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Lawrence Crilley and Marcy v. Bank of America

April 26, 2012


The opinion of the court was delivered by: Leslie E. Kobayashi United States District Judge


On February 15, 2012, Defendant Bank of America, N.A., on its own behalf and as successor-by-merger to BAC Home Loans Servicing, LP ("Defendant")*fn1 filed the instant Motion to Dismiss Complaint Filed on January 5, 2012 ("Motion"). Plaintiffs Lawrence Crilley and Marcy Koltun-Crilley ("Plaintiffs") filed their memorandum in opposition on March 23, 2012, and Defendant filed its reply on March 30, 2012. This matter came on for hearing on April 16, 2012. Appearing on behalf of Defendant was Patricia McHenry, Esq., and appearing on behalf of Plaintiffs was James Fosbinder, Esq. After careful consideration of the Motion, supporting and opposing memoranda, and the arguments of counsel, Defendant's Motion is HEREBY GRANTED IN PART AND DENIED IN PART. The Motion is GRANTED insofar as Plaintiffs' request for an order enjoining the foreclosure sale of the property is DISMISSED WITHOUT PREJUDICE, and the Motion is DENIED in all other respects.


Plaintiffs filed the instant action on January 5, 2012 in state court. Defendant removed the action on diversity jurisdiction.

According to the Complaint, in February 2003, Plaintiffs obtained a $520,000 loan from Countrywide Home Loans, Inc., secured by a Mortgage on 2962 Kauhale Street, Kihei, Hawai`i ("the Property").*fn2 On December 28, 2009, Plaintiffs received a solicitation from BAC promoting the federal government's Home Affordable Modification Program ("HAMP"). Plaintiffs completed an on-line loan modification application. [Complaint at ¶¶ 15-16.]

On January 4, 2010, BAC personnel contacted Plaintiffs by telephone. During the call, Mrs. Crilley told each person she spoke to that they would exhaust the last of their savings after approximately two more mortgage payments. One of the people to whom Mrs. Crilley spoke identified himself as Brian and interviewed her for approximately an hour, taking Plaintiffs' financial information. Brian informed Mrs. Crilley that Plaintiffs qualified for HAMP, and Brian represented that, if they made all three trial payments on time and if their supporting documentation confirmed the information they provided over the phone, they would receive a permanent loan modification. The trial payments were to be approximately half of Plaintiffs' original monthly mortgage payments. Although Plaintiffs were current on their mortgage payments at that time, they were concerned that they would deplete their savings before the loan modification was complete. Brian assured them that they would receive the HAMP modification contract within thirty days, and in no event later than forty-five days. [Id. at ¶¶ 17-20.]

When Plaintiffs did not receive the HAMP contract within forty-five days, Mrs. Crilley contacted BAC and was informed that their case had been closed because they failed to return the HAMP contract with supporting documentation within forty-five days. Mrs. Crilley explained that they never received the contract, and the BAC representative informed her that the HAMP package would be resent to them within seven to ten days. The next day, February 19, 2010, another BAC representative called Plaintiffs and informed them that it would take thirty days to resend the HAMP package. [Id. ¶¶ 21-23.]

On February 22, 2010, someone named Lisa from BAC advised Plaintiffs to stop making their mortgage payments. On February 25, 2010, Plaintiffs sent BAC a check for $1,000 as a partial payment with a letter explaining that they were waiting to receive their HAMP contract. From February 25 to March 22, 2010, Plaintiffs made several calls to BAC, but each time they were either transferred to someone who had no record of their case or put on hold for more than thirty minutes after which they were disconnected. [Id. at ¶¶ 24-26.]

Plaintiffs received a package from BAC on March 25, 2010, but it was a new HAMP application form. That day, Mrs. Crilley called BAC, and Shirley confirmed that Plaintiffs had to start the process over. Shirley stated that, if Plaintiffs missed their April mortgage payment, BAC would process their application faster. Plaintiffs timely submitted the application with the necessary supporting documents. During Plaintiffs' March 30, 2010 call to BAC, Kevin also instructed Plaintiffs to miss their April payment. On April 2, 2010, BAC confirmed that it received Plaintiffs' application. During Mrs. Crilley's April 9, 2010 call to BAC, Octario said that their application was complete and that they would receive their HAMP contract in the mail. [Id. at ¶¶ 29-33.]

Plaintiffs received another HAMP application from BAC on April 19, 2010. After Plaintiffs contacted BAC, two different BAC representatives told them that the application had been sent in error and that Plaintiffs could disregard it. Plaintiffs, however, received a Notice of Intent to Accelerate on April 23, 2010. When Plaintiffs called BAC, BAC reassured them that their HAMP contract was being processed and that they would receive it within thirty to forty-five days. [Id. at ¶¶ 34-39.]

The Complaint goes on to describe additional delays in the loan modification process, including: multiple requests for further supporting documents; more phone calls where the BAC representatives denied having records of Plaintiffs' case; more disconnected phone calls; further instructions not to make their regular monthly mortgage payments; assurances that their HAMP contract was being sent to them shortly; and BAC's explanation that notes in Plaintiffs' records may have been caused by glitches in BAC's computer system. [Id. at ¶¶ 40-53.]

