Bliss v. Intervale Mortgage Corp.
| Decision Date | 22 June 2006 |
| Docket Number | 051137C |
| Parties | Ryan Bliss et al. (fn1) v. Intervale Mortgage Corporation et al. (fn2) |
| Court | Massachusetts Superior Court |
Judge (with first initial, no space for Sullivan, Dorsey, and Walsh):Spurlock, Charles T., J.
Ryan Bliss ("Bliss") and Carrie Allen ("Allen") (collectively, "the plaintiffs") filed this complaint against Intervale Mortgage Corporation ("Intervale"), Decision One Mortgage, LLC ("Decision One"), Countrywide Home Loans, Inc. ("Countrywide"), and Mortgage Lenders Network USA, Inc. (fn3) (collectively, "the defendants"). This dispute concerns the validity of prepayment penalties included in the promissory notes from the plaintiffs to Intervale and Decision One.
In their original verified complaint, the plaintiffs charged that the prepayment penalties at issue in this case are in excess of limits mandated by G.L.c. 183, §56,(fn4) and constitute unfair and deceptive practices under G.L.c. 93A. The plaintiffs moved for a preliminary injunction against the enforcement of the prepayment penalties, which this Court denied, in part based on its initial determination that federal law preempts the state law upon which the plaintiffs relied. In apparent response, the plaintiffs moved to amend their complaint to add federal claims and contemporaneously moved for summary judgment in their favor on the basis of the proposed amended complaint. The defendants opposed the motion to amend on the grounds of futility and cross-moved for summary judgment against the claims in the original complaint.
For the reasons set forth below, this Court finds that the state law claims in the plaintiffs' original complaint fail as a matter of law. This Court further finds that the plaintiffs' motion to amend cannot save this action because the federal law claims that they seek to introduce likewise fail as a matter of law. Accordingly, the plaintiffs' motion for summary judgment is DENIED, the defendants' cross motion for summary judgment is ALLOWED, and the plaintiffs' motion to amend is DENIED.
The summary judgment record reveals the following facts. In April of 2004, the plaintiffs entered into a purchase and sale agreement for the purchase of a residential dwelling located at 1520 Columbia Road, Unit 2, South Boston, Massachusetts ("1520 Columbia Road"). The purchase of the property was contingent upon securing financing for 95 percent of the $605,000 purchase price. A mortgage broker allegedly acting on behalf of Countrywide informed the plaintiffs that they were approved for such financing. However, instead of receiving a written commitment of mortgage financing from the defendants, the plaintiffs received a letter dated August 4, 2004 which indicated that they had a commitment for financing.
The closing on the purchase of the property occurred on August 10, 2004. (fn5) According to the plaintiffs, at the closing they learned for the first time that the mortgage loan contained a prepayment charge of five percent of the principal amount of the loan. Intervale(fn6) provided a first mortgage loan ("Intervale loan") to the plaintiffs in the amount of $484,000.00. The Intervale loan was secured by a mortgage upon the property located at 1520 Columbia Road. The loan included a five percent prepayment charge of the principal amount if the plaintiffs paid off the loan within three years of the August 10, 2004 closing date. If the plaintiffs paid off the mortgage before August 10, 2007, they would incur a prepayment charge in the amount of $24,200.00 to Intervale. To date, the plaintiffs have not attempted to refinance their property, or sell their property and repay the loan, or to repay the loan in full.
Countrywide did not originate the Intervale loan; rather, it is the current servicer of the loan. Countrywide acquired the servicing rights in November 2004, three months after the loan was originated by Intervale. As the current servicer of the loan, Countrywide has the right to collect plaintiffs' monthly payments, disburse escrow funds, and pursue appropriate remedies in the event of the plaintiffs' default on any of their loan obligations. In the event the plaintiffs seek to pay off the loan in full before August 10, 2007, Countrywide has the right to collect the prepayment charge.
