mackenzie v. flagstar bank, fsb, 1st cir. (2013)

7/26/2019 MacKenzie v. Flagstar Bank, FSB, 1st Cir. (2013)

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United States Court of AppealsFor the First Circuit

No. 13- 1236

LYNNE MACKENZI E and J AMES MACKENZI E,

Pl ai nt i f f s , Appel l ant s,

v.

FLAGSTAR BANK, FSB,

Def endant , Appel l ee,

HARMON LAW OFFI CES, P. C. ,

Def endant .

APPEAL FROM THE UNI TED STATES DI STRI CT COURTFOR THE DI STRI CT OF MASSACHUSETTS

[ Hon. Mar i anne B. Bowl er , U. S. Magi st r at e J udge]

Bef or e

Howar d, Sel ya, and St ahl ,Ci r cui t J udges.

Chr i st opher R. Whi t t i ngham f or appel l ant s.

Car ol E. Kamm, wi t h whom J ami e L. Kessl er and Donn A. Randal lwer e on br i ef , f or appel l ee.

December 30, 2013


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STAHL, Circuit Judge. Appel l ant s Lynne and J ames

MacKenzi e ( "MacKenzi es" ) f i l ed an amended compl ai nt al l egi ng el even

count s of st at e l aw vi ol at i ons r el at ed t o t he deci si ons of Fl agst ar

Bank, FSB ( "Fl agst ar " ) t o deny t hem a l oan modi f i cat i on under t he

Home Af f ordabl e Modi f i cat i on Pr ogr am ( "HAMP") and t o f or ecl ose on

t hei r home. 1 The di st r i ct cour t di smi ssed t he compl ai nt . For t he

f ol l owi ng r easons, we af f i r m.

I. Background

The MacKenzi es own proper t y l ocat ed at 277 Wi l l i ams

St r eet i n Nor t h Di ght on, Massachuset t s ( "Pr oper t y") . On May 24,

2007, t hey gave a pr omi ssor y not e ( "2007 Not e") i n t he amount of

$275, 877. 00 at t he i nt er est r at e of 6. 5% t o Bankst r eet Mor t gage,

LLC ( "Bankst r eet " ) secured by a mor t gage on t he Propert y ( "2007

Mor t gage" ) . The MacKenzi es execut ed t he 2007 Mor t gage wi t h

Mor t gage El ect r oni c Regi st r at i on Syst ems, I nc. ( "MERS") as t he

nomi nee f or t he l ender . The 2007 Mor t gage gr ant ed t he r i ght of

assi gnment and al l owed f or t he sever abi l i t y of t he mort gage and t he

not e.

Bankst r eet assi gned t he 2007 Not e t o Fl agst ar . Fl agst ar

si gned a Ser vi cer Par t i ci pat i on Agr eement ( "SPA") wi t h Fanni e Mae

( act i ng as t he agent of t he Uni t ed St at es Depar t ment of Tr easur y) ,

agr eei ng t o par t i ci pat e i n HAMP. SPAs requi r e l oan ser vi cer s to

1 Harmon Law Of f i ces, P. C. ( "Harmon") was a def endant i n t hecase bel ow, but i t i s not a par t y t o t hi s appeal .

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of f er l oan modi f i cat i ons and f or ecl osur e pr event i on ser vi ces

pur suant t o HAMP gui del i nes.

On J ul y 21, 2009, t he MacKenzi es and Fl agst ar execut ed a

l oan modi f i cat i on agr eement ( "2009 Agr eement " ) r educi ng t he

i nt er est r at e t o 5. 75%, extendi ng t he mat ur i t y dat e, and

capi t al i zi ng unpai d i nt er est t o ar r i ve at a pr i nci pal bal ance of

$279, 575. 23. The 2009 Agreement i dent i f i es t he 2007 Mor t gage as

t he cont r act t hat i t "amends and suppl ement s. " On Oct ober 31,

2010, t he MacKenzi es submi t t ed an appl i cat i on t o Fl agst ar f or a new

modi f i cat i on. Fl agst ar deni ed t hat appl i cat i on on Apr i l 14, 2011.

On Apr i l 19, 2011, t he MacKenzi es f i l ed anot her appl i cat i on wi t h

Fl agst ar , t hi s t i me f or a l oan modi f i cat i on pur suant t o HAMP.

On May 3, 2011, MERS assi gned t o Fl agst ar t he 2007

Mor t gage as modi f i ed by t he 2009 Agreement . The MacKenzi es al l ege

on the basi s of a l oan i nvest i gat i on t hat t he 2007 Mor t gage had

been secur i t i zed i nt o a Lehman Br ot her s t r ust pr i or t o the

assi gnment . On May 11, 2011, Harmon f i l ed a not i ce wi t h t he

Commonweal t h of Massachuset t s Land Cour t on behal f of Fl agst ar

cl ai mi ng aut hor i t y to f or ecl ose on t he Pr oper t y.

Ther eaf t er , Fl agst ar i nexpl i cabl y began pur sui ng t wo

cont r adi ct or y cour ses of act i on. Despi t e the May 11 not i ce, on

August 31, 2011, Fl agst ar eval uated t he MacKenzi es f or a l oan

modi f i cat i on under t he HAMP gui del i nes and determi ned t hat t hey

wer e el i gi bl e. Never t hel ess, Har mon sent t he MacKenzi es a not i ce

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of f or ecl osur e sal e on Oct ober 4, 2011, st at i ng t hat Fl agst ar woul d

conduct t he sal e on or af t er November 3, 2011. On Oct ober 19,

2011, t he MacKenzi es f i l ed a compl ai nt i n t he Massachuset t s

Super i or Cour t seeki ng i nj unct i ve r el i ef t o pr event t he

f orecl osur e. On November 2, 2011, Fl agst ar sent t he MacKenzi es a

HAMP modi f i cat i on of f er , but st i l l schedul ed a f or ecl osur e sal e f or

November 16. On November 8, 2011, Fl agst ar "cl osed" t he HAMP

modi f i cat i on of f er . 2 I t t hen r emoved t he pendi ng st ate cour t case

t o f eder al cour t on November 14, 2011, on t he basi s of di ver si t y

j ur i sdi ct i on. To dat e, as f ar as t he r ecor d bef or e us shows, a

f or ecl osur e sal e has not t aken pl ace.

