Worrall, III et al v. Federal National Mortgage Association et al

Filing 25

///ORDER granting FNMA and Nationstar's 22 Motion to Dismiss for Failure to State a Claim; Counts I - VI are dismissed. So Ordered by Judge Joseph A. DiClerico, Jr.(dae)

UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF NEW HAMPSHIRE
J. Kirk Worrall, III,
and Cecile Worrall
v.

Civil No. 13-cv-330-JD
Opinion No. 2013 DNH 158

Federal National Mortgage
Association and Nationstar
Mortgage, LLC
O R D E R
J. Kirk Worrall, III, and Cecile Worrall brought a petition
in state court to enjoin the foreclosure sale of their home by
Federal National Mortgage Association (“FNMA”) and Nationstar
Mortgage, LLC.

The state court enjoined the foreclosure

proceeding, and the defendants removed the case to this court.
After FNMA and Nationstar moved to dismiss the claims
against them, the Worralls moved to amend their complaint, adding
two law firms as defendants and alleging new claims.1
was granted, and the amended complaint was filed.

The motion

FNMA and

Nationstar have moved to dismiss the claims against them in the
amended complaint.

1

In addition, the Federal Housing Finance Agency (“FHFA”)
moved to intervene in the action in its role as conservator for
FNMA, and the motion was granted. FHFA moved to dismiss the
Fifth Amendment claim against FNMA, Count II. In response, the
Worralls filed a stipulation of dismissal of Count II.

Standard of Review
Federal Rule of Civil Procedure 12(b)(6) allows a defendant
to move to dismiss on the ground that the plaintiff’s complaint
fails to state a claim on which relief can be granted.

In

assessing a complaint for purposes of a motion to dismiss, the
court “separate[s] the factual allegations from the conclusory
statements in order to analyze whether the former, if taken as
true, set forth a plausible, not merely conceivable, case for
relief.”

Juarez v. Select Portfolio Servicing, Inc., 708 F.3d

269, 276 (1st Cir. 2013) (internal quotation marks omitted).

“If

the facts alleged in [the complaint] allow the court to draw the
reasonable inference that the defendants are liable for the
misconduct alleged, the claim has facial plausibility.”

Id.

(internal quotation marks omitted).
With their motion to dismiss, the defendants submitted a
copy of the Worralls’ mortgage document and a copy of the
bankruptcy court’s discharge order to the Worralls.

When the

moving party presents matters outside the pleadings to support a
motion to dismiss, the court must either exclude those matters or
convert the motion to one for summary judgment.
12(d).

Fed. R. Civ. P.

An exception to Rule 12(d) exists “for documents the

authenticity of which [is] not disputed by the parties; for
official public records; for documents central to the plaintiffs’
2

claim; or for documents sufficiently referred to in the
complaint.”

Rivera v. Centro Medico de Turabo, Inc., 575 F.3d

10, 15 (1st Cir. 2009) (internal quotation marks omitted).

In

addition, the court may consider documents that are susceptible
to judicial notice.

Jorge v. Rumsfeld, 404 F.3d 556, 559 (1st

Cir. 2005).
With their amended complaint, the Worralls submitted a copy
of the first page of their mortgage document and an unofficial
copy of the “Assignment of Mortgage” of their mortgage to FNMA.
The Worralls submitted the bankruptcy petition and schedules and
their bankruptcy discharge with their objection to the motion to
dismiss.

The mortgage document is central to the claims against

FNMA and Nationstar.

The bankruptcy court’s discharge order is a

public record that also may be considered without converting the
motion to one for summary judgment.

See Barany-Snyder v. Weiner,

539 F.3d 327, 332 (6th Cir. 2008); Payne v. Central Defense
Servs., LLC, 2013 WL 3974575, at *4 (W.D. Tenn. Aug. 2, 2013);
Farahzad v. Lawyers Title Ins. Co., 2012 WL 4344325, at *2
(E.D.N.Y. Sept. 21, 2012).

Therefore, the additional documents

submitted by the parties may be considered without converting the
motion to one for summary judgment.

3

Background2
The Worralls bought property at 99 Greenhill Road in
Barrington, New Hampshire, with a mortgage and a promissory note
dated June 1, 2007.

The promissory note is payable to First

Magnus Financial Corporation.

The mortgage states that Mortgage

Electronic Registration Systems, Inc. (“MERS”) is the mortgagee
as nominee for the lender, First Magnus.
In August of 2007, after the Worralls closed on the loan,
the New Hampshire Banking Department suspended First Magnus’s
license to operate as a mortgage banker.

