UNITED STATES DISTRICT COURT DISTRICT OF NEW HAMPSHIRE

Mark L. Dove and Kathleen M. Stavaski,

v. Civil No. 15-cv-224-JL Opinion No.

The Bank of New York Mellon and Select Portfolio Servicing, Inc.

MEMORANDUM ORDER

This case involves a challenge to a bank’s authority to

foreclose on a mortgaged property in light of the mortgage

assignment, as well as a pair of contract-based theories of

relief. Plaintiffs Mark Dove and Kathleen Stavaski financed

their home purchase through a mortgage. Some six years after

falling behind in their payments, and after multiple foreclosure

sales were scheduled and cancelled, the plaintiffs filed a six-

count complaint against the lending bank and loan servicer,

alleging that defendant The Bank of New York Mellon1 breached the

mortgage contract and, under several theories, lacked authority

to foreclose on their property. They also allege that the Bank

and Select Portfolio Servicing, Inc. (“SBS”), the loan servicer,

1 This defendant’s full name is The Bank of New York Mellon, as successor Trustee f/b/o holders of Structured Asset Mortgage Investments II Inc., Bear Stearns ALT-A Trust 2006-2, Mortgage Pass-Through Certificates, Series 2006-2. For convenience, the court will refer to it as the Bank. breached the covenant of good faith and fair dealing by

attempting to foreclose instead of taking other routes to loss

mitigation, such as modifying the plaintiff’s loan or accepting

a short sale of the property. This court has jurisdiction over

this matter under

(diversity).

The defendants have moved to dismiss the plaintiff’s

complaint. See Fed. R. Civ. P. 12(b)(6). After considering the

parties’ written submissions,2 and for the reasons discussed more

fully below, the court grants the defendants’ motion.

I. Applicable legal standard

To survive a motion to dismiss under Rule 12(b)(6), the

plaintiff must state a claim to relief by pleading “factual

content that allows the court to draw the reasonable inference

that the defendant is liable for the misconduct alleged.”

Martinez v. Petrenko,

(1st Cir. 2015) (quoting

Ashcroft v. Iqbal,

(2009)). In ruling on such

a motion, the court accepts as true all well-pleaded facts set

forth in the complaint and draws all reasonable inferences in

the plaintiff’s favor. See, e.g., Martino v. Forward Air, Inc.,

(1st Cir. 2010). The court “may consider not only

2 Though it is the court’s regular practice to hold oral argument on all dispositive motions, the parties agreed that oral argument on this motion was unnecessary. 2 the complaint but also facts extractable from documentation

annexed to or incorporated by reference in the complaint and

matters susceptible to judicial notice.” Rederford v. U.S.

Airways, Inc.,

(1st Cir. 2009).

II. Background

The following factual summary adopts the approach described

above. In 2005, the plaintiffs purchased a house, financing it

through a mortgage from CTX Mortgage.3 Mortgage Electronic

Registration Systems, Inc. (“MERS”) was designated the lender’s

nominee. MERS then assigned the mortgage to the Bank and

recorded the assignment in the appropriate registry of deeds on

October 30, 2009.

A few months after the assignment, plaintiff Dove lost his

job and the plaintiffs began to fall behind on their payments.

They pursued loss mitigation efforts through JP Morgan Chase,

who plaintiffs allege claimed to hold the note and mortgage at

that time,4 including an attempted short sale of the home in

2011, which fell through.

3 Plaintiffs actually obtained two mortgages from CTX Mortgage to finance their home purchase. Only the first of these mortgages is at issue in this action, however, so it is this mortgage and its accompanying note to which the court refers when it uses the terms “the mortgage” and “the note.”

4 Notably, plaintiffs never allege that Chase actually held the note and mortgage; only that it claimed to do so. See Amended 3 In early 2013, the plaintiffs received a letter warning

them that the Bank was accelerating their loan. The letter,

dated February 22, 2013, indicated that foreclosure proceedings

were being initiated on the Bank’s behalf. In early March, the

Bank scheduled and notified plaintiffs of a foreclosure sale.

Plaintiffs, in turn, demanded verification of the debt. The

Bank’s foreclosure counsel replied, enclosing copies of the

note, the mortgage, the mortgage assignment, and plaintiffs’

payment history, and informing plaintiffs that they could

contact Chase to discuss loan modification. The same counsel

also produced the original note for inspection by plaintiffs’

then-counsel.

In September 2013, the Bank scheduled a foreclosure sale.

