Picini v. Chase Home Finance LLC

Citations: 854 F. Supp. 2d 266; 2012 WL 580255; 2012 U.S. Dist. LEXIS 22502Docket: No. 11-CV-2393(JS)(GRB)

Court: District Court, E.D. New York; February 15, 2012; Federal District Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Plaintiffs Joseph Picini, Jr. and Michelle Picini initiated a lawsuit against Chase Home Financing, LLC and JPMorgan Chase Bank, N.A. regarding their efforts to modify a home mortgage loan. The Court is currently reviewing the Defendants' motion to dismiss the case, which has been partially granted and partially denied. 

The facts indicate that the Plaintiffs, homeowners in Farmingdale, New York, secured a loan of $359,650 with JPMorgan. In response to the 2009 housing crisis, the U.S. Treasury established the Home Affordable Modification Program (HAMP) to encourage loan modifications for eligible homeowners, with Fannie Mae designated to administer the program. JPMorgan entered a Service Participation Agreement with Fannie Mae to comply with HAMP guidelines, which included criteria for loan modification eligibility and required lenders to pause foreclosure actions during modification applications. 

The Plaintiffs allege that, despite complying with the HAMP Temporary Payment Plan (TPP) following Mr. Picini's job loss in October 2008, Defendants employed "deny and delay" tactics that obstructed them from obtaining a permanent modification. After defaulting on their loan based on Defendants' advice, filing for bankruptcy, and facing foreclosure proceedings, the Plaintiffs applied for a loan modification in February 2010 and were approved for a TPP in March 2010, during which they were informed that a permanent modification was likely.

Plaintiffs entered into a Trial Payment Plan (TPP) requiring monthly payments of $1,600.02, with the expectation that successful completion would lead to a loan modification. Defendants represented that foreclosure proceedings would be paused during the TPP. Despite timely payments over the three-month period, Plaintiffs received no updates about a permanent modification. An unspecified Defendants' representative cited a backlog in the loan modification department, advising Plaintiffs to continue payments, which they did for an additional seven months without communication from Defendants.

In October 2010, Plaintiffs learned they had been dropped from the TPP, yet were told by a Defendants' representative to keep making payments. After a complaint to government representatives, Plaintiffs received a letter stating they had completed the TPP, but a subsequent call revealed they had been dropped from the Home Affordable Modification Program (HAMP). Ongoing communication issues ensued, with conflicting information provided by various representatives about required documents and the status of their loan. Ultimately, in March 2011, Plaintiffs were informed their application for a permanent modification was denied due to their home’s negative net present value, prompting the lawsuit.

Plaintiffs assert multiple claims against Defendants, including breach of contract theories (both direct and third-party beneficiary), breach of the covenant of good faith and fair dealing, implied contract, promissory estoppel, fraud, negligent misrepresentation, and unjust enrichment. The court will first address the legal standards for Defendants' motion before evaluating each claim.

Defendants moved to dismiss the case under Federal Rule of Civil Procedure 12(b)(6) and 12(b)(1). To withstand a 12(b)(6) motion, a plaintiff must present sufficient factual allegations that make a claim for relief plausible, which requires more than mere labels or conclusions. The pleading must raise a right to relief above a speculative level and should avoid threadbare recitals of elements supported by conclusory statements. The standard for 12(b)(1) motions is similar.

The court granted in part and denied in part the Defendants’ motion. Plaintiffs' third-party beneficiary claims were dismissed due to lack of standing, as the underlying contract, the SPA, is governed by federal common law, which stipulates that a third party must be an intended beneficiary to enforce the contract. Under the Restatement of Contracts, individuals are generally considered incidental beneficiaries unless explicitly stated otherwise. Although the SPA and HAMP aimed to assist homeowners like the Plaintiffs, the court found that the Plaintiffs failed to demonstrate that their claims were consistent with the SPA’s terms or its underlying policy. This aligns with numerous other rulings rejecting similar third-party breach of contract claims related to HAMP and SPAs, affirming that borrowers cannot enforce Servicer Participation Agreements as third-party beneficiaries.

Plaintiffs’ third-party beneficiary claims are dismissed, as the court finds their arguments unpersuasive. In *Sampson v. Wells Fargo Home Mortgage, Inc.*, the court granted a temporary restraining order based on a homeowner’s substantial showing of entitlement to enforce a HAMP contract but did not consider whether third-party rights aligned with the contract terms. Although the court acknowledged the defendant's standing arguments, it prioritized the urgency of the homeowner's situation. The current court, having more time for deliberation, disagrees with the conclusions of *Sampson* and similar cases, including *Reyes v. Saxon Mortgage Services, Inc.*, which failed to evaluate third-party rights in relation to the agreement. The court also expresses disagreement with the *Marques* ruling, which allowed for a third-party beneficiary claim under HAMP, noting it has been rejected by other courts. 

Regarding direct contract claims, plaintiffs allege breach of contract and good faith and fair dealing based on a Trial Period Plan (TPP) with Chase Home Financing. They assert that the defendants breached the TPP by accepting payments without modifying the loan. To establish a breach of contract, plaintiffs must demonstrate a contract, performance, breach, and resulting damages. The court finds that plaintiffs have plausibly alleged a contract for a permanent loan modification contingent on compliance with the TPP. The defendants' argument that there was no consideration for the contract is rejected, as the TPP required plaintiffs to provide additional financial documentation, fulfilling the consideration requirement.

