Fannon et al v. US Bank, National Association, Trustee
///ORDER granting in part and denying in part 14 Motion to Dismiss for Failure to State a Claim. The defendants motion to dismiss (doc. no. 14) is granted as to Counts II, III, and IV, but is denied as to Counts I and V. So Ordered by Judge Joseph A. DiClerico, Jr.(gla)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
William M. Fannon and
Catherine M. Fannon
Civil No. 16-cv-141-JD
Opinion No. 2016 DNH 170
U.S. Bank, N.A., as Trustee
of MASTR Asset Backed Securities
Trust 2006-NCI, Mortgage Pass-Through
Certificates, Series 2006-NCI
O R D E R
William and Catherine Fannon brought suit against U.S.
Bank, as Trustee of MASTR Asset Backed Securities Trust 2006NCI, Mortgage Pass-Through Certificates, Series 2006-NCI, after
the foreclosure sale of their home in April of this year.
challenge the validity of the foreclosure sale on the grounds
that U.S. Bank was not the holder of the note and that they
rescinded their mortgage loan under 15 U.S.C. § 1635 before the
They also allege claims of breach of the implied covenant
of good faith and fair dealing and wrongful foreclosure.
Bank moves to dismiss all claims, and the Fannons object.
Standard of Review
A motion to dismiss for failure to state a claim is
governed by Federal Rule of Civil Procedure 12(b)(6).
considering a motion under Rule 12(b)(6), the court assumes the
truth of the properly pleaded facts and takes all reasonable
inferences from those facts that support the plaintiff’s claims.
Mulero-Carrillo v. Roman-Hernandez, 790 F.3d 99, 104 (1st Cir.
Based on the properly pleaded facts, the court
determines whether the plaintiff has stated “a claim to relief
that is plausible on its face.”
Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007).
The Fannons bought the property at issue in this case,
located in New Ipswich, New Hampshire, from Catherine’s sister
In 2005, the Fannons refinanced their mortgage with
New Century Mortgage Corporation.
William signed a note for
$107,000 that was secured by a mortgage on the property signed
by both of the Fannons.
In 2006, Wells Fargo Bank, N.A. and its subsidiary, ASC,
succeeded New Century as servicers of the loan.
On February 1,
2006, Wells Fargo Bank, N.A. Master Servicer and Trust
Administrator and U.S. Bank N.A., Trustee were parties to a
pooling and servicing agreement (“PSA”) that the Fannons allege
created and set the terms for the MASTR Asset Backed Securities
New Century filed for bankruptcy in 2007.
Pursuant to the
bankruptcy plan, on January 24, 2008, New Century assigned the
Fannons’ note and mortgage to U.S. Bank N.A., as Trustee for
MASTR Asset Backed Securities Trust 2006-NCI.
The assignment is
signed by Anita Antonelli, vice president of loan documentation
at Wells Fargo, under a limited power of attorney.
21, 2011, the mortgage and note were again assigned by New
Century to U.S. Bank N.A., as Trustee for MASTR Asset Backed
Securities Trust 2006-NCI, mortgage Pass-Through Certificates,
Series 2006-NCI, with the assignment signed by Azza Zarroug,
vice president of loan documentation at Wells Fargo, as attorney
in fact for New Century.
By 2006, the Fannons were in default on their mortgage
After they had missed fourteen payments, the Fannons
entered a “Special Forbearance Agreement” that required five
payments from November of 2008 through March of 2009.
Fannons only made four of the five required payments.
and 2013, the Fannons entered into trial modification plans but
ASC, as servicer, found that the Fannons had not complied with
U.S. Bank began foreclosure proceedings on
April 16, 2015.
The Fannons retained counsel to assist them.
requests for another loan modification were denied.
sent U.S. Bank a notice on May 15, 2015, to rescind their loan.
U.S. Bank proceeded with foreclosure.
The Fannons filed a petition in Hillsborough County
Superior Court in November of 2015 to stop the foreclosure sale.
