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13-P-1805                                              Appeals Court

  ELNEDIS A. MORONTA     vs.    NATIONSTAR MORTGAGE, LLC & another.1


                               No. 13-P-1805.

         Norfolk.      December 10, 2014. - November 5, 2015.

            Present:   Katzmann, Hanlon, & Maldonado, JJ.


Mortgage, Foreclosure. Real Property, Mortgage. Consumer
     Protection Act, Mortgage of real estate, Unfair act or
     practice. Practice, Civil, Consumer protection case,
     Summary judgment.



     Civil action commenced in the Superior Court Department on
July 23, 2010.

     A motion for summary judgment was heard by John P. Connor,
Jr., J., and a motion for reconsideration was heard by him; a
motion for summary judgment was heard by Thomas A. Connors, J.;
and judgment was entered by John P. Connor, Jr., J.


     Irene H. Bagdoian for the plaintiff.
     Dean J. Wagner for Signature Group Holdings, Inc.
     Jennifer J. Normand for Nationstar Mortgage, LLC.




     1
       Signature Group Holdings, Inc., successor to Fremont
Investment & Loan. References to Fremont in this opinion
include Signature Group Holdings, Inc.
                                                                    2


    MALDONADO, J.     Elnedis Moronta (the borrower) appeals from

final judgments entered following the decisions of judges of the

Superior Court granting motions for summary judgment for the

defendants on the borrower's claims that Fremont Investment &

Loan (Fremont) and its assignee, Nationstar Mortgage, LLC

(Nationstar), (i) violated an injunction imposed on Fremont and

later extended to Fremont's assignees foreclosing on his

mortgage without the approval of the Attorney General, (ii)

violated G. L. c. 93A by structuring a mortgage consisting of

high-cost loans which Fremont had no reasonable expectation the

borrower could repay, and misleading the borrower as to the

viability of the transaction; (iii) violated c. 93A by using

unfair and deceptive loan modification practices; and (iv)

should be enjoined from evicting the borrower from his home.

Because we conclude that the borrower has at least raised a

question of fact on his c. 93A claim, we reverse.

    Background.     On July 9, 2004, the borrower purchased the

home located at 152 Independence Avenue in Quincy for $348,000

financed with a mortgage loan of $330,600 from Wells Fargo Bank,

N.A. (Wells Fargo).   The Wells Fargo loan was an adjustable rate

loan with an initial rate of 5.25 percent and an initial monthly

payment of $2,137.32, including taxes and insurance.    The

maximum interest rate was 11.25 percent.    After the rate

increased to approximately eight percent and his monthly
                                                                    3


payments increased to $2,884, the borrower had difficulty making

his monthly mortgage payments along with his credit card debt of

approximately $630 per month.   Carrying a total monthly debt of

approximately $3,514, the borrower sought to refinance the loan

to consolidate his debt and reduce his monthly payments.   He

engaged a mortgage broker, Popular Mortgage Group, which

submitted his mortgage application to Fremont.

     The borrower asserts that his monthly income on his loan

application was inflated to $8,500 from the $6,000 figure he

provided and which, he contends, was supported by documentation

he submitted.2   The parties contest who bore responsibility for

the $8,500 figure.

     Fremont structured the refinancing, executed by the

borrower on January 24, 2007, by granting the borrower two loans

totaling $370,000:   the "first loan," an adjustable rate note in

the principal amount of $296,000 at an initial rate of 7.9

percent and an adjustable rate feature which would adjust upward

by adding 5.528 percent to the LIBOR index3 at the time of any


     2
       Fremont contends in the joint statement of material facts
that it has insufficient information to either admit or deny the
allegation that the borrower's income was approximately $6,000,
and therefore it denied the same. Fremont further contends the
borrower's income is not a material fact precluding summary
judgment.
     3
       As explained in Commonwealth v. Fremont Inv. & Loan, 452
Mass. 733, 737 n.10 (2008), Fremont's variable rate "was based
on the six month London Interbank Offered Rate (LIBOR), a market
                                                                   4


change date, to a maximum of 13.9 percent, and a "second loan"

