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Hurley v. Ditech Financial LLC

United States District Court, E.D. Wisconsin

August 3, 2017



          HON. PAMELA PEPPER United States District Judge.


         Plaintiffs Michael and Carol Hurley have filed an amended complaint against defendant Ditech Financial LLC, alleging violation of loss mitigation regulations, equitable estoppel, interference with contract, and violation of Wis.Stat. §224.77. Dkt. No. 14. The defendant filed a motion to dismiss for failure to state a claim. Dkt. No. 15. For the reasons explained below, the court grants the motion to dismiss.


         On March 4, 2014, the defendant obtained a default foreclosure judgment against the plaintiffs. Dkt. No. 14 at ¶4; Dkt. No. 17 at 1. The sheriff's sale occurred nine months later. Dkt. No. 16 at 2; Dkt. No. 16-1. On September 15, 2015-nine months after the sheriff's sale-the plaintiffs asked the defendant for a loan modification. Dkt. No. 14 at ¶7. The defendant denied the request the next day, and filed a motion to confirm the sheriff's sale. Id. at ¶8. The plaintiffs objected to that motion. Id. at ¶10.

         Two months after the plaintiffs first asked for the loan modification, the defendant inquired whether the plaintiffs were still interested in the modification. Id. at ¶12. The plaintiffs responded affirmatively, and asked for the appropriate paperwork. Id. at ¶13. They submitted the paperwork the next day. Id. at ¶14. On January 18, 2016 (about two months later), the defendant requested new copies of the plaintiffs' bank statements, indicating that the copies the plaintiffs previously had provided were not legible. Id. at ¶17. The plaintiffs provided the new bank statements by January 21, 2016. Id. at 18. In a letter dated February 15, 2016, the defendant denied the loan modification request. Id. at ¶23; see Dkt. No. 1-1. The letter stated that the plaintiffs had been evaluated for several different loan modification options. Dkt. No. 1-1 at 2. The letter went on to give specific reasons why the plaintiffs were denied- mostly due to their failure to meet certain eligibility criteria. Id.

         Throughout this chain of events, the defendant repeatedly rescheduled the hearing on its motion to confirm sale. Dkt. No. 14 at ¶¶11, 15, 21, 22. The plaintiffs filed this suit on November 18, 2016. Dkt. No. 1. The Wisconsin court confirmed the sale on November 28, 2016. Dkt. No. 17 at 2.


         The first cause of action alleges that the defendant acted contrary to 26 U.S.C. §2605(f) and 12 C.F.R. §1204.41-a federal statute and a federal regulation. Dkt. No. 14 at 5. This court has jurisdiction over that cause of action under 28 U.S.C. §1331. The amended complaint asks the court to exercise supplemental jurisdiction over the state law causes of action under 28 U.S.C. §1367. Dkt. No. 14 at 1. If the plaintiffs' federal question claim survives, §1367 would give the court jurisdiction over the state law claims, should the court choose to exercise it.

         IV. ANALYSIS

         In order to survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), “a pleading must contain a ‘short and plain statement of the claim showing that the pleader is entitled to relief.'” Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009)(quoting Fed.R.Civ.P. 8(a)(2)). Under this standard, “a plaintiff still must provide only ‘enough detail to give the defendant fair notice of what the claim is and the grounds upon which it rests, and, through his allegations, show that it is plausible, rather than merely speculative, that he is entitled to relief.” Tamayo v. Blagojevich, 526 F.3d 1074, 1083 (7th Cir. 2008)(citations omitted). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678, (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

         V. DISCUSSION

         In their first cause of action, the plaintiffs allege “violation of loss mitigation regulations.” Dkt. No. 14 at 3. They allege that the defendant did not exercise due diligence in collecting the documents needed for the plaintiffs' modification application, and that it misapplied the “FNMA HAMP” program guidelines. Id. at 3-4. (While the plaintiffs do not decode this alphabet soup, the court assumes that they refer to the Federal National Mortgage Association, also known as “Fannie Mae, ” and its Home Affordable Modification Program, known as “HAMP.”) They allege that the defendant's actions (or inaction) violated 26 U.S.C. §2605(f) and 12 C.F.R. §1024.41. Dkt. No. 14 at ¶25.

         The second cause of action alleges equitable estoppel, asserting that the plaintiffs relied on the defendant's representation that it would review their modification application in a timely manner. Id. at ¶¶36-38. The third cause of action alleges that the defendant interfered with their contract with Fannie Mae/FNMA. Id. at ¶¶40-45. Finally, the plaintiffs allege that the defendant violated the mortgage banker regulations of Wis.Stat. §224.77. Id. ...

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