Frangos v Bank of America

2014 DNH 159

• Court: District Court, D. New Hampshire
• Decided: July 24, 2014
• Docket: 13-cv-472-PB
• Status: Published

Opinion

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Thomas and Frances Frangos

v. Civil No. 13-cv-472-PB Opinion No. 2014 DNH 159 Bank of America, N.A., et al.

MEMORANDUM AND ORDER

Thomas and Frances Frangos have filed a petition to enjoin

a foreclosure sale of their home in Portsmouth, New Hampshire.

The Frangoses challenge the legality of Bank of New York

Mellon’s efforts to foreclose and Bank of America’s actions in

servicing their loan. Both banks have argued in a motion to

dismiss that the petition fails to state a viable claim for

relief.

I. BACKGROUND

Thomas Frangos obtained a mortgage loan from Optima

Mortgage Corporation in April 2005. To secure the loan, he

executed a note in favor of Optima and he and his wife, Frances,

granted a mortgage to the Mortgage Electronic Registration

Systems, Inc. (“MERS”) as Optima’s nominee. In 2007, Frangos

defaulted on the loan and subsequently filed for Chapter 7 bankruptcy protection. During the course of the bankruptcy

proceedings, Bank of America’s predecessor, Countrywide Home

Loans, Inc., sought permission to foreclose the mortgage on

behalf of Bank of New York. Countrywide’s request became moot,

however, after Frangos agreed to modify the terms of the note

and reaffirmed his obligations under the note and mortgage.

Frangos thereafter remained current on his payments until

at least April 2009, when he again defaulted. Frangos attempted

to work with Bank of America to further modify the loan

agreement under the federal Home Affordable Modification Program

(“HAMP”) program. The process was a frustrating one: after he

timely submitted the required documents, the bank repeatedly

informed Frangos that his application was incomplete and

requested further information. Doc. No. 1-1. Bank of America

never rendered a final decision on Frangos’s HAMP application.

In January and August 2013, however, it sent Frangos letters

informing him of his ineligibility for the National Mortgage

Settlement Principal Forgiveness Program – an entirely different

program to which Frangos had not applied.

In 2011, MERS assigned the Frangoses’ mortgage to Bank of

New York and the bank made several attempts to schedule a

foreclosure sale. The Frangoses responded by bringing this

action in Rockingham County Superior Court. On September 27, 2 2013, a superior court judge issued a preliminary injunction

preventing the bank from proceeding with the proposed sale.

Bank of New York then removed the case to this court.

II. STANDARD OF REVIEW

To survive a motion to dismiss for failure to state a

claim, a plaintiff must make factual allegations sufficient to

“state a claim to relief that is plausible on its face.”

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl.

Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is

facially plausible when it pleads “factual content that allows

the court to draw the reasonable inference that the defendant is

liable for the misconduct alleged. The plausibility standard is

not akin to a ‘probability requirement,’ but it asks for more

than a sheer possibility that a defendant has acted unlawfully.”

Id. (citations omitted).

In deciding a motion to dismiss, I employ a two-step

approach. See Ocasio–Hernández v. Fortuño–Burset, 640 F.3d 1,

12 (1st Cir. 2011). First, I screen the complaint for

statements that “merely offer legal conclusions couched as fact

or threadbare recitals of the elements of a cause of action.”

Id. (citations, internal quotation marks, and alterations

omitted). A claim consisting of little more than “allegations 3 that merely parrot the elements of the cause of action” may be

dismissed. Id. Second, I credit as true all non-conclusory

factual allegations and the reasonable inferences drawn from

those allegations, and then determine if the claim is plausible.

Id. The plausibility requirement “simply calls for enough fact

to raise a reasonable expectation that discovery will reveal

evidence” of illegal conduct. Twombly, 550 U.S. at 556. The

“make-or-break standard” is that those allegations and

inferences, taken as true, “must state a plausible, not a merely

conceivable, case for relief.” Sepúlveda–Villarini v. Dep’t of

Educ., 628 F.3d 25, 29 (1st Cir. 2010); see Twombly, 550 U.S. at

555 (“Factual allegations must be enough to raise a right to

relief above the speculative level.”).

III. ANALYSIS

The Frangoses seek a permanent injunction barring the

defendants from attempting to foreclose on their home (Counts I

and IV) and requiring them to evaluate “loan modification and

other foreclosure alternatives” in good faith (Count IV). They

also seek judgments for breach of contract (Count II) and breach

of the duty of good faith and fair dealing (Count III). They

support their claims with three legal arguments. First, they

argue that the defendants cannot foreclose because Bank of New 4 York does not hold the note. Next, they challenge the

foreclosure by asserting that defendants failed to provide them

with the notice of default and opportunity to cure required by

the mortgage. Finally, they claim that the defendants failed to

deal in good faith with their requests to modify the loan. I

consider defendants’ responses to each argument.

