Plaintiffs Opposition to Saxon Mortgage Services, Inc.'s Motion to Dismiss Class Action Complaint

IN THE UNITED STATES DISTRICT COURT EASTERN DISTRICT OF PENNSYLVANIA

LISA AND SCOTT CAVE, on behalf of themselves and all others similarly situated, Plaintiffs, v. SAXON MORTGAGE SERVICES, INC. and OCWEN LOAN SERVICING, LLC, Defendant.

Case No. 2:11-CV-04586-JP Hon. John R. Padova

PLAINTIFFS’ MEMORANDUM OF LAW IN OPPOSITION TO SAXON MORTGAGE SERVICES, INC.’S MOTION TO DISMISS

Case 2:11-cv-04586-JP Document 26 Filed 11/30/11 Page 1 of 51

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TABLE OF CONTENTS I. PRELIMINARY STATEMENT ........................................................................................ 1

II. STATEMENT OF FACTS ................................................................................................. 6

III. ARGUMENT .................................................................................................................... 10

A. Standard of Review ............................................................................................... 10

B. Plaintiffs’ Claims Are Based Upon Bilateral TPP Contracts with Saxon – Not Claims Under HAMP ............................................................................................ 11

C. Plaintiffs State a Claim for Breach of the TPP Contract ...................................... 15

1. The TPP Contract is an Unambiguous Offer and Not Merely a Part of the Application Process .................................................................................. 16

2. The TPP Contract’s Terms Are Sufficiently Definite, and They Follow an Established Modification Formula ............................................................ 21

3. Plaintiffs Have Adequately Alleged Consideration .................................. 24

4. Plaintiffs Sufficiently Plead Damages Caused by Saxon’s Breach of the TPP Contract ............................................................................................. 26

5. Plaintiffs State a Claim for Breach of the Duty of Good Faith and Fair Dealing ...................................................................................................... 28

D. Plaintiffs State a Claim for Promissory Estoppel ................................................. 29

E. Plaintiffs State a Claim Under Pennsylvania’s UTPCPL ..................................... 32

1. Saxon’s Conduct Violates The UTPCPL .................................................. 32

2. The Economic Loss Doctrine Does Not Affect Plaintiffs’ UTPCPL Claim ................................................................................................................... 33

3. Plaintiffs Have Properly Pled Reliance, Deceptive Acts, Duty, Malfeasance and Injury ............................................................................. 37

F. Plaintiffs State a Viable Claim Under the FCEUA and the FDCPA .................... 39

1. Plaintiffs State a Claim Under the FCEUA .............................................. 39

2. Plaintiffs’ FDCPA Claim Should be Upheld ............................................ 41

IV. CONCLUSION ................................................................................................................. 42


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TABLE OF AUTHORITIES

Page(s) CASES

Adelvision L.P. v. Groff, 859 F. Supp. 797 (E.D. Pa. 1994) ............................................................................................24

Allen v. CitiMortgage, Inc., 2011 WL 3425665 (D. Md. Aug. 4, 2011) ........................................................................13, 31

Arthur v. Maersk, Inc., 434 F.3d 196 (3d Cir. 2006).....................................................................................................42

Astra USA, Inc. v. Santa Clara Cnty., 131 S.Ct. 1342 (Mar. 29, 2011) ...............................................................................................14

Barbera v. TD Bank, 2010 WL 1980319 (E.D. Pa. May 19, 2010) ...........................................................................24

Barinaga v. JPMorgan Chase & Co., 749 F. Supp. 2d 1164 (D. Or. 2010) ........................................................................................25

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) .................................................................................................................11

Belyea v. Litton Loan Servicing, LLP, 2011 WL 2884964 (D. Mass. July 15, 2011) .....................................................................22, 27

Berks Mut. Leasing Corp. v. Travelers Property Cas., 2002 WL 31761419 (E.D. Pa. Dec. 9, 2002) ...........................................................................29

Blackwood v. Wells Fargo Bank, N.A., 2011 WL 1561024 (D. Mass. Apr. 22, 2011) ..........................................................................13

Bolone v. Wells Fargo Home Mortg., Inc., 2011 WL 3706600 (E.D. Mich. Aug. 24, 2011) ................................................................16, 26

Bosque v. Wells Fargo Bank, N.A., 2011 WL 304725 (D. Mass. Jan. 26, 2011) ..................................................................... passim

Bourdelais v. J.P. Morgan Chase, 2011 WL 1306311 (E.D.Va. Apr. 1, 2011) .......................................................................15, 18

Boyd v. U.S. Bank, N.A., 2011 WL 1374986 (N.D. Ill. Apr. 12, 2011) ...........................................................................13


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Brock v. Thomas, 782 F. Supp. 2d 133 (E.D. Pa. 2011) .......................................................................................34

Brown v. Bank N.Y. Mellon, 2011 WL 206124 (W.D. Mich. Jan. 21, 2011) ............................................................15, 18, 19

Brown v. Phila. Housing Auth., 159 F. Supp. 2d 23 (E.D. Pa. 2001) .........................................................................................25

Cade v. BAC Home Loans Servicing, LP, 2011 WL 2470733 (S.D. Tex. June 20, 2011) ...................................................................12, 25

Cardamone v. U. of Pittsburgh, 384 A.2d 1228 (Pa. Super. Ct. 1978) .......................................................................................24

Chalfin v. Beverly Enters., Inc., 741 F. Supp. 1162 (E.D. Pa. 1989) ..........................................................................................13

Clark v. EMC Mortgage Corp., 2009 U.S. Dist. LEXIS 61181 (E.D. Pa. Jan. 29, 2009) ..........................................................36

Cleveland v. Aurora Loan Servs., LLC, 2011 WL 2020565 (N.D. Cal. May 24, 2011) .........................................................................11

College Loan Corp. v. SLM Corp., 396 F.3d 588 (4th Cir. 2005) ...................................................................................................13

Com. ex rel. Corbett v. Manson, 903 A.2d 69 (Pa. Commw. Ct. 2006) ......................................................................................32

Commw. v. Monumental Properties, Inc., 329 A.2d 812 (Pa. 1974) ..........................................................................................................32

Commw. v. Percudani, 825 A.2d 743 (Pa. Commw. Ct. 2003) ....................................................................................32

Corestates Bank, N.A. v. Cutillo, 723 A.2d 1053 (Pa. Super. Ct. 1999) .......................................................................................16

Costigan v. CitiMortgage, Inc., 2011 WL 3370397 (S.D.N.Y. Aug. 2, 2011) .....................................................................12, 18

Cox v. Mortg. Elec. Registration Sys., Inc., 2011 WL 2600700 (D. Minn. June 30, 2011) ..........................................................................15

Crawford’s Auto Center, Inc. v. Penna. State Police, 655 A.2d 1064 (Pa. Commw. Ct. 1995) ..................................................................................23


iv

Darcy v. CitiFinancial, Inc., 2011 WL 3758805 (W.D. Mich. Aug. 25, 2011) .........................................................13, 20, 29

Durmic v. JP Morgan Chase Bank, N.A., 2010 WL 4825632 (D. Mass. Nov. 24, 2010) .............................................................16, 22, 27

Edwards v. Wyatt, 330 Fed. Appx. 342, 2009 (3d Cir. 2009) ................................................................................23

Edwards v. Wyatt, 335 F.3d 261 (3d Cir. 2003).....................................................................................................30

Erickson v. Long Beach Mortg., 2011 WL 830727 (W.D. Wash. Mar. 2, 2011) ........................................................................30

Ferki v. Wells Fargo, 2010 WL 5174406 (E.D. Pa. Dec. 10, 2010) .....................................................................36, 37

Foman v. Davis, 371 U.S. 178 (1962) .................................................................................................................42

Gaudin v. Saxon Mortg. Services, Inc., 2011 WL 5825144 (N.D. Cal. Nov. 17, 2011) ................................................................ passim

Good v. Holstein, 787 A.2d 426 (Pa. Super. Ct. 2001) .........................................................................................40

Gordon v. Pa Blue Shield, 548 A.2d 600 (Pa. Super Ct. 1988) ..........................................................................................38

Grill v. BAC Home Loans Servicing, 2011 WL 127891 (E.D. Cal. Jan. 14, 2011) ..........................................................12, 18, 22, 30

Horowitz v. Federal Kemper Life Assurance Co., 57 F.3d 300 (3d Cir. 1995).......................................................................................................38

In re Bank of Am. HAMP Contract Litig., 2011 WL 2637222 (D. Mass. July 6, 2011) .......................................................................14, 26

In re Estate of Lazarus, 616 A.2d 1023 (Pa. Super. Ct. 1992) .......................................................................................40

In re Ocwen Loan Servicing, LLC Mortg. Servicing Litig., 491 F.3d 638 (7th Cir. 2007) .............................................................................................13, 14

In re Pennsylvania Footwear Corp., 204 B.R. 165 (Bankr. E.D. Pa. 1997) ................................................................................22, 23


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In re Salvador, 2011 WL 1833188 (Bankr. M.D. Ga. May 12, 2011) .................................................18, 21, 24

Ishler v. Chase Home Fin. LLC, 2011 WL 744538 (M.D. Pa. Feb. 23, 2011) ......................................................................20, 27

Keller v. Volkswagen of Am., Inc., 733 A.2d 642 (Pa. Super Ct. 1999) ..........................................................................................33

Kost v. Kozakiewicz, 1 F.3d 176 (3d Cir. 1993).........................................................................................................11

Lasisi v. Bank of Am., 2009 WL 2342640 (E.D. Pa. July 29, 2009) ............................................................................41

Locke v. Wells Fargo Home Mort., 2010 WL 4941456 (S.D. Fla. Nov. 30, 2010)....................................................................24, 30

Lonberg v. Freddie Mac, 776 F. Supp. 2d 1202 (D. Or. 2011) ..................................................................................18, 22

Lyon Fin. Servs. v. Woodlake Imaging, LLC, 2005 U.S. Dist. LEXIS 2011 (E.D. Pa. Feb. 9, 2005) .............................................................28

Mahoney v. Furches, 503 Pa. 60, 468 A.2d 458 (1983) .............................................................................................40

Marks v. Bank of Am., 2010 WL 2572988 (D. Ariz. June 22, 2010) ...........................................................................15

Morales v. Chase Home Fin., LLC, 2011 WL 1670045 (N.D. Cal. Apr. 11, 2011) .............................................................18, 21, 30

Northern Group, Inc. v. Delancey Investment Group. Inc., 1993 WL 488598 (E.D. Pa. Nov. 24, 1993) ............................................................................22

O’Keefe v. Mercedes-Benz USA, LLC, 214 F.R.D. 266 (E. D. Pa. 2003) ....................................................................................37

Ording v. BAC Home Loans Servicing, LP, 2011 WL 99016 (D. Mass. Jan. 10, 2011) ...............................................................................13

Phillips v. County of Allegheny, 515 F.3d 224 (3d Cir. 2008).....................................................................................................11

Phipps v. Wells Fargo Bank, 2011 WL 302803 (E.D. Cal. Jan. 27, 2011) ......................................................................20, 27


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Power Contracting, Inc. v. Stirling Energy Sys. Inc., 2010 WL 4854072 (W.D. Pa. Nov. 22, 2010) .........................................................................23

Prasad v. BAC Home Loans Servicing, 2010 WL 5090331 (E.D. Cal. Dec. 7, 2010) ...............................................................18, 21, 30

Quinn v. Traditions of Am., L.P., 2010 WL 3239325 (E.D. Pa. Aug. 16, 2010) ....................................................................23, 24

Rackley v. JPMorgan Chase Bank, Nat. Ass’n, 2011 WL 2971357 (W.D. Tex. July 21, 2011) ........................................................................25

Register v. PNC Fin. Servs. Group, Inc., 477 F.3d 56 (3d Cir. 2007).......................................................................................................11

Rem Coal Co. v. Clark Equipment Co., 563 A.2d 128 (Pa. Super. Ct. 1989) .........................................................................................34

Rivera v. Bank of Am. Home Loans, 2011 WL 1533474 (E.D.N.Y Apr. 21, 2011) ....................................................................12, 15

Santo v. Qualcraft Construction, 2007 WL 5786314 (Pa. Com. Pl. Sept. 2007) .........................................................................38

Sarsfield v. CitiMortgage, Inc., 707 F. Supp. 2d 546 (M.D. Pa. 2010) ......................................................................................37

Seldon v. Home Loan Services, Inc., 647 F. Supp. 2d 451 (E.D. Pa. 2009) .....................................................................32, 36, 37, 41

Sherman v. Litton Loan Servicing, L.P., 2011 WL 2634097 (E.D. Va. July 5, 2011) .............................................................................18

Shurtliff v. Wells Fargo Bank, 2010 WL 4609307 (D. Utah Nov. 5, 2010) .............................................................................18

Simon v. Bank of America, 2010 WL 2609436 (D. Nev. June 23, 2010) ............................................................................12

Singh v. Wells Fargo Bank, 2011 WL 66167 (E.D. Cal. Jan. 7, 2011) ..........................................................................15, 27

Stagikas v. Saxon Mortg. Services, Inc., -- F. Supp. 2d --, 2011 WL 2652445 (D. Mass. July 5, 2011) .................................1, 12, 13, 26

Stolba v. Wells Fargo & Co., 2011 WL 3444078 (D.N.J. Aug. 8, 2011) ...............................................................................15


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Stuart v. AR Resources, Inc., 2011 U.S. Dist. LEXIS 27025 (E.D. Pa. March 15, 2011) ......................................................37

