Lopez v. Mortg. Elec. Registration Sys., Inc. (In re Lopez)

• Decision Date: 03 January 2013
• Docket Number: Adversary No. 10–04057.,Bankruptcy No. 09–45463–HJB.
• Citation: 486 B.R. 221
• Parties: In re Amilcar F. LOPEZ, Luisa E. Lopez, Debtors. Amilcar F. Lopez, Luisa E. Lopez, Plaintiffs v. Mortgage Electronic Registration Systems, Inc., Consumer Solutions, LLC, and Decision One Mortgage Co., LLC, Defendants.
• Court: U.S. Bankruptcy Court — District of Massachusetts

486 B.R. 221

In re Amilcar F. LOPEZ, Luisa E. Lopez, Debtors.Amilcar F. Lopez, Luisa E. Lopez, Plaintiffs

v.Mortgage Electronic Registration Systems, Inc., Consumer Solutions, LLC, and Decision One Mortgage Co., LLC, Defendants.

Bankruptcy No. 09–45463–HJB.

Adversary No. 10–04057.

United States Bankruptcy Court,

D. Massachusetts,

Central Division.

Jan. 3, 2013.

Rosaleen J. Clayton, Auburn, MA, for Plaintiffs.

Amy N. Azza, John T. Precobb, Michael P. Marsille, Paul J. Mulligan, Orlans Moran PLCC, Boston, MA, for Defendants.

MEMORANDUM OF DECISION

HENRY J. BOROFF, Bankruptcy Judge.

There are two matters before the Court: (1) a “Motion for Relief from the Automatic Stay” (the “Motion for Relief”) filed by Consumer Solutions REO, LLC (“Consumer REO”); and (2) a “Motion for Summary Judgment Pursuant to Fed.R.Civ.P. 56” (the “Summary Judgment Motion”) filed by defendants Mortgage Electronic Registration Systems, Inc. (“MERS”) and Consumer Solutions, LLC (“Consumer”) (together, the “Defendants”) with respect to all counts of the First Amended Complaint (the “Complaint”) filed by Luisa E. Lopez and Amilcar F. Lopez (together, the “Debtors”).

I. FACTS AND TRAVEL OF THE CASE

The Debtors allege the following in their Complaint.

In 2005, Decision One Mortgage Company, LLC (“Decision One”) agreed to provide the Debtors with a refinancing of the first mortgage on their home in Andover, Massachusetts (the “Property”). In support of that loan, Luisa Lopez executed a promissory note payable to Decision One in the amount of $382,400.00 (the “Note”) ¹ and both Debtors executed a mortgage on the Property (the “Mortgage”) in favor of MERS, as nominee for Decision One, to secure repayment of the Note (together, the “Loan”). Both the Note and the Mortgage were recorded in the Essex County Registry of Deeds (the “Registry”). The Loan was an adjustable rate mortgage loan (“ARM”) with an introductory interest rate of 7.81%. The Note provided for interest rate and monthly payment changes commencing December 7, 2007 and every six months thereafter (the “change dates”), based on rate indexing as set forth in the Note; except that the interest rate on the first change date would be no greater than 10.81% and subsequent changes no more than an additional 1%.

The Debtors ultimately fell behind on their Loan payments, and at some point, Consumer, representing itself as the then current holder of the Mortgage, executed and filed a complaint with the Land Court Department of the Massachusetts Trial Court (the “Land Court”) pursuant to the Servicemembers Civil Relief Act, 50 U.S.C.App. §§ 501–591 (the “Servicemember's Act”). Exactly when it did so is the subject of some dispute, as the Debtors say that Consumer signed the Servicemember's Act complaint on July 31, 2008, but did not file that complaint with the Land Court until October 1, 2009.

On January 9, 2009, MERS, as nominee for Decision One, executed an assignment of the Mortgage to Consumer (the “Assignment”), which Assignment was recorded on February 2, 2009. On March 11, 2009, Consumer sold the Property at a foreclosure auction (the “Foreclosure Sale”) to Consumer REO. The foreclosure deed was recorded in the Registry on October 1, 2009.

On December 23, 2009, the Debtors filed the instant Chapter 13 bankruptcy case. Consumer REO filed its Motion for Relief on April 6, 2010. The Debtors responded by filing an objection to the Motion for Relief and by commencing the instant adversary proceeding through which the Debtors seek, inter alia, a declaratory judgment that the Foreclosure Sale was invalid. The Motion for Relief and adversary proceeding were thereafter consolidated for trial. The Defendants have now filed the Summary Judgment Motion with respect to all counts in the Complaint and the Debtors have filed an opposition thereto. After a hearing on the Summary Judgment Motion, the Court took the matter under advisement.