in the amount of $74,000 at a fixed interest rate of 10.5

percent (together, the refinance loans).   The first upward

adjustment on the first loan was scheduled to occur three years

from the date of the loan, at which time the rate could adjust

upward by as much as three percent.   Thereafter, the rate could

adjust every six months, with a maximum 1.5 percent increase at

each change, until reaching a maximum of six percent over the

original 7.9 percent.   The borrower was told by the broker that

the two loans would provide 100 percent financing and would be

more convenient for him.4

     The initial monthly payment on the first loan was

$2,368.59, including taxes and insurance of $481.16 and the


interest rate, plus a fixed margin (referred to as a 'rate add')
to reflect the risk of the loan. For example, the variable rate
might be expressed as 'LIBOR plus 5,' meaning the LIBOR interest
rate increased by an additional five percentage points as the
rate add."
     4
       Although the borrower contends he was not given an
opportunity to read the loan documents because Fremont's
attorney told him it would take "weeks," he admits he signed
documents for both loans, including the adjustable rate note;
fixed rate note; balloon payment rider; balloon note addendum;
mortgages; adjustable rate and balloon payment rider; estimated
payment letters; lender's closing instructions; truth-in-lending
disclosure statement; itemization of amount financed; notice of
right to cancel; escrow/impound account agreement; Massachusetts
application disclosures; Massachusetts borrower benefit
worksheet and certifications; appraisal disclosure; mortgage
lender disclosures required by the Attorney General's consumer
protection regulations; consumer's guide to obtaining a home
mortgage; Fremont refinance benefit letter; loan transaction
fees; and credit account reporting disclosure.
                                                                     5


monthly payment on the second loan was $676.91, for a total of

$3,045.90.   If the borrower's monthly income was $6,000, even

the initial payments exceeded fifty percent of his gross monthly

income, and if it was $8,500, the payments constituted thirty-

six percent of that income.

     Presumably to keep the monthly payment low, the first note

was amortized over fifty years, although the term of the loan

was thirty years.   This resulted in a balloon payment at the end

of the thirty-year term.   The balloon rider signed by the

borrower did not reveal the amount of the balloon payment.     The

truth in lending disclosure statement reveals that the balloon

payment would be $264,963, which is approximately ninety percent

of the original note.   It is not clear whether the balloon

payment includes additional charges and interest which would

bear on any calculation of the actual interest rate.5

     The truth in lending disclosure statement also indicates

the monthly payment on the first note would adjust upward after

three years to $2,684.84 for the rest of the thirty-year term.

Thus, the total monthly payment after the first three years for

the two refinance loans and taxes and insurance would be $4,023.

If, however, the interest rate further adjusted to the ceiling

     5
       The adjustable mortgage loan disclosure indicates the
balloon payment includes a regular monthly payment together with
the remaining unpaid principal balance of the loan, all accrued
and unpaid interest, and all charges due under the loan note.
                                                                   6


of 13.9 percent, monthly payments would be in the vicinity of

$3,400, bringing the monthly payments to $4,558.6   Even accepting

that the borrower's monthly income was $8,500, the monthly

payment could exceed fifty percent of the borrower's income

after four years, and within three years would exceed by several

hundred dollars the monthly amount that the borrower had already

indicated he could not handle and that had led to his desire to

refinance.

     It is undisputed that the refinance loans paid off the

Wells Fargo loan in the amount of $322,118.83 and provided the

borrower with $37,114.23 at closing.   The borrower used the

money to pay off his credit card debt and do repair work on the

property.7   Nonetheless, the borrower admits that he was unable

to make his payments because his income was reduced as a result

of the decline in the economy.   His last payment on the notes

was made in November of 2008, and his inability to pay preceded

any interest rate increase on the first loan.   Nationstar

foreclosed on the property in November of 2009 and purchased the

property at the foreclosure sale for $260,897.06.


