United States District Court, D. Massachusetts (LoanSafe.org) – At oral argument, the Plaintiffs asserted that the intent to benefit borrowers expressed throughout the HAMP Guidelines trumps the Enforcement clause . The Court disagrees because, as a general proposition, public citizens are not intended third-party beneficiaries to government contracts despite the fact that such contracts are usually intended to benefit the public in some way.
DELYNN J. SPELEOS and JESSE S. SPELEOS, Plaintiffs,
v.
BAC HOME LOANS SERVICING, L.P., d/b/a BANK OF AMERICA HOME LOANS, FEDERAL NATIONAL MORTGAGE ASSOCIATION, d/b/a FANNIE MAE and ORLANS MORAN, PLLC, Defendants.
Civil Action No. 10-11503-NMG.
December 14, 2010.
MEMORANDUM ORDER
NATHANIEL M. GORTON, District Judge.
Plaintiffs Delynn J. and Jesse S. Speleos (“the Plaintiffs”) bring suit against BAC Home Loans Servicing, L.P., d/b/a Bank of America Home Loans (“BAC”), Federal National Mortgage Association, d/b/a Fannie Mae (“FNMA”) and Orlans Moran, PLLC (“Orlans Moran”) (collectively, “the Defendants”) for negligence (Count I), third-party breach of contract (Count II), a violation of the covenant of good faith and fair dealing (Count III) and a violation of the Fair Debt Collection Practices Act , 15 U.S.C. 1692k (Count IV).
Before the Court are the Plaintiffs’ motion for a memorandum of lis pendens and the Defendants’ motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief can be granted.
I. Factual Background
Generally, the Plaintiffs allege that the Defendants violated the Home Affordable Modification Program (“HAMP”) Guidelines by conducting a foreclosure sale of their residence while the Plaintiffs were under consideration for a loan modification.
The Plaintiffs purchased their residence at 750 Whittenton Street, Unit 1022, Taunton, Massachusetts (“the Property”) in October, 2007 for $175,900. The purchase was financed with a 100% loan from Stonebridge Mortgage Company for $175,900 secured by a mortgage in favor of Mortgage Electronic Registration Systems, Inc. Fannie Mae owned the mortgage and BAC was the servicer. In November, 2009, Mr. Speleos became unemployed. Although Ms. Speleos remains employed, the Plaintiffs became unable to maintain their mortgage payments and sought to modify their loan in March, 2010 pursuant to the HAMP program.
HAMP was created by Congress under the Emergency Economic Stabilization Act of 2008 and is governed by guidelines set forth by Fannie Mae and the United States Department of the Treasury. The Servicer Participation Agreements between mortgage loan servicers and Fannie Mae require the servicers to perform loan modification and foreclosure prevention services specified in the HAMP Guidelines.
Ms. Speleos requested a loan modification application from BAC in March, 2010 and received it on July 1, 2010. She filled out the application and filed it with BAC on July 6, 2010. After faxing and re-faxing additional requested financial information, her application was complete on July 15, 2010.
Meanwhile, on July 1, 2010, BAC, with the assistance of its attorneys at Orlans, scheduled a foreclosure sale of the Property for August 5, 2010. The Plaintiffs claim that BAC violated the HAMP Guidelines, which provide that a mortgage cannot be referred to foreclosure if a homeowner has not been evaluated for a HAMP loan modification and a foreclosure must be cancelled while the HAMP application is pending. In late July, 2010, after Ms. Speleos contacted the Making Home Affordable (“MHA”) Help Center, a MHA representative informed BAC that it was violating the HAMP Guidelines. Despite that admonition, the BAC representative refused to cancel the foreclosure sale or allow the MHA representative to speak with a supervisor. BAC’s counsel, Orlans, refused to cancel the sale.
