Fannon, et al. v. U.S. Bank, N.A., et al.

2016 DNH 170

• Court: District Court, D. New Hampshire
• Decided: September 20, 2016
• Docket: 16-cv-141-LM
• Status: Published

Opinion

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

William M. Fannon and Catherine M. Fannon

v. Civil No. 16-cv-141-JD Opinion No. 2016 DNH 170 U.S. Bank, N.A., as Trustee of MASTR Asset Backed Securities Trust 2006-NCI, Mortgage Pass-Through Certificates, Series 2006-NCI

O R D E R

William and Catherine Fannon brought suit against U.S.

Bank, as Trustee of MASTR Asset Backed Securities Trust 2006-

NCI, Mortgage Pass-Through Certificates, Series 2006-NCI, after

the foreclosure sale of their home in April of this year. They

challenge the validity of the foreclosure sale on the grounds

that U.S. Bank was not the holder of the note and that they

rescinded their mortgage loan under 15 U.S.C. § 1635 before the

sale. They also allege claims of breach of the implied covenant

of good faith and fair dealing and wrongful foreclosure. U.S.

Bank moves to dismiss all claims, and the Fannons object.

Standard of Review

A motion to dismiss for failure to state a claim is

governed by Federal Rule of Civil Procedure 12(b)(6). In

considering a motion under Rule 12(b)(6), the court assumes the truth of the properly pleaded facts and takes all reasonable

inferences from those facts that support the plaintiff’s claims.

Mulero-Carrillo v. Roman-Hernandez, 790 F.3d 99, 104 (1st Cir.

2015). Based on the properly pleaded facts, the court

determines whether the plaintiff has stated “a claim to relief

that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550

U.S. 544, 570 (2007).

Background

The Fannons bought the property at issue in this case,

located in New Ipswich, New Hampshire, from Catherine’s sister

in 1998. In 2005, the Fannons refinanced their mortgage with

New Century Mortgage Corporation. William signed a note for

$107,000 that was secured by a mortgage on the property signed

by both of the Fannons.

In 2006, Wells Fargo Bank, N.A. and its subsidiary, ASC,

succeeded New Century as servicers of the loan. On February 1,

2006, Wells Fargo Bank, N.A. Master Servicer and Trust

Administrator and U.S. Bank N.A., Trustee were parties to a

pooling and servicing agreement (“PSA”) that the Fannons allege

created and set the terms for the MASTR Asset Backed Securities

Trust.

New Century filed for bankruptcy in 2007. Pursuant to the

bankruptcy plan, on January 24, 2008, New Century assigned the

2 Fannons’ note and mortgage to U.S. Bank N.A., as Trustee for

MASTR Asset Backed Securities Trust 2006-NCI. The assignment is

signed by Anita Antonelli, vice president of loan documentation

at Wells Fargo, under a limited power of attorney. On November

21, 2011, the mortgage and note were again assigned by New

Century to U.S. Bank N.A., as Trustee for MASTR Asset Backed

Securities Trust 2006-NCI, mortgage Pass-Through Certificates,

Series 2006-NCI, with the assignment signed by Azza Zarroug,

vice president of loan documentation at Wells Fargo, as attorney

in fact for New Century.

By 2006, the Fannons were in default on their mortgage

payments. After they had missed fourteen payments, the Fannons

entered a “Special Forbearance Agreement” that required five

payments from November of 2008 through March of 2009. The

Fannons only made four of the five required payments. In 2010

and 2013, the Fannons entered into trial modification plans but

ASC, as servicer, found that the Fannons had not complied with

the requirements. U.S. Bank began foreclosure proceedings on

April 16, 2015.

The Fannons retained counsel to assist them. Their

requests for another loan modification were denied. The Fannons

sent U.S. Bank a notice on May 15, 2015, to rescind their loan.

U.S. Bank proceeded with foreclosure.

3 The Fannons filed a petition in Hillsborough County

Superior Court in November of 2015 to stop the foreclosure sale.

In the petition, the Fannons alleged claims that U.S. Bank

lacked authority to foreclose because it did not possess the

original “wet-ink” note, that the mortgage assignment to the

Trust was void, that U.S. Bank did not possess both the mortgage

and the note before giving notice of foreclosure, that “AOM

Missed Securitization Deadlines,” that the note and mortgage

were not conveyed to the Trust “via Requisite Chain of

Transfer,” that U.S. Bank failed to mitigate losses, and seeking

rescission. After U.S. Bank moved to dismiss, the Fannons

voluntarily dismissed all of their claims, and the case was

terminated.