On Febr uary 10, 2012, t he MacKenzi es served Fl agst ar wi t h

a not i ce t o r esci nd t he 2009 Agr eement . Fl agst ar di d not accept

t he not i ce as a val i d r eci ssi on. The MacKenzi es f i l ed an Amended

Compl ai nt on Febr uar y 14, 2012, r ai si ng el even st at e l aw cl ai ms.

Fl agst ar f i l ed a mot i on t o di smi ss and a r equest f or decl ar at or y

j udgment , and t he MacKenzi es f i l ed a mot i on f or par t i al summar y

j udgment . The di st r i ct cour t grant ed t he mot i on t o di smi ss and

2 I t i s not cl ear f r om t he r ecor d i f Fl agstar "c l osed" t heof f er because t he MacKenzi es r ej ect ed i t or f or some ot her r eason.I n the Amended Compl ai nt , t he MacKenzi es al l eged t hat t he wr i t t en

modi f i cat i on of f er r equi r ed t hem t o make a pr evi ousl y undi scl osedi ni t i al payment of $8, 634. 58. Accor di ng t o t he MacKenzi es,"Fl agst ar mal i ci ousl y i nt ended t hat [ t hey] be unabl e t o af f or d orf ul f i l l t he t er ms of t he modi f i cat i on of f er wi t h t he l ump sumpayment r equi r ement . " These al l egat i ons rai se t he i nf er ence t hatt he MacKenzi es r ej ect ed t he November 2 of f er because t hey coul d notaf f or d t he i ni t i al payment .

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deni ed t he request f or decl aratory j udgment and t he mot i on f or

par t i al summary j udgment . The MacKenzi es appeal t he di smi ssal .

II. Analysis

The MacKenzi es st at e on appeal t hat t hey "do not press

Count s I , I I , I I I , VI , VI I I , and XI . " The r emai ni ng count s ar e

br each of cont r act , based on vi ol at i ons of t he i mpl i ed covenant of

good f ai t h and f ai r deal i ng ( Count I V) ; vi ol at i on of t he

Massachuset t s Consumer Cr edi t Cost Di scl osur e Act ( "MCCCDA") ,

Mass. Gen. Laws ch. 140D, 10 ( Count V) ; r esci ssi on ( Count VI I ) ;

negl i gence ( Count I X) ; and pr omi ssor y est oppel ( Count X) .

A. Implied Covenant of Good Faith (Count IV)

I n Count I V, t he MacKenzi es al l ege that Fl agst ar

"br eached t he i mpl i ed obl i gat i on of good f ai t h under t he

agr eement s, " and "br eached t he i mpl i ed covenant t hat nei t her part y

shal l do anyt hi ng whi ch wi l l dest r oy or i nj ur e t he ot her par t y' s

r i ght t o r ecei ve t he f r ui t s of t he cont r act. " I t i s not cl ear on

t he f ace of t he compl ai nt whet her t he MacKenzi es i nt ended t o rai se

t hese al l egat i ons pur suant t o thei r mor t gage wi t h Fl agst ar or as

t hi r d- par t y benef i ci ar i es of t he SPA bet ween Fl agst ar and t he

f eder al gover nment . The MacKenzi es do not ent i r el y cl ar i f y t hei r

posi t i on on appeal . On one hand, t hey st at e t hat t hey "wer e t hi r d-

par t y benef i ci ar i es of t he SPA agr eement [ between t he government ]

and t he ser vi cer , Fl agst ar . " They r el y al most excl usi vel y on I n r e

Cr uz, however , i n whi ch t he cour t deni ed i nj unct i ve r el i ef as t o a

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t hi r d- par t y benef i ci ar y cl ai m but gr ant ed i t wi t h r espect t o a

cl ai mf or br each of good f ai t h, on t he basi s of t he dut y mor t gagees

owe t o mor t gagors. 446 B. R. 1, 45 ( Bankr . D. Mass. 2011) .

The di st r i ct cour t r ej ect ed bot h possi bi l i t i es. I t hel d

t hat t he MacKenzi es are not t hi r d- par t y benef i ci ar i es of t he

agr eement s bet ween Fl agst ar and t he gover nment . Wi t h r espect t o

t he mor t gage, i t f ound t hat "Pl ai nt i f f s f ai l t o al l ege any speci f i c

dut y or r i ght t hat was vi ol at ed by Fl agst ar i n t he 2009 agr eement

bet ween [ t he MacKenzi es] and Fl agst ar . " I t observed f ur t her t hat

"under Massachuset t s case l aw, absent an expl i ci t pr ovi si on i n t he

mor t gage cont r act , t her e i s no dut y to negot i at e f or l oan

modi f i cat i on once a mor t gagor def aul t s" ( i nt er nal quot at i on mar ks

omi t t ed) . I nst ead, a mort gagee' s dut y of good f ai t h when act i ng

under a "power of sal e" gener al l y onl y extends t o "r easonabl e

ef f or t s t o sel l t he pr oper t y f or t he hi ghest val ue possi bl e"

( i nt er nal quot at i on mar ks omi t t ed) . Ther ef or e, i t concl uded t hat

t he MacKenzi es had not st ated a cl ai mf or br each of t he covenant of

good f ai t h and f ai r deal i ng.

