Santos v. U.S Bank National Association

NOTICE: All slip opinions and orders are subject to formal
revision and are superseded by the advance sheets and bound
volumes of the Official Reports. If you find a typographical
error or other formal error, please notify the Reporter of
Decisions, Supreme Judicial Court, John Adams Courthouse, 1
Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-
1030; SJCReporter@sjc.state.ma.us
15-P-334 Appeals Court
MILTON R. SANTOS1 vs. U.S. BANK NATIONAL ASSOCIATION, trustee,2
& others.3
No. 15-P-334.
Suffolk. February 24, 2016. - July 8, 2016.
Present: Katzmann, Milkey, & Blake, JJ.
Bank. Loan. Mortgage, Real estate, Foreclosure. Real
Property, Mortgage. Notice. Practice, Civil, Motion to
dismiss, Summary judgment, Summary process. Summary
Process.
Civil action commenced in the Superior Court Department on
March 28, 2011.
The case was heard by Heidi E. Brieger, J., on a motion for
summary judgment.
1
Also known as Milton R. Dossantos.
2
Of the Structured Asset Securities Corporation Mortgage
Pass-Through Certificates, 2006-EQ1.
3
U.S. Bancorp and Wells Fargo Bank, N.A., doing business as
America's Servicing Company. Where Santos has not suggested any
reason to differentiate between the various named defendants in
terms of his theories of liability and the defendants have
presented a unified defense, we collectively refer to all the
defendant parties as "defendants" except where U.S. Bank
National Association acted alone (e.g., in pursuing the
postforeclosure summary process action).
2
Michael J. Traft (Robert Graves with him) for the
plaintiff.
Sean R. Higgins (Michael Stanley with him) for the
defendants.
KATZMANN, J. The plaintiff mortgagor Milton R. Santos
appeals from orders of a Superior Court judge dismissing his
claim that the mortgagee and mortgage servicing defendants
violated G. L. c. 244, § 35A, and granting summary judgment to
the defendants on his claim that U.S. Bank National Association
(U.S. Bank) negligently processed his loan modification
applications made pursuant to the Home Affordable Modification
Program (HAMP). We affirm.
Background. We recite the facts alleged in Santos's
complaint as supplemented by the undisputed facts in the summary
judgment record and descriptions of HAMP from case law.
1. HAMP.4 "HAMP was part of Congress's response to the
financial and housing crisis that struck the country in the fall
of 2008." Spaulding v. Wells Fargo Bank, N.A., 714 F.3d 769,
772 (4th Cir. 2013). Acting under authority conferred by the
Emergency Economic Stabilization Act of 2008 (EESA), 12 U.S.C.
§§ 5201 et seq. (and specifically the Troubled Asset Relief
Program [TARP], 12 U.S.C. §§ 5211–5241), and in conjunction with
4
The following is but a brief overview of HAMP. For a
thorough and detailed presentation of "background information on
the HAMP program," see Wigod v. Wells Fargo Bank, N.A., 673 F.3d
547, 556-557 (7th Cir. 2012).
3
the Federal Housing Finance Agency, the Federal National
Mortgage Association (Fannie Mae), and the Federal Home Loan
Mortgage Corporation (Freddie Mac), the Secretary of the
Treasury (Secretary) introduced the Making Home Affordable
Program in February, 2009. HAMP, which is administered by
Fannie Mae, is part of this initiative. Markle v. HSBC Mort.
Corp. (USA), 844 F. Supp. 2d 172, 176 (D. Mass. 2011).
"HAMP aims to provide relief to borrowers who have
defaulted on their mortgage payments or who are likely to
default by reducing mortgage payments to sustainable
levels. . . . Under HAMP, loan servicers receive incentive
payments for each permanent loan modification completed. . . .
Mortgage lenders approved by Fannie Mae must participate in
HAMP. . . . Lenders servicing mortgages not owned or guaranteed
by Fannie Mae or Freddie Mac may elect to participate in HAMP by
executing a Servicer Participation Agreement with Fannie Mae in
its capacity as financial agent for the United States." Id. at
176-177. "Loan servicers receive a $1,000 payment for each
permanent modification, in addition to other incentives." Young
v. Wells Fargo Bank, N.A., 717 F.3d 224, 229 (1st Cir. 2013).