     6
       It is unclear why the truth in lending disclosure does not
reveal these potential payments.
     7
       Although an appraisal report dated January 5, 2007, valued
the property at $420,000, the parties dispute which of them
obtained the appraisal, and the borrower disputes the appraised
value.
                                                                   7


     In July of 2007, Fremont notified the borrower that it was

transferring the servicing of its notes to Nationstar.   Fremont

and Nationstar insist, supported by an affidavit of Ralph

Uribarre, "AVP/Secondary and Master Servicer" for Signature

Group Holdings, Inc.,8 that all beneficial interest in the

refinance loans was transferred to Nationstar on March 30, 2007,

and all servicing rights in the loans were transferred to

Nationstar on July 5, 2007.9   The borrower points to the only

transfer recorded in the registry of deeds, MERS's transfer of

the mortgage to Nationstar recorded on May 14, 2009, to support

his positon that Nationstar, as assignee of a Fremont home

mortgage in 2009, was required to give notice to the Attorney

General before foreclosing on his mortgage.10

     Discussion.   "We review the disposition of a motion for

summary judgment de novo . . . to determine whether all material

facts have been established such that the moving party is


     8
       Uribarre states that Signature Group Holdings, Inc., is
the successor in interest to Fremont Reorganizing Corporation,
formerly known as Fremont Investment & Loan. See note 1, supra.
     9
       Uribarre states that Fremont was the payee of the notes
but that Mortgage Electronic Registration Systems, Inc. (MERS),
as nominee of Fremont and/or its assignees, was the mortgagee of
the mortgages executed by the borrower as security for the
notes.
     10
       See Commonwealth v. Fremont Inv. & Loan, 452 Mass. at
739-741 (Fremont preliminary injunction entered in February,
2008, and was extended to future assignees on March 31, 2008).
                                                                     8


entitled to judgment as a matter of law . . . [and] [w]e

construe all facts in favor of the nonmoving party."     American

Intl. Ins. Co. v. Robert Seuffer GMBH & Co. Kg., 468 Mass. 109,

112, cert. denied, 135 S. Ct. 871 (2014) (quotation omitted).

    Because Fremont transferred the loans and servicing rights

to Nationstar in 2007, prior to the imposition of any

injunction, and MERS thereafter held the mortgages for

Nationstar as assignee of Fremont, we agree that Nationstar did

not violate the injunction against Fremont.    The assignment of

the notes and servicing rights preceded the injunction imposed

in February of 2008 against Fremont and extended to Fremont's

assigns in March of 2008.   Thus Nationstar was not required to

notify the Attorney General prior to pursuing foreclosure

against the borrower in 2009.    We also agree that Nationstar's

negotiations with Moronta to modify the loans did not violate

c. 93A.   Although it took effort and persistence on the

borrower's part, Nationstar ultimately did offer to reduce the

borrower's payments by $500 per month.    That this was not enough

to meet the borrower's reduced monthly income does not mean

Nationstar's refinancing negotiations were unfair within the

meaning of G. L. c. 93A.    Moreover, that Nationstar went forward

with foreclosure proceedings while negotiating with the borrower

is not evidence of unfairness where the borrower concedes he was

in default on his note.    We agree with the judge that the
                                                                   9


borrower's claim of unfair and deceptive loan modification

practices must fail.11    Accordingly, we move to the other aspects

of the borrower's c. 93A claim, that are unrelated to the

modification.12

     "[General Laws c.] 93A prohibits the origination of a home

mortgage loan that the lender should recognize at the outset

that the borrower is not likely to be able to repay."

Drakopoulos v. U.S. Bank Natl. Assn., 465 Mass. 775, 786 (2013),

quoting from Frappier v. Countrywide Home Loans, Inc., 645 F.3d

51, 56 (1st Cir. 2011).    While in Commonwealth v. Fremont Inv. &

Loan, 452 Mass. 733, 739, 747 (2008), the court identified four

     11
       We reject Nationstar's argument that the borrower cannot
proceed on his G. L. c. 93A claim because he failed to serve a
demand letter pursuant to c. 93A, § 9, on Nationstar. A written
demand is required pursuant to G. L. c. 93A, § 9(3), as
appearing in St. 1979, c. 406, § 2, unless "the prospective
respondent does not maintain a place of business or does not
keep assets within the commonwealth." The borrower alleged in
his complaint that no c. 93A letter was required because the
defendants do not maintain places of business in the
Commonwealth. Nationstar's argument that its mortgages in the
Commonwealth constitute assets, and therefore the notice
requirement does apply even if it does not have a place of
business in the Commonwealth, ignores that the statute is
written in the disjunctive.
     12
       Nationstar argues, apparently for the first time on
appeal, that as assignee, it is not liable for c. 93A claims
stemming from Fremont's origination of the loan. We do not
address arguments raised for the first time on appeal. See
Carey v. New England Organ Bank, 446 Mass. 270, 285 (2006). We
note, however, that "as a matter of common law, assignees are
not shielded from liability under G. L. c. 93A by virtue of
their assignee status." Drakopoulos v. U.S. Bank Natl. Assn.,
465 Mass. 775, 787 n.16 (2013).
                                                                   10


