MCGAHEY v. FEDERAL NATIONAL MORTGAGE ASSOCIATION et al

Filing 39

ORDER ON RECOMMENDED DECISION ON DEFENDANTS MOTION TO DISMISS AND PLAINTIFFS MOTION TO AMEND disapproving 30 Report and Recommendations ; denying 19 Motion to Dismiss for Failure to State a Claim ; granting 23 Motion for Leave to File Second Amended Complaint. By JUDGE JON D. LEVY. (akr)

UNITED STATES DISTRICT COURT
DISTRICT OF MAINE
WALTER MCGAHEY,
Plaintiff,
v.
FEDERAL NATIONAL
MORTGAGE ASSOCIATION,
et al.,
Defendants.

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2:16-cv-00219-JDL

ORDER ON RECOMMENDED DECISION ON DEFENDANT’S MOTION TO
DISMISS AND PLAINTIFF’S MOTION TO AMEND
Walter McGahey’s Amended Complaint against Federal National Mortgage
Association (“Fannie Mae”) and PHH Mortgage Corporation (“PHH”) alleges
violations of the Maine Unfair Trade Practices Act, 5 M.R.S.A. § 205-A et seq. (2017),
and the Real Estate Settlement Procedures Act, 12 U.S.C.A. § 2605 et seq. (2017), as
well as claims for fraud and for misrepresentation in violation of Maine’s Consumer
Credit Code, 9-A M.R.S.A. § 9-401 (2017). ECF No. 16. Defendants moved to dismiss
all claims against them. ECF No. 19 at 6. McGahey subsequently moved for leave to
amend his Complaint a second time. ECF No. 23. The United States Magistrate
Judge recommended that the Motion to Dismiss be granted and the Motion for Leave
to Amend be denied, ECF No. 30 at 37, and McGahey objected, ECF No. 31; ECF No.
32. I have carefully reviewed and considered the Magistrate Judge’s recommended
decision and the parties’ briefs, and have made a de novo determination of the matters

objected to, in accordance with 28 U.S.C.A. § 636(b)(1) (2017). For the reasons
discussed below, I conclude that the Defendants’ Motion to Dismiss should be denied,
and the Plaintiff’s Motion for Leave to Amend should be granted.
I.

FACTUAL BACKGROUND

I accept—and repeat—the Magistrate Judge’s recitation of the facts relevant
to the pending motions, which is based on the factual allegations in the First
Amended Complaint and the documents appended thereto and referenced by the
parties.
At all relevant times, Fannie Mae owned, and PHH serviced, McGahey’s
mortgage loan on property located at 42 McKenney Road in Saco, Maine (the
“Property”). Fannie Mae retained PHH to service the loan under Fannie Mae’s
direction, control, and authority. PHH is required to follow Fannie Mae regulations
and guidelines, particularly the Fannie Mae Servicing Guide, including the Fannie
Mae Single Family Servicing Guides (the “Fannie Mae Guidelines”). PHH was and
is required to participate in the Home Affordable Modification Program (“HAMP”) for
Fannie Mae loans.1
McGahey owns the Property by virtue of a deed from his parents, George L.
McGahey and Helen I. McGahey, dated April 20, 2006, and recorded in the York
County Registry of Deeds on April 27, 2006, at Book 14818, Page 53. McGahey bought

According to the website of the Federal Housing Finance Agency, HAMP “is part of the Making
Home Affordable® Program (MHA)® to help homeowners get mortgage relief and avoid
foreclosure. Through HAMP, homeowners who are not unemployed but struggling to make their
monthly mortgage payments, may lower their monthly payments and make them more affordable and
sustainable for the long-term.”
HAMP, Federal Housing Finance Agency website,
http://www.fhfa.gov/Homeownersbuyer/MortgageAssistance/Pages/HAMP.aspx (last visited July 10,
2017).
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the home from his parents and moved in so that they could live in the home for the
remainder of their lives.
On May 22, 2006, McGahey executed and delivered to TD Banknorth, N.A.
(“TD Bank”) a promissory note in the original principal amount of $170,000 (the
“Note”). The Note provided for repayment at a fixed annual interest rate of 7.868
percent. To secure repayment of the Note, McGahey executed and delivered to
Mortgage Electronic Registration Systems, Inc., as nominee for TD Bank, its
successors and assigns, a mortgage in the amount of $170,000 (the “Mortgage”),
which was recorded on June 7, 2006, in the York County Registry of Deeds at Book
14860, Page 847.
A. 2010 Loan Modification
In 2009, due to medical issues and job loss, McGahey fell behind on payments
on the Note and applied for loss mitigation. At that time, his monthly income was
$3,387.67, and his monthly payment for principal, interest, taxes, and insurance was
less than $1,500. In or about July 2009, PHH offered McGahey a HAMP modification
contingent on his successful completion of a Trial Payment Plan (“TPP”) and income
verification.

The TPP required McGahey to make payments in the amount of

$1,031.79 on August 5, September 1, and October 1, 2009. McGahey timely signed
and returned the TPP and timely made the required payments. He successfully
completed the HAMP TPP.
On or about December 21, 2009, PHH delivered a loan modification agreement
to McGahey, which he signed in early 2010 (the “2010 Loan Modification”). The 2010

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Loan Modification, which called for a monthly principal, interest, and escrow
payment of $1,456.49, was not provided pursuant to HAMP.

Pursuant to that

modification, the principal and interest portion of McGahey’s monthly payment
dropped from $1,231.80 to $1,175.80. At the time, McGahey’s income was $979.33
monthly due to a recent job loss. The 2010 Modification Agreement required an initial
contribution of $1,987.07. Believing that this was the only way to save his home,
McGahey signed and returned the agreement and provided the contribution payment.
B. 2013 Loan Modifications
With the help of his parents, and by selling his car, McGahey made the monthly
payments until December 2011, after which it was too difficult to come up with the
unaffordable amount. In June 2012, PHH delivered a notice of intention to foreclose
to McGahey. Shortly thereafter, McGahey retained counsel to help him apply for a
more affordable loan modification to prevent the foreclosure. On August 31, 2012, he
submitted a complete loss mitigation application to PHH requesting to be reviewed
for a HAMP modification.

He explained that he had experienced a change in

circumstances since 2009-10 in that he was receiving Social Security Disability
(“SSD”) income rather than wages and was unable to make the modified monthly
payment. As of August 12, 2012, the estimated fair market value of the Property was
between $180,000 and $200,000. McGahey’s income, as submitted to PHH, together
with his father’s contribution, totaled about $3,819 per month when adding a
multiplier of 1.25 as required by Fannie Mae for non-taxed income.

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On September 25, 2012, PHH sent McGahey a letter stating that it was unable
to offer a HAMP modification but providing no reason for the denial. PHH knew or
should have known that McGahey was eligible to be evaluated for, if not offered, a
HAMP modification as it possessed the original non-HAMP modification and
McGahey’s complete loss mitigation packet.

