Hoover v. Ocwen Loan Servicing LLC

          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, ...