Woods v. Wells Fargo Bank, N.A.

• Decision Date: 09 October 2013
• Docket Number: No. 12–1942.,12–1942.
• Citation: 733 F.3d 349
• Court: U.S. Court of Appeals — First Circuit
• Parties: R. Susan WOODS, Plaintiff, Appellant, v. WELLS FARGO BANK, N.A. as Trustee for Fremont Investment & Loan SABR 2005–FR2, Mortgage Pass–Through Certificates, Series 2005–FR2, Defendant, Appellee.

733 F.3d 349

R. Susan WOODS, Plaintiff, Appellant,

v.WELLS FARGO BANK, N.A. as Trustee for Fremont Investment & Loan SABR 2005–FR2, Mortgage Pass–Through Certificates, Series 2005–FR2, Defendant, Appellee.

No. 12–1942.

United States Court of Appeals,First Circuit.

Oct. 9, 2013.

Glenn F. Russell, Jr., with whom Law Office of Glenn F. Russell, Jr., was on brief for appellant.

Christopher A. Cornetta, with whom Houser & Allison, APC, was on brief for appellee.

Before TORRUELLA, DYK^* and KAYATTA, Circuit Judges.

TORRUELLA, Circuit Judge.

There is, by now, a significant body of commentary on the housing market's most recent boom and bust. Little could we add about the development, proliferation, and ultimate collapse of the mortgage-backed securities market that has not already been said. Writing against that background, we recite here only the most relevant aspects of the market's recent instability. At its height, the boom was facilitated by a novel system of bundling residential mortgages and trading these pooled mortgages in the form of debt-backed security instruments. Crucial to the success of this market was Mortgage Electronic Recording System (“MERS”), a corporate entity that facilitated the pooling and assignment of mortgages among its member institutions.¹

With the market's bust, as more and more homeowners faced foreclosures initiated not by their original lenders but by financial institutions with which they had never directly dealt, MERS's practices came under increasing legal scrutiny. This case is a paradigmatic example of that common fact pattern. In 2012, R. Susan Woods (“Woods”), having fallen behind on her payments, faced foreclosure on her home mortgage. The notice of foreclosure did not come from Woods's lending institution, however, but from an unknown bank that had purchased her mortgage through a series of MERS-facilitated assignments.

Woods challenged the foreclosure on multiple grounds, all largely predicated on her theory that MERS could not validly assign her mortgage, and therefore the receiving institution had no legal interest upon which to foreclose. Woods also brought related state law claims for fraud and unfair business practices. The district court found these claims unavailing and dismissed Woods's complaint. Agreeing that the complaint states no plausible claim for relief, we affirm.

I. Background

On January 26, 2005, Woods executed a promissory note for $228,000 to Fremont Investment & Loan (“Fremont”), secured by a mortgage on her Hadley, Massachusetts home. The mortgage listed Fremont as the “lender” and MERS as Fremont's “nominee” as well as the “mortgagee” of record. As mortgagee, MERS held legal title over the mortgaged property and, “solely as nominee for [Fremont and its] successors and assigns,” it possessed the power of sale. The mortgage was recorded in the Hampshire County Registry of Deeds.

The first of several assignments of Woods's mortgage occurred on October 29, 2007 when, acting in its own name, MERS transferred the mortgage and note to Wells Fargo Bank, National Association as Trustee for Fremont Investment & Loan SABR 2005–FR2. On January 22, 2009, acting this time as nominee for Fremont, MERS again assigned the mortgage and note to Wells Fargo Bank, National Association as Trustee for Fremont Investment & Loan SABR 2005–FR2. Both assignments were timely recorded in the Hampshire County Registry of Deeds.

On April 17, 2009, counsel for Wells Fargo Bank, National Association as Trustee for Fremont Investment and Loan SABR 2005–FR2 filed notice of its intended foreclosure in Massachusetts Land Court, seeking a declaration that the sale was not barred by the Servicemembers Civil Relief Act, 50 U.S.C. app. § 533. Shortly thereafter, on July 23, 2009, the mortgage was again assigned. This time, Wells Fargo Bank, National Association as Trustee for Fremont Investment and Loan SABR 2005–FR2 transferred all “right, title, and interest ... as current holder of the [ ] Mortgage” to Wells Fargo Bank, National Association as Trustee for Securitized Asset Backed Receivables LLC 2005–FR2 Mortgage Pass–Through Certificates, Series 2005–FR2 (“Wells Fargo”). ²

The Massachusetts Land Court granted Wells Fargo permission to sell on June 16, 2010. Subsequently, on July 5, 2011, Wells Fargo notified Woods of its intent to foreclose. At first proceeding pro se, Woods filed a complaint in Hampshire County Superior Court on July 29, 2011, seeking—and ultimately receiving—a preliminary injunction to arrest the foreclosure. After retaining counsel, an amended complaint followed on August 4, 2011.