According to Decision One, it provided processing services as an agent of Intervale with regard to the Intervale loan. Decision One subsequently purchased the Intervale loan. The second mortgage loan, provided by Decision One, was in the amount of $90,750.00 ("Decision One loan"). Similar to the mortgage loan provided by Intervale, the Decision One loan included a provision for the payment of a prepayment penalty if paid prior to the expiration of three years. The Decision One loan is serviced by Mortgage Lenders Network USA, Inc.
On December 10, 2004, after receiving the funds necessary to purchase the property, the plaintiffs' counsel sent a purported written demand for relief to the defendants indicating that the prepayment penalty provided in the Intervale note and in the Decision One note exceeds the maximum penalty allowed by Massachusetts statute. According to the plaintiffs, the prepayment charge constituted a violation of G.L.c. 93A, §2 by imposing a prepayment charge which is in excess of statutory limits.
In a letter dated February 3, 2005, Intervale responded to the demand for relief by asserting that the Intervale loan was governed by federal regulations because it was made by an operating subsidiary of a federal savings bank. According to Intervale, the Massachusetts statute limiting prepayment penalties was not applicable. The defendants asserted that the Decision One loan was not subject to the statute because at the time the loan was made, the statute applied only to first mortgages.
On March 12, 2005, the plaintiffs filed the instant action alleging that the prepayment penalties at issue were in excess of the limits mandated by G.L.c. 183, §56. The plaintiffs seek injunctive relief, invalidation of the prepayment penalties provided in the note, and damages under G.L.c. 93A, §2.
To prevail on summary judgment the moving party must establish that there is no genuine issue of material fact on every element of a claim and that it is entitled to judgment on that claim as a matter of law. See Mass.R.Civ.P. 56(c); Highlands Ins. Co. v. Aerovox, Inc., 424 Mass. 226, 232 (1997). The moving party bears the burden of affirmatively demonstrating the absence of a triable issue. Pederson v. Time, Inc., 404 Mass. 14, 17 (1989). The moving party satisfies this burden if it Kourouvacilis v. General Motors Corp., 410 Mass. 706, 716 (1991). It is sufficient to demonstrate that "proof of the element is unlikely to be forthcoming at trial." Flesner v. Technical Communications Corp., 410 Mass. 805, 809 (1991).
In their original verified complaint, the plaintiffs claim that the prepayment charges at issue are in excess of the limits mandated by G.L.c. 183, §56 and constitute a violation of G.L. 93A, §2. However, in moving for summary judgment, the plaintiffs assert that Intervale's right to assess prepayment charges is limited under federal law. As noted above, the plaintiffs' motion to amend their complaint to reflect a federal claim is denied. Therefore, to the extent that this Court discusses the plaintiffs' federal claims, it is not for the purpose of allowing those claims to advance but rather for the purpose of summary judgment analysis.
In response to the plaintiffs' motion for summary judgment, the defendants filed a cross motion for summary judgment and opposition to the plaintiffs' motion for summary judgment. The preemption argument advanced by the defendants establishes the absence of a triable issue on all claims asserted by the plaintiffs.
The plaintiffs assert that the prepayment penalties set forth in the promissory notes exceed the limits mandated by G.L.c. 183, §56. However, as an operating subsidiary of a federal savings bank, Intervale is subject to federal regulation. As a result, any state regulation of Intervale is preempted. Therefore, the plaintiffs' action fails as a matter of law.
Intervale operates under the Home Owners Loan Act of 1933 ("HOLA") and is subject to the regulations of the Office of Thrift Supervision ("OTS"). 12 U.S.C. §1464(a)(1); 12 C.F.R. §560.1(a). Pursuant to authority granted under 12 U.S.C. §1464(a)(1), the Director of OTS "provide[s] for the organization, incorporation, examination, operation, and regulation" of federal savings associations. 12 U.S.C. §1464(a). OTS occupies the entire field of lending regulation for federal savings associations; in fact, the agency is authorized to devise regulations that preempt state laws affecting the operations of federal savings associations. 12 C.F.R. §560.2(a). The types of state laws preempted include "[l]oan-related fees, including without limitation, initial charges, late charges, prepayment penalties, servicing fees, and overlimit fees." 12 C.F.R. §560.2(b)(5) (emphasis added).
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