1. Third-Party Beneficiary Claim

The di st r i ct cour t was cor r ect i n deci di ng t hat t he

MacKenzi es are not t hi r d- par t y benef i ci ar i es of t he SPA bet ween

Fl agst ar and t he gover nment . I t i s a wel l - est abl i shed pr i nci pl e

t hat " [ g] over nment cont r act s of t en benef i t t he publ i c, but

i ndi vi dual member s of t he publ i c ar e t r eat ed as i nci dent al

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benef i ci ar i es [ who may not enf or ce a cont r act ] unl ess a di f f er ent

i nt ent i on i s mani f est ed. " Rest at ement ( Second) of Cont r act s 313

cmt . a ( 1981) ; see al so I nt er f ace Kanner , LLC v. J PMorgan Chase

Bank, N. A. , 704 F. 3d 927, 933 (11t h Ci r . 2013) ; Kl amath Water Users

Pr ot ect i ve Ass' n v. Pat t er son, 204 F. 3d 1206, 1211 ( 9t h Ci r . 1999)

( "Par t i es t hat benef i t f r om a gover nment cont r act ar e gener al l y

assumed t o be i nci dent al benef i ci ar i es, and may not enf or ce the

cont r act absent a cl ear i nt ent t o t he cont r ar y. ") ; Pr i ce v. Pi er ce,

823 F. 2d 1114, 1121 ( 7t h Ci r . 1987) .

Di st r i ct cour t s i n t hi s ci r cui t , r el yi ng on Kl amat h, have

appl i ed t hi s gener al pr i nci pl e i n t he speci f i c cont ext of di sput es

over HAMP modi f i cat i ons and have concl uded t hat bor r owers are not

t hi r d- par t y benef i ci ar i es of agr eement s bet ween mort gage l ender s

and t he gover nment . See Di l l v. Am. Home Mor t g. Ser vi ci ng, I nc. ,

935 F. Supp. 2d 299, 302 ( D. Mass. 2013) ; Tei xei r a v. Fed. Nat ' l

Mor t g. Ass ' n, No. 10- cv- 11649, 2011 WL 3101811, at *2 (D. Mass.

J ul y 18, 2011) ( "Al t hough HAMP was gener al l y desi gned t o benef i t

homeowner s, i t does not f ol l ow necessar i l y that homeowner s l i ke t he

pl ai nt i f f s ar e i nt ended t hi r d- par t y benef i ci ar i es of t he cont r acts

between servi cers and t he government . " ) ; Markl e v. HSBC Mor t g.

Corp. ( USA) , 844 F. Supp. 2d 172, 179- 82 ( D. Mass. 2011) ; Bl ackwood

v. Wel l s Far go Bank, N. A. , No. 10- cv- 10483, 2011 WL 1561024, at *6

( D. Mass. Apr . 22, 2011) ( "Massachuset t s cour t s have consi st ent l y

r ej ect ed t he ar gument t hat t her e i s a pr i vat e r i ght of act i on under

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HAMP by i nt ended t hi r d part y benef i ci ar i es. " ) ; Spel eos v. BAC Home

Loans Ser vi ci ng, L. P. , 755 F. Supp. 2d 304, 310 ( D. Mass. 2010) .

The r easoni ng of t hese di st r i ct cour t s i s persuasi ve. I n

Tei xei r a, t he cour t obser ved t hat t he SPA i n t hat case "does not

gi ve any i ndi cat i on t hat t he par t i es [ t o i t ] i nt ended t o gr ant

qual i f i ed bor r ower s t he r i ght t o enf or ce t he cont r act . " 2011 WL

3101811, at *2. I nst ead, t he SPA "appears t o l i mi t who can enf orce

t he cont r act ' s t er ms: ' The Agr eement shal l i nur e t o the benef i t of

and be bi ndi ng upon t he par t i es t o t he Agr eement and t hei r

per mi t t ed successor s- i n- i nt er est . ' " I d. The SPA i n t hi s case

cont ai ns i dent i cal l anguage. Whi l e i t i s t r ue t hat i nt ended

benef i ci ar i es " need not be speci f i cal l y named i n t he cont r act , "

t hey must "f al l [ ] wi t hi n a cl ass cl ear l y i nt ended by t he par t i es t o

benef i t f r om t he cont r act . " Mar kl e, 844 F. Supp. 2d at 181

( i nt er nal quot at i on mar ks omi t t ed) . The deci si on of t he

cont r act i ng par t i es her e speci f i cal l y t o i dent i f y t hemsel ves and

t hei r successor s as t he cont r act ' s benef i ci ar i es evi nces t hei r

i nt ent i on t o excl ude t hi r d- par t y benef i ci ar i es. Mor eover , as t he

cour t i n Mar kl e not ed:

I f pl ai nt i f f s wer e t hi r d- par t y benef i ci ar i es, ever yhomeowner- bor r ower i n t he Uni t ed St at es who has def aul t edon mor t gage payment s or i s at r i sk of def aul t coul d

become a pot ent i al pl ai nt i f f . Fi ndi ng such a br oad andi ndef i ni t e . . . cl ass of t hi r d- par t y benef i ci ar i es woul dbe i nconsi st ent wi t h t he cl ear i nt ent st andar d f orgovernment cont r act s set by t he Rest at ement .

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I d. at 182. Thus, t he br oadl y accept ed pr i nci pl e set f or t h i n t he

Rest atement , f r om whi ch we see no r eason t o devi at e, appl i es

squar el y t o t he ci r cumst ances of t hi s case and f or ecl oses t he

MacKenzi es' ar gument t hat t hey ar e t hi r d- par t y benef i ci ar i es of t he

