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Costigan v. CitiMortgage

August 2, 2011


The opinion of the court was delivered by: Shira A. Scheindlin, U.S.D.J.



Brian Costigan brings this putative class action against CitiMortgage, Inc., ("Citi), seeking declaratory relief, injunctive relief, damages, and attorneys' fees, alleging (1) breach of contract; (2) promissory estoppel; (3) breach of the covenant of good faith and fair dealing; (4) fraud; (5) constructive fraud; (6) negligence; (7) violation of the New York Deceptive Practices Act; (8) violation of the New Jersey Consumer Fraud Act; and (9) violation of the Fair Debt Collection Practices Act. Defendant now moves to dismiss all claims pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim.*fn1 For the reasons discussed herein, defendant's motion is granted.


A. Home Affordable Mortgage Program

In response to the financial crisis, Congress in 2008 enacted the Emergency Economic Stabilization Act of 2008, which in turn authorized the Secretary of the Treasury to establish the Troubled Asset Relief Program ("TARP").*fn3 TARP directed the Secretary of the Treasury to "implement a plan that seeks to maximize assistance for homeowners" and allowed the Secretary to "use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures."*fn4 Under this authority, the Department of the Treasury announced the "Making Home Affordable Program" in February 2009, which included the "Home Affordable Mortgage Program" ("HAMP"). HAMP was aimed at helping homeowners who were in or were at immediate risk of being in default on their home loans by reducing monthly payments to sustainable levels.

Under HAMP, Citi entered into a Service Participation Agreement ("SPA") with Fannie Mae in July 2009, acting as an agent of the U.S. Department of the Treasury.*fn5 The SPA states that it "shall inure to the benefit of and be binding upon the parties to the Agreement and their permitted successors in interest."*fn6 In entering into the SPA, Citi agreed to "perform the loan modification and other foreclosure prevention services"*fn7 for "all mortgage loans it services, whether it services such mortgage loans for its own account or for the account of another party."*fn8

B. Loan Modification

To obtain a home loan modification under HAMP, the borrower applying for modification initially provides the lender with required documentation. The lender reduces the monthly mortgage payment to thirty-one percent of the homeowner's gross monthly income. The homeowner participates in a three-month Trial Period Plan ("TPP"), based on the new mortgage payment. In executing the TPP agreement, which is labeled "Step One of a Two-Step Documentation Process," the borrower represents that I am unable to afford my mortgage payments for the reasons indicated in my Hardship Affidavit*fn9 and as a result (i) I am either in default or believe that I will be in default under the Loan Documents in the near future, and (ii) I do not have the sufficient income or access to sufficient liquid assets to make the monthly mortgage payments now or in the near future.*fn10

If the borrower does not provide all the required documentation required by the lender, or if the lender does not provide the borrower with an executed copy of a modification agreement, "the Loan Documents will not be modified . . . and the lender will have all of the rights and remedies provided in the Loan Documents," including instituting foreclosure proceedings.*fn11 The lender "will not be obligated or bound to make any modification of the Loan Documents if the lender determines that [the borrower does] not qualify."*fn12 Payments made under the TPP do "not constitute a cure of [the borrower's] default under the Loan Documents unless such payments are sufficient to completely cure [the borrower's] entire default."*fn13 Borrower agreed that "all terms and provisions of the Loan Documents remain in full force and effect; nothing in [the TPP] shall be understood or construed to be a satisfaction or release in whole or in part of the obligations contained in the Loan Documents."*fn14 Following successful completion of the TPP, including final approval by the lender, the lender will permanently modify eligible mortgages.

C. Costigan

In October 2005, Costigan received a loan from ABN Amro Mortgage Group, Inc., secured by a mortgage on his home, which is located at 453 Boesel Avenue, Manville, New Jersey.*fn15 In April 2009, Costigan contacted Citi, the servicer of the loan, seeking to obtain a loan modification. At that time, Costigan was suffering economic difficulties, but had never missed a mortgage payment.*fn16

Costigan entered into a TPP with Citi effective November 1, 2009.*fn17

Under the TPP, Costigan was to make three monthly payments of $1,409.75 each, due on November 1, 2009, December 2, 2009, and January 1, 2010.*fn18 Costigan made all three payments on time.*fn19 Costigan also regularly contacted Citi, who assured him that "everything was progressing smoothly and that Mr. Costigan would obtain a permanent modification at the end of the trial period."*fn20

When Costigan contacted Citi in January 2010, after submitting his third payment under the TPP, Citi told Costigan that his modification was still being reviewed and that he should make another trial payment.*fn21 Upon contacting Citi again in February 2010, Costigan was told that his HAMP modification application had been rejected in December 2009.*fn22 Citi also informed Costigan that "there was a large amount of unapplied funds in his account equaling [the TPP payments]."*fn23

Citi subsequently informed Costigan that he should apply for Citi's internal loan modification program, and that Costigan should resume making full payments in accordance with the terms of the original loan documents. By March 2010, Costigan resumed making full payments.*fn24 Costigan also applied for Citi's internal loan modification program. Although Costigan contacted Citi regularly to inquire about the status of the application, Citi did not respond to his request for information.*fn25

Ultimately, Costigan was unable to afford his full monthly payments and filed for Chapter 7 bankruptcy. On August 4, 2010, after discharge of the bankruptcy, Citi filed a foreclosure complaint against Costigan.*fn26


A. Rule 12(b)(6) Motion to Dismiss

In deciding a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the court evaluates the sufficiency of the complaint under the "two-pronged approach" promulgated by the Supreme Court in Ashcroft v. Iqbal.*fn27

First, a court "'can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth.'"*fn28

"Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice" to withstand a motion to dismiss.*fn29 Second, "[w]hen there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief."*fn30 To survive a Rule 12(b)(6) motion to dismiss, the allegations in the complaint must meet a standard of "plausibility."*fn31 A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."*fn32

Plausibility "is not akin to a probability requirement;" rather, plausibility requires "more than a sheer possibility that a defendant has acted unlawfully."*fn33

B. Federal Rule of Civil Procedure 9(b)

Rule 9(b) provides that "the circumstances constituting fraud . . . shall be stated with particularity." To satisfy the particularity requirement, "the complaint must: "(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent."*fn34 "While traditionally associated with claims of securities fraud, Rule 9(b) has been applied to claims of consumer fraud as well as claims relating to consumer protection statutes."*fn35

Although "[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally,"*fn36 this rule should not be "mistaken for license to base claims of fraud ...

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