PHH was required to evaluate

McGahey’s loan first for a HAMP modification and, if he was found ineligible, then
for a Fannie Mae standard mortgage loan modification.
On September 25, 2012, McGahey met all of the criteria to be eligible for a
HAMP modification pursuant to the Fannie Mae Guidelines. Even though McGahey
was evaluated for a HAMP modification in 2009-10 and was not offered one after he
completed the HAMP TPP due to his change in income, he could still request and be
provided reconsideration for a HAMP modification at a future time if he had a change
in circumstances. McGahey had neither failed a HAMP TPP nor received a HAMP
permanent modification and lost good standing per the Fannie Mae Guidelines.
Pursuant to those guidelines, PHH was obligated to evaluate McGahey’s application
for a HAMP modification.
Had PHH evaluated McGahey’s application properly, it would have found him
eligible for a HAMP modification and would have had to offer him a HAMP trial plan.
McGahey would have been able to afford and pay the HAMP trial payments. For
purposes of a Fannie Mae HAMP, a loan can be modified by capitalizing arrears,
reducing the interest rate to a floor of 2 percent, extending the term to 40 years,
and/or forbearing principal to reach the target ratio of 31 percent of the borrower’s

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gross monthly income. As of September 25, 2012, a HAMP modification would have
provided a monthly principal, interest, and escrow payment of about $1,183.89, a new
capitalized principal balance of about $182,500, and an initial modified interest rate
of 2 percent. McGahey would have been able to sustain that monthly payment.
Apart from its September 25, 2012, letter, PHH provided no other written
response regarding evaluation or eligibility for any other loss mitigation program
besides HAMP from August 31, 2012, through January 1, 2013.
In a letter dated September 28, 2012, PHH, through counsel, stated that it
would continue with the foreclosure on the loan. McGahey paid his counsel more
than $1,000 to prevent the foreclosure and eventually appear in the foreclosure
action, including participating in the foreclosure diversion program.

Through

counsel, McGahey appealed the HAMP denial on October 2, 2012. On October 4,
2012, through counsel, he requested that PHH escalate his appeal of the HAMP
denial and cease further foreclosure activity on the loan. PHH did not respond to
either the appeal or the request to escalate the appeal and cease foreclosure efforts,
and did not reevaluate McGahey’s application for a HAMP modification or review his
loan for other loss mitigation options.
McGahey, in collaboration with his counsel, sought assistance from York
County Community Action (“YCCA”) regarding the denial of his application for a
HAMP modification. A YCCA housing counselor contacted PHH with McGahey on
October 26, 2012. PHH falsely stated that McGahey did not complete a HAMP in
2009 and, therefore, was not eligible for another HAMP modification offer. PHH

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represented that it was going to seek an exception through Fannie Mae for another
modification. On November 2, 2012, McGahey, through counsel, emailed PHH to
check on the status of his appeal but received no response.
On or about November 4, 2012, PHH filed a complaint for foreclosure against
McGahey in the Maine District Court in Biddeford, Maine. PHH and Fannie Mae
charged McGahey’s account for their attorney’s fees related to the foreclosure action.
McGahey answered the complaint and requested to be placed in the Maine
Foreclosure Diversion Program. In a November 7, 2012, call between the YCCA
housing counselor and PHH, PHH again falsely stated that McGahey did not qualify
for a HAMP modification and informed the housing counselor that the denial would
stand. In a letter dated December 3, 2012, PHH misrepresented that McGahey “for
some reason” was not eligible for a HAMP modification, but it provided no reason.
PHH offered McGahey a non-HAMP TPP with a monthly payment of $1,633.47
beginning on January 1, 2013.
In an effort to continue to try to save his home with an affordable monthly
payment, McGahey submitted another complete loss mitigation application for a
HAMP modification to both PHH and Fannie Mae on December 4, 2012. PHH
acknowledged receipt of the application in a letter dated January 31, 2013. In the
application, McGahey reported a change in income, which, combining his SSD
payments and his father’s contribution of retirement income plus food stamps and
accounting for a 1.25 multiplier for non-taxed income, totaled $4,012.75. McGahey
was eligible at that time for a HAMP modification. PHH knew or should have known

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that he was eligible to be at least evaluated for, if not offered, a HAMP modification
at that time as it possessed the original non-HAMP modification and McGahey’s
complete loss mitigation packet.
PHH delivered McGahey a notice dated February 13, 2013, offering a TPP in
the amount of $1,501.68 per month beginning March 1, 2013. In a second letter dated
February 13, 2013, PHH offered McGahey a TPP with a monthly payment of
$1,625.19. Neither letter indicated that the TPP offers were provided pursuant to
HAMP. Based on PHH’s repeated misrepresentations that he was ineligible for a
HAMP modification, McGahey forewent taking steps at that time to pursue a HAMP
modification, such as furthering an appeal, submitting another HAMP application,
sending a demand letter, or pursuing litigation, and he accepted the first February
13, 2013, offer of a monthly payment of $1,501.68 and made a timely first TPP
payment.

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McGahey was led to believe that if he did not take the modification

offered, he would lose his home because he was not eligible for a better modification
offer: HAMP.
By letter dated February 18, 2013, PHH offered McGahey yet another TPP
with monthly payments of $1,591.63 beginning April 1, 2013. He continued to send
timely payments per the prior offer of a monthly payment of $1,501.68 and completed
that TPP. By letter dated June 5, 2013, PHH offered McGahey a permanent loan
modification with a monthly principal, interest, and escrow payment of $1,630.73
beginning June 1, 2013 (the “2013 Loan Modification”). The interest rate remained

This recitation corrects a typographical error in the date, February 13, “2012.” See ECF No.
16 at ¶ 87.
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6.67 percent, and the term of the loan was extended to 40 years. A total of $28,678
in escrow advances, attorney fees and costs, recoverable advances, and interest was
added to the modified loan balance, creating a new capitalized principal balance of
$198,216.01.
The 6.67 percent interest rate was a higher rate than McGahey would have
had pursuant to a HAMP offer. McGahey was not offered a permanent HAMP
modification in June 2013. Although PHH again knew or should have known that
McGahey was eligible to be evaluated for, if not offered, a HAMP modification at that
time, it failed to evaluate him for such a modification as required by the Fannie Mae
Guidelines. Had PHH evaluated McGahey’s application properly, it would have
found him eligible for a HAMP modification and would have had to offer him a HAMP
trial plan. Based on PHH’s repeated misrepresentations that he was ineligible for a
better HAMP modification, McGahey again forewent taking steps to pursue the
HAMP option, believing that if he did not take the modification offered, he would lose
his home. He signed and returned the 2013 Loan Modification agreement to PHH,
which signed and returned it to him on July 16, 2013.
McGahey made at least 20 payments pursuant to the 2013 Loan Modification
(as later revised). A portion of those payments went to cover (i) attorney’s fees
incurred by PHH and Fannie Mae in the 2012 foreclosure action, (ii) higher interest
(6.67 percent) than would have been charged pursuant to a HAMP loan modification,
(iii) interest on that interest accruing from September 25, 2012, through June 1, 2013,
and (iv) “recoverable advance” fees, as well as interest on those fees accruing during

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that period. McGahey would not have had to pay these costs if PHH had properly
managed his loan, including following Fannie Mae Guidelines and accurately
evaluating his eligibility for a HAMP modification.
On August 27, 2013, PHH called McGahey, stating that the permanent loan
modification was not effective because it was signed in the wrong place and that it
would send a new modification agreement for him to sign. On August 28, 2013,
McGahey’s counsel delivered a letter to PHH, characterized as a Qualified Written
Request pursuant to RESPA, requesting information regarding McGahey’s loan,
including any modifications made to it. The letter stated:
In order to determine the amount due and owing on my client’s account,
I need all information about the costs, accounting, escrow procedures,
and application of payments in connection with this loan. Due to the
complicated nature of mortgage account servicing, accounts frequently
contain errors in the form [of] misapplied payments, excess fees, or
unwarranted/unauthorized charges. I have reason to believe that this
account may contain such errors.
ECF No. 16-23 at 1. The letter made 10 demands for documents or information.
PHH responded by letter dated September 10, 2013, but did not provide
information regarding the 2010 Loan Modification. PHH disputed that the August
28, 2013, letter was a Qualified Written Request in that it failed to identify an actual
error in McGahey’s account. However, it provided copies of McGahey’s Mortgage,
Note, HUD-1 Settlement Statement, Truth in Lending (“TIL”) disclosures,
Assignment Notice, Payment History, and a key to interpret the Payment History,
and provided the contact information of a PHH employee.

