HAMP LAWSUITS

HAMP lawsuits

Plaintiff Anita A. Vida (“Vida”) alleges claims for breach of contract and fraud, and seeks declaratory judgment cancelling the trust deed and reinstating her mortgage. Defendants OneWest Bank, FSB (“OneWest”) and Federal National Mortgage Association (“FNMA”) (collectively “Defendants”) move for dismissal of all claims. Defendants argue that Vida has failed to state a claim for relief on the following grounds: (1) Vida may not state a breach of contract claim arising under the Home Affordable Mortgage Program (“HAMP”) because it does not authorize a private right of action; (2) Vida has not pleaded her fraud claim with sufficient particularity; and (3) Vida’s allegation that she did not receive adequate notice of the foreclosure action is preempted by state law. Defendants assert generally that Vida has otherwise failed to state claims of breach of contract and fraud.
Allegations
Vida has named both OneWest and FNMA as defendants in this action. The breach of contract claim alleges that OneWest offered loan modification, Vida accepted the offer, performed all required conditions, and gave consideration, after which OneWest breached its agreement with her and initiated foreclosure contrary to the terms of the modification. The fraud claim is premised on OneWest’s alleged statements advising Vida that loan modification was underway and “that no foreclosure sale would take place.” (Complaint ¶ 31.) Vida relied on these allegedly false statements, to her detriment, in failing to pursue remedies to halt the foreclosure. The request for declaratory relief references the defendants’ unclean hands as the cause of Vida’s property loss and seeks equitable relief to reinstate her as the property owner under the “agreed upon terms” as referenced in the complaint. (Complaint ¶ 40.)
Vida alleges the following facts. Vida is the former owner of a property “located at 31995 S Grimm Rd., Molalla, OR 97038.” (Comp. ¶ 2.) A deed of trust, dated January 10, 2007, and recorded January 16, 2007, named OneWest as the trust’s beneficiary and Mortgage Electronic Registration Systems, Inc. (“MERS”) as its nominee. In December 2008, Vida was “accepted into [HAMP] . . . after missing several payments[.]” (Comp. ¶ 6.) Reduced mortgage payments were scheduled and timely paid by Vida in January, February, and March 2009. Id. In March 2009, Vida was informed that she did not qualify for loan modification under HAMP because she did not meet the income requirements. (Comp. ¶ 7.)
On April 30, 2009, MERS assigned the deed of trust of the subject property to OneWest. (Comp. ¶ 9.) The assignment was recorded on May 6, 2009, as was a “Notice of Default and Election to Sell.” (Comp. ¶ 10.) Vida was notified in May 2009 of the planned sale at public auction of the subject property, scheduled for September 9, 2009. (Comp. ¶ 11.)
In June 2009, Vida notified OneWest of a change in her income and OneWest encouraged her to reapply for a loan modification. Vida submitted all of the requested documentation and was informed that she was “accepted into the HAMP Trial Period Program and was given a reduced monthly payment amount.” (Comp. ¶ 13.) On July 3, 2009, Vida received a letter from OneWest confirming receipt of said documentation. (Comp. ¶ 12.) In August 2009, Vida was informed, both verbally and in writing, that the foreclosure of her home was on hold in light of the HAMP trial period. Nonetheless, Vida’s home was sold at a trustee’s sale, as originally scheduled, on September 9, 2009.
On Setpember 10, 2009, OneWest returned Vida’s modified loan payment and informed her that it did not represent the total amount due. On September 20, 2009, Vida contacted OneWest and was told that the trial period had been cancelled because OneWest had not received all of the necessary documentation. After investigation, however, OneWest admitted that the paperwork was not the issue and that the modification had been cancelled because Vida was not income-eligible. (Comp. ¶ 18.) On October 9, 2009, OneWest informed Vida that her property had been sold in a foreclosure sale. (Comp. ¶ 19.) Vida was notified that her property had been purchased by FNMA when a notice was posted on her door on October 13, 2009. (Comp. ¶ 20.)
OneWest then informed Vida, by letter, that she was not qualified for modification under HAMP, though “they were willing to work with [her] to determine if there [were] any further alternatives to foreclosure.” (Comp.¶ 22.) This letter was received by Vida on October 23, 2009.
Legal Standard
In Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the Supreme Court addressed the pleading standard to adequately state a claim under the Federal Rules of Civil Procedure. Rule 8(a) governs pleadings and calls for “a short and plain statement of the claim showing that the pleader is entitled to relief . . . .” FED. R. CIV. P. 8(a) (2009). In 2007, the Court explicitly departed from the often-cited standard set forth in Conley v. Gibson, 355 U.S. 41 (1957). The Conley standard held that “a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt HAMP lawsuits

