The U.S. Court of Appeals for the First Circuit recently held that a borrower cannot invoke the discovery rule to assert an otherwise untimely Massachusetts UDAAP claim (Chapter 93A) relating to a loan modification agreement, because the alleged harm was not “inherently unknowable” at the time of its occurrence. 

In so ruling, the Court determined that the borrower knew he was required to make monthly payments when he signed the loan modification agreement. Therefore, the statute of limitations began to run when the borrower stopped making payments, not when the creditor provided notice of the default.

A copy of the opinion is available at: Link to Opinion.

In August 2005, the borrower obtained two loans to refinance his mortgage loan. The borrower executed mortgages identifying Mortgage Electronic Registration Systems, Inc. (MERS) as the mortgagee “solely as nominee” for the lender and its successors and assigns. 

In June 2010, MERS assigned one of the mortgages to a bank as trustee for securitized trust. 

The borrower obtained a loan modification in March 2010. But, he did not receive any statements for the modified loan until September 2010. The borrower made payments from September 2010 through June or July 2013, at which time the defendant servicer returned his latest payment and informed him that the loan was in default.

The borrower sued the servicer and trustee (collectively, “defendants”) to stop the foreclosure. The trial court granted the defendants’ motion for judgment on the pleadings under Fed. R. Civ. P. 12(c) and dismissed all six counts of the borrower’s complaint.

On appeal, the borrower argued that the trial court’s entry of judgment was premature and challenged the court’s findings that: (1) he lacked standing to raise a quiet title claim, and (2) his claim under Massachusetts’s consumer protection law (“Chapter 93A claim”) was time barred. 

Initially, the Court found that the defendants’ Rule 12(c) motion was timely filed on January 25, 2016, and the motion was not heard until May 25, 2016. The Court noted that the borrower had ample time to seek leave to amend his complaint, but he chose not to do so. Because the borrower failed to plead any set of facts that would entitle him to relief, the Court agreed with the trial court’s assessment that the defendants were entitled to judgment on the pleadings.

The First Circuit then turned to the issue of the borrower’s standing to quiet title.

As you may recall, under Massachusetts law, a mortgagor lacks standing to bring a quiet title action as long as the mortgage remains in effect. See, e.g., Oum v. Wells Fargo, N.A., 842 F. Supp. 2d 407, 412 (D. Mass. 2012), abrogated on different grounds by Culhane v. Aurora Loan Servs. of Nebraska, 708 F.3d 282 (1st Cir. 2013). 

The borrower argued that the defendants were responsible for his default. However, the Court rejected the argument because “what matters is the existence of a mortgage, not whether the underlying loan is in default.” 

The borrower then argued that MERS’s assignment of the mortgage to the trustee was void because MERS failed to seek permission from the bankruptcy court to assign the mortgage after the original lender had filed for bankruptcy. However, the Court held that the borrower waived this argument by failing to cite to any authority whatsoever in support of his conclusory assertion.

Moreover, the First Circuit also held that the borrower lacked standing to challenge a mortgage assignment based upon an alleged deviation from the trust agreement. 

In addition, the Court determined that the trial court correctly found that the Chapter 93A claim was time barred. 

The borrower alleged that the delay caused by the defendants’ failure to provide him monthly statements between March and September 2010 was an “unfair and deceptive practice.” But, in the First Circuit’s view, this meant that the claim accrued by September 2010 and expired by September 2014 – well before the borrower brought suit in June 2015. See Mass. Gen. Laws ch. 260, § 5A (setting a four-year statute of limitations).

The borrower argued that the “trigger” for his claim was the defendants’ notifying him in June 2013 that he was in default, but the Court found that the predicate harm was the defendants’ failure to timely send statements to the borrower in 2010. The Court rejected the borrower’s use of the discovery rule “to salvage his untimely claims” because, as the trial court noted, the alleged harm was not “inherently unknowable at the time of [its] occurrence.” Latson v. Plaza Home Mortg., Inc., 708 F.3d 324, 327 (1st Cir. 2013). 

Specifically, the Court noted that the borrower knew he was required to make monthly payments when he signed the loan modification agreement in 2010. The defendants’ delay in issuing statements and the borrower’s default were, in the Court’s view, not “inherently unknowable” harms. Id. 

Accordingly, the First Circuit affirmed the trial court’s judgment.