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HAMP - USING STATE CLAIM CLAIMS: FHLMA v. Kama

Posted: Wed Nov 12, 2014 2:37 pm
by Administrator
Third Cause of Action: Breach of Contract
Kama alleges in the Third Cause of Action that BANA failed to abide by HAMP guidelines and “breached its duty to [ ] Kama as the intended third party beneficiary of its agreement with Freddie Mac and the U.S. Treasury under HAMP [.]” (Third–Party Compl. ¶ 91.)


In Newell v. Wells Fargo Bank, N.A., the court explained that


HAMP is a loan modification program designed to reduce delinquent and at-risk borrowers' monthly mortgage payments. HAMP was authorized by Congress as part of the Emergency Economic Stabilization Act of 2008, which has the stated purpose of giving the Secretary of Treasury the ‘authority and facilities' necessary to ‘restore liquidity and stability to the financial system of the United States.’ 12 U.S.C. [ § ] 5201(1).



Under the terms of the HAMP agreement and Treasury regulations, [a lender] is required to evaluate borrowers for loan modifications within thirty days, grant loan modifications to qualified borrowers, forebear from foreclosure during the time that an application for a loan modification is pending, and advise loan modification applicants of the prohibition on foreclosure sales ( see Dkt. No. 11 (Treasury Department's Supplemental Directive 10–02)).


No. C 10–05138 WHA, 2012 WL 27783, at *5 (N.D.Cal. Jan. 5, 2012). HAMP guidelines also require a lender to notify a borrower that his HAMP loan modification request has been denied and allow the borrower thirty days to respond to the “non-approval notice” before a foreclosure sale may take place. (Opp'n Ex. G (“U.S. Dep't of Treasury, HAMP Supplemental Directive 10–02”).) FN17


FN17. Kama attaches several exhibits to his Opposition to the instant Motion to Dismiss and requests that the Court take judicial notice of these exhibits. (Opp'n at 5.) Because these exhibits are matters of public record, and because Third–Party Defendants do not object to Kama's request, the Court considers the exhibits attached to Kama's Opposition to the instant Motion to Dismiss. See U.S. v.. Ritchie, 342 F.3d 903, 908 (9th Cir.2003) (finding that courts may consider “matters of judicial notice” without converting a 12(b)(6) motion to dismiss into a motion for summary judgment); and Intri–Plex Technology, Inc. v. Crest Group, Inc., 499 F.3d 1048, 1052 (9th Cir.2007) (“[A] court may take judicial notice of matters of public record without converting a motion to dismiss into a motion for summary judgment, as long as the facts noticed are not subject to reasonable dispute.”) (internal quotation marks and citation omitted).


Further, the Court notes that Kama attempts to incorporate by reference exhibits attached to his Memorandum in Opposition to Freddie Mac's Motion for Summary Judgment on the Ejectment Complaint, which, as noted, was filed in state circuit court on November 25, 2013. This Court has recently held that the Federal Rules of Civil Procedure do not authorize a party to incorporate by reference exhibits attached to prior briefing. See Barnes v. Sea Hawaii Rafting, Civ. No. 13–00002 ACK–RLP, Doc. No. 120, at 11 n. 9 (D.Haw. September 2, 2014) (finding no authority under the Federal Rules of Civil Procedure for plaintiff's attempt to incorporate by reference exhibits attached to three prior motions). Nevertheless, the Court will consider these exhibits since Third–Party Defendants expressed no opposition, and the Court finds no prejudice to Third–Party Defendants.

In this case, the Court concludes that Kama lacks standing to enforce the HAMP guidelines. This district court and numerous other district courts within the Ninth Circuit have made clear that there is no express or implied private right of action to sue lenders or service providers for HAMP violations. See, e.g., Northern Trust, NA v. Wolfe, Civ. No. 11–00531 LEK–BMK, 2012 WL 1983339, at *20 (D .Haw. May 31, 2013) (“Although Wolfe contends that Northern Trust had a duty under HAMP not to proceed with foreclosure while evaluating him for loan modification, there is no express or implied private right of action for a violation of HAMP.”); Soriano v. Wells Fargo Bank, N.A., Civ. No. 11–00044 SOM/KSC, 2013 WL 310377, at *9 (D.Haw. Jan. 25, 2013) (“This court is not persuaded that there is a private right of action for a violation of HAMP Guidelines.”); Ingalsbe v. Bank of Am., N.A., 2010 WL 5279839, at *5 (E.D.Cal. Dec. 13, 2010) (“The consensus among district courts in the Ninth Circuit is that there is no private right of action under HAMP.”).