First Magnus filed for

bankruptcy protection on August 21, 2007, and its assets were
transferred to a liquidating trust by May of 2008.

The Worralls

do not know whether First Magnus funded their loan.
Initially, Countrywide Home Loan Servicing held the
servicing rights on the Worralls’ loan.

When Countrywide merged

with Bank of America, Bank of America assumed the servicing
rights on the loan.

Bank of America continued to service the

loan until May of 2013 when it transferred the servicing rights
to Nationstar.

2

The background information is taken from the factual
allegations in the amended complaint and the documents submitted
with the amended complaint, with the motion to dismiss, and with
the objection.
4

On December 12, 2011, MERS assigned the Worralls’ mortgage
to FNMA.

That transfer was recorded with the Strafford County

Registry of Deeds.

Then, on February 3, 2012, MERS attempted to

transfer the mortgage to Bank of America, and that transaction is
also recorded with the Strafford County Registry of Deeds.
The Worralls filed for bankruptcy protection under Chapter 7
on September 10, 2010.

The bankruptcy court issued a discharge

order to the Worralls on December 15, 2010, which discharged them
from debts including their liability under the mortgage note.
The bankruptcy case was closed on January 5, 2011.

Despite the

discharge, the Worralls represent that they continued to make
mortgage payments to Bank of America.
The Worralls allege that they never fell behind on their
mortgage payments.

They contend that in July of 2011, Bank of

America refused their mortgage payments without explanation.
They also allege that they worked with Bank of America through
2011 and 2012 to obtain a loan modification without success.

The

Worralls contend that Bank of America “dual-tracked” them,
meaning that the bank considered them for “loss mitigation”
while, at the same time, pursuing foreclosure.
When the servicing rights were transferred to Nationstar in
May of 2013, the Worralls again applied for a loan modification.
The Worralls contend that Nationstar “dual-tracked” them by
5

proceeding to foreclosure after the Worralls had filed their
application for loan modification.

Nationstar retained a law

firm to begin foreclosure proceedings on behalf of FNMA.
The foreclosure sale was scheduled for July 8, 2013.

The

Worralls obtained an order in state court on July 8, enjoining
foreclosure until further notice.

The defendants then removed

the case to this court.

Discussion
In their amended complaint, the Worralls bring four claims
of wrongful foreclosure against FNMA, one claim of wrongful
foreclosure against FNMA and Nationstar, and one claim of
promissory estoppel against FNMA.3

FNMA and Nationstar move to

dismiss the claims against them on the grounds that the Worralls
cannot maintain an action for wrongful foreclosure because the
foreclosure sale did not occur, that FNMA has standing and
authority to foreclose, that the wrongful foreclosure claim based
on “dual tracking” is not actionable, that the breach of contract
claim must be dismissed because the Worralls’ discharge in
bankruptcy eliminated their liability on the mortgage and the

3

The Worralls also bring two claims against the law firm
defendants.
6

note, and that the Worralls did not allege facts to support their
promissory estoppel claim.

A.

Wrongful Foreclosure
The Worralls assert claims of wrongful foreclosure under

five different theories.

Based on the record before the court,

no foreclosure sale has occurred nor is a sale scheduled.4
In Count I, the Worralls allege that FNMA is not entitled to
foreclose “because it is questionable as to whether FNMA holds
the Mortgage.”

In Count II, the Worralls allege that FNMA is not

entitled to foreclose because “FNMA has not shown that it holds
the original Note.”

Count III is based on the theory that

“[b]ecause the Note and Mortgage were bifurcated,” that is, were
held by different entities from the time the loan was originated,
FNMA lacks “the power and authority to foreclose.”

In Count IV,

the Worralls allege that FNMA is not entitled to foreclose
because FNMA and Nationstar “dual tracked the Petitioners by
considering them for loss mitigation opportunities, while at the
same time referring the Petitioners to foreclosure.”

Count V is

titled “Wrongful Foreclosure - Breach of Contract” and asserts

4

The state court granted the Worralls’ ex parte petition for
a temporary injunction against the foreclosure on July 8, 2013,
which has likely expired. See N.H. Super. Ct. R. 161(a).
7

that the Worralls did not default on their mortgage because Bank
of America stopped accepting their payments.
The New Hampshire Supreme Court has recognized a claim for
wrongful foreclosure, brought after the foreclosure sale, where
the foreclosing mortgagee did not exercise due diligence in
conducting the mortgage sale and, as a result, did not get a fair
price for the property.