When the foreclosure sale was scheduled again, the Fannons

filed another petition to stop the sale in Hillsborough County

Superior Court on April 17, 2016. U.S. Bank removed the case to

this court on April 13, 2016, and moved to dismiss the

complaint. The foreclosure sale was held on April 29, 2016.

U.S. Bank bought the property at the sale for $75,484.77.

The Fannons filed an amended complaint on May 20, 2016. In

their amended complaint, the Fannons allege: Count I – Lack of

Power and Authority to Foreclose—U.S. Bank Cannot Show That It

Is Agent of the Noteholder or That it is the Noteholder, Count

4 II – Lack of Power and Authority to Foreclose—The Mortgage

Assignments and Purported Note Negotiations are Void, Count III

– Breach of the Covenant of Good Faith and Fair Dealing, Count

IV – Rescission Pursuant to 15 U.S.C. § 1635 (Truth in Lending

Act “TILA”), Count V – Wrongful Foreclosure.

Discussion

U.S. Bank moves to dismiss all five of the Fannons’ claims

on the grounds that they have not alleged sufficient facts to

state plausible claims for relief. The Fannons object, arguing

that they have alleged enough to support their claims. U.S.

Bank filed a reply, and the Fannons filed a surreply.

I. Lack of Power to Foreclose – Note

In support of their claim that U.S. Bank did not hold the

note and, therefore, did not have the power to foreclose, the

Fannons allege in the complaint that an ASC representative told

Catherine Fannon in 2010 that the original note was shredded

shortly after the closing. They also contend that the copies of

the note produced by U.S. Bank differ from the original note.

Specifically, the Fannons state that the copies do not include a

prepayment penalty that is in the mortgage note and that the

copies are signed by Steve Nagy, an alleged “robo signer.”

U.S. Bank asserts that the Fannons failed to allege

sufficient facts to show that it does not hold the original

5 note. Further, U.S. Bank represents that it does hold the

original note, that its counsel has informed counsel for the

Fannons that U.S. Bank holds the original note, and that it will

produce the note for the court’s inspection.1 U.S. Bank also

refutes the Fannons’ theories based on the prepayment penalty

rider in the mortgage and the “robo signer” issue.

In an effort to simplify the note issue, the court directed

counsel to agree to a process for U.S. Bank to show the note to

counsel for the Fannons. Although the meeting and inspection

occurred, counsel for the Fannons continues to dispute the

authenticity of the note held by U.S. Bank. Therefore, the

authenticity of note cannot be resolved in the context of this

motion.2

1 U.S. Bank does not rely on the holding in Bergeron v. N.Y. Community Bank, 168 N.H. 63, 70-71 (2015), that an agent of the noteholder may foreclose.

2 To the extent U.S. Bank represents that under New Hampshire law it was not required to hold the note in order to foreclose, it has not shown that to be the rule. Neither of the cases cited by U.S. Bank support that position. See Fortin v. Ocwen Loan Servicing, LLC, 2015 WL 5693115, at *5 (D.N.H. Sept. 28, 2015); Mason v. Wells Fargo Bank, N.A., 2014 WL 2737601, at *4 (D.N.H. June 17, 2014); see also Bergeron, 168 N.H. at 68 (assuming without deciding that the authority to foreclose requires the note and holding that a mortgagee that is a properly authorized agent of the noteholder has power to foreclose).

6 II. Lack of Power and Authority to Foreclose – Mortgage Assignments and Note Transfers Are Void

In their objection to the motion to dismiss, the Fannons

explain that their challenges to the assignments of the mortgage

and the transfers of the note in Count II are relevant only if

U.S. Bank claims that its authority to foreclose was based on an

agency relationship under Bergeron. In other words, Count II is

not a separate claim but a response to an anticipated defense to

Count I. U.S. Bank does not rely on Bergeron. Count II is

dismissed without prejudice to the Fannons to raise the same

issues if U.S. Bank were to claim the power to foreclose based

on an agency relationship under Bergeron.

III. Breach of the Covenant of Good Faith and Fair Dealing

In Count III, the Fannons allege that U.S. Bank, through

its servicing agent, violated the implied covenant of good faith

and fair dealing by failing to consider them for a loan

modification. Under New Hampshire law, the implied covenant of

good faith and fair dealing limits the discretion of one party

“to deprive another party of a substantial proportion of the

agreement’s value.” Centronics Corp. v. Genicom Corp., 132 N.H.

