Charest v. Fed. Nat'l Mortg. Ass'n

• Decision Date: 27 March 2014
• Docket Number: Civil Action No. 13–11267–MBB.
• Citation: 9 F.Supp.3d 114
• Court: U.S. District Court — District of Massachusetts
• Parties: George J. CHAREST and Paula M. Charest, Plaintiffs, v. FEDERAL NATIONAL MORTGAGE ASSOCIATION, Defendant.

9 F.Supp.3d 114

George J. CHAREST and Paula M. Charest, Plaintiffs

v.FEDERAL NATIONAL MORTGAGE ASSOCIATION, Defendant.

Civil Action No. 13–11267–MBB.

United States District Court, D. Massachusetts.

Signed March 27, 2014.

Josef C. Culik, Culik Law PC, Woburn, MA, Peter J. Towne, Swartz & Swartz, Boston, MA, for Plaintiff.

Justin M. Fabella, Maura K. McKelvey, Jennifer S. Madjarev, Hinshaw & Culbertson LLP, Boston, MA, for Defendant.

MEMORANDUM AND ORDER RE: DEFENDANT FEDERAL NATIONAL MORTGAGE ASSOCIATION'S MOTION TO DISMISS THE COMPLAINT (DOCKET ENTRY # 18)

BOWLER, United States Magistrate Judge.

Pending before this court is a motion to dismiss filed by defendant Federal National Mortgage Association (“Fannie Mae”). (Docket Entry # 18). After conducting a hearing, this court took the motion under advisement. The complaint raises a single cause of action under section nine of Massachusetts General Laws chapter 93A (“chapter 93A”).

STANDARD OF REVIEW

In conducting a Fed.R.Civ.P. 12(b)(6) (“Rule 12(b)(6) ”) analysis, a court “accept[s] as true all well pleaded facts in the complaint and draw[s] all reasonable inferences in favor of the plaintiffs.” Gargano v. Liberty International Underwriters, Inc., 572 F.3d 45, 48 (1st Cir.2009). To survive dismissal, “the complaint must allege ‘a plausible entitlement to relief.’ ” Fitzgerald v. Harris, 549 F.3d 46, 52 (1st Cir.2008). While “detailed factual allegations” are not required, “a plaintiff's obligation to provide the ‘grounds' of his ‘entitlement for relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ; Maldonado v. Fontanes, 568 F.3d 263, 266 (1st Cir.2009). In addition, “a well-pleaded complaint may succeed even if ... actual proof of those facts is improbable.” Bell Atlantic v. Twombly, 550 U.S. at 556, 127 S.Ct. 1955.

In evaluating a Rule 12(b)(6) motion, the court may consider a limited category of documents outside the complaint without converting the motion into one for summary judgment. Such documents include public records and documents sufficiently referred to in the complaint. See Butler v. Balolia, 736 F.3d 609, 611 (1st Cir.2013) (supplementing facts in complaint “by examining ‘documents incorporated by reference into the complaint, matters of public record, and facts susceptible to judicial notice’ ”); Freeman v. Town of Hudson, 714 F.3d 29, 36 (1st Cir.2013) (court may consider “ ‘official public records; documents central to plaintiffs' claim; and documents sufficiently referred to in the complaint’ ”) (ellipses and internal brackets omitted); Giragosian v. Ryan, 547 F.3d 59, 65–66 (1st Cir.2008) (can consider documents relied on in complaint, public records and other documents subject to judicial notice). The complaint refers to the Fannie Mae Single Family Servicing Guide, a document central to the chapter 93A claim, and identifies its internet address.¹ It is therefore part of the Rule 12(b)(6) record.

“Exhibits attached to the complaint are” also “properly considered part of the pleading ‘for all purposes,’ including Rule 12(b)(6).” Trans–Spec Truck Service, Inc. v. Caterpillar Inc., 524 F.3d 315, 321 (1st Cir.2008). In the event “ ‘a written instrument contradicts allegations in the complaint to which it is attached, the exhibit trumps the allegations.’ ” Clorox Co. Puerto Rico v. Proctor & Gamble Commercial Co., 228 F.3d 24, 32 (1st Cir.2000) (quoting Northern Indiana Gun & Outdoor Shows, Inc. v. City of South Bend, 163 F.3d 449, 454 (7th Cir.1998), in parenthetical). Facts in the Rule 12(b)(6) record are as follows.

FACTUAL BACKGROUND

Plaintiffs George J. Charest and Paula M. Charest (“the Charests”) own property located in Groveland, Massachusetts (“the property”). In 2008, they refinanced a mortgage on the property in the amount of $230,000 (“the mortgage”). (Docket Entry # 1–1, ¶ 19). At the time, the Charests' credit scores were approximately 706 and the property's value was $445,000. (Docket Entry # 1–1, ¶ 19).

