McGahey v. Federal National Mortgage Ass'n
266 F. Supp. 3d 421
D. Me.2017Background
- McGahey borrowed to buy a house; Fannie Mae owned the loan and PHH serviced it under Fannie Mae’s direction, including obligations under the Fannie Mae Servicing Guide and HAMP processes.
- From 2009–2016 McGahey sought multiple loan-modifications; PHH repeatedly (according to the complaint) told him he was ineligible for HAMP, offered non-HAMP (more expensive) modifications, and pursued foreclosure in 2012.
- McGahey signed and paid under several non-HAMP trial and permanent modification offers (2010, 2013, 2015), resulting in higher interest, capitalized fees, and increased principal balance; he alleges loss of equity, attorney fees, costs, and emotional distress.
- McGahey (through counsel and a housing counselor) sent multiple Qualified Written Requests and Notices of Error under RESPA/Regulation X and state UTPA/consumer-credit notices; PHH’s responses are alleged to have been inadequate or inconsistent.
- Procedural posture: Defendants moved to dismiss all claims; the Magistrate Judge recommended dismissal and denial of leave to amend; the district judge conducted de novo review, denied the motion to dismiss, and granted leave to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing / third-party HAMP enforcement | McGahey asserts he does not seek to enforce HAMP directly but alleges UTPA, RESPA, fraud, and consumer-credit violations grounded in PHH’s misrepresentations about HAMP eligibility | Defendants say lack of private HAMP right means plaintiff cannot show entitlement or causation from a lost HAMP modification | Court: Lack of private HAMP remedy does not preclude UTPA/RESPA/fraud claims based on deceptive conduct; plaintiff has standing to proceed on those statutory/common-law theories |
| UTPA — deceptive/unfair practice, causation, damages | PHH’s repeated statements that McGahey was ineligible for HAMP were material, caused him to accept costlier modifications, and produced monetary losses (interest, fees, lost equity, attorney fees) | Defendants argue plaintiff cannot prove he would have received a HAMP modification (no private right), so alleged economic harms are not caused by the deception | Court: At motion-to-dismiss stage plaintiff plausibly alleged material misrepresentations, detrimental reliance, and compensable monetary harms; factual dispute about what would have occurred if correctly informed is inappropriate to resolve now |
| RESPA / Regulation X — QWRs / Notices of Error and responses | Plaintiff contends his QWRs/Notices of Error and Reg X claims were adequate and PHH failed to conduct reasonable investigations or provide adequate written explanations and records; he suffered actual damages (emotional distress, attorney fees) | Defendants contend the communications were not qualifying QWRs/Notices and PHH’s responses were sufficient under pre-Regulation X standards | Court: Regulation X expanded servicer obligations (reasonable investigation and adequate written explanation). Plaintiff plausibly alleged qualifying communications, inadequate investigations/responses, and actual damages (including emotional distress and attorney fees) for RESPA purposes, but RESPA does not itself obligate servicers to provide modifications |
| Fraud / Maine Consumer Credit Code misrepresentation | McGahey alleges PHH/Fannie Mae knowingly or recklessly misrepresented HAMP eligibility, inducing acceptance of costlier credit terms and causing damages | Defendants repeat that plaintiff was not entitled to HAMP and cannot show reliance-caused damages | Court: Fraud/misrepresentation pleaded with Rule 9(b) particularity; allegations of material false statements, knowledge/recklessness, reliance, and damages are sufficient to survive dismissal |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard for plausibility)
- Saldivar v. Racine, 818 F.3d 14 (1st Cir.) (accept well-pleaded facts; draw inferences for non-moving party)
- Mackenzie v. Flagstar Bank, FSB, 738 F.3d 486 (1st Cir.) (borrower lacks third-party beneficiary right to enforce HAMP)
- Foman v. Davis, 371 U.S. 178 (leave to amend generally freely given; futility and prejudice considerations)
- Bates v. JPMorgan Chase Bank, N.A., 768 F.3d 1126 (11th Cir.) (pre-Regulation X treatment of servicer responses)
- Renfroe v. Nationstar Mortg., LLC, 822 F.3d 1241 (11th Cir.) (Regulation X requires reasonable investigation and adequate explanation)