Thomas v. JPMorgan Chase & Co., 2011 WL 3273477 (S.D.N.Y. July 29, 2011) ........................................................12, 18, 19, 28

Torres v. Litton Loan Servicing, L.P., 2011 WL 149833 (E.D. Cal. Jan. 18, 2011) ............................................................................22

Turbeville v. JPMorgan Chase Bank, 2011 U.S. Dist. LEXIS 42290 (C.D. Cal. Apr. 4, 2011) ................................................. passim

U.S. Steel Corp. v. U.C.B.R., 858 A.2d 91 (Pa. 2004) ............................................................................................................24

Vassalotti v. Wells Fargo Bank, 732 F. Supp. 2d 503 (E.D. Pa. 2010) .......................................................................................36

Vida v. OneWest Bank, 2010 WL 5148473 (D. Or. Dec. 13, 2010) ............................................................15, 18, 22, 25

Werwinski v. Ford Motor Co., 286 F.3d 661 (3d Cir. 2002)...................................................................................34, 35, 36, 37

Wigod v. Wells Fargo Bank, 2011 WL 250501 (N.D. Ill. Jan. 25, 2011) ........................................................................12, 15

Wright v. Chase Home Finance, LLC, 2011 WL 4101513 (D. Ariz. Sept. 14, 2011)...........................................................................13

STATUTES

73 PA. STAT. § 201-2(4)(xxi) ...................................................................................................32, 36

12 U.S.C. § 1461 et seq..................................................................................................................14

Employee Retirement Income Security Act, 29 U.S.C. § 1132 .....................................................14

OTHER AUTHORITIES

3 WILLISTON ON CONTRACTS § 7.28 (Thomson Reuters/West 4th ed. 2009) ................................25

1A Corbin on Contracts § 204 (1963)............................................................................................31

Fed. R. Civ. P. 8(a) ........................................................................................................................11

Fed. R. Civ. P. 12(b)(6)..................................................................................................9, 11, 21, 22

Fed. R. Civ. P. 15(a) ......................................................................................................................42


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REST. 2D CONTRACTS § 204 ...........................................................................................................23

REST. 2D CONTRACTS § 90 .......................................................................................................30, 31


I. PRELIMINARY STATEMENT

Defendant Saxon Mortgage Services, Inc.’s (“Saxon” or “Defendant”) Motion to Dismiss

Plaintiffs’ Class Action Complaint (“Complaint”) should be denied in its entirety, because the

Complaint sufficiently states claims for breach of contract (Count I), promissory estoppel (Count

II), violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law

(“UTPCPL”) (Count III), Pennsylvania’s Fair Credit Extension Uniformity Act (“FCEUA”)

(Count IV), and the Fair Debt Collections Practices Act (“FDCPA”) (Count V).

Saxon recently lost a nearly identical motion to dismiss a substantially similar class

action in the Northern District of California. See Gaudin v. Saxon Mortg. Services, Inc., 2011

WL 5825144 (N.D. Cal. Nov. 17, 2011). Saxon also lost a similar motion to dismiss in the

District of Massachusetts. Stagikas v. Saxon Mortg. Services, Inc., -- F. Supp. 2d --, 2011 WL

2652445 (D. Mass. July 5, 2011). The outcome here should be no different.

Saxon appears oblivious to the hardships of struggling homeowners like Plaintiffs Lisa

and Scott Cave, and to its own obligations under the Home Affordable Mortgage Program

(“HAMP”) – a federal program intended to ease the national foreclosure crisis (¶¶1, 3, 28-401)

by providing financially distressed homeowners reduced monthly mortgage payments.2 Saxon’s

indifference is exemplified by its low rate of granting permanent loan modifications, which ranks

it among the worst mortgage servicers in the country. As of July 2009, Saxon had modified just

1 Citations to the Complaint appear herein as “¶__,” or “¶¶__.” 2 Although Saxon contends that its participation in HAMP was voluntary (see Memorandum of Law in Support of Saxon Mortgage Services, Inc.’s Motion to Dismiss Plaintiffs’ Complaint (“Def. Mem.”) at 6, n. 7), this assertion is immaterial to the disposition of this motion, as it does not alter the fact that Saxon signed the Servicer Participation Agreement (“SPA”) with the U.S. Department of the Treasury and was obligated to comply with HAMP and its supplemental directives and, more importantly, to discharge faithfully its obligations under TPP Contracts with Plaintiffs and the Class, which it failed to do. ¶¶28, 37; a copy of the SPA is attached to the Declaration of Jeanette V. Torti in Support of Saxon Mortgage Services, Inc.’s Motion to Dismiss (“Torti Decl.”) at Ex. 3.


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6 percent of the mortgages it serviced, according to a July 16, 2009 article in The Wall Street

Journal, “Mortgage Firms Struggle to Redo Hard-Hit Loans.” ¶26 (noting that Saxon had failed

to hire adequate, trained staff to deal with the large number of HAMP modifications sought by

homeowners). According to an article in ProPublica, “No Penalties for Mortgage Company

with Worst Loan Mod Backlog,” “[o]f all the mortgage companies participating in the

administration’s mortgage modification program, Saxon has the largest proportion of

homeowners caught in modification limbo.” Id. According to Treasury Department data

through January 30, 2011, Saxon had offered 37,495 trial modifications, but cancelled trials of

21,673 borrowers, or 57.8 percent, and offered permanent modifications to only 12,931

borrowers, or 34.5 percent. Id.

Under HAMP guidelines, before any applicant receives a “Home Affordable

Modification Trial Period Plan” (“TPP Contract”), Saxon is required to conduct a Net Present

Value (“NPV”) test and other financial analyses to determine the borrower’s eligibility for a

permanent loan modification. If the borrower is pre-qualified (whether on the basis of verbally

stated or document-verified financial information), Saxon then offers the borrower a trial

modification pursuant to a uniform TPP Contract, which requires the borrower to provide

“confirmation of the reasons I cannot afford my mortgage payments and documents to permit

verification of my income,” and to make three timely modified payments. Compl. Ex. A at 1.

Saxon’s TPP Contract promises to provide homeowners permanent loan modifications if they

fulfill these obligations under the contract. Specifically, the TPP Contract provides:

If I am in compliance with this Trial Period Plan (the “Plan”) and my representations in Section 1 continue to be true in all material respects, then the Servicer will provide me with a Home Affordable Modification Agreement...

Compl. Ex. A at 1 (emphasis added).


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Saxon cannot dispute that Plaintiffs and thousands of other Pennsylvania homeowners

who comprise the proposed Class held up their end of this bargain. Specifically, Plaintiffs

discharged the duties that they assumed when they accepted Saxon’s offer by signing the TPP

Contract and returning it to Saxon. They did so by: (1) submitting the requested documents to

Saxon (often re-submitting multiple copies due to Saxon’s disorganization and incompetence);

and (2) making all of the agreed-upon modified payments in a timely manner during the three-

month trial period. ¶¶52-57. However, Saxon breached the express promises it made in the TPP

Contract to timely evaluate Plaintiffs for a permanent loan modification and to provide either a

permanent HAMP modification or a written denial by the end of the three month trial period.

Saxon thus not only breached the TPP Contract but also directly violated HAMP guidelines.

¶¶1-4, 48-51, 59-67.

Saxon’s misconduct left Plaintiffs in substantially worse economic circumstances than

before they sought modifications, facing substantial arrearages, previously undisclosed fees,

imminent foreclosure, depleted savings, damaged credit, and fewer options than if had they not

been misled by Saxon’s promise of a permanent loan modification or prompt written denial after

the trial period. ¶¶4, 66-67, 95. Instead of abiding by the terms of the TPP Contracts, Saxon

delayed the modification process for months, while pocketing Plaintiffs’ payments.

Saxon first argues that Plaintiffs state no claims because there is no private right of action

under HAMP. Def. Mem. at 6-8. Contrary to Defendant’s attempt to recast the Complaint, this

lawsuit does not seek to enforce HAMP. This lawsuit arises from Saxon’s failure to perform its

obligations under a bilateral contract – the TPP Contract – with Plaintiffs. HAMP merely

provides the context for the TPP Contract. Thus, Saxon’s argument about a lack of a private

right of action under HAMP is irrelevant. Indeed, federal courts across the country have allowed


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state law claims arising from TPP Contracts and rejected the same argument Saxon proffers here,

because HAMP does not preempt state-law actions. On the contrary, the fact that a TPP Contract

has a relationship to a federal statute does not require the dismissal of any state-law claims that

arise under a TPP Contract.

Saxon also attempts to distort the Complaint’s allegations by asserting (incorrectly) that

Plaintiffs’ claim is that “the Trial Period Plan obligated Saxon to provide Plaintiffs with a

permanent loan modification as long as they complied with the initial application requirements.”

Def. Mem. at 2. That is not what Plaintiffs allege. Plaintiffs have alleged that they entered into

an enforceable TPP Contract with Saxon, and that they fully performed their obligations under

the TPP Contract. ¶¶53-56. However, Saxon breached the TPP Contract and the contract’s

implied covenant of good faith and fair dealing when it failed: (1) to tender an agreement to

permanently modify Plaintiffs’ mortgage in accordance with HAMP guidelines, or (2) if

Plaintiffs’ documents did not verify the income on which the pre-qualification was based, to

issue a timely written notification explaining the reason for denying them a permanent

modification, as Saxon had promised. ¶¶48-51, 59-60, 64, 67. Thus, Plaintiffs state a breach of

contract claim.

Saxon’s attempt to undermine Plaintiffs’ promissory estoppel claim fares no better.

Saxon asserts that the TPP Contract does not contain a clear and unambiguous promise to

modify, and that Plaintiffs could not reasonably rely on the promises contained in the TPP

Contract. Def. Mem. at 18-19. Saxon’s argument fails, because Plaintiffs sufficiently plead that

they relied to their detriment on Saxon’s definitive promise to provide them a permanent loan

modification at the end of their trial period if they had complied with the terms of the TTP

Contract and their financial documents verified their pre-qualification or to provide timely


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written notice stating the reason for a denial. ¶¶48-51. Thus, Plaintiffs state a claim for

promissory estoppel.

Next, Saxon stakes out a contradictory position by asserting that because Plaintiffs’

UTPCPL claim arises from the TPP Contract, this claim is barred by the economic loss doctrine.

Def. Mem. at 19-21. Saxon cannot have it both ways. Either the TPP is not a binding contract,

in which case the economic loss doctrine does not apply to Plaintiffs’ UTPCPL claim, or the TPP

is a binding contract pursuant to which Plaintiffs may now pursue legal and equitable remedies

based on Saxon’s breach of its essential terms. In either event, Plaintiffs sufficiently allege that

Saxon engaged in deceptive and unlawful conduct in violation of the UTPCPL, including:

• instructing mortgagors to stop making mortgage payments under the false pretense that doing so will not hurt credit scores;

• failing to properly and timely evaluate borrowers’ eligibility for a permanent loan modification in accordance with HAMP guidelines;

• failing to grant promised permanent HAMP loan modifications following mortgagors’ successful completion of TPP Contract plans;

• misrepresenting the status of loan modification applications; • requesting the same financial information over and over; • erecting artificial obstacles in the evaluation process to obstruct, delay, and/or prevent

permanent loan modifications; • failing to keep accurate records of mortgagor accounts, including accounting for fees,

payments, credits, arrearages, and amounts owed; • failing to keep accurate records of HAMP applicants’ scores on NPV tests; • failing to provide account information requested by mortgagors; • failing to provide adequate explanations of fees charged to mortgagors; • charging excessive, unlawful, and unreasonable fees; • arbitrarily increasing mortgagor debt obligations; • failing to apply mortgagor payments properly; • causing improper interest and other fees to accrue; and • unlawfully proceeding with foreclosures despite mortgagors’ compliance with their TPP

Contract obligations.

¶¶4, 19-22, 110-112. This unlawful conduct caused Plaintiffs the requisite ascertainable loss,

and therefore, Plaintiffs have stated a UTPCPL claim.

For these and other reasons, Saxon’s motion should be denied.


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II. STATEMENT OF FACTS

On April 13, 2009, Saxon signed a SPA with the U.S. Department of the Treasury to

participate in HAMP, in which Saxon covenanted to comply with HAMP’s requirements and to

perform loan modification and other foreclosure prevention services described in the program

guidelines.3 ¶¶28, 37. Under HAMP, the federal government incentivizes participating servicers

such as Saxon to make adjustments to existing mortgage obligations in order to make the

monthly payments more affordable. ¶42. However, economic self-interest motivates Saxon to

shirk its obligations under HAMP to facilitate permanent loan modifications. ¶43-47.

As a participating servicer, Saxon must evaluate for HAMP eligibility all borrowers who

are 60 or more days in default, in imminent default, or who request a loan modification.4 ¶31.

