Izumi Saika and her husband, Mohammad Shakibai, brought this suit in the Circuit Court of Cook County, Illinois, alleging that their mortgage loan servicer, Ocwen Loan Servicing, LLC, breached an agreement to modify their loan and violated the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 et seq. ("ICFA"). Doc. 1-1. Ocwen removed the suit under the diversity jurisdiction, Doc. 1, and now moves under Civil Rule 12(b)(6) to dismiss the complaint, Doc. 10. The motion is granted as to the contract claim and denied as to the ICFA claim, though Plaintiffs will be allowed to replead the contract claim.
Background
In resolving a Rule 12(b)(6) motion, the court must accept the operative complaint's well-pleaded factual allegations, with all reasonable inferences drawn in Plaintiffs' favor, but not its legal conclusions. See Zahn v. N. Am. Power & Gas, LLC ,
A. The Home Affordable Modification Program
The U.S. Treasury Department established the Home Affordable Modification Program ("HAMP") in 2009 to encourage home mortgage loan modifications designed to help homeowners avoid foreclosure. See Young v. Wells Fargo Bank, N.A. ,
HAMP guidelines set forth eligibility criteria for borrowers seeking a mortgage loan modification. See Fannie Mae, supra , at 451; Making Home Affordable Program, supra , at 72-73. Under the guidelines in effect during the relevant time frame, a mortgage loan was potentially eligible for a HAMP modification if it was "delinquent" or in "imminent default." Fannie Mae, supra , at 394, 451; see also Making Home Affordable Program, supra , at 73 (providing that a loan was HAMP-eligible if "[t]he mortgage loan is delinquent or default is reasonably foreseeable"). If a servicer determined that a mortgage loan was eligible for a HAMP modification, various features of the loan would be adjusted to make the borrower's monthly payments more affordable, reducing the likelihood of default and foreclosure. See Wigod v. Wells Fargo Bank, N.A. ,
If the loan servicer found a borrower qualified for a HAMP modification, the servicer would implement a Trial Period Plan ("TPP") before offering a permanent modification. See Wigod ,
B. Ocwen's Handling of Plaintiffs' HAMP Application
In 2007, Plaintiffs financed their joint purchase of a condominium with a thirty-year $ 151,050 note secured by a mortgage. Doc. 1-1 at ¶¶ 4-5, 24; Doc. 11-1 at 2-3. Although both Plaintiffs were on the title and signed the mortgage agreement, only Saika signed the note. Doc. 1-1 at ¶¶ 1-2, 6; Doc. 11-1 at 2, 14. In 2013, Ocwen became Plaintiffs' loan servicer. Doc. 1-1 at ¶ 7. Plaintiffs authorized Ocwen to automatically debit their bank account $ 690.17 every two weeks, which resulted in payments some $ 200.00 more per month than their monthly mortgage obligation, then $ 1,180.34. Id. at ¶¶ 8, 10.
After Saika was laid off in 2014, she and Shakibai applied to Ocwen for a loan modification. Doc. 1-1 at ¶¶ 11, 13. On December 3, 2014, Ocwen sent Plaintiffs a TPP agreement, which required them to make four monthly trial period payments of $ 627.62 in January, February, March, and April 2015. Id. at ¶¶ 14-15. Because the monthly TPP payments were much less than their existing mortgage payments, Plaintiffs asked Ocwen about the automatic biweekly $ 690.17 debit. Id. at ¶ 18. Ocwen responded that Plaintiffs did not need to do anything for the automatic debit to be changed to reflect the TPP payment amount. Ibid. ; Doc. 19 at 2. But instead of adjusting the automatic debit to reflect the TPP payment amount, Ocwen debited $ 690.17 on December 8, 2014, and then $ 685.20 (changed to reflect an escrow adjustment that reduced the pre-TPP monthly payment to $ 1,170.40) every two weeks thereafter. Doc. 1-1 at ¶¶ 16, 19-20. As a result, Plaintiffs paid the entire amount required by the TPP (and then some) by January 20, 2015; despite this, the biweekly $ 685.20 debits continued throughout (and beyond) the four-month TPP period. Id. at ¶¶ 15, 20, 27. Indeed, Plaintiffs remained current on their pre-TPP monthly mortgage payments throughout the modification process. Id. at ¶ 12.