SPA. 3

2. Flagstar's Duty of Good Faith as Mortgagee

Despi t e t hei r expl i ci t cl ai m t o be t hi rd- par t y

benef i ci ar i es of t he SPA, t he MacKenzi es r el y al most ent i r el y on

Cr uz, i n whi ch t he cour t f ound t hat bor r ower s are not t hi r d- par t y

benef i ci ar i es of SPAs, but never t hel ess f ound a subst ant i al

l i kel i hood t hat t he pl ai nt i f f woul d pr evai l on hi s cl ai mf or br each

of good f ai t h. 446 B. R. at 35. Oddl y, t he cour t i n t hat case

r el i ed on Spel eos, whi ch r ej ect ed t he good f ai t h cl ai m but al l owed

a negl i gence cl ai m t o pr oceed. 755 F. Supp. 2d at 31012. The

cour t i n Cr uz hel d t hat t he "pl ai nt i f f ' s al l egat i on . . . t hat

Wel l s Fargo br eached i t s dut y of good f ai t h and reasonabl e

di l i gence i s compar abl e t o t he negl i gence cl ai m i n Spel eos. " 446

3 The MacKenzi es poi nt t o Par ker v. Bank of Am. , NA, aMassachuset t s st at e cour t case t hat f ound a bor r ower t o be a t hi r d-par t y benef i ci ary of an SPA bet ween a mor t gagee and t he gover nment .No. 11- cv- 1838, 2011 WL 6413615, at *7 ( Mass. Super . Ct . Dec. 16,2011) . The cour t i n Par ker r el i ed on Marques v. Wel l s Far go HomeMor t gage, I nc. , a di st r i ct cour t case f r omCal i f or ni a t hat r eached

t he same concl usi on. No. 09- cv- 1985, 2010 WL 3212131, at *3 ( S. D.Cal . Aug. 12, 2010) . The cour t i n Par ker r ecogni zed, however , t hat"ever y cour t i n t he Di st r i ct of Massachuset t s ( and as f ar as Iknow, el sewher e) t o consi der t he i ssue has r ej ect ed t he Marqueshol di ng. " 2011 WL 6413615, at *7. Gi ven t he per suasi veness of t heaut hor i t y t o the cont r ar y, t he hol di ng i n Par ker does not changeour anal ysi s.

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B. R. at 4. The cour t di d not expl ai n, however , how t he t wo

cl ai ms wer e compar abl e.

A more cl ear l y reasoned case t hat r eaches t he same

concl usi on as Cr uz i s Bl ackwood. 2011 WL 1561024, at *5. I n t hat

case, t he cour t poi nt ed out t hat "[ i ] t i s f ami l i ar l aw t hat a

mort gagee i n exer ci si ng a power of sal e i n a mort gage must act i n

good f ai t h and must use reasonabl e di l i gence t o pr ot ect t he

i nt er est s of t he mor t gagor . " I d. ( quot i ng W. Roxbur y Co- op. Bank

v. Bowser , 87 N. E. 2d 113, 115 ( Mass. 1949) ) ( i nt er nal quot at i on

mar ks omi t t ed) . I t deci ded not t o di smi ss t he br each of good f ai t h

cl ai m, because i f " t he def endant s f or ecl osed when t hey l acked the

l egal aut hor i t y t o do so, t hey act ed i n vi ol at i on of t hei r

obl i gat i on t o pr ot ect t he mor t gagor . " I d.

The probl emwi t h t he deci si on i n Bl ackwood i s t hat " [ t ] he

concept of good f ai t h ' i s shaped by t he nat ur e of t he cont r act ual

r el at i onshi p f r om whi ch t he i mpl i ed covenant der i ves, ' and t he

' scope of t he covenant i s onl y as br oad as t he cont r act t hat

gover ns t he par t i cul ar r el at i onshi p. ' " Young v. Wel l s Far go Bank,

N. A. , 717 F. 3d 224, 238 ( 1st Ci r . 2013) ( quot i ng Ayash v.

DanaFar ber Cancer I nst . , 822 N. E. 2d 667, 684 ( Mass. 2005) ) . Her e,

t he 2007 Mor t gage as modi f i ed by the 2009 Agreement i s t he onl y

cont r act bet ween t he MacKenzi es and Fl agst ar . And as t he di st r i ct

cour t cor r ect l y poi nt ed out , not hi ng i n t he mor t gage i mposes a dut y

on Fl agst ar t o consi der a l oan modi f i cat i on pr i or t o f or ecl osur e i n

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t he event of a def aul t . See Pet er son v. GMAC Mort g. , LLC, No. 11-

cv- 11115, 2011 WL 5075613, at *6 ( D. Mass. Oct . 25, 2011) ( "Under

Massachuset t s case l aw, absent an expl i ci t pr ovi si on i n t he

mor t gage cont r act , t her e i s no dut y to negot i at e f or l oan

modi f i cat i on once a mort gagor def aul t s. " ( ci t i ng Carney v. Shawmut

Bank, N. A. , No. 07- P- 858, 2008 WL 4266248, at *3 ( Mass. App. Ct .

2008) ) ) .

I t i s t r ue that mort gagees have "an i ndependent dut y at

common l aw t o pr otect t he i nt er est s of t he mort gagor i n exer ci si ng

a power of sal e i n a mor t gage. " Tei xei r a, 2011 WL 3101811, at *2.

"Typi cal l y, t hi s ent ai l s mak[ i ng] r easonabl e ef f or t s t o sel l t he

pr oper t y f or t he hi ghest val ue possi bl e. " Ar mand v. Homecomi ngs

Fi n. Net work, No. 12- cv- 10457, 2012 WL 2244859, at *5 ( D. Mass.

J une 15, 2012) ( al t er at i on i n or i gi nal ) ( i nt er nal quot at i on mar ks

omi t t ed) . Thus, i n t he event of a f or ecl osur e, t he exi st ence of a

dut y of good f ai t h i s t i ed di r ect l y t o the mor t gagee' s cont r act ual

r i ght t o exer ci se a power of sal e. But t he i mpl i ed covenant of

good f ai t h "cannot ' cr eat e r i ght s and dut i es not ot her wi se pr ovi ded

f or i n t he exi st i ng cont r act ual r el at i onshi p. ' " Young, 717 F. 3d at

238 ( quot i ng Ayash, 822 N. E. 2d at 684) . I t woul d t her ef ore be an

err or t o ext end t he i mpl i ed covenant t o encompass a dut y t o modi f y

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( or consi der modi f yi ng) t he l oan pr i or t o f or ecl osur e, wher e no

such obl i gat i on exi st s i n t he mor t gage. 4

Because t he MacKenzi es ar e not t hi r d- par t y benef i ci ar i es

of t he SPA, and because Fl agst ar had no dut y t o modi f y t he

MacKenzi es' l oan pr i or t o f or ecl osur e, t he di st r i ct cour t cor r ectl y

di smi ssed Count I V.