Plaintiff Anita A. Vida (“Vida”) alleges claims for breach of contract and fraud, and seeks declaratory judgment cancelling the trust deed and reinstating her mortgage. Defendants OneWest Bank, FSB (“OneWest”) and Federal National Mortgage Association (“FNMA”) (collectively “Defendants”) move for dismissal of all claims. Defendants argue that Vida has failed to state a claim for relief on the following grounds: (1) Vida may not state a breach of contract claim arising under the Home Affordable Mortgage Program (“HAMP”) because it does not authorize a private right of action; (2) Vida has not pleaded her fraud claim with sufficient particularity; and (3) Vida’s allegation that she did not receive adequate notice of the foreclosure action is preempted by state law. Defendants assert generally that Vida has otherwise failed to state claims of breach of contract and fraud.
Allegations
Vida has named both OneWest and FNMA as defendants in this action. The breach of contract claim alleges that OneWest offered loan modification, Vida accepted the offer, performed all required conditions, and gave consideration, after which OneWest breached its agreement with her and initiated foreclosure contrary to the terms of the modification. The fraud claim is premised on OneWest’s alleged statements advising Vida that loan modification was underway and “that no foreclosure sale would take place.” (Complaint ¶ 31.) Vida relied on these allegedly false statements, to her detriment, in failing to pursue remedies to halt the foreclosure. The request for declaratory relief references the defendants’ unclean hands as the cause of Vida’s property loss and seeks equitable relief to reinstate her as the property owner under the “agreed upon terms” as referenced in the complaint. (Complaint ¶ 40.)
Vida alleges the following facts. Vida is the former owner of a property “located at 31995 S Grimm Rd., Molalla, OR 97038.” (Comp. ¶ 2.) A deed of trust, dated January 10, 2007, and recorded January 16, 2007, named OneWest as the trust’s beneficiary and Mortgage Electronic Registration Systems, Inc. (“MERS”) as its nominee. In December 2008, Vida was “accepted into [HAMP] . . . after missing several payments[.]” (Comp. ¶ 6.) Reduced mortgage payments were scheduled and timely paid by Vida in January, February, and March 2009. Id. In March 2009, Vida was informed that she did not qualify for loan modification under HAMP because she did not meet the income requirements. (Comp. ¶ 7.)
On April 30, 2009, MERS assigned the deed of trust of the subject property to OneWest. (Comp. ¶ 9.) The assignment was recorded on May 6, 2009, as was a “Notice of Default and Election to Sell.” (Comp. ¶ 10.) Vida was notified in May 2009 of the planned sale at public auction of the subject property, scheduled for September 9, 2009. (Comp. ¶ 11.)
In June 2009, Vida notified OneWest of a change in her income and OneWest encouraged her to reapply for a loan modification. Vida submitted all of the requested documentation and was informed that she was “accepted into the HAMP Trial Period Program and was given a reduced monthly payment amount.” (Comp. ¶ 13.) On July 3, 2009, Vida received a letter from OneWest confirming receipt of said documentation. (Comp. ¶ 12.) In August 2009, Vida was informed, both verbally and in writing, that the foreclosure of her home was on hold in light of the HAMP trial period. Nonetheless, Vida’s home was sold at a trustee’s sale, as originally scheduled, on September 9, 2009.
On Setpember 10, 2009, OneWest returned Vida’s modified loan payment and informed her that it did not represent the total amount due. On September 20, 2009, Vida contacted OneWest and was told that the trial period had been cancelled because OneWest had not received all of the necessary documentation. After investigation, however, OneWest admitted that the paperwork was not the issue and that the modification had been cancelled because Vida was not income-eligible. (Comp. ¶ 18.) On October 9, 2009, OneWest informed Vida that her property had been sold in a foreclosure sale. (Comp. ¶ 19.) Vida was notified that her property had been purchased by FNMA when a notice was posted on her door on October 13, 2009. (Comp. ¶ 20.)
OneWest then informed Vida, by letter, that she was not qualified for modification under HAMP, though “they were willing to work with [her] to determine if there [were] any further alternatives to foreclosure.” (Comp.¶ 22.) This letter was received by Vida on October 23, 2009.
Legal Standard
In Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the Supreme Court addressed the pleading standard to adequately state a claim under the Federal Rules of Civil Procedure. Rule 8(a) governs pleadings and calls for “a short and plain statement of the claim showing that the pleader is entitled to relief . . . .” FED. R. CIV. P. 8(a) (2009). In 2007, the Court explicitly departed from the often-cited standard set forth in Conley v. Gibson, 355 U.S. 41 (1957). The Conley standard held that “a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Id. at 45-46. The Twombly court rejected this as an inappropriate pleading standard, and indicated that it had been taken out of its original context and should be “forgotten as an incomplete, negative gloss on an accepted pleading standard: once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint.” 550 U.S. at 563.
Not only did Twombly depart from the previous standard, it emphasized the need to include sufficient facts in the pleading to give proper notice of the claim and its basis: “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, 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.” Id. at 555 (internal citations and brackets omitted). Even so, the court noted that “a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and `that a recovery is very remote and unlikely.’” Id. at 556 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).
Since Twombly, the Supreme Court made clear that the pleading standard announced therein is generally applicable to cases governed by the Federal Rules of Civil Procedure, and not just those cases involving antitrust allegations.
As the Court held in Twombly, the pleading standard Rule 8 announces does not require “detailed factual allegations,” but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation. A pleading that offers “labels and conclusions” or “a formulaic recitation of the elements of a cause of action will not do.”
Ashcroft v. Iqbal, ___ U.S. ____, 129 S.Ct. 1937, 1949 (May 18, 2009) (quoting Twombly, 550 U.S. at 555) (internal citations omitted); see also Villegas v. J.P. Morgan Chase & Co., No. C 09-00261 SBA, 2009 U.S. Dist. LEXIS 19265, at *7-8 (N.D. Cal. Mar. 6, 2009) (“The Twombly standard, moreover, is of general application and is as easily applied to wage and hour litigation as antitrust.”). The Court went on to identify two principles informing the decision in Twombly. The first was that, although the court must assume true all facts asserted in a pleading, it need not accept as true any legal conclusions set forth in a pleading. The second principle requires that the complaint set forth a plausible claim for relief and not merely a possible claim for relief. The Court advised that “[d]etermining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Ashcroft, 129 S. Ct. at 1950 (citing Iqbal v. Hasty, 490 F.3d 143, 157-158 (2nd Cir. 2007)). In conclusion, the Court wrote: “While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations. When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.” Id.
Discussion
I. Breach of Contract
Defendants contend that Vida may not state a claim for breach of contract because HAMP does not provide for a private right of action. Several district courts in this circuit have held that HAMP does not authorize a private right of action against participating lenders.
In Marks v. Bank of America, No. 03:10-cv-08039-PHX-JAT, 2010 WL 2572988 (D. Ariz. June 22, 2010), the plaintiff alleged a claim for breach of contract as a third party beneficiary to a contract, arising under HAMP, between Bank of America and the U.S. Treasury. The court held that the plaintiff lacked standing to sue as she was not an intended beneficiary of the contract between the contracting parties. The court also interpreted the plaintiff’s “allegations regarding breach of contract [as] simply an attempt at enforcing a private right of action under HAMP.” Id. at *5. The court dismissed the claim on the grounds that HAMP does not permit a private right of action.
The court in Manabat v. Sierra Pacific Mortgage Co., No. CV F 10-1018 LJO JLT, 2010 WL 2574161 (E.D. Cal. June 25, 2010), also concluded that HAMP did not provide a private right of action. The court reasoned that, in specifically providing for private actions against the Secretary of the Treasury but not against others, Congress demonstrated that it “did not intend to create a private right of action for violation of HAMP against lenders that received HAMP funds.” Id. at *11 (internal quotation marks omitted). The court construed Manabat’s claim, that defendants Chase and MERS wrongfully failed to suspend their foreclosure action to allow Manabat to pursue alternatives to foreclosure, as a claim for failure to modify her loan in violation of HAMP. Upon so construing Manabat’s claim, the court dismissed it for lack of a private right of action.
In Hoffman v. Bank of America, No. C 10-2171 SI, 2010 WL 2635773, at *3 (N.D. Cal. June 30, 2010), the court agreed with its fellow district courts that “a borrower is not a third party beneficiary[]” to a HAMP contract between the lender and the Department of the Treasury. The plaintiff in Hoffman also alleged a breach of contract claim as “a stand alone right to enforce HAMP.” Id. at *5. The court wrote: “As previously discussed, lenders are not required to make loan modifications for borrowers that qualify under HAMP nor does the servicer’s agreement confer an enforceable right on the borrower.” Id.