"The Secretary negotiated Servicer Participation Agreements
(SPAs) with dozens of home loan servicers . . . . Under the
terms of the SPAs, servicers agreed to identify homeowners who
were in default or would likely soon be in default on their
4
mortgage payments, and to modify the loans of those eligible
under the program." Wigod v. Wells Fargo Bank, N.A., 673 F.3d
547, 556 (7th Cir. 2012). On August 20, 2009, U.S. Bank
executed an SPA with Fannie Mae. "The Department of the
Treasury and Fannie Mae have issued a series of directives that
provide guidance to mortgage servicers implementing HAMP. Under
the guidelines, servicers may identify and solicit borrowers who
are in default on their mortgage payments, or soon will be, and
evaluate their eligibility to participate in HAMP." Markle, 844
F. Supp. 2d at 177.
"HAMP urges banks and loan servicers to offer loan
modifications to eligible borrowers with the goal of reducing
[their] mortgage payments to sustainable levels, without
discharging any of the underlying debt." Young, 717 F.3d at 228
(quotation omitted). Under the guidelines, HAMP-eligible
homeowners are offered a trial period plan (TPP) in which the
homeowner undertakes to pay modified mortgage payments for a
three-month trial period. "The standard-form TPP represents to
borrowers that they will obtain a permanent modification at the
end of the trial period if they comply with the terms of the
agreement." Markle, 844 F. Supp. 2d at 177. Freddie Mac "is
the sole compliance agent responsible for enforcing HAMP."
Spaulding, 714 F.3d at 774.
5
"Perhaps not surprisingly, given the large stakes for
financially stressed homeowners, and in light of widespread
media reports of bureaucratic bungling (and worse) on the part
of lenders, mortgage servicers, and their myriad agents, HAMP
has given rise to a large number of civil claims by mortgagors
against financial industry firms." Ibid.
2. Santos's mortgage history. On April 28, 2006, Santos
purchased a residential property in Revere (property) for
$368,000. He financed the purchase with two mortgage loans that
together covered 100 percent of the purchase price.5 After an
assignment from the initial lender, Santos's first mortgage in
the amount of $294,400 was held by U.S. Bank, as trustee for a
securitized pool of mortgages, and serviced by Wells Fargo Bank,
N.A., doing business as America's Servicing Company.
Santos defaulted on his mortgage in 2008. Between 2009 and
2010, the defendants evaluated Santos several times for a
permanent loan modification under HAMP. Despite Santos's
participation in a three-month HAMP TPP, the defendants
ultimately denied all of Santos's applications for a permanent
loan modification under HAMP. In April, 2010, the defendants
offered Santos an in-house modification (that is, not a HAMP
modification) that Santos declined.
5
Only one of those mortgage loans is at issue here.
6
On July 22, 2010, the defendants foreclosed on the mortgage
and purchased the property at the foreclosure sale for $212,415.
3. Procedural history. Subsequent to foreclosure, on
March 7, 2011, the defendants initiated a summary process action
in the District Court. Santos answered the summary process
complaint, asserting, inter alia, that he was in the process of
bringing a case in Superior Court against the defendants for
various claims, including a violation of G. L. c. 244, § 35A.6
On March 29, 2011, Santos in fact filed a verified
complaint in Superior Court alleging that the defendants
negligently failed to adhere to HAMP guidelines in processing
his loan modification applications (count I) and seeking a
declaration that the foreclosure was invalid because the
defendants failed to send him notice of his ninety-day right to
cure prior to foreclosure in violation of G. L. c. 244, § 35A(a)
6
General Laws c. 244, § 35A, has gone through various
iterations. As applicable here, it provided for a ninety-day
right to cure: "Any mortgagor of residential real property
located in the commonwealth . . . shall have a 90 day right to
cure a default of a required payment as provided in such
residential mortgage or note secured by such residential real
property by full payment of all amounts that are due without
acceleration of the maturity of the unpaid balance of such
mortgage. . . . The mortgagee . . . shall not accelerate
maturity of the unpaid balance of such mortgage obligation or
otherwise enforce the mortgage because of a default consisting
of the mortgagor's failure to make any such payment . . . by any
method authorized by this chapter or any other law until at
least 90 days after the date a written notice is given by the
mortgagee to the mortgagor." G. L. c. 244, § 35A(a) & (b),
inserted by St. 2007, c. 206, § 11 (effective May 1, 2008).
7
(count II).7 In his prayer for relief, Santos sought, inter
alia, orders declaring the foreclosure void and restoring title
to his name. The complaint noted the pendency of eviction
proceedings in the "Housing Court."
Meanwhile, the summary process action in District Court
proceeded, culminating in a judgment in favor of U.S. Bank for
possession on December 1, 2011. Santos's appeal from the
judgment of possession was dismissed.8
The defendants moved to dismiss the Superior Court action
pursuant to Mass.R.Civ.P. 12(b)(6), 365 Mass. 754 (1974), on
June 7, 2011, before the resolution of the summary process
action. Where that motion apparently remained pending beyond
the conclusion of the summary process case, the defendants
ultimately filed a supplemental memorandum in support of
dismissal after the District Court judgment issued.
7
Additional counts for declaratory relief based on U.S.
Bank's standing to foreclose and for equitable production of the
original note, which were dismissed at the Mass.R.Civ.P.
12(b)(6), 365 Mass. 754 (1974), stage, are not before us on
appeal.
