Young v. Wells Fargo Bank, N.A.

• Decision Date: 21 May 2013
• Docket Number: No. 12–1405.,12–1405.
• Citation: 717 F.3d 224
• Parties: Susan K. YOUNG, Plaintiff, Appellant, v. WELLS FARGO BANK, N.A. as Trustee for Option One Mortgage Loan Trust 2007–CP1, Asset Backed Certificates, Series 2007–CP1; American Home Mortgage Servicing, Inc., Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

717 F.3d 224

Susan K. YOUNG, Plaintiff, Appellant,

v.WELLS FARGO BANK, N.A. as Trustee for Option One Mortgage Loan Trust 2007–CP1, Asset Backed Certificates, Series 2007–CP1; American Home Mortgage Servicing, Inc., Defendants, Appellees.

No. 12–1405.

United States Court of Appeals, First Circuit.

May 21, 2013.

Anthony Alva, for appellant.

Marissa I. Delinks, with whom Maura K. McKelvey, and Hinshaw & Culbertson LLP were on brief, for appellees.

Before HOWARD, STAHL, and LIPEZ, Circuit Judges.

LIPEZ, Circuit Judge.

In an attempt to avert the foreclosure of her home, plaintiff Susan Young sought to modify the terms of her mortgage pursuant to the Home Affordable Modification Program (“HAMP”), a federal initiative that incentivizes lenders and loan servicers to offer loan modifications to eligible homeowners. When Young's efforts did not result in a permanent loan modification, she sued defendants Wells Fargo Bank, N.A. (“Wells Fargo”) and American Home Mortgage Servicing, Inc. (“AHMS”), alleging that their conduct during her attempts to modify her mortgage violated Massachusetts law. Defendants moved to dismiss her complaint under Federal Rule of Civil Procedure 12(b)(6). The court granted defendants' motion in its entirety. Young now appeals the judgment.

Young is one of many residential mortgagors who have brought cases against lenders and loan servicers arising out of attempts to modify loans under HAMP. As a result, courts in many jurisdictions, including our own, are grappling with the influx of these cases and the complex legal issues that they raise. Notwithstanding the window that Young's case provides into the ongoing consequences of the housing market's rise and fall, our review is confined to the allegations contained in the complaint and the parties' arguments on appeal. After careful evaluation of Young's pleading and the parties' contentions, we affirm the district court's judgment as to the dismissal of Young's breach of contract claim under Count II, her claim for breach of the implied covenant of good faith and fair dealing, and her claims for intentional and negligent infliction of emotional distress. We vacate the dismissal of her breach of contract claim under Count I, her claim under Chapter 93A, and her derivative claim for equitable relief, and remand for further proceedings consistent with this opinion.

I.

A. Background on the Home Affordable Modification Program

In an effort to mitigate the destabilizing effects of the financial crisis of 2008, Congress enacted the Emergency Economic Stabilization Act of 2008 (“EESA”), Pub. L. No. 110–343, 122 Stat. 3765. EESA authorized the Secretary of the Treasury to, inter alia, “implement a plan that seeks to maximize assistance for homeowners and ... encourage the servicers of the underlying mortgages” to minimize foreclosures. Id. § 109; 12 U.S.C. § 5219(a)(1). To effectuate these goals, the Secretary was given the power to “use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures.” Id. Pursuant to this authority, the Secretary created an array of programs designed to identify likely candidates for loan modifications and encourage lenders to renegotiate their mortgages. HAMP is one of these programs.

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.” Bosque v. Wells Fargo Bank, N.A., 762 F.Supp.2d 342, 347 (D.Mass.2011); see generally Jean Braucher, Humpty Dumpty and the Foreclosure Crisis: Lessons from the Lackluster First Year of the Home Affordable Modification Program, 52 Ariz. L. Rev. 727, 748–53 (2010) (providing background on HAMP's features). The Secretary, through Fannie Mae, entered into agreements with numerous home loan servicers, including Wells Fargo,pursuant to which the servicers “agreed to identify homeowners who were in default or would likely soon be in default on their 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). The servicers are to conduct an initial evaluation of a particular homeowner's eligibility for a loan modification using a set of guidelines promulgated by the Treasury Department. Id. If the borrower meets those criteria, “the guidelines direct the servicer to offer that individual a Trial Period Plan (‘TPP’)” as a precursor to obtaining a permanent modification. Markle v. HSBC Mortg. Corp. (USA), 844 F.Supp.2d 172, 177 (D.Mass.2011). If the borrower complies with the TPP's terms, including making required monthly payments, providing the necessary supporting documentation, and maintaining eligibility, the guidelines state that the servicer should offer the borrower a permanent loan modification. See Wigod, 673 F.3d at 557;see also Markle, 844 F.Supp.2d at 177 (“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.”). Loan servicers receive a $1,000 payment for each permanent modification, in addition to other incentives. Wigod, 673 F.3d at 556.