On August 5, 2010, the Property was sold to BAC at a foreclosure auction for $148,803. The sale was conducted by BAC, Fannie Mae and Orlans. A few days later, BAC assigned its bid to Fannie Mae, which is the current owner of the Property. The Defendants have begun eviction proceedings against the Plaintiffs, who fear that they will be unable to regain ownership in any event.
The Plaintiffs seek the rescission of the foreclosure sale and restoration of title to them, an order requiring BAC and Fannie Mae immediately to consider a loan modification under HAMP for their loan or other alternatives to foreclosure, compensatory damages, attorney’s fees, costs and all other relief that the Court deems just and proper.
II. Procedural History
The Plaintiffs filed their complaint on September 1, 2010 and their motion for a memorandum of lis pendens that same day. On October 12, 2010, the Defendants moved to dismiss. A hearing on the pending motions was held on December 10, 2010, at which time defense counsel reported that the Plaintiffs are currently being considered for a HAMP modification and the eviction proceedings are on hold until that determination is made.
III. Motion to Dismiss
A. Legal Standard
To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). In considering the merits of a motion to dismiss, the Court may look only to the facts alleged in the pleadings, documents attached as exhibits or incorporated by reference in the complaint and matters of which judicial notice can be taken. Nollet v. Justices of the Trial Court ofMass., 83 F.Supp.2d 204, 208 (D. Mass. 2000), aff’d, 248 F.3d 1127 (1st Cir. 2000). Furthermore, the Court must accept all factual allegations in the complaint as true and draw all reasonable inferences in the plaintiff’s favor. Langadinos v. Am. Airlines, Inc., 199 F.3d 68, 69 (1st Cir. 2000). If the facts in the complaint are sufficient to state a cause of action, a motion to dismiss the complaint must be denied. See Nollet, 83 F. Supp. 2d at 208.
Although a court must accept as true all of the factual allegations contained in a complaint, that doctrine is not, however, applicable to legal conclusions. Ashcroft
v. Iqbal, 129 S.Ct. 1937, 1949 (2009). Threadbare recitals of the legal elements, supported by mere conclusory statements, do not suffice to state a cause of action.
Id. Accordingly, a complaint does not state a claim for relief where the well-pled facts fail to warrant an inference of any more than the mere possibility of misconduct. Id. at 1950.
B. Third Party Breach of Contract (Count II)
In Count II, for third-party breach of contract, the Plaintiffs assert that BAC violated its Servicer Agreement with Fannie Mae. The Servicer Agreement provides that BAC will abide by Fannie Mae’s Guidelines, including the HAMP Guidelines. The HAMP Guidelines prohibit a servicer from foreclosing on a homeowner whose mortgage is owned by Fannie Mae before the homeowner has been evaluated for a HAMP loan modification. HAMP Guidelines, VII, 610.04.04. The Defendants move to dismiss this count, arguing that the Plaintiffs lack standing to bring a third party breach of contract claim against BAC.
1. Legal Standard
Federal law controls the interpretation of the HAMP contract because one party to that contract is the United States. Hammonds v. Aurora Loan Servs. LLC, No. EDCV 10-1025 AG, 2010 WL 3859069, at *2 (C.D. Cal. Sept. 27, 2010). Under federal common law, only intended beneficiaries may enforce a contract. Id. Federal courts apply the Restatement ( Second ) of Contracts (1981) test to determine whether a third party is an intended beneficiary of a promise. Davis v. United Air Lines, Inc., 575 F.Supp. 677, 680 (E.D.N.Y. 1983). There is a presumption that beneficiaries of government contracts are incidental beneficiaries. Klamath Water Users Protective Ass’n v. Patterson, 204 F.3d 1206, 1211 (9th Cir. 1999), opinion amended on denial of reh’g, 203 F.3d 1175 (9th Cir. 2000) (“Klamath”). Section 313 of the Restatement (Second) of Contracts provides that a party is an intended third-party beneficiary to a government contract only if:
(a) the terms of the promise provide for such liability; or (b) the promisee is subject to liability to the member of the public for the damages and a direct action against the promisor is consistent with the terms of the contract and with the policy of the law authorizing the contract and prescribing remedies for its breach. Restatement (Second) of Contracts 313. Indications that a third-party action concerning a government contract is inappropriate include:
[the existence of] arrangements for governmental control over the litigation and settlement of claims, the likelihood of impairment of service or of excessive financial burden, and the availability of alternatives such as insurance.
