The United States Court of Appeals for the First Circuit affirmed dismissal of two borrowers’ claims, raised five years after loan origination, that their mortgage lender violated Massachusetts’ consumer protection statute, which makes it unlawful to engage in unfair or deceptive practices in the conduct of any trade or commerce. The borrowers brought suit alleging that the mortgage lender failed to adequately disclose the terms of the loans prior to the borrowers signing the loan documents. In particular, the borrowers claimed the mortgage lender violated the Massachusetts consumer protection statute by (1) failing to provide a commitment letter, good-faith estimate, or other documentation required by the Real Estate Settlement Procedures Act; (2) providing "insufficient opportunity to review the terms of the loans;" and (3) because it "either ‘knew or should have known’" that the appraisal value was "too high." The mortgage lender moved to dismiss the claims as untimely and argued that the borrowers failed to allege any conduct that breached the covenant of good faith and fair dealing or violated the Massachusetts’ consumer protection statute. The lower court agreed and the borrowers appealed.
The First Circuit affirmed the lower court’s dismissal of the borrower’s state consumer protection statute claim as untimely given the four-year statute of limitations for such claims. The First Circuit was not persuaded by the borrowers’ argument that the statute of limitations should be tolled under the "discovery rule" or the "fraud exception." The First Circuit also rejected the borrowers’ claim of a breach of the implied covenant of good faith and fair dealing, holding that such a claim only governs the conduct of parties after they have entered into a contract and cannot create extra-contractual rights. The borrower’s complaint relied wholly on pre-contractual allegations that were superseded by the mortgage loan agreement.