Diogo-Carreau v. Homeward Residential, Inc.
Filing
50
Chief Judge Patti B. Saris: MEMORANDUM and ORDER entered. The Court ALLOWS in part the defendants motion for summary judgment (Docket No. 24) with respect to Counts II and III and DENIES in part with respect to Count I. (Geraldino-Karasek, Clarilde)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
______________________________
)
)
)
Plaintiff,
)
)
)
v.
)
)
AMERICAN HOME MORTGAGE
)
ACCEPTANCE, INC.; HOMEWARD
)
RESIDENTIAL, INC. f/k/a
)
AMERICAN HOME MORTGAGE
)
SERVICING, INC.; OCWEN
)
LOAN SERVICING, LLC,
)
)
Defendants.
)
______________________________)
LAURA DIOGO-CARREAU
Civil Action
No. 15-11020-PBS
MEMORANDUM AND ORDER
March 10, 2016
Saris, C.J.
INTRODUCTION
The plaintiff, Laura Diogo-Carreau, current homeowner and
mortgage borrower, is suing the defendants, Homeward
Residential, Inc., Ocwen Loan Servicing, LLC, and American Home
Mortgage Acceptance, Inc.,1 the current and former mortgage
holders and servicers, for wrongful foreclosure; violations of
Massachusetts’s consumer protection law, Chapter 93A; and
1
American Home Mortgage Acceptance, Inc., has not been served
with process and has never appeared in this case. Therefore, it
is dismissed from the case. See Fed. R. Civ. P. 4(m).
1
slander of title. Homeward and Ocwen now seek summary judgment,
arguing that, because they assumed control over the plaintiff’s
mortgage pursuant to a “free and clear” bankruptcy sale from the
former mortgage holder, all of the plaintiff’s claims based on
wrongdoing by the former holder are barred.
After hearing and supplemental briefing, the Court ALLOWS
in part and DENIES in part the defendants’ motion for summary
judgment (Docket No. 24).
FACTUAL BACKGROUND
The following facts are taken from the record and are
undisputed unless otherwise indicated.
On December 23, 2005, the plaintiff executed a note and
mortgage in favor of the defendant, American Home Mortgage
Acceptance, Inc. (the old mortgage company), secured by the
plaintiff’s home at 75 Charlotte White Road Extension, Westport,
Massachusetts (the Property). The mortgage required the
plaintiff to make payments for principal, interest, taxes, and
hazard insurance. The sums for the principal and interest went
to the old mortgage company, while the sums for taxes and
insurance were paid into an escrow account.
Prior to February 2007, the plaintiff’s normal monthly
mortgage payment was $1,084, including taxes and insurance. In
February 2007, the plaintiff received an unexpected bill from
the old mortgage company for $1,349. Upon inquiry, the old
2
mortgage company informed her that the increase was due to her
failure to maintain active insurance coverage from April 1—4,
2007. Under the terms of the mortgage, a lapse in insurance
coverage would allow the old mortgage company to purchase an
insurance policy and charge the plaintiff.
The record includes a hazard insurance policy that covers
the plaintiff’s home from April 1, 2007, through April 1, 2008.
On March 16, 2007, a check issued to the plaintiff’s home
insurance company, Arbella Insurance, to cover this period.
There is not a copy of the check in the record, however, so it
is unclear who signed it. The “process date” of April 4, 2007
appears on the insurance document, Docket No. 27, Ex. 5 at 2,
and the defendants claim that this “process date” indicates a
gap in coverage of four days.
The record is also unclear about which party bore the
responsibility for maintaining the insurance coverage. In her
deposition, the plaintiff testified that she purchased the
annual home insurance policies, but later in her deposition, she
stated that the old mortgage company paid for the policies from
the escrow funds. Docket No. 27, Ex. 1 at 6-7. In a subsequent
affidavit, she avers that she “did not have to purchase
insurance each year,” but rather the old mortgage company
automatically paid for the insurance policies and renewed them
each year. Docket No. 36, Ex. 3 at 2. In the insurance policy
3
documents, the mortgagee, not the plaintiff, is listed as the
expected payor for the period from April 1, 2007 to April 1,
2008. Docket No. 36, Ex. 3 at 6. However, the defendants point
to the mortgage instrument which states that it is the
plaintiff’s responsibility to purchase and maintain home
insurance. Docket No. 9 at 22.