133, 143 (1989). The implied covenant, however, cannot be

invoked to require a lender to modify or restructure a loan.

Riggieri v. Caliber Home Loans, Inc., 2016 WL 4133513, at *6-*7

(D.N.H. Aug. 3, 2016) (citing cases).

7 Therefore, the Fannons have not stated a plausible claim

for relief in Count III.

IV. Recission Pursuant to § 1635

The Fannons assert that they rescinded their mortgage and

loan pursuant to § 1635 of TILA by a notice sent on May 15,

2016. Because U.S. Bank did not respond within twenty days, the

Fannons contend, U.S. Bank had no rights under the mortgage and

note to foreclose. In support, the Fannons allege that the

“true lender” for the note was not known and was not disclosed

to them and, therefore, “the loan was never consummated.” As a

result, they reason, they were able to rescind the note and

mortgage eleven years after they signed both.

Under TILA, a borrower has the right to rescind the loan

transaction within three days after consummation of the loan or

delivery of the information and forms required for rescission.

§ 1635(a). The right to rescind, however, expires three years

after consummation of the loan or when the property is sold

whether or not all disclosures have been made within that time.

§ 1635(f); Jesinoski v. Countrywide Home Loans, Inc., 135 S. Ct.

790, 792 (2015). Consummation of the loan, for purposes of §

1635(f), occurs when the borrower “becomes contractually

obligated on a credit transaction.” 12 C.F.R. § 226.2(a)(13)

(“Regulation Z”). The Official Staff Interpretation of

8 Regulation Z provides that state law governs when a contractual

obligation is created. Grimes v. New Century Mortg. Corp., 340

F.3d 1007, 1009 (9th Cir. 2003); Murphy v. Empire of Am., FSA,

746 F.2d 931, 933-34 (2d Cir. 1984).

Relying on Jackson v. Grant, 890 F.2d 118, 121 (9th Cir.

1989), the Fannons argue that because New Century did not

actually provide the funds for their loan and the loan document

did not identify the actual lender, no meeting of the minds

occurred and the loan was never consummated. In Jackson,

however, the loan documents provided in February of 1983

identified only a “broker” or an “arranger of credit” and

specifically provided that the “broker” or “arranger of credit”

would not be the lender. Id. Under the terms of those

documents, the court found, no one had agreed to extend credit

to the borrower so that no loan was consummated at that time.

Id. The loan was later consummated in April of 1983 when a

lender was identified and the loan closed, making that the

applicable date for the three-year period under § 1635(f). Id.

Here, however, New Century was identified as the lender in the

note from the beginning, making Jackson inapplicable to this

case.

The Fannons theory that the loan was not consummated has

been overwhelmingly rejected by other courts. See, e.g.,

9 Schiano v. MBNA, 2016 WL 4257761, at *9-*10 (D.N.J. Aug. 10,

2016); Johnson v. Bank of N.Y. Mellon, 2016 WL 4211529, at *4

(W.D. Wash. Aug. 10, 2016); Wilder v. Ogden Ragland Mortg., 2016

WL 4440487, at *4-*5 (N.D. Tex. July 29, 2016)(“Plaintiff’s

claim that the three years period to rescind the loan remains

open, because Defendants failed to identify the true lender and

the loan was never consummated, is nonsensical.”); Almutarreb v.

Nationstar Mortg. Holdings, 2016 WL 3384067, at *5 (N.D. Cal.

June 20, 2016); Tyshkevich v. Wells Fargo Bank, N.A., 2016 WL

3077580, at *4 (E.D. Cal. May 31, 2016)3; Smith v. Wells Fargo

Bank, N.A., --- F. Supp. 3d ---, 2016 WL 370697, at *4 (D. Conn.

Jan. 29, 2016).

The result is no different under New Hampshire law. “A

valid enforceable contract requires offer, acceptance,

consideration, and a meeting of the minds.” Tessier v.

Rockefeller, 162 N.H. 324, 339 (2011). A meeting of the minds

occurs when there is agreement on all essential terms of the

contract. Syncom Indus., Inc. v. Wood, 155 N.H. 73, 82 (2007).

In this case, the note was an offer by New Century to loan

William Fannon $107,000, with interest, subject to certain

3 The Fannons cite an earlier order in Tyshkevich to support their theory that the limitations period did not run because the loan was not consummated. The subsequent decision makes clear that the Fannons are mistaken.

