Court: District Court, E.D. Kentucky; August 26, 2015; Federal District Court
Christine and Earl Bennett purchased a home in 2007 with a mortgage of $115,090 from Taylor, Bean & Whitaker Mortgage Corporation. Shortly after, they struggled to make payments and entered into a forbearance agreement. By May 2009, they began defaulting on their loan, leading Bank of America, which became the loan servicer that year, to initiate foreclosure proceedings in Kentucky state court. In September 2010, the court ordered the property to be foreclosed, although the home has not yet been sold.
In 2013, Bank of America transferred loan servicing to Rushmore Loan Management Services and sold the loan to MTGLQ Investors, LP, notifying the Bennetts of these changes. The Bennetts sought loan modifications to retain their home, participating in the Home Affordable Modification Program (HAMP). Between 2010 and early 2013, they submitted multiple loss mitigation applications to Bank of America, which they claim were either misplaced or inadequately addressed. In April 2013, they were informed of a denial for a loan modification, but the Bennetts assert they never received the official declination letter.
Afterward, the Bennetts engaged Emery Law for assistance, which submitted four additional loss mitigation applications to Rushmore from November 2013 to July 2014. Two applications were approved for forbearance, one went unprocessed, and one was declined due to insufficient documentation. The Bennetts have now filed a lawsuit in federal court, but the court finds that they have not sufficiently alleged facts to support most of their claims against the defendants.
The Bennetts assert that Emery and Friedman were not informed about the declination of their loan modification applications. On June 25, 2014, Rushmore approved a second forbearance agreement for the Bennetts, requiring a $12,500 lump sum followed by six monthly payments of $1,250 before considering a final loss mitigation plan. The Bennetts received a similar offer from Emery in July and instructed Emery to decline it, seeking further loan modification options instead. In pursuit of assistance, they submitted a written complaint to the Kentucky Attorney General's Office, requesting an inquiry into their loan modification status and the servicing practices of BANA. The Attorney General's office sent letters to both BANA and Rushmore, which included the Bennetts' personal information and specific inquiries. The Bennetts contend that the responses from both institutions were inadequate and contained inaccuracies, and they did not secure a loan modification despite the Attorney General's involvement. Consequently, Christine Bennett filed for Chapter 13 bankruptcy relief on January 30, 2015, but the case was dismissed a month later for non-compliance. Following this dismissal, the Bennetts filed a complaint against BANA, Rushmore, and MTGLQ. The defendants moved to dismiss the claims, arguing they failed to state a claim under Federal Rule of Civil Procedure 12(b)(6). The court must evaluate whether the Bennetts' complaint presents sufficient facts for a plausible claim while favoring the plaintiffs' allegations. The Bennetts allege BANA violated the Real Estate Settlement Procedures Act (RESPA) by not adequately responding to their qualified written requests, breached their mortgage contract, and did not comply with HAMP guidelines. BANA's motion to dismiss these claims was partially successful, as only the RESPA claim remains. BANA argues that the letters from the Attorney General do not qualify as Qualified Written Requests (QWRs) under RESPA and that the Bennetts cannot demonstrate damages, both of which the court finds unconvincing.
The Bennetts have sufficiently alleged a claim under the Real Estate Settlement Procedures Act (RESPA). Although Bank of America (BANA) argues that 12 C.F.R. 1024.36 requires servicers to respond only to Qualified Written Requests (QWRs) from borrowers directly, the Bennetts did not send such requests to BANA. However, RESPA's definition of QWRs includes requests from an "agent of the borrower," which is broader than the definition in Regulation X. While the Bennetts did not cite 12 U.S.C. 2605 in their complaint, the failure to reference the exact statutory provision does not warrant dismissal, as federal pleading standards allow for claims to proceed despite imperfect legal theories. The court will evaluate whether the Bennetts have pled adequate facts under RESPA section 2605(e)(1)(A). The term "agent" is not defined in RESPA, so the court will apply its ordinary meaning based on historical dictionary definitions, which suggest a broad interpretation that includes representatives acting on behalf of others. This interpretation aligns with Congress's intent in enacting section 2605 to protect homeowners' rights, as evidenced by its broader language compared to other sections of RESPA that specify "duly appointed agents." Thus, the inquiry will focus on whether the AG qualifies as an "agent" under the broader definition intended by Congress.