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In September 2013, PHH asked McGahey to execute a revised modification
agreement with similar terms with a monthly payment of $1,625.22 and
capitalization of $27,756.55 in attorney fees, recoverable advances, advanced escrow,
and interest (the “Revised 2013 Loan Modification”).
modification.

This was not a HAMP

Again, based on PHH’s misrepresentations regarding his HAMP

eligibility, McGahey timely signed and returned the Revised 2013 Loan Modification
agreement. Again, PHH knew or should have known McGahey was eligible to at least
be evaluated for, if not offered, a HAMP modification at that time.
Again, a portion of the payments made pursuant to the Revised 2013 Loan
Modification agreement went to cover (i) attorney’s fees incurred by PHH and Fannie
Mae in the 2012 foreclosure action, (ii) higher interest (6.67 percent) than would have
been charged pursuant to a HAMP loan modification, (iii) interest on that interest
accruing from September 25, 2012, through June 1, 2013, and (iv) “recoverable
advance” fees, as well as interest on those fees accruing during that period. McGahey
would not have had to pay these costs if PHH had properly managed his loan,
including following Fannie Mae Guidelines and accurately evaluating his eligibility
for a HAMP modification.
C. 2015 Loan Modification
McGahey struggled for over two years to make the monthly payments on the
2013 TPP and loan modifications. He had bought another used car but had to sell it
to help make the payments. PHH knew or should have known that $1,625.22 was an
unaffordable payment amount based on McGahey’s submitted financial information.

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In May 2015, McGahey reconnected with the YCCA housing counselor and
submitted another complete loss mitigation application, again seeking a HAMP
modification. During the process of working with the housing counselor in 2015,
McGahey had to travel approximately 45 miles round-trip at least two times from
Saco to Sanford, paying gas and mileage expenses. Again, McGahey had changed
circumstances in that he could not maintain the modification payments and had
unexpected housing expenses, as outlined in his hardship letter submitted to PHH.
By letter dated June 4, 2015, PHH falsely stated that McGahey did not qualify
for a HAMP modification because he did not “successfully complete a previous HAMP
offer.” ECF No. 16 at ¶ 125. In June 2015, PHH offered McGahey a non-HAMP TPP
with three monthly payments of $1,339.98 beginning July 1, 2015. Again, PHH knew
or should have known McGahey was eligible to be evaluated for, if not offered, a
HAMP at that time. Had PHH evaluated his application properly pursuant to Fannie
Mae Guidelines, it would have found him eligible for a HAMP modification and would
have had to offer him a HAMP trial plan. McGahey would have been able to afford
and pay the HAMP trial payments. Again, PHH knew or should have known the
modification payment offered was unaffordable based on McGahey’s submitted
financial information. Based on PHH’s repeated misrepresentations that he was
ineligible for a better HAMP modification, McGahey again forewent taking steps to
pursue the HAMP option, believing that if he did not take the modification offered,
he would lose his home.

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As of June 1, 2015, McGahey was eligible for a HAMP modification with a
monthly payment of about $1,177.70 based on his SSD income of $1,374 and a $1,665
per month contribution from his father. Pursuant to Fannie Mae Guidelines, PHH
was required to evaluate McGahey for a HAMP modification and communicate its
decision to him.
On June 12, 2015, McGahey delivered a letter to PHH characterized as a
Notice of Error in which he sought to appeal PHH’s wrongful denial of a HAMP
modification and obtain proper review for such a modification. He submitted a
similar complaint on June 12, 2015, to the Consumer Financial Protection Bureau
(“CFPB”).
PHH responded to the CFPB complaint, not the Notice of Error, by letter dated
July 10, 2015, acknowledging McGahey’s successful completion of the 2009 HAMP
TPP but falsely stating that he was offered a HAMP modification agreement and was
ineligible for a further HAMP modification because he had defaulted on that
agreement.
By letter dated August 3, 2015, PHH offered McGahey a non-HAMP
permanent modification (the “2015 Loan Modification”) with a monthly payment of
$1,336.91 beginning November 1, 2015. The interest rate was 4 percent, with a 40year term. This resulted in a reduction in McGahey’s principal and interest payment
from $1,179.76 to $851.89.

The 2015 Loan Modification was not a HAMP

modification. The new capitalized principal balance on the 2015 modification was
$203,832.61. The fair market value of the Property in about October 2015 ranged

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from $208,000 to $259,500. The increase in the principal balance cut into the equity
that McGahey had in the Property. A total of $8,372.61 was added to the principal
balance for escrow advances and accrued interest, including $6,866.23 in interest that
accrued at the prior rate of 6.67 percent.

Based on PHH’s repeated

misrepresentations that he was ineligible for a better HAMP modification, McGahey
again forewent taking steps to pursue the HAMP option, believing that if he did not
take the modification offered, he would lose his home.
On August 12, 2015, McGahey delivered a complaint to Fannie Mae regarding
the wrongful HAMP denial.
McGahey made several payments pursuant to the terms of the 2015 Loan
Modification. A portion of those payments went to cover (i) attorney’s fees incurred
by PHH and Fannie Mae in the 2012 foreclosure action, (ii) interest that accrued at
a higher rate than would have been charged pursuant to a HAMP loan modification,
(iii) interest on interest that accrued from September 25, 2012, through June 1, 2013,
(iv) “recoverable advance” fees, as well as interest on those fees that accrued during
that period, and (v) interest at a higher rate than would have been charged pursuant
to a HAMP loan modification plus interest on the interest accrued pursuant to the
2013 loan modifications that was capitalized into the 2015 loan modification balance.
McGahey would not have had to pay these costs if PHH had properly managed his
loan, including following Fannie Mae Guidelines and accurately evaluating him for
eligibility for a HAMP modification in 2012.

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In emails in September and October 2015 between the YCCA housing
counselor and Jack Maloney, Senior Business Manager of Fannie Mae, Maloney
falsely stated that McGahey did not qualify for a HAMP modification because of a
previous HAMP modification failure.
On October 30, 2015, McGahey sent another letter to PHH, characterized as a
Qualified Written Request pursuant to RESPA, requesting five categories of
documents or information regarding his loan, particularly the 2009-10 TPP and
modification. PHH responded by letter dated December 1, 2015, stating that it was
providing, either in the body of its letter or through enclosed documents, all of the
requested documents/information.