Murphy v. Fin. Dev. Corp., 126 N.H. 536,

541-45 (1985); see also DeLellis v. Burke, 134 N.H. 607, 612-13
(1991).

In New Hampshire, no wrongful foreclosure action has

been addressed under the theories the Worralls raise and before a
foreclosure sale occurred.

The Worralls cite no New Hampshire

case, or any case, that recognizes a claim for wrongful attempted
foreclosure.5

See, e.g., Holmes v. Wells Fargo Bank, N.A., 2013

WL 1641382, at *2 (D. Or. Apr. 16, 2013).

Therefore, a necessary

element of a wrongful foreclosure claim, as the claim suggests,
is that a foreclosure sale must have occurred.
5

Under Massachusetts law, as in New Hampshire, a wrongful
foreclosure claim may arise from circumstances in which the
mortgagee did not conduct the foreclosure sale in accord with the
statutory requirements, but the claim does not lie if the sale
was immediately rescinded. Shaw v. BAC Home Loans Servicing, LP,
2013 WL 789195, at *3 (D. Mass. Mar. 1, 2013). The First Circuit
has interpreted Rhode Island law not to allow a “freewheeling
‘wrongful foreclosure’ claim” on a theory that “the secured
creditor exercised its right based in part on a clandestine
purpose unrelated to the default.” Ed Peters Jewelry Co., Inc.
v. C & J Jewelry Co., Inc., 124 F.3d 252, 262 (1st Cir. 1997).
8

In this case, although the foreclosure sale of the Worralls’
property was scheduled and notice was sent, the sale was enjoined
by the state court.

No foreclosure sale has occurred.6

The Worralls argue, however, that they have a cause of
action for wrongful foreclosure because FNMA exercised “the power
of sale” when it sent notice of the foreclosure sale.

The

Worralls cite no authority that persuasively supports their
theory that scheduling and providing notice of a foreclosure sale
gives rise to a wrongful foreclosure action under New Hampshire
law.7
Therefore, because no foreclosure sale has occurred, the
Worralls have failed to state a claim for wrongful foreclosure.

B.

Theories Underlying Wrongful Foreclosure Claims
In addition, even if the wrongful foreclosure claims are

considered on the merits of their underlying theories, ignoring

6

Oddly, in their amended complaint which was filed on
September 27, 2013, the Worralls ask the court to grant a
temporary injunction “to enjoin FNMA and/or Nationstar from
proceeding with the foreclosure currently scheduled for July 8,
2013 at 10:30 a.m.”
7

It appears that the Worralls’ “power of sale” theory may be
based on a misinterpretation of RSA 479:25,II.
9

the lack of a foreclosure sale, the Worralls have failed to state
viable claims.8

1.

Counts I, II, and III - Authority to Foreclose

The Worralls allege that FNMA lacks authority to foreclose
on their property because it is questionable whether FNMA holds
both the note and the mortgage, because FNMA has not shown that
it holds the original note, and because the note and mortgage
were bifurcated when the loan originated.

FNMA moves to dismiss

on the grounds that none of the theories state a cause of action.
The Worralls assert in their objection that MERS’s
assignment of the mortgage to FNMA may not have been valid
because as “nominee” for the lender, MERS lacked authority to
make a valid assignment.9

The mortgage document, however,

granted the mortgage to MERS, as nominee, “and to the successors
and assigns of MERS with mortgage covenants and with power of
sale.”

Doc. 22-2, at 3.

The Worralls have not argued that MERS

8

Because the Worralls are represented by counsel, they are
not entitled to the leniency that might be afforded to pro se
parties.
9

To the extent the Worralls allege that the assignment was
not valid because MERS’s later attempted to assign the mortgage
to Bank of America, that theory was not pursued in the objection.
Further, a later attempted assignment would not necessarily
invalidate the first assignment.
10

lacked authority to assign the mortgage under the power to
transfer granted by the mortgage document.

See Woods v. Wells

Fargo Bank, N.A., --- F.3d ---, 2013 WL 5543637, at *4-*5 (1st
Cir. Oct. 9, 2013) (discussing MERS function and assignment
authority); Carmack v. Bank of N.Y. Mellon, --- Fed. Appx. ---,
2013 WL 4529871, at *5-*6 (6th Cir. Aug. 27, 2013).
In Count II, the Worralls assert that FNMA has not shown
that it holds the original note.

In Count III, the Worralls

challenge FNMA’s authority to foreclose on the theory that
“bifurcation” of the note and mortgage documents precludes the
right to foreclose.

