Court: District Court, D. Minnesota; December 14, 2011; Federal District Court
A Motion to Dismiss was filed by Defendants Ocwen Loan Servicing, LLC, Mortgage Electronic Registration Systems, Inc. (MERS), and HSBC Bank USA, N.A., which the Court granted. Plaintiffs purchased their residence in Belle Plaine, MN, in 1997 and refinanced it in 2005 with a $294,100 note to Delta Funding Corporation, secured by a mortgage to MERS. The mortgage required monthly payments of $2,225.95. In April 2005, servicing of the loan was transferred to Ocwen, with allegations that the note was later assigned to HSBC Bank while Ocwen remained the servicer.
Financial difficulties began for the Plaintiffs in 2008, leading to missed and late mortgage payments. They received a "Streamlined Loan Modification" offer from Ocwen in December 2008, which proposed a reduced monthly payment of $1,775.56 and other benefits. However, the offer contained a typographical error regarding the due date for the first payment, which was incorrectly stated as January 15, 2008. Despite attempts to contact Ocwen to accept the offer, Plaintiffs were unsuccessful and conceded their inability to do so. They later sought to apply for a loan modification under the Home Affordable Mortgage Program (HAMP) as recommended by Ocwen.
In August 2009, Plaintiffs applied for a HAMP modification but were informed on November 3, 2009, that they were ineligible due to a low debt-to-income ratio. Plaintiffs offered to revert to their original monthly payments, which Ocwen rejected, insisting on a modification. They reapplied in November 2009, and on December 9, 2009, were approved for a loan modification that required an initial payment of $2,334 and modified monthly payments of $1,960, with an interest rate of 6.55% set to increase to 7.15% in January 2013. Concerned about the terms, Plaintiffs attempted to contact Ocwen for three months but faced difficulties reaching a representative. After executing the modification, they missed their third payment and requested a one-day grace period, which Ocwen denied, warning that a late payment would lead to foreclosure. On April 3, 2010, they received a Notice of Foreclosure. Following a postponement of the sale, foreclosure proceedings resumed, and the property was sold on November 18, 2010. The redemption period expired on May 18, 2011, but Plaintiffs remained in the property as eviction had not occurred. Plaintiffs filed a Summons and Complaint on May 4, 2011, which was removed to a higher court. They subsequently filed an Amended Verified Complaint asserting eight causes of action: declaratory judgment, injunctive relief, breach of contract, breach of mortgagee duty, fraud, negligent misrepresentation, promissory estoppel, and unjust enrichment. Defendants moved to dismiss this complaint as well.
In evaluating a motion to dismiss under Rule 12(b)(6), courts accept all factual allegations in the complaint as true and view reasonable inferences in favor of the plaintiff. However, conclusory allegations and legal conclusions drawn from facts are not accepted as true. Courts may consider the complaint, public records, and attached exhibits when deciding on such motions. For a complaint to survive dismissal, it must present enough facts to establish a plausible claim for relief that exceeds speculative levels, as articulated in Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal.
In Count VII, Plaintiffs claim promissory estoppel based on Defendants' promises regarding a permanent modification of their loan, specifically referencing the 2008 Loan Modification Offer that outlined a modified payment of $1,775.56. Plaintiffs assert they reasonably relied on these promises. Defendants counter that the claim is unsupported by facts and is barred by the Statute of Frauds and Minnesota’s Credit Agreement Statute, which mandates that credit agreements must be in writing and signed by both parties to be enforceable. The 2008 Loan Modification Offer is deemed a credit agreement, and since it was not signed by the Plaintiffs, it is unenforceable under Minnesota law. Consequently, any claim based on an oral modification also fails legally.
The Minnesota Credit Agreement Statute does not prevent Plaintiffs’ promissory estoppel claim from being dismissed, as they fail to meet the necessary elements. Promissory estoppel requires a clear promise, intent to induce reliance causing detriment, and enforcement to prevent injustice. Plaintiffs only indicated a hope to modify their loan based on a December 2008 offer and did not provide facts suggesting that enforcing an alleged oral promise is essential to prevent injustice, especially given their acknowledged payment delinquencies.
For Counts V and VI, which allege fraud and negligent misrepresentation, Minnesota law outlines specific elements for both claims. Fraud requires a false representation of a material fact, knowledge of its falsity by the defendant, intent to induce reliance, actual reliance by the plaintiff, and resultant financial damage. Negligent misrepresentation involves providing false information in a business context, justifiable reliance on that information by another, and a failure to exercise reasonable care in its communication.