“Fannie Mae is the investor [which] owns the Charests' mortgage.” (Docket Entry # 1–1, ¶ 3). Throughout the relevant time period, GMAC Mortgage, LLC (“GMAC”) serviced the mortgage under a form mortgage selling and servicing contract (“servicing contract”) with Fannie Mae.² (Docket Entry # 1–1, ¶ 14). The servicing contract dictated that, “Any mortgage serviced under this Contract, which we own ..., must be serviced by the Lender,” i.e., GMAC, “according to the provisions in our Guides” currently in effect “or as amended in the future.” (Docket Entry # 14) (emphasis added). The servicing contract therefore required GMAC to abide by the supplemental directives and guidelines applicable to the Home Affordable Modification Program (“HAMP”).³

The servicing contract required GMAC to manage the property “according to the terms of the mortgage and [Fannie Mae's] Guides.” (Docket Entry # 14). In return for servicing and managing the property in accordance with the Guides, GMAC received compensation.⁴ (Docket Entry # 14). Under the servicing contract, all mortgage records belonged to Fannie Mae. The servicing contract also required GMAC to indemnify Fannie Mae if any private entity made a claim or filed suit against Fannie Mae based on GMAC's conduct in servicing the mortgage or managing or disposing of the property. Fannie Mae “reserv[ed] the right to restrict [GMAC's] sale or servicing” of the mortgage under the servicing contract.⁵ (Docket Entry # 14).

In 2010, the Charests “fell behind on their mortgage” because of medical expenses. (Docket Entry # 1–1, ¶¶ 20–21). As a result, GMAC, on behalf of Fannie Mae, offered “to consider [the Charests] for a loan modification” under RAMP. (Docket Entry # 1–1, ¶ 21). In a November 30, 2010 letter to GMAC, the Charests requested that all further communications from Fannie Mae and GMAC be directed to their attorney. (Docket Entry # 1–1, ¶ 50). Fannie Mae and GMAC “acknowledged receiving this request on December 10, 2010,” and sent the Charests a letter stating that, “ ‘[W]e updated our records to reflect you are represented by counsel.’ ” (Docket Entry # 1–1, ¶ 50). Notwithstanding this request, GMAC, on behalf of Fannie Mae, continued to send letters directly to the Charests in January, February and March 2011.⁶ (Docket Entry # 1–1, ¶ 51).

In December 2010, the Charests submitted their first application to GMAC for a loan modification under RAMP. (Docket Entry # 1–1, ¶ 29). Under the RAMP servicing guide in effect at the relevant time,⁷ a borrower is eligible “for a modification of a Fannie Mae owned loan under RAMP” if the financial documentation he provides “confirms that the monthly mortgage payment ratio prior to the modification is greater than 31 percent.” The Guide, §§ 609.01, 610.03.05. Additional eligibility requirements dictate that the mortgage originate before January 1, 2009, and secure the borrower's “principal residence.” The Guide, § 610.01. A borrower's “monthly mortgage payment ratio” is a “ratio of the borrower's current monthly mortgage payment to the borrower's monthly gross income.” The Guide, § 609.03.05. During this time period, the Charests' monthly income was approximately $4,372. (Docket Entry # 1–1, ¶ 30). The complaint reasonably infers that the Charests' mortgage payments prior to modification exceeded 31% of their gross monthly income of $4,372 ($1,355).

After a servicer receives financial documents, the servicer must apply a number of steps to arrive at a monthly mortgage payment ratio that is “as close as possible to 31 percent.” The Guide, § 610.03.06.⁸

Here, “the Charests were eligible for a modification” and Fannie Mae could have reduced their monthly mortgage payment to 31% of their gross monthly income. (Docket Entry # 1–1, ¶¶ 30–31). Fannie Mae nevertheless denied the Charests a loan modification and informed them they “were not eligible.” (Docket Entry # 1–1, ¶ 31).

The Charests submitted another application to GMAC in April 2011.⁹ At the time, the Charests' monthly income was approximately $3,713. The complaint reasonably infers that the Charests' mortgage payments exceeded 31% of their gross monthly income of $3,713 ($1,151). Again, they “were eligible for a modification” and Fannie Mae could have reduced their monthly mortgage payment to 31% of their gross monthly income. (Docket Entry # 1–1, ¶¶ 30–31). Indeed, not only could Fannie Mae have reduced their monthly mortgage payment but it could have “reduced the amount of interest paid over the life of the loan.” (Docket Entry # 1–1, ¶ 33). Fannie Mae nevertheless denied the Charests a loan modification and informed them they “were not eligible.” (Docket Entry # 1–1, ¶ 31).

As one of the reasons to deny the loan modification, Fannie Mae advised the Charests that they did not live at the property. (Docket Entry # 1–1, ¶ 32). As previously indicated, eligibility for a loan modification under RAMP requires that “the mortgage loan” be secured by the “borrower's principal residence” and that the property “not be vacant or condemned.” The Guide, § 610.01. The statement was incorrect because “the Charests have lived in their home continually since 1978.” (Docket Entry # 1–1, ¶ 32).

In May 2011, GMAC, on behalf of Fannie Mae, stated that it would not allow a forbearance of the principal “as part of a loan modification.” (Docket Entry # 1–1, ¶¶ 26, 28). As part of the standard waterfall procedure, however, “[i]f necessary, the servicer must provide for principal forbearance to achieve the target monthly mortgage payment ratio.”¹⁰ The Guide, § 610.03.06. “When later challenged on this misstatement, GMAC denied making it.” (Docket Entry # 1–1, ¶ 28).

In July 2011, the Charests submitted a third application for a loan modification. (Docket Entry # 1–1, ¶ 34). The application contained all required documentation. (Docket Entry # 1–1, ¶ 34). In August 2011, GMAC, on behalf of...