characteristics that rendered the loans at issue there

presumptively unfair pursuant to c. 93A,13 and the loans at issue

here arguably meet only some of those criteria, the Supreme

Judicial Court has clarified that nothing in Fremont "was

intended to suggest that the universe of predatory home loans is

limited only to those meeting the four criteria present in that

case."    Drakopoulos v. U.S. Bank Natl. Assn., supra.   "[T]he

question is whether the lender should have recognized at the

outset that the plaintiffs were unlikely to be able to repay the

loan."    Ibid.   Indeed, the Supreme Judicial Court noted that

banks had been advised as early as 2001 that "[l]oans to

borrowers who do not demonstrate the capacity to repay the loan,

as structured, from sources other than the collateral pledged

are generally considered unsafe and unsound" and unfair to

borrowers.    Commonwealth v. Fremont Inv. & Loan, 452 Mass. at

744 (quotation omitted).     We conclude that there is a genuine

issue of material fact whether Fremont should have recognized at

     13
       The loans (1) "were [adjustable rate mortgage] loans with
an introductory rate period of three years or less; (2) . . .
featured an introductory rate for the initial period that was at
least three percent below the fully indexed rate; (3) . . . were
made to borrowers for whom the debt-to-income ratio would have
exceeded fifty percent had Fremont measured the borrower's debt
by the monthly payments that would be due at the fully indexed
rate rather than under the introductory rate; and (4) [had a]
loan-to-value ratio [of] one hundred per cent, or the loan
featured a substantial prepayment penalty . . . or a prepayment
penalty that extended beyond the introductory rate period."
Commonwealth v. Fremont Inv. & Loan, 452 Mass. at 739.
                                                                  11


the outset that the borrower was unlikely to be able to repay

the refinance loans at issue.

      Here, there are a number of factors that should have put

Fremont on notice that the borrower was unlikely to have the

ability to repay the refinance loans.   The first two criteria

articulated in Commonwealth v. Fremont Inv. & Loan, 452 Mass. at

739, are met:   the loan funding eighty percent of the total

amount loaned is an adjustable rate loan with an introductory

period of three years or less, and the introductory rate is at

least three points below the fully indexed rate.   In addition,

the loan funding twenty percent of the full amount is a fixed

rate loan at the high interest rate of 10.5 percent.

      Moreover, as we construe the record, there is at least a

question of fact whether the debt to income ratio would have

exceeded fifty percent of the borrower's gross monthly income,

particularly if considered at the fully indexed rate and without

ignoring, as the defendants do, the enormous balloon payment due

at the end of the term.   First, the borrower contends that all

of the information he provided to the broker indicated his

monthly income was $6,000, and he did not notice that it had

been inflated to $8,500 on the loan application when he signed

it.   Neither party developed the record whether the broker was

solely an agent for the borrower or whether it also had an

agency relationship with Fremont.   Competing bald assertions
                                                                    12


that the broker was or was not an agent of Fremont cannot be

resolved on this record.    Moreover, even where a borrower signs

a loan application listing a certain monthly income, we have

allowed for the possibility that the borrower can show it was

artificially inflated by the lender or, in this case, by

Fremont's agent.   Drakopoulos v. U.S. Bank Natl. Assn., 465

Mass. at 788.

    Second, as noted above, the monthly payments exceed fifty

percent of even the $8,500 gross monthly income when the

adjustable rate note is fully indexed.   In addition, spread over

the thirty-year term of the note, in order to be able to make

the balloon payment, the borrower would have had to effectively

save some $722 per month.   There was no suggestion that Fremont

considered whether, other than by a new loan, the borrower would

be able to make the fully indexed monthly payments or the

enormous balloon payment at the end of the term.    When the

balloon payment is factored into the equation, a trier of fact

might well conclude that Fremont should have recognized that the

borrower was unlikely to be able to repay the loan as

structured.

