In re Sullivan, Bankruptcy No. 04-19022-JNF.

Citation346 B.R. 4
Decision Date21 July 2006
Docket NumberAdversary No. 05-1350.,Bankruptcy No. 04-19022-JNF.
PartiesIn re Terese SULLIVAN, Debtor. Terese Sullivan, Plaintiff, v. Decision One Mortgage; Household Finance Corp. II; Countrywide Home Loans; Bank of America, f/k/a Fleet National Bank; Option One Mortgage Corp.; Long Beach Mortgage Corp.; Washington Mutual Bank; New Century Mortgage Corp.; Accredited Home Lenders; CIT Group and Stanton & Davis, Attorneys at Law, Defendants.
CourtUnited States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts

David G. Baker, Boston, MA, for Debtor.

MEMORANDUM

JOAN N. FEENEY, Bankruptcy Judge.

I. INTRODUCTION

The matter before the Court is the "Motion of Defendants Long Beach Mortgage Corp. and Washington Mutual Bank for Summary Judgment." Through their Motion, Long Beach Mortgage Corp. ("Long Beach") and Washington Mutual Bank ("Washington Mutual")(collectively, the "Lenders") seek summary judgment on Counts I, II, and III of the Complaint filed by Terese Sullivan (the "Debtor").1 The Debtor filed an Objection to the Lenders' Motion, and the Court heard the Motion and the Objection on May 11, 2006. The Lenders submitted supplemental documentation at the hearing. Following the hearing, the Debtor submitted the complete transcript of her deposition which took place on February 6, 2006.

Based upon the documentary evidence, the Debtor's deposition testimony, and the Memoranda submitted by the parties, the Court finds that there are no genuine issues of material fact, and the matter is ripe for summary judgment. See Fed. R.Civ.P. 56(c), made applicable to this proceeding by Fed. R. Bankr.P. 7056. Accordingly, the Court makes the following findings of fact and conclusions of law in accordance with Fed. R. Bankr.P. 7052.

II. PROCEDURAL AND FACTUAL BACKGROUND

The Debtor filed a voluntary Chapter 13 petition on November 8, 2004. On Schedule A-Real Property, she listed an ownership interest in a condominium unit located at 308 Willow Brook Drive in Wayland, Massachusetts (the "property"). She valued the unit at $180,000 and indicated that she was "uncertain" as to the amount of any secured claims. On Schedule B-Personal Property, the Debtor identified "[p]ossible claims against mortgagees," adding that they were "too speculative to value." On Schedule D-Creditors Holding Secured Claims, the Debtor listed a disputed first mortgage on the property in the estimated sum of $500,000 held by Countrywide Home Loans ("Countrywide") and a disputed second mortgage in the estimated sum of $59,000 held by Fleet Bank ("Fleet"). The Debtor listed no creditors on Schedule E-Creditors Holding Unsecured Priority Claims or Schedule F-Creditors Holding Unsecured Nonpriority Claims.

On Schedules I-Current Income of Individual Debtors, the Debtor disclosed that she was a nurse at Metrowest Medical Center with income from monthly gross wages of $4,300 and from child support in the sum of $580. On Schedule J-Current Expenditures of Individual Debtors, she disclosed that her monthly expenses were $1,965, excluding any mortgage payments.

The Debtor, on February 3, 2004, nine months before filing her Chapter 13 petition, had filed a Chapter 7 petition and received a discharge. On Schedule A in that case, she listed her condominium unit located at 308 Willowbrook Drive in Wayland, adding the following information:

a. Refinanced 2002 — Apraised [sic] at $600,000

b. Can only sell for 70% less of Market Value

c. Property won at lottery and valued at $95,000 in 1998

On Schedule B, the Debtor disclosed the existence of claims against Countrywide and Fleet. She valued these claims at $-0-.2 On March 5, 2004, the Trustee in the Debtor's Chapter 7 case filed a Report of No Distribution. Approximately two months later, the Debtor received her discharge. Her Chapter 7 case was closed on May 23, 2004.3

III. THE DEBTOR'S COMPLAINT

The Debtor filed her Complaint against the above-named defendants on May 11, 2005, one year after receiving her discharge in her prior Chapter 7 case. Her Complaint contains seven counts, only three of which are applicable to the Lenders. These are Count I for Breach of Contract; Count II for Fraud, Deceit and/or Misrepresentation; and Count III for Unconscionability. The pertinent facts alleged by the Debtor in numbered paragraphs are as follows:

7. Sullivan acquired the property on or about June 22, 1998, by deed recorded in the Middlesex South Registry of Deeds at book 28737 page 189.