Here, Vida contends that her breach of contract claim is independent of HAMP and is based on principles of the common law of contract. Vida seeks to distinguish the cases cited by Defendants holding that HAMP provides no private right of action on the ground that plaintiffs in those cases asserted a right to loan modification arising out of HAMP whereas Vida asserts that OneWest breached an existing agreement to modify Vida’s loan. Thus, she contends, her interest is not based on an entitlement established by HAMP, but rather on an agreement formed under the common law principles of offer and acceptance. In Wright v. Bank of America, N.A., No. CV 10-01723 JF (HRL), 2010 WL 2889117 (N.D. Cal. July 22, 2010), the court distinguished a lender’s obligation to modify a loan from its obligation to evaluate a loan for modification, noting that HAMP gave rise to the latter, but not the former.
The notion that a claim disallowed under HAMP may proceed under an alternate common law theory was addressed in Aleem v. Bank of America, No. EDCV 09-01812-VAP (RZx), 2010 WL 532330 (C.D. Cal. Feb. 9, 2010). There, the court distinguished between claims brought under HAMP and common law claims brought independent of HAMP. The plaintiffs moved to remand the claims to state court on the ground that they arose under state law and, thus, the federal court lacked jurisdiction. The defendants argued that the claims either arose under or implicated federal laws. The court concluded that “to the extent Plaintiffs’ [unfair business practices] claim [was] based upon the National Housing Act or HAMP, Plaintiffs ha[d] failed to state a claim.” Id. at *3. The plaintiffs’ claims were dismissed to the extent predicated on federal law, i.e., HAMP, and remanded to state court to the extent they were premised on state law.
Vida’s essential argument is this: although her breach of contract claim is premised on representations made in the course of the HAMP approval process and, to some extent, on representations made in HAMP documents themselves, it is not premised on an entitlement arising under HAMP and, thus, does not depend on a private right of action also arising under HAMP. Rather, the claim depends on representations made by OneWest which themselves amounted to an enforceable promise to modify her contract and refrain from initiating foreclosure.
The court agrees with the district courts in this circuit that HAMP does not authorize a private right of action against participating lenders. That said, the court does not agree with Defendants’ premise that they are wholly immunized for their conduct so long as the subject transaction is associated with HAMP. Even so, the facts and allegations as pleaded in this case are premised chiefly on the terms and procedures set forth via HAMP and are not sufficiently independent to state a separate state law cause of action for breach of contract.
In setting out her allegations of breach of contract, Vida relies primarily on representations made in uniform HAMP documents. Specifically, Vida refers to the document governing the HAMP trial period (“the Trial Period Plan” or “the Plan”). The Plan states:
If I am in compliance with this Trial Period Plan (the “Plan”) and my representations in Section 1 continue to be true in all material respects, then the Lender will provide me with a Home Affordable Modification Agreement (“Modification Agreement”), as set forth in Section 3, that would amend and supplement (1) the Mortgage on the Property, and (2) the Note secured by the Mortgage.
(Complaint, Exhibit 6 at 1.) Thus, Vida argues, to the extent that she complied with the Plan and made no material misrepresentations, she was entitled to modification of her loan. In other words, this Plan acted as an offer which Vida subsequently accepted by timely complying with all of its requirements. The Plan also states that “the Lender will suspend any scheduled foreclosure sale,” so long as Vida complies with the Plan obligations, though it also provides that “any pending foreclosure action will not be dismissed and may be immediately resumed from the point at which it was suspended if this Plan terminates[.]” Id. at 2. Vida next cites a letter she received from IndyMac Mortgage Services which confirms its receipt of her “signed modification agreement[,]” and references the upcoming loan modification process. (Complaint, Exhibit 5.) As Vida points out, this document does not refer to HAMP or the Trial Period Plan.
The flaw in Vida’s logic is that the alleged offer to modify came about and was made wholly under the rubric of HAMP, as were Vida’s alleged actions in acceptance of the offer, i.e., submitting the required documentation, and the alleged consideration, i.e., remitting reduced loan payments. Vida fails to state a cause of action independent of HAMP, for which there is no private right of action.
Vida also contends that, even if the claim arises under HAMP, she was entitled to modification because she met the eligibility requirements under HAMP and accepted OneWest’s Page 10> offer to modify. She cites the HAMP Supplemental Directive 09-01, which states:
All loans that meet the HAMP eligibility criteria and are either deemed to be in imminent default (as described above) or 60 or more days delinquent must be evaluated using a standardized NPV test that compares the NPV result for a modification to the NPV result for no modification. If the NPV result for the modification scenario is greater than the NPV result for no modification, the result is deemed “positive” and the servicer MUST offer the modification.
(Defendants’ Exhibit 1 at 4.) As Defendants note, a loan servicer is not obligated to proceed with a loan modification where the Net Present Value (“NPV”) test reveals that a foreclosure would be less costly than a modification. Defendants cite Williams v. Geithner, Civil No. 09-1959 ADM/JJG, 2009 WL 3757380 (D. Minn. Nov. 9, 2009),1 for the proposition that a loan servicer is permitted “the exercise of some discretion, including calculation of the NPV” in the modification approval process. Id. at *6. This, Defendants argue, underscores the conditional nature of the modification process.
Again, there is uniform agreement that HAMP does not provide for a private right of action and, even if Vida could establish a violation of HAMP, she lacks standing to assert such a claim. Furthermore, the Plan states explicitly that modification is not guaranteed until the modification process is complete, and not at any intermediate point in the modification process. The Trial Period Plan is explicitly not an enforceable offer for loan modification. It states:
I understand that the Plan is not a modification of the Loan Documents and that the Loan Documents will not be modified unless and until (i) I meet all of the conditions required for modification, (ii) I receive a fully executed copy of a Modification Agreement, and (iii) the Modification Effective Date has passed. I further understand and agree that the Lender will not be obligated or bound to make any modification of the Loan Documents if I fail to meet any one of the requirements under this plan.
(Defendants’ Exhibit 3 at 3.) The agreement also provides that if the lender does not furnish the borrower with “a fully executed copy of this Plan and the Modification Agreement[,]” the loan modification will not take place and the lender is entitled to pursue rights and remedies otherwise available under the loan. Id. at 2.
At hearing, Vida cited a recent decision by this court, wherein the court wrote:
This court agrees with [the plaintiff] that the Oregon courts allow the oral modification of a written contract containing an express no-oral-modification clause. However, to be binding, the terms of an oral modification of written contract must be established by clear and convincing evidence, and must be supported by consideration.
Barinaga v. JP Morgan Chase & Co., No. 10-CV-266-AC, 2010 WL 4338326, at *5 (D. Or. Oct. 26, 2010) (citations omitted). Thus, it is possible that Vida could base her claim of contract formation on the oral representations of Defendants that she seeks to include in an amended pleading. However, even if Vida could so allege a contract modification based on oral representations alone, she would still be unable to allege consideration for the loan modification. This issue was addressed squarely in Barinaga, where the court concluded that payments made during a loan modification trial period did not qualify as consideration because they did not represent “anything other than what [the plaintiff] was already obligated to [do] under the terms of the Loan.” Id. Vida has stated no other basis for consideration and, thus, cannot state a claim for breach of a contract that was modified by oral representations.
For the reasons above stated, Defendants’ motion to dismiss Vida’s breach of contract claim is granted.
II. Fraud
Vida alleges that OneWest fraudulently represented that foreclosure of the subject property would be postponed during the loan modification process. A claim of fraud must set forth the following elements:
`(1) a representation; (2) its falsity; (3) its materiality; (4) the speaker’s knowledge of its falsity or ignorance of its truth; (5) [the speaker’s] intent that it should be acted on by the person and in the matter reasonably contemplated; (6) the hearer’s ignorance of its falsity; (7) [the hearer’s] reliance on its truth; (8) [the hearer’s] right to rely thereon; (9) and [the hearer’s] consequent and proximate injury.’
