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Romesh Soin and Alma Soin v. Federal National Mortgage Association A/K/A Fannie Mae; Suntrust Mortgage


April 12, 2012




Plaintiffs Romesh Soin and Alma Soin filed a state action against defendants Federal National Mortgage Association ("Fannie Mae") and Suntrust Mortgage, Inc. ("Suntrust") bringing claims arising from allegedly wrongful conduct related to a loan modification application under the Home Affordable Modification Program ("HAMP"). Currently before the court is plaintiffs' motion for preliminary injunction. (Docket No. 16.)

I. Procedural and Factual Background According to plaintiffs, they are the owners of real property located at 9251 Bright Stars Court in Elk Grove, California ("Subject Property"). (Not. of Removal Ex. 1 ("Compl.") ¶ 1 (Docket No. 1).) On or about October 19, 2007, plaintiff obtained a loan from Suntrust in the amount of $250,000, which was secured by the Subject Property. (Id. ¶ 8, Ex. 1.) The Complaint states that, "at some unknown point after the close of escrow, the beneficial rights to the Subject Loan were purportedly transferred to FANNIE MAE." (Id. ¶ 9.)

After plaintiffs allegedly began to experience financial difficulties, they submitted a loan modification application to Suntrust. (Id. ¶ 10.) In December 2009, Suntrust issued plaintiffs a Home Affordable Modification Program ("HAMP") Loan Trial Period Plan ("TPP").*fn1 (Id. ¶ 11, Ex. 2.) Under the TPP, plaintiffs agreed to make four monthly payments of $1,088.28 instead of their usual monthly payments and to provide Suntrust with various documents and personal information. (Id. ¶ 12, Ex. 2 §§ 1, 2, 4.)

The TPP states that

If [plaintiffs] are in compliance with this Trial Period Plan . . . and [plaintiffs'] representations in Section 1 continue to be true in all material respects, then [Suntrust] will provide [plaintiffs] with a Home Affordable 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.

(Id. Ex. 2 at 1.) In section three, the TPP further cautions that it is not a modification of plaintiffs' loan documents and that modification is contingent upon plaintiffs' submission of all required documents and information and Suntrust's determination that plaintiffs qualify for a modification. (Id. Ex. 2 § 3.) The TPP also clearly states that if Suntrust does not provide plaintiffs with a fully executed copy of the TPP and a modification agreement, no permanent modification will occur. (Id. Ex. 2 § 2(G).)

Plaintiffs claim that they met their obligations pursuant to the TPP in that (1) they "were and remained unable to afford their mortgage for the reasons indicated on the hardship affidavit submitted during the modification application process," (2) they "continued to reside in the Subject Property as their principal residence," (3) they "provided documentation of all their income," (4) they "were not required to obtain credit counseling," (5) they "complied with Section 2 by making four monthly payments in the amount of $1,088.28," and (6) "there was no change in the ownership of the Subject Property." (Id. ¶ 13.) Nowhere do plaintiffs allege that Suntrust determined that they qualified for a loan modification, as required under section 3 of the TPP, or that they should have been determined to be qualified for a loan modification. (See id. Ex. 2, §3.)

According to plaintiffs, after making their fourth modified monthly payment in April 2010, they contacted Suntrust to learn the status of their application for a permanent modification. (Id. ¶ 14.) Suntrust allegedly told them that "the permanent modification paperwork would be forthcoming" and that, until then, they should continue making modified payments. (Id.) For the next eighteen months, plaintiffs claim that every month they made a modified payment and inquired about their permanent modification application. (Id. ¶ 15.) Plaintiffs further claim that each month, Suntrust again indicated that permanent modification paperwork was forthcoming and that they should continue making modified payments. (Id.)

On January 3, 2011, and again on January 6, 2011, according to the declaration of Fannie Mae loan negotiator Edward Hamway, Suntrust mailed letters to plaintiffs advising them that, due to missing updated documentation, Suntrust would not approve their loan modification. (Hamway Decl. ¶¶ 7, 8 (Docket No. 17-1).) According to Mr. Hamway, a similar letter was sent a third time in November 2011. (Id. ¶ 9.)

On November 7, 2011, Suntrust caused a notice of Default to be recorded against the Subject Property. (Compl. ¶ 16, Ex. 3.) Although plaintiffs attempted to make five additional modified monthly payments after receiving the Notice of Default, Suntrust returned these payments to them. (Id. ¶ 17; see also Am. Soin Decl. ¶¶ 32-36 (Docket No. 19).)*fn2 According to plaintiffs, when they contacted Suntrust, they were informed that Suntrust and Fannie Mae were not offering them a permanent modification and that they would need to reapply for a loan modification, which they immediately did. (Compl. ¶¶ 17, 18.) Plaintiffs allege that with respect to the second loan modification application, they submitted all supporting documentation and "immediately complied" with Suntrust's requests for additional documentation. (Id. ¶ 18.) Plaintiffs also submit the declaration of Mr. Soin that "[o]n December 28, 2011, [he] faxed all requested documents as per requested [sic] to SUNTRUST MORTGAGE." (Am. Soin Decl. ¶ 31.)