8
The order allowing the motion to dismiss the appeal does
not reflect the basis for the dismissal of the summary process
appeal. Counsel for the defendants informed this court at oral
argument that the appeal was dismissed for failure to pay an
appeal bond. The defendants' supplemental memorandum in support
of their motion to dismiss Santos's complaint in this case
states that the summary process appeal was dismissed for failure
to prosecute.
8
In an order dated January 3, 2013, the Superior Court judge
dismissed Santos's § 35A claim on the basis of claim preclusion
where the claim could have been brought in the summary process
action between the identical parties. However, the judge denied
the defendants' motion to dismiss Santos's negligence claim,
allowing it to proceed based on her conclusions that, under
Federal law, Santos is a third-party beneficiary under the SPA
between Fannie Mae and U.S. Bank and that, as a third-party
beneficiary, Santos could pursue a claim for negligent
performance of the duties imposed by the SPA. However, when the
case later came before her for summary judgment on the
negligence claim, the same judge granted summary judgment in
favor of the defendants on the basis that, under the economic
loss theory as articulated in FMR Corp. v. Boston Edison Co.,
415 Mass. 393, 395 (1993), Santos had not presented evidence of
a legally cognizable injury that would support his negligence
claim.
Discussion. Although the orders on appeal arise from
different stages of the litigation, we review the allowance of
motions to dismiss and motions for summary judgment de novo.
"We review a grant of summary judgment de novo to determine
whether, viewing the evidence in the light most favorable to the
nonmoving party, all material facts have been established and
the moving party is entitled to a judgment as a matter of
9
law. . . . De novo review also applies to the judge's dismissal
of the plaintiffs' complaint under Mass.R.Civ.P. 12(b) . . .
(6)." Pinti v. Emigrant Mort. Co., 472 Mass. 226, 231 (2015)
(quotation omitted). To survive a motion to dismiss, the
complaint must include "factual 'allegations plausibly
suggesting' . . . an entitlement to relief." Iannacchino v.
Ford Motor Co., 451 Mass. 623, 636 (2008), quoting from Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 555, 557 (2007).
Although the judge did not have the benefit of some of the
recent opinions of the Supreme Judicial Court in the mortgage
context, we are satisfied that the § 35A claim was properly
dismissed under the circumstances here where Santos should have
litigated it in the summary process action. Because we agree
with the overwhelming weight of authority that borrowers cannot
maintain negligence actions against lenders for failure to
adhere to HAMP guidelines, we conclude that Santos's negligence
claim should have been dismissed pursuant to the rule 12(b)(6)
motion and was therefore properly, if belatedly, resolved in the
defendants' favor on summary judgment.
1. Right to cure violation. Santos contends that the
defendants failed to provide him with notice of his right to
cure the mortgage default as required under G. L. c. 244, § 35A.
The judge correctly determined that res judicata bars Santos
10
from pursuing this claim now when he could have done so in the
District Court summary process action.
a. Res judicata. "The term 'res judicata' includes both
claim preclusion and issue preclusion. Claim preclusion makes a
valid, final judgment conclusive on the parties and their
privies, and prevents relitigation of all matters that were or
could have been adjudicated in the action. This is based on the
idea that the party to be precluded has had the incentive and
opportunity to litigate the matter fully in the first lawsuit.
The invocation of claim preclusion requires three elements: (1)
the identity or privity of the parties to the present and prior
actions, (2) identity of the cause of action, and (3) prior
final judgment on the merits." Kobrin v. Board of Registration
in Med., 444 Mass. 837, 843 (2005) (quotations and citation
omitted). "It is the general rule that when two different
actions involving the same parties and the same claim are
pending at the same time, the final judgment first rendered is
entitled to res judicata effect in the second action, regardless
of which was commenced first." Wright Mach. Corp. v. Seaman-
Andwall Corp., 364 Mass. 683, 690 (1974), citing Restatement of
Judgments § 43 (1942) and Restatement (Second) of Judgments
§ 41.1 (1982).
The elements of claim preclusion are satisfied here. The
parties are identical or in privity with those in the summary
11
process action. The cause of action was also sufficiently
identical where Santos has framed his § 35A claim as one that
would establish that the foreclosure was invalid, which would
also have defeated U.S. Bank's title in the summary process
action. That summary process action proceeded to final
judgment. The summary process judgment, which became final when
Santos's appeal was dismissed, established U.S. Bank's superior
title and subsumed all related claims, including the question
whether any defect in the notice of right to cure undermined
U.S. Bank's title.
Santos contends that claim preclusion is inapplicable to
his § 35A claim because he preserved the issue by explicitly
reserving his right to bring an action in Superior Court for
violation of § 35A in his summary process answer. However,
litigants cannot unilaterally reserve rights to bring claims in
later actions. Rather, the preservation of claims in this
manner is the exclusive province of the court hearing the
action. "Under a generally accepted exception to the res
judicata doctrine, a litigant's claims are not precluded if the
court in an earlier action expressly reserves the litigant's
right to bring those claims in a later action" (emphasis added).