Merten v. Portland General Electric Co., 234 Or.App. 407, 416, 228 P.3d 623 (2010) (citing Wieber v. FedEx Ground Package System, Inc., 231 Or.App. 469, 480, 220 P.3d 68 (2009)) (brackets in original). To adequately allege such a claim in federal court, the plaintiff must comply with the requirements of Federal Rule of Civil Procedure 9(b), which provides that allegations of fraud be stated “with particularity[.]” FED. R. CIV. P. 9(b). To state with particularity, the plaintiff must “state the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentation.” Schrieber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986).
Defendants argue that Vida’s allegations fail to adequately state a claim of fraud. Specifically, Defendants argue that the relevant communications referenced in the complaint do not state that the loan modification was definite, nor do they state that foreclosure would not occur. Defendants refer to the July 3, 2010, letter confirming receipt of the signed modification agreement, as well as the Trial Period Plan. The letter contains a handwritten notation which states: “FORECLOSURE, Sept. 9th, Put on hold.” (Complaint, Exhibit 5.) Defendants also cite the Plan, which states: “any pending foreclosure action will not be dismissed and may be immediately resumed from the point at which it was suspended if this Plan terminates,” without any additional notice to the borrower. (Complaint, Exhibit 2 at 2.) Defendants also argue that the verbal representations alleged by Vida have not been pleaded with sufficient particularity.
Vida responds that she has adequately pleaded her claim of fraud by submitting documentary evidence of that fraud. She also points to an email which references the subject property and states: “As of 08/24/09 the foreclosure for the above listed property has been placed on hold for HAMP review. Regional Trustee Services will maintain the hold status unless directed otherwise by our lender OneWest formerly IndyMac.” (Complaint, Exhibit 7.) Vida also argues that, to the extent verbal representations are not pleaded with particularity, it is because Defendants are in possession of the relevant records and Vida will not have access to those records and facts until after discovery begins.
As currently pleaded, Vida has failed to state a claim for fraud. First, the cited communications do not guarantee that Vida’s property would not be foreclosed on. Rather, they merely state that the foreclosure was put on hold. Specifically, the August 24, 2009, email stated that foreclosure will remain on hold unless the lender directs otherwise. Second, the Plan itself states that the foreclosure may be recommenced at any time upon termination of the Plan. Under these allegations, Vida has not stated facts sufficient to allege that Defendants acted fraudulently in representing to Vida that her loan was provisionally on hold and subsequently recommencing foreclosure. Defendants motion to dismiss this claim is granted.
Vida seeks leave to replead her fraud claim to include allegations regarding verbal representations by Defendants via their agents. Vida claims that Defendants’ unequivocal representations amount to fraud and cure the pleading deficiencies identified above. This request is granted.
III. Preemption by State Law
Oregon Revised Statutes 86.740 provides that “at least 120 days before” a foreclosure sale, notice must be served upon or mailed to:
(a) The grantor in the trust deed.
(b) Any successor in interest to the grantor whose interest appears of record, or of whose interest the trustee or the beneficiary has actual notice.
(c) Any person, including the Department of Revenue or any other state agency, having a lien or interest subsequent to the trust deed if the lien or interest appears of record or the beneficiary has actual notice of the lien or interest.
(d) Any person requesting notice as provided in ORS 86.785.
OR. REV. STAT. 86.740(1) (2009). Defendants argue that Vida’s fraud claim, to the extent it is premised on a failure to notify her of the foreclosure sale, is preempted by ORS 86.742. Defendants specifically cite ORS 86.742(6), which states: “The remedies described in subsections (1) to (5) of this section shall be the sole remedies available to a person entitled to notice of foreclosure by advertisement and sale under ORS 86.740(1)(c).” OR. REV. STAT. 86.742(6) (2009).
Section 6, as Vida points out, refers specifically to persons entitled to notice under ORS 86.740(1)(c), which mandates notice to junior or subsequent lien holders. Vida is the grantor in the trust deed and is not a junior or subsequent lien holder. Therefore, ORS 86.742(6) does not provide that her sole remedy is under that statute.
Defendants cite Stations West, LLC v. Pinnacle Bank of Oregon, Civil No. 06-1419-KI, 2007 WL 1219952 (D. Or. Apr. 23, 2007), in support of their preemption argument.
In this case, the plaintiff alleged violations, by the trustee, of the notice requirements in ORS 86.735 and 86.745. The defendant trustee sought dismissal of these claims on the ground that the plaintiff failed to adequately plead under ORS 86.742 that it did not receive actual notice of the sale, that it could and would have cured the default, and that it suffered actual damages. The court wrote: “The only way plaintiff can challenge [the trustee’s] failure to comply with statutory obligations, including ORS 86.735, in arranging for the nonjudicial foreclosure of the trust deed is by bringing a suit under ORS 86.742.” Id. at *7. Thus, where the plaintiff’s claim is premised on the statutory notice requirements, the proper avenue of relief is through a claim under ORS 86.742.
In the present case, Vida does not assert a claim premised on a failure to comply with statutory notice provisions. Rather, Vida’s claim is premised on Defendants’ representations that foreclosure on the subject property would be suspended for the duration of the modification process were fraudulent and resulted in Vida’s detrimental reliance. Defendants’ attempt to reframe Vida’s fraud claim as one for statutorily inadequate notice does not alter this analysis.
For these reasons, Vida’s fraud claim is not preempted by ORS 86.742.
IV. Promissory Estoppel
At hearing, Vida requested leave to replead to include a claim for promissory estoppel. Defendants neither objected to the request nor sought an opportunity to brief this issue. As such, because Vida should be given leave to replead her complaint on her fraud claim, she also should be allowed to include a promissory estoppel claim. Accordingly, such leave is granted.
Conclusion
For the reasons stated, Defendants’ Motion to Dismiss (#3) is GRANTED. Vida is permitted to replead consistent with this disposition.
IT IS SO ORDERED.
Footnotes
1. In Williams, the plaintiffs asserted a constitutional claim for procedural due process and, thus, the court analyzed whether HAMP created a protected property interest “the denial of which must comport with due process protections[,]” concluding that it did not. Id. at *7.
SOURCE: United States District Court, D. Oregon, Portland Division.
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that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Id. at 45-46. The Twombly court rejected this as an inappropriate pleading standard, and indicated that it had been taken out of its original context and should be “forgotten as an incomplete, negative gloss on an accepted pleading standard: once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint.” 550 U.S. at 563.
Not only did Twombly depart from the previous standard, it emphasized the need to include sufficient facts in the pleading to give proper notice of the claim and its basis: “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, 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.” Id. at 555 (internal citations and brackets omitted). Even so, the court noted that “a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and `that a recovery is very remote and unlikely.’” Id. at 556 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).
Since Twombly, the Supreme Court made clear that the pleading standard announced therein is generally applicable to cases governed by the Federal Rules of Civil Procedure, and not just those cases involving antitrust allegations.
As the Court held in Twombly, the pleading standard Rule 8 announces does not require “detailed factual allegations,” but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation. A pleading that offers “labels and conclusions” or “a formulaic recitation of the elements of a cause of action will not do.”
Ashcroft v. Iqbal, ___ U.S. ____, 129 S.Ct. 1937, 1949 (May 18, 2009) (quoting Twombly, 550 U.S. at 555) (internal citations omitted); see also Villegas v. J.P. Morgan Chase & Co., No. C 09-00261 SBA, 2009 U.S. Dist. LEXIS 19265, at *7-8 (N.D. Cal. Mar. 6, 2009) (“The Twombly standard, moreover, is of general application and is as easily applied to wage and hour litigation as antitrust.”). The Court went on to identify two principles informing the decision in Twombly. The first was that, although the court must assume true all facts asserted in a pleading, it need not accept as true any legal conclusions set forth in a pleading. The second principle requires that the complaint set forth a plausible claim for relief and not merely a possible claim for relief. The Court advised that “[d]etermining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Ashcroft, 129 S. Ct. at 1950 (citing Iqbal v. Hasty, 490 F.3d 143, 157-158 (2nd Cir. 2007)). In conclusion, the Court wrote: “While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations. When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.” Id.
Discussion
I. Breach of Contract