This amended complaint alleged that Wells Fargo lacked valid possession of her mortgage and had provided no evidence that it held the accompanying note, making any attempted foreclosure illegal. Further, Woods claimed that the foreclosure violated a consent agreement between the State of Massachusetts and Fremont, which required Fremont to notify the state of any pending foreclosures and abide by a thirty-day waiting period during which the Attorney General could arrest foreclosures deemed presumptively unfair. The complaintalso included claims for common law fraud and violations of Massachusetts's consumer protection statute.

After removing the case to federal court, Wells Fargo filed a motion to dismiss for failure to state a claim. Fed.R.Civ.P. 12(b)(6). The motion argued that Woods pled no facts plausibly showing that Wells Fargo lacked legal standing to foreclose, failed to comply with the Fremont consent agreement, or made false representations actionable as fraud. It also argued that Woods lacked standing to challenge the assignments of her mortgage, to which she was not a party, and that her claim for deceptive business practices was void for failure to abide by a pre-suit notice requirement.³ The district court granted that motion on July 3, 2012, concluding that Wells Fargo validly possessed both the note and mortgage, that Woods did not have standing to challenge the mortgage's assignment, and that all requirements of the Fremont consent decree were properly met.

Woods filed a timely appeal from that decision. Although her arguments are not always clear, we read her brief as contending that the following claims were plausibly pled: (1) Woods had standing to challenge the assignments of her mortgage; (2) the purported assignments were void, making Wells Fargo's attempted foreclosure illegal under Mass. Gen. Laws ch. 244, § 14; (3) Wells Fargo did not possess both the note and mortgage at the time of attempted foreclosure; (4) the attempted foreclosure violated the terms of Fremont's consent agreement; and (5) Wells Fargo committed fraud and deceptive business practices under Mass. Gen. Laws ch. 93A.

II. Discussion

We review a dismissal for failure to state a claim under Rule 12(b)(6)de novo. Feliciano–Hernández v. Pereira–Castillo, 663 F.3d 527, 532 (1st Cir.2011). Setting aside any statements that are merely conclusory, we construe all factual allegations in the light most favorable to the non-moving party to determine if there exists a plausible claim upon which relief may be granted. Ocasio–Hernández v. Fortuño–Burset, 640 F.3d 1, 12 (1st Cir.2011).

1. Woods's standing to challenge assignments

Before turning to the merits of Woods's challenge to the assignment of her mortgage, we must take up the predicate question of whether she has standing to bring that claim. The district court found that she did not, reasoning that Woods was “not a party to the trust agreement, nor ... in privity with Fremont.” Woods v. Wells Fargo Bank, N.A., 875 F.Supp.2d 85, 88 (D.Mass.2012). In a case decided subsequent to the district court's order, however, this court rejected that approach, holding that standing may be appropriate even where a mortgagor is not party to, nor beneficiary of, the challenged assignments. Culhane v. Aurora Loan Servs. of Neb., 708 F.3d 282, 290 (1st Cir.2013) (assessing mortgagor's standing based solely on privity “paint[s] with too broad a brush”). Because Massachusetts law allows for non-judicial foreclosures by mortgagees with the power of sale, Culhane reasoned that barring standing in all cases would unduly insulate assignments; mortgagors could not challenge the validity of assignments either as the defendant in a suit for judicial authorization or as the petitioner in a suit like the present one. Id. (holding that mortgagors must have standing to bring certain challenges to assignments in order to protect their “legally cognizable right” to be secure from unlawful foreclosures). On this basis, Culhane found standing appropriate in instances where a mortgagor “challenge [s] a mortgage assignment as invalid, ineffective, or void,” although not where the challenge would “render [the assignment] merely voidable ... but otherwise effective to pass legal title.” Id. at 291.

Thus, claims that merely assert procedural infirmities in the assignment of a mortgage, such as a failure to abide by the terms of a governing trust agreement, are barred for lack of standing. Id. In contrast, standing exists for challenges that contend that the assigning party never possessed legal title and, as a result, no valid transferable interest ever exchanged hands. See U.S. Bank Nat'l Ass'n v. Ibanez, 458 Mass. 637, 651, 941 N.E.2d 40, 53 (2011) (“[T]here must be proof that the assignment was made by a party that itself held the mortgage.”). In this latter case, the challenge is to the “foreclosing entity's status qua mortgagee.” Culhane, 708 F.3d at 291;see also Ibanez, 941 N.E.2d at 50 (“Any effort to foreclose by a party lacking jurisdiction and authority to carry out a foreclosure ... is void.”) (internal quotation marks omitted).

While far from a paradigm of clarity, Woods's complaint appears to set forth just such a challenge. The complaint alleges that MERS, as a mere “nominee” for Fremont, never possessed a legally transferable interest in Woods's mortgage,...