Where a debtor has filed an objection to a proof of claim related to his mortgage loan, the objection should be overruled because the damages alleged are too speculative to state a claim under G.L.c. 93A that would allow recoupment.
“Before the Court is the Motion for Judgment on the Pleadings (the ‘Motion’) [ECF No. 53] filed by Wells Fargo Bank, National Association, as Trustee on behalf of the holders of the First Franklin Mortgage Loan Trust 2006-FF15 Mortgage Pass-Through Certificates, Series 2006-FF15 (‘WF’) and Select Portfolio Servicing, Inc. (‘SPS’) (together, the ‘Defendants’), by which the Defendants seek judgment on the pleadings in their favor pursuant to Rule 12(c) of the Federal Rules of Civil Procedure on the three remaining counts pleaded against them in the Objection to Wells Fargo’s Proof of Claim and Adversary Proceeding Complaint and Jury Demand [ECF No. 1] (the ‘Complaint’) filed by plaintiff Watson Pierre (the ‘Debtor’): (i) Count I, objection to WF’s Proof of Claim; (ii) Count II, claims for alleged violations of Mass. Gen. Laws ch. 93A (‘Chapter 93A’) related to the 2006 origination of the Debtor’s mortgage loan; and (iii) Count III, post-origination claims for alleged violations of Chapter 93A related to the Debtor’s 2009 and 2015 loan modifications. The Debtor filed a Memorandum in Opposition to Defendant Wells Fargo’s Motion for Judgment on the Pleadings [ECF No. 58] (‘Debtor’s Opp.’), WF filed a reply [ECF No. 69], and the Debtor filed a surreply [ECF No. 70]. After a hearing and upon the invitation of the Court for voluntary supplementation of their filings [ECF No. 73], both parties provided supplemental briefing. … Upon consideration of the pleadings, arguments made at the hearing, and the record of this proceeding, for the reasons below, I grant the Motion. The Debtor has not pleaded cognizable, particularized harm causally related to the alleged unfair and deceptive acts of the Defendants. …
“At issue are the 2006 origination of the Loan and the Modifications. The Debtor does not dispute the fact that he received $280,000.00 to purchase the Property or that he reaffirmed the Loan debt by entering the Modifications. Instead, the Debtor claims in the Complaint that the Loan’s payment terms rendered the Loan ‘doomed to fail.’ …
“Setting aside the issue of damages, significant facts have been alleged that, if proven, could support the Debtor’s claims that the terms of the Loan and possibly the Modifications were unfair and constituted violations of Chapter 93A and a basis to reduce or disallow the Defendants’ claim. …
“… Reserving for discussion below whether the Debtor has sufficiently alleged that he suffered damages arising from the alleged unfair lending practices, the Defendants have not met their burden to show that uncontested facts conclusively establish the Defendants’ entitlement to a judgment based on the pleadings with respect to the alleged unfair and deceptive acts. …
“The Debtor alleges that he was damaged by the acts of the Defendants in several ways. First, he claims that he ‘pa[id] money’ on the Loan that was doomed to fail, maintained his home, and lost the ‘other possible opportunities to buy another home and get an affordable loan that would have put him on a pathway to home ownership.’ … He claims that failing to make monthly payments required by the Loan caused him ‘financial harm,’ … but he does not specify that harm. The Debtor also claims that the originating lender and the Defendants should have known that he ‘would likely be unable to pay the balloon payment [under each of the original Loan and the Modifications] when it was due and would likely default’ and suffer ‘financial harm… but does not state specifically what damage he has or will suffer. I can infer that the damage alleged would be the loss of his home and, similar to the damages alleged in connection with required monthly payments, amounts he has paid in interest on the Loan, as modified, and to maintain his home. The Defendants assert that these allegations are insufficient in that they are speculative and do not identify any separate, identifiable harm. …
“With some reluctance, I agree that under these facts and circumstances the damages alleged are too speculative to state a claim under Chapter 93A that would allow recoupment. While there are a number of factors present that could support a determination that the Loan was unfair and deceptive under Massachusetts law, an essential element of a Chapter 93A claim is that the Debtor must have suffered an identifiable harm. Any harm suffered by the Debtor before the Modifications is inadequately stated and appears to have been mitigated by the Modifications. … The damages that might arise from the large balloon payment are speculative and are not directly related to the Debtor’s current default. While the Debtor asserts that he never knew of a balloon payment, the documents clearly stated that there was a substantial balloon payment. Damages need not be stated with mathematical certainty and ‘lost opportunity’ damages may certainly be claimed, but the Debtor did not allege any specific opportunities had been lost—instead alleging speculative damages that may have arisen in 2031 had he not defaulted on the substantially reduced payments required by the Modifications. The factors that would have to be considered in assessing whether the Debtor would be damaged by a balloon payment that would become due in 2031 cannot be adequately determined. Whether the real estate market will continue to rise, whether interest rates in 2031 would adversely affect the Debtor’s ability to refinance, whether the Debtor would have sufficient income or assets in 2031 to repay or refinance the loan are all factors that would have to be considered and cannot be with any degree of certainty today. As such, the Debtor’s claim to have been damaged is too speculative and does not allege separate, identifiable harm necessary to state a Chapter 93A claim that would be a basis for recoupment.
“While the Debtor has attempted to allege identifiable harms, such as imminent foreclosure, lost opportunity for home ownership, or the Debtor’s general likelihood to default on the Loan or the terms of the Modifications, … the Complaint fails to draw a causal connection between such harm and the alleged unfair conduct of the Defendants. …
“As discussed, if the harm associated with the Debtor’s initial default on the Loan was caused by the unfair or deceptive conduct of the Defendants, the Modifications seemed to mitigate, rather than cause, additional harm. After the Debtor struggled to make payments under the original terms of the Loan, the Defendants offered the Debtor two Modifications that lowered the monthly mortgage payments and fixed the interest rate. Despite the more affordable payment terms, the Debtor still defaulted and faced foreclosure. … The Debtor does not allege the modified payment terms caused his default or any other cognizable harm to the Debtor. Instead, the Debtor asserts throughout the Complaint that simply because the Modifications included balloon payments, the Debtor ‘would likely be unable to pay the balloon payment when it was due and would likely default.’ … Although the balloon payment might be unaffordable at some point in the future and might have influenced the Debtor to file his bankruptcy petition, the Debtor fails to plead any facts that demonstrate the balloon payment was the cause of the Debtor’s imminent foreclosure or any other cognizable harm.”
In Re: Pierre, Watson (Lawyers Weekly No. 04-009-24) (19 pages) (Panos, J.) (Chapter 13 Case No. 19-13634-CJP; Adv. Pro. No. 21-1098-CJP) (July 23, 2024).
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