Defendants contend that Vida may not state a claim for breach of contract because HAMP does not provide for a private right of action. Several district courts in this circuit have held that HAMP does not authorize a private right of action against participating lenders.
In Marks v. Bank of America, No. 03:10-cv-08039-PHX-JAT, 2010 WL 2572988 (D. Ariz. June 22, 2010), the plaintiff alleged a claim for breach of contract as a third party beneficiary to a contract, arising under HAMP, between Bank of America and the U.S. Treasury. The court held that the plaintiff lacked standing to sue as she was not an intended beneficiary of the contract between the contracting parties. The court also interpreted the plaintiff’s “allegations regarding breach of contract [as] simply an attempt at enforcing a private right of action under HAMP.” Id. at *5. The court dismissed the claim on the grounds that HAMP does not permit a private right of action.
The court in Manabat v. Sierra Pacific Mortgage Co., No. CV F 10-1018 LJO JLT, 2010 WL 2574161 (E.D. Cal. June 25, 2010), also concluded that HAMP did not provide a private right of action. The court reasoned that, in specifically providing for private actions against the Secretary of the Treasury but not against others, Congress demonstrated that it “did not intend to create a private right of action for violation of HAMP against lenders that received HAMP funds.” Id. at *11 (internal quotation marks omitted). The court construed Manabat’s claim, that defendants Chase and MERS wrongfully failed to suspend their foreclosure action to allow Manabat to pursue alternatives to foreclosure, as a claim for failure to modify her loan in violation of HAMP. Upon so construing Manabat’s claim, the court dismissed it for lack of a private right of action.
In Hoffman v. Bank of America, No. C 10-2171 SI, 2010 WL 2635773, at *3 (N.D. Cal. June 30, 2010), the court agreed with its fellow district courts that “a borrower is not a third party beneficiary[]” to a HAMP contract between the lender and the Department of the Treasury. The plaintiff in Hoffman also alleged a breach of contract claim as “a stand alone right to enforce HAMP.” Id. at *5. The court wrote: “As previously discussed, lenders are not required to make loan modifications for borrowers that qualify under HAMP nor does the servicer’s agreement confer an enforceable right on the borrower.” Id.
Here, Vida contends that her breach of contract claim is independent of HAMP and is based on principles of the common law of contract. Vida seeks to distinguish the cases cited by Defendants holding that HAMP provides no private right of action on the ground that plaintiffs in those cases asserted a right to loan modification arising out of HAMP whereas Vida asserts that OneWest breached an existing agreement to modify Vida’s loan. Thus, she contends, her interest is not based on an entitlement established by HAMP, but rather on an agreement formed under the common law principles of offer and acceptance. In Wright v. Bank of America, N.A., No. CV 10-01723 JF (HRL), 2010 WL 2889117 (N.D. Cal. July 22, 2010), the court distinguished a lender’s obligation to modify a loan from its obligation to evaluate a loan for modification, noting that HAMP gave rise to the latter, but not the former.
The notion that a claim disallowed under HAMP may proceed under an alternate common law theory was addressed in Aleem v. Bank of America, No. EDCV 09-01812-VAP (RZx), 2010 WL 532330 (C.D. Cal. Feb. 9, 2010). There, the court distinguished between claims brought under HAMP and common law claims brought independent of HAMP. The plaintiffs moved to remand the claims to state court on the ground that they arose under state law and, thus, the federal court lacked jurisdiction. The defendants argued that the claims either arose under or implicated federal laws. The court concluded that “to the extent Plaintiffs’ [unfair business practices] claim [was] based upon the National Housing Act or HAMP, Plaintiffs ha[d] failed to state a claim.” Id. at *3. The plaintiffs’ claims were dismissed to the extent predicated on federal law, i.e., HAMP, and remanded to state court to the extent they were premised on state law.
Vida’s essential argument is this: although her breach of contract claim is premised on representations made in the course of the HAMP approval process and, to some extent, on representations made in HAMP documents themselves, it is not premised on an entitlement arising under HAMP and, thus, does not depend on a private right of action also arising under HAMP. Rather, the claim depends on representations made by OneWest which themselves amounted to an enforceable promise to modify her contract and refrain from initiating foreclosure.
The court agrees with the district courts in this circuit that HAMP does not authorize a private right of action against participating lenders. That said, the court does not agree with Defendants’ premise that they are wholly immunized for their conduct so long as the subject transaction is associated with HAMP. Even so, the facts and allegations as pleaded in this case are premised chiefly on the terms and procedures set forth via HAMP and are not sufficiently independent to state a separate state law cause of action for breach of contract.
In setting out her allegations of breach of contract, Vida relies primarily on representations made in uniform HAMP documents. Specifically, Vida refers to the document governing the HAMP trial period (“the Trial Period Plan” or “the Plan”). The Plan states:
If I am in compliance with this Trial Period Plan (the “Plan”) and my representations in Section 1 continue to be true in all material respects, then the Lender will provide me with a Home Affordable Modification Agreement (“Modification Agreement”), as set forth in Section 3, that would amend and supplement (1) the Mortgage on the Property, and (2) the Note secured by the Mortgage.
(Complaint, Exhibit 6 at 1.) Thus, Vida argues, to the extent that she complied with the Plan and made no material misrepresentations, she was entitled to modification of her loan. In other words, this Plan acted as an offer which Vida subsequently accepted by timely complying with all of its requirements. The Plan also states that “the Lender will suspend any scheduled foreclosure sale,” so long as Vida complies with the Plan obligations, though it also provides that “any pending foreclosure action will not be dismissed and may be immediately resumed from the point at which it was suspended if this Plan terminates[.]” Id. at 2. Vida next cites a letter she received from IndyMac Mortgage Services which confirms its receipt of her “signed modification agreement[,]” and references the upcoming loan modification process. (Complaint, Exhibit 5.) As Vida points out, this document does not refer to HAMP or the Trial Period Plan.
The flaw in Vida’s logic is that the alleged offer to modify came about and was made wholly under the rubric of HAMP, as were Vida’s alleged actions in acceptance of the offer, i.e., submitting the required documentation, and the alleged consideration, i.e., remitting reduced loan payments. Vida fails to state a cause of action independent of HAMP, for which there is no private right of action.
Vida also contends that, even if the claim arises under HAMP, she was entitled to modification because she met the eligibility requirements under HAMP and accepted OneWest’s Page 10> offer to modify. She cites the HAMP Supplemental Directive 09-01, which states:
All loans that meet the HAMP eligibility criteria and are either deemed to be in imminent default (as described above) or 60 or more days delinquent must be evaluated using a standardized NPV test that compares the NPV result for a modification to the NPV result for no modification. If the NPV result for the modification scenario is greater than the NPV result for no modification, the result is deemed “positive” and the servicer MUST offer the modification.
(Defendants’ Exhibit 1 at 4.) As Defendants note, a loan servicer is not obligated to proceed with a loan modification where the Net Present Value (“NPV”) test reveals that a foreclosure would be less costly than a modification. Defendants cite Williams v. Geithner, Civil No. 09-1959 ADM/JJG, 2009 WL 3757380 (D. Minn. Nov. 9, 2009),1 for the proposition that a loan servicer is permitted “the exercise of some discretion, including calculation of the NPV” in the modification approval process. Id. at *6. This, Defendants argue, underscores the conditional nature of the modification process.
Again, there is uniform agreement that HAMP does not provide for a private right of action and, even if Vida could establish a violation of HAMP, she lacks standing to assert such a claim. Furthermore, the Plan states explicitly that modification is not guaranteed until the modification process is complete, and not at any intermediate point in the modification process. The Trial Period Plan is explicitly not an enforceable offer for loan modification. It states:
I understand that the Plan is not a modification of the Loan Documents and that the Loan Documents will not be modified unless and until (i) I meet all of the conditions required for modification, (ii) I receive a fully executed copy of a Modification Agreement, and (iii) the Modification Effective Date has passed. I further understand and agree that the Lender will not be obligated or bound to make any modification of the Loan Documents if I fail to meet any one of the requirements under this plan.
(Defendants’ Exhibit 3 at 3.) The agreement also provides that if the lender does not furnish the borrower with “a fully executed copy of this Plan and the Modification Agreement[,]” the loan modification will not take place and the lender is entitled to pursue rights and remedies otherwise available under the loan. Id. at 2.