After receiving the notice that the old mortgage company
had increased her monthly mortgage payment, the plaintiff paid
the original mortgage amount in March 2007 but did not make
another payment until July 2007. At this point, she wrote a
check for $5,500, representing approximately five months of
mortgage payments at the lower, pre-dispute amount. The
plaintiff, in an affidavit, states this check covered May
through August 2007. The parties agree this was the plaintiff’s
last mortgage payment. The old mortgage company held the $5,500,
but did not apply it to the plaintiff’s mortgage balance. The
record does not reveal what happened to the $5,500.
On August 6, 2007, the old mortgage company and several
other related companies sought protection under Chapter 11 of
the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the
District of Delaware. The plaintiff learned about the bankruptcy
filing through the news media that same month, but did not
receive any written notice from the old mortgage company. On
October 11, 2007, the old mortgage company, through counsel,
4
notified the plaintiff that it intended to foreclose on her home
because her mortgage was in default. The plaintiff took no
action to contact the old mortgage company regarding the
foreclosure and made no further payments.
On October 30, 2007, the bankruptcy court entered an order
approving the old mortgage company’s sale of assets, including
the plaintiff’s mortgage and the servicing rights, to the
defendant Homeward, operating at that time under a different
name. On November 6, 2007, the defendants published a notice, in
miniscule, impossible-to-read print, in three newspapers,
including the New York Times, announcing the bankruptcy sale and
giving the deadline for filing a claim. Docket No. 48, Ex. 2 at
2. However, neither the old mortgage company nor the defendants
sent individual, written notice to the plaintiff. At some point
in 2007, after the bankruptcy order, the plaintiff received
notice that Homeward would be the new servicer for her mortgage.
The notice did not tell her to make mortgage payments to
Homeward, and she did not make any mortgage payments to Homeward
or the old mortgage company. The defendant Ocwen subsequently
took over as the loan servicer. The parties agree that the
plaintiff never made a payment to Ocwen either.
On September 8, 2008, the plaintiff filed this action to
prevent a foreclosure of her mortgage and, in October 2008, the
defendants filed a suggestion of bankruptcy. The plaintiff’s
5
home remains in foreclosure status. The case was removed to this
Court on March 19, 2015, on the basis of diversity jurisdiction.
DISCUSSION
I.
Collateral Estoppel
The plaintiff argues that collateral estoppel bars the
defendants from moving for summary judgment because the
Massachusetts Superior Court already denied a nearly identical
motion filed by the defendants and their predecessors on the
merits. The defendants respond that the parties in the two cases
are unrelated, and the superior court’s order on Homeward’s
summary judgment motion did not reach the merits of the claims,
precluding the application of collateral estoppel.
The key inquiry behind collateral estoppel is “whether
defendants ‘received a full and fair opportunity to litigate
their claims’” in an earlier proceeding. Acevedo-Garcia v.
Monroig, 351 F.3d 547, 575 (1st Cir. 2003) (quoting Parklane
Hosiery Co. v. Shore, 439 U.S. 322, 332 (1979)). Because this
case implicates the preclusive effects of a superior court
judgment, “[t]he reach of a prior state court judgment is
determined by state law.” N.H. Motor Transp. Ass’n v. Town of
Plaistow, 67 F.3d 326, 328 (1st Cir. 1995). Under Massachusetts
law, collateral estoppel only arises if four conditions are met:
(1) there was a “final judgment on the merits in the prior
adjudication;” (2) the “party against whom estoppel is asserted
6
was a party (or in privity with a party) to the prior
adjudication;” (3) the “issue decided in the prior adjudication
is identical with the one presented in the action in question;”
and (4) the “issue decided in the prior adjudication was
essential to the judgment in the prior adjudication.” Alba v.
Raytheon Co., 809 N.E.2d 516, 521 (Mass. 2004).