In the petition, the Fannons alleged claims that U.S. Bank
lacked authority to foreclose because it did not possess the
original “wet-ink” note, that the mortgage assignment to the
Trust was void, that U.S. Bank did not possess both the mortgage
and the note before giving notice of foreclosure, that “AOM
Missed Securitization Deadlines,” that the note and mortgage
were not conveyed to the Trust “via Requisite Chain of
Transfer,” that U.S. Bank failed to mitigate losses, and seeking
After U.S. Bank moved to dismiss, the Fannons
voluntarily dismissed all of their claims, and the case was
When the foreclosure sale was scheduled again, the Fannons
filed another petition to stop the sale in Hillsborough County
Superior Court on April 17, 2016.
U.S. Bank removed the case to
this court on April 13, 2016, and moved to dismiss the
The foreclosure sale was held on April 29, 2016.
U.S. Bank bought the property at the sale for $75,484.77.
The Fannons filed an amended complaint on May 20, 2016.
their amended complaint, the Fannons allege:
Count I – Lack of
Power and Authority to Foreclose—U.S. Bank Cannot Show That It
Is Agent of the Noteholder or That it is the Noteholder, Count
II – Lack of Power and Authority to Foreclose—The Mortgage
Assignments and Purported Note Negotiations are Void, Count III
– Breach of the Covenant of Good Faith and Fair Dealing, Count
IV – Rescission Pursuant to 15 U.S.C. § 1635 (Truth in Lending
Act “TILA”), Count V – Wrongful Foreclosure.
U.S. Bank moves to dismiss all five of the Fannons’ claims
on the grounds that they have not alleged sufficient facts to
state plausible claims for relief.
The Fannons object, arguing
that they have alleged enough to support their claims.
Bank filed a reply, and the Fannons filed a surreply.
Lack of Power to Foreclose – Note
In support of their claim that U.S. Bank did not hold the
note and, therefore, did not have the power to foreclose, the
Fannons allege in the complaint that an ASC representative told
Catherine Fannon in 2010 that the original note was shredded
shortly after the closing.
They also contend that the copies of
the note produced by U.S. Bank differ from the original note.
Specifically, the Fannons state that the copies do not include a
prepayment penalty that is in the mortgage note and that the
copies are signed by Steve Nagy, an alleged “robo signer.”
U.S. Bank asserts that the Fannons failed to allege
sufficient facts to show that it does not hold the original
Further, U.S. Bank represents that it does hold the
original note, that its counsel has informed counsel for the
Fannons that U.S. Bank holds the original note, and that it will
produce the note for the court’s inspection.1
U.S. Bank also
refutes the Fannons’ theories based on the prepayment penalty
rider in the mortgage and the “robo signer” issue.
In an effort to simplify the note issue, the court directed
counsel to agree to a process for U.S. Bank to show the note to
counsel for the Fannons.
Although the meeting and inspection
occurred, counsel for the Fannons continues to dispute the
authenticity of the note held by U.S. Bank.
authenticity of note cannot be resolved in the context of this
U.S. Bank does not rely on the holding in Bergeron v. N.Y.
Community Bank, 168 N.H. 63, 70-71 (2015), that an agent of the
noteholder may foreclose.
To the extent U.S. Bank represents that under New Hampshire
law it was not required to hold the note in order to foreclose,
it has not shown that to be the rule. Neither of the cases
cited by U.S. Bank support that position. See Fortin v. Ocwen
Loan Servicing, LLC, 2015 WL 5693115, at *5 (D.N.H. Sept. 28,
2015); Mason v. Wells Fargo Bank, N.A., 2014 WL 2737601, at *4
(D.N.H. June 17, 2014); see also Bergeron, 168 N.H. at 68
(assuming without deciding that the authority to foreclose
requires the note and holding that a mortgagee that is a
properly authorized agent of the noteholder has power to
Lack of Power and Authority to Foreclose – Mortgage
Assignments and Note Transfers Are Void
In their objection to the motion to dismiss, the Fannons
explain that their challenges to the assignments of the mortgage
and the transfers of the note in Count II are relevant only if
U.S. Bank claims that its authority to foreclose was based on an
agency relationship under Bergeron.
In other words, Count II is
not a separate claim but a response to an anticipated defense to
U.S. Bank does not rely on Bergeron.
Count II is
dismissed without prejudice to the Fannons to raise the same
issues if U.S. Bank were to claim the power to foreclose based
on an agency relationship under Bergeron.
Breach of the Covenant of Good Faith and Fair Dealing
In Count III, the Fannons allege that U.S. Bank, through
its servicing agent, violated the implied covenant of good faith
and fair dealing by failing to consider them for a loan
Under New Hampshire law, the implied covenant of
good faith and fair dealing limits the discretion of one party
“to deprive another party of a substantial proportion of the
133, 143 (1989).
