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Hermanson v. Ditech Financial LLC

United States District Court, E.D. Wisconsin

November 30, 2017




         Richard and Misty Hermanson sued Ditech Financial, LLC, in Outagamie County Circuit Court for refusing to cancel the private mortgage insurance they were required to maintain as a condition of their residential mortgage loan. Their original complaint asserted a statutory claim under Section 224.77 of the Wisconsin Statutes, which prohibits certain acts and practices of mortgage bankers, loan originators and brokers, and a common law claim for breach of contract. On July 19, 2017, Plaintiffs filed an amended complaint which added claims for unjust enrichment, conversion, and violations of the Homeowners Protection Act, 12 U.S.C. §§ 4901 et seq. Based on the new federal claim under the Homeowners Protection Act, Ditech removed the case to federal court asserting jurisdiction under 28 U.S.C. § 1331, and now moves for dismissal of the amended complaint for failure to state a claim. For the reasons that follow, Ditech's motion will be granted.


         In April 2007, the Hermansons bought their home with a loan from a mortgage company called Countrywide. Because the Hermansons borrowed more than 80% of the purchase price of their home, the loan agreement required payments for “private mortgage insurance.” Private mortgage insurance (“PMI”) insures “against the nonpayment of, or default on, an individual mortgage or loan involved in a residential mortgage transaction” and is not available under the National Housing Act or the Housing Act of 1949. 12 U.S.C. §§ 4901 (8), (13).

         By 2015, the ownership of the Hermansons' loan had been transferred several times and was then held by Ditech. Plaintiffs believed that by that time a combination of the payments they had made and the appreciation of the value of their property meant that they owed less than 80% of the current value of the property. If this was true, they thought they would no longer need to maintain private mortgage insurance as a condition of their loan. They therefore asked Ditech to appraise their property to determine if they could cancel their PMI. Ditech agreed to do so.

         Plaintiffs allege that there then existed a contract between them and Ditech whereby Ditech agreed to have their property appraised, and if the loan's principal amount was equal to or less than 80% of the appraised value of their property, Ditech would cancel the private mortgage insurance. The property was appraised by Ditech, and Ditech found that Plaintiffs still owed a balance greater than 80% of the appraised value of the property. Plaintiffs reviewed the appraisal and discovered that the appraiser had not included the entire property in his appraisal. The appraiser estimated the value of Plaintiffs' home and the land on which it was located. Plaintiff also owned an adjacent lot that was covered by the same mortgage, however, and the appraiser had not included the vacant lot in his appraisal. Plaintiffs were convinced that if the entire property was appraised, the required loan to value ratio would be met. Plaintiffs repeatedly asked Ditech to redo the appraisal, but Ditech refused. Plaintiffs thereupon commenced this action.

         Plaintiff claim that Ditech's failure to correct the appraisal it conducted and refusal to cancel the PMI constitutes a violation of Section 224.77 of the Wisconsin Statutes, and a breach of contract and the implied duty of good faith and fair dealing implied therein. Plaintiffs further assert that Ditech has been unjustly enriched by collecting PMI premiums it is not entitled to, that Ditech has violated the Homeowners Protection Act, and that it has converted Plaintiffs' premium payments to its own use.


         A motion to dismiss tests the sufficiency of the complaint to state a claim upon which relief can be granted and does not decide the merits of the case. Gibson v. City of Chi., 910 F.2d 1510, 1520 (7th Cir. 1990); see Fed. R. Civ. P. 12(b)(6). When reviewing a motion to dismiss under Rule 12(b)(6), the court must accept all well-pleaded factual allegations as true and draw all inferences in the light most favorable to the non-moving party. Guitierrez v. Peters, 111 F.3d 1364, 1368-69 (7th Cir. 1997); Mosley v. Klincar, 947 F.2d 1338, 1339 (7th Cir. 1991). Rule 8(a)(2) mandates that a complaint need only include “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). The plaintiff's short and plain statement must “give the defendant fair notice of what the claim is and the grounds upon which it rests.” Bell. Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). While a plaintiff is not required to plead detailed factual allegations, it must plead “more than labels and conclusions.” Id. A simple, “formulaic recitation of the elements of a cause of action will not do.” Id. A claim is plausible on its face when “the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009).


         A. HPA Claims

         Plaintiffs allege that they have stated two claims under the HPA: one under § 4902, which deals with the termination of private mortgage insurance, and one under § 4910(b), which provides that external agreements are not precluded by the HPA. However, Plaintiffs have failed to state a claim under § 4902, and § 4910(b) does not create a cause of action; therefore, Plaintiffs have failed to state a HPA claim.

         First, Plaintiffs allege that they have properly filed a request to terminate their private mortgage insurance under § 4902, which they allege Ditech has improperly refused. Section 4902 provides:

A requirement for private mortgage insurance in connection with a residential mortgage transaction shall be canceled on the cancellation date or any later date that the mortgagor fulfills all of the ...

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