Next, Saxon must determine the borrower’s eligibility for a modification based on either “recent

verbal financial information obtained from the borrower” or the borrower’s submission of “the

required documentation to verify the borrower’s eligibility and income…”5 Id. After obtaining

the borrower’s financial information, Saxon is required to calculate whether, by applying certain

successive steps known as the “waterfall,” in the stated order of succession, the borrower’s total

monthly payment can be reduced to 31% of the borrower’s monthly gross income.6 ¶32. If the

3 The SPA incorporates all guidelines, procedures, and supplemental documentation, instructions, bulletins, frequently asked questions, letters, directives, or other communications, referred to as Supplemental Directives issued by the Treasury, Fannie Mae or Freddie Mac in connection with the duties of Participating Servicers like Saxon. These documents are incorporated by reference in the Complaint. ¶¶30-40. The SPA mandates that a Participating Servicer “shall perform” the activities described in the program documentation “for all mortgage loans it services.” Id. 4 See HAMP Supplemental Directive 09-01 (“SD 09-01”), at 1-4 (Apr. 6, 2009), which is incorporated by reference in the Complaint (¶30), and is attached to the Torti Decl. at Ex. 4. 5 Id. at 5. 6 See id. at 8-10 (these steps include capitalizing accrued interest and escrow advances, reducing the interest rate, extending the term and re-amortizing the loan (if necessary), and providing a principal forbearance (if necessary). Saxon does not have discretion as to how this formula is applied – HAMP


7

application of the waterfall produces terms that yield the target 31% monthly mortgage payment,

Saxon must perform the NPV test. The NPV test analyzes whether the value of a performing

modified loan exceeds the value of foreclosing on the property. ¶33. If the NPV test yields a

positive result, Saxon must offer the borrower a TPP Contract – a standardized written contract

that Saxon entered into with Plaintiffs and thousands of homeowners for a trial modification of

their existing loan.7 Id.

HAMP regulations in effect at all times relevant to this action make clear that Saxon was

required to prequalify borrowers for eligibility for a permanent HAMP modification before

entering into a TPP Contract. ¶34. Specifically, the borrower documents a financial hardship

either by verbal representations to Saxon, which are later verified with documents as required by

the TPP Contract, or by submission of appropriate documents at the outset of the application

process.8 Id.

The TPP Contract at the heart of this dispute is a form contract between Plaintiffs and

Saxon. See Compl. Ex. A. Each TPP Contract promises that if the borrower complies with its

terms and the borrower’s representations continue to be true in all material respects, then the

borrower will receive a permanent modification of his loan on the same terms. This promise is

set forth in the very first sentence of the TPP Contract used by Saxon:

If I am in compliance with this Trial Period Plan, and my representations in Section 1 [regarding verification of information] continue to be true in all material respects, then the Lender will provide me with a Home Affordable Modification Agreement (“Modification Agreement”), as set forth in Section 3...

Compl. Ex. A at 1. Section 3 of the TPP Contract reiterates this promise: rules require servicers to take these enumerated steps in the prescribed order until the target monthly mortgage payment equaling 31% of monthly income is reached). 7 See Id. at 4, 14-15. 8 See Id. at 5.


8

If I comply with the requirements in Section 2 and my representations in Section 1 continue to be true in all material respects, the Servicer will send me a Modification Agreement for my signature which will modify my Loan Documents as necessary to reflect this new payment amount and waive any unpaid late charges accrued to date.

Id. at 3.

The TPP Contract requires that the borrower make three monthly loan payments of a

reduced amount as set forth in a schedule in the TPP Contract. Id. at 2. The TPP Contract

establishes a timeframe for performance by both parties and states that “TIME IS OF THE

ESSENCE.” ¶49; Compl. Ex. A §2.A. (emphasis in orig.). Section 2 defines the “Modification

Effective Date” as “the first day of the month following the month in which the last Trial Period

Payment is due,” and defines the Trial Period as ending “on the earlier of” the Modification

Effective Date or the termination of the Trial Period.9 Id.; Compl. Ex. A at §2. Section 2 also

sets out the date and amounts of the required trial period payments due from the borrower. Id.

The HAMP program documentation mandates a prompt written determination of

eligibility. After the borrower returns a signed TPP Contract and makes the first month’s

payment, “the servicer should sign and immediately return an executed copy of the Trial Period

Plan to the borrower.”10 ¶50. If the servicer determines that the borrower is not eligible for a

permanent modification, “the servicer should promptly communicate that determination to the

borrower in writing…” Id. Thus, if the homeowner makes all three of the TPP monthly

payments on a timely basis and complies with the documentation requirements, then the HAMP

9 The HAMP program documentation mandates a prompt written determination of eligibility. After the borrower returns a signed TPP Contract and makes the first month’s payment, “the servicer should sign and immediately return an executed copy of the Trial Period Plan to the borrower.” SD 09-01, at 15; Torti Decl. Ex. 4. If the servicer determines that the borrower is not eligible for a permanent modification, “the servicer should promptly communicate that determination to the borrower in writing…” Id. 10 See id. at 15.


9

guidelines require that the homeowner be offered a permanent modification by the Modification

Effective Date or a timely written denial. ¶¶48-51.

After suffering a financial hardship, Plaintiffs Lisa and Scott Cave applied to Saxon for a

HAMP mortgage modification in August 2009. In support of their application, in September

2009, Plaintiffs sent Saxon a package containing all requested financial information and

documents, including their Hardship Affidavit.11 ¶52. After receiving Plaintiffs’ financial

documents and Hardship Affidavit, Saxon sent Plaintiffs a TPP Contract. ¶53. Plaintiffs

promptly executed and returned the TPP Contract Saxon offered to them. ¶56. They made all

the payments called for under the TPP Contract, doing so on time, and, at Saxon’s direction,

continued making modified payments long after the trial period ended. ¶¶57, 61-62, 64, 67.

Based on the language of the TPP Contract and Plaintiffs’ performance of all of their

obligations under the Contract, Saxon was required to tender Plaintiffs a permanent Home

Affordable Modification Agreement, as it expressly promised in the TPP Contract. ¶¶59-60.

The parties agreed that the payment terms for the permanent modification would be determined

according to Section 3 of the TPP Contract. Compl. Ex. A. Saxon not only failed to tender

permanent HAMP modifications to Plaintiffs by the close of the trial period, it also neglected to

send Plaintiffs any written decision within that timeframe, as it was required to do. ¶¶64,

11 Saxon attempts to dispute Plaintiffs’ factual allegations as to when Plaintiffs first submitted financial documents in support of their HAMP application. Saxon does so by attaching as exhibits to its motion a copy of the TPP Contract and a copy of a Hardship Affidavit signed by Plaintiffs in November 2009. See Def. Mem. at 10 n. 13. Raising this question of fact is improper on a Rule 12(b)(6) motion. Moreover, Saxon’s exhibits in no way undermine Plaintiffs’ allegations. The fact that Plaintiffs signed the TPP Contract on November 30, 2009 (see Torti Decl. Ex. 7), is entirely consistent with Plaintiffs’ allegation that they submitted their financial records before Saxon provided them a TPP Contract. Likewise, the Hardship Affidavit, which appears to have been originally dated September 1, 2009 (and crossed out), then updated on November 30, 2009 (see Torti Decl. Ex. 9), does not prove that Plaintiffs did not submit another Hardship Affidavit on the earlier date, as alleged. Indeed, it is entirely consistent with Plaintiffs’ allegations that Saxon requested that they re-submit “additional copies of previously supplied documents….” ¶57.


10

67. Although Saxon claimed that it removed Plaintiffs from HAMP on April 29, 2010 – more

than five months after the Modification Effective Date – as late as July 2010, a Saxon

representative advised Plaintiffs that they should continue making modified payments of

$1,007.50 per month. ¶62. Saxon’s representative admitted to Plaintiffs that it failed to provide

written notification of its decision or any basis for its denial. ¶67. Instead, Saxon harassed

Plaintiffs with continuing redundant, ambiguous and threatening demands for documents, and

notices of intent to foreclose. ¶¶63-65. Not only did Saxon fail to provide Plaintiffs with a loan

modification, Saxon frustrated their attempts to obtain relief under Pennsylvania’s HEMAP

program, which provides funds to discharge past due amounts owed on mortgages. ¶¶65-66.

Although Plaintiffs qualified for relief under HEMAP, Saxon failed to supply to the

Commonwealth of Pennsylvania required information concerning Plaintiffs’ loan that was

readily available to Saxon. Id. As a result of Saxon’s failure to supply this information,

Plaintiffs failed to obtain a HEMAP loan. Id.

In order to avoid foreclosure, Plaintiffs accepted an in-house modification offered by

Ocwen Loan Servicing, Inc. (“Ocwen”), which replaced Saxon as Plaintiffs’ loan servicer on

May 16, 2011. ¶¶68-71. The terms of the Ocwen modification are substantially inferior to those

under HAMP. Specifically, the Ocwen modification calls for a balloon payment at the end of the

term of the loan, but does not disclose the amount of this balloon payment or even the method by

which this payment will be calculated. ¶70.

III. ARGUMENT

A. Standard of Review

A motion to dismiss is defeated where the complaint alleges “enough factual matter

(taken as true)” to suggest that a violation occurred, and “a well-pleaded complaint may proceed

even if it strikes a savvy judge that actual proof of those facts is improbable.” Bell Atl. Corp. v.


11

Twombly, 550 U.S. 544, 556 (2007) (citation omitted). Under the liberal pleading standard of

Fed. R. Civ. P. 8(a), only “a short plain statement of the claim showing that the pleader is

entitled to relief” is required, the purpose of which is to place the opposition on notice of the

conduct charged. A court’s task in resolving a Rule 12(b)(6) motion is to test the sufficiency of a

complaint, not to resolve disputed facts or decide the merits of the case.12 See Kost v.

Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993); see also Register v. PNC Fin. Servs. Group, Inc.,

477 F.3d 56, 61 (3d Cir. 2007) (on a motion to dismiss, “‘[t]he issue is not whether a plaintiff

will ultimately prevail but whether the claimant is entitled to offer evidence to support the

claims’”). Twombly instructs courts to apply a “plausibility” standard of review under Fed. R.

Civ. P. 12(b)(6). 550 U.S. at 553.

B. Plaintiffs’ Claims Are Based Upon Bilateral TPP Contracts with Saxon – Not Claims Under HAMP

Defendant argues that because HAMP does not provide a private right of action,

Plaintiffs may not bring any common law or statutory claims against Saxon, including their

breach of contract, promissory estoppel, UTPCPL, FCEUA and FDCPA claims. Def. Mem. at 6.

Saxon is wrong.13

12 The Court must accept as true all well-pleaded allegations in the complaint and view them in the light most favorable to the plaintiff. Phillips v. County of Allegheny, 515 F.3d 224, 228 (3d Cir. 2008). 13 Saxon’s cases are not on point. In Cleveland v. Aurora Loan Servs., LLC, 2011 WL 2020565, at *4 (N.D. Cal. May 24, 2011), the court dismissed claims which it believed were based on HAMP having a private right of action, and remanded the case to state court. None of the dismissed claims, which were mostly based on the theory that the plaintiffs were third-party beneficiaries of the SPA between the servicer and the Department of the Treasury, was equivalent to the claims in this case. The case contains no analysis but simply cites other opinions. Likewise, in Simon v. Bank of America, 2010 WL 2609436, at *10 (D. Nev. June 23, 2010), plaintiff sued pro se, using a form complaint, and none of the allegation bore any relationship to this case. In McCurdy v. Wells Fargo Bank, 201 WL 4102943, at *2 (D. Nev. Oct. 18, 2010), plaintiffs advanced the same third-party beneficiary claim, which is not relevant to this case.


12

First, Saxon raises a red herring by asserting that Plaintiffs “lack standing to enforce the

terms of the SPA” because Plaintiffs “are neither parties nor intended third-party beneficiaries of

that agreement.” Def. Mem. at 6. This argument is superfluous. Plaintiffs have not sued Saxon

on the theory that they are intended third-party beneficiaries of the SPA between Saxon and the

Treasury Department. Plaintiffs’ state law claims are based on bilateral TPP Contracts between

Saxon and Plaintiffs. Thus, all of the cases Saxon cites on this point are inapposite.14

Second, Plaintiffs have not brought an action under HAMP. Plaintiffs’ claims are for

breach of contract, promissory estoppel, and violations of the UTPCPL, FCEUA, and FDCPA.

Thus, Saxon’s assertion that the lack of a private cause of action under HAMP bars this suit is

wrong. Saxon insists upon advancing this argument here even though it was told by the Stagikas

court, “That argument is without merit.” Stagikas, 2011 WL 2652445, at *4. The Stagikas court

observed that, as here, Saxon did “not contend that HAMP or the HAMP guidelines preempt

state-law contract actions.” Id. As such, the Stagikas court ruled that there is “no precedent for

the proposition that, as a general matter, a contract’s relationship to federal law requires the

dismissal of any state-law claims that arise under it.” Id. Numerous courts across the country

have reached the same conclusion.15

14 The cases Saxon cites in support of its irrelevant SPA argument are: Costigan v. CitiMortgage, Inc., 2011 WL 3370397, at *6 (S.D.N.Y. Aug. 2, 2011); Thomas v. JPMorgan Chase & Co., 2011 WL 3273477, at *9 (S.D.N.Y. July 29, 2011); Rivera v. Bank of Am. Home Loans, 2011 WL 1533474 (E.D.N.Y Apr. 21, 2011); Grill v. BAC Home Loans Servicing, 2011 WL 127891, at *7 (E.D. Cal. Jan. 14, 2011); Wigod v. Wells Fargo Bank, 2011 WL 250501, at *5-*6 (N.D. Ill. Jan. 25, 2011); Cade v. BAC Home Loans Servicing, LP, 2011 WL 2470733, at *2 (S.D. Tex. June 20, 2011). 15 Accord Kennedy v. Wells Fargo Bank, N.A., 2011 WL 4526085, at *2 (C.D. Cal. Sept. 28, 2011) (“Defendant’s lead argument is that Plaintiff’s claims are unenforceable claims under the HAMP program or are preempted under conflict preemption. Neither argument is valid.”); Wright v. Chase Home Finance, LLC, 2011 WL 4101513, at *2 (D. Ariz. Sept. 14, 2011) (lack of private right of action under HAMP did not preclude mortgagor from asserting state law claims); Darcy v. CitiFinancial, Inc., 2011 WL 3758805, at *4 (W.D. Mich. Aug. 25, 2011) (HAMP does not preempt or otherwise generally preclude a claim for breach of TPP Contract); Allen v. CitiMortgage, Inc., 2011 WL 3425665, at *5 (D. Md. Aug. 4, 2011) (HAMP does not preclude borrowers from asserting state law claims involving TPP Contracts); Fletcher


13

As the court in Bosque put it: “the fact that a TPP has a relationship to a federal statute

and regulations does not require the dismissal of any state-law claims that arise under a TPP.”