At hearing, Vida cited a recent decision by this court, wherein the court wrote:
This court agrees with [the plaintiff] that the Oregon courts allow the oral modification of a written contract containing an express no-oral-modification clause. However, to be binding, the terms of an oral modification of written contract must be established by clear and convincing evidence, and must be supported by consideration.
Barinaga v. JP Morgan Chase & Co., No. 10-CV-266-AC, 2010 WL 4338326, at *5 (D. Or. Oct. 26, 2010) (citations omitted). Thus, it is possible that Vida could base her claim of contract formation on the oral representations of Defendants that she seeks to include in an amended pleading. However, even if Vida could so allege a contract modification based on oral representations alone, she would still be unable to allege consideration for the loan modification. This issue was addressed squarely in Barinaga, where the court concluded that payments made during a loan modification trial period did not qualify as consideration because they did not represent “anything other than what [the plaintiff] was already obligated to [do] under the terms of the Loan.” Id. Vida has stated no other basis for consideration and, thus, cannot state a claim for breach of a contract that was modified by oral representations.
For the reasons above stated, Defendants’ motion to dismiss Vida’s breach of contract claim is granted.
II. Fraud
Vida alleges that OneWest fraudulently represented that foreclosure of the subject property would be postponed during the loan modification process. A claim of fraud must set forth the following elements:
`(1) a representation; (2) its falsity; (3) its materiality; (4) the speaker’s knowledge of its falsity or ignorance of its truth; (5) [the speaker’s] intent that it should be acted on by the person and in the matter reasonably contemplated; (6) the hearer’s ignorance of its falsity; (7) [the hearer’s] reliance on its truth; (8) [the hearer’s] right to rely thereon; (9) and [the hearer’s] consequent and proximate injury.’
Merten v. Portland General Electric Co., 234 Or.App. 407, 416, 228 P.3d 623 (2010) (citing Wieber v. FedEx Ground Package System, Inc., 231 Or.App. 469, 480, 220 P.3d 68 (2009)) (brackets in original). To adequately allege such a claim in federal court, the plaintiff must comply with the requirements of Federal Rule of Civil Procedure 9(b), which provides that allegations of fraud be stated “with particularity[.]” FED. R. CIV. P. 9(b). To state with particularity, the plaintiff must “state the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentation.” Schrieber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986).
Defendants argue that Vida’s allegations fail to adequately state a claim of fraud. Specifically, Defendants argue that the relevant communications referenced in the complaint do not state that the loan modification was definite, nor do they state that foreclosure would not occur. Defendants refer to the July 3, 2010, letter confirming receipt of the signed modification agreement, as well as the Trial Period Plan. The letter contains a handwritten notation which states: “FORECLOSURE, Sept. 9th, Put on hold.” (Complaint, Exhibit 5.) Defendants also cite the Plan, which states: “any pending foreclosure action will not be dismissed and may be immediately resumed from the point at which it was suspended if this Plan terminates,” without any additional notice to the borrower. (Complaint, Exhibit 2 at 2.) Defendants also argue that the verbal representations alleged by Vida have not been pleaded with sufficient particularity.
Vida responds that she has adequately pleaded her claim of fraud by submitting documentary evidence of that fraud. She also points to an email which references the subject property and states: “As of 08/24/09 the foreclosure for the above listed property has been placed on hold for HAMP review. Regional Trustee Services will maintain the hold status unless directed otherwise by our lender OneWest formerly IndyMac.” (Complaint, Exhibit 7.) Vida also argues that, to the extent verbal representations are not pleaded with particularity, it is because Defendants are in possession of the relevant records and Vida will not have access to those records and facts until after discovery begins.
As currently pleaded, Vida has failed to state a claim for fraud. First, the cited communications do not guarantee that Vida’s property would not be foreclosed on. Rather, they merely state that the foreclosure was put on hold. Specifically, the August 24, 2009, email stated that foreclosure will remain on hold unless the lender directs otherwise. Second, the Plan itself states that the foreclosure may be recommenced at any time upon termination of the Plan. Under these allegations, Vida has not stated facts sufficient to allege that Defendants acted fraudulently in representing to Vida that her loan was provisionally on hold and subsequently recommencing foreclosure. Defendants motion to dismiss this claim is granted.
Vida seeks leave to replead her fraud claim to include allegations regarding verbal representations by Defendants via their agents. Vida claims that Defendants’ unequivocal representations amount to fraud and cure the pleading deficiencies identified above. This request is granted.
III. Preemption by State Law
Oregon Revised Statutes 86.740 provides that “at least 120 days before” a foreclosure sale, notice must be served upon or mailed to:
(a) The grantor in the trust deed.
(b) Any successor in interest to the grantor whose interest appears of record, or of whose interest the trustee or the beneficiary has actual notice.
(c) Any person, including the Department of Revenue or any other state agency, having a lien or interest subsequent to the trust deed if the lien or interest appears of record or the beneficiary has actual notice of the lien or interest.
(d) Any person requesting notice as provided in ORS 86.785.
OR. REV. STAT. 86.740(1) (2009). Defendants argue that Vida’s fraud claim, to the extent it is premised on a failure to notify her of the foreclosure sale, is preempted by ORS 86.742. Defendants specifically cite ORS 86.742(6), which states: “The remedies described in subsections (1) to (5) of this section shall be the sole remedies available to a person entitled to notice of foreclosure by advertisement and sale under ORS 86.740(1)(c).” OR. REV. STAT. 86.742(6) (2009).
Section 6, as Vida points out, refers specifically to persons entitled to notice under ORS 86.740(1)(c), which mandates notice to junior or subsequent lien holders. Vida is the grantor in the trust deed and is not a junior or subsequent lien holder. Therefore, ORS 86.742(6) does not provide that her sole remedy is under that statute.
Defendants cite Stations West, LLC v. Pinnacle Bank of Oregon, Civil No. 06-1419-KI, 2007 WL 1219952 (D. Or. Apr. 23, 2007), in support of their preemption argument.
In this case, the plaintiff alleged violations, by the trustee, of the notice requirements in ORS 86.735 and 86.745. The defendant trustee sought dismissal of these claims on the ground that the plaintiff failed to adequately plead under ORS 86.742 that it did not receive actual notice of the sale, that it could and would have cured the default, and that it suffered actual damages. The court wrote: “The only way plaintiff can challenge [the trustee’s] failure to comply with statutory obligations, including ORS 86.735, in arranging for the nonjudicial foreclosure of the trust deed is by bringing a suit under ORS 86.742.” Id. at *7. Thus, where the plaintiff’s claim is premised on the statutory notice requirements, the proper avenue of relief is through a claim under ORS 86.742.
In the present case, Vida does not assert a claim premised on a failure to comply with statutory notice provisions. Rather, Vida’s claim is premised on Defendants’ representations that foreclosure on the subject property would be suspended for the duration of the modification process were fraudulent and resulted in Vida’s detrimental reliance. Defendants’ attempt to reframe Vida’s fraud claim as one for statutorily inadequate notice does not alter this analysis.
For these reasons, Vida’s fraud claim is not preempted by ORS 86.742.
IV. Promissory Estoppel
At hearing, Vida requested leave to replead to include a claim for promissory estoppel. Defendants neither objected to the request nor sought an opportunity to brief this issue. As such, because Vida should be given leave to replead her complaint on her fraud claim, she also should be allowed to include a promissory estoppel claim. Accordingly, such leave is granted.
Conclusion
For the reasons stated, Defendants’ Motion to Dismiss (#3) is GRANTED. Vida is permitted to replead consistent with this disposition.
IT IS SO ORDERED.
Footnotes
1. In Williams, the plaintiffs asserted a constitutional claim for procedural due process and, thus, the court analyzed whether HAMP created a protected property interest “the denial of which must comport with due process protections[,]” concluding that it did not. Id. at *7.
SOURCE: United States District Court, D. Oregon, Portland Division.
Related Posts:
• TORRES v. LITTON LOAN SERVICING: Another solicitation from Defendant for a loan modification plan
• CURTIS v. BAC HOME LOANS SERVICING: The Complaint is utterly frivolous and lacks any legal foundation
• No requirement exists under statutory framework to produce the original note to initiate non-judicial foreclosure
• SCHWEND v. US BANK: It is not at all clear who US Bank was a successor to
• BROWN v. BANK OF NEW YORK MELLON: Homeowners do not have a a private right of action under HAMP for denial of a loan modification

