, resulting in a dismissal of her Section 35B claim.
In her negligence claim, the plaintiff does not contest the defendants' argument that they owed no legal duty to modify her mortgage and that the claim is barred by the economic-loss doctrine. Instead, she seeks to amend her claim to one of negligent misrepresentation. Under Federal Rule of Civil Procedure 15, amendments are permitted unless there is undue delay, bad faith, or if the amendment would be futile or prejudicial. The court finds no such issues present, suggesting that the amendment may proceed.
A court assesses "futility" based on the case's stage, with different standards applied pre- and post-discovery. Specifically, when seeking leave to amend before discovery and summary judgment motions, the criteria of Fed. R.Civ. P. 12(b)(6) are applied. To establish a tort of negligent misrepresentation in Massachusetts, a plaintiff must demonstrate that the defendant, in a business context, provided false information that led to pecuniary loss due to justifiable reliance, and failed to exercise reasonable care in communication. In the relevant case, Dill v. American Home Mortg. Serv. Inc., the court allowed a negligent misrepresentation claim to proceed despite an initial dismissal of a negligence claim under the economic-loss doctrine. The current complaint details allegations of defendants providing false information regarding the plaintiff's loan modification eligibility, leading to lost opportunities to rectify her default. The court finds that sufficient facts exist to support a negligent misrepresentation claim, and thus the amendment will not be deemed futile. Additionally, under Massachusetts General Laws chapter 93A, unfair or deceptive acts in trade are prohibited. The complaint asserts that defendants misrepresented eligibility criteria and delayed loan repayment to make the plaintiff ineligible for modification, which sufficiently supports a Chapter 93A claim at this stage. Consequently, the motion to dismiss the Chapter 93A claim is denied.
Plaintiff's motion to amend her negligence claim to a negligent misrepresentation claim is granted. Defendants’ motion to dismiss the claims under Sections 35A and 35B is granted, while the motions regarding the negligent misrepresentation and Chapter 93A claims are denied. The document raises questions about Wells Fargo's involvement with Stokes's mortgage, indicating that Wells Fargo is the attorney-in-fact for Deutsche Bank National Trust Company, which holds the mortgage. Notably, it is possible that Wells Fargo acquired the loan after WMC ceased operations in 2007, though the record does not clarify this. The amended complaint suggests that MERS attempted to assign the mortgage to Deutsche Bank in 2012 but was unsuccessful. It references a legal precedent from Schumacher indicating the practical implications of the decision made. Massachusetts statutes generally take effect 90 days post-signature unless accompanied by an emergency preamble, which allows for immediate effect. Defendants argue against the retroactivity of the 2010 amendments based on the Jepson case, which did not address the retroactivity of the cure period shortening. Importantly, the economic-loss doctrine does not apply to negligent misrepresentation claims in Massachusetts, as established in relevant case law.