On February 8, 2012, plaintiffs discovered that Suntrust had caused a second Notice of Default to be recorded. (Compl. ¶ 19, Ex. 4.) Plaintiffs allege that this occurred before they were told whether their second application for a loan modification had been accepted or denied. (Id. ¶ 19.) After learning of the second Notice of Default, plaintiffs contacted Suntrust and were allegedly informed that their second application was being denied because they had failed to provide all requested documentation. (Id. ¶ 20.) Plaintiffs claim that this was a false statement. (Id. ¶¶ 18, 20.)

In their Complaint, plaintiffs assert causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200. (Docket No. 1.)

Defendant Suntrust removed the case to federal court on March 13, 2012. (Id.) Plaintiffs filed a motion for a temporary restraining order on March 20, 2012, alleging that the Subject Property faced foreclosure on March 21, 2012. (Docket No. 8.) The court granted plaintiffs' motion on March 21, 2012. (Docket No. 15.)

II. Discussion

"A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008). As the Supreme Court has repeatedly recognized, injunctive relief is "an extraordinary and drastic remedy, one that should not be granted unless the movant, by a clear showing, carries the burden of persuasion." Mazurek v. Armstrong, 520 U.S. 968, 972 (1997) (quoting 11A Wright, Miller & Kane, Federal Practice and Procedure § 2948, at 129-30 (2d ed. 1995)); see Winter, 555 U.S. at 22.

After Winter, the Ninth Circuit has held that a preliminary injunction may be appropriate where a plaintiff demonstrates "that serious questions going to the merits were raised and the balance of hardships tips sharply in the plaintiff's favor," provided that the plaintiffs also satisfy the other two Winter factors (public interest and irreparable harm). Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1134-35 (9th Cir. 2011).

A. Likelihood of Success on the Merits In their motion for a preliminary injunction,

plaintiffs discuss only the likelihood of success on their breach of contract claim, which is based on the argument that defendants breached the Home Affordable Modification Trial Period Plan ("TPP") offered to plaintiffs by not offering them a permanent loan modification. Accordingly, the court will not address plaintiffs' remaining two claims.

To recover on a claim for breach of contract, a plaintiff must first show the existence of a valid contract. First Commercial Mortg. Co. v. Reece, 89 Cal. App. 4th 731, 745 (2d Dist. 2001). Here, plaintiffs attempt to characterize the TPP as a contract entered into by the parties that defendants then breached. Under the TPP, plaintiffs agreed to pay four months of trial period payments while defendants determined whether plaintiffs qualified for a permanent modification of their loan. (Compl. Ex. 2.) The TPP, however, clearly states that it is not a modification of plaintiffs' loan documents and that modification is contingent upon a determination that plaintiffs qualify for a modification. (Id. Ex. 2 at Sec. 3.) It also clearly states that if Suntrust does not determine that plaintiffs are qualified and does not provide plaintiffs with a fully executed copy of the TPP and a modification agreement, no permanent modification will occur. (Id. Ex. 2 at Sec. 2(G).) While plaintiffs claim that they made trial payments and provided requested documentation to defendants under the TPP, they do not allege that Suntrust ever determined that they were qualified to receive a permanent modification or that they ever received a fully executed copy of the TPP or modification agreement.

Many district courts have held that TPPs such as the one at issue here do not constitute binding contracts to permanently modify loans. See, e.g., Lucia v. Wells Fargo Bank, N.A., 798 F. Supp. 2d 1059, 1069 (N.D. Cal. 2011) (dismissing with prejudice claims for breach of contract where plaintiffs alleged defendant had breached TPP by failing to offer permanent HAMP modifications at the close of the trial period); Grill v. BAC Home Loans Servicing LP, No. Civ. 2:10-03057 FCD, 2011 WL 127891, at *3-4 (E.D. Cal. Jan. 14, 2011) (Damrell, J.) (holding that plaintiffs had not stated a breach of contract claim based on a TPP because "no binding contract ha[d] been alleged"); Nadan v. Homesales, Inc., No. Civ. 1:11--1181 LJO, 2011 WL 3584213, at *6-7 (E.D. Cal. Aug. 12, 2011) (O'Neill, J.) (dismissing breach of contract claims based on TPP with prejudice); Vida v. OneWest Bank F.S.B., Civ. No. 10-987-AC, 2010 WL 5148473, at *6 (D. Or. Dec. 13, 2010) ("The Trial Period Plan is explicitly not an enforceable offer for loan modification."). The same conclusion was recently reached by a California Court of Appeal, which held that "[a]s a matter of law, there was no contract" where the defendant had offered the plaintiffs a TPP, but never had prepared or executed a permanent modification agreement. Nungaray v. Litton Loan Servicing, LP, 200 Cal. App. 4th 1499, 1504 (2d Dist. 2011).