B. Young's Complaint

We now turn to the facts of Young's case, drawn from her complaint and various documents incorporated by reference. Young purchased a home in Yarmouth, Massachusetts, on or about September 9, 1997. About nine years later, in September 2006, she obtained a mortgage on the property of about $282,000. Wells Fargo is the current mortgagee, and AHMS acted as servicer for the note. This mortgage provided for an initial interest rate of 7.8%, subject to change on September 1, 2008, and every six months thereafter.¹

In 2008, Young began falling behind on her mortgage payments after her father died and her income was reduced due to the recession. In August 2008, she sent a $2,600 payment to Wells Fargo in an effort to bring her payments up to date. Shortly thereafter, a notice was posted on her door stating that she was late on her mortgage payment, but instructing the homeowner to ignore the notice if she had already made the payments in question. When Young called Wells Fargo on or about August 27, 2008, she was told that while her payment had been received, the bank would not process her check and intended to initiate foreclosure proceedings.

After a week of negotiations, Young agreed to send Wells Fargo a $5,628.42 check, in exchange for which Wells Fargo would fax her a forbearance agreement. Young sent the check, but did not receive a forbearance agreement in response. On September 8, 2008, Young contacted the bank and was told that “there was not an agreement.” After insisting that she had been promised a forbearance agreement, she was referred to a supervisor. This supervisor told Young that the August 2008 check for $2,600 had not been processed, and acknowledged that if this check had been processed, Young would be up to date on her payments. The supervisor also admitted that Wells Fargo was at fault for not processing the check and represented that if Young signed a forbearance agreement, the bank would cease foreclosure proceedings and process both the August and September checks.

Although Young was faxed the agreement, she was surprised to find that it required her to pay $3,144.32 monthly, $800 more than her previous payments. Still, she apparently executed the forbearance agreement and made an effort to abide by its terms. By April 2009, however, Young could not sustain these payments and she stopped making them.

Young “implored [defendants] to work with her so she could save her family's home” by modifying the terms of her mortgage. She obtained assistance from a lawyer, who helped her negotiate a modification. In October 2009, she received written confirmation that she may be eligible for a loan modification under HAMP. Wells Fargo sent her a packet with three payment coupons for her first three monthly payments, as well as a TPP. The TPP required that she make three monthly payments in the amount of $1,368.94 each in order to qualify for a permanent loan modification. Young executed and mailed the TPP on October 19, 2009 and subsequently made three monthly payments from November 2009 through January 2010.

Despite Young's payments, the bank sent Young a written notice in January 2010 denying her a permanent loan modification contract, claiming it did not receive all TPP payments on or before the 30th day from the due date of the last trial period payment. Young alleges that this letter “emotionally traumatized” her and that she “couldn't believe” that Wells Fargo had refused to accept or acknowledge the payments. Young's counsel then contacted Wells Fargo and was advised that the January 2010 letter was sent in error and that Young should simply ignore it. Wells Fargo's agent also verbally confirmed that Young would be sent a permanent modification agreement. Young continued to make “numerous calls and requests” to Wells Fargo, asking that she be sent a permanent contract. Wells Fargo continued to ignore Young's inquiries until her counsel intervened yet again. At that point, a Wells Fargo employee assured Young's counsel that a permanent modification agreement would be sent in three to four weeks.

On or about June 14, 2010, Young received the permanent modification agreement. This agreement increased Young's monthly payments from her trial period payments by almost $300, for a total of $1658.71 per month. Although not alleged explicitly in the complaint, Young evidently did not sign the permanent modification agreement and defendants moved forward with the foreclosure process.²

Young pleads that she “was emotionally devastated by this course of events” and experienced constant nervousness, anxiety, and stress. These problems “impeded her decision making process [and] her ability to earn income,” and...