SB 94 and its interferance with the practice

CA SB 94 on Lawyers & Loan Modifications Passes Assembly… 62-10

The California Assembly has passed Senate Bill 94, a bill that seeks to protect homeowners from loan modification scammers, but could end up having the unintended consequence of eliminating a homeowner’s ability to retain an attorney to help them save their home from foreclosure.

The bill, which has an “urgency clause” attached to it, now must pass the State Senate, and if passed, could be signed by the Governor on October 11th, and go into effect immediately thereafter.

SB 94’s author is California State Senator Ron Calderon, the Chair of the Senate Banking Committee, which shouldn’t come as much of a surprise to anyone familiar with the bigger picture. Sen. Calderon, while acknowledging that fee-for-service providers can provide valuable services to homeowners at risk of foreclosure, authored SB 94 to ensure that providers of these services are not compensated until the contracted services have been performed.

SB 94 prevents companies, individuals… and even attorneys… from receiving fees or any other form of compensation until after the contracted services have been rendered. The bill will now go to the Democratic controlled Senate where it is expected to pass.

Supporters of the bill say that the state is literally teeming with con artists who take advantage of homeowners desperate to save their homes from foreclosure by charging hefty fees up front and then failing to deliver anything of value in return. They say that by making it illegal to charge up front fees, they will be protecting consumers from being scammed.

While there’s no question that there have been some unscrupulous people that have taken advantage of homeowners in distress, the number of these scammers is unclear. Now that we’ve learned that lenders and servicers have only modified an average of 9% of qualified mortgages under the Obama plan, it’s hard to tell which companies were scamming and which were made to look like scams by the servicers and lenders who failed to live up to their agreement with the federal government.

In fact, ever since it’s come to light that mortgage servicers have been sued hundreds of times, that they continue to violate the HAMP provisions, that they foreclose when they’re not supposed to, charge up front fees for modifications, require homeowners to sign waivers, and so much more, who can be sure who the scammers really are. Bank of America, for example, got the worst grade of any bank on the President’s report card listing, modifying only 4% of the eligible mortgages since the plan began. We’ve given B of A something like $200 billion and they still claim that they’re having a hard time answering the phones over there, so who’s scamming who?

To make matters worse, and in the spirit of Y2K, the media has fanned the flames of irrationality with stories of people losing their homes as a result of someone failing to get their loan modified. The stories go something like this:

We gave them 1,000. They told us to stop making our mortgage payment. They promised us a principal reduction. We didn’t hear from them for months. And then we lost our house.

I am so sure. Can that even happen? I own a house or two. Walk me through how that happened again, because I absolutely guarantee you… no way could those things happen to me and I end up losing my house over it. Not a chance in the world. I’m not saying I couldn’t lose a house, but it sure as heck would take a damn sight more than that to make it happen.

Depending on how you read the language in the bill, it may prevent licensed California attorneys from requiring a retainer in advance of services being rendered, and this could essentially eliminate a homeowner’s ability to hire a lawyer to help save their home.

Supporters, on the other hand, respond that homeowners will still be able to hire attorneys, but that the attorneys will now have to wait until after services have been rendered before being paid for their services. They say that attorneys, just like real estate agents and mortgage brokers, will now only be able to receive compensation after services have been rendered.

But, assuming they’re talking about at the end of the transaction, there are key differences. Real estate agents and mortgage brokers are paid OUT OF ESCROW at the end of a transaction. They don’t send clients a bill for their services after the property is sold.

Homeowners at risk of foreclosure are having trouble paying their bills and for the most part, their credit ratings have suffered as a result. If an attorney were to represent a homeowner seeking a loan modification, and then bill for his or her services after the loan was modified, the attorney would be nothing more than an unsecured creditor of a homeowner who’s only marginally credit worthy at best. If the homeowner didn’t pay the bill, the attorney would have no recourse other than to sue the homeowner in Small Claims Court where they would likely receive small payments over time if lucky.

Extending unsecured credit to homeowners that are already struggling to pay their bills, and then having to sue them in order to collect simply isn’t a business model that attorneys, or anyone else for that matter, are likely to embrace. In fact, the more than 50 California attorneys involved in loan modifications that I contacted to ask about this issue all confirmed that they would not represent homeowners on that basis.

One attorney, who asked not to be identified, said: “Getting a lender or servicer to agree to a loan modification takes months, sometimes six or nine months. If I worked on behalf of homeowners for six or nine months and then didn’t get paid by a number of them, it wouldn’t be very long before I’d have to close my doors. No lawyer is going to do that kind of work without any security and anyone who thinks they will, simply isn’t familiar with what’s involved.”