Perroncello v. Donahue, 64 Mass. App. Ct. 564, 570 (2005), S.C.,
448 Mass. 199 (2007), quoting from Apparel Art Intl., Inc. v.
Amertex Enterprises Ltd., 48 F.3d 576, 586 (1st Cir. 1995), and
12
citing Restatement (Second) of Judgments § 26(1)(b) (1982). See
Chadbourne v. Chadbourne, 245 Mass. 383, 384 (1923) (res
judicata not applicable to question that "not only was not
litigated but was expressly reserved by the court"). Absent a
judicial reservation, res judicata principles prohibit parties
from proceeding by way of "piecemeal litigation, offering one
legal theory to the court while holding others in reserve for
future litigation should the first theory prove unsuccessful."
Bagley v. Moxley, 407 Mass. 633, 638 (1990) (claim that was
"capable of being raised" and "should have been raised" in prior
action is "barred from relitigation" in subsequent action).
Santos's opposition to application of res judicata is
further weakened by the absence of any plausibly legitimate
reason for trying to pursue piecemeal litigation. In his answer
to the summary process action, Santos noted that he was "in the
process of bringing a court case against [U.S. Bank] alleging
wrongful foreclosure and the following claims relating to the
mortgage on the property and the underlying loan: . . .
Violation of [G. L. c. 244, §] 35A." Santos did not indicate in
any way that he had doubts about the propriety of raising such
claim in a summary process action.
Santos also did not suggest in his summary process answer,
or any other filing, that he doubted the District Court's
jurisdiction. The elucidation provided by subsequently decided
13
cases does not support Santos's claim -- never raised in either
proceeding below -- of jurisdictional confusion. For example,
Bank of America, N.A. v. Rosa, 466 Mass. 613 (2013), may have
clarified the expanded jurisdiction of the Housing Court, but
U.S. Bank brought its summary process action in District Court.
Santos has not suggested any basis to doubt the District Court's
jurisdiction even prior to Rosa. See G. L. c. 218, § 19, as
amended by St. 2004, c. 252, § 5 ("Notwithstanding the
limitation of $25,000, or other amount ordered by the supreme
judicial court, the district courts may proceed with actions for
money damages in any amount in summary process actions"); G. L.
c. 218, § 19C, as amended by St. 2004, c. 252, § 8 ("The
district court and Boston municipal court departments of the
trial court shall have the same equitable powers and
jurisdiction as is provided for the superior court pursuant to
chapter 214 and the same authority with regard to declaratory
judgments as is provided for the superior court pursuant to
chapter 231A for the purpose of the hearing and disposition of
summary process actions and of civil actions for money damages
under section 19 of this chapter"); G. L. c. 231, § 31, as
amended by St. 1973, c. 1114, § 164 ("In the district courts,
the defendant may allege in defense any facts which would
entitle him in equity to be absolutely and unconditionally
relieved against the plaintiff's claim or cause of action or
14
against a judgment recovered by the plaintiff in such action").
Santos has not claimed that he needed Rosa's discussion of G. L.
c. 231, § 31, to understand the statute's import for his case.
See Rosa, 466 Mass. at 620 ("Section 31 allows a summary process
defendant to raise equitable defenses in the District Court that
may 'absolutely and unconditionally' defeat the plaintiff's
claim. Such defenses are not limited to failure to comply
strictly with the power of sale of a mortgage. They may
include, without limitation, the defense of payment of the
mortgage note").
Finally, where Santos requested, but did not receive, a
stay of the summary process action, it was unreasonable for him
to believe that he could unilaterally hold back certain claims
for a later date or an alternate forum. Santos concluded his
summary process answer by requesting that the District Court
"stay all Summary Process proceedings in this Court while [he]
files a complaint in the Superior Court to quiet title on [his]
home and bring the accompanying claims against [U.S. Bank]."
There is no indication in the record that the District Court
ever acted on this request. On appeal, Santos himself reports
that his attempt to stay the summary process action by seeking a
temporary restraining order in Superior Court was unsuccessful.
It is not acceptable for a homeowner mortgagor to seek to
force a foreclosing lender to litigate in multiple venues across
15
separate proceedings by unilaterally holding certain claims back
from summary process when those claims are within the summary
process court's jurisdiction and assertedly essential to the
determination of superior title. "Res judicata will be employed
by the courts to prevent the splitting of a cause of action
where the party to be precluded (here [Santos]) had both the
opportunity and the incentive to litigate all related matters
fully in the original lawsuit." Mancuso v. Kinchla, 60 Mass.
App. Ct. 558, 567 (2004). See id. at 562 (applying Federal res
judicata law and concluding that dismissal of State court action
after resolution of previously filed Federal action between same
parties arising from same nucleus of operative facts was
appropriate response to plaintiff's "disfavored claim splitting
contrary to well-established doctrine and policy"). We
therefore conclude that application of res judicata is
appropriate here where it will "serve to 'relieve parties of the
cost and vexation of multiple lawsuits, conserve judicial
resources, and, by preventing inconsistent decisions, encourage
reliance on adjudication.'" Bagley, 407 Mass. at 636, quoting
from Anderson v. Phoenix Inv. Counsel of Boston, Inc., 387 Mass.
