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Lisa Cave and Scott Cave, On Behalf of Themselves and All Others Similarly Situated v. Saxon Mortgage Services

May 30, 2012

LISA CAVE AND SCOTT CAVE, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED
v.
SAXON MORTGAGE SERVICES, INC. AND OCWEN LOAN SERVICING, LLC



The opinion of the court was delivered by: Padova, J.

MEMORANDUM

Plaintiffs Lisa and Scott Cave bring this proposed class action for breach of contract and other claims arising out of Defendants' failures to permanently modify home mortgage loans after providing homeowners with temporary modifications. Defendant Saxon Mortgage Services, Inc. ("Saxon") has filed a Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons that follow, the Motion is granted in part and denied in part.

I. BACKGROUND

A. The Home Affordable Modification Program In February 2009, the Secretary of the Treasury and the Director of the Federal Housing Finance Agency announced the Making Home Affordable program (the "MHA"), an effort to stem the foreclosure crisis. As part of the MHA, the Home Affordable Modification Program ("HAMP") was created. Under HAMP, borrowers who are struggling to pay their mortgages can apply to their loan servicer for a permanent loan modification to get a reduced monthly payment. Defendants Saxon and Ocwen Loan Servicing, LLC, are loan servicers who entered into agreements with the federal government in which they agreed to comply with HAMP and provide qualifying borrowers with permanent modifications.

After a borrower applies for permanent modification, loan servicers are required under HAMP regulations to determine, based on financial information submitted by the borrower, whether the borrower is eligible for a loan modification which would reduce the borrower's monthly loan payment to 31% of their gross monthly income.*fn1

Before a borrower receives a permanent modification, a loan servicer and a borrower enter into a 3-month trial period, during which the borrower makes lower monthly payments towards their mortgage. The terms of the trial period are governed by a form contract entitled "HAMP TPP" (the "TPP").*fn2 The TPP states that the Lender will send the borrower a permanent modification agreement if: 1) the borrower's representations of their financial state continue to be true; 2) the borrower complies with the terms of the temporary payment plan; 3) the borrower provides all required documentation; and 4) the Lender determines that the borrower qualifies. The TPP requires that the borrower make three monthly payments of a reduced amount. In the introduction to the TPP, the TPP states that the loan servicer will provide a borrower with a permanent modification if the borrower is qualified, or will send the borrower a written denial if they do not qualify.

Plaintiffs allege, however, that Defendants never intended to provide permanent loan modifications to the majority of applicants. Rather, Defendants routinely failed to meet their obligations under HAMP by, inter alia, thwarting implementation of permanent HAMP modifications, keeping inadequate records, failing to disclose accurate information to mortgagors, charging unreasonable fees without explanation, violating federal and state laws, and leaving mortgagors in limbo regarding the status of their loans. Since HAMP's inception through November 2010, loan servicers cancelled roughly 729,000 of the 1.4 million trial modifications started. Saxon put about 40,000 homeowners into trials, but only about 11,000 received a permanent modification.*fn3

B. Plaintiffs' TPP

In August 2009, after incurring unexpected parental medical expenses, Plaintiffs Lisa and Scott Cave applied to Defendant Saxon, their mortgage servicer, for a HAMP mortgage modification. In September 2009, in support of their application, Plaintiffs sent Saxon a package containing all requested financial information and documents, including a Hardship Affidavit. After receiving these documents, Saxon sent Plaintiffs a loan modification package, which included a proposed TPP providing for a trial payment period beginning on September 1, 2009, and ending on November 30, 2009, and a modified monthly payment of $1007.50.

Plaintiffs allege that they were pre-qualified for their TPP on the basis of verified financial information. Plaintiffs accepted Saxon's offer by executing the TPP and promptly returning the signed contract to Saxon. Plaintiffs fully performed all of their obligations under the TPP, including making all payments on time and providing additional copies of previously supplied documents as requested by Saxon.

In April 2010, months after the trial period ended, Plaintiffs attempted to pay school and other taxes on their property, but were informed that these taxes had already been paid. Saxon had never told them that it would pay taxes on the property and that it was escrowing funds for this purpose. Plaintiffs subsequently received from Saxon an Escrow Shortage Statement, dated July 16, 2010. Plaintiffs called Saxon, and a customer service representative told them to disregard the statement, that their loan modification was current, and that they should continue to make the modified monthly payments of$1,007.50.