B. MCCCDA (Count V) and Rescission (Count VII)

The MCCCDA provi des bor r ower s i n cer t ai n consumer cr edi t

t r ansact i ons, i ncl udi ng t he r ef i nanci ng of a mor t gage, wi t h a

r i ght of r esci ssi on and r equi r es l ender s t o make cer t ai n mandat or y

di scl osur es rel at ed t o t he t er ms of t he l oan. Mass. Gen. Laws ch.

140D, 10. Sect i on 10( f ) of t he st at ut e ext ends t he bor r ower ' s

r i ght of r esci ssi on t o a per i od of f our year s i n t he event t hat t he

l ender f ai l s t o make t he r equi r ed di scl osur es. I d. The MacKenzi es

4 The Pl ai nt i f f ' s argument on appeal appear s t o conf l at e t hei mpl i ed convenant of good f ai t h and f ai r deal i ng, whi ch at t aches t oever y cont r act , wi t h t he par t i cul ar dut y of a mor t gagee t o act i ngood f ai t h and use reasonabl e di l i gence i n exer ci si ng i t s power ofsal e. The t wo doct r i nes ar e di st i nct and have separ at eunder pi nni ngs. Compare Sandl er v. Si l k, 198 N. E. 749, 751 ( Mass.1935) ( expl ai ni ng t hat t he dut y of good f ai t h and r easonabl edi l i gence "ext ends . . . not onl y [ t o] t he mor t gagor " but al so t o" t hose hol di ng j uni or encumbr ances or l i ens" ) wi t h Ayash v. Dana-Far ber Cancer I nst . , 822 N. E. 2d 667, 684 ( Mass. 2005) ( not i ng t hatt he "scope of t he covenant [ of good f ai t h and f ai r deal i ng] i s onl y

as br oad as t he cont r act t hat gover ns t he par t i cul arr el at i onshi p") . Al t hough we appr eci at e t hi s di st i nct i on, wenever t hel ess anal yze t he i ssues t oget her because t hat i s how t heyar ose i n t he cont ext of t hi s case. I n t he f ut ur e, however , we wi sht o make cl ear t hat t he bet t er pr act i ce i s f or l i t i gant s t oacknowl edge t he di st i nct nat ur e of each doct r i ne and pr esent t hei rargument s accordi ngl y.

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al l ege t hat t he 2009 Agr eement i s a ref i nanci ng subj ect t o t he

t erms of t he MCCCDA and t hat Fl agst ar f ai l ed t o make t he r equi r ed

di scl osur es. Accor di ngl y, t hey seek t o exer ci se t hei r r i ght of

r esci ssi on wi t hi n t he f our - year per i od under sect i on 10( f ) .

The di st r i ct cour t hel d t hat " t he 2009 [ A] greement . . .

does not f al l wi t hi n t he pr ovi si ons of t he MCCCDA. " I t poi nt ed t o

sect i on 32. 20 of t i t l e 209 of t he Code of Massachuset t s

Regul at i ons, whi ch pr ovi des t hat :

A r ef i nanci ng occur s when an exi st i ng obl i gat i on t hat wassubj ect t o 209 CMR 32. 00 i s sat i sf i ed and r epl aced by anew obl i gat i on under t aken by t he same consumer . Ar ef i nanci ng i s a new t r ansact i on r equi r i ng newdi scl osur es to t he consumer . The new f i nance chargeshal l i ncl ude any unear ned por t i on of t he ol d f i nancechar ge t hat i s not credi t ed t o t he exi st i ng obl i gat i on.The f ol l owi ng shal l not be t r eat ed as a r ef i nanci ng:

. . .

( b) A r educt i on i n t he annual per cent age r at e wi t h acor r espondi ng change i n t he payment schedul e.

. . .

( d) A change i n t he payment schedul e or a change i ncol l at er al r equi r ement s as a resul t of t he consumer ' sdef aul t or del i nquency . . . .

209 Mass. Code Regs. 32. 20; see al so I n re Washi ngt on, 455 B. R.

344, 350 ( Bankr . D. Mass. 2011) ( appl yi ng thi s sect i on of t he

r egul at i ons t o t he MCCCDA) . The di st r i ct cour t f ound t hat t he 2009

Agreement was not a ref i nanci ng because i t di d no more than l ower

t he i nt erest r at e and change t he payment schedul e.

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I n t hei r i ni t i al br i ef , t he MacKenzi es si dest ep secti on

32. 20. They argue i nst ead t hat t he 2009 Agreement i s not exempt

f r om di scl osur e r equi r ement s under sect i on 10( e) ( 1) ( B) of chapt er

140D of t he Massachuset t s General Laws, whi ch excl udes ref i nanci ngs

f r om t he pur vi ew of t he MCCCDA under cer t ai n ci r cumst ances. That

ar gument i s besi de t he poi nt . As t he di st r i ct cour t hel d, t he

modi f i cat i on was not a r ef i nanci ng and, t hus, sect i on 10( e) ( 1) ( B)

does not appl y. I n t hei r r epl y br i ef , however , t he MacKenzi es

contend t hat t he 2009 Agreement was a ref i nanci ng because i n

addi t i on t o l ower i ng t he i nt er est r at e and extendi ng t he payment

schedul e, i t i nvol ved a new l ender and a new amount of pr i nci pal .

But t hese poi nt s do not under mi ne t he di st r i ct cour t ' s deci si on.

Fi r st , Fl agst ar i s not a "new l ender "; i t i s t he assi gnee

of Bankst r eet , t he or i gi nal l ender . I t i s axi omat i c t hat an

"assi gnee ' st ands i n t he shoes' of t he assi gnor . " R. I . Hosp. Tr ust

Nat ' l Bank v. Ohi o Cas. I ns. Co. , 789 F. 2d 74, 81 ( 1st Ci r . 1986)

( quot i ng 10 W. J aeger , Wi l l i st on on Cont r act s 432, at 182 ( 3d ed.

