189 F. Supp. 3d 193
D. Mass.2016Background
- Dr. Nadeem Afridi owns an investment property secured by a mortgage now serviced by Residential Credit Solutions, Inc. (RCS); the mortgage is held by Bank of New York Mellon.
- Afridi fell behind after a job loss, applied for a HAMP loan modification in 2015, and alleges RCS handled the application perfunctorily, initially deeming it incomplete and later denying it for alleged investor restrictions and HAMP opt-out reasons.
- RCS scheduled a foreclosure sale while the modification was pending, asked Afridi to cross-collateralize his primary residence in exchange for a modification, and later denied his application and gave a conclusory response to his Notice of Error.
- Afridi sued alleging (1) breach of duty of good faith and reasonable diligence, (2) negligence, and later sought to add (3) a RESPA claim and (4) a declaratory judgment that RCS lacked standing to foreclose.
- The court considered RCS’s Rule 12(c) motion for judgment on the pleadings and Afridi’s motions to amend; it allowed amendments to add RESPA and the standing claim but dismissed the good-faith and negligence counts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether proceeding with foreclosure while a modification was pending breaches the duty of good faith and reasonable diligence | Afridi: RCS breached the duty by denying the application as incomplete, not postponing sale, requesting cross-collateralization, and otherwise abusing the modification process | RCS: No contractual duty to delay foreclosure for a pending modification; implied covenant cannot create new contractual obligations | Court: Dismissed Count I — no contractual term imposed duty to delay; allegations did not show trickery or bad-faith abuse sufficient to create liability |
| Whether RCS owed an independent duty of care for negligence based on alleged HAMP violations | Afridi: RCS was negligent in failing to follow HAMP guidelines and suspending foreclosure review, causing economic harm | RCS: No independent duty arises from the mortgage relationship; economic loss doctrine bars recovery for purely economic harms | Court: Dismissed Count II — no duty and alleged damages are purely economic and not recoverable |
| Whether the servicer’s response to Afridi’s Notice of Error violated RESPA (12 C.F.R. §1024.35) | Afridi: RCS provided an inadequate, conclusory response and failed to furnish required explanations and document-request procedures, causing actual damages | RCS: (Argued futility) but court evaluated sufficiency of pleaded damages | Court: Allowed RESPA claim (Count III) to proceed — Afridi adequately pleaded actual damages to avoid futility dismissal |
| Whether failure to properly record a power of attorney or related formalities defeats RCS’s standing to foreclose | Afridi: Failure to record required power of attorney and related defects make the foreclosure affidavit ineffective and RCS lacks standing | RCS: Argued novel claim and contended recording was adequate; movant argued futility | Court: Allowed declaratory-judgment claim (Count IV) — plaintiff’s allegations were plausible and the claim was not futile |
Key Cases Cited
- Aponte-Torres v. Univ. of P.R., 445 F.3d 50 (1st Cir. 2006) (standard for Rule 12(c) and pleading inferences)
- Mackenzie v. Flagstar Bank, FSB, 738 F.3d 486 (1st Cir. 2013) (implied covenant of good faith limited by the governing contract)
- U.S. Bank Nat’l Ass’n v. Ibanez, 458 Mass. 637 (Mass. 2011) (mortgagee’s duty of good faith and reasonable diligence prior to power-of-sale foreclosure)
- Primus v. Galgano, 329 F.3d 236 (1st Cir. 2003) (elements of negligence claim)
- Speleos v. BAC Home Loans Servicing, L.P., 755 F. Supp. 2d 304 (D. Mass. 2010) (limits on implied covenant creating extra-contractual duties)
- Nancy P. v. D’Amato, 401 Mass. 516 (Mass. 1988) (emotional distress damages require physical harm)