The superior court’s two-paragraph order denied Homeward’s
summary judgment motion for a single reason: because Homeward
had “not been shown to be a party to [the] case.” Diogo-Carreau
v. Am. Home Mortg. et al., No. BRCV2008-01196, at *1 (Mass.
Super. Ct. Oct. 14, 2014) (Order on Motion for Summary Judgment)
(Docket No. 36, Ex. 1). It then offered Homeward procedural
options to clarify its relationship to the named defendants. The
court did not address any of Homeward’s substantive arguments.
In a separate order issued the same day, the court ordered the
plaintiff to amend her complaint to clarify the parties she was
suing and relief she was seeking. Diogo-Carreau v. Am. Home
Mortg. et al., No. BRCV2008-01196, at *1 (Mass. Super. Ct. Oct.
14, 2014) (Order to Amend or Supplement Complaint) (Docket No.
40, Ex. 1). In short, the order speaks to a procedural issue,
the identity of the parties, and not to the merits of the case.
Consequently, collateral estoppel does not bar the defendants’
summary judgment motion in this Court.
7
II.
Summary Judgment Standard
Faced with a summary judgment motion, the Court must assess
all facts in the record, and all reasonable inferences drawn
from the facts, in favor of the non-moving party. Perry v. Roy,
782 F.3d 73, 77 (1st Cir. 2015). A summary judgment motion
succeeds “only where ‘there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter
of law.’” Showtime Entm't, LLC v. Town of Mendon, 769 F.3d 61,
69 (1st Cir. 2014) (quoting Fed. R. Civ. P. 56(a)). Genuine
disputes arise when the evidence would allow “a reasonable jury
[to] return a verdict for the nonmoving party.” Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “A genuine issue
of material fact must be built on a solid foundation—a
foundation constructed from materials of evidentiary quality.”
Perry, 782 F.3d at 78 (internal quotation marks omitted).
A. Effect of the “Free and Clear” Sale
The defendants argue the bankruptcy court order approving
the sale of the old mortgage company’s assets “free and clear”
to Homeward forecloses the plaintiff’s lawsuit and immunizes
them from any claim based on the pre-bankruptcy actions of the
old mortgage company. The plaintiff responds that the old
mortgage company’s bankruptcy case had no effect on her ability
to sue the current defendants because she never received any
8
notice of the bankruptcy proceedings, other than general
knowledge from the news media.
Under the Bankruptcy Code, the bankruptcy trustee may sell
property “free and clear of any interest in such property of an
entity other than the estate.” 11 U.S.C. § 363(f). These sales
allow buyers to purchase the assets of the bankrupt estate
unencumbered by any outside interest. See id. The policy behind
“free and clear” sales is to induce “a higher sale price for the
assets, thereby maximizing the value of the estate and
maximizing potential recovery to creditors.” In re Grumman Olson
Indus., Inc., 467 B.R. 694, 703 (S.D.N.Y. 2012).
“The Bankruptcy Code broadly defines ‘creditors’ to include
all those who hold pre-petition ‘claims’ against the debtor.” In
re Arch Wireless, Inc., 534 F.3d 76, 80 (1st Cir. 2008) (quoting
11 U.S.C. § 101(10)(A)). “A ‘claim’ is broadly defined to
include a ‘right to payment, whether or not such right is
reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal,
equitable, secured, or unsecured.’” Id. (quoting 11 U.S.C. §
101(5)(A)).
In order for a “free and clear” sale to extinguish prior
claims, the claimant must receive notice of the sale. See 11
U.S.C. § 363(b)(1) (“The trustee, after notice and a hearing,
may use, sell, or lease . . . property of the estate.”); In re
9
Savage Indus., Inc., 43 F.3d 714, 721 (1st Cir. 1994) (observing
that the claim “could not be extinguished absent a showing” that
the claimant “was afforded appropriate notice in the particular
circumstances”). For notice purposes, bankruptcy law
distinguishes between “known creditors” and “unknown creditors.”