It stated that, while McGahey had been

prequalified for a HAMP TPP on July 6, 2009, based on financial documentation he
had submitted reflecting a monthly income of $3,386.67, he later provided financial
documentation confirming monthly gross income of $979.33. It stated that, as a
result, he was ineligible for a HAMP modification but was provided with a standard
loan modification. PHH did not address or correct the 2012 and 2015 wrongful
denials based incorrectly on the alleged unsuccessful completion of a HAMP.
McGahey again retained and paid counsel $100 to deliver another letter styled
as an Notice of Error and Request for Information to PHH on January 27, 2016.
McGahey’s counsel asserted that PHH had erred in deeming McGahey ineligible for
HAMP modifications in both 2009-10 and thereafter, requesting that, to correct its
error, PHH provide him with a HAMP modification retroactive to February 1, 2010,

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waiving any additional interest, fees, and costs that had accrued. She also requested
that PHH provide four categories of information.
PHH responded by letter dated March 7, 2016, stating that after investigating
the issues raised in McGahey’s January 27, 2016, correspondence, it had determined
that no error had occurred. It repeated the rationale it had provided in its December
1, 2015, letter that McGahey was ineligible for a HAMP modification in 2009-10 based
on his changed (lower) income. However, it did not address McGahey’s counsel’s
argument that subsequent denials of HAMP modifications were wrongful.
On March 24, 2016, McGahey, through counsel, delivered a demand letter to
PHH pursuant to the Maine Unfair Trade Practices Act (“UTPA”), 5 M.R.S.A. § 213.
PHH responded by letter dated April 8, 2016, that, because the issues were the same
as those raised in previous letters to which it had responded, it would take no action
regarding the account.
As of August 4, 2016, the date he filed his First Amended Complaint, McGahey
was again struggling to make his monthly payment under the current modification.
On July 14, 2016, through counsel and with YCCA’s help, he submitted a new loan
modification application seeking a HAMP modification. As of August 4, 2016, he had
not received a response to the application.
PHH engaged in persistent misprocessing and mismanagement of McGahey’s
loan, including failing to follow Fannie Mae Guidelines, failing to evaluate him
properly for a HAMP modification, and persistently making false representations
that he was not eligible for a HAMP modification.

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Had PHH properly serviced and managed McGahey’s loan, it would have found
him eligible for, and would have offered him, a HAMP loan modification in September
2012. Instead, he made payments toward increased interest each month due to
higher interest rates, interest on interest that accrued from September 2012 to June
2013, interest on the interest arrears added to the 2015 modification, PHH and
Fannie Mae’s attorney fees to pursue the 2012 foreclosure plus interest on those fees,
fees and costs from September 2012 to June 2013, and interest on those fees and
costs.

McGahey also had to pay his own attorney to defend against the 2012

foreclosure action, which would have been unnecessary had he been given a HAMP
modification.
PHH and Fannie Mae benefited financially from the increased payments
toward interest, fees, and costs that McGahey made from 2012 to 2016. In addition,
through the non-HAMP loan modifications, with interest, fees, and costs accruing at
a higher rate than would have been the case with a HAMP modification, the principal
balance grew and thereby decreased McGahey’s equity in the Property. McGahey
also suffered harm to his credit because of his inability to sustain the inflated monthly
payments offered.
PHH does not have proper policies and procedures in place to process and
properly report on a loan when a HAMP TPP is completed but a non-HAMP
modification is then offered to a borrower. PHH and Fannie Mae do not have proper
policies and procedures in place to evaluate and correct wrongful denials of loan

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modifications. PHH was repeatedly informed by McGahey of the misprocessing of his
loan modification applications but failed to take any corrective action.
PHH’s wrongful conduct caused McGahey’s home to be at risk. The stress and
pressure of potentially losing his home and having to make inflated mortgage
payments each month was extreme and severe. He could not understand why PHH
kept misrepresenting that he had failed a HAMP modification, telling him that he
did not qualify for a more affordable loan payment, as a result of which he had to pay
up to $500 extra per month, and declining to adjust the loan even when PHH
admitted that he never had a HAMP modification.
McGahey struggled each month to come up with the money to make the
payment, cut back on everything he could – groceries, heat, hot water, gifts, and going
out – and felt worthless and overcome by the fact that he could not make the house
payments. He saw that his mother suffered from anxiety over potentially losing the
home, as a result of which he felt increased guilt and shame. He tried to keep the
situation from his aging, ailing father. He was always irritable and impatient and
often fought with his father and two sons. He became reclusive because of lack of
money and depression and, over time, grew distant from all of his friends. He would
only leave the house to buy groceries. At his lowest point, in about August 2014, his
sense of failure and distress over potentially losing the home became intolerable and
he began to have suicidal ideations. He continues to suffer from anxiety and distress
over the fact that his home is at risk and his continued ownership of it depends on
his ability to make an unaffordable mortgage payment each month. He constantly

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fears that he will lose the home, displacing his elderly father who now suffers from
dementia.
II.

LEGAL STANDARD

A. Motion to Dismiss
To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6),
a complaint “must contain sufficient factual matter to state a claim to relief that is
plausible on its face.” Saldivar v. Racine, 818 F.3d 14, 18 (1st Cir. 2016) (quoting
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)) (internal quotation marks and alterations
omitted). The court should accept all well-pleaded facts as true, while ignoring
conclusory legal allegations. Id. All reasonable inferences should be drawn in favor
of the non-moving party. Id. at 16. The complaint must contain facts that support a
reasonable inference “that the defendant is liable for the misconduct alleged.” Iqbal,
556 U.S. at 678. Determining the plausibility of a claim is a context-specific task that
requires the court “to draw on its judicial experience and common sense.” Saldivar,
818 F.3d at 18 (quoting Iqbal, 556 U.S. at 679) (quotation marks omitted). The
burden of demonstrating that the complaint does not state a claim for which relief
can be granted is on the Defendants. See 5B Charles Alan Wright & Arthur R. Miller
et al., Federal Practice and Procedure § 1357 (3d ed. 2017 Update).
Allegations of fraud are subject to the higher pleading standard of Federal Rule
of Civil Procedure Rule 9(b). See Fed. R. Civ. P. 9(b). The complaint must “be specific
about the ‘time, place, and content of an alleged false representation[.]’” Murtagh v.
St. Mary’s Reg’l Health Ctr., 2013 WL 5348607, at *6 (D. Me. Sep. 23, 2013) (quoting

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Hayduk v. Lanna, 775 F.2d 441, 444 (1st Cir. 1985)). Mere conclusory allegations
will not satisfy the particularity requirement. See Hayduk, 775 F.2d at 444. Rule
9(b) also requires that plaintiffs identify a basis for inferring scienter on the part of
the defendant. N. Am. Catholic Educ. Programming Found., Inc. v. Cardinale, 567
F.3d 8, 13 (1st Cir. 2009).
B. Motion to Amend
After the time for amendments as a matter of course has passed, a party may
amend its pleading with leave of the court, which should be freely given “when justice
so requires.” Fed. R. Civ. P. 15(a)(2). Accordingly, leave to amend should be granted
where there is no “undue delay, bad faith or dilatory motive on the part of the movant,
repeated failure to cure deficiencies by amendments previously allowed, undue
prejudice to the opposing party by virtue of allowance of the amendment, [or] futility
. . . .” Foman v. Davis, 371 U.S. 178, 182 (1962); see also Chiang v. Skeirik, 582 F.3d
238, 244 (1st Cir. 2009). If leave to amend is sought before discovery is complete and
neither party has moved for summary judgment, a proposed amendment will be
denied if the amendment fails to state a claim and is, therefore, futile. See Hatch v.
Dept. for Children, Youth and Their Families, 274 F.3d 12, 19 (1st Cir. 2001).
“Futility” is gauged by the criteria of Rule 12(b)(6) governing motions to dismiss for
failure to state a claim. Id.

20

III.

