D.Md: Allows Claims Re Failure to Permanently Modify Mortgage to Proceed

A district court in Maryland allowed several claims by mortgagors against CitiMortgage, Inc. (“CitiMortgage”) to proceed to discovery. The claims arose out of the denial of a request for a permanent modification of the mortgage loan. The court denied the motion to dismiss claims for breach of contract, promissory estoppel, and violation of the Maryland Consumer Protection Act. Allen v. CitiMortgage, Inc., Civ. No. CCB-10-2740, 2011 WL 3425665 (D. Md. Aug. 4, 2011). Judge Blake is a Clinton nominee.

Frank and Anne-Christian Allen refinanced their mortgage in 2007, serviced by CitiMortgage.   In late 2008, the Allens began having trouble making their mortgage payments. In 2009, they contacted CitiMortgage to discuss having their mortgage modified pursuant to the Home Affordable Modification Program (“HAMP”).  Under HAMP, if a mortgage service provider determines that the borrower is eligible for a mortgage modification, the servicer may offer the homeowner a three-month Trial Period Plan (“TPP”). If the borrower satisfies all conditions of the TPP Agreement, the borrower is supposed to be offered a permanent loan modification.

According to the Allens, CitiMortgage initially approved them for a TPP, which lowered their monthly mortgage payments by over $800. However, the Allens later received contradictory letters from CitiMortgage regarding the relevant time-period of their TPP, and also received a letter stating that the TPP had been cancelled. After CitiMortgage told them to ignore the cancellation letter, the Allens continued to pay the modified monthly payment on their mortgage loan. Soon thereafter, though, the Allens received more contradictory letters from CitiMortgage regarding the status of their loan modification. When the Allens contacted CitiMortgage about a letter that informed them that their loan was in default, CitiMortgage told them to disregard it. However, about a week later, CitiMortgage terminated the Allens from the loan modification program entirely. The Allens also discovered that CitiMortgage had informed the credit reporting agencies that Mrs. Allen was delinquent in her mortgage payments. In response, the Allens filed a lawsuit in state court against CitiMortgage, which was removed to a U.S. district court based on diversity jurisdiction.

CitiMortgage argued that Mr. Allen lacked standing to assert any claim arising out of the mortgage, because he did not sign the promissory note that secured the mortgage. The court held that it was irrelevant whether Mr. Allen was a signatory on the promissory note, since he was a party to the TPP Agreement.

The court then analyzed CitiMortgage’s arguments regarding the nine counts brought against the company by the Allens.

Count I – Breach of TPP Agreement. CitiMortgage first argued that because HAMP does not provide for a private cause of action, private borrowers can never enforce rights arising from a TPP Agreement. The court first stated that this argument was rejected by another district court.  See Bosque v. Wells Fargo Bank, N.A., 762 F. Supp. 2d 342 (D. Mass. 2011). The court further stated: “Even courts that have found HAMP to preclude borrowers from asserting a private right of action have not gone so far as to declare that plaintiffs cannot assert state law claims involving TPP Agreements merely because they originated under HAMP.” See, e.g., Vida v. OneWest Bank, F.S.B., No. 10-987, 2010 WL 5148473, at *5 (D. Or. Dec. 13, 2010).

After concluding that the Allens were not precluded from enforcing the TPP Agreement, the court explained that the Allens still needed to state a proper claim for breach of contract to survive CitiMortgage’s motion to dismiss. On this matter, CitiMortgage argued that the Allens’ claim should be dismissed because the contract lacks consideration and violates the Statute of Frauds. The court concluded that the Allens’ breach of contact claim appeared “plausible,” and, consequently, that discovery should proceed on this matter.

