Spaulding v. Wells Fargo Bank, N.A.

Citations: 920 F. Supp. 2d 614; 2012 U.S. Dist. LEXIS 101776; 2012 WL 3025116Docket: Civil Action No. GLR-11-2733

Court: District Court, D. Maryland; July 23, 2012; Federal District Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Plaintiffs Josephine H. Spaulding and Dale E. Haylett, Jr. seek to address Wells Fargo Bank, N.A.’s denial of their mortgage loan modification application through a Motion for Leave to File Supplemental Authority, while Wells Fargo has filed a Motion to Dismiss. The case involves allegations of breach of implied-in-fact contract, negligence, violations of the Maryland Consumer Protection Act, negligent misrepresentation, and common law fraud. 

Plaintiffs have owned their home in Glenelg, Maryland, since March 1997 and refinanced their mortgage in January 2006 through Fremont Investment Loan, later serviced by Wells Fargo. On February 24, 2010, they applied for a loan modification under the Home Affordable Modification Program (HAMP), seeking a Trial Period Plan (TPP) that would allow reduced payments for three months. Their application included various financial documents demonstrating their eligibility.

Wells Fargo responded on March 1, 2010, requesting additional proof of income, with a ten-day deadline for submission. Plaintiffs provided the requested documents on March 22, 2010, after the deadline, and did not request an extension. Subsequently, Wells Fargo notified them that their mortgage was two months delinquent and sent a second HAMP application and delinquency notice. On August 11, 2010, Wells Fargo denied their HAMP application due to incomplete documentation, leading to repeated denials of subsequent applications by the Plaintiffs.

Plaintiffs filed this action in the Circuit Court for Howard County, Maryland, on July 25, 2011, which was later removed to federal court based on diversity jurisdiction. The Court granted the Plaintiffs' motion to submit supplemental authority but ultimately granted Wells Fargo's motion to dismiss the case.

A Rule 12(b)(6) motion to dismiss is warranted unless a claim is adequately supported by facts consistent with the allegations in the complaint. The primary aim of this rule is to assess the sufficiency of the complaint, not to resolve factual disputes or the merits of claims. Complaints must avoid mere labels, conclusions, or formulaic recitations of elements. Instead, they must present factual content that allows the court to reasonably infer the defendant's liability. The court must view the complaint in the light most favorable to the plaintiff, taking the alleged facts as true. It may also consider documents referenced within the complaint and matters subject to judicial notice. Conclusory statements regarding the legal implications of facts are not accepted, and legal allegations must have a factual basis to provide the defendant with fair notice.

In the case at hand, Wells Fargo seeks to dismiss the plaintiffs' claims, asserting a lack of a private right of action for denial of a Home Affordable Modification Program (HAMP) trial payment plan (TPP). The court concurs, emphasizing that the plaintiffs’ claims are based solely on an alleged failure to adhere to HAMP guidelines. Without a TPP agreement, claims attempting to enforce these guidelines are insufficient and must be dismissed, as established in relevant case law. The plaintiffs' arguments indicating violations of HAMP guidelines do not constitute a valid basis for action, leading to the conclusion that their complaint lacks the necessary grounds for a claim.

Plaintiffs cannot reclassify their claim as a breach of contract based on a third-party beneficiary theory. The Court, referencing Astra USA Inc. v. Santa Clara County and Allen v. CitiMortgage, underscores that breach of contract claims should not create private rights of action where none exist. Courts have consistently ruled that borrowers lack an express or implied private right of action under the Home Affordable Modification Program (HAMP). However, a standing Trial Payment Plan (TPP) Agreement might allow for a private right of action due to established privity of contract.

In this case, Plaintiffs base their claims on Wells Fargo's denial of their HAMP application, yet fail to demonstrate the existence of a TPP Agreement or its offer. They only assert potential eligibility under HAMP guidelines. Consequently, their claims are insufficient to withstand a motion to dismiss, particularly since they did not meet the TPP eligibility due to not submitting required information by the cancellation deadline.

For Count I, Plaintiffs allege that the denial of their TPP application constitutes a breach of an implied-in-fact contract, arguing that such a contract arose from their HAMP application process. They reference Wigod v. Wells Fargo and Allen to support their position that claims related to HAMP violations can be actionable. Conversely, Wells Fargo contends that this claim merely rephrases a rejected HAMP-based action. The Court has reiterated that without a TPP Agreement, any enforcement of HAMP guidelines cannot proceed. Previous cases, including Wigod and Allen, allowed claims based on established TPP Agreements, which is not the situation here, as Plaintiffs argue that Wells Fargo’s participation in HAMP implied an offer for a TPP.

