Juárez v. Select Portfolio Servicing, Inc., No. 11-2431 (1st Cir. Feb. 12, 2013)
Juárez, pro se, sued defendants for allegedly illegally
foreclosing on her home. The district
court dismissed her claim, but the court of appeals reversed. She sued US Bank
as trustee of a MBS trust and SPS, the servicer. She alleged that, after she took out a first
loan of $280,000, the note and mortgage changed hands several times, from New
Century Mortgage through several other entities, though none of the
transactions were recorded. One entity,
Asset Backed Securities, set up a REMIC trust (which receives favorable tax
treatment in return for complying with certain rules, including some possibly
relevant here) for which US Bank was the trustee. Juárez alleged that the pooling and servicing
agreement (PSA) governing the trust, and the federal tax code, required that all
assets in the trust be in the trust by Jan. 1, 2006 in order for the trust to
become a static pool of loans and qualify as a REMIC. Juárez alleged that, to
the contrary, the assignment of the loan to US Bank as trustee occurred after
that date.
Juárez defaulted on her mortgages (a second is not involved
in the case here), and US Bank foreclosed.
She argued that defendants didn’t hold the note and the mortgage at the
time they began proceedings against her, making the foreclosure illegal in
Massachusetts. The “Corporate Assignment
of Mortgage” to US Bank as trustee was recorded on Oct. 29, 2008, after the
foreclosure had been completed, was dated Oct. 16, 2008, and stated that the
date of assignment was June 13, 2007.
She alleged violation of Massachusetts laws governing
foreclosure, as well as a count under Mass. Gen. Laws Chapter 93A for unfair and
deceptive practices in the conduct of trade or commerce. The district court
accepted the argument that the mortgage assignment showed that US Bank owned
the mortgage when the foreclosure began, since it was a confirmatory
assignment. In addition, New Century Mortgage’s bankruptcy didn’t, on its own,
prevent it from assigning the mortgage, since in Chapter 11 it could continue
operating in the normal course of business (which was, apparently, to assign
notes & mortgages that it supposedly already had sold off, making "normal" something of an interesting description, but ok … perhaps
discovery will address the identity of the person assigning on behalf of New
Century and his/her authority to do so).
Without that, the Chapter 93A claim had to be dismissed too.
The court of appeals didn’t address Juárez’s first theory of
invalidity (that the REMIC trust had to close by Jan. 1, 2006), because the
complaint adequately alleged that no assignment had taken place by the time
foreclosure proceedings began. However,
it expressed skepticism about the first theory since a number of other courts
have found no standing on the part of a mortgagor to challenge the validity of
an assignment under a PSA. But questioning
whether an assignment followed the terms of a trust’s governing documents is
not the same as questioning whether that assignment took place before
foreclosure began. Juárez did the latter, and if she was right, then there’d be
the same problem there was in Ibáñez:
in Massachusetts, you can’t foreclose by using a power of sale, as opposed to
using the judicial foreclosure procedure, without being the actual owner of the
mortgage at the time the foreclosure takes place.
The complaint, read fairly, alleged a plausible claim that
the “Assignment” took place after the foreclosure was finalized, and was not a
confirmatory assignment (that is, that it didn’t confirm an existing valid
assignment that simply hadn’t been in recordable form). The discrepancy in dates “clearly and
independently emerges from the document in question,” which was attached to the
complaint. Defendants argued that the document
was clearly a confirmatory assignment, despite its title. But without discovery, it wasn’t possible to
agree with defendants. A confirmatory
assignment can’t confirm an assignment that wasn’t earlier validly made or
backdate an assignment being made for the first time, as the Massachusetts SJC
has explicitly held. (Defendants also
argued that Juárez was barred from litigating the legality of her foreclosure
because she didn’t sue to enjoin it, but Ibáñez
was also a case brought by mortgagors after the foreclosures had ended.)
Here, even “perfunctory” scrutiny of the assignment document
revealed that it was executed after the foreclosure but purported to reference
a pre-foreclosure assignment. Nothing in
the document indicated that it confirmed a 2007 assignment, used the phrase
“confirmatory assignment,” referred to a previous assignment, etc. It read as if it were an assignment executed
Oct. 16, 2008, using the present tense/performative language (“hereby assigns”
etc.). There needed to be a valid
written assignment which this confirmed; confirming its existence, or
nonexistence, would require discovery.
Given that Juárez stated sufficient facts to make her
unlawful foreclosure claim plausible, the Chapter 93A and fraud claims had to
be revisited. Fraud requires a knowingly
false statement, made with intent to deceive, that was material and on which a
plaintiff reasonably relied to her detriment.
And it must be pled with particularity.
Juárez alleged that defendants knew they didn’t legally own
her mortgage and nonetheless claimed that they did in order to foreclose in
advertising the property, repurchasing it, and subsequently selling it. Further, she alleged reliance, but she didn’t
allege details of her substantial injury. The court of appeals found it
“possible” that an illegal foreclosure caused her substantial harm per se, or
that if she’d known about the alleged falsity she would have contested the
foreclosure. But possibility isn’t
enough under Rule 9(b)—she’d need to allege “much more” about her reliance, and
also more “could also be alleged concerning who she was in contact with, when
and what was said to her in the alleged misrepresentations.” The dismissal was affirmed (but she should
get leave to amend on remand).
The court of appeals reached a similar result on the Chapter
93A unfair/deceptive practices claims. Ordinarily, a breach of contract or
similar dispute won’t constitute a violation.
The complaint needed to do more to allege sufficient “rancid” or
“extortionate” unfairness or deceptiveness.
It wasn’t enough to allege an unlawful foreclosure.
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