Centronics Corp. v. Genicom Corp., 132 N.H.
The implied covenant, however, cannot be
invoked to require a lender to modify or restructure a loan.
Riggieri v. Caliber Home Loans, Inc., 2016 WL 4133513, at *6-*7
(D.N.H. Aug. 3, 2016) (citing cases).
Therefore, the Fannons have not stated a plausible claim
for relief in Count III.
Recission Pursuant to § 1635
The Fannons assert that they rescinded their mortgage and
loan pursuant to § 1635 of TILA by a notice sent on May 15,
Because U.S. Bank did not respond within twenty days, the
Fannons contend, U.S. Bank had no rights under the mortgage and
note to foreclose.
In support, the Fannons allege that the
“true lender” for the note was not known and was not disclosed
to them and, therefore, “the loan was never consummated.”
result, they reason, they were able to rescind the note and
mortgage eleven years after they signed both.
Under TILA, a borrower has the right to rescind the loan
transaction within three days after consummation of the loan or
delivery of the information and forms required for rescission.
The right to rescind, however, expires three years
after consummation of the loan or when the property is sold
whether or not all disclosures have been made within that time.
§ 1635(f); Jesinoski v. Countrywide Home Loans, Inc., 135 S. Ct.
790, 792 (2015).
Consummation of the loan, for purposes of §
1635(f), occurs when the borrower “becomes contractually
obligated on a credit transaction.”
12 C.F.R. § 226.2(a)(13)
The Official Staff Interpretation of
Regulation Z provides that state law governs when a contractual
obligation is created.
Grimes v. New Century Mortg. Corp., 340
F.3d 1007, 1009 (9th Cir. 2003); Murphy v. Empire of Am., FSA,
746 F.2d 931, 933-34 (2d Cir. 1984).
Relying on Jackson v. Grant, 890 F.2d 118, 121 (9th Cir.
1989), the Fannons argue that because New Century did not
actually provide the funds for their loan and the loan document
did not identify the actual lender, no meeting of the minds
occurred and the loan was never consummated.
however, the loan documents provided in February of 1983
identified only a “broker” or an “arranger of credit” and
specifically provided that the “broker” or “arranger of credit”
would not be the lender.
Under the terms of those
documents, the court found, no one had agreed to extend credit
to the borrower so that no loan was consummated at that time.
The loan was later consummated in April of 1983 when a
lender was identified and the loan closed, making that the
applicable date for the three-year period under § 1635(f).
Here, however, New Century was identified as the lender in the
note from the beginning, making Jackson inapplicable to this
The Fannons theory that the loan was not consummated has
been overwhelmingly rejected by other courts.
Schiano v. MBNA, 2016 WL 4257761, at *9-*10 (D.N.J. Aug. 10,
2016); Johnson v. Bank of N.Y. Mellon, 2016 WL 4211529, at *4
(W.D. Wash. Aug. 10, 2016); Wilder v. Ogden Ragland Mortg., 2016
WL 4440487, at *4-*5 (N.D. Tex. July 29, 2016)(“Plaintiff’s
claim that the three years period to rescind the loan remains
open, because Defendants failed to identify the true lender and
the loan was never consummated, is nonsensical.”); Almutarreb v.
Nationstar Mortg. Holdings, 2016 WL 3384067, at *5 (N.D. Cal.
June 20, 2016); Tyshkevich v. Wells Fargo Bank, N.A., 2016 WL
3077580, at *4 (E.D. Cal. May 31, 2016)3; Smith v. Wells Fargo
Bank, N.A., --- F. Supp. 3d ---, 2016 WL 370697, at *4 (D. Conn.
Jan. 29, 2016).
The result is no different under New Hampshire law.
valid enforceable contract requires offer, acceptance,
consideration, and a meeting of the minds.”
Rockefeller, 162 N.H. 324, 339 (2011).
A meeting of the minds
occurs when there is agreement on all essential terms of the
Syncom Indus., Inc. v. Wood, 155 N.H. 73, 82 (2007).