On January 26, 2015, Ocwen informed Plaintiffs that they were eligible for a "Home Affordable Modification." Doc. 1-1 at ¶ 21. Enclosed with Ocwen's letter was a "Modification Agreement" addressed only to Saika. Id. at ¶ 22; see id. at p. 17 (listing only Saika as a "Borrower"). The Modification Agreement contemplated several adjustments to the loan: the principal balance would become $ 127,006.77; the interest rate would fall from 6.5% to 2% until April 2020 and thereafter would not exceed 3.625%; the maturity date was extended to June 1, 2051; and the monthly payment, effective May 1, 2015, would be $ 627.02. Id. at ¶¶ 23-25;
Saika returned the Modification Agreement to Ocwen on February 9, 2015 with only her signature, and Ocwen never countersigned. Doc. 1-1 at ¶¶ 26, 42; id. at pp. 21-22. Instead, Ocwen continued to automatically debit $ 685.20 biweekly from Plaintiffs' bank account. Id. at ¶ 27. When Plaintiffs inquired about halting the automatic debit, Ocwen responded that doing so would prevent approval of the loan modification and instructed them to keep the debit in place. Id. at ¶¶ 28-29, 40. In April 2015, without notifying Plaintiffs, Ocwen began placing their mortgage payments in a suspense account rather than crediting them toward the loan balance. Id. at ¶¶ 31, 49. Under the mortgage agreement, Ocwen could hold payments in a suspense account only if the payments were "insufficient to bring the loan current." Doc. 11-1 at 5.
In late April 2015, even though Plaintiffs remained current on their loan payments, Ocwen sent Plaintiffs a delinquency notice and a letter informing them that their April 2015 loan payment was outstanding. Doc. 1-1 at ¶¶ 32-33. Ocwen continued to send Plaintiffs monthly statements and delinquency notices that did not reflect the modified loan terms or Plaintiffs' automatic payments. Id. at ¶¶ 34-35. Ocwen also represented the loan as delinquent to credit reporting agencies. Id. at ¶ 35.
In addition to inquiring about the automatic debit, Plaintiffs repeatedly wrote Ocwen to ask about the status of their account and of the loan modification. Doc. 1-1 at ¶ 36. Ocwen assured Plaintiffs that it was working to update their account to reflect the terms of the Modification Agreement. Id. at ¶ 38. But on October 13, 2015, Ocwen sent Plaintiffs a letter denying the modification on the grounds that the "loan had been reinstated" and that therefore they no longer "appear[ed] to be in need of modification." Id. at ¶¶ 41-42. Following Plaintiffs' request for further information, Ocwen wrote on December 4, 2015 that because "the account remained current or in good standing during and after the TPP, Ocwen was unable to complete the permanent modification of the account with [Fannie Mae]." Id. at ¶¶ 46-47. According to Ocwen, Fannie Mae did not allow modification of mortgage loans with "less than a full three (3) full [sic ] month delinquency." Id. at ¶ 48. Although Ocwen initially held mortgage payments made after January 2015 in a suspense account, making the account appear delinquent, on June 12, 2015 it applied the balance of the suspense account, $ 7,029.71, to bring the loan current, which (according to Ocwen) led Fannie Mae to deny modification because the account appeared current. Id. at ¶¶ 49-51. Ocwen notified Plaintiffs in a second October 13, 2015 letter that, effective November 1, 2015, it would transfer servicing of the loan to Nationstar Mortgage, LLC. Id. at ¶¶ 41, 43.
Despite having told Plaintiffs on October 13, 2015 that their loan had been reinstated, Ocwen sent Plaintiffs a delinquency notice October 23, 2015 describing the account as delinquent since February 2, 2015. Id. at ¶¶ 42, 44-45. The notice listed $ 1,170.40 owing for May 2015 and $ 1,164.93-which had become Plaintiffs' monthly payment following another escrow adjustment effective June 1, 2015-owing
Despite Plaintiffs' efforts to resolve their delinquency and pursue a loan modification, Nationstar brought a foreclosure suit in October 2016. Doc. 1-1 at ¶¶ 53-56; Doc. 11-2. A default judgment of foreclosure and sale was entered in May 2017. Doc. 1-1 at ¶ 59; Doc. 19-1 at ¶ 2. After Plaintiffs' unsuccessful attempt to vacate the default, Saika filed for bankruptcy and Plaintiffs ultimately entered into a TPP and loan modification agreement (effective November 1, 2017) with Nationstar. Doc. 1-1 at ¶¶ 61, 64-65; Doc. 11-2 at 9-10. Under that agreement, Plaintiffs' new principal balance was $ 146,848.34, with a 4% interest rate, resulting in monthly payments of $ 613.74 through the new maturity date of November 1, 2057. Doc. 1-1 at ¶¶ 66-67. After executing the modification agreement, Nationstar dismissed the foreclosure suit and the court vacated the default judgment, Doc. 19-1 at ¶¶ 2-3, but not before Plaintiffs retained an attorney and paid expenses in connection with the bankruptcy petition, Doc. 1-1 at ¶¶ 57, 62-63; Doc. 19-1 at ¶ 4. Plaintiffs were also assessed attorney fees that their condominium association incurred as a defendant in the foreclosure suit. Doc. 1-1 at ¶ 58; Doc. 11-2 at 1.
