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Rusty Krouse and Brenna Krouse v. Bac Home Loans Servicing

December 5, 2011


The opinion of the court was delivered by: Morrison C. England, Jr. United States District Judge


Plaintiffs Rusty Krouse and Brenna Krouse seek redress from Defendants BAC Home Loans Servicing, LP and Bank of America, N.A. ("Defendants" or "BoA") based on claims of breach of contract, breach of implied covenant of good faith and fair dealing, promissory estoppel, violations of the Rosenthal Fair Debt Collection Practices Act, violations of California's Unfair Competition Law, and violations of the Truth-In-Law Lending Act ("TILA") codified at 12 CFR Part 226 ("Regulation Z").*fn1

Presently before the Court is Defendants' Motion to Dismiss ("MTD") Plaintiffs' Second Amended Complaint for failure to state a claim upon which relief may be granted pursuant to Federal Rule of Civil Procedure 12(b)(6).*fn2


The Defendants in this matter are in the business of making and servicing home mortgage and deed of trust loans.*fn4 This action arises out of a residential loan transaction involving Plaintiffs' real property. On December 19, 2007, Plaintiffs procured a loan in the amount of $417,000, which was secured by a Promissory Note and a Deed of Trust recorded on December 26, 2007. (MTD at 2). It is undisputed, that at the closing of the loan transaction, Plaintiffs were provided with the Truth in Lending Act disclosures, explaining the terms of their loan. (MTD at 2.)

Furthermore, it is undisputed that On December 19, 2007, Plaintiffs received and signed two Notices of the Right to Cancel ("NRC"), which were intended, among other things, to set out the time reserved for Plaintiffs to rescind the loan agreement. (MTD at 3.)

In early 2009, Plaintiffs found it difficult to make their obligated deed of trust payments. As a result, in April 2009, Plaintiffs applied for a loan modification through the Home Affordable Modification Program ("HAMP"), serviced by Bank of America N.A. ("BoA").

HAMP is a key initiative of the Troubled Asset Relief Program ("TARP")-a government program supplying U.S. financial institutions with roughly $700 billion. The HAMP initiative offers incentive funds to financial institutions for providing mortgage loan modifications to eligible borrowers who are in financial distress. Defendants are one of many institutions that receive HAMP funds. Generally speaking, to qualify for a home loan modification under HAMP: (1) the borrower requests HAMP loan modification; (2) the servicer and borrower enter into Trial Period Plan agreement; and (3) based on the borrower's financial information and Net Present Value ("NPV"), servicer will either approve or deny borrower for the HAMP loan modification. If the NPV produces a "negative" result (meaning losses to the servicer from foreclosure are less than losses from modification), the servicer is not obligated to modify the loan. However, under the HAMP guidelines, if the NPV result is positive the servicer is obligated to provide a loan modification.

In July 2009, after reviewing Plaintiffs' financial information, BoA informed Plaintiffs via a telephone conversation that they had conditionally met the eligibility requirements to qualify for a permanent loan modification under HAMP. As the Plaintiffs allege, BoA also explained that if the Plaintiffs made three timely trial period plan ("TPP") payments of $2,345, then BoA would provide a permanent loan modification.

On August 23, 2009, Plaintiffs received a written, but unsigned, TPP. The TPP explained how Plaintiffs were required to make three timely TPP payments for the months of August, October, and November 2009.*fn5 Plaintiffs thereafter timely made the three TPP payments and continued to make the TPP payments after November 2009.

In December 2009, Plaintiffs contacted Defendants and were told they were "still under review" and must continue making payments. Plaintiffs then received a letter dated December 12, 2009, from BoA requesting their tax returns and the most recent profit and loss statement. Plaintiffs allege the tax returns and similar financial information had previously been submitted to Defendants prior to starting the TPP.

