Opinion ID: 2647804
Heading Depth: 3
Heading Rank: 2

Heading: Flagstar's Duty of Good Faith as Mortgagee

Text: Despite their explicit claim to be third-party beneficiaries of the SPA, the MacKenzies rely almost entirely on Cruz, in which the court found that borrowers are not third-party beneficiaries of SPAs, but nevertheless found a substantial likelihood that the plaintiff would prevail on his claim for breach of good faith. 446 B.R. at 3–5. Oddly, the court in that case relied on Speleos, which rejected the good faith claim but allowed a negligence claim to proceed. 755 F. Supp. 2d at 310–12. The court in Cruz held that the plaintiff's allegation . . . that Wells Fargo breached its duty of good faith and reasonable diligence is comparable to the negligence claim in Speleos. 446 3 The MacKenzies point to Parker v. Bank of Am., NA, a Massachusetts state court case that found a borrower to be a thirdparty beneficiary of an SPA between a mortgagee and the government. No. 11-cv-1838, 2011 WL 6413615, at  (Mass. Super. Ct. Dec. 16, 2011). The court in Parker relied on Marques v. Wells Fargo Home Mortgage, Inc., a district court case from California that reached the same conclusion. No. 09-cv-1985, 2010 WL 3212131, at  (S.D. Cal. Aug. 12, 2010). The court in Parker recognized, however, that every court in the District of Massachusetts (and as far as I know, elsewhere) to consider the issue has rejected the Marques holding. 2011 WL 6413615, at . Given the persuasiveness of the authority to the contrary, the holding in Parker does not change our analysis. -9- B.R. at 4. The court did not explain, however, how the two claims were comparable. A more clearly reasoned case that reaches the same conclusion as Cruz is Blackwood. 2011 WL 1561024, at . In that case, the court pointed out that [i]t is familiar law that a mortgagee in exercising a power of sale in a mortgage must act in good faith and must use reasonable diligence to protect the interests of the mortgagor. Id. (quoting W. Roxbury Co-op. Bank v. Bowser, 87 N.E.2d 113, 115 (Mass. 1949)) (internal quotation marks omitted). It decided not to dismiss the breach of good faith claim, because if the defendants foreclosed when they lacked the legal authority to do so, they acted in violation of their obligation to protect the mortgagor. Id. The problem with the decision in Blackwood is that [t]he concept of good faith 'is shaped by the nature of the contractual relationship from which the implied covenant derives,' and the 'scope of the covenant is only as broad as the contract that governs the particular relationship.' Young v. Wells Fargo Bank, N.A., 717 F.3d 224, 238 (1st Cir. 2013) (quoting Ayash v. Dana–Farber Cancer Inst., 822 N.E.2d 667, 684 (Mass. 2005)). Here, the 2007 Mortgage as modified by the 2009 Agreement is the only contract between the MacKenzies and Flagstar. And as the district court correctly pointed out, nothing in the mortgage imposes a duty on Flagstar to consider a loan modification prior to foreclosure in -10- the event of a default. See Peterson v. GMAC Mortg., LLC, No. 11cv-11115, 2011 WL 5075613, at  (D. Mass. Oct. 25, 2011) (Under Massachusetts case law, absent an explicit provision in the mortgage contract, there is no duty to negotiate for loan modification once a mortgagor defaults. (citing Carney v. Shawmut Bank, N.A., No. 07-P-858, 2008 WL 4266248, at  (Mass. App. Ct. 2008))). It is true that mortgagees have an independent duty at common law to protect the interests of the mortgagor in exercising a power of sale in a mortgage. Teixeira, 2011 WL 3101811, at . Typically, this entails mak[ing] reasonable efforts to sell the property for the highest value possible. Armand v. Homecomings Fin. Network, No. 12-cv-10457, 2012 WL 2244859, at  (D. Mass. June 15, 2012) (alteration in original) (internal quotation marks omitted). Thus, in the event of a foreclosure, the existence of a duty of good faith is tied directly to the mortgagee's contractual right to exercise a power of sale. But the implied covenant of good faith cannot 'create rights and duties not otherwise provided for in the existing contractual relationship.' Young, 717 F.3d at 238 (quoting Ayash, 822 N.E.2d at 684). It would therefore be an error to extend the implied covenant to encompass a duty to modify -11- (or consider modifying) the loan prior to foreclosure, where no such obligation exists in the mortgage.4 Because the MacKenzies are not third-party beneficiaries of the SPA, and because Flagstar had no duty to modify the MacKenzies' loan prior to foreclosure, the district court correctly dismissed Count IV.