Hackman v. Nationstar Mortgage, LLC. (In re Hackman)

Citation: 563 B.R. 812Docket: Case No. 10-17176-BFK; Adversary Proceeding No. 16-01177-BFK

Court: United States Bankruptcy Court, E.D. Virginia; January 4, 2017; Us Bankruptcy; United States Bankruptcy Court

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The Court addressed the Defendants’ Motion to Dismiss the Plaintiffs Amended Complaint under Bankruptcy Rule 7012 and Federal Rule of Civil Procedure 12(b)(6). The Plaintiff opposed the Motion, subsequently agreeing to dismiss Count XIII and several other counts, including Counts II, III, V, VII, IX, X, XI, XII, and XIV. The Court ruled to dismiss these counts and left Counts I, IV, VI, VIII, and XV for resolution. The Plaintiff filed a Voluntary Petition under Chapter 11 on August 26, 2010, listing a property held in trust, which was later determined not to be part of the bankruptcy estate. The Court denied several motions related to the property, including a motion for its sale and a motion for expenditures. The property was eventually sold in 2014 for $694,777.33, with Nationstar receiving full payment of its secured claim. Nationstar's proof of claim was later disallowed following the Debtor's objection, as Nationstar did not respond. The Debtor faced challenges in obtaining the original Note from Nationstar, marked as paid and satisfied.

On June 23, 2015, a Motion for Discovery was filed against Nationstar and MERS, which the Court granted. Following this, a Motion to Compel was filed by the Debtor, to which Nationstar responded. The Debtor later withdrew the Motion to Compel on March 9, 2016, stating the Note had been provided. A lawsuit against Nationstar was initiated on August 24, 2016. The Amended Complaint initially claimed that Nationstar falsely represented itself as the holder of the Note, alleging fraud and asserting that Nationstar was neither a secured lender nor a creditor of the Plaintiff. These claims were subsequently abandoned. The remaining allegations focused on damages from Nationstar's delay in approving a short sale of the Property between January 2013 and August 2014.

Jurisdiction is established under 28 U.S.C. § 1334 and an Order of Reference from the U.S. District Court. The remaining claims are considered non-core under 28 U.S.C. § 157(c), with both parties consenting to final Orders by the Bankruptcy Court. To withstand a motion to dismiss under Rule 12(b)(6), the Amended Complaint must demonstrate a plausible claim, as guided by Supreme Court precedents in Twombly and Iqbal. A claim is plausible when it provides factual content allowing the court to reasonably infer the defendant's liability, distinguishing between factual allegations and legal conclusions.

Count I, labeled as 'History Common to All Counts,' was dismissed as it did not constitute an independent claim but rather provided context for the other Counts. Count IV alleges a breach of the implied covenant of good faith and fair dealing by Nationstar, asserting that such a covenant exists in all contracts with Nationstar, which was allegedly breached.

Every contract inherently includes an obligation of good faith and fair dealing. This principle, as affirmed in various cases, establishes that while parties may exercise their explicit contractual rights, they cannot do so in bad faith, even when the discretion is solely within one party's control. Courts generally do not permit unbridled discretion in contract performance; instead, contractual discretion is limited by the covenant of good faith. A breach of this duty constitutes a breach of contract claim rather than a separate cause of action, and it does not give rise to an independent tort claim. Additionally, the covenant of good faith does not replace express contractual obligations, and no implied duty exists for actions specifically governed by express terms.

In the context of short sales, claims alleging breach of the implied covenant of good faith have largely been unsuccessful. Courts have ruled that mortgage notes do not obligate lenders to provide post-default relief, such as short sales, unless explicitly stated. Without a contractual basis for entitlement to such relief, borrowers cannot claim that a lender's actions in evaluating short sale offers constitute bad faith. A short sale alters the terms of the mortgage agreement, and lenders are entitled to refuse such modifications if they contradict the express terms of the loan documents. In this case, the implied covenant of good faith cannot be invoked to override the specific terms of the Note and Deed of Trust, leading to the dismissal of the claim.

Regarding constructive fraud allegations, they are held to a heightened pleading standard requiring specific details as outlined in relevant case law.

The Plaintiff is required to specify the time, place, and content of false representations, along with the identities of the individuals involved and the damages suffered. In this case, the Plaintiff alleged that Nationstar falsely represented itself as the transferee of the Note but has since abandoned claims regarding Nationstar's status as the holder of the Note, acknowledging receipt of the original Note marked as paid in full. The Court found that Count VI lacks sufficient allegations of false representations by Nationstar and dismissed it. 

Count VIII, which alleges actual fraud, also did not meet the heightened pleading standard of Rule 9(b). The Plaintiff asserted harm from relying on Nationstar's claims of being the holder and performing duties as a mortgage lender but acknowledged that Nationstar was indeed the Note holder. Without additional allegations of fraud, Count VIII was similarly dismissed.

Count XV claims that Nationstar failed to comply with federal housing regulations as outlined in the Debtor’s Deed of Trust, specifically regarding the requirement for a face-to-face meeting before three monthly payments were overdue. The Court determined that the federal housing regulation cited was inapplicable and that the Plaintiff failed to adequately allege its relevance to the Deed of Trust. The language in the Deed of Trust does not expressly incorporate HUD regulations, and thus, the Court dismissed Count XV due to the lack of a specific requirement for such a meeting.

The Debtor's reliance on two Virginia Supreme Court cases to argue for the applicability of 24 C.F.R. 203.604(b) to his Deed of Trust is misplaced, as these cases affirm that the Deed must explicitly incorporate compliance with HUD regulations for the face-to-face meeting requirement to apply. Specifically, Squire v. Virginia Hous. Dev. Auth. and Mathews v. PHH Mortg. Corp. establish that without such incorporation, lenders are not bound by HUD regulations. The Deed of Trust in question lacks any explicit reference to HUD regulations, which means Nationstar was not obligated to conduct a face-to-face meeting during the Debtor's loan default. Furthermore, the case of Lubitz v. Wells Fargo Bank supports dismissal as it similarly found that a general reference to compliance with federal law does not satisfy the requirement for HUD regulation compliance. The Court also notes that the loan is insured by entities other than HUD, further diminishing the relevance of the HUD regulation. Consequently, the Court concludes that compliance with 24 C.F.R. 203.604(b) is not applicable, and thus dismisses Count XV. The remaining counts of the complaint—Counts I, IV, VI, VIII, and XV—are also set for dismissal. The Plaintiff has the right to appeal the dismissal within 14 days. Additionally, it is noted that the Plaintiff's bankruptcy case has been pending for over six years without a motion for a Final Decree. The Court references various cases regarding the implied duty of good faith and fair dealing in contracts, highlighting that such a duty exists in common law contracts in Virginia, contrary to the Plaintiff's dismissal of Count VII (Actual Fraud) while maintaining Counts VI and VIII related to fraud claims against the lender.