EDVa: Dismiss third party contract claim under HAMP but allow claim of breach of implied good faith

The District Court of the Eastern District of Virginia dismissed Hector Acuna’s third party beneficiary claim of breach of contract against Chase Home Finance, LLC (“Chase”) related to Acuna’s mortgage for his home, which later underwent foreclosure.

The Court’s based its dismissal on the conclusion that homeowners are only incidental beneficiaries of such agreements and have no private right of action. However, the court denied the motion to dismiss with regard to the claim of breach of the implied covenant of good faith and fair dealing. Acuna v. Chase Home Finance, LLC, No. 3:10–CV–905, 2011 WL 1883089 (E.D.Va. May 17, 2011).

Hector Acuna obtained a mortgage loan in December 2007, which Chase later purchased from the original bank. Chase entered into a Service Provider Agreement (SPA) for the Home Affordable Modification Program (“HAMP”) with Fannie Mae with regard to the mortgage. HAMP guidelines, which are issued by the Treasury Department written into the SPA, require the bank to take certain steps before initiating foreclosure proceedings.

After his home underwent foreclosure in August 2010, Acuna filed several claims against Chase and Fannie Mae, which involve Chase’s alleged failure to adequately follow HAMP guidelines in the SPA and Chase’s alleged misrepresentations that (1) his request for loan modification would receive higher priority if he defaulted and (2) his foreclosure would be placed on hold. The District Court’s opinion constitutes its decision as to the defendants’ motions to have all counts dismissed for failure to state a legal claim (Rule 12(b)(6)).

The Court dismissed the first count of breach of contract against Chase, in which Acuna asserted that he was a third-party beneficiary to the SPA between between Chase and Fannie Mae because it requires Chase to provide services to the borrower. Following other district courts’ holdings, the Court held that borrowers are only incidental beneficiaries to HAMP agreements, not third-party beneficiaries with a private right of action. Since the government is acting in the public interest, beneficiaries of a government contract are presumed to be incidental unless there is evidence that the parties involved “intended” to benefit them. Finding no such evidence, the Court held that Acuna was not an intended third party beneficiary and therefore lacked standing.

For the remaining claims, the Court applied Virginia state law. The Court dismissed Acuna’s second count of equitable estoppel against Chase and Fannie Mae relating to the misrepresentations, finding that he had not properly pled and alleged the elements of equitable estoppel.

Acuna’s third count “alleges Chase breached the implied covenant of good faith and fair dealing embodied in the Note and Deed of Trust” for the mortgage, based on the above-mentioned misrepresentations and failure to follow HAMP guidelines. The Court found that a legal claim exists for breach of contract, because the implied covenant exists for all contracts in Virginia. Accordingly, it did not dismiss this count.  The court explained:

“Because Acuna alleges Chase breached the implied covenant of good faith and fair dealing by: (1) inducing him to default by telling him his chances of receiving a loan modification would increase if he did so; (2) falsely assuring Acuna about the status of his modification; (3) falsely assuring Acuna the home would not be sold at the foreclosure sale; and (4) failing to follow HAMP guidelines, he has stated a claim for breach of contract based on breach of the implied covenant of good faith and fair dealing.”

Finally, the Court dismissed Acuna’s fourth count of constructive fraud, based on the misrepresentations. Because Chase’s duties to Acuna stemmed entirely from the mortgage, the Court found that Chase had not violated any common law duty, which meant that Acuna had no tort claim.

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