On July 22, 2010, Plaintiffs received a letter from BAC stating that they were not eligible for a HAMP loan modification because they received a negative net present value analysis ("the NPV" and "the HAMP Denial Letter"). The letter stated that the NPV would be sent to them and, if the information used in the analysis was incorrect, Plaintiffs could appeal the denial of the loan modification. The letter also stated that BAC could not foreclose until it sent Plaintiffs the NPV analysis. [Id. at ¶ 54.] Plaintiffs learned from BAC that the gross income used to generate the NPV was based on Mr. Crilley's income before he was seriously injured while working for the Maui Fire Department.*fn3

By July 2010, he was receiving workers' compensation benefits and Plaintiffs' monthly income was substantially less than it was when they first applied for a loan modification in January 2010. [Id. at ¶ 56.]

The delays continued, but BAC personnel assured Plaintiffs that they were still being considered for a loan modification. At different times, BAC gave Plaintiffs conflicting advice about making their regular mortgage payments. BAC also told Plaintiffs that the ultimate decision to modify the loan and the responsibility to provide Plaintiffs with the NPV were in the hands of the holder of their loan, Bank of New York Mellon ("BONY"). A BONY representative, however, told Plaintiffs the opposite. According to BONY, BAC makes all loan modification decisions on BONY's behalf. BAC informed Plaintiffs of several delays in sending out the NPV and emphasized that Plaintiffs could neither challenge the NPV nor reapply for a loan modification until they received it. [Id. at ¶¶ 57-63.]

On August 13, 2010, Plaintiffs received a notice from BAC that they were seriously delinquent in their mortgage and that foreclosure would follow if Plaintiffs did not contact BAC.

Plaintiffs called BAC and spoke to Ashley, who told Plaintiffs that their gross income had been updated as of July 30, 2010. Plaintiffs verbally provided Ashley with their current financial information and, on August 18, 2010, sent BAC their supporting financial documents. [Id. at ¶¶ 64-69.]

On August 21, 2010, Plaintiffs received a letter from BAC, dated August 17, 2010, stating that there were no available work-out options based on the financial information they provided. On August 23, 2010, Plaintiffs contacted BAC and spoke with Porcha Jones, who told Plaintiffs their case was still under review and that they could ignore the August 17 letter. She did, however, state that the letter was sent by another department and that Plaintiffs should call the number on the letter. Plaintiffs did so and spoke to Ricardo, who told them BAC could provide a special forbearance for three, and up to six, months. At the end of that time, Plaintiffs could reapply for a HAMP modification or challenge the NPV results. [Id. at ¶¶ 70-72.]

On September 1, 2010, Kimberly Christopher told Plaintiffs that she and Elizabeth Lopez would be handling their file for BAC. Plaintiffs continued to communicate with Ms. Christopher and Ms. Lopez. BAC sent Plaintiffs a Special Forbearance contract, which they completed. Ms. Lopez informed them on September 14, 2010 that it was effective for the next three months. [Id. at ¶¶ 73-77.] As the expiration of the forbearance contract neared, Plaintiffs attempted to contact Ms. Christopher and Ms. Lopez to request the three-month extension, but Plaintiffs were informed that Ms. Christopher and Ms. Lopez no longer worked in the forbearance department. [Id. at ¶ 80.]

On November 19, 2010, Plaintiffs spoke with Damon Jones, who assured them that BAC would extend the forbearance contract. He directed them to fax a hardship letter explaining the need for the extension, and Plaintiffs did so. On November 30, 2010, Tara Hunt from BAC called Plaintiffs and said that she was processing their forbearance extension. She also said that she would simultaneously try to get them an in-house modification. Plaintiffs stressed to Ms. Hunt that they did not want to risk the forbearance extension for an attempt at an in-house modification. Ms. Hunt reassured Plaintiffs that they could still get the forbearance extension if they were denied the in-house modification and that they could reapply for a HAMP modification after the forbearance period. On or around December 7, 2010, however, BAC informed Plaintiffs that their forbearance contract was not extended because they were seeking an in-house modification or other work-out. After two weeks of repeated calls to BAC, Plaintiffs received a contract for the second three-month forbearance period. [Id. at ¶¶ 81-84.]

On February 17, 2011, Plaintiffs contacted Ms. Hunt to start a new HAMP application, but she informed them that they should not do so until the forbearance period ended on March 18, 2011. [Id. at ¶ 87.] Plaintiffs began working with two consumer advocacy groups, Faith Action for Community Equity ("FACE") and Hawaii Community Assets ("HCA"), which entered into negotiations with BAC. [Id. at ¶¶ 88-95.]

On March 10, 2011, HCA notified Plaintiffs that BAC would be sending them a contract for an in-house modification. Ms. Crilley contacted Mona De La Pena, a BAC loan modification officer who had previously said that she was their personal monitor, to inquire why the terms of the modification did not comply with the HAMP modifications guidelines. Ms. De La Pena said that Plaintiffs' HAMP modification had been denied. She also read Mrs. Crilley the notes in Plaintiffs' file. She noted the previous denial of the HAMP application and said that had Plaintiffs appealed the decision on September 25, 2010, but the appeal was denied. She also stated that BAC's records indicated that Plaintiffs had filed a NPV dispute on August 30, 2010, but that was also denied. Plaintiffs state that this information is false; Plaintiffs could neither appeal the modification denial nor dispute the NPV because they never received the NPV. [Id. at ¶¶ 93, 96-99.]

