United States District Court, D. Arizona
ORDER
Honorable Roslyn O. Silver, Senior United States District
Judge.
Plaintiffs
William Todd Hoover and Leonida Martinez Hoover,
(collectively, “the Hoovers”), brought this
action against Defendant Ocwen Loan Servicing, LLC
(“Ocwen”) for breach of contract, breach of the
covenant of good faith and fair dealing, declaratory
judgment, fraud, and misrepresentation. (Doc. 1.) The Hoovers
allege Ocwen and its predecessor in interest breached a loan
modification agreement between the parties. The Hoovers also
allege that Ocwen and its predecessor made intentional or
negligent misrepresentations in the loan modification
agreement and subsequent documents. Ocwen moved for summary
judgment on all claims. For the following reasons,
Ocwen's motion for summary judgment, (Doc. 23), is
granted.
BACKGROUND
In
April 2006, Plaintiffs William Todd Hoover (“Mr.
Hoover”) and Leonida Martinez Hoover (“Mrs.
Hoover”), husband and wife, purchased real property
located at 2204 West Blaylock Drive in Phoenix, Arizona (the
“Property”).[1] (Doc. 24 at 5-6.) The Hoovers obtained
a loan for $420, 000.00 from GreenPoint Mortgage Funding,
Inc. (“GreenPoint”), secured by a deed of trust
encumbering the Property. (Docs. 23-1 at 8; 24 at 9.)
GreenPoint subsequently assigned the beneficial interest in
the deed of trust to GMAC Mortgage, LLC (“GMAC”),
the predecessor of Defendant Ocwen. (Doc. 24 at 36.)
According
to the promissory note, executed on October 2, 2006, the
Hoovers were to make initial monthly payments in the amount
of $1, 350, 89, which was subject to change. (Doc. 23-1 at
9.) The promissory note provides: “My monthly payment
could be less than the amount of the interest portion of the
monthly payment that would be sufficient to repay the unpaid
principal I owed at the monthly payment date in full . . . .
If so, each month that my monthly payment is less than the
interest portion, the Note Holder will subtract the amount of
my monthly payment from the amount of the interest portion
and will add the difference to my unpaid principal. The Note
Holder also will add interest on the amount of this
difference to my unpaid principal each month.” (Doc.
23-1 at 9.) Under the terms of the promissory note, the
amount of the Hoovers' initial monthly payments was less
than the amount of the interest portion of the monthly
payments, and fully amortizing payments were not to begin
until December 1, 2011. (Docs. 23-1 at 9; 26 at 7.)
Beginning
with the first payment due, the principal balance of the loan
increased monthly. (Doc. 23-1 at 41-42.) However, the Hoovers
apparently did not know the principal was increasing. Mr.
Hoover testified that despite the terms of the promissory
note, he and his wife were “unaware [they] had a
negative [adjustable rate mortgage], ” and incorrectly
believed they were making payments sufficient to reduce the
principal balance. (Doc. 26-1 at 7.) By April 2009, the
Hoovers had become aware they had a “negative ARM
loan” and submitted a loan modification request. (Doc.
23-1 at 52.) In a statement explaining hardship, Mr. Hoover
wrote: “We owe $500, 000. Our mortgage payment is what
they call a negative ARM loan. We have only been able to make
the minimum payment because of the loss of income. Every
month we pay the minimum they increase the amount we owe on
the home.” (Doc. 23-1 at 55.) The parties agree that in
April 2009, the principal balance was $451, 003.13. (Docs.
23-1 at 57; 26 at 3.)
On
December 17, 2009, after the Hoovers participated in a trial
plan for loan modification, GMAC sent a letter to the Hoovers
offering a “Home Affordable Modification
Agreement.” (Doc. 23-1 at 63.) The letter stated:
“To further reduce your mortgage payment, we will defer
collection of and not collect interest on $117, 275.34 of
your outstanding principal. You will not be required to make
monthly payments on that portion. This portion of principal
will be due when you pay off the modified loan, which will be
when you sell or transfer an interest in your house,
refinance the loan, or when the last scheduled payment is
due.” (Doc. 23-1 at 64.) The letter further stated:
“[W]e will forgive a portion of your outstanding
principal equal to $0.00.” (Doc. 23-1 at 64.) The
“new principal balance” would include
“[a]ny past due amounts as of the end of the trial
period, including unpaid interest, real estate taxes,
insurance premiums, and certain assessments paid on your
behalf to a third party.” (Doc. 23-1 at 64.) Enclosed
with the letter was a loan modification agreement
(“Modification Agreement”), which the Hoovers
were to sign and return in order to accept the offer.
Approximately
a week later, the Hoovers executed the Modification
Agreement. (Doc. 23-1 at 66.) The Modification Agreement sets
forth three figures that are central to the parties'
dispute: (1) the new principal balance, [2] (2) the deferred
principal balance, and the (3) interest-bearing principal
balance, as of January 2010. Pursuant to the Modification
Agreement, the new principal balance is the sum of the
deferred principal balance and the interest-bearing principal
balance. (Doc. 23-1 at 67.) The amount of the deferred
principal balance is undisputed: “$117, 275.34 of the
New Principal Balance shall be deferred (the Deferred
Principal Balance) and [the Hoovers] will not pay interest or
make monthly payments on this amount.” (Doc. 23-1 at
67.) The Hoovers still owed this money, but they did not have
to pay interest on it and did not have to pay it off until
they had paid off the rest of the balance.
The
parties dispute the amounts of the interest-bearing principal
balance and the new principal balance. The Modification
Agreement contains provisions that are apparently
inconsistent. Section 3(B) states the “New Principal
Balance” was $342, 287.62 in January 2010, more than
$100, 000 less than the principal balance in April 2009.