Homeowners typically act in an individual capacity during real estate transactions, suggesting Congress did not intend for "agent" to have a narrow, business-centric definition. The Attorney General (AG) qualifies as the Bennetts’ agent under section 2605 of RESPA because they authorized the AG to act on their behalf when seeking information from Bank of America (BANA). BANA recognized this agency relationship when it responded to the AG's communication on behalf of the Bennetts. Recognizing the AG as the Bennetts' agent aligns with the purpose of RESPA, a consumer protection statute that permits borrowers to seek assistance from government consumer protection agencies, like the AG's consumer protection division that aided the Bennetts.
The Seventh Circuit's ruling in Catalan v. GMAC Mortgage Corp. supports this broad interpretation of "agent," where HUD was deemed an agent for borrowers seeking help with mortgage servicing issues. The court stressed RESPA's consumer protection intent, noting that the defendant acknowledged the plaintiffs' request for information.
BANA contests the Bennetts' RESPA claim, arguing that they did not adequately plead damages and that any alleged inadequacies in BANA's response could not have harmed the Bennetts since BANA was no longer servicing the loan. BANA also claims the Bennetts failed to provide sufficient facts for a pattern allegation under RESPA. However, under RESPA, specific damage pleading is not required. The Sixth Circuit has ruled that a general statement of damages suffices, as demonstrated in Mellentine v. Ameriquest Mortgage Co., where the court found that plaintiffs only needed to allege damages that were "not yet ascertained" to meet the requirements of section 2605.
The court determined that the Bennetts' complaint sufficiently alleges that BANA violated section 2605(e), allowing for potential relief. The Bennetts provided detailed facts about BANA's inadequate responses to the Attorney General's letters, which hindered their evaluation of loss mitigation options. They claimed BANA's actions demonstrated a pattern of behavior that disregarded their rights and sought actual damages, statutory damages, and attorney's fees. Consequently, BANA's motion to dismiss Count I was denied.
In contrast, the court found that the Bennetts did not establish a breach of contract claim in Count II. They argued BANA failed to notify them of defaults and provided false information about their loan. However, the court ruled that BANA was excused from breach due to the Bennetts' prior default on the mortgage. The Bennetts did not identify any specific contractual provision that BANA violated and admitted the mortgage had no clauses regarding loan modifications. The court emphasized that without a legal or contractual duty to evaluate for loan modification, BANA could not be held liable. Additionally, while Kentucky law requires good faith in contractual performance, it does not recognize a breach of good faith claim outside the insurance context, which was applicable here.
The Bennetts have not cited any Kentucky cases that extend the cause of action for breach of good faith and fair dealing beyond the insurance context, nor have they provided a rationale for the court to do so. Consequently, their breach of contract claim should be dismissed. Additionally, the Bennetts' claim against BANA for breaching the Home Affordable Modification Program (HAMP) guidelines is unsupported. HAMP, established under the Emergency Economic Stabilization Act of 2008, aims to assist homeowners in avoiding foreclosure through loan modifications. Although BANA is a signatory to a Servicer Participation Agreement (SPA) under HAMP, and the Bennetts submitted an application for assistance, BANA allegedly denied their application without providing the required declination letter. The Bennetts assert that BANA had an obligation to review their eligibility for HAMP programs and to notify them of the decision regarding their application. However, HAMP and its enabling legislation do not create a federal right of action, meaning the Bennetts can only pursue a claim if Kentucky law allows it. They have not identified any such law that permits a third-party private action under HAMP. Despite acknowledging that HAMP does not explicitly allow for a private right of action, the Bennetts argue for the creation of one based on past circuit court rulings, specifically pointing to cases where plaintiffs had completed Trial Period Plans (TPPs) but were denied permanent modifications. However, the Bennetts' reliance on these cases is inappropriate as their circumstances differ significantly.