Restatement (Second) of Contracts 313 cmt. a.
2. Application
The question of whether borrowers can bring third-party breach of contract actions against their lenders in order to enforce the HAMP Guidelines has not been decided by the First Circuit. Most federal courts which have addressed that question have held that a borrower does not have standing under HAMP to bring a third-party beneficiary claim. See, e.g., Zeller v. Aurora Loan Servs., LLC, No, 3:10cv00044, 2010 U.S. Dist. LEXIS 80449, at *2 (W.D. Va. Aug. 10, 2010); Zendejas v. GMAC Wholesale Mortg. Corp., No. 1:10-CVV-00184 OWW GSA, 2010 U.S. Dist. LEXIS 59793 (E.D. Cal. June 16, 2010). Additionally, in a recent case in the District of Massachusetts, Magistrate Judge Judith Dein dismissed a borrower’s third-party breach of contract claim because he was not an intended third-party beneficiary of the HAMP Servicer Agreement between his servicer and Fannie Mae. McKensi v. Bank of Am., N.A., No. 09-11940-JGD, 2010 U.S. Dist. LEXIS 99540, at *14-15 (D. Mass. Sept. 22, 2010). At least one federal court has held to the contrary, however. Marques v. Wells Fargo Home Mortg., Inc., No. 09-cv-1985-L, 2010 U.S. Dist. LEXIS 81879, at *19 (S.D. Cal. Aug. 12, 2010).
Neither the HAMP Guidelines nor the Servicer Agreement states any intent to give borrowers a right to enforce a servicer’s obligations under the HAMP Guidelines. Marks v. Bank of Am., No. 10-8039, 2010 U.S. Dist. LEXIS 61489, at *11 (D. Ariz. June 22, 2010). Thus, section 313(a) of the Restatement (Second) of Contracts is inapplicable and the Court will analyze the Plaintiffs’ claim under section 313(b). Section 313(b) requires a showing that the Plaintiffs were intended to benefit from the contract and that third-party beneficiary claims are consistent with the terms of the contract and the policy underlying it.
a. Intent
The Defendants maintain that the Plaintiffs have failed to cite any contract terms in the Servicer Agreement suggesting that the Plaintiffs were intended to be third-party beneficiaries. As the Plaintiffs indicate, however, the purpose of HAMP is to help homeowners avoid foreclosure by obtaining loan modification:
Under the Treasury Department’s (Treasury) Home Affordable Modification Program (HAMP), servicers will use a uniform loan modification process to provide eligible borrowers with sustainable monthly payments. All servicers must participate in HAMP for all eligible mortgage loans held in Fannie Mae’s portfolio[.] U.S. Dep’t of the Treasury, Home Affordable Modification Program Guidelines, VII, 610 (Mar. 4, 2009). The Fannie Mae Announcement 09-05R that the Plaintiffs quote in their brief but do not include as an exhibit states:
On February 18, 2009, President Obama announced the Homeowner Affordability and Stability Plan to help up to 7 to 9 million families restructure or refinance their mortgage loans to avoid foreclosure. As part of this plan, the Treasury Department (Treasury) announced a national modification program aimed at helping 3 to 4 million at-risk homeowners ” both those who are in default and those who are at imminent risk of default ” by reducing monthly payments to sustainable levels.
Fannie Mae Announcement 09-05R, May 15, 2009, at 1. Indeed, the HAMP program is clearly intended to benefit qualified borrowers.
In cases dealing with different kinds of government contracts, Courts have afforded plaintiffs third-party beneficiary status under circumstances
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