1967) ) . Thr ough t he assi gnment , Fl agst ar obt ai ned Bankst r eet ' s

r i ght s and obl i gat i ons under t he exi st i ng mor t gage, i ncl udi ng t he

r i ght t o reach an agreement wi t h t he MacKenzi es t o modi f y t he t erms

of t he l oan. See Bank of Am. , N. A. v. WRT Real t y, L. P. , 769 F.

Supp. 2d 36, 39 ( D. Mass. 2011) ( hol di ng t hat t he assi gnee of a

not e and mor t gage "enj oys al l r i ght s t he assi gnor possessed") . The

f act t hat Fl agst ar exer ci sed t hat r i ght does not mean t hat t he

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"exi st i ng obl i gat i on . . . [ was] sat i sf i ed and r epl aced by a new

obl i gat i on. " 209 Mass. Code Regs. 32. 20

Second, t he change i n t he amount of pr i nci pal was t he

r esul t of t he capi t al i zat i on of unpai d i nt er est . I n ot her wor ds,

t he ent i r e pr i nci pal bal ance under t he 2009 Agr eement was debt owed

under t he or i gi nal mor t gage; i t was not a new obl i gat i on r epl aci ng

t he or i gi nal obl i gat i on. See Sheppar d v. GMAC Mor t g. Cor p. , 299

B. R. 753, 76264 ( Bankr . E. D. Pa. 2003) ( hol di ng t hat t he

capi t al i zat i on of unpai d debt does not const i t ut e a r ef i nanci ng

under t he Tr ut h I n Lendi ng Act , 15 U. S. C. 16011667f , on whi ch

t he MCCCDA i s model ed, because t he new obl i gat i on di d not

compl et el y repl ace t he ol d one) .

Thus, under t he t er ms of sect i on 32. 20, t he 2009

Agr eement i s not a r ef i nanci ng. I t i s not subj ect t o t he

di scl osur e requi r ement s of t he MCCCDA, and the MacKenzi es have no

r i ght t o r esci nd i t under t he st at ut e. Ther ef or e t he di st r i ct

cour t pr oper l y di smi ssed Count s V and VI I .

C. Negligence (Count IX)

I n Count I X, t he MacKenzi es cl ai m t hat Fl agst ar "owed

[ t hem] a dut y . . . as t hi r d- par t y benef i ci ar i es of t he [ SPA]

between a l oan ser vi cer and t he f ederal government , " and t hat

Fl agst ar "br eached t hei r obl i gat i ons under t he HAMP and other

r el ated gover nment pr ogr ams whi ch t he SPA i ncorporates. " To st ate

a cl ai m f or negl i gence under Massachuset t s l aw, a pl ai nt i f f must

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al l ege: "( 1) a l egal dut y owed by def endant t o pl ai nt i f f ; ( 2) a

br each of t hat dut y; ( 3) pr oxi mat e or l egal cause; and ( 4) act ual

damage or i nj ur y. " Pr i mus v. Gal gano, 329 F. 3d 236, 241 ( 1st Ci r .

2003) ( i nt er nal quot at i on mar ks omi t t ed) . The di st r i ct cour t

cor r ect l y concl uded t hat t he MacKenzi es' al l egat i ons f al l shor t

because as a mat t er of l aw Fl agst ar does not owe the MacKenzi es any

l egal dut y under t he ci r cumst ances of t hi s case.

As we have sai d above, t he MacKenzi es ar e not t hi r d- part y

benef i ci ar i es of t he SPA bet ween Fl agst ar and t he gover nment .

Ther ef or e, t hey cannot base t hei r negl i gence cl ai m on t hat

argument . The MacKenzi es appear t o argue i n t he al t er nat i ve t hat

vi ol at i ons of HAMP gi ve r i se t o a cl ai m f or negl i gence per se.

That ar gument f ai l s as wel l .

"Gener al l y, a dut y of car e ar i ses f r om t he r el at i onshi p

of par t i es t o one anot her : l andl or d and t enant , doct or and pat i ent ,

dr i ver and passenger , et c. " Br own v. Bank of Am. Corp. , No. 10- cv-

11085, 2011 WL 1311278, at *4 ( D. Mass. Mar . 31, 2011) . The

r el at i onshi p bet ween a bor r ower and l ender does not gi ve r i se t o a

dut y of care under Massachuset t s l aw. See Corcoran v. Saxon Mor t g.

Servs. , I nc. , No. 09- cv- 11468, 2010 WL 2106179, at *4 ( D. Mass. May

24, 2010) ( " [ A] l ender owes no gener al dut y of care t o a

borr ower . " ) ; Mur r ay v. Am. ' s Ser vi ci ng Co. , No. 200701716, 2009 WL

323375, at *5 ( Mass. Super . Ct . J an. 12, 2009) . " [ T] he exi st ence

of a posi t i ve r egul at i on i mposi ng a dut y on one act or does not by

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i t sel f cr eat e a si mi l ar dut y as a mat t er of st at e t or t common l aw. "

Br own, 2011 WL 1311278, at *4.

The MacKenzi es cor r ect l y poi nt out t hat "vi ol at i ons of a

st at ut e may const i t ut e evi dence of negl i gence, " and t hat " [ a] cl ai m

f or negl i gence based on a st at ut or y or r egul at or y vi ol at i on can

survi ve even wher e t her e i s no pr i vat e cause of act i on under t hat

st at ut e or r egul at i on. " Bot h of t hose pr oposi t i ons ar e t r ue, but

nei t her di r ect l y addr esses t he di sposi t i ve i ssue her e: st at ut or y or

r egul at or y vi ol at i ons cannot gi ve r i se t o a negl i gence cl ai m when

t her e i s no i ndependent dut y of care bet ween t he part i es. See

Sei del v. Wel l s Far go Bank, N. A. , No. 12- cv- 10766, 2012 WL 2571200,

at *4 ( D. Mass. J ul y 3, 2012) ( "HAMP . . . does not cr eat e an

i ndependent dut y f or mort gag[ ee] s wher e no ot her basi s f or t hat

dut y exi s ts . Thus , pl ai nt i f f ' s cl ai m f or negl i gence f ai l s

. . . . ") ( i nt er nal ci t at i ons omi t t ed) ; Br own, 2011 WL 1311278, at

*4 ( " [ W] hi l e vi ol at i on of a regul at i on such as HAMP may pr ovi de

evi dence of a br each of a dut y ot her wi se owed, i t does not cr eate

such a dut y i n t he f i r st pl ace. ") ; Mar kl e, 844 F. Supp. 2d at 185.

