MacKenzie v. Flagstar Bank, FSB
2013 U.S. App. LEXIS 25776
| 1st Cir. | 2013Background
- Lynne and James MacKenzie borrowed in 2007; Bankstreet issued the note and MERS was nominee on the mortgage; Flagstar later became assignee and servicer.
- The parties executed a 2009 loan modification (lower rate, extended term, capitalization of interest) that amended the 2007 mortgage; MacKenzies later applied for a HAMP modification in 2011.
- Flagstar both evaluated the MacKenzies for HAMP, determined eligibility and made a HAMP offer, and—concurrently—pursued foreclosure proceedings and filed a foreclosure notice via Harmon Law Offices.
- The MacKenzies filed state-court suit to enjoin foreclosure; Flagstar removed to federal court. MacKenzies amended to assert eleven state-law claims; they abandoned several on appeal.
- The district court dismissed the amended complaint; the First Circuit affirmed, rejecting claims for breach of implied covenant, MCCCDA disclosure/rescission, negligence, promissory estoppel, and declining to reach assignment defects as a viable theory for relief on appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether borrowers are third-party beneficiaries of the SPA/HAMP (and can enforce it) | MacKenzies: SPA/HAMP created enforceable rights for borrowers | Flagstar: SPAs do not manifest intent to confer enforceable rights on individual borrowers; borrowers are incidental beneficiaries | Borrowers are not third-party beneficiaries of the SPA; no private right to enforce HAMP via SPA |
| Whether Flagstar breached implied covenant of good faith by not modifying loan before foreclosure | MacKenzies: Flagstar acted in bad faith by pursuing foreclosure while considering HAMP, violating implied covenant | Flagstar: Mortgage (as amended) contains no duty to negotiate or modify; good-faith duty does not create new obligations beyond contract | Dismissed: implied covenant cannot be used to impose a pre-foreclosure modification duty absent an express contractual term |
| Whether 2009 modification was a "refinancing" under MCCCDA entitling borrowers to rescission | MacKenzies: 2009 Agreement changed lender and principal, so it was a refinancing subject to disclosure and rescission rights | Flagstar: Flagstar was assignee (not a new lender); 2009 Agreement merely adjusted rate/payment and capitalized interest—falls outside refinancing definition | Dismissed: 2009 Agreement not a refinancing under regulation; MCCCDA disclosure/rescission claims fail |
| Whether violations of HAMP/SPAs support negligence or promissory estoppel claims | MacKenzies: HAMP violations and Flagstar’s conduct induced reliance, creating tort/proprietary promises | Flagstar: No independent duty of care arises from lender-borrower relation or HAMP; alleged promises are conclusory or not causally detrimental | Dismissed: no independent duty for negligence based on HAMP; promissory estoppel inadequately pleaded and no showing of detrimental reliance |
Key Cases Cited
- Interface Kanner, LLC v. JPMorgan Chase Bank, N.A., 704 F.3d 927 (11th Cir.) (government contract beneficiaries are generally incidental absent clear intent to benefit specific class)
- Klamath Water Users Protective Ass'n v. Patterson, 204 F.3d 1206 (9th Cir.) (borrowers are generally incidental beneficiaries of government servicer agreements)
- Price v. Pierce, 823 F.2d 1114 (7th Cir.) (interpreting third-party beneficiary standing in government contracts)
- Young v. Wells Fargo Bank, N.A., 717 F.3d 224 (1st Cir.) (scope of implied covenant is limited to duties in the governing contract)
- Ayash v. Dana–Farber Cancer Inst., 822 N.E.2d 667 (Mass.) (the implied covenant of good faith derives from and is shaped by the contract)
- Culhane v. Aurora Loan Servs. of Neb., 708 F.3d 282 (1st Cir.) (borrower has standing to challenge assignment defects under Massachusetts law)