On October 14, 2010, Plaintiffs received from Saxon an Act 91 Notice which stated that they were past due in the amount of $23,210.64, including late fees, escrow charges, and inspection charges, with respect to the period November 1, 2009, to October 12, 2010. Plaintiffs called Saxon, and three representatives told them that Saxon had removed them from HAMP on April 29, 2010, without notice to them and despite the fact that they had made all payments on time. No representative could explain the reason or basis for Saxon's Act 91 Notice. Defendants claim that they removed Plaintiffs from HAMP on April 29, 2010, because Plaintiffs' monthly housing expense did not exceed 31% of their income.

In accord with the Act 91 Notice, Plaintiffs had a meeting with a certified credit and housing counselor, after which they appliedfor a Homeowners Emergency Mortgage Assistance Program ("HEMAP") loan through the Commonwealth of Pennsylvania in order to obtain funds to discharge any alleged past due amounts owed to Saxon. Plaintiffs qualified for the HEMAP loan, but did not obtain the loan as a result of Saxon's failure to provide certain required information to the Commonwealth.

By letter dated April 21, 2011, Plaintiffs were advised that the servicing of their mortgage was being transferred from Saxon to Defendant Ocwen, effective May 16, 2011. Ocwen informed Plaintiffs that they would again need to apply for a HAMP modification, and if they did not qualify for HAMP then they would be considered for an in-house modification. Plaintiffs applied to Ocwen for a HAMP modification, which Ocwen denied.

By letter dated June 28, 2011, Ocwen offered Plaintiffs an in-house modification on terms that were significantly worse than the terms of the HAMP modification set forth in the TPP. The Ocwen modification provided for an initial monthly payment of $1,285.39, of which $1,000.02 went to principal and interest payments, and $285.37 to escrow. Upon modification, the annual rate of interest on Plaintiffs' mortgage would be 2% until August 2016, and 4.5% from then until the loan reached maturity. Under the modified terms, even if Plaintiffs made all payments in full and on time, their loan would not be paid in full by the final payment date. Instead, a single balloon payment would be due on December 1, 2035, in an unspecified amount. Plaintiffs were advised that their property was in foreclosure and, fearing that result, accepted the Ocwen in-house modification.

According to the Complaint, Plaintiffs' injuries from Defendants' breach of the TPP and other actions include: payment of increased interest; longer loan payment times; higher principal balances; deterrence from seeking other remedies to address their default and/or unaffordable mortgage payments; damage to their credit; additional income tax liability; and costs and expenses incurred to prevent or fight foreclosure.

Plaintiffs assert the following causes of action: Breach of Contract/Breach of Duty of Good Faith and Fair Dealing (Count I); Promissory Estoppel (Count II); violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (Count III); violation of Pennsylvania Fair Credit Extension Uniformity Act (Count IV); and violation of the Fair Debt Collection Practices Act (Count V). Defendant Saxon has moved to dismiss all five counts against it, arguing primarily that it had no obligation under the TPP to provide a permanent modification, and that it did not violate the TPP in any way. We held oral argument on May 2, 2012.

II. LEGAL STANDARD

When considering a motion to dismiss pursuant to Rule 12(b)(6), we "consider only the complaint, exhibits attached to the complaint, [and] matters of public record, as well as undisputedly authentic documents if the complainant's claims are based upon these documents." Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010) (citing Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993)). We take the factual allegations of the complaint as true and draw all reasonable inferences in favor of the plaintiff. Phillips v. Cnty. of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008) (citing Pinker v. Roche Holdings Ltd., 292 F.3d 361, 374 n.7 (3d Cir. 2002)). Legal conclusions, however, receive no deference, and the court is "not bound to accept as true a legal conclusion couched as a factual allegation." Papasan v. Allain, 478 U.S. 265, 286 (1986) (cited with approval in Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

A plaintiff's pleading obligation is to set forth "a short and plain statement of the claim," Fed. R. Civ. P. 8(a)(2), which gives the defendant "'fair notice of what the . . . claim is and the grounds upon which it rests.'" Twombly, 550 U.S. at 555 (alteration in original) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). The "complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully."

Id. (quoting Twombly, 550 U.S. at 556). In the end, we will dismiss a complaint if the factual allegations in the complaint are not sufficient "to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555 (citing 5 Charles Alan Wright & Arthur R. ...


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