444, 449 (1982).
Furthermore, the policy considerations underlying res
judicata generally are particularly applicable here as they are
consistent with "the legislative goal of 'just, speedy, and
16
inexpensive' resolution of summary process cases," which policy
"is compromised if the [summary process court] must stay summary
process proceedings while litigation on the validity of the
foreclosure proceedings continues in another court." Bank of
N.Y. v. Bailey, 460 Mass. 327, 334 (2011). See Federal Natl.
Mort. Assn. v. Rego, 474 Mass. 329, 339 (2016) (presentation of
all defenses and counterclaims, including those not affecting
right to possession, before the summary process judge "conserves
judicial resources because the [summary process] judge already
will be familiar with the issues presented; it also reduces
further expenditure of resources by a summary process defendant,
who otherwise would be required to file a separate action in
another court"). Santos's attempt to force the defendants to
litigate on two fronts was therefore "precisely the type of
unnecessary delay and inefficiency that the Legislature intended
to eliminate when it reorganized the trial courts in the
Commonwealth." Bailey, 460 Mass. at 334.
b. Impact of recent Supreme Judicial Court decisions.
Santos also contends that his claim cannot be precluded where he
believes that the concurring opinion in U.S. Bank Natl. Assn. v.
Schumacher, 467 Mass. 421 (2014), decided after the relevant
events here, supports the approach he pursued below. But
Santos's reliance on Schumacher is misplaced. In Schumacher,
the Supreme Judicial Court held that a borrower's "challenge to
17
the notice [issued pursuant to G. L. c. 244, § 35A,] should have
been raised in an independent equity action in the Superior
Court, not in a postforeclosure summary process action in the
Housing Court where the only legal issue for the court is
whether the mortgagee obtained title to the property in strict
accordance with the power of sale." Id. at 429. But the court
also stated that "the proper avenue by which a homeowner can
challenge a mortgagee's compliance with G. L. c. 244, § 35A, is
either filing an independent equity action in the Superior
Court, or asserting counterclaims pertaining to § 35A in
response to the mortgagee's postforeclosure summary process
action." Id. at 422 n.4.
In his concurring opinion in Schumacher, then Justice Gants
provided further explication of the implications of the
majority's opinion. He wrote that "where a defendant in the
summary process action claims a violation of the requirements in
§ 35A to provide timely and adequate written notice of the right
to cure the default, the defendant must prove more than a mere
violation of § 35A to defeat the eviction because, as the court
notes, § 35A is not one of the statutes relating to the
foreclosure of mortgages by the exercise of a power of sale.
Rather, to defeat the eviction, the defendant must prove that
the violation of § 35A rendered the foreclosure so fundamentally
unfair that she is entitled to affirmative equitable relief,
18
specifically the setting aside of the foreclosure sale for
reasons other than failure to comply strictly with the power of
sale provided in the mortgage." Id. at 432-433 (Gants, J.,
concurring) (quotations omitted).9
We understand Schumacher, as explicated by Justice Gants,
to explain that a homeowner claiming a right to cure notice
violation needs to take affirmative action in Superior Court
prior to foreclosure and certainly prior to finding herself a
defendant in a postforeclosure summary process action if she
hopes to halt the foreclosure process by showing something less
than a violation of § 35A that would render foreclosure
fundamentally unfair. See Bank of N.Y. Mellon Corp. v. Wain, 85
Mass. App. Ct. 498, 501 (2014). "[T]he appropriate avenue for a
borrower to raise a challenge to the form of notice given under
§ 35A is by means of an equitable action, prior to foreclosure,
seeking to enjoin the foreclosure" (emphasis added). Haskins v.
Deutsche Bank Natl. Trust Co., 86 Mass. App. Ct. 632, 634
(2014), citing Schumacher, 467 Mass. at 422 n.4. See Gold Star
Homes, LLC v. Darbouze, 89 Mass. App. Ct. 374, 379-380 (2016).
9
"The majority opinion in Schumacher stated that the
concurring opinion 'accurately reflects the practical
consequences of our decision today in conjunction with our
decision in Bank of Am., N.A. v. Rosa, [466 Mass. 613 (2013)].'
Schumacher, supra at 429 n.12. Thus, the passage from the
concurring opinion quoted in the text reflects the unanimous
view of the court." Bank of N.Y. Mellon Corp. v. Wain, 85 Mass.
App. Ct. 498, 501 n.8 (2014).
19
If a homeowner waits until he is being evicted in a
postforeclosure summary process action, he will need to show a
violation of § 35A that rises to the level of fundamental
unfairness.10 Accordingly, the summary process action was indeed
the proper venue for Santos to litigate his § 35A claim after
foreclosure. There was no need for him to go to Superior Court.