Notably, two other judges of this court have held that TPPs are not binding contracts for permanent loan modifications. In Nadan, Judge O'Neill held that a TPP was not a valid contract both because it lacked consideration and because the TPP was an "unenforceable 'agreement to agree'" given that material terms of the purported permanent modification were not specified. Nadan, 2011 WL 3584213, at *6. In Grill, Judge Damrell relied on language in the TPP stating that modification was contingent upon a determination that the plaintiff met applicable requirements and receipt and execution of a permanent loan modification agreement to hold that no contract had been alleged where the plaintiffs, like plaintiffs here, did not allege that those events had occurred. Grill, 2011 WL 127891, at *4.

In an attempt to challenge this Eastern District of California precedent, plaintiffs have cited only three cases in which trial courts outside this district held that a plaintiff could state a claim for breach of contract based on a TPP or other trial period agreement. None, however, are persuasive. First, in Ansanelli v. JP Morgan Chase Bank, N.A., No. C 10-3892, 2011 WL 1134451 (N.D. Cal. Mar. 28, 2011), the court considered not whether a TPP such as the one involved here was a valid contract, but whether an oral agreement regarding a trial period was a valid modification of the plaintiffs' loan agreement. Id. at *3-5.

Second, Turbeville v. JP Morgan Chase Bank, No. SA CV 10-1464, 2011 WL 7163111 (C.D. Cal. Apr. 4, 2011), was a purported class action lawsuit in which the court held that the plaintiffs' submission of documentation supplied the necessary consideration to form a valid contract. However, as pointed out in Senter v. JP Morgan Chase Bank, N.A., 810 F. Supp. 2d 1339 (S.D. Fla. 2011), the court in Turbeville failed to consider language in section three of the TPP cautioning that plaintiffs would not be given a permanent modification until the lender determined that they qualified and sent them a permanent modification agreement for signature and, in relying on the submission of financial information to show consideration, failed to "distinguish between conditions for application and consideration for an agreement." Id. at 1349, 1356. The latter point is a distinction recognized by Judge Damrell in Grill. Grill, 2011 WL 127891, at *4 (language in the TPP "makes clear that providing the requested documents was simply a part of the application process, which plaintiff was willing to complete in the hope that [the lender] would modify his loan").

Third, plaintiffs cite In re Ossman, Case No. 1:11-bk-16788-MT, 2012 Bankr. LEXIS 326 (C.D. Cal. Jan. 31, 2012), which they did not bring to the attention of the court until immediately before the hearing on this motion was scheduled. The bankruptcy court In re Ossman, however, relied heavily on Turbeville and Ansanelli. The three cases from outside this district cited by plaintiffs do not convince the court to deviate from the holdings in Grill and Nadan and create contradictory precedent within the district.

Although neither party cited to it in their briefing, a Seventh Circuit case, decided less than a month before briefing was completed, also addresses the question whether TPPs are valid contracts that a lender violates if they fail to offer a permanent modification at the close of the four-month trial period. Wigod v. Wells Fargo Bank, N.A., --- F.3d ----, No. 11--1423, 2012 WL 727646 (7th Cir. Mar. 7, 2012). In Wigod, the plaintiff received a TPP that, like plaintiffs', provided 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 . . . the Lender provides me with a copy of this Plan with the Lender's signature." Id. at * 7. The TPP also warned the plaintiff that before she would be given a permanent modification, Wells Fargo had to determine that she qualified under HAMP guidelines. Id. Wells Fargo then returned an executed copy of the TPP and sent plaintiff a letter confirming that she was qualified for a modification. Id.

Applying Illinois law, the Seventh Circuit held that, in light of the language in the TPP conditioning permanent modification upon a determination that the plaintiff qualified and receipt of a "fully executed copy of the Modification Agreement," the TPP became a "unilateral offer to modify Wigod's loan conditioned on her compliance with the stated terms of the bargain" once Wells Fargo determined that she was qualified for a modification and returned to her a countersigned copy of the TPP. Id. at *7-8. The court therefore held that a valid offer existed to support the plaintiff's breach of contract claim. Id.