Around the same time, SPS -- which by then serviced the loan --

engaged plaintiffs in a discussion of foreclosure alternatives.

Plaintiffs pursued those alternatives, completing a loan

modification application and finding a cash buyer who was ready

to purchase the home through a short-sale. SPS, the plaintiffs

allege, then interminably delayed both the loan modification and

short sale processes, and the Bank contributed to the delay of

Compl. ¶¶ 18-19. Defendants, on the other hand, claim that Chase serviced the loan on the Bank’s behalf during this time period. 4 the short sale, to the extent that both foreclosure alternative

options fell through.

The plaintiffs sued the Bank in Grafton County Superior

Court on May 28, 2015, asking the court to enjoin the Bank from

foreclosing on the property, to declare that the Bank lacked

power to foreclose, and to grant plaintiffs’ attorneys’ fees.

The Bank removed the case to this court, see

,

citing the court’s diversity jurisdiction, and then moved to

dismiss. Plaintiffs amended their complaint, adding (1) SPS as

a defendant, (2) a claim for breach of the implied covenant of

good faith and fair dealing, and (3) a request for damages

arising out of plaintiffs’ claim for defendants’ breaches of

contract and the implied covenant of good faith and fair

dealing. Defendants again moved to dismiss.

III. Analysis

A. Count I - Breach of contract (the Bank)

The plaintiffs first allege that the Bank breached the

mortgage contract when someone else -- not the Bank -- sent them

an acceleration notice. The mortgage contract provides:

“Lender shall give notice to Borrower prior to acceleration

following Borrower's breach of any covenant or agreement in this

Security Instrument,” and provides the requisite content of that

notice. Defendants' Ex. B (document no. 10-3) ¶ 22. The plain

5 language of Paragraph 22, the plaintiffs argue, requires the

“lender” -- here, the Bank -- to send the notice. The Bank

claimed to hold the note and mortgage at the time the notice was

sent. Amended Compl. ¶ 61. But, plaintiffs allege, Chase sent

the notice. Id. ¶ 60. The Bank’s failure to act in accordance

with the plain language of Paragraph 22 by failing to send the

notice itself, plaintiffs contend, constitutes breach of the

agreement.

The plaintiffs’ claim here fails. First, contrary to the

plaintiffs’ argument, paragraph 22 does not require the lender,

itself, personally, to send the notice. It may provide notice

through an agent. See Galvin v. U.S. Bank Nat. Ass'n, No.

CIV.A. 14-14723,

, at *4 (D. Mass. Mar. 9, 2015).

Further, the face of the notice makes clear that it was sent on

the Bank’s behalf.5 Defendants’ Ex. D (document no. 10-5) at 1

(“We have been instructed to bring a foreclosure in the name of

The Bank of New York Mellon, f/k/a/ The Bank of New York, as

successor-in-interest to JPMorgan [sic] Chase Bank, N.A. as

Trustee for Bear Stearns Asset Backed Securities, Bear Stearns

ALT-A Trust, Mortgage Pass-Through Certificates, Series 2006-

5 The notice and the mortgage itself, discussed infra, are sufficiently incorporated into the complaint that the court may consider them in deciding this motion. See Rederford,

. 6 2.”). Accepting the facts pleaded and permissible record

evidence as true, the complaint does not state a breach of

contract claim. Accordingly, the court dismisses Count I.

B. Count II - Failure to produce the original note (the Bank)

The plaintiffs also seek a declaration that the Bank lacks

authority to foreclose because the Bank has not proven that it

is the note-holder. As this court has explained under nearly

identical circumstances:

[A] plaintiff cannot mount a challenge to a defendant’s authority to foreclose simply by raising the possibility that the defendant lack[s] possession of the note secured by the mortgage they have tried to foreclose, because the pleading standard set forth in Federal Rule of Civil Procedure 8(a) requires more than a sheer possibility that a defendant has acted unlawfully. Rather, to successfully state a claim challenging a defendant’s standing to foreclose . . . a plaintiff must affirmatively allege . . . that the defendant lacks possession of the note.

Mason v. Wells Fargo Bank,

(internal quotations

and citations omitted). As in Mason, the plaintiffs here have

not so alleged. They carefully allege not that the Bank does

not hold the note, but that it is unknown whether the Bank holds

the note because the Bank has not produced the original note for

inspection. See Amended Compl. ¶ 64. To the contrary,

plaintiffs admit that (1) the Bank produced the “blue ink” note

for inspection by plaintiffs’ then-counsel in 2013, id. at ¶ 27,

7 and (2) that as of February 2015, in response to a letter from

plaintiffs to the Bank’s foreclosure counsel, Compl. (document

no. 1-1) ¶ 10, “[d]efendants acknowleged that one of them

possessed the original ‘blue-ink’ Note . . . .” Amended Compl.

