STEVEN J. McAULIFFE, District Judge.
Bonnie McGrenaghan initially filed this action in state court, seeking to temporarily and permanently enjoin the Federal National Mortgage Association ("FNMA") from foreclosing its mortgage deed to her home. She also sought an order compelling FNMA to reform the underlying promissory note (which was executed by only her former husband) to allow her to assume it. The state court temporarily enjoined FNMA from foreclosing upon McGrenaghan's property — a foreclosure that had been scheduled for June 29, 2015.
FNMA removed the case to this court, invoking the court's diversity subject matter jurisdiction.
When ruling on a motion to dismiss under Fed. R. Civ. P. 12(b)(6), the court must "accept as true all well-pleaded facts set out in the complaint and indulge all reasonable inferences in favor of the pleader."
In other words, "a plaintiff's obligation to provide the `grounds' of his `entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do."
A final point bears making, given the fact that the parties rely upon several documents in support of their respective positions (e.g., the promissory note, the mortgage deed, various assignments of those documents, etc.). Typically, a court must decide a motion to dismiss exclusively upon the allegations set forth in the complaint (and any documents attached to that complaint) or convert the motion into one for summary judgment.
Accepting the petition's factual allegations as true — as the court must at this juncture — the relevant background is as follows. In September of 2001, John McGrenaghan (plaintiff's former husband) secured a loan from Wilmington National Finance, Inc. in the amount of $277,000. That loan was evidenced by a promissory note (the "Note"), which Mr. McGrenaghan executed. The obligation to repay that loan was secured by a mortgage deed to the McGrenaghans' residence in Stratham, New Hampshire (the "Mortgage"). Both Mr. McGrenaghan and plaintiff, who were married at the time, executed the Mortgage.
In October of 2011, plaintiff and Mr. McGrenaghan were divorced. Pursuant to the terms of their divorce decree, plaintiff was awarded the couple's Stratham residence. Accordingly, in January of 2012, Mr. McGrenaghan conveyed all of his interest in that property to plaintiff. The property did, however, remain subject to the Mortgage and, of course, Mr. McGrenaghan remained obligated under the terms of the Note. But, says plaintiff, it was then that she first learned that Mr. McGrenaghan had not been making timely monthly payments of principal and interest as required by the Note: she received a notice of foreclosure from FNMA and a statement of the amount necessary to reinstate the loan ($22,790.79). Plaintiff says she immediately placed that sum into her counsel's trust account and petitioned the Superior Court to enjoin the foreclosure.
The state court enjoined the foreclosure and the matter remained pending for approximately two years, until FNMA assigned the Mortgage to Bank of America, thereby destroying its own legal standing to pursue the foreclosure. Following FNMA's assignment of the Mortgage, the state court dismissed the action.
Meanwhile, in November of 2013, Mr. McGrenaghan filed for bankruptcy protection pursuant to Chapter 7 of the Bankruptcy Code. His obligation to repay the loan evidenced by the Note was among those that were discharged in bankruptcy. Approximately eighteen months later, Bank of America assigned the Mortgage back to FNMA, which re-instituted foreclosure proceedings. This litigation ensued.
Plaintiff advances several theories in support of her claim that FNMA lacks authority to foreclose (or that it should be equitably estopped from foreclosing) the mortgage deed. First, she claims that there are irregularities in the various assignments of the Mortgage, through which FNMA ultimately acquired it. Consequently, says plaintiff, FNMA lacks standing to exercise the Mortgage's statutory power of sale. Next, she claims that bad faith on the part of FNMA and/or its predecessor(s) in title prevented her from simply assuming the obligation evidenced by the Note and, therefore, FNMA should be precluded from enforcing the terms of the Mortgage. And, finally, she says that because the personal obligation to repay the loan evidenced by the Note was discharged in her former husband's bankruptcy, the Mortgage (which secures that obligation) is no longer enforceable. None of those claims has merit.
Nevertheless, as discussed below, plaintiff's petition adequately alleges the essential elements of a viable claim for breach of contract sufficient to partly survive defendant's motion to dismiss.
It is, perhaps, most appropriate to begin by addressing plaintiff's claim that the Mortgage is no longer enforceable because her former husband's obligations under the Note were discharged in bankruptcy. That assertion, at least under the facts alleged in the petition, is legally incorrect.
The United States Supreme Court explained the issue quite succinctly as follows:
The petition does not allege that the Mortgage was avoided in Mr. McGrenaghan's bankruptcy proceeding. Consequently, while his
Next, plaintiff alleges that FNMA lacks standing to enforce the mortgage because it has not established "proper chain of title to the Note and Mortgage." Plaintiff's Memorandum (document no. 7-1) at 5.
At most, however, the alleged deficiencies identified by plaintiff would render the challenged assignments voidable, rather than void.
Plaintiff's equitable claims are vague, and her legal memorandum does little to clarify them. She appears to assert that general equitable principles should apply to estop FNMA from foreclosing the Mortgage. She also appears to advance a claim that FNMA breached the implied covenant of good faith and fair dealing implicit in all New Hampshire contracts. Largely for the reasons set forth in defendant's memoranda, plaintiff's petition fails to set forth the essential elements of an equitable claim that FNMA's (alleged) unclean hands preclude it from enforcing the terms of the Mortgage. It also fails to state the essential elements of a viable claim for breach of the implied covenant of good faith and fair dealing.
Although the petition does not specifically caption it as such, a viable breach of contract claim is, at least arguably, adequately pled.
Because FNMA does not address plaintiff's breach of contract claim in its motion to dismiss or its supporting memorandum, and because neither party has submitted copies of the relevant notices that FNMA served upon Mr. McGrenaghan and/or plaintiff prior to instituting the most recent foreclosure proceedings, plaintiff's breach of contract claim is at least minimally sufficient to survive defendant's motion to dismiss. Such a claim better lends itself to resolution on summary judgment, when the parties will have the opportunity to present the court with a more comprehensive factual record of the documentation FNMA sent plaintiff and/or her former spouse prior to instituting foreclosure proceedings.
For the foregoing reasons, and largely for the reasons set forth in FNMA's legal memoranda, FNMA's motion to dismiss (document no. 6) is granted as to all claims advanced in plaintiff's petition, with the exception of one: breach of contract. Because the petition sets forth the essential elements of a viable breach of contract claim, and because neither party has submitted documentation that would refute that claim, it is sufficient to survive defendant's motion to dismiss.
Mortgage (document no. 6-3) at para. 13.