Wells Fargo's potential breach of the TPP agreement, as opposed to the HAMP agreement, is central to the cases of Wigod and Corvello, which do not apply to the Bennetts since they never qualified for a HAMP modification or received a TPP. The Bennetts adequately pled a claim under RESPA, but their breach of contract claims, including those related to HAMP, were dismissed under Fed. R. Civ. P. 12(b)(6). Consequently, BANA's motion to dismiss is partially granted, dismissing Counts II and III of the Bennetts’ complaint.
Against Rushmore, the Bennetts assert five claims, including violations of RESPA and the Fair Debt Collection Practices Act (FDCPA), as well as breach of contract and fraudulent representations. Rushmore moved to dismiss all five claims for failure to state a claim. Only the RESPA claims survive.
1. **Count IV**: The Bennetts successfully allege a RESPA violation under 12 U.S.C. 2605. Rushmore's argument that the letters originated from the Attorney General's office, rather than the Bennetts, does not hold because the AG qualifies as an agent under RESPA. Furthermore, the Bennetts provided sufficient facts to suggest that Rushmore inadequately responded to their Qualified Written Requests (QWRs), failing to provide accurate explanations regarding their loss mitigation applications.
2. **Count V**: The Bennetts also assert a claim under 12 C.F.R. 1024.41, which outlines servicer obligations upon receipt of a complete loss mitigation application. The Bennetts contend that Rushmore failed to notify them of all available loss mitigation options, having only provided a forbearance agreement instead of the promised proprietary trial loan modification, thus violating the regulatory requirement.
Overall, while BANA's motion to dismiss is granted in part, Rushmore's motion fails to dismiss the Bennetts' RESPA claims.
Rushmore contends that section 1024.41(f) mandates servicers to comply with loss mitigation requirements for only one complete application. It argues that BANA previously denied the Bennetts' modification requests from 2010 to 2013, thus exempting their case from section 1024.41. However, this interpretation is flawed, as section 1024.41(i) specifies compliance only applies to one complete application after the section's 2014 enactment. BANA did not adhere to these requirements regarding the Bennetts, indicating that Rushmore must comply with section 1024.41 at least once post-enactment.
Rushmore claims compliance by providing the Bennetts with a forbearance agreement, arguing no further offers were necessary. While it is correct that section 1024.41 does not obligate servicers to offer specific loss mitigation options, it does require them to inform borrowers of the options available. The Bennetts assert that Rushmore offered them both a forbearance agreement and a proprietary trial loan modification, with Rushmore having reviewed and approved the latter. Consequently, Rushmore was obligated to notify the Bennetts of both options under section 1024.41(c)(1)(ii). The Bennetts allege they were not informed of the proprietary trial loan modification, providing sufficient grounds for a claim of violation of section 1024.41.
Rushmore further argues that the Bennetts' claim is invalid since both options required a substantial payment for loan modification approval and suggests they would have rejected the trial loan modification as well. However, this reasoning misinterprets the documents, as Rushmore cannot justify failing to notify the Bennetts of both offers based on assumptions about their choices. Furthermore, Rushmore's own correspondence indicated that the substantial payment was only necessary after approval of a loan modification, not as a prerequisite for the trial modification approval, thus undermining its argument. Therefore, Rushmore's motion to dismiss Count V will be denied.
Rushmore is not liable for breach of contract as asserted by the Bennetts, who allege that Rushmore failed to inform them about a proprietary trial loan modification offer and misrepresented the status of their loss mitigation applications. However, these claims are invalidated by the Bennetts' prior breach of the mortgage contract due to their loan default, which they acknowledge. The Bennetts argue that Rushmore had an obligation to notify them under implied duties of good faith and fair dealing; however, Kentucky law does not recognize a cause of action for breach of good faith outside the insurance context. Consequently, Rushmore's motion to dismiss this count is granted.