*10 Moreover, Kama is not an intended third-party beneficiary of any HAMP agreement between Third–Party Defendants and the U.S. Treasury. “Before a third party can recover under a contract, it must show that the contract was made for its direct benefit—that it is an intended beneficiary of the contract.” Klamath Water Users Protective Ass'n v. Patterson, 204 F.3d 1206, 1210 (9th Cir.2000). The vast majority of district courts in this circuit have determined that mortgage loan borrowers are not intended third-party beneficiaries of HAMP agreements. See, e.g., Escobedo v. Countrywide Home Loans, Inc., No. 09cv1557 BTM(BLM), 2009 WL 4981618, at *3 (S.D.Cal. Dec. 15, 2009) (concluding that qualified borrowers were incidental beneficiaries of Service Provider Agreement (“SPA”) between Countrywide Home Loans and Fannie Mae and did not have enforceable rights under the contract); Morales v.. Chase Home Finance LLC, No. C10–02068 JSW, 2011 WL 1670045, at *9 (N.D.Cal. Apr. 11, 2011) (“As many district courts in the Ninth Circuit have determined, individual borrowers do not have standing to sue under the SPA because they are not intended third party beneficiaries of the SPA.”); Hoffman v. Bank of America, N.A., No. C 10–2171 SI, 2010 WL 2635773, at *4 (N.D. Cal. June 30, 2010) (finding that individual borrower was “an incidental and not an intended beneficiary to the HAMP servicer's agreement”).


In Kilaita v. Wells Fargo Home Mortg., the court explained the reasoning behind many of these district court decisions:


HAMP sets forth guidelines that loan servicers should consider in reviewing a modification request, and does not require that loan servicers agree to modify anything. See Escobedo v. Countrywide Home Loans, Inc., 09CV1557 BTM(BLM), 2009 WL 4981618, at *2–*3 (S.D.Cal. Dec. 15, 2009). The nature of HAMP does not provide Plaintiffs with a private right of action. Parties benefitting from a government contract “are generally assumed to be incidental beneficiaries, and may not enforce the contract absent a clear intent to the contrary.” Zendejas v. GMAC Whole Sale Mortg. Corp ., 1:10–CV00184, 2010 WL 2629899, *3 (E.D. Cal. June 29, 2010) (citing Escobedo, 2009 WL 4981618, at *1–*2). Qualified borrowers under HAMP “ ‘would not be reasonable in relying on the Agreement as manifesting an intention to confer a right on him because the agreement does not require [a loan servicer to] modify eligible loans.’ “ Id. (quoting Escobedo, 2009 WL 49181618, at *3). Thus, Plaintiffs lack standing to challenge HAMP compliance.


No. CV 11–00079 EJD, 2011 WL 6153148, at *9 (N.D.Cal. Dec. 12, 2011).


Notwithstanding the above-mentioned decisions, Kama argues in his Opposition that “[i]t is widely accepted that United States [h]omeowners are the intended beneficiaries of HAMP.” (Opp'n at 20.) In support, Kama relies solely on two decisions issued by the United States District Court for the Southern District of California in the same action: Marques v. Well Fargo Mortgage, Inc., Civ. No. 09–cv–1985–L(RBB), 2010 WL 3212131 (S.D.Cal. Aug. 12, 2010) (“ Marques I”) and Marques v. Well Fargo Mortgage, Inc., Civ. No. 09–cv–1985–L(RBB), 2011 WL 2005837 (S.D.Cal. May 23, 2011) (“ Marques II”).


