District Court Dismisses with Prejudice Attempt to Recast Alleged HAMP Violations as Common Law Claims
On July 5, 2011, the United States District Court for the Eastern District of Virginia (“EDVA”) dismissed with prejudice a borrower’s complaint against Litton Loan Servicing, L.P. (“Litton”) and Glasser and Glasser, P.L.C. (“Glasser”) for claims arising from the denial of the borrower’s loan modification requests. The Court also denied Plaintiff’s motion to remand, holding that Glasser, the substitute trustee, was fraudulently joined in an effort to defeat diversity jurisdiction.
The Court’s opinion, authored by Judge Mark S. Davis, strikes down Plaintiff’s counsel’s second attempt to recast alleged Home Affordable Modification Program (“HAMP”) violations under the auspice of state common law claims. On October 29, 2010, similar claims were defeated in Winn v. Chase Mortgage Services, et al., where the EDVA granted defendant’s motion to dismiss, holding the borrower lacked standing to assert claims for a lender’s alleged failure to process loan modification requests in accordance with HAMP guidelines.
In the present case, Plaintiff’s claims arise from denials of loan modification requests relating to a loan originated by a third party in 2006 and serviced by Litton. Plaintiff alleged three theories of breach of contract, negligent processing of Plaintiff’s loan modification requests, and fraudulently proceeding with foreclosure sale.
Specifically, Plaintiff asserted that Litton actively solicited Plaintiff to apply for a HAMP loan modification, thereby creating a contract to modify his loan. Plaintiff claimed that Litton breached this alleged contract by failing to modify his loan pursuant to HAMP guidelines and supplemental directives. Plaintiff also alleged that Litton breached its trial modification contract with Plaintiff and its implied contract arising from the benefits Litton receives for participating in the HAMP program. In his fraud claim, Plaintiff asserted that if Litton complied with HAMP requirements to certify that loss mitigation alternatives were exhausted, then such certification was fraudulent.
The Court held that to the extent Plaintiff’s claims can be construed as “arising under” HAMP, they must be dismissed because HAMP creates no private right of action. The Court noted that Plaintiff “curiously and conspicuously” omitted the cover page to the trial modification solicitation, which explicitly provides that it is not a HAMP modification and that Plaintiff is not eligible to receive government benefits through the proposed trial modification. Thus, despite Plaintiff’s allegations, the Court considered Plaintiff’s common law claims as if they were not grounded in HAMP and dismissed them with prejudice.
Regarding Plaintiff’s breach of contract to modify claim, the Court held that Litton’s solicitation of loan assistance was “merely an offer to consider Plaintiff’s application for a loan modification, not an outright offer to modify Plaintiff’s mortgage, under HAMP or otherwise.” The Court dismissed Plaintiff’s breach of trial modification claim, finding that Plaintiff failed to plead he complied with the terms of the trial modification, namely making timely payments. Further, the Court rejected Plaintiff’s third-party beneficiary theory, holding borrowers lack standing to assert a cause of action for breach of implied contract or unjust enrichment resulting from Litton’s participation in the HAMP program.
The Court dismissed Plaintiff’s claim that Litton negligently processed his loan modification requests, holding that Litton’s only duties to Plaintiff arise solely from the parties’ contract and “do not flow from the common law,” thus Plaintiff “failed to allege a duty that is actionable in tort.”
Finally, the claim for fraudulently proceeding with foreclosure was dismissed because Plaintiff’s allegations lacked the requisite particularity to support a plausible claim for fraud, as Plaintiff failed to even plead the first element of fraud – a false representation.
A copy of the Court’s opinion is attached here. James R. Sherman v. Litton Loan Servicing, L.P. and Glasser and Glasser, P.L.C., No. 2:10-cv-567 (E.D. Va. July 5, 2011) (Davis, J.).
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