Plaintiffs assert that their submission of the HAMP application constituted acceptance of Wells Fargo's offer, resulting in a valid implied-in-fact contract with consideration distinct from the mortgage agreement. They claim Wells Fargo breached this contract by not providing a Trial Payment Plan (TPP). However, the Court determines that no express or implied contract exists, as Plaintiffs failed to meet necessary conditions for participation in the TPP, leading to the cancellation of the offer. Consequently, Wells Fargo's Motion to Dismiss is granted for Count I.

Regarding Counts II (negligence) and IV (negligent misrepresentation), the Court finds these claims unviable because Wells Fargo did not owe a tort duty to Plaintiffs. Under Maryland law, establishing a duty is essential for claims of negligence or negligent misrepresentation. The relationship between a bank and borrower is deemed contractual rather than fiduciary, meaning a mere breach of contract does not suffice for tort claims. Plaintiffs argue that Wells Fargo's denial of their HAMP application and mishandling of paperwork constituted a breach of duty, but the Court holds that no tortious duty can be established without an independent legal obligation outside the contract. Wells Fargo contends that there was no duty arising from the mortgage contract regarding the HAMP application, and thus, Plaintiffs' claims cannot stand.

Borrowers submitted a sales contract, processing fee, and application to a bank, which locked in an 11 7/8% loan rate for ninety days. Shortly thereafter, the bank reduced the borrowers' qualifying loan amount from $74,000 to $41,400 due to an error. Unable to secure alternative financing, the borrowers accepted the lower loan, supplemented by loans from relatives and a personal bank loan. They subsequently sued the bank for negligent processing of their application. 

The Maryland Court of Appeals established a narrow exception to the rule against negligence claims arising solely from contractual relationships, determining that the bank owed a tort duty to the borrowers under these specific circumstances. This conclusion was reached through a three-step analysis: First, the court confirmed an existing contract based on the bank's express promises. Second, it found an implicit agreement for the bank to process the application with reasonable care. Third, the court recognized a tort duty due to the borrowers' vulnerability and the public interest inherent in banking.

In contrast, the current case involving Wells Fargo did not present an express or implied contract, leading the court to conclude that no tort duty existed, resulting in the dismissal of the borrowers' claims. The court also addressed Counts III and V regarding alleged violations of the Maryland Consumer Protection Act and common law fraud. Wells Fargo's motion to dismiss these claims was based on the assertion that no misrepresentation occurred, as they merely requested additional information rather than misrepresenting their receipt of income proof. The borrowers argued that this request itself constituted a misrepresentation, while also alleging Wells Fargo misrepresented its compliance with its HAMP obligations.

The Maryland Consumer Protection Act (MCPA) prohibits unfair or deceptive trade practices, including false or misleading statements that could mislead consumers, as outlined in Md. Code Ann. Com. Law. 13-301(1). Claims involving fraud under the MCPA must adhere to the heightened pleading standards of Federal Rule of Civil Procedure 9(b). To establish a common law fraud claim, a plaintiff must demonstrate that the defendant made a false representation with knowledge of its falsity or with reckless indifference to the truth, intended to defraud the injured party, and that the injured party relied on the misrepresentation and suffered damages as a result.

In this case, plaintiffs allege that Wells Fargo misrepresented its failure to receive their proof of income and its right to foreclose, asserting they had submitted all necessary paperwork for a HAMP modification. However, evidence presented by the plaintiffs shows Wells Fargo acknowledged receipt of their paperwork, including a request for additional information, and warned that failure to respond timely would result in the cancellation of their request and continuation of foreclosure actions. This documentation undermines the plaintiffs' claims of misrepresentation essential for their MCPA and common law fraud allegations.

Moreover, the plaintiffs did not meet the specific requirements of Rule 9(b) because they failed to detail the circumstances of the alleged fraud clearly. Unlike previous cases where plaintiffs successfully demonstrated contradictions in lender communications, the plaintiffs here only claimed Wells Fargo misrepresented the receipt of their paperwork without substantiating this assertion. As a result, the court grants Wells Fargo's Motion to Dismiss regarding Counts III and V, while also granting the plaintiffs' Motion for Leave to File Supplemental Authority.

The HAMP Program, established under the Emergency Economic Stabilization Act and codified in various sections of U.S. Code, empowers the U.S. Department of Treasury to incentivize banks to assist homeowners in avoiding foreclosure by reducing their monthly mortgage payments to no more than 31% of their gross income. Wells Fargo participates voluntarily in HAMP, obligating it to provide loan modifications to qualifying borrowers. The HAMP application process consists of two phases: first, the mortgage servicer assesses borrower eligibility, leading to a three-month Trial Period Plan (TPP) where borrowers must make reduced payments and meet other conditions. Successful completion of the TPP allows borrowers to receive a permanent loan modification. The communication emphasizes that collection and foreclosure actions will persist until approval is granted, highlighting the importance of a prompt response. Additionally, Wells Fargo seeks to dismiss Count IV regarding negligent misrepresentation, which has been previously addressed by the Court.