Regarding the Bennetts' claims under the Fair Debt Collection Practices Act (FDCPA), which prohibits debt collectors from using misleading representations in debt collection, their allegations are dismissed. They cite four FDCPA violations, including claims about misleading representations in a forbearance agreement and misstatements in Rushmore’s communication with BANA. The court finds that the forbearance agreement itself does not contain misrepresentations, as it only details the specific terms of that loss mitigation option without suggesting it was the only option available. Additionally, Rushmore’s response to the Attorney General (AG) regarding a status inquiry from the Bennetts is deemed a ministerial response without the intent to induce payment, thus falling outside FDCPA applicability. Therefore, all claims under the FDCPA are dismissed.
BANA contacted Rushmore solely for information regarding the loan's status, not to solicit payment from the Bennetts, leading to the conclusion that the Fair Debt Collection Practices Act (FDCPA) does not apply to Rushmore's communications. The monthly mortgage statement sent by Rushmore does not violate the FDCPA, as it lacks any misrepresentations or contradictions regarding Rushmore's response to the Attorney General's inquiry. The Bennetts' vague allegations of misrepresentation in the statements are insufficient to support their claim, which ultimately fails based on the precedent that unsupported allegations do not bind the court.
Regarding Count VIII for fraudulent misrepresentation under Kentucky law, the Bennetts did not adequately establish their claim, which requires six specific elements. They failed to provide detailed factual allegations regarding reliance on Rushmore's statements or the resulting injury, particularly concerning their assertion that they did not receive the proprietary trial loan modification offer. The Bennetts' generalized claims do not meet the heightened pleading requirements set forth in the Federal Rules of Civil Procedure. Therefore, their claims of fraud are dismissed due to insufficient pleading of essential elements.
The Bennetts failed to demonstrate injury resulting from their reliance on Rushmore’s statements, which merely informed them of a proprietary trial loan modification offer. Their assertion that the forbearance agreement constituted a fraudulent misrepresentation of loss modification options is unsubstantiated, as the agreement did not include false representations or claim exclusivity of options. Consequently, the Bennetts did not adequately plead fraud. Their claim regarding Rushmore's statements to BANA was also insufficient, as it lacked allegations of material representations made directly to the Bennetts and failed to establish how any alleged misrepresentations led to their injury. The Rooker-Feldman doctrine, invoked by Rushmore, is not applicable since the Bennetts are not seeking to overturn a state court judgment but rather addressing alleged misconduct following that judgment. The court concluded that the Bennetts sufficiently alleged claims under RESPA against Rushmore but did not establish claims for breach of contract, FDCPA violations, or fraudulent representation. Consequently, Rushmore's motion to dismiss was granted in part, leading to the dismissal of Counts VI, VII, and VIII related to Rushmore. The claim against MTGLQ for fraudulent misrepresentation also failed, as the Bennetts did not identify any direct representations made by MTGLQ.
The Bennetts failed to establish a claim for fraud against MTGLQ, as they did not allege that any representations were false, that MTGLQ knew the representations were false or acted recklessly, that MTGLQ intended to induce the Bennetts to act, that the Bennetts relied on the representations, or that they suffered any injury from that reliance. Therefore, MTGLQ’s motion to dismiss is granted. Regarding other motions, Bank of America's motion to dismiss is granted in part and denied in part, specifically denied for Count I of the complaint. Rushmore’s motion to dismiss is also granted in part and denied in part, denied specifically for Counts IV and V. Additionally, Counts II, III, VI, VII, and VIII of the Bennetts' complaint are dismissed without prejudice. The cited Kentucky case, Ranier, does not support a private right of action for third-party beneficiaries, as it pertains to creditor subordination agreements and the equitable duties of creditors rather than the issues at hand.