In this case, the note was an offer by New Century to loan
William Fannon $107,000, with interest, subject to certain
The Fannons cite an earlier order in Tyshkevich to support
their theory that the limitations period did not run because the
loan was not consummated. The subsequent decision makes clear
that the Fannons are mistaken.
conditions, which are not disputed.
William accepted the offer
on September 30, 2005, by signing the note.
There is no dispute
that the Fannons did receive the money, that the loan closed, or
that they made payments under the terms of the note.
Fannons make no argument to show that the identity of the source
of the money to fund the loan was essential to the contract.
Therefore, there was an offer, acceptance, consideration, and a
meeting of the minds so that the loan was consummated.
if, as the Fannons assert, the loan had never been consummated,
then TILA would not apply because there would be no loan to
See, e.g., Wilder, 2016 WL 4440487, at *4-*5;
Samuelson v. Wells Fargo Bank, N.A., 2016 WL 1222222, at *2
(N.D. Ind. Mar. 29, 2016).
The Fannons allege in Count V that U.S. Bank wrongfully
foreclosed on their property because it did not “obtain a fair
and reasonable price for the property being foreclosed.”
allege that the property was sold to U.S. Bank for $75,484.00
when it was worth $150,000 and that U.S. Bank claims that the
Fannons still owe approximately $200,000.
Under New Hampshire law, a mortgagee as the seller of
property has a duty of good faith and due diligence that
obligates the mortgagee to “exert every reasonable effort to
obtain a fair and reasonable price under the circumstances.”
Murphy v. Fin. Dev. Corp., 126 N.H. 536, 541 (1985) (internal
quotation marks omitted).
The duty of good faith and the duty
of due diligence are distinct, and claims of breach are
Id. at 541; see also People’s United
Bank v. Mt. Home Developers of Sunapee, 858 F. Supp. 2d 162, 169
U.S. Bank moves to dismiss on the ground that the Fannons
have not stated a claim because they did not allege that U.S.
Bank acted in bad faith and the due diligence duty is satisfied
by its compliance with RSA 479:25.
People’s, 858 F. Supp. 2d at 169.
U.S. Bank also relies on
In response, the Fannons
reiterate their allegations in the complaint that U.S. Bank
breached its duty of due diligence because the sale price was
half of the value of the property and much less than the amount
due on the note, that U.S. Bank was the only bidder because no
one else attended the auction, and that U.S. Bank should have
delayed the sale to get more bidders.
“[A] mortgagee executing a power of sale is bound both by
the statutory procedural requirements [of RSA 479:25] and by a
duty to protect the interests of the mortgagor through the
exercise of good faith and due diligence.”
540 (emphasis added).
Murphy, 126 N.H. at
Even when a mortgagee complies with the
requirements of RSA 479:25, those efforts may not be sufficient
to demonstrate due diligence.
858 F. Supp. 2d at 168.
Id. at 543; see also People’s,
Instead, due diligence may require
additional effort to obtain “a fair and reasonable price under
Murphy, 126 N.H. at 540 (internal quotation
In People’s, the court dismissed the claim based on breach
of the duty of good faith but did not dismiss the claim based on
a breach of the duty of due diligence.
858 F. Supp. 2d at 170.
The claim for breach of the duty of due diligence remained in
Contrary to U.S. Bank’s theory, People’s does not
support an argument that the Fannons failed to allege a claim of
breach of the due diligence duty.4
Therefore, U.S. Bank has not
shown that the Fannons failed to state a claim of wrongful
foreclosure based on the duty of due diligence.
In its reply, U.S. Bank charges that the Fannons waived any
argument that they were harmed by the foreclosure sale price
because they did not dispute U.S. Bank’s assertion that they had
no equity in the property. The Fannons alleged in the amended
complaint that they suffered a loss of their equity in the
property and that U.S. Bank claims to be owed approximately
$200,000. In addition, U.S. Bank’s theory about the Fannons’s
failure to assert a loss, based on Riggieri v. Caliber Home
Loans, Inc., 2016 WL 4133513 (D.N.H. Aug. 3, 2016), is difficult
to follow and unpersuasive.
For the foregoing reasons, the defendant’s motion to
dismiss (doc. no. 14) is granted as to Counts II, III, and IV,
but is denied as to Counts I and V.
Joseph DiClerico, Jr.
United States District Judge
September 20, 2016
Stephen T. Martin, Esq.
Michael R. Stanley, Esq.
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