DISCUSSION

PHH and Fannie Mae assert numerous arguments in favor of dismissal of each
count in McGahey’s Complaint. I will first address the parties’ standing arguments,
and will then address each count in turn.
A. Standing
As a threshold matter, Defendants assert that McGahey lacks standing to
assert the claims in his Complaint because each attempts to indirectly enforce the
Fannie Mae guidelines pertaining to HAMP modifications. While the First Circuit
has held that borrowers do not have standing as third-party beneficiaries to enforce
HAMP’s terms, see Mackenzie v. Flagstar Bank, FSB, 738 F.3d 486, 490-93 (1st Cir.
2013), the Magistrate Judge correctly observed that McGahey does not seek direct
redress for alleged HAMP violations under a third-party beneficiary or breach of good
faith theory, see ECF No. 30 at 21. Rather, McGahey asserts that the alleged HAMP
guideline violations constitute separate violations of the Maine Unfair Trade
Practices Act and Maine Consumer Credit Code, as well as fraud. See Markle v.
HSBC Mortg. Corp. (USA), 844 F. Supp. 2d 172, 185 (D. Mass. 2011) (recognizing
that lack of private right of action under HAMP does not preclude a violation of
HAMP guidelines from forming basis of a claim under Chapter 93A, the analogous
Massachusetts consumer protection statute); see also Gaul v. Aurora Loan Servs.
LLC, 2013 WL 1213065, at *9 (D. Mass. Feb. 7, 2013) (same). If McGahey properly
alleges a violation of the UTPA, the lack of third-party beneficiary standing or a
private right of action under HAMP itself will not preclude his claim from going

21

forward. See Blackwood v. Wells Fargo Bank, N.A., 2011 WL 1561024, at *4 (D. Mass.
Apr. 22, 2011) (noting that consumer protection statute is “the appropriate avenue”
for seeking remedy for violation of statute that does not provide for a private remedy).
I therefore turn to evaluate whether the Complaint sufficiently states a claim under
each individual count.
B. Count I: Maine Unfair Trade Practices Act (“UTPA”)
McGahey alleges that PHH violated the UTPA by failing to offer him a
modification as required by the HAMP guidelines and by making false
representations regarding his eligibility for a HAMP loan modification, which caused
him to accept the more expensive standard modifications instead. PHH responds that
McGahey does not sufficiently allege: any independent unfair or deceptive trade
practices; damages in the form of a loss of money or property; greater total payments
than he would have made pursuant to a HAMP modification; or detrimental reliance
on a representation by the Defendants.
The UTPA gives a private right of action to consumers who are injured as a
result of the use of unfair or deceptive business practices.3 See 5 M.R.S.A. §§ 207,

3

Section 207 of the UTPA provides, in relevant part:
Unfair methods of competition and unfair or deceptive acts or practices in the conduct
of any trade or commerce are declared unlawful.

5 M.R.S.A. § 207 (2017).
Section 213, which establishes a private right of action, provides, again in relevant part:
Any person who purchases or leases goods, services or property, real or personal,
primarily for personal, family or household purposes and thereby suffers any loss of
money or property, real or personal, as a result of the use or employment by another
person of a method, act or practice declared unlawful by section 207 or by any rule or
22

213(1) (2017). To qualify as unfair under the statute, “the act or practice: (1) must
cause, or be likely to cause, substantial injury to consumers; (2) that is not reasonably
avoidable by consumers; and (3) that is not outweighed by any countervailing benefits
to consumers or competition.” State v. Weinschenk, 2005 ME 28, ¶ 16, 868 A.2d 200.
“An act or practice is deceptive if it is a material representation, omission, act or
practice that is likely to mislead consumers acting reasonably under the
circumstances.” Id. at ¶ 17. A representation is material if it is “likely to affect
[consumers’] choice of, or conduct regarding, a product.” Id. (quotation omitted). An
act or practice may be deceptive within the meaning of the UTPA “regardless of a
defendant’s good faith or lack of intent to deceive.” Id.
1. Unfair or Deceptive Act or Practice
PHH’s allegedly false representations that McGahey did not qualify for a
HAMP modification were material representations that were likely to mislead a
reasonable consumer, and therefore qualify as deceptive under the UTPA.

The

representations are material because it is reasonable to infer that McGahey’s decision
to accept the standard modifications offered by PHH was influenced by his belief that
he did not qualify for a more advantageous HAMP modification. See Weinschenk,
2005 ME 28 at ¶ 17.

The representations were likely to mislead a reasonable

consumer because PHH controlled all of the information regarding McGahey’s

regulation issued under section 207, subsection 2 may bring an action either in the
Superior Court or District Court for actual damages, restitution and for such other
equitable relief, including an injunction, as the court determines to be necessary and
proper.
5 M.R.S.A. § 213(1) (2017).
23

eligibility, repeatedly insisted that he was ineligible, and assured him that his
applications had been “carefully considered,” see, e.g., ECF No. 16-6 at 1; ECF No. 1626 at 1. See Weinschenk, 2005 ME 28 at ¶ 17.
2. Damages
Damages cognizable under the UTPA are limited to a loss of money or property
that results from a violation. Noveletsky v. Metro. Life Ins. Co., 49 F. Supp. 3d 123,
151 (D. Me. 2014) (citing William Mushero, Inc. v. Hull, 667 A.2d 853, 855 (Me. 1995)).
Speculative harms do not constitute damages under the UTPA. Poulin v. Thomas
Agency, 746 F. Supp. 2d 200, 206 (D. Me. 2010) (citing Tungate v. MacLean-Stevens
Studios, Inc., 1998 ME 162, ¶¶ 9-10, 714 A.2d 792).
McGahey asserts that as a consequence of the alleged UTPA violations, he
suffered damages in the form of: (1) paying increased interest; (2) paying Defendants’
attorney’s fees in connection with the 2012 foreclosure action; (3) incurring and
paying late fees when he fell behind on the payments under the standard
modification; (4) paying a higher rate of interest on the capitalized interest, fees,
attorney’s fees, and costs; (5) paying his attorney to prevent the 2012 foreclosure; (6)
suffering harm to his credit; (7) paying gas and mileage expenses; and (8) suffering a
loss of equity in the Property. These alleged damages all constitute losses of money
or property, with the exception of the harm to McGahey’s credit, see Poulin, 746 F.
Supp. at 206 (harm to credit score, without proof of resulting actual damage, is a
speculative harm).

24

Defendants assert, and the Magistrate Judge agreed, that these harms are
nonetheless not cognizable under the UTPA because they were not caused by an
alleged unfair or deceptive act or practice. Defendants’ argument runs as follows.
McGahey admits that HAMP does not provide him with a private right of action, and
that he has no third-party beneficiary standing to directly enforce the terms of Fannie
Mae’s HAMP-related servicer guidelines. Because he cannot sue to obtain a HAMP
modification, McGahey cannot establish that he was entitled to receive a HAMP
modification. Because McGahey was not entitled to receive a HAMP modification, he
cannot establish that he would have been given a HAMP modification if PHH had not
wrongfully denied his application and falsely told him that he was ineligible. Put
another way, Defendants assert that even if PHH had properly evaluated McGahey’s
HAMP application and correctly determined that he was eligible for a HAMP
modification, it could nonetheless have refused to give him one—in violation of the
Fannie Mae Guidelines—with impunity because McGahey lacks a legal mechanism
to force PHH to provide the modification. Because PHH could have refused to provide
the HAMP modification even in the absence of a UTPA violation, Defendants assert,
the damages McGahey claims to have suffered as a result of not receiving the HAMP
modification were not caused by the UTPA violation.
The purpose of awarding actual damages to plaintiffs under the UTPA is to
put those plaintiffs in the position they would have been in had the violation not
occurred. See McKinnon v. Honeywell Intern., Inc., 2009 ME 69, ¶ 21, 977 A.2d 420
(UTPA’s “primary purpose is to compensate an injured plaintiff”).