Bosque v. Wells Fargo Bank, N.A., 2011 WL 304725, at *5 (D. Mass. Jan. 26, 2011). Were the

law otherwise, a court would not be able to enforce any contract touching on issues of federal

law if that federal law was devoid of a private right of action. That is not the case.16 For

instance, the Seventh Circuit has recognized that a state contract claim that incidentally touches

on issues that are subject to federal regulation is generally not preempted. See In re Ocwen Loan

Servicing, LLC Mortg. Servicing Litig., 491 F.3d 638, 643-44 (7th Cir. 2007). In Ocwen, the

Seventh Circuit addressed the question of whether the Home Owners Loan Act (“HOLA”), 12

U.S.C. § 1461 et seq., and Office of Thrift Supervision (“OTS”) regulations promulgated

thereunder, preempted state contract law claims. The court noted that HOLA’s preemptive force

gave OTS the “exclusive authority to regulate the savings and loan industry in the sense of ...

prescribing certain terms in mortgages,” among other things, but that the OTS “has no power to

adjudicate disputes between the S&Ls and their customers,” and “HOLA creates no private right

v. OneWest Bank, FSB, -- F. Supp. 2d --, 2011 WL 2648606, at *4 (N.D. Ill. June 30, 2011) (fact that HAMP did not provide a private right of action did not preclude mortgagor from bringing state law claims); Blackwood v. Wells Fargo Bank, N.A., 2011 WL 1561024, at *8 (D. Mass. Apr. 22, 2011) (“regardless whether there is a private right of action under HAMP, it is not inconsistent with the HAMP program to allow a [state law] claim to proceed … the HAMP statutory scheme does not preclude a [state law] action…”); Boyd v. U.S. Bank, N.A., 2011 WL 1374986, at *3 (N.D. Ill. Apr. 12, 2011) (holding that a plaintiff may predicate state claims on violations of HAMP, which does not allow for private enforcement); Turbeville v. JPMorgan Chase Bank, 2011 U.S. Dist. LEXIS 42290, at *7 (C.D. Cal. Apr. 4, 2011) (rejecting defendant’s argument that HAMP’s lack of private right of action bars suit to enforce TPP Contract); Ording v. BAC Home Loans Servicing, LP, 2011 WL 99016, at *7 (D. Mass. Jan. 10, 2011) (“the lack of a private cause of action under HAMP ... does not automatically dispose of the [consumer protection act] claim”); Bosque, 2011 WL 304725, at *5 (“Whether HAMP creates a private right of action or a cognizable property interest is not the issue in this case…. Their claims arise under defendant’s alleged failure to comply with its contractual obligations in the TPPs.”). 16 See, e.g., College Loan Corp. v. SLM Corp., 396 F.3d 588, 598 (4th Cir. 2005) (relying on the Higher Education Act standards to establish breach of contract claim was not an impermissible effort to assert a private right of action under the act); Chalfin v. Beverly Enters., Inc., 741 F. Supp. 1162, 1178 (E.D. Pa. 1989) (allowing claim for breach of nursing home resident’s contract made in context of federal and state healthcare laws that did not contain a private right of action).


14

to sue to enforce the provisions of the statute or the OTS’s regulations.” Id. at 643. “Against

this background of limited remedial authority,” the court held that HOLA did not preempt “basic

state common-law type remedies” for people harmed by the actions of S&Ls, because, among

other things, “[i]t would be surprising for a federal regulation to forbid the homeowner’s state to

give the homeowner a defense based on the mortgagee’s breach of contract.” Id. at 643-44. The

court noted that while that type of preemptive force was possible, it was rare, and limited to

exceptional statutes such as the Employee Retirement Income Security Act, 29 U.S.C. § 1132.

Id. at 644.

Saxon’s reliance on Astra USA, Inc. v. Santa Clara Cnty., 131 S.Ct. 1342, 1347-1348

(Mar. 29, 2011), is misplaced. The court in In re Bank of Am. HAMP Contract Litig., 2011 WL

2637222, at *3 (D. Mass. July 6, 2011), rejected this precise argument, because in Astra, the

contracts at issue were created pursuant to a statutorily-created federal program, and the

contracts incorporated the statutory language. By contrast, in the case of the TPP Contract, no

such incorporation occurred, as “the HAMP statute contained no direction as to how the program

was to be implemented.” Bank of Am., 2011 WL 2637222, at *3. Instead, “[t]he TPPs, not the

statute, supplied the contractual provision allegedly breached…” Id.

The remaining cases relied upon by Saxon in support of its “no private right of action

under HAMP” argument are cases where Saxon itself was not a party, are not binding on this

Court, and either involved different factual allegations or legal claims.17 For example, in some

of these cases the plaintiffs claimed that the TPP Contract entitled them to an automatic

permanent HAMP modification. See, e.g., Bourdelais, 2011 WL 1306311, at *4. Such is not the

17 See Bourdelais v. J.P. Morgan Chase, 2011 WL 1306311, at *4 (E.D.Va. Apr. 1, 2011); Wigod v. Wells Fargo Bank, N.A., 2011 WL 250501, at *4-*5 (N.D. Ill. Jan. 25, 2011); Singh v. Wells Fargo Bank, 2011 WL 66167, at *7 (E.D. Cal. Jan. 7, 2011); Vida v. OneWest Bank, 2010 WL 5148473, at *4-*5 (D. Or. Dec. 13, 2010).


15

claim here. As in Bank of Am. and Bosque, Plaintiffs’ claim is that they are entitled to the tender

of a permanent modification only if they complied with the terms of the TPP Contract, which

they did, and that they are “entitled to a decision by [Saxon] as to whether they will receive a

permanent modification by the modification effective date specified in section 2 of the TPP,”

which Saxon failed to provide. Bosque, 2011 WL 304725, at *4; see also ¶67. Other cases cited

by Saxon are factually distinguishable because the plaintiff received a timely denial of a

permanent HAMP modification, see Wigod, 2011 WL 250501, at *8; Vida, 2010 WL 5148473,

at *4, which is not the case here. Indeed, the court in Vida noted that it did not agree “with

Defendant’s premise that they are wholly immunized for their conduct so long as the subject

transaction is associated with HAMP.” Id. at *5. Still other cases cited by Saxon are easily

differentiated.18 Thus, Defendant’s “no private right of action” under HAMP argument is

unsupported.

C. Plaintiffs State a Claim for Breach of the TPP Contract

Plaintiffs state a breach of contract claim by pleading: (1) the existence of a contract,

including its essential terms (see ¶¶1, 48-50, 52-59, 89-91, 94); (2) a breach of a duty imposed by

the contract (see ¶¶1, 4, 51, 60, 62-67, 92-93); and (3) resultant damages (see ¶¶4, 65-66, 70-71,

95-96). See Corestates Bank, N.A. v. Cutillo, 723 A.2d 1053, 1058 (Pa. Super. Ct. 1999) (stating

the elements of a breach of contract claim). Saxon cannot dispute that Plaintiffs adequately

plead each element. Instead, Saxon rehashes the same flawed arguments that it made in Gaudin,

18 Brown v. Bank N.Y. Mellon, 2011 WL 206124, at *6 (W.D. Mich. Jan. 21, 2011), upheld misrepresentation and intentional infliction of emotional distress claims, but dismissed a breach of contract claim because there was no cause of action “under HAMP for denial of a loan modification,” which is not the same as Plaintiffs’ claim here. Marks v. Bank of Am., 2010 WL 2572988, at *6 (D. Ariz. June 22, 2010), dismissed a claim of third-party beneficiary status under an SPA – a claim not made in this case. Stolba v. Wells Fargo & Co., 2011 WL 3444078 (D.N.J. Aug. 8, 2011), dismissed a breach of contract claim because the TPP Contract does not guarantee a permanent modification, which is not what Plaintiffs allege here. Cox v. Mortg. Elec. Registration Sys., Inc., 2011 WL 2600700 (D. Minn. June 30, 2011), is inapposite because there was no claim for breach of a TPP Contract.


16

and Saxon ignores the numerous cases that have concluded that the TPP Contracts are

enforceable contracts.19

1. The TPP Contract is an Unambiguous Offer and Not Merely a Part of the Application Process

Saxon first asserts that Plaintiffs have not stated a breach of contract claim because the

TPP Contract does not make an unconditional offer to modify their mortgage permanently. Def.

Mem. at 8. Saxon made the identical argument in Gaudin, and it was rejected because Saxon

signed the TPP Contract and returned it the borrower, as it did here. See ¶¶54-55. The second

paragraph of the TPP Contract provides:

I understand that after I sign and return two copies of this Plan to the Lender, the Lender will send me a signed copy of this Plan, if I qualify for the Offer or will send me written notice that I do not qualify for the Offer. This plan will not take effect unless and until both I and the Lender sign it and Lender provides me with a copy of this Plan with the Lender's signature.

Compl. Ex. A (emphasis added). Here, the TPP Contract was signed both by Plaintiffs and by

Saxon, thus demonstrating that Saxon found the Caves qualified for a permanent modification.

See Gaudin, 2011 WL 5825144, at *2 (“[T]he TPP indicates that while it may initially be

presented to the borrower only as an offer to determine eligibility, once the lender returns a

signed copy of it to the borrower (rather than notifying the borrower that he or she does not

‘qualify for the Offer’), then the borrower’s eligibility for permanent modification has been

determined…”).

Saxon’s argument also ignores Plaintiffs’ allegations that Saxon promised that if

Plaintiffs fully performed their obligations under the TPP, then Saxon would either permanently

19 See, e.g., Bolone v. Wells Fargo Home Mortg., Inc., 2011 WL 3706600, at *5 (E.D. Mich. Aug. 24, 2011) (holding that TPP is a valid contract); Turbeville, 2011 U.S. Dist. LEXIS 42290, at *11 (TPP Contract constitutes a valid contract); Bosque, 2011 WL 304725, at *5 (TPP Contracts were offers by mortgage lenders to contract, and homeowners’ signatures and monthly payments constituted acceptance of those offers); Durmic v. JP Morgan Chase Bank, N.A., 2010 WL 4825632, at *4 (D. Mass. Nov. 24, 2010) (holding that the TPP Contracts are binding contracts).


17

modify their loan or give them a prompt written determination explaining why they did not

qualify for a permanent modification.20 See ¶¶2, 48-50, 73. Indeed, the proposed class is

defined to include Pennsylvania homeowners who entered into TPP Contracts with Defendants

and “have not received a permanent Home Affordable Modification and did not receive a

timely written notification to borrower explaining the reason for denying the permanent

modification.” ¶¶2, 73 (emphasis added).

Saxon does not dispute that it promised to provide Plaintiffs a timely determination but

failed to do so. See Fletcher, 2011 WL 2648606, at *5 (rejecting an identical challenge to a

breach of a TPP Contract claim where the defendant, like Saxon, failed to acknowledge the

plaintiffs’ claim that TPP obligated the lender, in a timely manner, to consider and determine

eligibility for permanent HAMP modification). Likewise, the cases Saxon cites in support of its

guaranteed modification argument are inapposite, because the plaintiffs in those cases did not

allege that the TTP obligated the lender to provide a timely written decision of HAMP

eligibility.21

Instead of dealing with Plaintiffs’ actual allegations, Saxon attempts to misdirect the

Court by characterizing the TPP Contract as part of the HAMP application process and resorts to

relying on extraneous documents, such as the TPP cover letter and the Hardship Affidavit, to

20 Saxon breached the TPP Contract by stringing the Caves along in a trial modification for approximately eight months before a Saxon representative advised them over the phone that they were denied a permanent modification. See ¶¶64, 67. 21 The cases cited by Saxon are: Grill, 2011 WL 127891, at *4; Costigan, 2011 WL 3370397, at *6; Lonberg v. Freddie Mac, 776 F. Supp. 2d 1202, 1209 (D. Or. 2011); Thomas, 2011 WL 3273477, at *8-9; Morales v. Chase Home Fin., LLC, 2011 WL 1670045, at *5 (N.D. Cal. Apr. 11, 2011); Sherman v. Litton Loan Servicing, L.P., 2011 WL 2634097, at *8 (E.D. Va. July 5, 2011); Brown, 2011 WL 206124, at *3; Vida, 2010 WL 5148473, at *6; In re Salvador, 2011 WL 1833188, at *8 (Bankr. M.D. Ga. May 12, 2011); Bourdelais, 2011 WL 1306311, at **4-5; Prasad v. BAC Home Loans Servicing, 2010 WL 5090331, at *4 (E.D. Cal. Dec. 7, 2010); Shurtliff v. Wells Fargo Bank, 2010 WL 4609307, at *3 (D. Utah Nov. 5, 2010).