A.

The Frangoses first allege that Bank of New York cannot

foreclose because it does not hold the note. In response,

defendants have produced a copy of the note that bears a series

of endorsements that culminate in a blank endorsement.

According to the defendants, the endorsements effectively rebut

the Frangoses’ contention that they do not hold the note.1 I

reject defendants’ argument because I cannot consider the

endorsements in ruling on the motion to dismiss.

Although a court may sometimes consider a document

referenced in a complaint without converting a motion to dismiss

into a motion for summary judgment, it may not do so when the

contents of the document are disputed. See Beddall v. State St.

1 Defendants also present a poorly supported argument that they may foreclose even if they do not hold the note. I decline to consider this argument at the present time because the parties have not briefed the issue with the clarity that is required to produce a reliable ruling.

5 Bank & Trust Co., 137 F.3d 12, 17 (1st Cir. 1998). In the

present case, defendants base their argument for dismissal on

endorsements that they allege were made at some point after the

note was issued. The version of the note that the Frangoses

rely on does not include the endorsements and they vigorously

challenge the defendants’ contention that the endorsements

empower Bank of New York to foreclose. Under these

circumstance, I cannot rely on the endorsements in granting

defendants’ motion to dismiss.2

B.

The Frangoses next contend that Bank of New York cannot

foreclose because it failed to comply with its obligation under

the mortgage to give them notice of their default and an

opportunity to cure.3

Defendants challenge this argument by claiming that any

failure to satisfy the notice and opportunity to cure

2 Although the Frangoses do not present this argument, I also note that, at most, the endorsements establish that the holder of the note is authorized to enforce the note. The endorsements do not prove that the bank actually holds the note. Therefore, I could not credit defendants’ argument at the present time even if I were able to consider the endorsements. 3 The mortgage requires that the lender give notice of any breach or default prior to accelerating payment on the note. The notice must specify the default, the action required to cure the default, and a date by which the default must be cured. Doc. No. 5-3. 6 requirement cannot serve as an impediment to foreclose because

the Frangoses admit that they had actual notice of their

default. This argument overlooks an important function of the

notice and opportunity to cure requirement, which is to entitle

the mortgagor to a specification of what he must do to cure any

default and thereby hold a foreclosure. See BAC Home Loans

Servicing, L.P. v. Wedereit, NO. A14A0131, 2014 WL 3057179 at *3

(Ga. Ct. App. July 8, 2014)(failure to specify action required

to cure amounts to failure to provide adequate notice under

contractual provision); Konsulian v. Busey Bank, N.A., 61 So.3d

1283, 1285 (Fla. Dist. Ct. App. June 1, 2011)(both notice and

opportunity to cure are necessary conditions precedent in

contractual provision). Accordingly, if defendants did not

comply with its obligation to provide notice and an opportunity

to cure, it may not proceed with the foreclosure.

Defendants alternatively contend that Countrywide provided

sufficient notice and opportunity to cure when it sent the

Frangoses a “Notice of Default and Acceleration” letter in

September 2007. Doc. No. 5-5. In pressing this argument, they

cite a decision by this court to support their contention that a

mortgagee is required to give notice of a default only once.

Galvin v. EMC Mortg. Corp. (Galvin I), 2013 DNH 053, 15-16. In

Galvin I, however, additional notice was deemed unnecessary 7 because Galvin never cured his default. Id. Here, in

bankruptcy proceedings, Frangos signed, and Countrywide

accepted, an agreement reaffirming and modifying the terms of

his debt. Frangos remained current on payments for at least six

months after reaffirmation. The intervening reaffirmation and

subsequent timely payments cured the default, triggering new

notice requirements. See Matter of Edwards, 901 F.2d 1383, 1384

n.3 (7th Cir. 1990) (“Reaffirmation would . . . cure all past

defaults.”); In re Gitlitz, 127 B.R. 397, 400 (Bankr. S.D. Ohio

1991) (“The Reaffirmation Agreement . . . became a new contract

between the parties. The parties now are bound by the terms of

this new agreement.”). Accordingly, the September 2007 notice

of default does not satisfy the bank’s obligation to provide

notice of the default and an opportunity to cure.

C.

The Frangoses’ last contention is that Bank of America

breached both the implied covenant of good faith and fair

dealing and the terms of its contract by engaging in “dual

tracking” – working with mortgagees on loan modifications while

simultaneously moving for foreclosure - during the loan

modification process.