Both claims must adhere to heightened pleading requirements under Rule 9(b) of the Federal Rules of Civil Procedure. Plaintiffs claim that Ocwen falsely represented their qualification for a loan modification at a reduced payment based on the 2008 offer, despite not formally accepting it. They contend Ocwen indicated that applying for a HAMP loan modification was necessary to receive a modification aligned with the 2008 terms. However, after applying for the HAMP modification and being denied, Plaintiffs were only offered a modification that led to higher payments than claimed.
Plaintiffs' claims for fraud and negligent misrepresentation are dismissed due to insufficient factual allegations. The 2008 Loan Modification Offer was explicitly stated as limited and did not guarantee future availability of its terms. Plaintiffs did not accept this offer and later defaulted on a 2009 Loan Modification Agreement. They failed to demonstrate reliance on any misrepresentation or that such misrepresentation caused foreclosure or damages.
In their unjust enrichment claim, Plaintiffs allege Defendants were unjustly enriched by accepting payments under the 2009 Loan Modification while refusing the 2008 offer. However, they must prove that Defendants received an unentitled benefit under circumstances making retention unjust. The Court finds no evidence that Defendants unjustly obtained value from Plaintiffs, particularly since they were entitled to foreclose after the Plaintiffs defaulted on the 2009 agreement. Additionally, funds from the mortgage loan benefited the Plaintiffs and the property. Consequently, the unjust enrichment claim is also dismissed.
In Counts I and II, Plaintiffs seek a declaratory judgment asserting that they performed under the Modification and require Defendants to honor its terms, including continued payments under HAMP guidelines.
Plaintiffs claim they are experiencing irreparable harm due to Defendants’ alleged misrepresentations and unlawful foreclosure actions, seeking to extend their right to redeem the property until a decision is reached in their case. Their claims center on entitlement to the December 2008 Loan Modification terms, which are barred by the Minnesota Credit Agreement Statute. Plaintiffs acknowledge default on their mortgage payments, allowing Ocwen to proceed with foreclosure under the Mortgage Agreement.
In Count III, Plaintiffs assert a breach of contract regarding the 2009 Loan Modification, claiming they made an initial payment and subsequent monthly payments as agreed. However, they admit to failing to make those required payments and have not provided arguments to support this claim, leading the Court to conclude it has been abandoned and subsequently dismiss it due to lack of supporting facts.
Count IV involves a breach of mortgagee duty under Minnesota Statute section 580.11, which permits the mortgagee to purchase the property at a foreclosure sale but does not impose a fiduciary duty or apply prior to foreclosure actions. Plaintiffs have not substantiated claims of unfair actions by Defendants during the purchase process, as all alleged unfair conduct occurred before the sale. Consequently, this claim is also dismissed.
Although the Court dismisses all of Plaintiffs' claims, it notes that Defendants' conduct may be criticized for a lack of professionalism, yet it does not constitute actionable behavior. The Court orders that Defendants’ Motion to Dismiss is granted, and Plaintiffs’ Amended Verified Complaint is dismissed with prejudice, with judgment to be entered accordingly.
Defendants have requested the Court to take judicial notice of three documents: 1) the Mortgage executed by Plaintiffs on April 4, 2005, and recorded on April 18, 2005, as Document No. A694874; 2) a Notice of Default from Ocwen to Plaintiffs dated April 3, 2010; and 3) a letter from Ocwen's foreclosure counsel, Randal S. Miller & Assoc., dated June 3, 2010, which informed Plaintiffs of the referral of the Mortgage for foreclosure and the accelerated loan amount. Plaintiffs oppose this request, arguing for reliance solely on the allegations in the Amended Verified Complaint and suggesting that the motion should be treated as one for summary judgment, which they deem premature. The Court finds that the documents sought for judicial notice are referenced within the pleadings and do not conflict with the claims made by Plaintiffs, allowing their consideration without converting the motion to dismiss into a motion for summary judgment. Additionally, Defendants contended that Plaintiffs' claims for promissory estoppel, fraud, and misrepresentation were invalid due to the existing contractual relationship from the 2009 Loan Modification. However, Plaintiffs clarified that their claims relate to representations associated with the 2008 Loan Modification Offer. Minnesota Statute 513.33, subd. 3 outlines that certain creditor-debtor interactions do not create a new credit agreement unless specific conditions are met.
