Ahsan v. Homebridge Fin. Servs., Inc.
| Citation | 405 F.Supp.3d 208 |
| Decision Date | 24 September 2019 |
| Docket Number | CIVIL ACTION No. 18-40213-TSH |
| Parties | Samuel AHSAN, Plaintiff, v. HOMEBRIDGE FINANCIAL SERVICES, INC., Defendant. |
| Court | United States District Courts. 1st Circuit. United States District Courts. 1st Circuit. District of Massachusetts |
Robert L. Hamer, Boston, MA, for Plaintiff.
Brendan Herbert, Pro Hac Vice, Locke Lord LLP, West Palm Beach, FL, Daron L. Janis, Stephanie Sprague, Locke Lord LLP, Boston, MA, for Defendant.
HILLMAN, D.J.
Samuel Ahsan ("Ahsan" or "Plaintiff") filed suit against Homebridge Financial Services, Inc. ("Homebridge" or "Defendant") alleging claims for: rescission of a loan agreement based on mutual mistake (Count I); rescission of a loan agreement based on improper influence on appraiser (Count II); Lender Liability (Count III); and violation of the Massachusetts Consumer Protection Act, Mass.Gen.L. Ch. 93A ("Chapter 93A")(Count IV).
This action involves a loan that Plaintiff obtained from Homebridge under a program overseen by the U.S. Department of Housing and Urban Development ("HUD") which allows borrowers to obtain financing for the purchase and rehabilitation of distressed property in a single loan. Such loans may be insured by the Federal Housing Administration ("FHA"). This Memorandum of Decision and Order addresses Defendant's Motion To Dismiss (Docket No. 14). For the reasons set forth below, that motion is granted.
On a Rule 12(b)(6) motion to dismiss, the Court "must assume the truth of all well-plead[ed] facts and give plaintiff the benefit of all reasonable inferences therefrom." Ruiz v. Bally Total Fitness Holding Corp. , 496 F.3d 1, 5 (1st Cir. 2007) (citing Rogan v. Menino , 175 F.3d 75, 77 (1st Cir. 1999) ). To survive a motion to dismiss, the plaintiff must state a claim that is plausible on its face. Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). That is, "[f]actual allegations must be enough to raise a right to relief above the speculative level, ... on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. at 555, 127 S.Ct. 1955 (internal citations omitted). The standard "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id.
"The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ). Dismissal is appropriate if plaintiff's well-pleaded facts do not "possess enough heft to show that plaintiff is entitled to relief." Ruiz Rivera v. Pfizer Pharm., LLC , 521 F.3d 76, 84 (1st Cir. 2008) (internal quotations and original alterations omitted). "The relevant inquiry focuses on the reasonableness of the inference of liability that the plaintiff is asking the court to draw from the facts alleged in the complaint." Ocasio-Hernàndez v. Fortuño-Burset, 640 F.3d 1, 13 (1st Cir. 2011).
Pursuant to Section 203(k) of the National Housing Act (the "Section 203 program"), the Secretary of HUD is authorized to insure mortgage loans to assist in the rehabilitation of single-family homes. 12 U.S.C. § 1709(k) (the "Act"). The Act permits "homeowners to finance both" the cost of the house and the improvements into one loan insured by the federal government. See Id. , at § 1709 (k). HUD takes several steps to evaluate the value of the property prior to insuring the loan. See U.S. Department of Housing And Urban Development Handbook 4000.1 (2016), https://www.hud.gov/sites/documents/40001HSGH.PDF ("HUD Handbook"), at 379. Those steps are summarized below:
See generally Id.
Ahsan applied for a loan under the Section 203(k) program, to buy and renovate a property at 713 Franklin Street, Worcester Massachusetts (the "Property"). Homebridge is an approved mortgagee for the Section 203(k) program. Homebridge chose AM Renovation Consulting ("AM Renovation"), a HUD approved Section 203(k) consultant, to prepare the Work Write-Up and Cost Estimate for the Property to assure the remedy of any defects that would affect the health and safety of the occupants and the adequacy of structural, heating, plumbing, electrical and roofing systems. Based on the work-write-up and the cost to acquire the Property, Ahsan requested a loan of $274,932.
Applicable agency guidelines require that Homebridge adopt internal policies and procedures ensuring that its officers and agents avoid any conduct that would compromise the independence of the valuation process in connection with its underwriting of loans. Thus, Homebridge hired Class Appraisal Inc. ("Class Appraisal") to select an appraiser to evaluate the Property. Class Appraisal selected John Greenlaw ("Greenlaw") from Pioneer Appraisals. Because Homebridge's loan to Ahsan was to be insured under the Section 203(k) program, applicable FHA guidelines required that monthly market rents for the property as established by independent appraisal, exceed the aggregate monthly principal, interest, taxes and insurance due under the terms of the loan. The loan would not properly qualify to be insured through the Section 203(k) program unless this guideline was met and, in turn, without the loan being insured under the Section 203(k) program, Homebridge would not have approved it.
Greenlaw used comparable properties in the vicinity of the Property to estimate its potential rental income value; he finished his initial report on February 13, 2018. According to an email sent by Homebridge employee Sean Callan ("Callan"), based on Greenlaw's appraisal, the loan would not qualify for HUD insurance. Consequently, Homebridge approved an extension to the loan commitment and rescheduled the closing in order to permit Greenlaw to reconsider his appraisal. Homebridge then sent Greenlaw seven additional property comparisons. Greenlaw determined that one of these properties was comparable (he disregarded the other property comparisons submitted by Homebridge for various reasons.) Greenlaw revised his appraisal and found that the gross rental value would be approximately $3,150 per month. After subtracting monthly PITI costs ($1,529), Greenlaw projected an operating income of $1,621, which satisfied HUD's self sufficiency requirement.
Homebridge approved Ahsan's Section 203(k) loan for $274,932. Ahsan executed the first 203(k) Borrower's Acknowledgement on January 29, 2018. He closed on the loan and executed a second 203(k) Borrower's Acknowledgment on March 2, 2018. The Borrower's Acknowledgements provided:
Condition of Property: I understand that the property I am purchasing is not HUD approved and HUD does not warrant the condition or the value of the property. I understand the HUD plan review (where performed) and the appraisal are performed to determine compliance with the required architectural exhibits and to estimate the value of the property, but neither guarantees the house is free of defects. I understand I was responsible to have an independent consultant and/or a professional home inspection service performs an inspection of the property and the cost of the inspection was (or could be) included in the mortgage.
Ahsan paid $11,034.78 down and tendered a promissory note to Homebridge for the loan balance secured by a mortgage on the Property.
On July 5, 2018, the City of Worcester ("City") condemned the Property after an inspection identified material structural defects. More specifically, the City condemned the Property after its building and plumbing inspectors found "structural issues with the framing" in the new bathroom, and the "ceiling and floor joist were cut and notch in excess of limitations." The two inspectors also found that the "main beams" in the basement were "rotting and falling away from any...
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