    Addressing the fourth Fremont criterion, it is not clear to

us that the loans at issue do not at least approach the 100 per

cent financing the Supreme Judicial Court deemed unfair in

Commonwealth v. Fremont Inv. & Loan, 352 Mass. at 739-740.
                                                                   13


There, the Supreme Judicial Court noted that Fremont frequently

financed properties 100 percent by dividing the amount financed

into the two piggy-back loans representing eighty and twenty

percent of the loan amount respectively.   See id. at 738 n.12.

Fremont used the same piggy-back loan split here.   Nothing in

the record explains the reason two loans were issued to the

borrower instead of one.   Fremont contends this was not a 100

percent finance of the property because it obtained an appraisal

prior to the loan closing that indicated the property had a

value of $420,000, which means the loan to value ratio was

eighty-eight percent.   While we agree that the borrower's

reliance on Zillow, an Internet Web site, is inadequate to

challenge the appraisal, where the piggy-back loan feature of

the refinancing is otherwise unexplained, at least at the

summary judgment stage, its use supports an adverse inference

suggesting the loan to value ratio approached 100 percent or

otherwise caused an underwriting concern that resulted in the

use of two loans.   If, as the trial judge noted in Commonwealth

v. Fremont Inv. & Loan, supra at 740, 100 percent financing is

problematic because of its impacts on the possibility of

refinancing in a declining market, we conclude there is at least

a question of fact as to whether eighty-eight percent

refinancing via an adjustable rate loan amortized over fifty

years, with resulting minimal paydown of principal and a ninety
                                                                   14


percent balloon payment at the end of thirty years, along with a

10.5 percent nonadjustable loan, also raises similar refinancing

concerns.

    For each of the loans, Fremont provided a "borrower benefit

worksheet and certification" asserting that the refinance

resulted in a reduction in the borrower's interest rate when

comparing the new home loan with the old home loan, even though

the instructions provided that for comparison purposes for

adjustable rate loans Fremont should use the initial note rate

plus the maximum lifetime cap for comparison purposes.   The

initial interest rate of the refinance loans considered together

was 8.42 percent which arguably exceeded the prior interest rate

of "around" eight percent even before the first note adjusted

upward.   But even if Fremont's calculations are correct and the

adjusted rate on the original loan was 8.75 percent, certainly

the maximum potential interest rate of 13.22 percent when both

loans are considered together exceeded the original note's 11.25

percent maximum.   Moreover, focus on the interest rate alone,

without considering the prolonged amortization schedule and

resulting delayed payment of principal and a net increase in

interest payments, is deceiving.   The effective interest rate

paid on a thirty-year note that is amortized over fifty years is

significantly greater than a thirty year note amortized over

thirty years.
                                                                  15


    We are aware that the borrower benefited by being able to

pay off the prior mortgage, pay off his credit cards, and make

improvements to his home.   In addition, there was at least a

temporary reduction in his monthly bills.    That reduction was to

be relatively short-lived, however, and the enormous balloon

payment at the end of the note casts doubt as to whether it is

possible to say the monthly bills truly were reduced.    Moreover,

if the only test were whether the borrower benefited in some way

from a refinancing loan, no loan would violate G. L. c. 93A.

    On the record presented, even if the refinancing loans at

issue do not exactly meet the criteria set forth in Commonwealth

v. Fremont Inv. & Loan, supra, in terms of loan to value ratio

and percentage of financing, we conclude that the additional

feature of the amortization over fifty years resulting in a

balloon payment approaching ninety percent of the full amount of

the adjustable rate note after thirty years of payments between

$1,900 and $3,400 per month, along with higher net interest

paid, raises a genuine issue of material fact as to whether the

loan is unfair under G. L. c.   93A.14   As in Drakopoulos v. U.S.

Bank Natl. Assn., 465 Mass. at 787, in these circumstances, "a

determination whether the lender acted unfairly or deceptively,




    14
       We have considered and rejected the defendants' claim
that there were no damages here.
                                                               16


in violation of G. L. c. 93A, when originating the [borrower's]

loan[s] is properly left to the finder of fact."

                                   Judgments reversed.