Discussion
Plaintiffs bring two state law claims, alleging that: (1) Ocwen breached the Modification Agreement by failing to implement the loan modification contemplated by the Agreement; and (2) Ocwen engaged in unfair practices in violation of the ICFA after they applied for a modification. Doc. 1-1 at ¶¶ 70-86. In seeking dismissal, Ocwen argues that the Modification Agreement is not an enforceable contract, that the ICFA claim alleges only breach of contract, and that its conduct did not proximately cause Plaintiffs' alleged injuries. Doc. 11 at 9-15. (At the motion hearing, Doc. 23, Ocwen withdrew a preclusion argument based on the foreclosure judgment, Doc. 11 at 5-9, so that argument will not be addressed.)
I. Breach of Contract Claim
As noted, Plaintiffs allege that Ocwen breached the Modification Agreement by failing to implement the terms of the Agreement after Saika signed and returned it to Ocwen. Doc. 1-1 at ¶¶ 70-76. Under Illinois law, a breach-of-contract plaintiff must allege: "(1) the existence of a valid and enforceable contract; (2) substantial performance by the plaintiff; (3) breach of contract by the defendant; and (4) resultant injury to the plaintiff." Avila v. CitiMortgage, Inc. ,
To allege the existence of an enforceable contract, plaintiffs must allege facts showing a valid offer and acceptance. See Pine Top Receivables of Ill., LLC v. Banco de Seguros del Estado ,
When an offer "state[s] an exclusive mode by which it could be accepted" and the offeree fails to "accept the offer in the exclusive manner it authorized, ... no contract [is] formed between the parties." Golden Dipt Co. v. Sys. Eng'g & Mfg. Co. ,
Shakibai was on the condominium's title and signed the mortgage agreement. Id. at ¶¶ 2, 6; Doc. 11-1 at 2, 14. Under the Modification Agreement's plain terms, then, Shakibai was required to sign the Agreement unless he was deceased, an authorized representative signed on his behalf, or Ocwen waived the signature requirement in writing. Doc. 1-1 at p. 19. Yet Plaintiffs do not allege that Shakibai signed the Agreement, nor do they allege that he was deceased, that Ocwen waived the signature requirement in writing, or that Saika was his authorized representative. Id. at ¶¶ 2, 26; see id. at pp. 21-22 (showing only Saika's signature on the Agreement's signature pages). Because Plaintiffs did not satisfy the Modification Agreement's provisions regarding acceptance, Plaintiffs did not validly accept Ocwen's offer and the Agreement never ripened into an enforceable contract. See Wigod ,
Plaintiffs argue that the mend-the-hold doctrine precludes Ocwen from contending that Shakibai's failure to sign the Modification Agreement renders it
The Seventh Circuit's Harbor Insurance opinion expressed uncertainty over whether mend-the-hold can lock a party into its prelitigation contract defenses, but noted that "many" cases were "consistent with the view that the doctrine only bars a contract party from changing his position in litigation ."
Plaintiffs respond, Doc. 24, by citing this sentence from County of Schuyler v. Missouri Bridge & Iron Co. ,
Accordingly, the mend-the-hold doctrine does not prevent Ocwen from raising a defense not disclosed in prelitigation communications with Plaintiffs. Because Plaintiffs do not present any other ground for holding that the Agreement is enforceable despite Shakibai's failure to sign, their breach of contract claim is dismissed.