*11 In Marques I, the court held that the plaintiff-borrower “may be able to state a claim” against defendant Wells Fargo as an intended beneficiary of the HAMP agreement between Wells Fargo and Fannie Mae. Marques I, at *7. However, this holding was mere dicta because the Court subsequently found that the plaintiff-borrower alleged insufficient facts to state a claim for breach of the HAMP agreement and, therefore, dismissed the plaintiff-borrower's complaint with leave to amend. Id. (finding, inter alia, that plaintiff-borrower “did not allege whether he contacted [Wells Fargo] in reference to the modification”). In Marques II, the court concluded that the plaintiff-borrower's amended complaint cured the defects noted in the court's prior order and thus allowed him to proceed on the theory that he was an intended third-party beneficiary of the HAMP agreement. Marques II, at *3.


This Court declines to follow Marques I and Marques II. As discussed above, the weight of authority indicates that individual mortgage loan borrowers are not intended third-party beneficiaries of HAMP agreements. Further, and importantly, as noted by Third–Party Defendants, the case on which the Marques court relied extensively on, County of Santa Clara v. Astra USA, Inc., 588 F.3d 1237 (9th Cir.2009), was reversed by the United States Supreme Court. See Astra USA, Inc. v. Santa Clara County, Cal, 131 S.Ct. 1342 (2011). As one federal district court explained, the Astra decision supports the conclusion that an individual homeowner is not entitled to enforce a HAMP agreement under a third-party beneficiary theory:


Astra involved a third-party beneficiary theory brought by health care facilities that had been over-charged by pharmaceutical companies in violation of the Pharmaceutical Pricing Agreement (“PPA”), which the pharmaceutical companies had entered into with the United States Department of Health and Human Services. The PPA was created pursuant to the Public Health Services Act (“PHSA”), 42 U.S.C. § 256b. In passing PHSA, Congress provided no private right of action to enforce its provisions. Upon reviewing these facts, the Supreme Court held that allowing health care facilities to sue as third party beneficiaries to the PPA was “incompatible with the statutory regime.” The Court reasoned since the PPA agreements serve as the mechanism by which pharmaceutical companies opt-in to PHSA's statutory scheme, a third-party private action would amount to direct enforcement of the PHSA.



Likewise, Defendant—and other banks—opt-in to the [Troubled Asset Relief Program] and HAMP statutory scheme by signing the SPA with the United States Treasury. Allowing the Plaintiffs to enforce the SPA under a third-party beneficiary theory would open a “backdoor” to a private right of action to enforce HAMP, in contravention of Congress' wishes. As the Supreme Court held in Astra, this kind of third-party beneficiary theory is “incompatible with the statutory regime.”


*12 Turbeville v. JP Morgan Chase Bank, No. SA CV 10–01464 DOC(JCGx), 2011 WL 7163111, at *7–*8 (C.D.Cal. Apr. 4, 2011).


Thus, because Kama is not a third-party beneficiary of any HAMP agreement, and because he has no private cause of action for the alleged HAMP violations, his breach of contract claim based upon HAMP must fail. Therefore, the Third Cause of Action is dismissed without prejudice.


D. Fourth Cause of Action: Violation of H.R.S. § 480–2

In the Fourth Cause of Action, Kama alleges that


[BANA], on behalf of Freddie Mac and its mortgage trust [FHLMC Trust], failed to provide [Kama] with the opportunity to process a loan mitigation application of his loan before proceeding with the non-judicial foreclosure sale. [BANA] provided false and misleading statements concerning its alleged ownership of the loan and the loss mitigation process and failed to properly process [Kama's] documents and disclose facts relating to [Kama's] HAMP application for modification of his mortgage loan.


( Id. ¶ 95.) Kama further alleges that BANA was required under HAMP guidelines “to offer good faith loss mitigation of [ ] Kama's loan, but [BANA] failed to disclose this fact to [ ] Kama.” ( Id. ¶ 96.)


H.R.S. § 480–2(a) provides: “Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are unlawful.” The wording of H.R.S. § 480–2(a) “indicates that its prohibition is directed at two separate types of activity: unfair methods of competition and unfair or deceptive acts or practices.” Dash v. Wayne, 700 F.Supp. 1056, 1058 (D.Haw.1988) (emphasis in original). Here, Kama only alleges a violation of the latter clause of the statute. Accordingly, the Court will only address whether Kama sufficiently alleged that BANA engaged in “unfair or deceptive acts or practices .”