At oral argument, Santos suggested that it would be unfair
to hold him to a procedural landscape that had yet to fully take
shape when he sought to pursue the § 35A claim in Superior
Court. He contends that the summary process court's
jurisdiction to deal with the equity complaint he sought to
pursue in Superior Court was questionable at the time. This is
no doubt a challenging area of the law. See Schumacher, 467
Mass. at 431 (Gants, J., concurring) ("[O]ur jurisprudence in
this area of law is difficult for even attorneys to
understand"). Indeed, Schumacher clarified the role of § 35A
claims in summary process proceedings. This clarification,
however, suggests that Santos would have had even more incentive
to raise the § 35A claim in a summary process action prior to
Schumacher's determination that § 35A is not "part and parcel of
10
As we clarified in Haskins: "The fundamental unfairness
standard discussed in Schumacher applies when a § 35A violation
is raised in a postforeclosure summary process action, instead
of properly in a preforeclosure equity action." 86 Mass. App.
Ct. at 637 n.11, citing Schumacher, 467 Mass. at 433 (Gants, J.,
concurring).
20
foreclosure proceedings by the exercise of a power of sale."
Schumacher, 467 Mass. at 430.
Santos's own briefing in Superior Court demonstrates this
very point. In his supplemental memorandum in opposition to the
defendants' motion to dismiss, Santos contended that:
"Massachusetts foreclosure law includes the right-to-
cure notice in a mortgage's power of sale
requirements. . . . [B]ecause a foreclosure cannot
begin until the right-to-cure notice requirement is
complied with, G. L. c. 244, § 35A is part of the
mortgage's power of sale requirements. . . . G. L.
c. 244, § 35A is part of the 'statutes relating to the
foreclosure of mortgages by the exercise of a power of
sale.' . . . Plaintiff's claim is based upon the
'strict compliance' standard required for non-judicial
foreclosures."
The established law was already clear that postforeclosure
summary process defendants could put the plaintiff's title in
issue. See Bank of N.Y. v. Bailey, 460 Mass. at 333
("Challenging a plaintiff's entitlement to possession has long
been considered a valid defense to a summary process action for
eviction where the property was purchased at a foreclosure
sale"). See also New England Mut. Life Ins. Co. v. Wing, 191
Mass. 192, 195 (1906); Sheehan Constr. Co. v. Dudley, 299 Mass.
51, 53 (1937); Wayne Inv. Corp. v. Abbott, 350 Mass. 775, 775
(1966). Santos was well aware of the state of the law as he
cited several cases standing for this very proposition in his
summary process answer, including language in Wayne Inv. Corp.,
350 Mass. at 775, that a bank's acquisition of title in strict
21
compliance with the power of sale "is subject to challenge" in a
summary process action.
Where Santos believed that § 35A was included in the
mortgagee's power of sale requirements and he understood that
strict compliance with the power of sale was a defense to
summary process, he faces no unfairness in being held to
litigate his § 35A claim in the summary process action.
2. Negligent loan modification processing. Santos
contends that the defendants were negligent in their handling of
his applications for HAMP loan modification. This claim fails
as a matter of law and should have been dismissed pursuant to
the defendants' rule 12(b)(6) motion.
To prevail on a claim for negligence, Santos must prove:
(1) a legal duty owed to him by the defendants; (2) a breach of
that duty; (3) causation; and (4) an actual loss. Delaney v.
Reynolds, 63 Mass. App. Ct. 239, 241 (2005). Existence of a
duty in a negligence case is "a question of law." Cottam v. CVS
Pharmarcy, 436 Mass. 316, 320 (2002).
It is now well-established that, as a matter of law, HAMP
does not create a duty of care owed by mortgagees to mortgagors.
See, e.g., MacKenzie v. Flagstar Bank, FSB, 738 F.3d 486, 495-
496 (1st Cir. 2013) (decided subsequent to judge's order on
motion to dismiss here). The rejection by the United States
Court of Appeals for the First Circuit (First Circuit) of HAMP-
22
based negligence claims is consistent with that of the majority
of Federal court decisions in Massachusetts (before and after
MacKenzie) as well as across the country. The consensus among
these courts is that there is no private right of action under
HAMP11 and that borrowers are not intended third-party
beneficiaries of SPAs or similar contracts between lending banks
and Fannie Mae.12 Although the concepts of private rights of
action, intended beneficiary status, and duty of care are all
somewhat interconnected in the context of HAMP-based negligence
claims, the former two are clearly questions of Federal law
while the latter is resolved with reference to State common-law
principles. Nonetheless, the clear trend of Federal courts
applying State law is that neither HAMP nor the relationship
between a borrower and her servicer/lender imposes any duty of
care owed by lending banks and servicers to borrowers. See,
e.g., Wigod, 673 F.3d 547 (applying Illinois law); Spaulding,
714 F.3d 769 (applying Maryland law); Milton v. U.S. Bank Natl.
Assn., 508 Fed. Appx. 326 (5th Cir. 2013) (per curiam) (applying
Texas law); Rush v. Freddie Mac, 792 F.3d 600 (6th Cir. 2015)
11
See Wigod, 673 F.3d at 559 n.4 ("[c]ourts have uniformly
rejected" claims asserting rights arising under HAMP itself
"because HAMP does not create a private federal right of action
for borrowers against servicers").