Here, unlike in Wigod, plaintiffs have submitted a copy of the TPP signed by them only. It does not appear that Suntrust returned an executed copy of the TPP or determined that plaintiffs were qualified to receive a permanent modification. Under the logic of Wigod, therefore, it does not appear that there was ever a "unilateral offer to modify [plaintiffs'] loan." Id. at *7. Instead, plaintiffs were invited to apply for a loan modification and cautioned that, in order to be considered, they would have to take certain steps. As suggested by Wigod, without an offer for a permanent modification, there was no contract for a permanent modification for defendants to breach.

Plaintiffs have failed as a matter of law to allege facts sufficient to establish that they entered into a contract to permanently modify the terms of their loan. Therefore, they have not shown a likelihood of success on the merits of their breach of contract claim.

B. Irreparable Harm

If the injunction is not granted, plaintiffs face the risk that the Subject Property, which they represent is their primary residence, will be sold. The loss of property is often considered an irreparable loss because of the unique nature of real property. Alcaraz v. Wachovia Mortg. FSB, 592 F. Supp. 2d 1296, 1301-02 (E.D. Cal. 2009) (noting that the loss of a home is a "serious loss," but denying motion for preliminary injunctive relief); Avila v. Stearns Lending, Inc., No. Civ. 08-0419-AG(CTx), 2008 WL 1378231, at *3 (C.D. Cal. Apr. 7, 2008). Accordingly, plaintiffs have demonstrated the risk of irreparable loss.

C. Balance of Equities "A preliminary injunction is an extraordinary remedy never awarded as of right." Winter, 129 S. Ct. at 376. "In each case, a court must balance the competing claims of injury and must consider the effect on each party of the granting or withholding of the requested relief." Amoco Prod. Co. v. Vill. of Gambell, Alaska, 480 U.S. 531, 542 (1987).

Defendants contend that, if an injunction is granted, they stand to suffer financial hardship because they will incur damages in the form of lost rental value, lost earned interest, and lost profits due to the property's depreciation in the interim. As a practical matter, defendants will never be able to recover for that loss. Defendants have not, though, demonstrated that an injunction would damage the Subject Property or otherwise threaten any security interest in the property. This is less of a burden than plaintiffs stand to suffer if they lose their home through a foreclosure sale.

Although plaintiffs emphasize the hardship they will bear if they lose their home, there are other factors the court must take into account. It is a well-established maxim that "he who seeks equity must do equity." Mfr.'s Fin. Co. v. McKey, 294 U.S. 442, 449 (1935). Plaintiffs currently owe over $70,000 on their mortgage and for over two years they have been making only modified payments on their loan. The only bond that they offer to post is one in the form of monthly payments in the amount of $1,088.28, the same amount as the monthly trial payments required under the TPP, which defendant represents is more than one-third less than their regular monthly payments. (Opp'n to Mot. for Prelim. Inj. at 21:8-9 (Docket No. 17).)

In such a situation, it is not clear that the balance of equities tips in plaintiffs' favor. Rather, it seems likely that granting plaintiffs' request for a preliminary injunction would allow them to delay, prolonging the period of time that they have been able to retain the property at issue without paying the full obligations due under the loan and preventing defendants from exercising their rights to foreclose on the property. See Alcaraz, 592 F. Supp. 2d at 1305-06.

D. Public Interest "In exercising their sound discretion, courts of equity

should pay particular regard for the public consequences in employing the extraordinary remedy of injunction." Weinberger v. Romero-Barcelo, 456 U.S. 305, 312 (1982). "The public interest analysis for the issuance of a preliminary injunction requires [the court] to consider 'whether there exists some critical public interest that would be injured by the grant of preliminary relief.'" Indep. Living Ctr. of So. Cal., Inc. v. Maxwell-Jolly, 572 F.3d 644, 659 (9th Cir. 2009) (quoting Hybritech Inc. v. Abbott Lab., 849 F.2d 1446, 1458 (Fed. Cir. 1988)), vacated on other grounds, 132 S. Ct. 1204 (2012).

Neither party has addressed this factor in any detail. However, the court cannot see that delaying the foreclosure sale of plaintiffs' property would injure a critical public interest. Accordingly, this factor weighs slightly in plaintiffs' favor. See Stormans, Inc. v. Selecky, 586 F.3d 1109, 1138-39 (9th Cir. 2009) ("When the reach of an injunction is narrow, limited only to the parties, and has no impact on non-parties, the public interest will be 'at most a neutral factor in the analysis rather than one that favor[s] [granting or] denying the preliminary injunction.'" (quoting Bernhardt v. L.A. Cnty., 339 F.3d 920, 931 (9th Cir. 2003)) (alterations in original)).

Balancing the relevant factors, especially given plaintiffs' failure to show any probability of success on the merits of their claim, the court finds that plaintiffs are not entitled to a preliminary injunction.

IT IS THEREFORE ORDERED that plaintiffs' motion for a preliminary injunction be, and the same hereby is, DENIED.

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