Defendants contend that Plaintiffs' claims are essentially HAMP claims in disguise, that Plaintiffs did not specify the terms of the alleged contract, and that the TPP does not constitute a promise for a permanent loan modification. The Court finds these arguments unconvincing. It distinguishes Plaintiffs' TPP theory from being merely a HAMP claim, referencing case law that does not preclude state common law claims even if they relate to federal law violations. Defendants failed to demonstrate that HAMP preempts state law breach of contract claims. The Court dismisses Defendants' assertion that Plaintiffs lack standing as third-party beneficiaries to the SPA. Additionally, Defendants' claims regarding the lack of contract terms and the nature of the TPP were raised only in their reply and are therefore disregarded. However, even if considered, the Court believes Plaintiffs adequately stated the TPP's terms. Regarding the TPP's contractual status, while some courts have ruled it does not form a binding contract until a permanent modification is signed, this reasoning does not apply here, as the specific language of Plaintiffs' TPP is not provided. Consequently, the Court denies Defendants' motion to dismiss Plaintiffs’ claims.

Defendants contend that Plaintiffs’ promissory estoppel claim is invalid as it duplicates contract claims and lacks evidence of a promise. To establish promissory estoppel, a plaintiff must demonstrate a clear promise, reasonable reliance, and resultant injury. Plaintiffs assert reliance on Defendants’ promise of a permanent loan modification contingent on continued payments under the Trial Payment Plan (TPP), which they claim led them to forgo other options to address their financial default. The court finds these allegations sufficient to support a promissory estoppel claim independent of the TPP contract claim. 

Defendants further argue that the TPP does not obligate them to provide a permanent modification, rendering Plaintiffs’ reliance unreasonable. However, the court notes that it must accept Plaintiffs’ allegations as true for this motion, lacking the TPP document to evaluate its terms. Consequently, the court denies Defendants’ motion to dismiss this claim.

Regarding the fraud and negligent misrepresentation claims, Defendants argue these are also duplicative of breach of contract claims. To succeed on a fraud claim, a plaintiff must prove a material misrepresentation made knowingly, with intent to induce reliance, justifiable reliance, and damages. Fraud claims can coexist with breach of contract claims only if the fraud involves duties separate from the contract obligations. Plaintiffs can assert a fraud claim if the misrepresentations relate to duties outside the TPP. The court finds that Plaintiffs have articulated a theory of fraud based on alleged misrepresentations concerning the suspension of foreclosure proceedings and the promise of a permanent modification, but limits this to claims about foreclosure actions only.

Plaintiffs allege that Defendants promised to halt foreclosure if Plaintiffs enrolled in a Trial Payment Plan (TPP), a representation that Defendants knew was false, leading to increased arrears and costs for Plaintiffs. This claim is independent of the TPP contract, which stipulates a permanent loan modification contingent on timely payments and documentation. Plaintiffs also claim they were fraudulently induced to continue payments after the TPP expired based on another false promise of permanent modification. However, they did not demonstrate damages beyond their obligation to continue mortgage payments, which undermines their fraud claim. Actual pecuniary loss is required to sustain a fraud claim under New York law. Consequently, the court dismissed this fraud claim but allowed Plaintiffs the opportunity to amend their complaint. 

Regarding negligent misrepresentation, Plaintiffs must show a special relationship with Defendants that necessitated accurate information. Defendants contended that no such relationship existed, yet Plaintiffs sufficiently alleged the existence of a special relationship to survive dismissal. Determining whether a special relationship exists is generally a factual matter, informed by factors such as expertise, trust, and the intended use of the information provided.

Plaintiffs assert that Defendants possess specialized expertise in mortgage loan servicing and loss mitigation, and were assigned a manager from the "Chase Resolutions Group" to assist with their loan modification. However, they claim to have received conflicting information from Defendants' representatives. While generally a borrower-lender relationship does not support a negligent misrepresentation claim, Plaintiffs’ allegations are deemed sufficient at this stage, as demonstrated by relevant case law. Consequently, Defendants’ motion to dismiss is partially granted; the fraud claim regarding the Foreclosure Action survives, but all other aspects are dismissed. Plaintiffs must re-plead their fraud claim within thirty days. The negligent misrepresentation claim also survives.

Regarding unjust enrichment, the claim is dismissed as it fails to meet legal standards. Plaintiffs argue that the claim arises from extra fees incurred due to Defendants' delays on their loan modification request. However, since these fees stem from the underlying mortgage contract, Plaintiffs cannot pursue an unjust enrichment claim. Therefore, the Court grants Defendants’ motion to dismiss the unjust enrichment claim. In conclusion, Defendants’ motion is granted in part and denied in part: claims related to third-party beneficiary and unjust enrichment are dismissed with prejudice, while claims related to the TPP contract, promissory estoppel, negligent misrepresentation, and a limited fraud claim survive. Plaintiffs are directed to re-plead their fraud claim within thirty days.