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Cave v. Saxon Mortgage Services, Inc.

United States District Court, Third Circuit

May 9, 2013

WILLIAM D. CAVE and PAMELA L. SMITH, on behalf of themselves and all others similarly situated
v.
SAXON MORTGAGE SERVICES, INC. and OCWEN LOAN SERVICING, LLC

MEMORANDUM

JOHN R. PADOVA, District Judge.

In this putative class action, Plaintiffs assert breach of contract and other claims against Defendants Saxon Mortgage Services, Inc. ("Saxon") and Ocwen Loan Servicing, LLC ("Ocwen") based on Defendants' failure to permanently modify home mortgage loans after providing homeowners with temporary modifications. Presently before the Court is Saxon's Motion to Dismiss. For the reasons that follow, we deny the Motion.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. The Home Affordable Modification Program

The Complaint alleges the following facts. In February 2009, the Secretary of the Treasury and the Director of the Federal Housing Finance Agency announced the Making Home Affordable ("MHA") program in an effort to stem the foreclosure crisis. (Compl. § 16.) As a part of the MHA, the Home Affordable Modification Program ("HAMP") was created. (Id.) Under HAMP, mortgagors can apply to their loan servicer for a permanent loan modification to get a reduced monthly payment. (Id. § 1.) Saxon and Ocwen 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. (Id. §§ 10, 11, 28-30, 37.)

After a borrower applies for a permanent modification, loan servicers are required under HAMP regulations to determine, based on all 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 his gross monthly income.[1] (Id. § 32.) Before a borrower receives a permanent modification, a loan servicer and a borrower enter into a three-month trial period, during which the borrower makes lower monthly payments towards his mortgage. (Id. § 1.) The terms of the trial period are governed by a form contract entitled "HAMP TPP" (the "TPP"). (Id. §§ 48-49; id. Exs. A, C (TPP).) The TPP states that the lender will send the borrower a permanent modification agreement if: (1) the borrower's representations about his financial state continue to be true, and (2) the borrower complies with the terms of the temporary payment plan. (TPP § 3.) The TPP requires the borrower to make three monthly payments in a reduced amount. (Compl. § 48; TPP § 2.) The TPP also states that the loan servicer will provide the borrower with a permanent modification if he is qualified, or will send the borrower a written denial if he does not qualify. (Compl. § 50; TPP Introduction.)

The Complaint alleges that despite Defendants' participation in the HAMP program, they never intended to provide permanent loan modifications to the majority of applicants. (Compl. § 47.) 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." (Id. § 40.) Since HAMP's inception through November 2010, loan servicers participating in HAMP cancelled roughly 729, 000 of the 1.4 million trial modifications offered. (Id. § 18.)

B. Plaintiffs' Temporary Loan Modification Contracts

1. William D. Cave

Plaintiff William D. Cave applied to Saxon in August 2009 for a HAMP mortgage modification, after suffering financial hardship and experiencing difficulty in paying his mortgage. (Id. § 54.) Cave provided Saxon with all requested financial information in support of his application. (Id.) Saxon notified Cave that he had been approved for a TPP, and sent him a written copy of the TPP on September 16, 2009. (Id. § 55.) Cave promptly signed and returned the TPP to Saxon, along with his modified payment. (Id. § 56.) Saxon signed the TPP on October 5, 2009, and returned it to Cave. (Id. § 57.)

Cave fully performed all of his obligations under the TPP, including making all reduced monthly payments on time and providing copies of all financial documents requested by Saxon, including a Hardship Affidavit. (Id. § 60.) Despite Cave's full performance under the TPP, Saxon failed to provide him with a permanent Home Affordable Agreement on the terms promised in the TPP, and also failed to provide him with a timely written denial letter explaining its basis for denying him a permanent modification. (Id. § 61.) In February and May 2010, Saxon charged Cave's escrow account in the amounts of $276.00 and $821.00 for fire insurance that Cave's homeowner's insurance policy already provided, and also charged his escrow account in the amount of $2, 632.22 for payment of school taxes, even though Cave had already paid that tax bill. (Id. § 65.)

By letter dated April 1, 2010, Cave was advised that Saxon was transferring the servicing of his mortgage to Ocwen, effective April 16, 2010. (Id. § 66.) Ocwen informed Cave that he would need to apply for another HAMP modification, and if he did not qualify under HAMP, he would be considered for an in-house modification. (Id. § 67.) Cave applied to Ocwen for a HAMP modification, which Ocwen denied. (Id.) Ocwen informed Cave that the owner of his loan "does not allow loan modifications or is not participating in the HAMP program." (Id.)

2. Pamela L. Smith

Plaintiff Pamela L. Smith applied to Saxon in the spring of 2009 for a HAMP mortgage modification, after suffering financial hardship and experiencing difficulty in paying her mortgage. (Id. § 69.) Smith was advised by a Saxon representative that nothing could be done for her unless she was in default, and that she should therefore stop making her regular monthly payments. (Id. § 70.) After applying to Saxon for a HAMP modification, Smith sent Saxon a package containing all requested financial information, including a Hardship Affidavit. (Id. § 71.) Saxon approved her for a temporary modification and sent her a written copy of the TPP on June 29, 2009. (Id. § 72.) Smith promptly signed and returned the TPP to Saxon, along with her modified monthly payment. (Id. § 73.) Saxon signed the TPP on August 18, 2009, and returned it to Smith. (Id. § 74.)

Smith fully performed all of her obligations under the TPP, including making all reduced monthly payments on time and providing copies of all financial documents requested by Saxon. (Id. § 77.) Despite her full performance under the TPP, Saxon failed to provide Smith with a permanent Home Affordable Agreement on the terms promised in the TPP, and also failed to provide a timely written denial letter explaining its basis for denying her a permanent modification. (Id. §§ 78-79.) Instead, Saxon charged unreasonable fees to her mortgage and twice informed Smith of its intent to foreclosure on her property. (Id. § 81.) In February 2011, Plaintiff reapplied to Saxon for a HAMP modification, and also sought assistance through a nonprofit organization to apply to Pennsylvania's Homeowners Emergency Mortgage Assistance Program ("HEMAP"). (Id. § 82.) Saxon failed to cooperate or assist Smith in obtaining a HEMAP loan, and Plaintiff never received the assistance that she sought. (Id.)

By letter dated April 13, 2011, Smith was advised that Saxon was transferring the servicing of her mortgage to Ocwen, effective May 2, 2011. (Id. § 83.) Smith applied to Ocwen for a HAMP modification, which Ocwen denied. (Id. § 84.) Smith was informed that her modification was denied because Ocwen was "unable to create an affordable payment equal to 31% of [Smith's] reported monthly gross income without changing the terms of [her] loan beyond the requirements of the program." (Id.)

C. Class Allegations

Plaintiffs bring this action pursuant to Federal Rules of Civil Procedure 23(a), (b)(2), and (b)(3), on behalf of themselves and a Class consisting of all Pennsylvania homeowners whose loans were serviced by Defendants and who, since April 13, 2009, entered into a TPP, made all payments as required, complied with requests for documentation, and:

(1) Did not receive a permanent modification and did not receive a timely written notification explaining the reason for the denial of the modification (the "Denied Class") (Id. § 86.a);
(2) Were improperly reported to credit reporting agencies as delinquent during the trial payment period (the "Credit ...

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