8. The property is a condominium unit.

9. Sullivan gained the right to purchase the property through a "lottery" conducted pursuant to an "Affordable Housing Plan" adopted by the Town of Wayland.

10. As a result, Sullivan was able to purchase the property for approximately $98,000, notwithstanding that the actual fair market value was significantly higher.4

11. The deed contains restrictive covenants which include a formula which sets the price at which Sullivan may sell the property, should she desire to do so.

12. The covenants, however, do not restrict the price at which a mortgagee may sell the property at or subsequent to a foreclosure auction.

13. A purchase money mortgage was given to Stuart N. Cole as Trustee of the County Mortgage Trust.

14. Thereafter, Sullivan was induced to enter into a series of mortgage refinancing transactions, resulting in the following mortgages being granted5 and, where indicated, discharged:

                DATE OF MTGE       LENDER                              AMOUNT        DISCHARGED
                6/22/98            County Mtge Trust (Cole)            95,00         7/9/99
                4/8/99             FHB Funding                         130,000       3/20/2000
                12/1/99            Household Finance Corp. II         11,594.22      Not of record
                2/16/2000          Long Beach Mtge                     200,000       6/21/2000
                3/30/2000          Option One Mtge                     235,000       12/28/2000
                10/23/2000         Accredited Home Lenders, Inc.       302,000       Not of record
                12/01/2000         Washington Mutual Bank FA           294,000       6/7/2001
                3/15/2001          New Century Mtge Corp.              337,350       2/21/2002
                10/22/2001         New Century Mtge Corp.              392,000       2/8/2003
                4/10/2002          CIT Group                            50,000       Not of record
                10/17/2002         Decision One (MERS)                  480,000      Not of record
                4/15/2003          Fleet National Bank                  40,000       6/11/2003
                

15. Sullivan initially sought refinancing in order to obtain funds to pay legitimate debts.

16. Thereafter, the increased payment amount for the new mortgage placed more and more strain on her ability to pay the mortgage in addition to her normal and ordinary living expenses.

17. When she contacted the lenders about her financial difficulties, they induced her into refinancing the then existing mortgage, resulting in Sullivan becoming liable for more and more debt.

18. In each transaction, Sullivan believes and therefore avers that the lenders made the loans without any consideration of her ability to repay the loan.

19. She further believes and therefore avers that the lenders or their agents inserted information into the mortgage applications that was different from what she told them and failed to inform her that the information had been inserted.

20, Sullivan believes that the lenders were focused on the fact that the amount of the loan as compared with the equity in the property (based on the actual fair market value as opposed to what Sullivan could sell the property for based on the restrictive covenants) was such that when they foreclosed, there was a near certainty that they would recover the amount lent.

21. In addition, if the lender became the purchaser at a foreclosure auction, there was a substantial likelihood that the lender could then sell the property for a substantial profit.

22. For each transaction, the lenders also charged Sullivan fees that were unjustified, unnecessary, unreasonable and illegal.

23. In 2003, Sullivan's financial difficulties became overwhelming, in large part because Decision One Mortgage commenced foreclosure proceedings. An Order of Notice from the Massachusetts Land Court was recorded in the Middlesex South Registry of Deeds on December 17, 2004.

Based upon these allegations, the Debtor formulated the three counts identified above. In Count I, she alleged that she was "induced to enter" into contracts with the Lenders, that the Lenders actions were intended to deprive Sullivan of her home and the equity in her home "solely for their own pecuniary gain." She further averred that the Lenders knew or should have known that she did not have the ability to repay the amount lent, "but made the loan nonetheless with the intention of foreclosing and making a profit unjustly, unfairly and inequitably." Accordingly, she asserts that the Lenders breached the implied covenant of good faith and fair dealing inherent in every contract.

In Count II, the Debtor alleged the Lenders and/or their agents made statements and promises that they knew or should have known were false or deceptive. She specifically alleged that the Lenders stated that her income was sufficient to pay the required monthly payment. She also alleges that they "misrepresented the cost of the loan, both in terms of the related closing costs and the total amount she would have to pay."

Finally, in Count II, the Debtor alleged that, because the Lenders conducted no due diligence for the purpose of determining her ability to repay the obligation or disregarded the results of their due diligence, they knew or should have known that it was unlikely that she could repay the loans.

With respect to Count III, the Debtor alleged that the conduct of the Lenders was unconscionable and that "she is entitled to a declaration voiding the mortgage [sic] and awarding her damages." With respect to Count I and II, the Debtor requested ...

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