Markle v. HSBC Mortg. Corp.

• Citation: 844 F.Supp.2d 172
• Decision Date: 12 July 2011
• Docket Number: Civil Action No. 10–40189–FDS.
• Parties: Derek A. MARKLE and Becky A. Markle, Plaintiffs, v. HSBC MORTGAGE CORPORATION (USA), Defendant.
• Court: U.S. District Court — District of Massachusetts

844 F.Supp.2d 172

Derek A. MARKLE and Becky A. Markle, Plaintiffs,

v.HSBC MORTGAGE CORPORATION (USA), Defendant.

Civil Action No. 10–40189–FDS.

United States District Court,

D. Massachusetts.

July 12, 2011.

Josef C. Culik, Culik Law PC, Woburn, MA, for Plaintiffs.

Jeffrey S. Patterson, Sean R. Higgins, Nelson Mullins Riley & Scarborough LLP, Boston, MA, for Defendant.

MEMORANDUM AND ORDER ON DEFENDANT'S MOTION TO DISMISS

SAYLOR, District Judge.

This is a breach of contract case arising out of a government program intended to promote the modification of home mortgage loans and help homeowners avoid foreclosure. After plaintiffs Becky and Derek Markle fell behind on home mortgage payments, their mortgage servicer, defendant HSBC Mortgage Corporation, referred their home to foreclosure. The Markles allege that HSBC instituted foreclosure proceedings in violation of its obligations under the Home Affordable Modification Program. They assert claims for breach of contract, breach of the implied covenant of good faith and fair dealing, negligence, and violation of the Consumer Protection Act, Mass. Gen. Laws ch. 93A. Jurisdiction is based on diversity of citizenship.

HSBC has moved to dismiss the complaint under Fed.R.Civ.P. 12(b)(6). For the following reasons, the motion will be granted.

I. Statutory and Regulatory Background

Congress enacted the Emergency Economic Stabilization Act in the midst of the financial crisis of 2008. SeePub. L. No. 110–343, 122 Stat. 3765 (codified as amended at 12 U.S.C. §§ 5201 et seq.). The centerpiece of the statute, the Troubled Asset Relief Program (“TARP”), delegated to the Secretary of the Treasury broad powers to mitigate the impact of the foreclosure crisis and preserve homeownership. 12 U.S.C. §§ 5201, 5211–5241. One component of TARP requires the Secretary to “implement a plan that seeks to maximize assistance for homeowners and ... encourage the servicers of the underlying mortgages ... to take advantage of ... available programs to minimize foreclosures.” Id. § 5219(a). Congress also granted authority to “use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures.” Id.¹

Acting under this authority, the Secretary introduced the “Making Home Affordable Program” in February 2009.² Within this initiative is the “Home Affordable Modification Program” (“HAMP”), which is administered by Fannie Mae. 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. ( See Compl., Ex. A, Fannie Mae Announcement 09–05R (“Announcement 09–05R”), at 1). Under HAMP, loan servicers receive incentive payments for each permanent loan modification completed. ( Id. at 30). HAMP modifications derive from a uniform process designed to identify eligible borrowers and render their debt obligations more affordable and sustainable.

Mortgage lenders approved by Fannie Mae must participate in HAMP. (Announcement 09–05R, at 1). This obligation stems from the Mortgage Selling and Servicing Contract (“MSSC”), a form contract entered into by Fannie Mae and approved lenders that establishes the parties' basic legal relationship.³ The contract incorporates by reference Fannie Mae's Selling and Servicing Guides.⁴ The latter guide requires servicers of mortgage notes owned by Fannie Mae to participate in HAMP and to abide by HAMP directives and guidelines. See Speleos v. BAC Home Loans Serv., L.P., 755 F.Supp.2d 304, 306 (D.Mass.2010); McKensi v. Bank of America, N.A., 2010 WL 3781841, *2 (D.Mass. Sept. 22, 2010).⁵ 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. ( See Announcement 09–05R, at 2).

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. ( See Announcement 09–05R, at 1–3, 14–15). A borrower may be eligible for a HAMP modification if, among other things, her mortgage loan originated before January 1, 2009; the mortgage is secured by her primary residence; the mortgage loan has not previously been modified under HAMP; and the mortgage payments amount to more than 31% of the borrower's gross monthly income. ( See id. at 2–3). To participate in HAMP, borrowers must open an escrow account and submit, among other documents, an affidavit attesting to financial hardship. ( Id. at 3–4). The servicer conducts a Net Present Value test, which assesses whether the expected cash flow from a modified loan would exceed the cash flow from the unmodified loan. ( Id. at 6–7); see also Alpino v. JPMorgan Chase Bank, N.A., 2011 WL 1564114, *2 (D.Mass. Apr. 21, 2011).