The bifurcation theory was considered and

rejected in Galvin v. EMC Mortg. Corp., 2013 WL 1386614, at *5-*8
(D.N.H. Apr. 4, 2013).

The Worralls rely on New Hampshire

Superior Court decisions, attempt to distinguish Galvin in a
footnote on the grounds that it is an unpublished decision (as
are the Superior Court decisions cited by the Worralls), and
assert that this court must follow the decisions of the New
Hampshire Supreme Court on state law.

The Worralls do not cite a

contrary decision of the New Hampshire Supreme Court.
In Galvin, the court noted that a series of New Hampshire
Superior Court decisions have “lent credence” to the bifurcation
theory.

2013 WL 1386614, at *7.

While New Hampshire law

recognizes the common law principle that the mortgage and note
11

must be transferred together, the parties’ intent can overcome
that principle.

Id. at *8 (quoting Dow v. Bank of N.Y. Mellon

Tr. Co., No. 218-2011-CV-1297, slip op. at 14-16 (N.H. Super. Ct.
Feb. 7, 2012)).

In Galvin as here, the note and the mortgage

were held by separate entities from the inception of the loan and
mortgage.

Id.

Therefore, the holder of the mortgage can

foreclose without also holding the note.

Id.

Based on the erroneous assumption that FNMA must hold both
the note and the mortgage to foreclose, the Worralls argue that
FNMA must be required to show that it has possession of the
original note.

If the note were at issue, the Worralls would

have the burden of proving that FNMA does not have the note or
that the note is invalid.

Moore v. Mortg. Elec. Regis. Sys.,

Inc., 2013 WL 1773647, at *8-*9 (D.N.H. Apr. 25, 2013).

The

Worralls’ speculation is insufficient to cast doubt on FNMA’s
authority to enforce the note.

See id. at *9.

Further, FNMA is

not required to hold both the note and the mortgage to have
standing to foreclose.

2.

Count IV - Dual Tracking

The Worralls allege that Bank of America is subject to a
consent judgment that prohibits “dual tracking,” meaning
simultaneously considering mortgage mitigation while scheduling
12

foreclosure.

The Worralls further allege that FNMA, through Bank

of America, and Nationstar dual tracked them.

In their objection

to the motion to dismiss, the Worralls contend that FNMA and
Nationstar are judicially estopped from taking positions here
that are contrary to positions taken in a prior case involving
Bank of America that resulted in a consent judgment.
“Judicial estoppel is used to prevent a litigant from
pressing a claim that is inconsistent with a position taken by
that litigant either in a prior legal proceeding or in an earlier
phase of the same legal proceeding.”

Rockwood v. SKF USA Inc.,

687 F.3d 1, 11 (1st Cir. 2012) (internal quotation marks
omitted).

For judicial estoppel to apply, “the estopping

position and the estopped position must be directly inconsistent,
that is, mutually exclusive,” and “the responsible party must
have succeeded in persuading a court to accept its prior
position.”

Id. (internal quotation marks omitted).

The Worralls allege that Bank of America “is subject to a
consent judgment prohibiting it from ‘dual tracking’ homeowners
for foreclosure while at the same time considering them for loss
mitigation.”10

Am. Compl. ¶ 50.

The Worralls did not provide a

10

The Worralls also state: “Upon information and belief, in
or around October 2012, BOA consented to a judgment, or otherwise
agreed to a settlement, making dual tracking unlawful.” Am.
Compl. ¶ 24.
13

copy of a consent judgment, a citation to the case where the
judgment was entered, or even allegations as to the specific
provisions of the judgment.11
party in this case.

Further, Bank of America is not a

The Worralls state that Bank of America

pursued loan modification negotiations with them, Bank of America
assigned its loan servicing rights to Nationstar, and now
Nationstar and FNMA “take the opposite position, unfairly, to
remove themselves from this action and foreclose.”

Based on that

reasoning, the Worralls assert that Nationstar and FNMA are
judicially estopped from not honoring Bank of America’s consent
judgment.
The Worralls did not sufficiently allege facts to support
the judicial estoppel theory.

They did not allege what positions

were taken in the prior litigation or how those positions
conflict with positions taken here.

