932 F. Supp. 2d 213
D. Mass.2013Background
- RFF Family Partnership, LP, a California private money lender, foreclosed on a 22-acre Saugus, MA property securing a loan to Link Development, LLC.
- Link, via Karll (claims to be Link’s manager), signed loan docs in 2007 for a $1.4M loan to Link, with a guaranty by Karll.
- BD Lending Mortgage and Desert Pine Mortgage were prior encumbrances; BD Lending mortgage later pursued in separate state court actions.
- At closing, Subordination Agreement subordinating Desert Pine to RFF’s mortgage was signed but BD Lending was not subordinated; Schedules A/B left blank.
- RFF conducted due diligence; Massachusetts usury notices were filed in 2007; payment defaults occurred and foreclosure followed in March 2010.
- Foreclosure sale: RFF bid $2.5M; later third-party bid of $3.1M; a surplus of $417,734 remains pending distribution.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Link breach subordination and encumbrance terms? | Link breached by failing to subordinate BD Lending and to discharge it. | Link contends no breach or that conditions were ambiguous due to blank schedules. | Yes; Link breached by failing to subordinate and discharge encumbrances. |
| Are the Agreed Rate and usury defenses enforceable against Link? | RFF complied with MA usury statute and the Note provides an enforceable Agreed Rate. | Link argues usury requirements and modification issues render the rate unenforceable. | Enforceable; usury compliance satisfied and the Note duly modified. |
| Who is entitled to the foreclosure surplus and in what amount? | RFF is entitled to surplus after satisfying debt; senior and junior liens affect distribution. | Link or other lienholders may claim portions of surplus; Desert Pine has a potential lien. | Surplus held in escrow pending determination of recipients; Desert Pine has a valid claim. |
| Does 93A apply to RFF’s conduct in the foreclosure? | RFF acted within contract terms; 93A violations alleged by Link fail on facts. | RFF’s actions were unfair or deceptive under Chapter 93A. | No; 93A claim insufficiently pled and not proven unfair or deceptive. |
| Are there recoverable damages and fees for RFF for foreclosure-related costs? | Costs and attorneys’ fees incurred in foreclosure are recoverable per the Note. | Link disputes the recoverability and amount of fees and taxes shifted to Link. | RFF entitled to reasonable costs and attorneys’ fees; specific amounts to be finalized after briefing. |
Key Cases Cited
- RGJ Associates, Inc. v. Stainsafe, Inc., 338 F.Supp.2d 215 (D. Mass. 2004) (integration clause and contract formation in Massachusetts.)
- Bank v. Int’l Business Machines Corp., 145 F.3d 420 (1st Cir. 1998) (ambiguity and contract interpretation under MA law.)
- Sound Techniques, Inc. v. Hoffman, 50 Mass.App.Ct. 425 (Mass. App. Ct. 2000) (parol evidence rule and integration in MA.)
- Cambridgeport Savings Bank v. Boersner, 413 Mass. 432 (Mass. 1992) (modification of contract implied by conduct when written form required.)
- Begelfer v. Najarian, 381 Mass. 177 (Mass. 1980) (usury statutes and notice/record-keeping requirements.)
- Levites v. Chipman, 30 Mass.App.Ct. 356 (Mass. App. Ct. 1991) (statutory usury compliance and enforceability.)
- Cannarozzi v. Fiumara, 371 F.3d 1 (1st Cir. 2004) (usury compliance as defense to enforceability.)