If the homeowner qualifies under these eligibility criteria, the guidelines direct the servicer to offer that individual a Trial Period Plan (“TPP”). ( See Announcement 09–05R, at 20–21; see also Fannie Mae Announcement 09–25, at 1–4). Under the TPP, the homeowner undertakes to pay modified mortgage payments, calculated based on financial documentation submitted during the eligibility phase, 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. See Fannie Mae Single Family 2011 Servicing Guide, Pt. VII, Ch. 6, § 609.04.07 (effective Jun. 1, 2010).

A servicer participating in HAMP may not proceed with a foreclosure sale on a property in default until the borrower has been evaluated for HAMP eligibility. (Announcement 09–05R, at 16). The guidelines require servicers to “use reasonable efforts to contact borrowers facing foreclosure to determine their eligibility.” ( Id.).

II. Factual Background

For the purposes of deciding the motion, the Court takes as true all well-pleaded facts in the complaint.

Plaintiffs Derek and Becky Markle reside at 33 Milk Street in Blackstone, Massachusetts. In 2006, they refinanced their original mortgage loan by obtaining a new loan from defendant HSBC Mortgage Corporation (USA) in the amount of $318,000. (Compl. ¶ 13). The loan was secured by a mortgage on their home in the name of Mortgage Electronic Registration Systems, Inc., presumably as nominee for the lender. ( See id.). The mortgage is presently serviced by HSBC on behalf of Fannie Mae, the current owner of the mortgage note. ( Id. ¶¶ 14, 19).

The Markles allege that HSBC and Fannie Mae have entered into a Mortgage Selling and Servicing Contract. ( Id. ¶ 35; see also Mot. Opp., Ex. C). ⁶ As described, the MSSC requires HSBC to comply with the Selling and Servicing Guides and to participate in HAMP for mortgage notes owned by Fannie Mae, which would include that of the Markles. (Compl. ¶¶ 22, 35, 40).

Sometime after the 2006 refinancing, the Markles experienced a period of financial hardship when Mrs. Markle lost her job and family medical bills began to accumulate. (Compl. ¶ 15). As a result, they defaulted on their monthly mortgage payments. ( Id. ¶ 15).⁷ HSBC eventually scheduled a foreclosure sale of their home for September 28, 2010. ( Id. ¶ 24).

The Markles allege that HSBC did not evaluate their eligibility to obtain a permanent loan modification under HAMP before scheduling the foreclosure sale. ( Id. ¶ 23, 44a).⁸ They also allege, in possible contradiction, that HSBC wrongfully denied them a permanent loan modification and did not disclose to them the NPV data on which it relied to determine their ineligibility for HAMP. ( Id. ¶¶ 44b, 44c).

On June 10, 2010, plaintiffs' counsel mailed a demand letter to HSBC pursuant to Mass. Gen. Laws ch. 93A, § 9(3). (Compl., Ex. C). The letter charged that Mr. Markle submitted an application for a loan modification under HAMP, and that HSBC improperly denied his application. It also alleged that his counsel requested the NPV data used to evaluate the application, but HSBC did not furnish the information. The letter asserted that HSBC's denial of Mr. Markle's HAMP application and failure to provide NPV data were unfair and deceptive trade practices. ( See id.).

HSBC's response letter, dated August 24, 2010, stated that, on the basis of Mr. Markle's HAMP application, HSBC offered the Markles a loan modification agreement in April 2010. ( See Compl., Ex. D). Two months after the offer was made, according to the letter, HSBC informed the Markles that their request for a loan modification would no longer be approved because they had not executed the agreementor complied with its terms. ( Id.). Against this factual backdrop, HSBC denied that it had engaged in unfair or deceptive business practices and denied liability under chapter 93A.

Plaintiffs filed a complaint against HSBC in September 2010. They assert claims for (1) breach of contract on a third-party beneficiary theory, (2) breach of the implied covenant of good faith and fair dealing, (3) negligence, and (4) a violation of the Consumer Protection Act, Mass. Gen. Laws ch. 93A. They seek an order instructing HSBC to evaluate their mortgage loan for HAMP eligibility or otherwise provide an alternative to foreclosure, and to offer a loan modification consistent with HAMP guidelines. In addition, they seek a declaration that HSBC has violated ch. 93A, as well as damages, costs, and attorney's fees. Sometime after the complaint was filed but before September 28, HSBC cancelled the foreclosure sale.

III. Standard of Review

On a motion to dismiss under Fed.R.Civ.P. 12(b)(6), the Court “must assume the truth of all well-plead[ed] facts and give the plaintiff the benefit of all reasonable inferences therefrom.”...