Wher e an i ndependent dut y of car e exi st s, t he vi ol at i on of a

st at ut e or r egul at i on can pr ovi de evi dence of a br each of t hat

dut y, even i f t he st at ut e or r egul at i on i t sel f does not creat e a

pr i vat e r i ght of act i on. But i n t he absence of an i ndependent

dut y, a pl ai nt i f f cannot pr oceed wi t h a negl i gence cl ai m based

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sol el y on a st at ut or y or r egul at or y vi ol at i on. Thus, t he di st r i ct

cour t pr oper l y di smi ssed Count I X.

D. Promissory Estoppel (Count X)

I n Count X, t he MacKenzi es al l ege t hat "Borr ower s and

Fl agst ar ent er ed i nt o an agr eement t hat a f or ecl osur e sal e coul d be

conduct ed accordi ng to t he t erms of t he Power of Sal e i n the 2009

Mor t gage Loan and/ or t he 2007 Deed of Trust . " Accor di ng t o t he

MacKenzi es, " [ i ] mpl i ci t i n t hese cont r act s i s an agr eement by

Fl agst ar t hat al l document s r ecor ded by Fl agst ar r el at i ve t o t he

2007 Deed of Trust or t he 2009 Mor t gage Loan shal l be f r ee f r om

f r aud and shal l be r el i abl e. " The MacKenzi es cl ai m t hat t hey

"r el i ed on t hi s pr omi se of Fl agst ar t o t hei r det r i ment , and have

been damaged as a r esul t of t he f ai l ur e of t he [ si c] Fl agst ar t o

keep i t s pr omi se. "

Under Massachuset t s l aw, t o st at e a cl ai mf or pr omi ssory

est oppel "a pl ai nt i f f must al l ege t hat ( 1) a pr omi sor makes a

pr omi se whi ch he shoul d r easonabl y expect t o i nduce act i on or

f or bear ance of a def i ni t e and subst ant i al char act er on t he par t of

t he pr omi see, ( 2) t he pr omi se does i nduce such act i on or

f orbearance, and ( 3) i nj ust i ce can be avoi ded onl y by enf orcement

of t he pr omi se. " Di l l , 935 F. Supp. 2d at 304 ( i nt er nal quot at i on

mar ks omi t t ed) . The di st r i ct cour t di smi ssed Count X, f i ndi ng t hat

t he MacKenzi es had r eci t ed t he el ement s of a pr omi ssory est oppel

cl ai m, but had "f ai l [ ed] t o ar t i cul at e t he f act s t o suppor t t h[ ose]

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el ement s. " Speci f i cal l y, "Pl ai nt i f f s f ai l [ ed] to i dent i f y t he

part i cul ar pr omi se t hat t hey rel i ed upon and t he manner i n whi ch

such r el i ance was t o t hei r det r i ment . "

Looki ng sol el y at t he Amended Compl ai nt , t he di st r i ct

cour t ' s deci si on i s pl ai nl y cor r ect. These al l egat i ons ar e a

t ext book i l l ust r at i on of t he t ype of "f or mul ai c reci t at i on of t he

el ement s of a cause of act i on" t hat f al l s bel ow t he st andar d of

Feder al Rul e of Ci vi l Pr ocedur e 8( a) ( 2) . Ashcrof t v. I qbal , 556

U. S. 662, 678 ( 2009) . On appeal , however , t he MacKenzi es t r y t o

r echar act er i ze t hei r cl ai m. Rat her t han f ocusi ng on i mpl i ci t

cont r actual pr omi ses not t o engage i n f r aud, t hey now argue that

Fl agst ar "engag[ ed] i n a cour se of conduct t hem [ si c] f or over t wo

year s l eadi ng t hem t o bel i eve t hat t he r esul t woul d be a HAMP

modi f i cat i on. " Accor di ng t o t he MacKenzi es, t hey "det r i ment al l y

r el i ed upon Fl agst ar ' s pr omi ses by, i n par t , awai t i ng det er mi nat i on

of HAMP el i gi bi l i t y and l oan modi f i cat i on" i nst ead of "seek[ i ng]

al t er nat i ves t o f or ecl osur e. "

"[ I ] t i s a vi r t ual l y i r oncl ad r ul e t hat a par t y may not

advance f or t he f i r st t i me on appeal ei t her a new argument or an

ol d argument t hat depends on a new f act ual pr edi cat e. " Cochr an v.

Quest Sof t war e, I nc. , 328 F. 3d 1, 11 ( 1st Ci r . 2003) . But even

consi der i ng t hese new argument s on t hei r own t erms, t hey f are no

bet t er t han t he al l egat i ons bel ow.

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The MacKenzi es cl ai m t hat "Fl agst ar st r ung [ t hem] al ong

. . . f r om Oct ober 2009 t hr ough t he f al l of 2011 onl y to pr esent

t hem wi t h an of f er j ust days bef or e t he f or ecl osur e sal e, " t her eby

cr eat i ng a " r easonabl e expect at i on" t hat Fl agst ar woul d modi f y t he

l oan i nst ead of pur sui ng f or ecl osur e. These ci r cumst ances, t he

MacKenzi es argue, ar e si mi l ar t o t hose i n Di xon v. Wel l s Far go

Bank, N. A. , wher e t he di st r i ct cour t al l owed a pr omi ssor y est oppel

cl ai m t o sur vi ve a mot i on t o di smi ss. 798 F. Supp. 2d 336, 34052

( D. Mass. 2011) . Di xon i s di st i ngui shabl e f r om t he pr esent case,

however .