18

contradict the express terms of the TPP. Def. Mem. at 8-9. Saxon used the same tactic in

Gaudin, and it was rejected because “the TPP by its terms represents an integrated agreement,

and Saxon has not shown that it can be modified by, or must be construed in light of,

anything in the cover letter.” Gaudin, 2011 WL 5825144, at *3 (emphasis added).

Regardless of where the TPP Contract fell in the overall HAMP process, its language

contains an unambiguous offer and the Complaint adequately alleges Plaintiffs’ acceptance by

signing the TPP Contract and by performance. See ¶¶53-58. The very first sentence of the TPP

Contract used by Saxon states:

If I am in compliance with this Trial Period Plan (the ‘Plan’) and my representations in Section 1 continue to be true in all material respects, then the Servicer will provide me with a Home Affordable Modification Agreement (‘Modification Agreement’), as set forth in Section 3, that would amend and supplement (1) the Mortgage on the Property, and (2) the Note secured by the Mortgage.

Compl. Ex. A (emphasis added). Section 3 of the TPP Contract repeats this promise:

If I comply with the requirements in Section 2 and my representations in Section 1 continue to be true in all material respects, the Servicer will send me a Modification Agreement for my signature which will modify my Loan Documents as necessary to reflect this new payment amount and waive any unpaid late charges accrued to date.

Compl. Ex. A (emphasis added).22

Saxon ignores the above-quoted provisions of the TPP Contract, and instead claims that

§2.F. and G. provide it unfettered discretion as to whether to offer a permanent modification.

22 Cases cited by Saxon that have dismissed a breach of contract claim under a TPP Contract generally have not discussed the language of §3 of the TPP, quoted above, or addressed whether conflicting language in the TPP created ambiguity. See, e.g., Brown v. Bank of N.Y. Mellon, 2011 WL 206124, at *3 (W.D. Mich. Jan. 21, 2011) (citing only §§2.F. and 2.G. of the TPP, which provide that loan documents will not be modified if lender does not send the borrower a Modification Agreement); Thomas v. JPMorgan Chase & Co., 2011 WL 3273477, at *8 (S.D.N.Y. July 29, 2011) (citing language similar to §3 in the TPP preamble and acknowledging that it is “misleading,” but failing to cite §3. However, on the basis of language in §2, without any further discussion of conflicting terms, holding that the TPP is not a binding contract for mortgage modification).


19

The Gaudin court explicitly rejected Saxon’s interpretation of §2.F. of the TPP Contract, which

provides that the “Loan Documents will not be modified and the Plan will terminate” if, among

other things, the lender does not provide a “fully executed copy of this Plan and the Modification

Agreement.” Gaudin stated that Saxon’s reading of §2.F. “conflicts with the clear tenor of the

remainder of the [TPP] document and would render the other agreement promises illusory.”

Gaudin, 2011 WL 5825144, at *4. The court concluded that while §2.F. may give rise to

ambiguity, it does not provide the lender “unbridled discretion as to whether or not it will

provide an executed copy of a modification agreement upon satisfaction of all other conditions of

the TPP.” Id.

Likewise, the court in Turbeville rejected Saxon’s suggested interpretation of §2.G. of the

TPP Contract.23 Turbeville concluded that §2.G. does not give lenders “discretion to reject

homeowners who completed the trial successfully.” 2011 U.S. Dist. LEXIS 42290, at *11. On

the contrary, §2.G. merely provides servicers discretion to deny a permanent modification if the

homeowner does not comply with the TPP Contract. Id. Turbeville held that such discretion to

assess the borrower’s compliance with the TPP has no bearing on whether it constitutes a valid

contract. Id. At most, Saxon offers an alternative interpretation of the TPP Contract, which

“does not entitle Defendant to a dismissal.” Id.; see also Darcy, 2011 WL 3758805, at *6

(denying motion to dismiss a claim for breach of a TPP Contract where “[t]he parties’ attempts

to support their positions with references to portions of the agreement highlight the fact that

some of the terms conflict with others.”).

23 The TPP Contract at §2.G., inter alia, provides: “I understand that the Plan is not a modification of the Loan Documents and that the Loan Documents will not be modified unless and until (i) I meet all of the conditions required for modification, (ii) I receive a fully executed copy of a Modification Agreement . . . I further understand and agree that the Lender will not be obligated or bound to make any modification of the Loan Documents if the Lender determines that I do not qualify or if I fail to meet any one of the requirements under this Plan.”


20

Saxon also argues that under the HAMP program guidelines in effect prior to June 2010,

some borrowers were given TPP Contracts on the basis of verbal representations before they

were determined to be eligible for permanent loan modifications, and that the Department of

Treasury thereafter issued a “Supplemental Directive” to end that practice. Saxon contends that

this change in HAMP rules contradicts the notion that borrowers who were offered TPPs “before

June 2010 were guaranteed [a] permanent modification simply by making the reduced trial

payments.” Def. Mem. at 10. Saxon made this exact argument in Gaudin, and the court rejected

it because this “change in policy appears to reflect a recognition that the language of the TPPs

reflect” a promise to provide modifications if borrowers complied with the TPP Contract’s terms.

Gaudin, 2011 WL 5825144, at *3.

Finally, Saxon asserts that Plaintiffs do not allege that they qualified for a permanent

modification under HAMP.24 See Def. Mem. at 11. Obviously, the determination as to whether

Plaintiffs qualify under HAMP is a factual question that is not a proper basis for a Rule 12(b)(6)

motion. Furthermore, this argument ignores the fact that the TPP Contract specifies that “TIME

IS OF THE ESSENCE” (Compl. Ex. A), and that if Plaintiffs indeed did not qualify, Saxon was

obligated to issue a timely written denial by the end of the three-month trial period, but failed to

do so in breach of the TPP Contract.25 Otherwise, Saxon would be entitled to an indefinite and

open-ended period of time in which to decide whether to tender a permanent HAMP

24 Saxon’s reliance on Phipps v. Wells Fargo Bank, 2011 WL 302803, at *11 (E.D. Cal. Jan. 27, 2011), is unavailing because plaintiff did not make TPP Contract-based claims, but rather asserted that he was a third-party beneficiary of the SPA (a claim not made here). Ishler v. Chase Home Fin. LLC, 2011 WL 744538, at *6 (M.D. Pa. Feb. 23, 2011), is likewise inapposite because plaintiff did not allege a breach of the TPP Contract, let alone a failure to provide a timely written determination of eligibility for a permanent modification. 25 See HAMP FAQs Q2314 at 28 (“Servicers are reminded, pursuant to Supplemental Directive 09-07, to complete their assessment of borrower eligibility and notify the borrower of the eligibility determination within 30 calendar days of receiving all required borrower documentation.”). The HAMP FAQs can be found at: https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/hampfaqs.pdf.


https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/hampfaqs.pdf

21

modification – a result that is clearly at odds with the TPP Contract’s provisions stating that

“TIME IS OF THE ESSENCE” and imposing a finite three-month trial period. ¶¶49-51; Compl.

Ex. A.

2. The TPP Contract’s Terms Are Sufficiently Definite, and They Follow an Established Modification Formula

Saxon asserts that the TPP Contract lacks essential terms of a modification, and thus is

not an enforceable contract. Def. Mem. at 11. Saxon is wrong. The TPP Contract expressly

promises to modify Plaintiffs’ loan permanently or provide a timely written denial, if Plaintiffs

fulfill the TPP Contract’s conditions, leaving nothing for the parties to negotiate.26 There is no

essential term that is indefinite, vague, or unclear in the contract.27 See Kennedy, 2011 WL

4526085, at *2 (“The terms of the [TTP] contract are not indefinite or uncertain; the TPP spells

out explicitly the obligations of each party.”); Bosque, 2011 WL 304725, at *6 (“the TPP

contains all essential and material terms necessary to govern the trial period repayments and the

parties’ related obligations.”); Durmic, 2010 WL 4825632, at *4 (finding any purported

ambiguity of the TPP Contract to be an issue as to the intent of the parties, which cannot be

resolved on a Rule 12(b)(6) motion).

26 As in Bosque, “Plaintiffs [here] do not argue, however, that the TPP is a contract for a permanent loan modification. Instead, plaintiffs’ theory is that the TPP is a contract governing the three-month trial period, and that compliance with its obligations entitles plaintiffs to either (1) a new contract with a permanent loan modification or (2) a decision on whether plaintiffs are entitled to the permanent modification by the modification effective date stated in the TPP.” Bosque, 762 F. Supp. 2d at 352. 27 Defendant’s footnote 16 cites In re Salvador, 2011 WL 1833188 (Bankr. M.D. Ga. May 12, 2011), Prasad v. BAC Home Loans Servicing, 2010 WL 5090331 (E.D. Cal. Dec. 7, 2010), Morales v. Chase Home Fin., LLC, 2011 WL 1670045 (N.D. Cal. Apr. 11, 2011), Lonberg v. Freddie Mac, 776 F. Supp. 2d 1202 (D. Or. 2011), Torres v. Litton Loan Servicing, L.P., 2011 WL 149833 (E.D. Cal. Jan. 18, 2011), Grill v. BAC Home Loans Servicing, LP, 2011 WL 127891 (E.D. Cal. Jan. 14, 2011), and Vida v. One West Bank, F.S.B., 2010 WL 5148473 (D. Or. Dec. 13, 2010) for the proposition that the TPP is not a contract between plaintiff and mortgage servicer to modify a mortgage. These cases are not on point. Plaintiffs do not allege such a contract. Plaintiffs allege instead that pursuant to the TPP, Saxon is obligated, after the three months of trial payments, to modify the mortgage or to give a written denial.


22

The TPP Contract, at a minimum, is a binding agreement that provides definite terms for

each party’s conduct during the trial period. See Belyea v. Litton Loan Servicing, LLP, 2011 WL

2884964, at *8 (D. Mass. July 15, 2011) (“TPP Agreement is a contract governing each party’s

conduct in the three-month trial period, under which the Plaintiffs are obliged to provide specific

financial information and make payments in a specific amount and Litton is specifically

obligated to provide” a decision by the modification effective date).

Contrary to Saxon’s contention that the TPP Contract must include the terms of a

permanent modification (Def. Mem. at 11), there is no requirement that every term and condition

of an agreement be set forth in a contract. “[I]t is well settled that the terms of a contract need

not be expressed with complete exactness.” In re Pennsylvania Footwear Corp., 204 B.R. 165,

175 (Bankr. E.D. Pa. 1997) (citing Kirk v. Brentwood Manor Homes, Inc., 159 A.2d 48, 51 (Pa.

Super. Ct. 1960)). Where parties manifest an intent to be bound by the terms of an agreement

and consideration is adequate, the terms of that agreement are important only to the extent that

the court may fashion a remedy for its breach and provide an appropriate remedy. See Northern

Group, Inc. v. Delancey Investment Group. Inc., 1993 WL 488598, at *1 (E.D. Pa. Nov. 24,

1993) (denying motion to dismiss). Moreover, Pennsylvania “‘law does not favor, but leans

against the destruction of contracts because of uncertainty. Therefore, the courts will, if possible,

so construe the contract as to carry into effect the reasonable intention of the parties if that can be

ascertained.’” Pennsylvania Footwear, 204 B.R. at 175 (quoting Rossmassler v. Spielberger, 112

A. 876, 880 (Pa. 1921)). A court may infer unexpressed provisions of a contract from the

writing or from external facts. The REST. 2D CONTRACTS § 204 provides, “[w]hen the parties to

a bargain sufficiently defined to be a contract have not agreed with respect to a term which is


23

essential to a determination of their rights and duties, a term which is reasonable in the

circumstances is supplied by the court.”28

Here, the TPP Contract promises to provide a permanent loan modification under a pre-

determined HAMP formula. Specifically, Saxon is required to use a “Standard Modification

Waterfall” for setting loan terms, which clearly dictates the terms of the permanent loan

modification. See ¶¶32-34 (citing HAMP rules applicable at all times relevant to this action).

That “waterfall” – a combination decision tree and underwriting process – sets the new loan

balance, interest rate, maturity date, amount of any principal forbearance, and other loan terms.29

Id. Thus, HAMP rules provide a detailed method for determining the terms of a Home

Affordable Modification Agreement. This determination is a matter of arithmetic under the

HAMP formula, not renegotiation, and is consistent with an intent to be bound. In fact, Saxon is

required to arrive at those terms even before it offers Plaintiffs a TPP Contract. See SD 09-01, at

19, 20, 29, 33-35; Torti Decl. Ex. 4. Thus, the TPP Contract sufficiently sets forth its essential

terms.30

28 Pennsylvania Courts routinely follow REST. 2D CONTRACTS § 204. See, e.g., Edwards v. Wyatt, 330 Fed. Appx. 342, 349, 2009 WL 1395472, at *6 (3d Cir. May 20, 2009) (relying on REST. 2D CONTRACTS § 204 in supplying missing terms to “handshake” agreement); Crawford’s Auto Center, Inc. v. Penna. State Police, 655 A.2d 1064, 1069 (Pa. Commw. Ct. 1995) (“we are guided by section 204 of the Restatement (Second) of Contracts”). 29 Defendant cites cases in footnote 17 where the alleged contract is “contingent upon events coming to pass.” See Power Contracting, Inc. v. Stirling Energy Sys. Inc., 2010 WL 4854072, at *4-5 (W.D. Pa. Nov. 22, 2010); Quinn v. Traditions of Am., L.P., 2010 WL 3239325, at *3 (E.D. Pa. Aug. 16, 2010). Here the contract is to modify the mortgage or to notify plaintiff in writing after three months of correct, on-time payments. There are no contingencies. 30 Defendant’s footnote 18 cites cases concerning the Pennsylvania standard for an enforceable contract. The TPP contract meets this standard. See Quinn, 2010 WL 3239325, at *3; Barbera v. TD Bank, 2010 WL 1980319, at *2 (E.D. Pa. May 19, 2010); Salvador, 2010 WL 1833188, at **6-7; Locke v. Wells Fargo Home Mort., 2010 WL 4941456, at *4 (S.D. Fla. Nov. 30, 2010).