12
See Wigod, 673 F.3d at 559 n.4 (most but not all courts
have held "that borrowers were not intended third-party
beneficiaries of the SPAs") (collecting cases).
23
(applying Michigan law); Markle, 844 F. Supp. 2d at 185
(declining "the invitation to recognize in the HAMP guidelines a
new duty of care, thus far unrecognized by Massachusetts
courts"); Brown vs. Bank of America Corp., U.S. Dist. Ct., No.
10–11085 (D. Mass. Mar. 31, 2011) ("[W]hile violation of a
regulation such as HAMP may provide evidence of a breach of a
duty otherwise owed, it does not create such a duty in the first
place"); Souza vs. Bank of America, U.S. Dist. Ct., Natl. Assn.,
No. 1:13–cv–10181–PBS (D. Mass. July 8, 2013) ("Every Court of
Appeals that has addressed the issue has concluded that HAMP
does not provide an implied right of action under federal
law. . . . Regarding negligence claims, every Court of Appeals
that has addressed the issue has denied HAMP-based negligence
claims") (collecting cases); Almeida vs. U.S. Bank Natl. Assn.,
U.S. Dist. Ct., No. 12–11565–RWZ (D. Mass. Mar. 10, 2014).13 We
agree with the reasoning and analysis of these courts and
conclude that, under Massachusetts law, HAMP does not impose a
duty of care owed by lenders and servicers to borrowers.
In declining to dismiss Santos's negligence claim pursuant
to rule 12(b)(6), the judge concluded that Santos had alleged a
13
Santos cites Speleos v. BAC Home Loans Servicing, L.P.,
755 F. Supp. 2d 304, 311 (D. Mass. 2010), where the court found
that "a plausible negligence claim" had been stated for the
lender's failure to comply with HAMP even though HAMP does not
include a private right of action. However, Speleos was decided
prior to the First Circuit's opinion in MacKenzie.
24
plausible claim for negligence based on her determination that
Santos was a third-party beneficiary of the SPA between U.S.
Bank and Fannie Mae. The First Circuit has reached the opposite
conclusion. See MacKenzie, 738 F.3d at 492 (borrowers may not
enforce HAMP guidelines by claiming third-party beneficiary
status under SPA). In our view, the basis of the judge's denial
of the motion to dismiss as to the negligence claim is no longer
viable. See Markle, 844 F. Supp. 2d at 180 ("[I]t is . . .
generally established that federal common law controls the
interpretation of contracts entered into pursuant to federal law
and to which the United States is a party"); Seidel vs. Wells
Fargo Bank, N.A., U.S. Dist. Ct., No. 12–10766–RWZ (D. Mass.
July 3, 2012) ("HAMP is a federal program and as such
interpretation of the HAMP contract is controlled by federal
law").
Thus, if Santos's negligence claim is to survive, he must
identify an alternate legal basis for the existence of a duty of
care. Santos has failed to establish the existence of such a
duty.14
14
Although Santos appears to rely on the judge's third-
party beneficiary theory as the source of the defendants' duty
in his appellate brief, at oral argument Santos stated that he
was not relying on a third-party beneficiary theory. The only
other authority Santos relied on in his brief for the source of
the defendants' duty was Speleos v. BAC Home Loans Servicing,
L.P., 755 F. Supp. 2d 304, 311 (D. Mass. 2010), which is a case
whose holding has essentially been overruled by the First
25
In general, "[t]he relationship between a borrower and
lender does not give rise to a duty of care under Massachusetts
law." MacKenzie, 738 F.3d at 495. Cf. Clark v. Rowe, 428 Mass.
339, 346 (1998) (agent acting for bank that refinanced loan on
property "owed no duty of care to the plaintiff borrower");
Shawmut Bank, N.A. v. Wayman, 34 Mass. App. Ct. 20, 24 (1993)
(lending bank owes no duty to exercise reasonable care to
guarantor on commercial loan).