¶ 10. These factual allegations underscore plaintiffs’ failure

to sufficiently allege that the Bank does not possess the

promissory note in question here.6 See Mason,

, 9-

10. Accordingly, Count II is dismissed.

C. Counts III and V - Alleged violations of the PSA (the Bank)

Taking aim at a perceived weakness in the mortgage’s

assignment, the plaintiffs contend that the transfer of the note

and mortgage to the trust for which the Bank is trustee does not

comply with the trust’s own Pooling and Service Agreement

(“PSA”) in two respects. In Count III, plaintiffs allege that

the note and mortgage were untimely transferred into the trust

6 For purposes of resolving the relevant motion in Mason, the court assumed, without deciding, that “in order to foreclose on a mortgage, the party must hold the note which that mortgage secures . . . .” Id. at 8. The court need not do so here. As discuss infra Part III.D, recent guidance from the New Hampshire Supreme Court suggests that, at least in this circumstance, an agency relationship between the noteholder and mortgage holder evidenced by language in the mortgage naming the mortgagee as “nominee for lender and lender’s successors and assigns” satisfies this requirement. Castagnaro v. Bank of New York Mellon, No. 2014-0782,

, at *1 (N.H. Jan. 26, 2016). 8 for which the Bank is trustee. Under the trust’s PSA,

plaintiffs allege, the transfer needed to happen no later than

90 days after March 31, 2006. MERS did not assign the mortgage

to the Bank until October 30, 2009, well after that deadline.

Similarly, in Count V, plaintiffs allege that the trust’s PSA

required the note and mortgage to pass from the originator to

the seller or sponsor, and then to the depositor, and finally to

the issuer -- that is, the trust itself. By assigning the

mortgage directly to the Bank, plaintiffs argue, CTX Mortgage

skipped the requisite intermediate steps. Plaintiffs contend

that either one of these acts of noncompliance with the PSA

voids the transfer of the mortgage and note to the Bank. And

because the mortgage assignment is void, plaintiffs argue, the

Bank lacks authority to foreclose. Defendants move to dismiss

these claims on the grounds that the plaintiffs lack standing to

bring them. The court agrees.

As this court very recently explained in response to a

nearly identical argument, under New York law (which controls

the trust), mortgagors lack standing to challenge the transfer

of a mortgage to a trust that does not conform with the trust’s

PSA. See Aho v. Bank of America, N.A.,

. Such

non-conformities render the assignment voidable, not void, and

only a party to the PSA has standing to challenge the Bank’s

9 possession of the mortgage. Id. at 8. Similarly, the transfers

here, if not in conformity with the PSA, are voidable but not

void; and plaintiffs, as non-parties to the PSA, “do[] not have

standing to challenge the [defendant’s] possession or status as

assignee of the note and mortgage based on purported

noncompliance with certain provisions of the PSA.” Id. at 8

(quoting Wells Fargo Bank, N.A. v. Erobobo,

(N.Y. App. Div. 2015)).

Attempting to overcome this impediment to standing, the

plaintiffs argue that they are intended third-party

beneficiaries of the PSA, and thus have standing. Certain

provisions of the PSA allow the parties to modify the

mortgagors’ obligations under the loan and represent that the

various practices, including escrow deposits, comply with the

requisite laws and regulations. See Ex. B at 723/1630 and

861/1630. Plaintiffs allege that these provisions are intended

to benefit them, as non-parties. But “[t]he intent to render a

non-party a third-party beneficiary must be clear from the face

of the PSA.” Rajamin v. Deutsche Bank Nat. Trust Co., No. 10

CIV. 7531 LTS,

, at *3 (S.D.N.Y. Mar. 28, 2013),

aff'd,

(2d Cir. 2014). These generic assurances

that the trust will comply with the law do not make the

10 plaintiffs’ status as a third-party beneficiary “clear.” Cf.

For these reasons, plaintiffs lack standing to challenge

the mortgage assignment under the PSA. Accordingly, Counts III

and V must be dismissed.

D. Count IV - Lack of unity of the note and mortgage (the Bank)

In Count IV, the plaintiffs challenge the Bank’s authority

to foreclose because, they claim, the Bank “cannot show that the

Note and Mortgage were transferred together throughout the life

of the loan.” Amended Compl. ¶ 79. This court has previously

rejected that theory in cases such as this, see Galvin v. EMC

Mortgage Corp.,

, and recent guidance from

the New Hampshire Supreme Court confirms this approach.