In September and October 2011, Plaintiffs received seven different letters from BAC giving the names of seven different "dedicated customer relationship managers". [Id. at ¶ 105.] As of the date of the Complaint, Plaintiffs had not received a permanent loan modification offer. [Id. at ¶ 107.]

The Complaint alleges two claims: negligence ("Count I") and unfair and deceptive acts and practices ("UDAP") pursuant to Haw. Rev. Stat. § 480-2 ("Count II"). Count I alleges that: "BAC Servicing Owed a Duty of Care to Plaintiffs in Modification"; BAC breached that duty; and BAC's negligence caused significant damage to Plaintiffs' credit scores. [Id. at pgs. 26, 29-30.] Count I states "[w]hile lenders generally do not owe a duty of care to borrowers when originating mortgage loans, a duty of care arises when a servicer acts beyond the role of a mere lender of money and actively engages with a borrower in modification negotiations." [Id. at ¶ 109 (citing Ansanelli v. JP Morgan Chase Bank, N.A., et al., U.S. Dist. LEXIS 32350 (N.D. Cal. Mar. 28, 2011)).] Count II alleges, inter alia, that BAC engaged in a scheme of prolonging the modification process to generate additional interest and fees. "[U]nder this scheme, BAC Servicing never intends to provide Plaintiffs with a loan modification. Rather BAC Servicing's goal has been, and continues to be, to keep loans in default and arrears for as long as possible before ultimately foreclosing to maximize its fees and the payments it can extract from Plaintiffs." [Id. at ¶ 142.] Plaintiffs also contend that BONY should be enjoined from foreclosing on Plaintiffs' Property. [Id. at ¶¶ 154-57.]

The Complaint seeks the following relief: an order enjoining BONY from foreclosing on the Property; statutory, punitive, treble, and compensatory damages; reasonable attorneys' fees; and any other appropriate relief. [Id. at pg. 37.]

I. Motion

In the instant Motion, Defendant argues that the Court should dismiss the Complaint with prejudice because it fails to state a claim upon which relief can be granted and does not allege facts sufficient to support any claim for relief under Hawai`i law and Fed. R. Civ. P. 8 and 9(b). Defendant also argues that any attempt to amend the Complaint would be futile. Defendant argues that: Plaintiffs' negligence claim fails because Defendant was under no duty to modify Plaintiffs' loan; and Plaintiffs' UDAP claim is insufficiently pled. Defendant also notes that, although Plaintiffs argue that BONY should be enjoined from foreclosing on the Property, Plaintiffs have not alleged that BONY has initiated the foreclosure process. Further, BONY is not a party in this action and, insofar as Plaintiffs have no valid claim against Defendant, they have no valid claim to stop BONY from foreclosing on the Property.

According to Defendant, the general rule that lenders owe no duty of care to borrowers also applies to loan servicers. [Mem. in Supp. of Motion at 6 (some citations omitted) (citing Castaneda v. Saxon Mortg. Svcs., Inc., 687 F. Supp. 2d 1191, 1198 (E.D. Cal. 2009); Wattas v. Decision One Mortg. Co., LLC, 2009 WL 2044595, *3 (S.D. Cal. July 13, 2009)).] There are no special circumstances that would give rise to a duty owed to Plaintiffs because Defendant's review of Plaintiffs' loan modification application was part of its routine duties as a loan servicer. Defendant argues that Ansanelli does not help Plaintiffs because that case affirmed that "'[l]iability to a borrower for negligence arises only when the lender actively participates in the financed enterprise beyond the domain of the usual money lender.'" [Id. at 8 (quoting 2011 WL 1134451, at *7 (citing Nymark v. Heart Fed. Sav. & Loan Ass'n, 231 Cal. App. 3d 1089, 1096 (1991)) (Defendant's emphasis omitted).] The defendant in Ansanelli "'went beyond its role as a silent lender and loan servicer to offer an opportunity to plaintiffs for loan modification and to engage with them concerning the trial period plan.'" [Id. (quoting 2011 WL 1134451, at *7) (Defendant's emphasis omitted).] Defendant argues that it did not engage in such activity with regard to Plaintiffs' loan because Plaintiffs were not on a modification plan, nor have Plaintiffs alleged that Defendant informed them the loan was current, or instructed them to continue paying a modified amount. Defendant argues that placing Plaintiffs in a special forbearance plan while they awaited loan modification was not enough to trigger a duty.

Defendant urges the Court to follow Ottolini v. Bank of America, which distinguished Ansanelli, and to rule that "no Nymark duty existed for a defendant mortgage servicer when a application for a loan modification never 'progressed to a concrete stage and there [was] no indication of the likelihood that such an application would have been granted.'" [Id. ...

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