24

3. Plaintiffs Have Adequately Alleged Consideration

Saxon claims that the TPP Contract lacks adequate consideration. See Def. Mem. at 12-

14. Saxon is wrong. Plaintiffs sufficiently allege that the TPP Contract is supported by

consideration, both in the form of a benefit to the promisor and in the form of a detriment to the

promisee.31 “A fundamental axiom of contract law is that any bargained-for exercise, such as

forbearance of a legal right, is valid consideration.” U.S. Steel Corp. v. U.C.B.R., 858 A.2d 91,

105 (Pa. 2004) (citing REST. 2D CONTRACTS §71); see also Cardamone v. U. of Pittsburgh, 384

A.2d 1228, 1232 (Pa. Super. Ct. 1978) (“Valid ‘consideration’ confers a benefit upon the

promisor or causes a detriment to the promisee and must be an act, forbearance or return promise

bargained for and given in exchange for the original promise.”).

The main thrust of Saxon’s consideration argument is that Plaintiffs’ modified trial period

payments cannot represent consideration because they do not represent anything other than a pre-

existing obligation to pay.32 See Def. Mem. at 13. Saxon made the same pre-existing duty

argument in Gaudin, and it was rejected. On the contrary, the Gaudin court concluded that “by

promising to comply with the terms of the TPP, Gaudin exposed herself to greater liability for

interest and late charges should permanent modification not be consummated.” Gaudin, 2011

WL 5825144, at *4 (holding that the TPP was supported by consideration).

31 Saxon insinuates that it must receive “windfall revenues” for consideration in the TPP Contract to suffice. Def. Mem. at 13. However, that is not the measure of valid consideration – the slightest benefit or detriment is adequate. See Adelvision L.P. v. Groff, 859 F. Supp. 797, 804 (E.D. Pa. 1994) (“Detriment to the promisee is sufficient in the legal sense if at the request of the promisor and upon the strength of that promise, the promisee performs any act which causes the promisee the slightest trouble or inconvenience, and which the promisee is not otherwise obliged to perform.”). 32 Saxon fails to apprehend the extremely narrow scope of the pre-existing duty exception, which is inapplicable to this case. See 3 WILLISTON ON CONTRACTS § 7.28 (Thomson Reuters/West 4th ed. 2009) (“When a debtor and a creditor agree that an interest bearing debt shall be extended for a fixed time, the promise of each is consideration for the promise of the other.”).


25

The Northern District of Illinois reached the same conclusion as Gaudin, that a borrower

making reduced TPP payments suffers a detriment that constitutes consideration, because the

borrower is “not relieved of her ultimate obligation to pay back the debt she did not pay as a

result of those reductions, nor was she relieved of the consequences of failing to pay her full

monthly payments during those months.” Fletcher, 2011 WL 2648606, at *5. As a result, the

Fletcher court found that the plaintiff “incurred fees and probably increased the total amount that

she would end up paying over the life of the loan. Thus, it is unfair to categorize Fletcher’s

promise to pay reduced monthly payments solely as a pre-existing duty.” Id.33

Saxon does not dispute that, in addition to making trial period payments, the TPP

Contract required Plaintiffs to: (1) provide extensive financial information that was not required

under their original mortgages;34 (2) make representations in a hardship affidavit concerning

their personal circumstances;35 (3) make payments into newly established escrow accounts;36 and

33 The cases Saxon cites are easily distinguished and far less compelling than Gaudin and Fletcher, which squarely address the TPP Contract at issue here: (i) Vida v. OneWest Bank, F.S.B., 2010 WL 5148473, at *3-*5 (D. Or. Dec. 13, 2010), rests primarily on the flawed premise that because HAMP does not provide a private right of action, a plaintiff may not bring a breach of contract action; (ii) Barinaga v. JPMorgan Chase & Co., 749 F. Supp. 2d 1164, 1169 (D. Or. 2010), and Brown v. Phila. Housing Auth., 159 F. Supp. 2d 23, 27 (E.D. Pa. 2001), do not involve HAMP TPP Contracts; (iii) Cade v. BAC Home Loans Servicing, LP, 2011 WL 2470733, at *2 (S.D. Tex. June 20, 2011), is off point because it analyzes whether making trial period payments constitutes detrimental reliance for an estoppel claim rather than a breach of contract claim; and (iv) Rackley v. JPMorgan Chase Bank, Nat. Ass’n, 2011 WL 2971357, at *4 (W.D. Tex. July 21, 2011), considered only the TPP payments in its consideration analysis, whereas Plaintiffs allegations are not so limited. See ¶¶ 57-58. 34 See SD 09-01, at 2; Torti Decl. Ex. 4 at 2 (“The borrower documents a financial hardship and represents that (s)he does not have sufficient liquid assets to make the monthly mortgage payments by completing a … Hardship Affidavit and provides the required income documentation.”). 35 See id. 36 See id. (“The borrower agrees to set up an escrow account for taxes and hazard and flood insurance prior to the beginning of the trial period if one does not currently exist”).


26

(4) undergo credit counseling if Saxon so requested.37 See ¶¶ 57-58. However, Saxon contends

that these additional obligations, which were not required of Plaintiffs by their original mortgage

agreement, also do not constitute consideration. See Def. Mem. at 14. Saxon made the same

argument in Stagikas, and it was rejected. See Stagikas, 2011 WL 2652445, at *5 (under the

TPP, plaintiffs were required to provide documentation of their current income, make legal

representations about their personal circumstances, and agree to undergo credit counseling if

requested) (quoting Durmic, 2010 WL 4825632, at *3); Bosque, 2011 WL 304725, at *6 (same);

Bank of Am., 2011 WL 2637222, at *4 (same); Kennedy, 2011 WL 4526085, at *2 (same);

Bolone, 2011 WL 3706600, at *5 (same). See also Turbeville, 2011 U.S. Dist. LEXIS 42290, at

*12 (“[b]ecause consideration encompasses any detriment to the promisee, no matter how small,

Plaintiffs adequately plead consideration for the TPP Agreement.”). Thus, Plaintiffs sufficiently

plead consideration.

4. Plaintiffs Sufficiently Plead Damages Caused by Saxon’s Breach of the TPP Contract

Saxon asserts that Plaintiffs have not alleged “cognizable harm caused” by Saxon’s

breach of the TPP Contract. Def. Mem. at 15. The same argument has been rejected by

numerous courts.38 For instance, in Fletcher, 2011 WL 2648606, at *6, the court found that

plaintiff had sufficiently alleged damages resulting from the lender’s breach of an identical TPP

37 See id. at 11 (“The borrower must represent in writing in the HAMP documents that (s)he will obtain such counseling.”). 38 See, e.g., Belyea, 2011 WL 2884964, at *9 (complaint sufficiently alleged damages, “both in terms of accrued of fees and charges in the period during which Litton allegedly should have tendered a permanent loan modification or at least a decision, and in terms of relief foregone by the Plaintiffs during that same period.”); Bosque, 762 F. Supp. 2d at 352 (“alleged damages in the form of accrual of fees and charges in the period during which defendant should have tendered a permanent loan modification or at least a decision,” sufficient to state a breach of contract claim); Durmic, 2010 WL 4825632, at *3 (“Plaintiffs have pled [damages by alleging] that with each passing month, their original loan documents remain in effect, subjecting them to the accrual of charges, a further risk of delinquency, damage to their credit ratings, and a heightened risk of eventually losing their homes to foreclosure.”).


27

Contract “in the form of fees, charges, accrued interest, and damage to her credit reports.” The

lender argued, as Saxon does here, that such costs were merely the result of the mortgagor

missing payments prior to entering into the TPP or making reduced payments pursuant to the

TPP. Id. The Fletcher court rejected this argument, holding that plaintiff’s allegation that she

suffered these damages, at least in part, as a result of the time she spent waiting for a response

from the lender while it failed to consider her HAMP application, was sufficient damage to

support a breach of contract claim.39 Id.

Here, Plaintiffs allege that Saxon’s breach of the TPP Contract has caused them damages

in the form of increased interest payments, longer loan payoff times, higher principal balances,

deterrence from seeking other remedies, damage to their credit, late fees, escrow charges,

inspection charges, and additional income tax liability. See ¶¶4, 63, 66-67, 95. Thus, the

damages claimed by the Caves are nearly identical to those alleged in Fletcher, Belyea, Bosque,

and Durmic, and are sufficient to state a breach of contract action.

Saxon disingenuously asserts that Plaintiffs should not be allowed to recover these

damages because, although “the TPP allowed Plaintiffs to make reduced payments, it did not

require them to do so.” Def. Mem. at 16. Saxon disregards that Plaintiffs have alleged that they

were instructed by Saxon to make modified payments for months beyond the Modification

Effective Date. See ¶62. A case cited by Saxon supports the proposition that a borrower may

reasonably rely upon and follow the instructions of his/her mortgage servicer. “An instruction

39 This Court should follow Fletcher, Belyea, Bosque, and Durmic, rather than the cases cited by Saxon, which are distinguishable. Singh, 2011 WL 66167, at *7, and Phipps v. Wells Fargo Bank, N.A., 2011 WL 302803, at *6 (E.D. Cal. Jan. 27, 2011), are inapposite because the borrowers brought breach of contract claims as alleged third-party beneficiaries of the SPA, which is an entirely different theory than the instant case. Moreover, it does not appear that the plaintiff in Phipps even entered into a TPP Contract. See Phipps, 2011 WL 302803, at *3. Ishler v. Chase Home Finance LLC, 2011 WL 744538, at *6 (M.D. Pa. Feb. 23, 2011), is off point because it involves a claim of common law fraud rather than breach of the TPP Contract.


28

by a bank not to pay may reasonably be understood by a borrower as a representation that non-

payment is acceptable to the bank and will not have negative consequences.” Thomas v.

JPMorgan Chase & Co., 2011 WL 3273477, at *10 (S.D.N.Y. July 29, 2011) (citation omitted).

Thus, Plaintiffs sufficiently allege damages caused by Saxon.

5. Plaintiffs State a Claim for Breach of the Duty of Good Faith and Fair Dealing

Saxon attempts to avoid responsibility for its breach of the implied duty by repeating its

refrain that the TPP Contract is not an enforceable contract. Def. Mem. at 17. This tactic failed

in Gaudin, as it should here. See Gaudin, 2011 WL 5825144, at *5 (“While the breach of the

covenant of good faith and fair dealing claim may be subsumed in or duplicative of a breach of

contract claim, in light of the conclusion that the TPP may provide a basis to proceed in contract,

Saxon’s substantive arguments against it fail.”).

Saxon does not dispute that parties to a contract are subject to an implied duty of good

faith and fair dealing. See, e.g., Lyon Fin. Servs. v. Woodlake Imaging, LLC, 2005 U.S. Dist.

LEXIS 2011, at *21 (E.D. Pa. Feb. 9, 2005) (recognizing that “[i]n Pennsylvania, a covenant of

good faith and fair dealing is implied in every contract.”). The covenant is violated where “any

party to a contract … evades the spirit of the bargain, acts with a lack of diligence, willfully

renders imperfect performance, abuses the power to specify terms, interferes with or fails to

cooperate in the other party’s performance, or exercises contractually authorized discretion in an

unreasonable manner.” Berks Mut. Leasing Corp. v. Travelers Property Cas., 2002 WL

31761419, at *3 (E.D. Pa. Dec. 9, 2002) (citing Somers v. Somers, 613 A.2d 1211, 1213 (Pa.

Super. Ct. 1992) (citing REST. 2D CONTRACTS § 205 cmt. d (1981)).

Saxon erroneously suggests that Plaintiffs are attempting to use the implied duty “to read

into the TPP a promise to permanently modify their loan.” Def. Mem. at 17. That is not the


29

case. Plaintiffs allege that Saxon, in bad faith, deprived them of the reasonably expected fruits of

the TPP Contract, including protection from foreclosure during the trial period, a permanent

HAMP modification at the end of three month trial period with all arrearages capitalized, late

fees and penalties waived and affordable monthly payments instituted, or a timely written denial

explaining why they did not qualify. Compl. Ex. A. To secure those fruits, Plaintiffs had to

comply with the TPP Contract. Id. As in Bosque, Plaintiffs have alleged “a series of defendant’s

actions and omissions that undermined its ability to perform under the TPP [Contract] and meet

plaintiffs’ performance expectations.” Bosque, 2011 WL 304725, at *7. See also Darcy, 2011

WL 3758805, at *7 (complaint stated a claim for breach of duty of good faith and fair dealing by

lender’s inaction, lack of timely verification that borrower qualified under the TPP, and failure to

timely provide a permanent HAMP modification).

