The U.S. Court of Appeals for the First Circuit recently rejected arguments that: (1) MERS lacked authority to assign interest in a mortgage; and (2) subsequent mortgage assignees may be liable for allegedly predatory loan terms crafted by the original lender.
A copy of the opinion is available at: http://media.ca1.uscourts.gov/pdf.opinions/13-1557P-01A.pdf
On May 2, 2007, Borrower refinanced his home with a $276,250 promissory note provided by a MERS member lender (“original lender”). The loan was secured by a mortgage that identified MERS as the mortgagee and nominee. In October 2010, Borrower sent a letter to the loan servicer seeking to rescind the loan under the Massachusetts Consumer Credit Cost Disclosure Act (“MCCCDA”). Borrower argued that a $244.48 credit reporting fee he paid far exceeded the accepted $50.00 market rate, amounting to a statutory violation sufficient for recession.
Borrower defaulted on the loan and the property was sold at foreclosure. Borrower filed suit in state court, alleging wrongful foreclosure by a party without legal interest in his mortgage and unfair business practices against an earlier mortgage holder that unsuccessfully tried to foreclose. All of the Borrower’s claims are predicated on the theory that MERS lacked the authority transfer his mortgage. The case was removed to federal court and the Borrower’s claims were dismissed by summary judgment.
On appeal, Borrower argued that MERS possessed a bare legal interest in his mortgage and lacked authority to transfer the mortgage, thereby according to Borrower rendering both the initial and all subsequent assignments of mortgage invalid. The Court rejected this argument because it willfully disregarded the holding in Culhane v. Aurora Loan Servs. of Neb., 708 F.3d 282 (1st Cir. 2013), where the First Circuit ruled unequivocally that MERS may possess and assign a legal interest in a mortgage. Culhane, 708 F.3d at 292-93. Therefore, the Court held that Borrower’s claims for wrongful foreclosure and unfair and deceptive business under Mass. Gen. Law. Chapter 93A were properly dismissed by the district court.
Borrower next argued that the investor and current servicer were liable for unfair loan terms and predatory lending practices allegedly engaged in by the original lender. Specifically, the Borrower claimed that the credit reporting fee he paid at loan origination amounted to a statutory violation. See Mass. Gen Laws ch. 93A, § 2; Id. ch. 183, § 28C (the “Borrower’s Interest Act”). The Borrower relied on Drakopoulos v. U.S. Bank Nat’l Ass’n, 465 Mass. 775, 991 N.E.2d 1086 (2013), which recognized that the Massachusetts Predatory Home Loan Practices Act (“MPHLPA”), Mass. Gen. Laws. Ch. 183c, expanded the common law of assignee liability in the limited instance of certain “high cost” loans. See Drakopoulos, 991 N.E.2d at 1092.
The First Circuit rejected Borrower’s argument because his complaint alleged no violation of the MPHLPA, and thus could not take advantage of the MPHLPA’s broad grant of assignee liability. Moreover, neither Chapter 93A nor the Borrower’s Interest Act allegations served as an independent ground for extending liability to his claims. Therefore, the Court held, Borrower could not hold the investor and servicer responsible for the allegedly predatory practices of their predecessor-in-interest without such statutorily created liability.
The First Circuit also rejected Borrower’s claim for rescission based on an alleged violation of MCCCDA § 10(i)(2), which allows that the under-reporting of a finance charge by more than $35.00 may amount to a statutory violation. The Court held that, even if Borrower demonstrated that $50.00 for a credit report is the accepted market rate, which he failed to do, the right to rescission is cut off by a foreclosure sale as a matter of law. The Court noted that, although damages may be available for the failure of a mortgage holder to duly undertake consideration of a rescission request, the Borrower’s purported basis for recession was without merit and he failed to establish any basis for damages. In the Court’s own words, Borrower “failed to sufficiently plead any valid basis to rescind his mortgage loan at any time” and thus presented no genuine issue of material fact.
Accordingly, the Court affirmed the district court’s granting of summary judgment dismissing Borrower’s claims.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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