In early January 2010, Plaintiffs received a letter from BoA requesting tax returns, documentation stating Plaintiffs were not subject to homeowners' association dues, and documentation showing completion of credit counseling. Again, Plaintiffs claim these documents were already in BoA's custody, but they still produced the documents

During the latter part of January 2010, Plaintiffs received a letter from BoA claiming Plaintiffs had not made all necessary TPP payments. Plaintiffs thereafter requested and received a copy of their loan history from Defendants, which indicated that Plaintiffs made every payment since entering the TPP trial period.

The following month, Plaintiffs received another letter from BoA requesting their tax returns. In lieu of submitting their tax returns for a third time, Plaintiffs called to inquire as to the status of the loan modification, and the purpose of the document request, but did not receive a conclusive answer.

Between February and June 2010, Plaintiffs continued to make their TPP payments and communicated with BoA on seven separate occasions. By phone and in writing, BoA repeatedly assured Plaintiffs that they had satisfied the HAMP requirements and had been approved for the permanent loan modification and that the paperwork would be sent to them in the near future. They were instructed to continue making the TPP payments while awaiting the loan modification paperwork. However, the promised paperwork never arrived and, in a call in early June 2010, a BoA representative could not explain why the paperwork had not been sent out.

Then, on June 25, 2010, Plaintiffs received a letter from BoA informing them that they had not qualified for a HAMP modification due to a negative NPV result.*fn6 Just four days later, on June 29, Plaintiffs contacted BoA by telephone. Contradicting the letter that Plaintiffs had just received, the BoA representative "confirmed" Plaintiffs' loan modification had been approved in February of 2009.

Plaintiffs never received the final loan modification documents. Instead, BoA sent Plaintiffs' file to collection.*fn7

In all, Plaintiffs allege that they made the three initial TPP payments, as well as eight additional timely TPP payments. Subsequently, Plaintiffs began receiving harassing collection calls and letters.

As a result of these events, Plaintiffs claim to have suffered increased loan interest amounts, an extended loan payoff period, a higher principle balance, damage to their credit, and have been deterred from seeking other remedies to address their deed of trust default.


A. Motion to Dismiss

On a motion to dismiss for failure to state a claim under Rule 12(b)(6), all allegations of material fact must be accepted as true and construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Rule 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief" in order to "give the defendant fair notice of what the...claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1964 (2007) (internal citations and quotations omitted). Though "a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 1964-65 (internal citations and quotations omitted). A plaintiff's factual allegations must be enough to raise a right to relief above the speculative level. Id. at 1965 (citing 5 C. Wright &

A. Miller, Federal Practice and Procedure § 1216, pp. 235-36 (3d ed. 2004) ("The pleading must contain something more...than...a statement of facts that merely creates a suspicion [of] a legally cognizable right of action")).

Moreover, "Rule 8(a)(2)...requires a 'showing,' rather than a blanket assertion of entitlement to relief. Without some factual allegation in the complaint, it is hard to see how a claimant could satisfy the requirements of providing not only 'fair notice' of the nature of the claim, but also 'grounds' on which the claim rests." Twombly, at 1965, n.3 (internal citations omitted). A pleading must contain "only enough facts to state a claim to relief that is plausible on its face." Id. at 1960. If the "plaintiffs...have not nudged their claims across the line from conceivable to plausible, their complaint must be dismissed." Id.

A court granting a motion to dismiss a complaint must then decide whether to grant leave to amend. Rule 15(a) empowers the court to freely grant leave to amend when there is no "undue delay, bad faith[,] dilatory motive on the part of the movant,...undue prejudice to the opposing party by virtue of...the amendment, [or] futility of the amendment...." Foman v. Davis, 371 U.S. 178, 182 (1962). Leave to amend is generally denied when it is clear the deficiencies of the complaint cannot be cured by amendment. DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992); Balistieri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990) ("A complaint should not be dismissed under Rule 12(b)(6) unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.") (internal citations omitted).


A. Breach of Written ...

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