The Frangoses argue that they are not attempting to assert

a contractual right to an additional loan modification. Rather, 8 they contend that once Bank of America decided to consider their

request, it had a duty to do so in a commercially reasonable

manner.

The Frangoses, however, have not alleged that Bank of

America engaged in any misrepresentations during the

modification process and they have alleged no facts that would

amount to a breach of the duty of good faith and fair dealing.

New Hampshire imposes no duty to forebear from foreclosure in

the face of default. Ruivo v. Wells Fargo Bank, N.A., 2012 DNH

191, 10 (“Parties are bound by the agreements they enter into

and the court will not use the implied covenant of good faith

and fair dealing to force a party to rewrite a contract so as to

avoid a harsh or inequitable result.”); Moore v. Mortg. Elec.

Registration Sys., Inc., 848 F. Supp. 2d 107, 130 (D.N.H. 2012)

(noting that “the covenant of good faith and fair dealing in a

loan agreement cannot be used to require the lender to modify or

restructure the loan”). Thus, the complaint does not allege

conduct by the defendants that would support a good faith and

fair dealing claim.

The Frangoses also argue that Bank of America’s dual

tracking violated the National Mortgage Settlement4 (“NMS”),

4 The National Mortgage Settlement arose out of a joint complaint brought by the U.S. Department of Justice and the attorneys 9 which forbids the bank from engaging in that practice. The

Frangoses argue that the NMS’s Consent Judgment is incorporated

into their mortgage as “applicable” law through a contractual

provision which states that all rights and obligations in the

contract are subject to “any requirements and limitations of”

applicable law. Doc. No. 5-3.5 The Frangoses argue that the

Consent Judgment, as applicable law, differentiates NMS from

HAMP, which does not offer a private right of action. See,

e.g., Ruivo, 2012 DNH 191, 7 (finding that under HAMP, borrowers

“cannot sue as a third-party beneficiary to enforce a loan

servicer agreement”).

The Frangoses’ attempt to incorporate the Consent Judgment

into their mortgage contract has no merit. See Blue Chip Stamps

v. Manor Drug Stores, 421 U.S. 723, 750 (1975) (“[A] well-

settled line of authority from this Court establishes that a

general of forty-nine states and the District of Columbia against five mortgage servicers, including Bank of America, to address mortgage servicing and foreclosure abuses. The settlement is memorialized by Consent Judgments that set forth servicing standards to govern each servicer’s conduct. See generally, e.g., Consent Judgment, United States v. Bank of Am., No. 12-cv-00361-RMC (D.D.C. Apr. 4, 2012). 5 “Applicable law” is defined in the contract as “all controlling applicable federal, state and local statutes, regulations, ordinances and administrative rules and orders (that have the effect of law) as well as all applicable final, non-appealable judicial opinions.” Doc. No. 5-3.

10 consent decree is not enforceable directly or in collateral

proceedings by those who are not parties to it even though they

were intended to be benefited by it.”). There is a presumption

that third parties who stand to benefit from consent judgments

are merely incidental beneficiaries. See Cabacoff v. Wells

Fargo Bank, N.A., 2012 DNH 188, 9-10 (citing GECCMC 2005-C1

Plummer St. Office Ltd. P’ship v. JP Morgan Chase Bank, N.A.,

671 F.3d 1027, 1033-34 (9th Cir. 2012)). The language of the

applicable NMS consent judgment does nothing to rebut this

presumption. See Consent Judgment at E-15, Bank of Am., No. 12-

cv-00361-RMC (“An enforcement action under this Consent Judgment

may be brought by any Party to this Consent Judgment or the

Monitoring Committee.”). Noticeably absent are any provisions

that would permit an enforcement proceeding brought by an

individual borrower as a third party beneficiary. Other courts

have thus found that the NMS provides no private right of

action. See Jurewitz v. Bank of Am., N.A., 938 F. Supp. 2d 994,

998 (S.D. Cal. 2013); Rehbein v. CitiMortgage, Inc., 937 F.

Supp. 2d 753, 760-62 (E.D. Va. 2013). I see no reason to find

otherwise.

IV. CONCLUSION

For the reasons discussed above, I grant defendants’ motion 11 to dismiss (Doc. No. 5) in part. Count III is dismissed as is

any other count to the extent that it is based on a claim that

defendants failed to consider the Frangoses’ request for a loan

modification in good faith. The motion is otherwise denied.

SO ORDERED.

/s/Paul Barbadoro Paul Barbadoro United States District Judge

July 24, 2014

cc: John L. McGowan, Esq. Thomas J. Pappas, Esq.