(Doc. 23-1 at 67.) Ocwen claims this is a typographical
error: the new principal balance should have been $459,
562.96, which reflects the sum of the old unpaid principal
balance prior to the modification, interest, and escrow.
(Doc. 23-1 at 4.) According to Ocwen, the stated new
principal balance of $342, 287.62 was actually the
interest-bearing principal balance at the time, not the total
principal balance. (Doc. 23-1 at 73.) Indeed, Section 3(D)
provides an identical number as the interest-bearing portion
of the principal balance: “The New Principal Balance
less the Deferred Principal Balance shall be referred to as
the ‘Interest Bearing Principal Balance' and this
amount is $342, 287.62.” (Doc. 23-1 at 67.) If Ocwen is
correct that the numbers in Section 3(D) are accurate, then
adding $342, 287.62 (the interest-bearing principal balance)
to $117, 275.34 (the deferred principal balance) makes a
total of $459, 562.96-the amount that Ocwen claims was the
true new principal balance. (Doc. 23-1 at 73.)
The
Hoovers have a different understanding of the Modification
Agreement. They believe that under the Modification
Agreement, the “principal balance [was] $342, 287.62
and they were supposed to subtract the $117, 275.34 from the
amount for the deferred principal balance.” (Doc. 26-1
at 7.) Under the Hoovers' interpretation, the
Modification Agreement “specifically reduced the
principal balance” to $342, 287.62 and there is no
typographical error in Section 3(B). (Doc. 25 at 12.) Rather,
the error is in Section 3(D). According to the Hoovers, the
interest-bearing principal balance consequently should have
been $225, 012.28-reflecting $342, 287.62 (the new principal
balance) subtracted by $117, 275.34 (the deferred principal
balance)-rather than the $342, 287.62 number in Section 3(D).
(Doc. 26 at 4.) The parties were apparently unaware of their
differing interpretations of the Modification Agreement and
the Hoovers proceeded to make monthly payments on the loan in
accordance with GMAC's calculations.
In
March 2010, about three months after executing the
Modification Agreement, the Hoovers commenced a Chapter 7
bankruptcy proceeding in the United States Bankruptcy Court
for the District of Arizona. (Doc. 33.) In connection with
the bankruptcy proceeding, both parties made representations
about the principal balance of the loan that were
inconsistent with their own interpretation but consistent
with that of their opponent. In a motion for relief from
automatic stay, GMAC stated that as of January 1, 2010,
“the principal balance due and owing under the Note is
in the approximate amount of $342, 287.62.” (Doc. 26-1
at 26.) GMAC qualified its statement with the following:
“This is an approximate amount for purposes of this
Motion only, and should not be relied upon as such to pay off
the subject loan as interest and additional advances may come
due[.]” (Doc. 26-1 at 26.) The Hoovers, on the other
hand, submitted schedules representing they owed $459.000.00
to GMAC for the home loan. (Doc. 33 at 31.) According to the
Hoovers, they believed that at the time of the bankruptcy,
they owed $342, 287.62-minus any payments they had made since
executing the Modification Agreement-but they were not aware
of how their attorney had “[come] up with the amounts
listed.” (Doc. 26 at 9.)
From
June 2011 until February 2013, GMAC sent the Hoovers monthly
mortgage statements. (Doc. 23-1 at 80-100.) The June 2011
statement advised the principal balance was $451, 026.86, and
each subsequent monthly statement showed a decrease in the
principal balance as the Hoovers were steadily paying off a
portion of the principal. (Doc. 23-1 at 80-100.) The February
2013 statement set forth the principal balance as $440,
687.38. (Doc. 23-1 at 100.) On February 6, 2013, GMAC and
Ocwen jointly sent a letter to the Hoovers, notifying them
that Ocwen was taking over in collecting the monthly payments
and the most recent principal balance was $323, 412.04-Ocwen
asserts this number reflected the interest-bearing principal
balance, which the Hoovers dispute. (Docs. 23-1 at 5, 102; 26
at 6.) Following the transfer of servicing, Ocwen sent the
Hoovers monthly statements from March 2013 until November
2013. (Doc. 23-1 at 105-113.) During that time, the stated
principal balance on the mortgage statements continued to
steadily decrease, from $440, 189.87 in March 2013 to $435,
684.01 in November 2013. (Doc. 23-1 at 105-113.) While the
Hoovers admit each monthly statement stated a principal
balance over $430, 000.00, Mr. Hoover testified that he and
his wife never opened the mortgage statements because they
made payments by phone. (Doc. 26-1 at 9.) As such, the
Hoovers maintained their belief that they owed significantly
less than the amount in the statements. (Doc. 26-1 at 9.)
On
February 9, 2016, the Hoovers requested a payoff quote for
the loan. (Docs. 23-1 at 5; 26 at 6.) Ocwen provided a payoff
quote and stated the total amount due was $422, 574.26. (Doc.
23-1 at 116.) According to Mr. Hoover, this was the first
time the Hoovers realized “there was a potential
problem between what [they] believed the mortgage to be and
what the bank believed the mortgage balance to be.”
(Doc. 26-1 at 9.) When the Hoovers inquired about the
difference, Ocwen sent them a letter explaining the
Modification Agreement contains a typographical error that
mistakenly states “the New Principal Balance as the
interest-bearing amount.” (Doc. 26-1 at 35.) The letter
further advised: “3(B) is revised to state the New
Principal Balance amount of $459, 562.96.” (Doc. 26-1
at 35.)
The
Hoovers sued on March 28, 2018, alleging claims for breach of
contract, breach of the covenant of good faith and fair
dealing, declaratory judgment, fraud, and misrepresentation.
(Doc. 1-3 at 7-11.) On December 7, ...