The Hawaii Supreme Court “has described a deceptive act or practice as having the capacity or tendency to mislead or deceive.” Courbat v. Dahana Ranch, Inc., 111 Haw. 254, 261 (Haw.2006) (internal quotation marks and citation omitted). Under the three-part test adopted by the Hawaii Supreme Court in Courbat, a deceptive act or practice is “(1) a representation, omission, or practice that (2) is likely to mislead consumers acting reasonably under the circumstances where (3) the representation, omission or practice is material.” Id. at 262 (internal quotation marks and alteration signals omitted). “A representation, omission, or practice is considered ‘material’ if it involves ‘information that is important to consumers and, hence, likely to affect their choice of, or conduct regarding, a product.’ “ Id. (quoting Novartis Corp. v. FTC, 223 F.3d 783, 786 (D.C.Cir.2000)).


H.R.S. § 480–13(b) states, in relevant part, that “[a]ny consumer who is injured by any unfair or deceptive act or practice” that violates § 480–2 “[m]ay sue for damages sustained by the consumer.” H.R.S. § 480–13(b)(1). “To obtain relief under section 480–13(b)(1), a consumer must establish three elements: ‘(1) a violation of [section] 480–2; (2) injury to the consumer caused by such a violation; and (3) proof of the amount of damages.’ “ Compton v. Countrywide Financial Corp., No. 11–17158, 2014 WL 3805529, at *3 (9th Cir. Aug. 4, 2014) (quoting Davis v. Wholesale Motors, Inc., 86 Haw. 405, 417 (Haw.Ct.App.1997)).


*13 In this case, “it is undisputed that [Kama] qualifies as a ‘consumer,’ and that [BANA's] lending and loan modification activities involve the ‘conduct of any trade and commerce.’ “ Id . at *6 (citing Hawaii Cmty. Fed. Credit Union v. Keka, 94 Haw. 213, 227 (Haw.2000)).


Further, for purposes of the instant Motion to Dismiss, the Court finds that Kama has adequately alleged that BANA engaged in “unfair or deceptive acts or practices” in violation of H.R.S. § 480–2. The crux of Kama's H.R.S. § 480–2 claims is that BANA allegedly provided false and misleading statements, and failed to disclose facts, regarding the loan modification process. Kama alleges that, as a consequence, he was unable to obtain a loan modification before BANA foreclosed on the Property or seek other relief such as filing for bankruptcy. The Third–Party Complaint's “description of [BANA's] misleading behavior sufficiently alleges a ‘representation, omission, or practice’ that is likely to deceive a reasonable consumer.” Compton, 2014 WL 3805529, at *6 (quoting Courbat, 111 Haw. at 262). “Moreover, [BANA's alleged] misrepresentations and misleading conduct were material, in that they involved information important to a consumer attempting to negotiate with a mortgagor to prevent foreclosure.” Id. Thus, Kama's Third–Party Complaint sets forth allegations that satisfy the three-part test in Courbat for violations of H.R.S. § 480–2. See Courbat, 111 Haw. at 261.


Additionally, the Court finds that Kama's allegations in support of his H.R.S. § 480–2 claims satisfy Rule 9(b)'s heightened pleading standard which, as discussed hereinbefore, apply to Chapter 480 claims that sound in fraud. See Smallwood, 730 F.Supp.2d at 1232–33. Specifically, Kama alleges that “Bonita,” a BANA representative, told him that he qualified for a loan modification and that, as long as he abided by the terms of BANA's paperwork, “which [were] forthcoming in the mail,” the Property would not be foreclosed upon. (Third–Party Compl. ¶ 22.) Kama further alleges that in early April 2011 a different BANA representative told him that his loan modification application was complete and that no other documentation was needed. ( Id. ¶ 21.) Additionally, and importantly, Kama alleges that Bonita told him that she mailed a loan modification agreement to him. ( Id. ¶ 77.) FN18


FN18. The Court notes that the allegations in support of Kama's H.R.S. § 480–2 claims and Hawaii promissory estoppel claim are similar. See pages 41–44 of this Order infra.



Federal Home Loan Mortg. Corp. v. Kama
Not Reported in F.Supp.3d, 2014 WL 4980967
D.Hawai‘i,2014.
October 03, 2014