Arch Wireless, 534 F.3d at 80. “An ‘unknown creditor’ is one
whose ‘interests are either conjectural or future or, although
they could be discovered upon investigation, do not in due
course of business come to knowledge [of the debtor].’” Id.
(quoting Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S.
306, 317 (1950)) (alteration in original)). “A ‘known creditor,’
by contrast, is one whose claims and identity are actually known
or ‘reasonably ascertainable’ by the debtor.” Id. at 81 (quoting
Tulsa Prof'l Collection Servs., Inc. v. Pope, 485 U.S. 478, 490
(1988)). “A creditor is reasonably ascertainable if its claim
can be discovered through reasonably diligent efforts.” Id.
(internal quotation marks omitted). If a person communicates to
a debtor a claim that “could reasonably be understood to assert
an entitlement to affirmative compensation,” that entity’s
status as a “creditor” becomes “reasonably ascertainable.” Id.
at 82.
Publication notice is adequate for “unknown creditors,”
whereas “known creditors” are “entitled to receive direct notice
of each stage in the reorganization proceedings.” Id. at 80; see
10
generally Collier on Bankruptcy ¶ 363.02 (Alan N. Resnick & Henry
J. Sommer eds., 16th ed. 2016) (“Publication notice will not
bind a known creditor who did not receive direct notice.”).
Although the bankruptcy statute does not define the exact notice
required for “known creditors,” at the very least, a “known
creditor” is “entitled to more than mere publication notice.”
Arch Wireless, 534 F.3d at 81. Here, of course, the debtor knew
the plaintiff’s home address as her mortgage provider. Although
the plaintiff admits to general knowledge of the bankruptcy from
the news media, “the fact that the creditor may . . . be
generally aware of the pending reorganization, does not of
itself impose upon him an affirmative burden to intervene in
that matter and present his claim . . . . [T]he creditor has a
right to assume that proper and adequate notice will be provided
before his claims are forever barred.” Id. at 83 (alterations in
original).
In February 2007, the old mortgage company unilaterally
increased the plaintiff’s mortgage payments after it removed
money from the plaintiff’s escrow account to pay for additional
insurance coverage. The plaintiff testified that she called the
old mortgage company to complain about the improper removal of
funds from the escrow account and explained that the insurance
increase in February 2007 was in error. The first old mortgage
company employee she spoke to told her to contact the insurance
11
company to have the insurance policy documents sent to the
mortgage company. The plaintiff complied and confirmed that the
old mortgage company received the documents. The plaintiff next
spoke twice to an employee in the “adjustment department” and
explained that she had been overcharged in her mortgage payment.
Docket No. 27, Ex. 1 at 11. After reviewing her file, the
employee told her that the insurance issue was fixed and she
could make her regular mortgage payment for March 2007, which
she did.
At some point the plaintiff stopped paying her mortgage
each month, but later, she sent the old mortgage company a check
for $5,500, which covered April through August 2007. However,
this check was not applied to her mortgage balance and is not
accounted for in the record. The defendants offer no explanation
for what happened to this money, and have not provided any
evidence concerning their argument that the plaintiff was an
“unknown creditor” or that the old mortgage company lacked
knowledge of the plaintiff’s claim prior to the “free and clear”
sale. On October 11, 2007, the old mortgage company sent the
plaintiff a notice of foreclosure and, on October 30, 2007, the
“free and clear” sale was approved.
At the time of this “free and clear” sale, this dispute
over the insurance payments and the disposition of the $5,500
had not been resolved. Because of this unchallenged evidence
12
that the old mortgage company knew, or reasonably should have
known, that the plaintiff had a claim against them beginning in
February 2007, well before the “free and clear” sale, the Court
denies the defendants’ motion for summary judgment that they are
immunized from suit based on the pre-bankruptcy actions of the
old mortgage company.
B. Count I: Wrongful Foreclosure
The defendants argue that the plaintiff is barred from
claiming wrongful foreclosure due to any alleged errors the old
mortgage company committed in 2007 because, since 2007, the
plaintiff has not made a mortgage payment and is now “hopelessly
in default” on the terms of her mortgage. Docket No. 25 at 11.
