Court Grants MSJ for Defendant Loan Servicer’s Breach of Contract Claim But Permits Three of Plaintiffs’ Counts To Proceed.
By: Kara Boyle
Bob Gaumont co-authored this post with Kara Boyle.
Ready, Aim, File!
The same attorney for the plaintiffs in our last blog entry (and that in the Matthews and Spaulding cases cited therein) has filed another loan modification complaint in the U.S. District Court for the District of Maryland, this time before the Honorable James K. Bredar. On February 1, 2013, Judge Bredar issued an opinion addressing Plaintiffs Marquis Neal et al.’s (the “Neals” or “Plaintiffs”) five causes of action—violations of the Maryland Consumer Protection Act ("MCPA"), common law fraud, promissory estoppel, negligence, and negligent misrepresentation, and Defendant Residential Credit Solutions, Inc.’s (“RCS” or “Defendant”) breach of contract counterclaim. Neal et al. v. Residential Credit Solutions, Inc. (“Op.”), No. JKB-11-3707, 2013 WL 428675 (D. Md. Feb. 1, 2013).
First, given our prior blog entry, we note that Judge Bredar referred to as “an interesting theory” RCS’s claim that Plaintiffs’ state law claims were “foreclosed by the fairly universal acceptance by courts that no private right of action lies for a denial of a loan modification under the Home Affordable Modification Program (“HAMP”),[ but stated that Defendant had] cited no authority for this theory of implicit preemption.” (Op. at 11.) Consequently, the Court did not adopt the Defendant’s theory and instead adopted the conclusion from opinions by the Court finding that state law claims were not “foreclosed by the fact that they arose in the context of HAMP.” (Id.); see, e.g., Legore v. OneWest Bank, Civ. No. BEL-11-589, 2012 WL 4903087, *4 (D. Md. Oct. 15, 2012) and cases cited therein.
(See the “Closing the HAMPer?” blog entry for more discussion of HAMP preemption in Maryland.)
Defendant’s Win MSJ On Breach of Contract Counterclaim
RCS alleged that on September 11, 2007, the Neals borrowed $231,300 from BankUnited FSB, as evidenced by a promissory note (the “Note”) executed on the same date. (Def. RCS’s Answer to Complaint and Counterclaim at 8.) RCS is the current loan servicer of the Note. (Id.)
Plaintiffs argued that RCS, as a mere loan servicer, was not entitled to sue on the note. (Op. at 2.) RCS countered by submitting guidelines from Fannie Mae, which govern the relationship between Fannie Mae and loan servicers. (Id. at 3.) The guidelines conclusively establish that Fannie Mae allows a loan servicer to have temporary possession of the mortgage note, “whenever the servicer, acting in its own name, represents the interests of Fannie Mae in foreclosure actions, bankruptcy cases, probate proceedings, or other legal proceedings. (Id.) In sum, the servicer becomes the holder of the note. (Id.) The Court concluded therefore that RCS had standing to sue on the note as its holder and dismissed the Plaintiffs’ motion to dismiss the counterclaim. (Id.)
Moreover, the Court granted RCS’ motion for summary judgment of this counterclaim because Plaintiffs “have never denied that they executed the note or that they are in default with respect to it.” (Id. at 4.) Mr. Neal testified in his depositions that they had not made any payments on the note in 2010 and leading up to their depositions in October 2011. (Id.) Mrs. Neal testified similarly at a hearing in the course of the foreclosure proceeding. (Id.) Plaintiffs’ only argument against RCS’s entitlement to judgment on its counterclaim relied on their argument to dismiss the counterclaim, which was denied as unmeritorious. (Id.) In sum, RCS “clearly established it [was] entitled to judgment.” (Id.) Thus, the Court granted RCS’s motion for summary judgment on the counterclaim. (Id.)
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