II. POSITIONS OF THE PARTIES

In their nine-count Complaint, the Debtors seek: a declaratory judgment that the Foreclosure Sale was invalid (Count I); a declaratory judgment that the Defendants violated the Fair Debt Collection Practices Act (Count II); a declaratory judgment for breach of contract (Count III); damages for the Defendants' alleged violation of the Truth in Lending Act and the Massachusetts Consumer Credit Cost Disclosure Act (Count IV); damages for the Defendants' alleged negligent lending practices (Count V); damages for alleged emotional distress (Count VI); damages for the Defendants' alleged abuse of process (Count VII); a declaratory judgment that the Defendants committed fraud and/or fraudulent concealment (Count VIII); and damages for the Defendants' alleged predatory lending (Count IX).

A. Violation of M.G.L. ch. 244 Wrongful Foreclosure (Count I)

The Debtors contend that, at the time of the Foreclosure Sale, Consumer had no legal right to foreclose on the Mortgage, because the Assignment to Consumer was invalid for two reasons: ² (1) the mailing address for Consumer listed on the Assignment was the address of a dissolved corporation; and (2) a certain Vickie Roper, who executed the Assignment on behalf of MERS as “Vice President,” was not a principal officer of MERS, but rather an agent of Consumer, and was therefore without authority to sign on MERS' behalf.

As for the allegedly faulty address, the Defendants maintain that the use of an address of a defunct corporation or an errant address for an existing corporation does not invalidate the effectiveness of a mortgage assignment. The Defendants explain that the address for Consumer which appears on the Assignment was merely outdated. According to the Defendants, Consumer is a Delaware Corporation in good standing and a duly registered foreign corporation in Massachusetts. And the use of an incorrect address for Consumer did not invalidate the Assignment because, under Massachusetts law, even the failure to provide any address at all is not invalidating. Nor do the Defendants consider the late execution of the Assignment (after the filing of the Servicemember's Act complaint) material to the validity of the Assignment or the Land Court judgment thereon,³ because the Land Court action was commenced solely to ensure that no owner of the Property was entitled to the protections of the Servicemember's Act.

And finally, the Defendants' argue that the Debtors cannot challenge the validity of the Assignment based upon Ms. Roper's execution, because, as non-parties to the Assignment, they lack standing to challenge it.

B. Violation of Fair Debt Collection Practices Act (Count II)

The Debtors assert that the Defendants violated the Fair Debt Collection Practices Act (the “FDCPA”) when Consumer misrepresented its authority to commence the foreclosure process and knowingly conducted an illegal foreclosure of the Mortgage. In support of this claim, the Debtors cite to Title 209 of the Code of Massachusetts Regulations, which provides that knowingly or recklessly facilitating an illegal foreclosure of real property is an unfair or unconscionable means of a servicing a loan.

The Defendants argue that the Debtors lack standing to enforce the Code of Massachusetts Regulations as it pertains to the Massachusetts Division of Banks, because Title 209 does not create a private right of action for the benefit of mortgagors.

C. Breach of Contract (Count III)

Relying on their characterization of the Note and the Mortgage as contracts, the Debtors argue the Defendants failed to deal with the Debtors fairly and in good faith because they failed to provide truthful notices to the Debtors as required by the Note and the Mortgage.

The Defendants point to the language in the Note and the Mortgage describing the notice requirements, and contend that neither requires “truthful” notices ⁴ or that the Defendants act in good faith. Additionally, the Defendants cite to Massachusetts case law expressing a reluctance to impose a common law contractual duty to negotiate in good faith absent an express undertaking to do so.

D. Truth in Lending Violation (Count IV)

The Debtors maintain that, because they did not receive a total of four copies of the Notice of Right to Cancel at closing as required by both the Truth in Lending Act (“TILA”) and the Massachusetts Consumer Credit Cost Disclosure Act (“MCCCDA”), they have an extended right to rescind the underlying loan transaction and void the Mortgage lien.

The Defendants contend that the Debtors' TILA and MCCCDA claims are time barred; and even if timely, the delivery to the Debtors of at least one copy of the Notice of Right to Cancel was sufficient under both statutes.

E. Negligent Lending (Count V)

The Debtors allege that the Defendants are liable for negligent lending because their lending practices fell below the mortgage lending industry's standard of care. The Debtors argue that they were damaged by Defendants negligent failure to consider the Debtors' ability to make mortgage payments upon the change dates.

The Defendants respond that this claim is also time barred. And notwithstanding the statute of limitations, the Defendants say that Massachusetts law does not impose a duty on a lender to ensure that borrowers have the ability to make payments on mortgage loans.

F. Emotional Distress (Count VI)

The Debtors claim that, as a cumulative result of the Defendants' alleged actions, the Debtors have suffered emotional distress for which the Defendants should be held responsible.

The Defendants argue that their actions taken to foreclose on the Mortgage, even if improper, did not rise to the level of extreme and outrageous conduct required to prove a claim for emotional distress. Further, the Defendants say that Consumer, as assignee, cannot be held responsible for any actions taken by the original lender (Decision One).

G. Abuse of Process (Count VII)

The Debtors claim that the Defendants' use of legal process both in the Land Court and in this Court to obtain allegedly...