Count II – Breach of SPA Agreement. Next, the Allens claimed that, as third-party beneficiaries of CitiMortgage’s Servicer Participant Agreement (“SPA”) with the government, they can sue CitiMortgage to enforce the SPA Agreement. The court first explained that homeowners are often viewed as incidental beneficiaries of SPA Agreements, not as intended beneficiaries who have a right to enforce such contracts. The court added that even if the Allens were intended beneficiaries of the SPA Agreement, they would not be able to enforce it. The court reasoned that because the Allens’ suit to enforce the SPA Agreement would enforce HAMP itself (which does not provide for a private cause of action), the Allens’ third-party beneficiary claim must be dismissed.

Count III – Promissory Estoppel. As an alternative theory of recovery, the Allens asserted a promissory estoppel claim against CitiMortgage. The Allens stated that they would have pursued other options, such as selling their home, if they had known that CitiMortgage would deny their application for a permanent loan modification or that CitiMortgage would report Mrs. Allen as delinquent to the credit agencies for making lower monthly payments pursuant to the TPP Agreement. The court denied CitiMortgage’s motion to dismiss this claim and allowed it to go to discovery.


Count IV – Breach of Fiduciary Duty. The Allens also asserted a breach of fiduciary duty claim against CitiMortgage, on the theory that CitiMortgage, as a mortgage servicer, had a duty to act on the Allens’ behalf in processing their loan application. Under Maryland law, however, “[c]ourts have been exceedingly reluctant to find special circumstances sufficient to transform an ordinary contractual relationship between a bank and its customer into a fiduciary relationship . . .” Kuechler v. Peoples Bank, 602 F. Supp. 2d 625, 633 (D. Md. 2009) (quoting Parker v. Columbia Bank, 604 A.2d 521, 532 (Md. Ct. Spec. App. 1992)). Because the Allens failed to allege any special circumstances that would transform their relationship with CitiMortgage to one that is fiduciary in nature, the court dismissed this claim.

Count V – Violation of Maryland Consumer Protection Act. The Allens next alleged that CitiMortgage violated the Maryland Consumer Protection Act (“MCPA”), which prohibits “unfair or deceptive trade practices.” Md. Code Ann. Com. Law § 13-301. While the MCPA is subject to the heightened pleading standards of Federal Rule of Civil Procedure 9(b), the court concluded that the Allens satisfied the standard by pleading the dates and contents of numerous CitiMortgage letters that were allegedly contradictory, misleading, and false. Additionally, the court held that the Allens sufficiently pled damages arising from CitiMortgage’s misleading practices, which included emotional damage, damage to Mrs. Allen’s credit score, and the foregone opportunity to save their home through other methods.

Counts VI & VII – Violation of Maryland Consumer Credit Reporting Agency Act & Fair Credit Reporting Act. Under the Fair Credit Reporting Act (“FCRA”), “furnishers of information,” such as CitiMortgage, must follow certain procedures to ensure that the information reported to a credit agency is accurate. See 15 U.S.C. § 1681s-2(b). While the Fourth Circuit has not yet ruled on this point, other courts have held that the “furnisher of information” has to ensure the accuracy of the information only after receiving notification from a consumer reporting agency that the accuracy of the information is being disputed. See, e.g., Peasley v. Verizon Wireless LLC, 364 F. Supp. 2d 1198, 1200 (S.D. Cal. 2005).

According to the Allens, Mrs. Allen’s credit score was adversely affected after CitiMortgage reported her as delinquent to the credit agencies for making lower monthly payments pursuant to the TPP. In response, the Allens contacted the credit reporting agencies and CitiMortgage to report that the information was inaccurate, but the agencies and CitiMortgage refused to alter Mrs. Allen’s credit score. However, because the Allens failed to allege that CitiMortgage received notice from a consumer reporting agency that the Allens had disputed the accuracy of the information, the court found no choice but to dismiss these claims. Nonetheless, the court granted the Allens leave to amend the complaint, provided that they have a factual basis to do so.

Counts VIII & IX – Declatory and Injunctive Relief. Finally, the court denied CitiMortgage’s motion to dismiss these forms of relief, reasoning that it would be improper to do so since a number of claims are proceeding to the discovery stage.

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