25

Determining

damages is an exercise that requires the Court to engage in counterfactual
speculation: “if X had not occurred, what would have happened?” If PHH had not
wrongfully denied McGahey’s HAMP application and falsely told him he was
ineligible for HAMP, one of two things would likely have occurred: either PHH would
have offered McGahey a HAMP modification in accordance with the Fannie Mae
Guidelines; or they would have refused to offer him a HAMP modification in violation
of the Fannie Mae Guidelines. If the former would have occurred, then McGahey has
suffered damages; if the latter, then he has not.
An analogy may be useful in illuminating the issue at hand.

Imagine a

homeowner with a leaking roof who hires a contractor to patch the hole in the roof.
The contractor falsely tells the homeowner that a patch will not suffice, and instead
the whole roof must be replaced.

After paying to have her roof replaced, the

homeowner discovers the deception and brings a UTPA claim. The measure of the
homeowner’s damages would be the difference in cost between the roof replacement
and the patch job. Despite the fact that the homeowner does not have a private right
of action to force the contractor to patch her roof, it is reasonable to assume that if
the deception had not occurred, and the contractor had informed the homeowner that
nothing more than a patch job was required, the homeowner would have contracted
for a patch job rather than a full roof replacement.
Defendants’ emphasis on McGahey’s lack of a private action to enforce HAMP
is therefore misplaced. Whether McGahey can sue to obtain the modification does
not necessarily answer the question of whether or not he would have received the

26

modification had his application been handled properly.

That is, the fact that

McGahey does not have a private cause of action to force PHH to give him a HAMP
modification does not foreclose the possibility that he would nonetheless have been
offered the modification if his application had been properly handled and approved.
Presumably, PHH has offered HAMP modifications to qualified applicants in the
past, despite the fact that none of those applicants had the ability to sue to obtain the
modification.
At the motion to dismiss stage, I must accept as true all well-pleaded facts in
the Complaint and draw all inferences in favor of McGahey. See Saldivar, 818 F.3d
at 16. The parties’ differing theories on damages rely on differing counterfactual
scenarios. Defendants say that McGahey would not have been offered a HAMP
modification even if he had been correctly informed that he qualified for it because he
had no private right of action to enforce HAMP. McGahey says that he would have
been offered a HAMP modification in accordance with the Fannie Mae Guidelines if
his application had been properly handled.

To accept Defendants’ proposed

counterfactual scenario instead of McGahey’s would be to improperly draw an
inference in the moving parties’ favor at the motion to dismiss stage. McGahey has
therefore adequately alleged that he suffered damages as a result of PHH’s alleged
UTPA violations.
3. Total Payments Made
Defendants also argue that the documents attached to McGahey’s Complaint
establish that he has paid several thousand dollars less on his mortgage since 2012

27

than he would have paid under a HAMP modification if one had been offered to him
in 2012. Defendants therefore assert that McGahey cannot claim to have suffered
any damage as a consequence of the failure to offer him a HAMP modification. This
argument ignores the increase in the principal balance of McGahey’s loan due to the
higher interest rates and the capitalized late payments, fees, and costs that resulted
from McGahey’s acceptance of the standard modification. The measure of McGahey’s
damages must take into account his overall economic position, and is not limited to
the sum of the payments he has actually made since 2012. The loss of equity in
McGahey’s home resulting from the higher principal balance on his loan is an
economic injury that constitutes a loss of money or property. See Napolitano v. Green
Tree Servicing, LLC, 2016 WL 447451, at *5, *9 (D. Me. Feb. 4, 2016).
4. Detrimental Reliance
Defendants argue that McGahey’s Complaint fails to demonstrate detrimental
reliance because he cannot show that his acceptance of a standard loan modification
was detrimental.

This argument essentially restates the Defendants’ argument

regarding damages considered above, and fails for the same reasons. If McGahey
accepted the standard modifications in reliance on Defendants’ false statements that
he was not eligible for HAMP, and suffered damages as a result, then he has
adequately pleaded detrimental reliance.

28

C. Count II: Real Estate Settlement Procedures Act (“RESPA”)
McGahey alleges that PHH violated RESPA by failing to adequately respond
to Qualified Written Requests4 and Notices of Error5 sent by McGahey and his
counsel in connection with his mortgage account, and by failing to correct the
allegedly erroneous denials of McGahey’s HAMP applications. Defendants respond
that the correspondence sent did not qualify as Qualified Written Requests or Notices
of Error, that PHH adequately responded, and that McGahey cannot establish that
he was damaged by any violation.
RESPA aims to promote transparency and communication between borrowers
and lenders. See Bates v. JPMorgan Chase Bank, NA, 768 F.3d 1126, 1135 (11th Cir.
2014). To that end, the statute requires that servicers of mortgage loans respond to
inquiries from borrowers regarding their loans within a set amount of time. See 12
U.S.C.A. § 2605(e) (2017). To establish a violation of RESPA, McGahey must show
that PHH failed to comply with the statute’s requirements, and that he suffered
actual damages as a result. See O’Connor v. Nantucket Bank, 992 F. Supp. 2d 24, 35
(D. Mass. 2014).
McGahey asserts that 12 C.F.R. § 1024—so-called Regulation X—expands the
responsibilities of servicers with respect to RESPA. Regulation X was promulgated

A Qualified Written Request is any written correspondence that includes the name and account of
the borrower and includes a statement of reasons that the borrower believes his or her account to be
in error, or provides sufficient detail to the servicer regarding other information sought by the
borrower. 12 U.S.C.A. § 2605(e)(1)(B) (2017).
4

A Notice of Error is “any written notice from a borrower that asserts an error and includes the
name of the borrower, information that enables the servicer to identify the borrower's mortgage loan
account, and the error the borrower believes has occurred.” 12 C.F.R. § 1024.35(a).
5

29

in 2014 by the Bureau of Consumer Financial Protection pursuant to the Dodd-Frank
Wall Street Reform and Consumer Protection Act. See Wilson v. Bank of America, 48
F. Supp. 3d 787, 799 (E.D. Pa. 2014). Regulation X is the implementing regulation of
RESPA, and creates an error resolution process that defines servicers’ obligations
under the statute. See 12 C.F.R. § 1024.1; see also Arthur B. Axelson & Heather C.
Hutchings, Mortgage Servicing Developments, 69 Bus. Law. 527, 532 (2014).
Defendants claim that McGahey did not reference Regulation X in his
Complaint, and therefore it should not be considered in evaluating his RESPA claim.
The First Amended Complaint does reference Regulation X, however, when
describing the Qualified Written Requests and Notices of Error sent to PHH, and the
notices themselves—which were incorporated into the Complaint—explicitly
reference Regulation X. See, e.g., ECF No. 16 at ¶¶ 138, 159; ECF No. 16-36 at 2.
Moreover, Defendants do not cite any case law supporting their position that failure
to mention an implementing regulation by name in a complaint renders the
regulation inapplicable to a claim under the statute being implemented. Cf. Chevron,
U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 843-44 (1984) (regulations
issued by agency in exercise of delegated authority are to be given controlling weight
in interpreting a statute).
1. Requirements for Qualified Written Requests or Notices of Error
Defendants argue that the communications sent by McGahey’s attorney do not
qualify as Qualified Written Requests under RESPA because they do not identify
errors relating to loan servicing as defined by the statute. McGahey responds that

30

the Defendants’ argument is faulty because it is based on pre-Regulation X RESPA.
Regulation X specifically enumerates a “[f]ailure to provide accurate information to a
borrower regarding loss mitigation options” as a covered error that may be the subject
of a Qualified Written Request or Notice of Error.