II. ICFA Claim
As noted, Plaintiffs allege that Ocwen violated the ICFA by engaging in unfair loan servicing practices after they applied for a home mortgage modification. Doc. 1-1 at ¶¶ 77-86. The ICFA "is a regulatory and remedial statute intended to protect consumers, borrowers, and business persons against fraud, unfair methods of competition, and other unfair and deceptive business practices." Cohen v. Am. Sec. Ins. Co. ,
A. Unfair Conduct
The ICFA claim targets several actions taken by Ocwen during its servicing of Plaintiffs' loan: (1) Ocwen's instructing Plaintiffs to keep the pre-TPP automatic debit in place during and after the TPP, but ultimate refusal to modify the loan because Plaintiffs remained current on their pre-TPP loan payment obligations; (2) Ocwen's delay in notifying Plaintiffs of its denial of their loan modification application; (3) Ocwen's mishandling of Plaintiffs' payments during the HAMP process, i.e. , placing payments in a suspense account rather than applying them toward the loan balance; (4) Ocwen's reporting of Plaintiffs' account as delinquent to credit reporting agencies; and (5) Ocwen's failure to implement the Modification Agreement. Doc. 1-1 at ¶¶ 79-84. Even putting aside the fourth and fifth actions and considering only the first three, see Purcell v. Bank of Am. ,
"Unfairness under the ICFA depends on three factors: '(1) whether the practice offends public policy; (2) whether it is immoral, unethical, oppressive, or unscrupulous; [and/or] (3) whether it causes substantial injury to consumers.' " Newman v. Metro. Life Ins. Co. ,
Conduct is immoral, unethical, oppressive, or unscrupulous for ICFA purposes if it "leave[s] the consumer with little choice except to submit to it." Newman ,
Here, while Ocwen initially indicated that it would adjust Plaintiffs' automatic
Ocwen's insistence that Plaintiffs continue to make those unsustainable payments also violated HAMP guidelines. As noted, a practice may be unfair under the ICFA when it "offends public policy," which can occur where the practice violates statutory or administrative rules establishing a certain standard of conduct. Robinson ,
By offering Plaintiffs a TPP, Doc. 1-1 at ¶ 14, Ocwen necessarily determined from their loan modification application that they were at imminent risk of default and putatively eligible for more favorable loan terms. See Wigod ,
Ocwen made matters worse by telling Plaintiffs that their HAMP modification had been denied because they followed its instructions to maintain the pre-TPP biweekly debits and thereby remained current on their pre-TPP payment obligations. Doc. 1-1 at ¶ 47 (alleging that Ocwen explained that because "the account remained current of in good standing during and after the TPP, Ocwen was unable to complete the permanent modification of the account with the investor of the loan ... Fannie Mae"). And that denial is suspect even on its own terms, as Fannie Mae's HAMP servicing guidelines allow loan modifications where, as here, an account is current. See Fannie Mae, supra , at 395, 451 (noting that accounts may be "current" but also in "imminent default"). But rather than notify Plaintiffs that remaining current on their pre-TPP loan payments might jeopardize their eligibility for a modification, Ocwen encouraged the automatic biweekly debits for months after the TPP was complete, stretching Plaintiffs financially while (ironically) weakening their case for a modification. Doc. 1-1 at ¶¶ 19, 27, 30. Additionally, by forcing Plaintiffs to pay more per month than was required under both the TPP and the pre-TPP mortgage, and then declining a modification, Ocwen inflicted substantial injury for ICFA unfairness purposes. See Newman ,
Given the breadth and depth of their factual allegations, Plaintiffs have pleaded unfair conduct. Ocwen responds that Plaintiffs at most allege breach of contract-specifically, of the Modification Agreement-which is not actionable under the ICFA. Doc. 11 at 12-14.
"A breach of contractual promise, without more, is not actionable under the [ICFA]." Phila. Indem. Ins. Co. ,
Ocwen invokes the mend-the-hold doctrine in an attempt to prevent Plaintiffs from asserting claims of unfair conduct that they did not raise while Ocwen was their servicer or during Nationstar's foreclosure action. Doc. 21 at 10-11. By failing to present its mend-the-hold argument until its reply brief, Ocwen forfeited the point for purposes of its motion to dismiss. See Narducci v. Moore ,
B. Causation
As noted, Plaintiffs also must allege that Ocwen's unfair conduct "proximately cause[d]" their injury, meaning that " 'but for' [Ocwen's] unfair conduct, [they] would not have been damaged." Siegel ,
Plaintiffs adequately allege that Ocwen's conduct proximately caused their injuries. For one, the complaint alleges that Ocwen's representations that Plaintiffs would remain eligible for a HAMP modification only if their pre-TPP automatic debit remained in place caused them to make biweekly payments that exceeded what they should have paid under the TPP and the pre-TPP mortgage loan. See Siegel ,
Ocwen contends that Plaintiffs broke the chain of causation between its conduct and their injuries by allowing entry of a default judgment in the foreclosure suit and then filing for bankruptcy. Doc. 11 at 15. At best, Ocwen's argument addresses injuries arising after the default judgment entered in May 2017; the conduct resulting in that judgment and the subsequent bankruptcy could not have caused injuries that Plaintiffs already had suffered, including months of excess loan payments, runarounds, and delays that at least contributed to the initiation of foreclosure proceedings and Plaintiffs' ultimate entry into modified loan terms less favorable than those that would have been available from Ocwen. See Camasta v. Jos. A. Bank Clothiers, Inc. ,
That said, the court notes that Plaintiffs "cannot obtain relief without evidence of injury proximately caused" by Ocwen's conduct. Lexmark Int'l, Inc. v. Static Control Components, Inc. ,
Conclusion
Ocwen's motion to dismiss is granted as to the contract claim and denied as to the ICFA claim. Although the court doubts that repleading could save the contract claim, the dismissal of that claim is without prejudice. See Pension Trust Fund for Operating Eng'rs v. Kohl's Corp. ,