“I don’t think there’s any question that SB 94 will make it almost impossible for a homeowner to obtain legal representation related to loan modifications,” explained another attorney who also asked not to be identified. ”The banks have fought lawyers helping clients through the loan modification process every step of the way, so I’m not surprised they’ve pushed for this legislation to pass.”

Proponents of the legislation recite the all too familiar mantra about there being so many scammers out there that the state has no choice but to move to shut down any one offering to help homeowners secure loan modifications that charges a fee for the services. They point out that consumers can just call their banks directly, or that there are nonprofit organizations throughout the state that can help homeowners with loan modifications.

While the latter is certainly true, it’s only further evidence that there exists a group of people in positions of influence that are unfamiliar , or at the very least not adequately familiar with obtaining a loan modification through a nonprofit organization, and they’ve certainly never tried calling a bank directly.

The fact that there are nonprofit housing counselors available, and the degree to which they may or may not be able to assist a given homeowner, is irrelevant. Homeowners are well aware of the nonprofit options available. They are also aware that they can call their banks directly. From the President of the United States and and U.S. Attorney General to the community newspapers found in every small town in America, homeowners have heard the fairy tales about about these options, and they’ve tried them… over and over again, often times for many months. When they didn’t get the desired results, they hired a firm to help them.

Yet, even the State Bar of California is supporting SB 94, and even AB 764, a California Assembly variation on the theme, and one even more draconian because of its requirement that attorneys only be allowed to bill a client after a successful loan modification has been obtained. That means that an attorney would have to guarantee a homeowner that he or she would obtain a modification agreement from a lender or servicer or not get paid for trying. Absurd on so many levels. Frankly, if AB 764 passes, would the last one out of California please turn off the lights and bring the flag.

As of late July, the California State Bar said it was investigating 391 complaints against 141 attorneys, as opposed to nine investigations related to loan modifications in 2008. The Bar hasn’t read anywhere all of the complaints its received, but you don’t have to be a statistician to figure out that there’s more to the complaints that meets the eye. So far the State Bar has taken action against three attorneys and the Attorney General another four… so, let’s see… carry the 3… that’s 7 lawyers. Two or three more and they could have a softball team.

At the federal level they’re still reporting the same numbers they were last spring. Closed 11… sent 71 letters… blah, blah, blah… we’ve got a country of 300 million and at least 5 million are in trouble on their mortgage. The simple fact is, they’re going to have to come up with some serious numbers before I’m going to be scared of bumping into a scammer on every corner.

Looking Ahead…

California’s ALT-A and Option ARM mortgages are just beginning to re-set, causing payments to rise, and with almost half of the mortgages in California already underwater, these homeowners will be unable to refinance and foreclosures will increase as a result. Prime jumbo foreclosure rates are already up a mind blowing 634% as compared with January 2008 levels, according to LPS Applied Analytics.

Clearly, if SB 94 ends up reducing the number of legitimate firms available for homeowners to turn to, everyone involved in its passage is going to be retiring. While many sub-prime borrowers have suffered silently through this horror show of a housing crisis, the ALT-A and Option ARM borrowers are highly unlikely to slip quietly into the night.

There are a couple of things about the latest version of SB 94 that I found interesting:

1. It says that a lawyer can’t collect a fee or any other compensation before serivces have been delivered, but it doesn’t make clear whether attorneys can ask the client to deposit funds in the law firm’s trust account and then bill against thsoe funds as amounts are earned. Funds deposited in a law firm trust account remain the client’s funds, so they’re not a lawyer’s “fees or other compensation”. Those funds are there so that when the fees have been earned, the lawyer doesn’t have to hope his or her bill gets paid. Of course, it also says that an attorney can’t hold any security interest, but money in a trust account a client’s money, the attorney has no lien against it. All of this is a matter of interpretation, of course, so who knows.

2. While there used to be language in both the real estate and lawyer sections that prohibited breaking up services related to a loan modification, in the latest version all of the language related to breaking up services as applied to attorneys has been eliminated. It still applies to real estate licensed firms, but not to attorneys. This may be a good thing, as at least a lawyer could complete sections of the work involved as opposed to having to wait until the very end, which the way the banks have been handling things, could be nine months away.

3. The bill says nothing about the amounts that may be charged for services in connection with a loan modification. So, in the case of an attorney, that would seem to mean that… well, you can put one, two and three together from there.

4. Lawyers are not included in definition of foreclosure consultant. And there is a requirement that new language be inserted in contracts, along the lines of “You don’t have to pay anyone to get a loan modification… blah, blah, blah.” Like that will be news to any homeowner in America. I’ve spoken with hundreds and never ran across one who didn’t try it themselves before calling a lawyer. I realize the Attorney General doesn’t seem to know that, but look… he’s been busy.

Conclusion…

Will SB 94 actually stop con artists from taking advantage of homeowners in distress? Or will it end up only stopping reputable lawyers from helping homeowners, while foreclosures increase and our economy continues its deflationary free fall? Will the California State Bar ever finishing reading the complaints being received, and if they ever do, will they understand what they’ve read. Or is our destiny that the masses won’t understand what’s happening around them until it sucks them under as well.

I surely hope not. But for now, I’m just hoping people can still a hire an attorney next week to help save their homes, because if they can’t… the Bar is going to get a lot more letters from unhappy homeowners.

Don't get HAMP ED out of your home!

By Walter Hackett, Esq.
The federal government has trumpeted its Home Affordable Modification Program or “HAMP” solution as THE solution to runaway foreclosures – few things could be further from the truth. Under HAMP a homeowner will be offered a “workout” that can result in the homeowner being “worked out” of his or her home. Here’s how it works. A participating lender or servicer will send a distressed homeowner a HAMP workout agreement. The agreement consists of an “offer” pursuant to which the homeowner is permitted to remit partial or half of their regular monthly payments for 3 or more months. The required payments are NOT reduced, instead the partial payments are placed into a suspense account. In many cases once enough is gathered to pay the oldest payment due the funds are removed from the suspense account and applied to the mortgage loan. At the end of the trial period the homeowner will be further behind than when they started the “workout” plan.
In California, the agreements clearly specify the acceptance of partial payments by the lender or servicer does NOT cure any default. Further, the fact a homeowner is in the workout program does NOT require the lender or servicer to suspend or postpone any non-judicial foreclosure activity with the possible exception of an actual trustee’s sale. A homeowner could complete the workout plan and be faced with an imminent trustee’s sale. Worse, if a homeowner performs EXACTLY as required by the workout agreement, they are NOT assured a loan modification. Instead the agreement will include vague statements that the homeowner MAY receive an offer to modify his or her loan however there is NO duty on the part of the servicer or lender to modify a loan regardless of the homeowner’s compliance with the agreement.

A homeowner who fully performs under a HAMP workout is all but guaranteed to have given away thousands of dollars with NO assurance of keeping his or her home or ever seeing anything resembling an offer to modify a mortgage loan.
While it may well be the case the government was making an honest effort to help, the reality is the HAMP program is only guaranteed to help those who need help least – lenders and servicers. If you receive ANY written offer to modify your loan meet with a REAL licensed attorney and ask them to review the agreement to determine what you are REALLY agreeing to, the home you save might be your own.