Opinion ID: 2647804
Heading Depth: 2
Heading Rank: 2

Heading: MCCCDA (Count V) and Rescission (Count VII)

Text: The MCCCDA provides borrowers in certain consumer credit transactions, including the refinancing of a mortgage, with a right of rescission and requires lenders to make certain mandatory disclosures related to the terms of the loan. Mass. Gen. Laws ch. 140D, § 10. Section 10(f) of the statute extends the borrower's right of rescission to a period of four years in the event that the lender fails to make the required disclosures. Id. The MacKenzies 4 The Plaintiff's argument on appeal appears to conflate the implied convenant of good faith and fair dealing, which attaches to every contract, with the particular duty of a mortgagee to act in good faith and use reasonable diligence in exercising its power of sale. The two doctrines are distinct and have separate underpinnings. Compare Sandler v. Silk, 198 N.E. 749, 751 (Mass. 1935) (explaining that the duty of good faith and reasonable diligence extends . . . not only [to] the mortgagor but also to those holding junior encumbrances or liens) with Ayash v. DanaFarber Cancer Inst., 822 N.E.2d 667, 684 (Mass. 2005) (noting that the scope of the covenant [of good faith and fair dealing] is only as broad as the contract that governs the particular relationship). Although we appreciate this distinction, we nevertheless analyze the issues together because that is how they arose in the context of this case. In the future, however, we wish to make clear that the better practice is for litigants to acknowledge the distinct nature of each doctrine and present their arguments accordingly. -12- allege that the 2009 Agreement is a refinancing subject to the terms of the MCCCDA and that Flagstar failed to make the required disclosures. Accordingly, they seek to exercise their right of rescission within the four-year period under section 10(f). The district court held that the 2009 [A]greement . . . does not fall within the provisions of the MCCCDA. It pointed to section 32.20 of title 209 of the Code of Massachusetts Regulations, which provides that: A refinancing occurs when an existing obligation that was subject to 209 CMR 32.00 is satisfied and replaced by a new obligation undertaken by the same consumer. A refinancing is a new transaction requiring new disclosures to the consumer. The new finance charge shall include any unearned portion of the old finance charge that is not credited to the existing obligation. The following shall not be treated as a refinancing: . . . (b) A reduction in the annual percentage rate with a corresponding change in the payment schedule. . . . (d) A change in the payment schedule or a change in collateral requirements as a result of the consumer's default or delinquency . . . . 209 Mass. Code Regs. 32.20; see also In re Washington, 455 B.R. 344, 350 (Bankr. D. Mass. 2011) (applying this section of the regulations to the MCCCDA). The district court found that the 2009 Agreement was not a refinancing because it did no more than lower the interest rate and change the payment schedule. -13- In their initial brief, the MacKenzies sidestep section 32.20. They argue instead that the 2009 Agreement is not exempt from disclosure requirements under section 10(e)(1)(B) of chapter 140D of the Massachusetts General Laws, which excludes refinancings from the purview of the MCCCDA under certain circumstances. That argument is beside the point. As the district court held, the modification was not a refinancing and, thus, section 10(e)(1)(B) does not apply. In their reply brief, however, the MacKenzies contend that the 2009 Agreement was a refinancing because in addition to lowering the interest rate and extending the payment schedule, it involved a new lender and a new amount of principal. But these points do not undermine the district court's decision. First, Flagstar is not a new lender; it is the assignee of Bankstreet, the original lender. It is axiomatic that an assignee 'stands in the shoes' of the assignor. R.I. Hosp. Trust Nat'l Bank v. Ohio Cas. Ins. Co., 789 F.2d 74, 81 (1st Cir. 1986) (quoting 10 W. Jaeger, Williston on Contracts § 432, at 182 (3d ed. 1967)). Through the assignment, Flagstar obtained Bankstreet's rights and obligations under the existing mortgage, including the right to reach an agreement with the MacKenzies to modify the terms of the loan. See Bank of Am., N.A. v. WRT Realty, L.P., 769 F. Supp. 2d 36, 39 (D. Mass. 2011) (holding that the assignee of a note and mortgage enjoys all rights the assignor possessed). The fact that Flagstar exercised that right does not mean that the -14- existing obligation . . . [was] satisfied and replaced by a new obligation. 209 Mass. Code Regs. 32.20 Second, the change in the amount of principal was the result of the capitalization of unpaid interest. In other words, the entire principal balance under the 2009 Agreement was debt owed under the original mortgage; it was not a new obligation replacing the original obligation. See Sheppard v. GMAC Mortg. Corp., 299 B.R. 753, 762–64 (Bankr. E.D. Pa. 2003) (holding that the capitalization of unpaid debt does not constitute a refinancing under the Truth In Lending Act, 15 U.S.C. §§ 1601–1667f, on which the MCCCDA is modeled, because the new obligation did not completely replace the old one). Thus, under the terms of section 32.20, the 2009 Agreement is not a refinancing. It is not subject to the disclosure requirements of the MCCCDA, and the MacKenzies have no right to rescind it under the statute. Therefore the district court properly dismissed Counts V and VII.