Plaintiffs further allege that Saxon undermined their ability to satisfy the requirement to

provide income verification by failing to hire sufficient staff, repeatedly requesting documents it

had already received, and not responding to borrowers’ inquiries. ¶¶41-47, 51, 60-67. Saxon’s

unjustified failure to timely provide a permanent HAMP modification agreement or a written

denial made it impossible for Plaintiffs to know what was required of them after the end of the

trial period, and specifically whether their continued compliance would eventually net them the

benefit of their bargain (a permanent modification, albeit late) or would merely result in deeper

financial distress. Thus, Plaintiffs state a claim for breach of the implied covenant.

D. Plaintiffs State a Claim for Promissory Estoppel

Saxon moves for dismissal of Plaintiffs’ promissory estoppel claim on grounds that the

TPP Contract does not contain a clear and unambiguous promise to modify, and that Plaintiffs


30

could not reasonably rely on the promises contained in the TPP Contract. Def. Mem. at 18-19.

Saxon is wrong.

Pennsylvania has adopted the approach to promissory estoppel established in REST. 2D

CONTRACTS § 90, which permits a plaintiff to recover where the following criteria are met:

1) the promisor made a promise that he should have reasonably expected to induce action or forbearance on the part of the promisee; 2) the promisee actually took action or refrained from taking action in reliance on the promise; and 3) injustice can be avoided only by enforcing the promise.

Edwards v. Wyatt, 335 F.3d 261, 277 (3d Cir. 2003) (citing Crouse v. Cyclops Industries, 745

A.2d 606, 610 (Pa. 2000)). Under REST. 2D CONTRACTS § 90, any “action or forbearance on the

part of the promisee” is sufficient to establish detriment in the context of promissory estoppel.

Saxon contends that there is no clear and definite promise contained in the TPP Contract

that Defendant would modify Plaintiffs’ loans. Def. Mem. at 18. Again Saxon misconstrues the

Complaint and ignores the provisions of the TPP Contract and HAMP, which unambiguously

require Defendant to provide a timely written notification to the borrower in the event of a

denial. ¶¶49-50. Contrary to Saxon’s contention, this promise to notify is sufficiently clear and

definite for purposes of promissory estoppel.40 Saxon’s promise reasonably induced Plaintiffs’

action – making the modified payments, among other things – which constitute reliance on

Saxon’s promises. ¶¶48-51. It was reasonable for Plaintiffs to believe that Saxon would give

them a determination no later than the Modification Effective Date, as specified in §2 the TPP

Contract. ¶49. This reliance was not unreasonable even after the initial three-month trial period,

given Saxon’s repeated assurances that Plaintiffs were still being considered for a permanent

40 Cases cited by Saxon, including Grill, 2011 WL 127891, at *8, Morales, 2011 WL 1670045, at *8-*9, Erickson v. Long Beach Mortg., 2011 WL 830727, at *6 (W.D. Wash. Mar. 2, 2011), Prasad, 2010 WL 5090331, at *5, and Locke v. Wells Fargo Home Mortg., 2010 WL 4941456, at *4 (S.D. Fla. Nov. 30, 2010), do not support Defendant’s position, because these decisions are based on the assumption that the plaintiff alleged that the TPP Contract guarantees a modification if the borrower provides requested documents and makes all TPP payments. That is not what Plaintiffs allege here.


31

loan modification, while Saxon strung them along in a trial modification far beyond the three-

month period prescribed in the TPP Contract. ¶¶57, 61-67. Plaintiffs relied on Saxon’s promises

to their detriment, incurring additional debt, inflated fees and negative credit reporting.41 ¶¶4,

63, 95. Had Plaintiffs known Saxon would not honor its promises, and that they would end up in

a far worse position than if they had never sought a HAMP modification from Saxon, they could

have pursued other alternatives, including a short sale or refinancing.

The Kennedy court upheld virtually identical promissory estoppel claims, holding: “[T]he

TPP includes a clear and unambiguous promise that Plaintiff’s loan would be modified if she

complied with its terms. Plaintiff alleges that she relied on that promise and suffered negative

effects…” Kennedy, 2011 WL 4526085, at *3. The court concluded that, “This reliance

appears, at this stage, to have been reasonable and foreseeable.” Id.; see also Fletcher 2011 WL

2648606, at *6 (plaintiff stated claim for promissory estoppel by alleging reliance on the promise

to consider her HAMP application and give her a timely response); Allen v. CitiMortgage, Inc.,

2011 WL 3425665, at *8 (D. Md. Aug. 4, 2011) (denying motion to dismiss promissory estoppel

claim where plaintiffs alleged that they would have pursued other options, such as restricting

debt through bankruptcy or selling their home, if they had known that CitiMortgage would report

them as delinquent to credit reporting agencies for making lower monthly payments under the

TPP); Turbeville, 2011 U.S. Dist. LEXIS 42290, at *18 (plaintiffs suffered detriment because

they could have pursued other means of curing their default if they had been given a decision by

the end of the three-month trial period). Accordingly, Plaintiffs sufficiently plead promissory

estoppel.

41 The effect of REST. 2D CONTRACTS § 90 is that “a promise without any agreed consideration (agreed equivalent in exchange) is made enforceable by reason of a substantial change of position in reasonable reliance on it.” (Emphasis added). See also 1A Corbin on Contracts § 204 (1963).


32

E. Plaintiffs State a Claim Under Pennsylvania’s UTPCPL

1. Saxon’s Conduct Violates The UTPCPL

Saxon claims that Plaintiffs’ UTPCPL claims should be dismissed. Def. Mem. at 19. To

the contrary, Plaintiffs have met all the requirements for a valid claim under the UTPCPL.

The UTPCPL prohibits any person from engaging in “fraudulent or deceptive conduct

which creates a likelihood of confusion or of misunderstanding.” 73 PA. STAT. §201-2(4)(xxi).

At least some courts have held that the statute requires that plaintiffs rely on defendant’s unfair

or deceptive acts or practices and requires that plaintiff’s reliance on those deceptive acts caused

their harm.42 See, e.g., Seldon v. Home Loan Services, Inc., 647 F. Supp. 2d 451, 465-66 (E.D.

Pa. 2009). The Pennsylvania Supreme Court has ruled that the UTPCPL’s “expansive provisions

reflect the legislative judgment that unfairness and deception in all consumer transactions must

be halted. These sections of the [UTPCPL] ... are to be liberally construed...” Commw. v.

Monumental Properties, Inc., 329 A.2d 812, 817 (Pa. 1974). Likewise, the Superior Court has

ruled that the UTPCPL “is to be liberally construed in order to effectuate” the legislature’s goal

of consumer protection. Keller v. Volkswagen of Am., Inc., 733 A.2d 642, 646 (Pa. Super Ct.

1999).

Plaintiffs have enumerated in detail Saxon’s unfair and deceptive acts on which Plaintiffs

relied and by which they were deceived. ¶¶54-74. See p. 5 above. Plaintiffs claim that

Defendants’ conduct in offering Plaintiffs a TPP Contract and then stringing Plaintiffs along,

urging them to make the modified payments long after the three months were completed,

42 The better view is that justifiable reliance is not required under the post-1996 version of the UTPCPL, which included “deceptive conduct” as being sufficient to state a claim under the UTPCPL. After the 1996 amendment, a number of courts found that, since deceptive conduct now was sufficient to state a claim under the UTPCPL, proof of reliance is unnecessary. See e.g., Com. ex rel. Corbett v. Manson, 903 A.2d 69 (Pa. Commw. Ct. 2006) (no proof of reliance necessary); Commw. v. Percudani, 825 A.2d 743, 746-47 (Pa. Commw. Ct. 2003) (holding that the post-1996 version of the CPL did not require a plaintiff to plead reliance).


33

deliberately not notifying Plaintiffs that they had been rejected for a permanent HAMP

modification, and then charging them late fees and penalties, is deceptive conduct. ¶¶3-4.

Plaintiffs relied on Saxon, whose employees told Plaintiffs to continue to pay the modified

amount. ¶62. This reliance caused Plaintiffs’ loss. This pattern of corporate conduct violates

the UTPCPL. Saxon’s behavior is an unconscionable commercial practice designed to deceive

persons who are struggling to pay their mortgages, with the objective of maximizing fees and

penalties that will be paid to Saxon. ¶¶20, 23-25, 40-47, 110-112.

Saxon sent the Caves a loan modification package that provided for a modified mortgage

payment of $1,007.50 to be paid on September 1, October 1, and November 1, 2009. ¶¶52-53.

The Caves paid this monthly amount on a timely basis for nearly a year. ¶¶57, 64. The HAMP

program mandates that the borrower be given a prompt written determination of eligibility. ¶50.

Saxon did not inform the Caves in writing that their HAMP application was rejected. The Caves

first discovered that their application had been rejected in October 2010, when Saxon sent the

Caves a notice that their account was past due by $23,210.64, an amount that included the full

rather than modified mortgage payments, late fees, escrow charges and inspection charges.

¶¶63-64. The Caves had relied on Saxon when it told them to pay only the modified amount,

$1,007.50 per month, not realizing that Saxon was charging them fees and penalties for

underpaying each month. ¶62. Saxon took advantage of the Caves’ reliance, causing severe

damages to the Caves. ¶70. This is the precise kind of deception that the UTPCPL was designed

to prevent or punish.

2. The Economic Loss Doctrine Does Not Affect Plaintiffs’ UTPCPL Claim

Saxon claims that its deliberately deceptive practices do not violate the UTPCPL because

of the economic loss doctrine. Def. Mem. at 20-21. “The economic loss doctrine ‘prohibits


34

plaintiffs from recovering in tort economic losses to which their entitlement flows only from a

contract.’” Werwinski v. Ford Motor Co., 286 F.3d 661, 671 (3d Cir. 2002) (citations omitted).

Accordingly, there must be a contract for the economic loss doctrine to be applicable. Brock v.

Thomas, 782 F. Supp. 2d 133, 143 (E.D. Pa. 2011) (application of economic loss doctrine limited

to losses that flow from a contract). Saxon denies that the TPP is a contract between Saxon and

the Caves. Def. Mem. at 8-16. Either there is a contract, and Plaintiffs’ contract claims are

viable, or, as Defendant claims, the TPP is merely an “application”. If the “product” here is the

TPP application, Plaintiffs’ UTPCPL claims could not be precluded by the economic loss

doctrine, since Saxon would have committed a tort, not a breach of contract, by deceiving the

Caves through the application, not the contract. Accordingly, Saxon’s claim that there is no

contract, and its claim that Plaintiffs’ UTPCPL allegations are precluded because there is a

contract, are inconsistent and untenable.

Indeed, even though there is a contract, as Plaintiffs have clearly alleged (¶¶ 48-58), the

economic loss doctrine will not prevent Plaintiffs from recovering under the UTPCPL. The

Caves’ losses are not economic losses since, as the economic loss theory requires, they do not

involve injury to the product itself. See Rem Coal Co. v. Clark Equipment Co., 563 A.2d 128,

134 (Pa. Super. Ct. 1989) (tort theories do not apply when a product “malfunctions where the

only resulting damage is to the product itself.”)

Accordingly, this case is easily distinguishable from the product liability case described

in Werwinski, 286 F.3d at 664, the only Third Circuit ruling on the application of the economic

loss doctrine to the UTPCPL.43 Werwinski was a putative class action against Ford, relating to

defective transmission components installed in Ford vehicles that caused owners expensive

43 The appellate courts in Pennsylvania have not ruled on the issue of whether the economic loss doctrine is applicable to UTPCPL claims.


35

repairs. The Werwinski plaintiffs alleged that Ford deceived them by selling them vehicles with

known defective transmissions in violation of the UTPCPL. The lower court and the Third

Circuit found that the claims were merely warranty claims because of the economic loss

doctrine, relying on decisions from other states. Id. at 675-679.

Under Werwinski, the economic loss doctrine is applicable if “the need for a remedy in

tort is reduced when the only injury is to the product itself and ‘the product has not met the

customer’s expectations...’” Id. at 671 (citing E. River S.S. Corp. v. Transamerica Delaval, Inc.,

476 U.S. 858, 872 (1986)). Whereas, in Werwinski, the product was a Ford that had a defective

transmission, here, the product is a service – a contract to qualify for a loan modification. The

injury is not to the product, it is to the Caves, who paid extra charges, penalties, and interest, and

suffered other damages as a result of Saxon’s deceptive practices. ¶112.

In a case with facts similar to the facts at hand, where plaintiffs were trying to get a

mortgage modification – the repayment plan – Judge Yohn found that plaintiffs “alleged a viable

[UTPCPL] claim on the basis of misrepresentations involving the repayment plan ... the court

finds that given the dire financial circumstances that allegedly drove plaintiffs to enter the

repayment plan, plaintiffs relied on defendant’s representation that payments under the plan

would remain at $700.” Selden, 647 F. Supp. 2d at 471. The Selden court found that Plaintiffs,

as the Caves here, had set forth a series of financial and other losses that resulted from their

reliance on defendants’ false statements about the repayment plan’s fixed payment amounts and

payment period. “On the basis of defendants’ misrepresentations about the repayment plan,

plaintiffs have set forth the required elements for a viable claim of deceptive conduct under the

catch all provision of the UTPCPL, 73 PA. STAT. §201-2(4)(xxi).” Id.