The mortgage here describes MERS as “a separate corporation

that is acting solely as a nominee for Lender and Lender’s

successors and assigns.” Defendants’ Ex. B (document no. 10-3)

at 1. It further expressly grants MERS, as nominee to the

lender and its successors, power of sale and “the right: to

exercise any or all of [the interests in the property granted by

the borrower], including, but not limited to, the right to

foreclose and sell the Property . . . .” Id. at 3. On the

basis of identical language, the New Hampshire Supreme Court

11 concluded that such provisions “demonstrate[d] the existence of

an agency relationship between [the lender] and [the

mortgagee].” Bergeron v. New York Community Bank,

,

, 826 (2015). And because the mortgage also

contemplated that both the lender and the mortgagee “could

assign their interests . . . the defendant has the authority, as

agent of the noteholder to exercise the power of sale.”

121 A.3d at 827. In answering a question certified by the First

Circuit Court of Appeals, the Court then clarified that such “an

agency relationship between the noteholder and the mortgage

holder does meet” any requirement that a foreclosing entity hold

both note and mortgage, and that the “language in the mortgage

naming the mortgagee ‘nominee for lender and lender’s successors

and assigns’ suffices on its own to show an adequate agency

relationship.” Castagnaro,

, at *1.

Under Bergeron and Castagnaro, the Bank, as assignee of the

mortgage, appears also to have authority to enforce the mortgage

as an agent for the lender. The plaintiffs do not challenge the

validity of the assignment, except to the extent that the

assignment failed to comply with the trust’s PSA -- a challenge

that fails for the reasons discussed supra Part III.C.

Accordingly, the plaintiffs have not plead facts sufficient to

state a claim that the Bank lacks that authority to foreclose

12 because the note and mortgage were bifurcated, and Count IV must

be dismissed.

E. Count VI - Breach of the covenant of good faith and fair dealing (both defendants)

Finally, plaintiffs claim that both defendants breached the

covenant of good faith and fair dealing implied in the mortgage

contract. They invoke the third category of the breach of that

covenant recognized in New Hampshire: limitation of discretion

in contractual performance. See Birch Broadcasting, Inc. v.

Capitol Broadcasting Corp., Inc.,

(2009). The

mortgage, plaintiff contends, grants the defendants discretion

to foreclose or to take some less drastic loss mitigation

action, such as engaging in a short sale or modifying the

plaintiffs’ loan. Defendants breached the implied covenant,

plaintiffs argue, by exercising their discretion to foreclose

instead of pursuing those other options.

As this court has explained, “‘the duty of good faith and

fair dealing ordinarily does not come into play in disputes’

where ‘the underlying contract plainly spells out both the

rights and duties of the parties and the consequences that will

follow from a breach of a specified right.’” Rouleau v. U.S.

Bank, N.A.,

(quoting Milford-Bennington R. Co.,

Inc. v. Pan Am Rys., Inc.,

). This claim is

13 directly analogous to that raised in Rouleau. Here, the

plaintiffs do not dispute that the note obligated the plaintiffs

to pay back the amount of the loan secured by the mortgage. Nor

do they dispute that they defaulted in 2009. As discussed

supra, the note specifically provides that a lender may

accelerate the loan in the event of default, provided sufficient

notice is given. And, as in Rouleau, the mortgage contract here

spells out the lender’s remedy in the event that plaintiffs

defaulted and failed to cure: “Lender at its option may require

immediate payment in full of all sums secured by this Security

Instrument without further demand and may invoke the STATUTORY

POWER OF SALE and any other remedies permitted by Applicable

Law.” Defendants’ Ex. B. at 13. As this court reasoned in

Rouleau, while the agreement “does confer some discretion on

[the defendants] in deciding whether or not to proceed with

foreclosure, it is not so lacking in clarity as to provide the

fodder for a successful claim for breach of the implied duty of

good faith and fair dealing.”

. The court

therefore dismisses Count VI.

14 IV. Conclusion

For the reasons set forth above, defendants’ motion to

dismiss the complaint7 is GRANTED. The clerk shall enter

judgment accordingly and close the case.

SO ORDERED.

Joseph N. Laplante United States District Judge

Dated: February 29, 2016

cc: Stephen T. Martin, Esq. Peter G. Callaghan, Esq.

7 Document no. 10. 15