Several months later, Servicer sent Borrowers a letter denying their loan modification application. The letter also allegedly informed Borrowers that a foreclosure action would ensue if they failed to bring their loan current immediately. Borrowers later received another letter from Servicer allegedly informing them that, although they may not be eligible for a HAMP modification, the loan had been placed under review, that Borrowers should continue making their monthly trial payments in order to "continue to be eligible for HAMP consideration," and that Borrowers would be notified at the end of the review period as to the status of the modification. Before the end of the review period, however, Borrowers were served with notice of a foreclosure sale and informed that they needed to pay almost $32,000 to bring the loan up to date. The property was eventually sold at the foreclosure sale to the owner of the loan.
Removing the case to federal court, Defendants moved to dismiss or alternatively for summary judgment. The district court granted Defendants' motion to dismiss, ruling that there was no private right of action, because Borrowers' claims were based entirely on a request for a HAMP loan modification. The district court also ruled that Borrowers failed to plead their claims with sufficient particularity. The Eighth Circuit affirmed.
Next, rejecting Borrowers' assertion that Minn. Stat. §580.11 imposed a duty on Defendants to act fairly and in good faith "while foreclosing," the Eighth Circuit ruled that this provision merely authorized mortgagees to purchase foreclosed premises at the foreclosure sale, as long as the mortgagee's actions relating specifically to the sale are fair and done in good faith. See Minn. Stat. §580.11 (authorizing "[t]he mortgagee, the mortgagee's assignee, or the legal representative of either or both [to purchase the premises] fairly and in good faith"). See also Sprague Nat'l Bank v. Dotty, 415 N.W.2d 725, 726-27 (Minn. App. 1987)(ruling that Section 580.11 imposes a duty on mortgagees to act fairly and in good faith when purchasing property at a foreclosure sale).
As to Borrowers' allegations that Defendants breached an implied duty of good faith and fair dealing, the Eighth Circuit pointed out that Borrowers did not need to assert an independent breach of an express contractual duty, as long as the claims were based on the underlying agreement and there was a "causal link" between the alleged breach of good faith and fair dealing and any claimed damages.
In addition, observing that under Minnesota law any allegation of misrepresentation, whether fraudulent or negligent, is considered an allegation of fraud and must be pled with particularity, the Eighth Circuit ruled that Borrowers had failed to plead their misrepresentation claims with particularity in that they failed to plead "'the time, place, and contents' of the false representations, the identity of the individual who made the representations, and what was obtained thereby." See, e.g., BJC Health Sys. v. Columbia Cas. Co., 478 f.3d 908, 917 (8th Cir. 2007).
The Court pointed out that, by providing only conclusory allegations that they suffered damages in reliance on Servicer's alleged misrepresentations, Borrowers failed to specify how Defendants' various misrepresentations caused either the foreclosure proceedings or Borrowers' inability to pay the mortgage delinquency, especially in light of the communications from Servicer alerting them to the need to bring the loan current immediately to avoid foreclosure. The Court thus ruled that Borrowers failed to state plausible claims for fraudulent or negligent misrepresentation. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007)(requiring a complaint to contain sufficient factual matter to state a claim that is plausible on its face).
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
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