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The same thing applies to Plaintiffs here. They relied on Saxon’s deceptive assurances

that they should continue to pay $1,007.50 a month on their mortgage, and they suffered severe

financial problems because of this deception. Although Seldon was decided well after

Werwinski, the economic loss doctrine is not dispositive because there is no product that

malfunctions, and the repayment plan at issue causes harm to plaintiffs, not to itself. See also

Vassalotti v. Wells Fargo Bank, 732 F. Supp. 2d 503 (E.D. Pa. 2010) (summary judgment ruling

for plaintiff on claim that Wells Fargo violated UTCPCL by sending “befuddling” letters to

plaintiff about plaintiff’s loan modification agreements, on which plaintiff relied and which

caused ascertainable loss to plaintiff); Clark v. EMC Mortgage Corp., 2009 U.S. Dist. LEXIS

61181, at *28 (E.D. Pa. Jan. 29, 2009) (where plaintiffs paid the modified amounts on their

HAMP agreement for two years, and then the mortgage servicer refused to recognize the HAMP

modification, the court found “no basis to dismiss Plaintiffs’ UTPCPL claim.”) Each of these

cases was decided after the Third Circuit’s Werwinski decision, but in each case this Court found

valid UTPCPL claims.44

44 Defendant cites a number of cases that fail to acknowledge or even address the distinction between damage to the product itself and damage to the plaintiff. In Ferki v. Wells Fargo, 2010 WL 5174406 (E.D. Pa. Dec. 10, 2010), a contract case in which defendant liquidated plaintiff’s stock, defendant bank was contractually bound to notify plaintiff if the stock depreciated to the point where the bank had the right to liquidate it. The bank failed to notify plaintiff, and plaintiff lost his life savings. The court reluctantly found that plaintiff had suffered only economic loss pursuant to Werwinski, and granted the motion to dismiss the UTPCPL count. Defendant also cites Sarsfield v. CitiMortgage, Inc., 707 F. Supp. 2d 546 (M.D. Pa. 2010), where plaintiffs sued their mortgage lender for its inaccurate escrow account disclosure statement issued to plaintiff before the mortgage was signed. The court, reluctantly, found that the disclosure statement was a part of the mortgage contract, and therefore the Third Circuit’s decision in Werwinski applied. The court in Sarsfield admitted that it “believes that the Third Circuit’s interpretation of Pennsylvania law in Werwinski was incorrect for the reasons stated by Judge Van Antwerpen ... in O’Keefe v. Mercedes-Benz USA, LLC, 214 F.R.D. 266, 275 (E. D. Pa. 2003).” Sarsfield, 707 F. Supp. 2d. at 557. However, Sarsfield, like Ferki, did not consider the clear difference between a car whose transmission self-destructs – a clear breach of warranty issue – and an unconscionable commercial practice designed to deceive persons who are struggling to pay their mortgages.


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Finally, as explained in section F.1. on pp. 39-41 of this Memorandum, Saxon has

violated the FCEUA. The breach of the FCEUA is a per se violation of the UTPCPL. See e.g.

Seldon, 647 F. Supp. 2d at 471; Stuart v. AR Resources, Inc., 2011 U.S. Dist. LEXIS 27025, at

*13-14 (E.D. Pa. March 15, 2011) (“Section 2270.5(a) of the FCEUA states, ‘If a debt collector

or creditor engages in an unfair or deceptive debt collection act or practice under this act, it shall

constitute a violation of’” the UTPCPL). Accordingly, Saxon has violated the UTPCPL by

violating the FCEUA. Such a violation cannot be negated by the economic loss doctrine.

3. Plaintiffs Have Properly Pled Reliance, Deceptive Acts, Duty, Malfeasance, and Injury

Defendant claims that Plaintiffs have not pled reliance, which it claims is required by the

UTPCPL. Plaintiffs have enumerated in detail the unfair and deceptive acts that the Caves relied

on, and were deceived by. See ¶¶54-74, 101-103; see also above pp. 29-31.

Saxon also claims that it bore no duty pursuant to the TPP to provide permanent loan

modifications to Plaintiffs. Def. Mem. at 21. This argument reflects a misunderstanding of

Plaintiffs’ claim, as described above. Plaintiffs allege that, in addition to many duties under the

HAMP regulations, Saxon had a duty to notify Plaintiffs, in writing, after three months of

payments pursuant to the TPP, whether they would be given a permanent HAMP modification.

¶¶30-39, 50, 73. Saxon breached this affirmative duty and urged Plaintiffs to continue to pay the

modified amount, all the while assessing fees because Plaintiffs were not making their full

mortgage and escrow payments under the unmodified mortgage. This deliberate and deceptive

behavior, urging plaintiffs to pay the modified amount, while secretly assessing fees and extra

charges, is exactly the kind of deceptive behavior that forms the basis of a UTPCPL claim.

¶¶61-64.


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Defendants cite Gordon v. Pa. Blue Shield, 548 A.2d 600, 604 (Pa. Super Ct. 1988) and

Horowitz v. Federal Kemper Life Assurance Co., 57 F.3d 300, 307 (3d Cir. 1995), claiming that

Saxon was guilty of only nonfeasance, rather than misfeasance, and therefore could not be liable

under the UTPCPL. Def. Mem. at 21-22. In Gordon and Horowitz, defendant insurer refused to

pay insurance benefits. Neither Gordon nor Horowitz is dispositive here, because Saxon

affirmatively urged Plaintiffs to continue paying the modified amounts, while secretly assessing

fees over and above the payments required by the mortgage.45 This was an affirmative act of

deception, and thus misfeasance. ¶¶62-63.

Defendant also argues that Saxon’s late fees and penalties are not damages under the

UTPCPL, but legitimate charges under the Plaintiffs’ loan documents. Def. Mem. at 22.

However, under the circumstances, these charges were not legitimate. Saxon sent the Caves a

loan modification package that provided for a modified mortgage payment of $1,007.50 per

month. ¶53. The Caves understood that if they were awarded a HAMP modification, fees and

the full amount of payments under the unmodified mortgage would be waived. ¶48. The Caves

paid the new required amount timely for many months without receiving any notice that they

were past due or being charged fees. ¶¶63-64.

HAMP mandates that the borrower be given a prompt written determination of eligibility.

¶50. Saxon did not inform the Caves that they were ineligible for a HAMP modification, until

after Saxon sent the Caves a notice that their account was past due by $23,210.64, an amount that

included the full amount due to date under the unmodified mortgage, late fees, escrow charges

and inspection charges, none of which would have accrued if they had been given a permanent

HAMP modification, or if they had been informed they were denied by the Modification

45 Santo v. Qualcraft Construction, 2007 WL 5786314 (Pa. Com. Pl. Sept. 2007) is inapposite. The contract showed that the lender had no duty to inspect construction, so plaintiff had no UTPCPL claim.


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Effective Date. ¶63. The Caves’ damages include increased fees, late charges and other

payments over and above the mortgage payments. ¶¶41-47, 112. Moreover, Saxon caused

further losses by failing to provide the Commonwealth of Pennsylvania with required

information for Plaintiffs’ HEMAP loan application. ¶¶65-66. Contrary to Defendant’s

assertions, Plaintiffs have pled losses caused by Defendant’s deceptive behavior.

F. Plaintiffs State a Viable Claim Under the FCEUA and the FDCPA 1. Plaintiffs State a Claim Under the FCEUA

Defendant claims that Plaintiffs’ claim under the FCEUA should be dismissed because

Plaintiffs’ mortgage is a “purchase money mortgage”. Def. Mem. at 23. Plaintiffs’ mortgage is

not a purchase money mortgage. The term “purchase money mortgage” is not defined in the

statute. However, Black’s Law Dictionary, 6th Ed. West Publishing Co., 1990 defines “purchase

money mortgage” as:

Any mortgage given to secure a loan for the purpose of acquiring the land on which the mortgage is given; more particularly, a mortgage given to the seller of land to secure payment of a portion of the purchase price. A mortgage given concurrently with the conveyance of land, by the vendee to the vendor, on the same land, to secure the unpaid balance of the purchase price.

(Emphasis added).

Black’s also defines “purchase money mortgage” as: “A mortgage or security device

taken back to secure the performance of an obligation incurred in the purchase of the property.”

(Emphasis added).

These definitions encompass the idea that in a purchase money mortgage the seller of the

land takes back all or some of the purchase price, so that the seller effectively becomes the

mortgage lender. This is clearly not the situation with the Caves’ mortgage, which came from


40

Saxon Mortgage Inc., a company in the business of mortgage lending, not the seller of the

property.

The Pennsylvania Supreme and Superior Courts have used the term “purchase money

mortgage” to refer to a transaction where the seller of land lends money to the buyer, so the

buyer can buy the land. See Mahoney v. Furches, 468 A.2d 458, 459 (Pa. 1983) (“This action

arises out of a land sale and purchase money mortgage between the two parties. Appellees, [the

Furches] sold to Appellant [Mahoney] certain lands which they owned in Lancaster County and

personally financed the sale.”). See also In re Estate of Lazarus, 616 A.2d 1023, 1024, (Pa.

Super. Ct. 1992) (two separate companies each execute agreements of sale on property, where

part of the sale price would be paid outright and the rest would be paid to the seller, Lazarus, in

monthly installments “in the form of a purchase money mortgage”); Good v. Holstein, 787 A.2d

426, 428 (Pa. Super. Ct. 2001) (Blue Mack, Inc. bought real estate from Mrs. Smith’s, Inc. The

parties executed a purchase money mortgage whereby Mrs. Smith’s financed the conveyance in

the amount of $340,000.00).

Defendant cites an unpublished magistrate judge’s decision that relies on an unrelated

Pennsylvania statute. To the contrary, the common law use of the term “purchase money

mortgage” is dispositive, establishing that the Caves’ mortgage was not a purchase money

mortgage, but a mortgage from a third-party mortgage lender.

Defendant also claims that Plaintiffs fail to allege that any conduct described in the

Complaint occurred “in connection with the collection of a debt.” Def. Mem. at 24. The

complaint alleges that Saxon informed Plaintiffs that they owed $23,210.64, which was past due.

¶63-64. This was an untrue statement made to collect a debt, and it was a demand for payment

of the alleged arrears on Plaintiffs’ mortgage. Defendants’ citation to Lasisi v. Bank of Am.,


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2009 WL 2342640 (E.D. Pa. July 29, 2009), is unavailing. In Lasisi, plaintiff’s pleading was

woefully inadequate. Here, Plaintiffs have made specific allegations of Saxon’s demand for

payment of amounts that were not owed.

Finally, Saxon claims that Plaintiffs have alleged no facts to establish that Saxon intended

to mislead Plaintiffs. To the contrary, Saxon failed to tell Plaintiffs that they had been denied a

permanent HAMP modification and failed to warn them that they (allegedly) were in arrears.

Saxon then demanded $23,210.64, which included fees that Saxon could not have collected if it

had timely informed the Caves they were rejected for a HAMP modification. Given Saxon’s

track record, see ¶¶17-26, there is ample evidence that Saxon intended to collect as much in fees

as it could. Further, the cases cited by Saxon lack the specific allegations that Plaintiffs have

presented here. Accordingly, the FCEUA claim should be upheld. See Seldon, 647 F. Supp. at

465 (denying motion to dismiss FCEUA claim, because “defendants gave a false impression

about the amount of the debt and used false and deceptive collection methods.”)

2. Plaintiffs’ FDCPA Claim Should be Upheld

Finally, Saxon claims that Plaintiffs’ FDCPA claim should be dismissed. Saxon claims

that it was not a “debt collector,” because a debt collector is one who collects a debt “held by

another entity.” Although Saxon Mortgage, Inc. was the company that originated the Caves’

mortgage in 2005 (see Torti Decl. Ex. 1), a different company, Saxon Mortgage Services, Inc.,

the Defendant here, was the servicer. See ¶1. Saxon Mortgage Inc. sold the mortgage to a third-

party. By the time of the events related here (2009-2010), the mortgage was held by Deutsche

Bank Trust Company Americas, as Trustee for Saxon Asset Securities Trust 2005-4. ¶54.

Accordingly, Defendant Saxon Mortgage Services, Inc. was a “debt collector” on behalf of a

trustee who represented a mortgage securitization trust. In any case, this Court must accept as


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true Plaintiffs’ allegation that Saxon was a debt collector under FDCPA. ¶126. Whether or not

Saxon was a debt collector is a disputed factual issue that should not be decided on this motion to

dismiss.

IV. CONCLUSION

For the foregoing reasons, Defendant’s motion to dismiss should be denied in its entirety.

In the alternative, Plaintiffs should be granted leave to amend to cure any deficiency.46

Dated: November 30, 2011

BERGER & MONTAGUE, P.C. By: /s/ Todd S. Collins Todd S. Collins Eric Lechtzin 1622 Locust Street Philadelphia, PA 19103 Telephone: 215-875-3000 Facsimile: 215-875-4613 E-mail: [email protected] E-mail: [email protected]

Ann Miller ANN MILLER, LLC The Benjamin Franklin 834 Chestnut Street, Suite 206 Philadelphia, PA 19107 Telephone: 215-238-0468 Facsimile: 215-574-0699 E-mail: [email protected]

Attorneys for Plaintiffs and the Class

46 Fed. R. Civ. P. 15(a) provides that “leave shall be freely given when justice so requires.” The Supreme Court has instructed that leave to amend should be freely granted “[I]n the absence of ... undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party ... futility of amendment, etc.” Foman v. Davis, 371 U.S. 178, 182 (1962); see also Arthur v. Maersk, Inc., 434 F.3d 196, 204 (3d Cir. 2006) (reversing District Court’s denial of leave to amend).