10 conditions, which are not disputed. William accepted the offer

on September 30, 2005, by signing the note. There is no dispute

that the Fannons did receive the money, that the loan closed, or

that they made payments under the terms of the note. The

Fannons make no argument to show that the identity of the source

of the money to fund the loan was essential to the contract.

Therefore, there was an offer, acceptance, consideration, and a

meeting of the minds so that the loan was consummated. Further,

if, as the Fannons assert, the loan had never been consummated,

then TILA would not apply because there would be no loan to

rescind. See, e.g., Wilder, 2016 WL 4440487, at *4-*5;

Samuelson v. Wells Fargo Bank, N.A., 2016 WL 1222222, at *2

(N.D. Ind. Mar. 29, 2016).

V. Wrongful Foreclosure

The Fannons allege in Count V that U.S. Bank wrongfully

foreclosed on their property because it did not “obtain a fair

and reasonable price for the property being foreclosed.” They

allege that the property was sold to U.S. Bank for $75,484.00

when it was worth $150,000 and that U.S. Bank claims that the

Fannons still owe approximately $200,000.

Under New Hampshire law, a mortgagee as the seller of

property has a duty of good faith and due diligence that

obligates the mortgagee to “exert every reasonable effort to

11 obtain a fair and reasonable price under the circumstances.”

Murphy v. Fin. Dev. Corp., 126 N.H. 536, 541 (1985) (internal

quotation marks omitted). The duty of good faith and the duty

of due diligence are distinct, and claims of breach are

considered separately. Id. at 541; see also People’s United

Bank v. Mt. Home Developers of Sunapee, 858 F. Supp. 2d 162, 169

(D.N.H. 2012).

U.S. Bank moves to dismiss on the ground that the Fannons

have not stated a claim because they did not allege that U.S.

Bank acted in bad faith and the due diligence duty is satisfied

by its compliance with RSA 479:25. U.S. Bank also relies on

People’s, 858 F. Supp. 2d at 169. In response, the Fannons

reiterate their allegations in the complaint that U.S. Bank

breached its duty of due diligence because the sale price was

half of the value of the property and much less than the amount

due on the note, that U.S. Bank was the only bidder because no

one else attended the auction, and that U.S. Bank should have

delayed the sale to get more bidders.

“[A] mortgagee executing a power of sale is bound both by

the statutory procedural requirements [of RSA 479:25] and by a

duty to protect the interests of the mortgagor through the

exercise of good faith and due diligence.” Murphy, 126 N.H. at

540 (emphasis added). Even when a mortgagee complies with the

12 requirements of RSA 479:25, those efforts may not be sufficient

to demonstrate due diligence. Id. at 543; see also People’s,

858 F. Supp. 2d at 168. Instead, due diligence may require

additional effort to obtain “a fair and reasonable price under

the circumstances.” Murphy, 126 N.H. at 540 (internal quotation

marks omitted).

In People’s, the court dismissed the claim based on breach

of the duty of good faith but did not dismiss the claim based on

a breach of the duty of due diligence. 858 F. Supp. 2d at 170.

The claim for breach of the duty of due diligence remained in

the case. Contrary to U.S. Bank’s theory, People’s does not

support an argument that the Fannons failed to allege a claim of

breach of the due diligence duty.4 Therefore, U.S. Bank has not

shown that the Fannons failed to state a claim of wrongful

foreclosure based on the duty of due diligence.

4 In its reply, U.S. Bank charges that the Fannons waived any argument that they were harmed by the foreclosure sale price because they did not dispute U.S. Bank’s assertion that they had no equity in the property. The Fannons alleged in the amended complaint that they suffered a loss of their equity in the property and that U.S. Bank claims to be owed approximately $200,000. In addition, U.S. Bank’s theory about the Fannons’s failure to assert a loss, based on Riggieri v. Caliber Home Loans, Inc., 2016 WL 4133513 (D.N.H. Aug. 3, 2016), is difficult to follow and unpersuasive.

13 Conclusion

For the foregoing reasons, the defendant’s motion to

dismiss (doc. no. 14) is granted as to Counts II, III, and IV,

but is denied as to Counts I and V.

SO ORDERED.

__________________________ Joseph DiClerico, Jr. United States District Judge

September 20, 2016

cc: Stephen T. Martin, Esq. Michael R. Stanley, Esq.