12 C.F.R. § 1024.35(b)(7).

McGahey has therefore sufficiently alleged that his communications regarding his
HAMP application denials qualify under RESPA. See Wilson, 48 F. Supp. 3d at 805
(declining to dismiss RESPA claim regarding communication about alleged HAMP
error).
2. PHH’s Responses to McGahey’s Communications
Defendants also argue that PHH’s responses to McGahey’s communications
were sufficient to satisfy its obligations under RESPA. Describing a servicer’s duty
as “limited,” Defendants cite two cases interpreting RESPA before Regulation X went
into effect for the proposition that in assessing a RESPA claim, the Court should
“simply determine that the servicer responded with information.” ECF No. 19 at 2729. In one of the cases cited by Defendants, the Eleventh Circuit held that a servicer’s
letter providing a cursory explanation for the handling of a borrower’s payments was
sufficient to satisfy the servicer’s obligations under RESPA, despite the fact that the
explanation left the borrower “confused and/or unsatisfied.” Bates v. JPMorgan
Chase Bank, NA, 768 F.3d 1126, 1135 (11th Cir. 2014). McGahey responds that this
lenient standard no longer applies now that Regulation X is in effect.
There is no case law in the First Circuit addressing the change, if any, that
Regulation X wrought in a servicer’s obligations to respond under RESPA. None of

31

the other circuit courts of appeal have explicitly analyzed Regulation X’s effect in this
regard either. But two decisions out of the Eleventh Circuit that have been handed
down since the Bates decision cited by defendants offer some guidance. In each, the
Eleventh Circuit cited Regulation X in reversing a district court’s grant of a motion
to dismiss a RESPA claim. See Renfroe v. Nationstar Mortg., LLC, 822 F.3d 1241,
1244-45 (11th Cir. 2016); Nunez v. JPMorgan Chase Bank, NA, 648 F. App’x 905, 910
(11th Cir. 2016). In Renfroe, the court held that the borrower had plausibly alleged
that a servicer’s response, which was similar to the one considered by the same court
in Bates, failed to satisfy Regulation X’s requirements that the servicer conduct a
reasonable investigation and provide the borrower with a written explanation of the
reasons for its determination. Renfroe, 822 F.3d at 1244-45. It is reasonable to infer
from the different outcomes in Bates, on the one hand, and Renfroe and Nunez, on the
other, that the Eleventh Circuit interprets Regulation X as having expanded a
servicer’s obligations with respect to responding to borrower inquiries under RESPA.
Wilson v. Bank of America, N.A., 48 F. Supp. 3d 787 (E.D.P.A. 2014), a 2014
decision of the Eastern District of Pennsylvania, does squarely address the issue of
Regulation X’s effect on a servicer’s obligation to respond under RESPA. See id. at
804.

Remarking that Regulation X had “altered the landscape” of a servicer’s

obligations to respond under RESPA, the Wilson court held that Regulation X
imposes a substantive obligation on servicers where the statute had merely imposed
a procedural one. Id. Regulation X requires that a servicer conduct a “reasonable
investigation” in response to a Qualified Written Request or Notice of Error, while

32

RESPA

itself

only

requires

“an

investigation.”

Compare

12

C.F.R.

§

1024.35(e)(1)(i)(B) with 12 U.S.C.A. § 2605(e)(2)(B). The Wilson court reasoned that
the addition of the word “reasonable” was intended to impose a substantive obligation
on servicers “that is not satisfied by the mere procedural completion of some
investigation.” Wilson, 48 F. Supp. 3d at 804; see also Renfroe, 822 F.3d at 1244
(quoting Regulation X and emphasizing phrase “reasonable investigation”).
The reasoning in Wilson—especially to the extent it comports with the
Eleventh Circuit’s apparent approach in Renfroe and Nunez—is persuasive. Because
Regulation X was promulgated to implement the Dodd-Frank Wall Street Reform and
Consumer Protection Act, it is reasonable to interpret the regulation’s added
qualification that investigations be “reasonable” as expanding the substantive
obligations of servicers under RESPA. Cf. Dodd-Frank Wall Street Reform and
Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (purpose of Act to
improve “accountability and transparency in the financial system”).

Under

Regulation X, servicers have a duty to perform a reasonably thorough investigation
in response to a borrower’s Qualified Written Request or Notice of Error, and to
provide a reasonably thorough response to a borrower’s questions and concerns. See
Wilson, 48 F. Supp. 3d at 804; cf. Renfroe, 822 F.3d at 1245.
McGahey alleges a number of specific violations of RESPA. On June 12, 2015,
for example, McGahey sent a notice captioned as a Notice of Error to PHH, alleging
that PHH had incorrectly stated that McGahey had failed to complete a previous
HAMP offer, and therefore wrongfully denied his latest HAMP application. McGahey

33

alleges that he also submitted a complaint to the Bureau of Consumer Financial
Protection (CFPB) at the same time. PHH responded to the CFPB complaint, but not
to the Notice of Error, on July 10, 2015.

PHH’s July 10 response alleges that

McGahey was offered a HAMP modification in 2009. The response did not advise
McGahey of his right to request the records on which PHH’s determination was
based, as required by 12 C.F.R. § 1024.35(e)(1)(i)(B). In a letter dated December 1,
2015, PHH apparently reversed itself, and stated that McGahey had been offered a
standard modification, rather than a HAMP modification, in 2009. It is reasonable
to infer from these facts that the investigation conducted by PHH as a result of
McGahey’s June 12 Notice of Error was not sufficient to satisfy PHH’s obligations
under RESPA as defined by Regulation X, as it failed to uncover the fact that the
modification offered to McGahey in 2009 was a standard modification, rather than a
HAMP modification. Further, it is reasonable to infer that this information was
readily available to PHH, and a reasonable investigation would have discovered it.
McGahey’s Complaint therefore plausibly claims that PHH’s responses to his
Qualified Written Requests and Notices of Error were not sufficient to satisfy RESPA.
3. Damages
McGahey alleges that PHH’s violations of RESPA caused him actual damages,
including the increased interest, fees, and costs associated with his acceptance of a
more expensive standard loan modification, as discussed in Section III.B.2, attorney’s
fees, and emotional damages.

34

RESPA allows for recovery of “any actual damages to the borrower,” as well as
statutory damages in the case of “a pattern or practice of noncompliance.” 12 U.S.C.A.
§ 2605(f)(1) (2017). The First Circuit has stated that consumer protection statutes
should be construed “liberally in favor of consumers.” Barnes v. Fleet Nat’l Bank,
N.A., 370 F.3d 164, 171 (1st Cir. 2004). Courts in this circuit have relied on this
directive to interpret the actual damages provision of RESPA to include emotional
distress damages. See Moore, 848 F. Supp. 2d at 123; see also Afridi v. Residential
Credit Sols., Inc., 189 F. Supp. 3d 193, 200 (D. Mass. 2016).
McGahey alleges that PHH’s failure to adequately respond to his
communications regarding the loan caused him emotional distress. Specifically, he
claims that his confusion regarding his eligibility for HAMP resulting from PHH’s
misrepresentations contributed to his stress.