They also do not allege a

basis to apply judicial estoppel to FNMA and Nationstar based on
Bank of America’s consent judgment.
Further, to the extent the Worralls are relying on the
consent judgment discussed in Ripa v. Fed. Nat. Mortg. Ass’n,

11

They may be referring to a consent judgment between the
United States, all fifty states, and several banks, including
Bank of America. See Ripa v. Fed. Nat. Mortg. Ass’n, 2013 WL
5705426, at *5 (D. Ariz. Oct. 21, 2013); see also Sanguinetti v.
CitiMortgage, 2013 WL 4838765, at *2 (N.D. Cal. Sept. 11, 2013).
14

2013 WL 5705426, at *5 (D. Ariz. Oct. 21, 2013), which they have
not alleged or argued in their objection, “enforcement of the
Consent Judgment is expressly limited to the parties.”
*2.

Id. at

In addition, promises made in the consent judgment pertain

only to the parties.

Id.

The Worralls have not stated a claim of wrongful foreclosure
due to “dual tracking” based on judicial estoppel.

Further,

because lenders cannot be required to modify or restructure
loans, the “dual tracking” theory will not support a claim of
breach of the covenant of good faith and fair dealing.

See,

e.g., Schaefer v. IndyMac Mortg. Servs., 2012 WL 4929094, at *6
(D.N.H. Oct. 16, 2012) (aff’d 731 F.3d 88 (1st Cir. 2013));
Moore, 848 F. Supp. 2d at 129-30.
Therefore, Count IV must be dismissed.

3.

Count V - Breach of Contract

The Worralls allege that FNMA breached the mortgage
agreement by refusing their mortgage payments when the mortgage
agreement only allows foreclosure in the event of default.

The

defendants contend that the claim must be dismissed because they
did not breach the mortgage agreement.

Instead, by pursuing

bankruptcy and being discharged from all debts, including their

15

mortgage obligations, the Worralls defaulted.

The defendants

further assert that they are allowed to foreclose.
Following a discharge in bankruptcy, an automatic injunction
precludes collection of discharged debts.
F.3d 64, 69 (1st Cir. 2013).

In re Canning, 706

Despite the broad scope of the

discharge injunction, a secured creditor is not barred from
“recovering on valid prepetition liens, which, unless modified or
avoided, ride through bankruptcy unaffected and are enforceable
in accordance with state law.”

Id.

The Worralls admit that they did not reaffirm the secured
debt on their property or make other arrangements with the
defendants to avoid foreclosure.

Under the discharge injunction,

the defendants could not collect for the debt that had been
discharged.

Therefore, the defendants properly rejected the

Worralls’ payments, and the Worralls have not alleged a claim for
breach of contract.

B.

Promissory Estoppel - Count VI
New Hampshire recognizes a cause of action for promissory

estoppel.

See Marbucco Corp. v. City of Manchester, 137 N.H.

629, 633 (1992); Great Lakes Aircraft Co. v. City of Claremont,
135 N.H. 270, 290 (1992); Panto v. Moore Bus. Forms, Inc., 130
N.H. 730, 738 (1988); see also Jackson v. Morse, 152 N.H. 48, 52
16

(2005).

“Promissory estoppel . . . provides a basis for recovery

when no contract exists; if a promisor should reasonably expect a
promisee to rely on a promise, and the promisee in fact does so,
courts may enforce the promise to avoid injustice.”

In re

Moultonborough Hotel Group, LLC, 726 F.3d 1, 7 (1st Cir. 2013).
In support of their promissory estoppel claim, the Worralls
allege that Bank of America made promises to them on behalf of
FNMA that “they could engage in loss mitigation to avoid
foreclosure.”

They further allege that Bank of America

instructed them to hire Default Solutions, which they did.

They

assert that although they complied with Default Solutions’
requirements, they were referred to foreclosure.
FNMA moves to dismiss the claim on the grounds that the
Worralls do not allege that Bank of America promised that FNMA
would not foreclose.

Bank of America’s alleged statement that

the Worralls could engage in loss mitigation to avoid
foreclosure, if it were construed to be a promise, did not
promise that the Worralls’ efforts toward loss mitigation would
be successful in avoiding foreclosure.

Therefore, no promise was

broken, and the Worralls could not reasonably expect FNMA not to
foreclose based on Bank of America’s alleged promise.

17

Conclusion
For the foregoing reason, the motion to dismiss filed by
FNMA and Nationstar (document no. 22) is granted.

Counts I

through VI are dismissed.

SO ORDERED.

____________________________
Joseph A. DiClerico, Jr.
United States District Judge
November 20, 2013
cc:

Howard N. Cayne, Esquire
Mark Sutherland Derby, Esquire
Christopher J. Fischer, Esquire
Stephen T. Martin, Esquire
David W. Rayment, Esquire
Asim Varma, Esquire

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