The U.S. Court of Appeals for the First Circuit recently affirmed the trial court’s dismissal of a consumer’s claims against the owner and loan servicer of her mortgage loan that their collection statements supposedly violated the Massachusetts Consumer Protection Act, Mass. Gen. Laws ch. 93A, and the Massachusetts Fair Debt Collection Practices Act, Mass. Gen. Laws ch. 93, 49.
In so ruling, the First Circuit held that the mortgagor’s claims were time-barred under the four-year statute of limitations, as her causes of action accrued at the inception of the loan, and the monthly statements were not independent violations that would bring rise to new claims.
A copy of the opinion in O’Brien v. Deutsche Bank National Trust Company is available at: Link to Opinion.
The owner of a 13-acre horse farm (“mortgagor”) fell behind on her mortgage payments, and was unable to obtain refinancing from traditional lenders. The mortgagor allegedly met with a mortgage broker who accepted her supposedly incomplete mortgage application with no financial documentation and falsified the mortgagor’s monthly income. A bank approved the debtor for an adjustable-rate loan in the amount of $825,000, secured by a mortgage to the farm.
The mortgagor fell back into default in September 2008. The mortgage was subsequently sold and assigned to another entity (“mortgagee”) on Feb. 24, 2009.
To avoid a scheduled foreclosure sale, the debtor filed for Chapter 13 bankruptcy protection in August 2010. However, the bankruptcy proceedings were ultimately dismissed due the mortgagor’s failure to make the plan’s monthly payments. Facing threat of another foreclosure sale, the mortgagor filed for bankruptcy again in November 2017, and that case was also dismissed.
Meanwhile, the loan’s servicer consistently sent the mortgagor monthly statements allegedly demanding payment, with the exception of the time periods she was in bankruptcy proceedings. The mortgagor was still in default.
On Sept. 13, 2018 the mortgagor filed a complaint in state court against the mortgagee and servicer, alleging violations of Mass. Gen. Laws Ch. 93A and Ch. 93 § 49 for unfair and deceptive practices by supposedly enforcing a “predatory mortgage loan” and attempting to collect on the mortgage loan in an allegedly unfair, deceptive, or unreasonable manner. The mortgagor’s complaint sought further relief of an injunction against foreclosure on the property, and reformation or rescission of the mortgage. The mortgagee and servicer removed the action to federal court.
After the mortgagor filed an amended complaint, the mortgagee and servicer moved to dismiss under Rule 12(b)(6) for failure to state a claim, arguing that (i) all of the mortgagor’s claims arising out of the origination of the mortgage loan by the mortgagee’s predecessor are barred by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), 12 U.S.C. § 1821(d); (ii) that the assignee mortgagee and servicer were not liable for origination claims, and; (iii) that the claims were time-barred by the applicable four-year statute of limitations, Massachusetts General Laws Chapter 260, § 5A.
The trial court granted the motion to dismiss on the basis that the mortgagor’s 93A claim was time-barred, and that Ch. 93 § 49 does not provide a private right of action. This appeal ensued.
First, as to the Chapter 93A claims, the mortgagor argued that the mortgagee and servicer “committed unfair and deceptive practices by enforcing a mortgage, the terms of which are unlawful,” in violation of Chapter 93A, § 2. As you may recall, the limitations period for claims brought under Chapter 93A is four years from the date the cause of action accrues. Mass. Gen. Laws ch. 260, § 5A.
Here, the mortgagor argued that her claims were not time-barred, as she received collections statements as recent as August 2018.
However, the First Circuit determined that her claims, as alleged, accrued at the inception of the loan, which “was issued in violation of established principles of fairness” and “was unaffordable to [her] from the outset.” Because it was apparent that the required monthly payments outpaced the mortgagor’s actual income at the time she accepted the loan’s terms, the “four year period . . . began to run on the signing date when the interest began to accrue,” as under Massachusetts law, “the terms of written agreements are binding whether or not their signatories actually read them.” Latson, 708 F.3d at 327.
The Appellate Court further rejected the mortgagor’s Chapter 93A claims because: (i) the subsequent collection statements were not independent violations because “a party’s acting according to the express terms of a contract cannot be considered a breach of the duties of good faith and fair dealing.” Frappier v. Countrywide Home Loans, Inc., 750 F.3d 91, 97 (1st Cir. 2014) (internal citation omitted), and; (ii) the mortgagor failed to demonstrate “identifiable harm” separate from that caused by the underlying unfair loan as required. See Shaulis v. Nordstrom, Inc., 865 F.3d 1, 10 (1st Cir. 2017) (“[t]o state a viable claim [under Chapter 93A], the plaintiff must allege that she has suffered an ‘identifiable harm’ caused by the unfair or deceptive act that is separate from the violation itself.”) (internal citation omitted).
As to the mortgagor’s claims under Chapter 93, Section 49, the mortgagor claimed that the monthly collection attempts were “unfair, deceptive or unreasonable” because they constituted enforcement of inherently unfair and deceptive loan terms. Mass. Gen. Laws Ch. 93 § 49. She again pointed to an August 2018 collection statement to demonstrate that her claim was not barred by the four-year statute of limitations, and further argued that the trial court erred in determining that Chapter 93, § 49 does not provide a private right of action.
The First Circuit determined that it need not reach the trial court’s determination that no private right of action exists under Ch. 93 § 49, because the claim again relies on the alleged unfairness of the loan at origination, and no alleged action that occurred after Sept. 13, 2014 (four years prior to filing the complaint) that gave rise to a new claim.
This rationale was supported by the mortgagor’s own allegations that “the imposition of terms that were unfair at the outset continue[d] every month” through the collection statements and that “[t]he enforcement of the loan terms ha[d] been consistent throughout the life of the loan.” As such, the enforcement that the mortgagor identified began in 2005, continued through the loan’s assignment to the mortgagor in February 2009, and thus accrued more than four years before filing suit in September 2018. See Mass. Gen. Laws Ch. 260, § 5A.
As the First Circuit determined that the mortgagor’s claims under both Ch. 93A and Ch. 93 § 49 were time-barred, the trial court’s dismissal under Rule 12(b)(6) was affirmed.