It is reasonable to infer that the

misrepresentations that McGahey refers to in his Complaint include PHH’s
inconsistent responses to his Qualified Written Requests and Notices of Error,
especially the communications regarding whether he was ever offered or had failed a
HAMP modification. McGahey’s allegations of emotional distress suffice to plausibly
state actual damages under RESPA. See Moore, 848 F. Supp. 2d. at 123.
McGahey also alleges that he paid an attorney $100 to draft and deliver a
Qualified Written Request/Notice of Error to PHH when he did not receive an
adequate answer to his earlier RESPA communications. Defendants argue that
attorney’s fees do not constitute actual damages under RESPA because the statute
separately provides for their recovery. The cases cited by Defendants, however, do

35

not support the position that attorney’s fees a party incurs as a result of a RESPA
violation, but unrelated to the RESPA litigation itself, are not recoverable. In Crow
v. Ocwen Loan Servicing, LLC, one of the cases cited by Defendants, the District of
Hawai’i suggested that payment to an attorney to send a second Qualified Written
Request when a servicer failed to respond to a first Qualified Written Request would
qualify as actual damages, but held on the facts of that case that the plaintiff had
failed to establish a causal connection because the response period for the first
Qualified Written Request had not yet expired when the second was sent. 2016 WL
3557008, at *7-8 (D. Haw. June 24, 2016). In Kassner v. Chase Home Fin., LLC, the
other case cited by Defendants, the District of Massachusetts held that “attorney’s
fees for bringing a RESPA suit are not actual damages under the statute.” 2012 WL
260392, at *7 (D. Mass. Jan. 27, 2012) (emphasis added).
Other courts have held that attorney’s fees are recoverable as actual damages
under RESPA if they are not incurred in connection with bringing a suit under the
statute. See, e.g., Miranda v. Ocwen Loan Servicing, LLC, 148 F. Supp. 3d 1349, 1355
(S.D. Fla. 2015); Tanner v. Nationstar Mortg., LLC, 2016 WL 3193715, at *3 (Me.
Super. May 3, 2016). This approach is consistent with RESPA’s statutory provision
for attorney’s fees because the statute is limited to fees incurred in connection with
an action brought under RESPA. See 12 U.S.C.A. § 2605(f)(3) (2017). If McGahey is
successful in the instant suit, he will not be able to recover the $100 paid to his
attorney to send the Qualified Written Request/Notice of Error to PHH under the
statutory provision because that cost was not incurred in bringing this action.

36

Treating the $100 fee as actual damages therefore would not render the attorney’s
fees provision of RESPA superfluous. Compare Giordano v. MGC Mortg., Inc., 160 F.
Supp. 3d 778, 783 (D.N.J. 2016). The attorney’s fees alleged in McGahey’s Complaint
therefore qualify as actual damages.
Because McGahey adequately alleged actual damages in support of his RESPA
claim, in the form of emotional distress and attorney’s fees, his claim for statutory
damages due to a pattern or practice of noncompliance also survives dismissal. See
Renfroe, 822 F.3d at 1247 (holding allegations of five RESPA violations sufficient to
state a claim for pattern or practice of noncompliance).
McGahey additionally asserts that the increased interest, fees, and costs he
incurred as a result of not being offered a HAMP modification constitute damages
under RESPA because PHH should have corrected the wrongful HAMP denial
identified in McGahey’s Qualified Written Requests and Notice of Error, and offered
him a HAMP modification. RESPA, however, does not impose an affirmative duty on
a servicer to provide a modification. See 12 C.F.R. § 1024.41(a) (Section of Regulation
dealing with loss mitigation, noting that Regulation X does not “impose[] a duty on a
servicer to provide any borrower with a specific loss mitigation option.”). The goal of
RESPA, as noted above, is to encourage communication to provide borrowers with
accurate information about, and transparency regarding, their loans. See Bates, 768
F.3d at 1135.

The statute provides that an adequate response can either be a

correction of the alleged error, or a reasonable investigation and statement of reasons
why the servicer believes that the account is correct. See 12 U.S.C.A. § 2605(e)(2)

37

(2017). PHH could therefore have fulfilled its statutory obligations without correcting
the allegedly erroneous HAMP denial; RESPA requires that servicers provide
borrowers with information, not that they necessarily accept a borrower’s assertion
of error and correct it. It follows that damages stemming from the failure to offer
McGahey a HAMP modification are not damages caused by the RESPA violation.
D. Counts III and IV: Fraud and Misrepresentation
McGahey’s claims for common law fraud and for misrepresentation under the
Maine Consumer Credit Code closely resemble his claim under the UTPA. In each,
McGahey alleges that PHH and Fannie Mae’s false representations that he did not
qualify for a HAMP modification induced him to accept a more expensive standard
modification instead. McGahey alleges that as a result of the Defendants’ fraud and
misrepresentation, he suffered damages due to increased interest, costs, and fees as
outlined in Section III.B.2, above.
To establish that the Defendants are liable for fraud, McGahey must show that
they “(1) ma[de] a false representation (2) of a material fact (3) with knowledge of its
falsity or in reckless disregard of whether it [was] true or false (4) for the purpose of
inducing another to act or to refrain from acting in reliance upon it, and (5) [McGahey]
justifiably relie[d] upon the representation as true and act[ed] upon it to [his]
damage.”

Francis v. Stinson, 2000 ME 173, ¶ 38, 760 A.2d 209.

A claim of

misrepresentation under the Maine Consumer Credit Code requires a showing that
a creditor or person acting for him induced a consumer to enter a credit transaction
by misrepresenting a material fact with respect to the terms and conditions of the

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extension of credit. See 9-A M.R.S.A. § 9-401 (2017). Under Rule 9(b), allegations of
fraud must be pleaded with particularity, meaning that they must specify the time,
place, and content of the alleged false representation.

See Murtagh, 2013 WL

5348607, at *6.
McGahey’s Complaint describes the alleged misrepresentations regarding his
eligibility for HAMP with sufficient particularity to satisfy Rule 9(b). See, e.g., ECF
No. 16 at ¶¶ 41, 47, 70, 77-78, 83, 87, 125, 155. He alleges that Defendants knew or
should have known that their representations regarding his eligibility were false, and
that he relied on those representations in accepting more expensive standard loan
modifications.
Defendants argue that McGahey cannot show that he relied on any
misrepresentation to his detriment because he was not entitled to a HAMP
modification. This argument essentially restates their argument with respect to
damages regarding McGahey’s UTPA claim, and fails for the reasons explained
earlier.

McGahey’s claims in Count III and Count IV, for fraud and

misrepresentation, state plausible claims, and will not be dismissed.
E. Motion to Amend
In denying McGahey’s motion to amend his Complaint, the Magistrate Judge
concluded that the amendment would be futile because it did not cure any of the
supposed defects in McGahey’s First Amended Complaint.

ECF No. 30 at 36.

Defendants do not advance any other arguments as to why the motion to amend
should be denied. See ECF No. 33 at 9-10. Because I conclude that the First Amended

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Complaint is sufficient to survive dismissal, I also conclude that McGahey’s proposed
amendment is not futile and his motion to amend should be granted.
IV.

CONCLUSION

For the foregoing reasons, I do not accept the Recommended Decision (ECF No.
30). It is ORDERED that Defendants’ Motion to Dismiss (ECF No. 19) is DENIED.
McGahey’s Motion to Amend (ECF No. 23) is GRANTED.

SO ORDERED.
Dated this 17th day of July 2017
/s/ JON D. LEVY
U.S. DISTRICT JUDGE

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