There are some exceptions to this general rule. For
example, mortgage holders do in fact have a duty to "act in good
faith and must use reasonable diligence to protect the interests
of the mortgagor" in the context of an extrajudicial foreclosure
and exercise of power of sale. Williams v. Resolution GGF Oy,
417 Mass. 377, 382-383 (1994) (quotation omitted). See West
Roxbury Co–Op. Bank v. Bowser, 324 Mass. 489, 492 (1949) ("It is
familiar law that a mortgagee in exercising a power of sale in a
mortgage must act in good faith and must use reasonable
diligence to protect the interests of the mortgagor"). Lenders
also have a duty of good faith and fair dealing in the
performance of their obligations under the mortgage. See
Circuit. See note 13, supra. At oral argument, Santos for the
first time claimed that he was relying on the duty of good faith
and fair dealing, that this is a "negligence contract matter,"
and that the defendants voluntarily assumed a duty. We do not
address arguments raised for the first time at oral argument.
See Warner-Lambert Co. v. Execuquest Corp., 427 Mass. 46, 50 n.7
(1998); Mass.R.A.P. 16(a)(4), as amended, 367 Mass. 921 (1975).
26
Shawmut, 34 Mass. App. Ct. at 25 ("[U]nder Massachusetts law,
every contract contains an implied covenant of good faith").
However, neither the implied covenant nor the duties
arising from foreclosure extends to preforeclosure loan
modification processing where the mortgage loan documents do not
themselves contemplate such modifications.15 See MacKenzie, 738
F.3d at 493 ("[I]n the event of foreclosure, the existence of a
duty of good faith is tied directly to the mortgagee's
contractual right to exercise a power of sale"); Uno
Restaurants, Inc. v. Boston Kenmore Realty Corp., 441 Mass. 376,
385 (2004) (covenant of good faith and fair dealing may not "be
invoked to create rights and duties not otherwise provided for
in the existing contractual relationship").16 "Nor can the
mortgage and promissory note be said to incorporate the HAMP
guidelines or impose on the servicer a duty to offer a HAMP
modification, as the documents were executed before the EESA was
enacted." Markle, 844 F. Supp. 2d at 183 n.11.
In the absence of a duty of care owed to him by the
defendants, Santos's negligence claim fails even if we assume
that he could show statutory or regulatory violations in
15
Santos has never argued that his mortgage includes any
modification requirement.
16
To the extent it represents an actionable contract of its
own, a point on which we express no opinion, Santos has not
alleged any breach of the implied covenant of good faith and
fair dealing under the TPP.
27
connection with the defendants' processing of his HAMP
modification applications because "statutory or regulatory
violations cannot give rise to a negligence claim when there is
no independent duty of care between the parties." MacKenzie,
738 F.3d at 495. HAMP itself does not provide that duty of
care. See Larivaux vs. Bank of America, N.A., U.S. Dist. Ct.,
No. 12–11172–FDS (D. Mass. June 6, 2013) ("Because no duty of
care is established by the HAMP guidelines, plaintiff has not
set forth a plausible claim for negligence"). In affirming the
dismissal of a HAMP-based negligence claim, the First Circuit
further explained that "[w]here an independent duty of care
exists, the violation of a statute or regulation can provide
evidence of a breach of that duty, even if the statute or
regulation itself does not create a private right of action.
But in the absence of an independent duty, a plaintiff cannot
proceed with a negligence claim based solely on a statutory or
regulatory violation." MacKenzie, 738 F.3d at 496.
Because we conclude that Santos's negligence claims falter
on the element of duty, we need not address the defendants'
additional contentions regarding infirmities on other elements
of the claim.17
17
That Santos cannot look to a private right of action,
third-party beneficiary principles, or common-law negligence
does not necessarily mean that borrowers are completely without
a vehicle by which to seek relief for alleged HAMP violations.
28
Order allowing motion to
dismiss affirmed.
Order allowing defendant's
motion for summary judgment
affirmed.
As the defendants acknowledged at oral argument, some
courts have allowed claims under G. L. c. 93A grounded in
alleged HAMP violations to proceed beyond the rule 12(b)(6)
stage. See, e.g., Rosa, 466 Mass. at 616, 625 (holding that
Housing Court had jurisdiction to hear 93A claim based on HAMP
violations in postforeclosure summary process action but not
passing on viability of claim itself); Markle, 844 F. Supp. 2d
at 185-186 ("Other courts in this district have also concluded
that the absence of a private right to enforce HAMP does not
automatically preclude chapter 93A claims predicated on the
failure to comply with HAMP obligations") (collecting cases);
Morris v. BAC Home Loans Servicing, L.P., 775 F. Supp. 2d 255,
256 (D. Mass. 2011) ("HAMP violations can give rise to a viable
93A claim if the activity would be independently actionable
under Chapter 93A as unfair and deceptive"). Cf. Wigod, 673
F.3d at 575 (reversing dismissal of claim under Illinois
Consumer Fraud and Deceptive Business Practices Act).
Courts have also recognized potential breach of contract
claims arising from the HAMP TPP. See, e.g., Wigod, 673 F.3d at
566; Young, 717 F.3d at 235; Markle, 844 F. Supp. 2d at 182-183
(collecting cases).
Where Santos has not raised claims alleging a breach of
contract with respect to the TPP or a violation of c. 93A, we do
not address their hypothetical viability.