I n Di xon, "Wel l s Fargo convi nced t he Di xons t hat t o be

el i gi bl e f or a l oan modi f i cat i on t hey had t o def aul t on t hei r

[ mort gage] payment s. " I d. at 346. But once t he Di xons def aul t ed,

i nst ead of modi f yi ng t he l oan, t he bank i ni t i at ed f or ecl osur e

wi t hout any war ni ng. I d. at 339. " [ I ] t was onl y because t hey

r el i ed on t hi s r epr esent at i on and st opped maki ng t hei r payment s

t hat Wel l s Far go was abl e t o i ni t i at e f or ecl osur e pr oceedi ngs. "

I d. at 346. Thus, i n t hat case, t he pl ai nt i f f s al l eged bot h a

"speci f i c pr omi se" and a "l egal det r i ment t hat . . . was a di r ect

consequence of t hei r r el i ance on [ t hat ] promi se. " I d. at 343.

Her e, t he MacKenzi es have done nei t her . The f act t hat

Fl agst ar consi der ed t he MacKenzi es f or a l oan modi f i cat i on mul t i pl e

t i mes over a t wo- year per i od i s not a pr omi se, i mpl i ci t or

ot her wi se, t o consi der t hemf or f ur t her l oan modi f i cat i ons pr i or t o

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i ni t i at i ng f or ecl osur e. Mor eover , t he MacKenzi es' ar gument i gnor es

t hat Fl agst ar di d i n f act of f er t hema l oan modi f i cat i on under HAMP

on November 2, 2011, whi ch they apparent l y rej ect ed because t hey

coul d not af f or d t he i ni t i al payment . Thus, even i f Fl agst ar had

made an i mpl i ci t pr omi se t o of f er t hem a l oan modi f i cat i on, i t

appear s t o have f ul f i l l ed t hat pr omi se.

Addi t i onal l y, t he MacKenzi es have not al l eged any f act s

t hat woul d al l ow us t o i nf er t hat t hei r deci si on not t o seek

"al t er nat i ves t o f or ecl osur e" was det r i ment al t o t hem. I n ot her

wor ds, t her e i s no r eason f or us t o bel i eve t he MacKenzi es woul d

have successf ul l y avoi ded f or ecl osur e, or been bet t er of f i n any

way, but f or t hei r r el i ance on Fl agst ar ' s supposed pr omi se t o

consi der t hem f or a l oan modi f i cat i on. Ther ef or e, t he MacKenzi es

have f ai l ed t o adequatel y pl ead t he el ement s of a pr omi ssory

est oppel cl ai m, and t he di st r i ct cour t cor r ect l y di smi ssed Count X.

E. Validity of the Mortgage Assignment to Flagstar

The MacKenzi es' f i nal ar gument asser t s t hat t hey "have

st andi ng t o chal l enge Fl agst ar ' s aut hor i t y t o f or ecl ose on t hei r

home" under Cul hane v. Aurora Loan Servi ces of Nebr aska, 708 F. 3d

282 ( 1st Ci r . 2013) . They cl ai m t hat " t he t r ust i nt o whi ch t he

2007 Mor t gage Loan was sol d and secur i t i zed has s i nce been

[ d] i ssol ved. Consequent l y, . . . MERS had not hi ng t o assi gn t o

Fl agst ar on [ t he] date of t he assi gnment . " The MacKenzi es concl ude

t hat " [ b] ecause Fl agst ar r ecei ved not hi ng f r om t he assi gnment i t

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has no aut hor i t y t o commence f orecl osur e pr oceedi ng[ s] on t he

MacKenzi es' home. "

The MacKenzi es ar e cor r ect t hat Cul hane suppor t s t hei r

st andi ng t o chal l enge t he assi gnment of t he mort gage. The

pl ai nt i f f i n Cul hane, however , chal l enged t he assi gnment under

Massachuset t s Gener al Laws chapt er 183, sect i on 54B. I d. at

29394. Her e, t he f act ual al l egat i ons r el at ed t o pur por t ed def ect s

i n t he assi gnment ar e not t et her ed t o any l egal cl ai m bef or e us on

appeal . I n t he amended compl ai nt , t hese al l egat i ons appeared i n

t he cont ext of t he MacKenzi es' cl ai m f or f r aud ( Count I ) and

per haps ( i t i s not ent i r el y cl ear ) t he cl ai m f or vi ol at i ons of

Massachuset t s General Laws chapt er 93A ( Count I I I ) . The MacKenzi es

chose not t o pur sue t hose cl ai ms on appeal . I t i s not appar ent

t hat t hese al l egat i ons are r el evant t o any of t he r emai ni ng count s.

At oral argument , counsel f or t he MacKenzi es at t empt ed to

f i nd a home f or t hese or phaned al l egat i ons by suggest i ng t hat t hey

are r el ated t o t he negl i gence cl ai m. But t he MacKenzi es pr emi se

t hei r negl i gence cl ai mon Fl agst ar ' s al l eged f ai l ur e t o f ol l ow HAMP

gui del i nes, not on any def ect s i n t he assi gnment . Fur t her mor e, f or

t he r easons di scussed above, t he negl i gence cl ai m f ai l s because

Fl agst ar does not owe a dut y of care t o t he MacKenzi es. Thus, even

accept i ng as t r ue t he MacKenzi es' al l egat i ons r egar di ng t he

def ect i ve assi gnment , we woul d not be abl e to gr ant any rel i ef ,

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because t he MacKenzi es have not preserved on appeal any l egal

t heory on whi ch t hey mi ght r ecover .

III. Conclusion

For t he f or egoi ng r easons, we af f i r mt he di st r i ct cour t ' s

di smi ssal of t he amended compl ai nt .

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mackenzie v. flagstar bank, fsb, 1st cir. (2013)

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