The defendants seek to proceed pursuant to the statutory power
of sale under M.G.L. ch. 183, § 21 and M.G.L. ch. 244, §§ 11-17C
to effect a non-judicial foreclosure. The plaintiff responds
that, when the old mortgage company initiated foreclosure
proceedings, she was not in default of any terms of the mortgage
because she never allowed her home insurance to lapse and the
old mortgage company refused to properly credit her account with
her last mortgage payment.
A mortgage holder can foreclose on a property by the
exercise of the statutory power of sale “if such a power is
granted by the mortgage itself.” U.S. Bank Nat’l Ass’n v.
Ibanez, 941 N.E.2d 40, 49 (Mass. 2011). Where there is a dispute
13
as to whether the mortgagor was in default, “the foreclosure
goes forward unless the mortgagor files an action and obtains a
court order enjoining the foreclosure.” Id. “Recognizing the
substantial power that the statutory scheme affords to a
mortgage holder to foreclose without immediate judicial
oversight,” the Supreme Judicial Court adheres to “the familiar
rule that ‘one who sells under a power [of sale] must follow
strictly its terms.’” Id. at 49-50 (quoting Moore v. Dick, 72
N.E. 967 (Mass. 1905)) (alterations in original). “If he fails
to do so there is no valid execution of the power, and the sale
is wholly void.” Id. at 50.
The mortgage contract authorizes the mortgage holder to
place insurance on the Property if the plaintiff’s existing
insurance lapses. The plaintiff claims that her insurance
coverage never lapsed and that the old mortgage company
acknowledged its error in placing additional coverage on the
Property. The defendants point to the fact that the plaintiff’s
April 2007 to April 2008 policy bears a “process date” of April
4, 2007 and suggest that the Property was uncovered during those
four days. On the same document, however, it states that the
policy extended from April 1, 2007 to April 1, 2008, counter to
the defendants’ argument. Even if the insurance was set to lapse
on April 1, 2007, it is unclear why a prospective four-day lapse
in April 2007 would have authorized the old mortgage company to
14
purchase insurance and increase the plaintiff’s monthly payment
two months earlier in February 2007.
Additionally, in her affidavit, the plaintiff claimed that
it was the old mortgage company who actually paid the home
insurance company by removing money from the escrow account. The
status of the plaintiff’s insurance coverage during this alleged
period of lapse is a disputed fact that precludes summary
judgment.
Likewise the old mortgage company breached the terms of the
mortgage if, in the summer of 2007, it improperly refused to
credit the plaintiff’s payments to her mortgage balance. The
plaintiff testified that she paid $5,500 to the old mortgage
company in July 2007, but this sum was not credited to her
account. The defendants have provided no evidence to contest the
plaintiff’s claims, nor do they explain what happened to the
$5,500. There exists a genuine dispute about whether the old
mortgage company breached the terms of the mortgage when it
sought to foreclose, which precludes summary judgment on this
count.
C. Count II: Chapter 93A
The defendants argue that the plaintiff failed to send them
a written demand letter outlining her Chapter 93A claims, a
jurisdictional requirement, and therefore, her claim fails as a
matter of law. The plaintiff does not oppose this portion of the
15
defendants’ motion for summary judgment. Although, in her
verified and amended complaints and in her supplemental brief to
this Court, the plaintiff alleged that she sent a demand letter,
she has failed to produce this letter for the record. Because
the plaintiff did not oppose the motion for summary judgment on
this claim, summary judgment on Count II is allowed.
D. Count III: Slander of Title
The defendants argue that the plaintiff’s slander of title
claim is preempted by the Fair Credit Reporting Act, which
preempts state-law slander remedies for negligent credit
reporting. In her opposition, the plaintiff fails to respond to
this argument. Accordingly, summary judgment for Count III is
allowed without opposition.
ORDER
The Court ALLOWS in part the defendants’ motion for summary
judgment (Docket No. 24) with respect to Counts II and III and
DENIES in part with respect to Count I.
/s/ PATTI B. SARIS
Patti B. Saris
Chief United States District Judge
16
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?