Hunter et al v. CitiMortgage Incorporated et al
Filing
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ORDER granting 6 Defendants' Motion to Dismiss. Signed by Judge Frederick J Martone on 10/4/11.(DMT)
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IN THE UNITED STATES DISTRICT COURT
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FOR THE DISTRICT OF ARIZONA
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Plaintiffs,
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vs.
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CitiMortgage, Inc.; Federal Home Loan)
Mortgage Corp. also known as Freddie)
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Mac,
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Defendants.
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CV 11-01549-PHX-FJM
Patrick S. Hunter; Linda M. Hunter,
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ORDER
The court has before it defendants' motion to dismiss (doc. 6), plaintiffs' response
(doc. 11), and defendants' reply (doc. 12).
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In January 2005, plaintiffs obtained a loan from Homeowners Financial Group USA,
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LLC secured by a Deed of Trust ("DOT") on their home. Mot. to Dismiss, ex. A.1 The loan
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was later serviced by defendant CitiMortgage ("Citi"). In November 2008, plaintiffs
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contacted defendant Citi regarding a possible loan modification. Up until this point plaintiffs
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had made all their mortgage payments, but were experiencing financial struggles due to a job
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loss. A Citi representative told plaintiffs they needed to be at least sixty days late on their
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payments to be considered for a loan modification. Plaintiffs stopped making payments. A
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In their complaint, plaintiffs reference a loan secured in 2002 from Spectrum
Financial Group. However, the loan that resulted in a trustee sale was the 2005 loan
originally secured by Homeowners Financial Group. We may take judicial notice of
documents that are central to plaintiff's claims on a motion to dismiss under Rule 12(b)(6),
Fed. R. Civ. P. Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006).
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Notice of Trustee's Sale was issued on January 5, 2009.2 Mot. to Dismiss, ex. C.
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In May 2009, plaintiffs applied for a loan modification. According to plaintiffs, Citi
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represented that the trustee sale would be postponed while plaintiffs attempted to modify
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their loan.
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Modification Program's ("HAMP") trial payment plan in October 2009. The final payment
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was made in December 2009, however the payment was returned due to insufficient funds
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in plaintiffs' account. Plaintiffs immediately contacted defendant Citi to make arrangements
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for payment. Citi refused to accept payment, indicating that plaintiffs had failed to comply
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with HAMP. Plaintiffs tried again in January 2010 to rehabilitate their HAMP modification,
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however their request was denied. Citi started to work with plaintiffs to see if they would
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qualify for a private investor loan modification. Over the next seven months, plaintiffs
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cooperated with Citi and provided the requested documentation. In the meantime, plaintiffs'
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property was sold at a trustee sale on May 12, 2010.
Plaintiffs began making payments pursuant to their Home Affordable
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Citi ultimately approved plaintiffs' private investor modification application, and sent
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plaintiffs a letter dated July 30, 2010 that included a permanent loan modification with an
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effective date of September 1, 2010. Plaintiffs immediately executed the permanent
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modification agreement and sent it to Citi in August 2010. Because plaintiffs did not hear
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from Citi after sending the executed agreement, plaintiffs contacted Citi in mid-September
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to confirm whether Citi had received the documents. Plaintiffs were informed that Citi had
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not received them, and so would have to reissue and send a new set. Plaintiffs were in
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contact with Citi throughout October and November 2010 regarding the status of the
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modification documents. Plaintiffs were told each time they spoke with Citi representatives
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that the new modification paperwork would arrive in thirty to forty-five days. Plaintiffs
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continued to wait.
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On January 20, 2011, plaintiffs were contacted by an employee of defendant Federal
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Home Loan Corporation ("Freddie Mac") who notified them that their home had been sold
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We take judicial notice of this document. Marder, 450 F.3d at 448.
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at a trustee sale. Plaintiffs were contacted again on February 21, 2011, and were told they
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must vacate the property by March 22, 2011 or face eviction. Plaintiffs called Citi to find
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out what was happening, and were told that Citi had no record of the signed permanent loan
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modification documents being received, and no record of a new set being mailed to plaintiffs.
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Defendant Freddie Mac obtained a judgment of forcible detainer against the plaintiffs in
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April 2011, and plaintiffs were evicted on July 7, 2011.
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Plaintiffs originally filed this action on July 21, 2011 in the Superior Court of Arizona
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in Maricopa County seeking relief for five counts: (1) breach of contract, (2) breach of
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fiduciary duty, (3) declaratory judgment, (4) quiet title, and (5) fraud and negligent
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misrepresentation. Defendants removed to this court on August 8, 2011. On August 15,
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2011, defendants moved to dismiss all five counts pursuant to Rules 12(b)(6) and 9(b), Fed.
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R. Civ. P. (doc. 6).
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II
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This action was filed more than one year after the trustee sale was held. Plaintiffs do
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not allege that they were unaware that a trustee sale had been noticed. Instead, plaintiffs
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contend that Citi "fail[ed] to notify the Plaintiffs that the trustee sale date that had been
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scheduled would proceed and. . . fail[ed] to postpone the trustee sale pursuant to [its]
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commitments and contractual obligations to do so." Compl. at 6. Under A.R.S. § 33-
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811(C),
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[t]he trustor . . . shall waive all defenses and objections to the sale not raised
in an action that results in the issuance of a court order granting relief pursuant
to rule 65, Arizona rules of civil procedure, entered before 5:00 p.m. mountain
standard time on the last business day before the scheduled date of the sale.
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Plaintiffs did not file a motion in state or federal court or seek an injunction prior to the May
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2010 trustee sale. Because plaintiffs in this case did not seek legal intervention in time, they
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have waived any objections or defenses to the sale. Accordingly, plaintiffs' claims seeking
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a declaratory judgment to invalidate the trustee sale (count three) and quieting of title to the
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property (count four) are dismissed.
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III
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Section 33-811(C) does not prevent plaintiffs from asserting claims for relief
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independent of voiding the trustee sale. See Woods v. BAC Home Loans Servicing LP, CV-
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10-723-PHX-GMS, 2011 WL 2746310 at *2 (D. Ariz. July 15, 2011). We therefore turn to
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plaintiffs' remaining claims in counts one, two, and five. Plaintiffs first allege in count one
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that defendants breached the terms of the DOT and the implied covenant of good faith and
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fair dealing by conducting a trustee sale after "wrongfully declining" plaintiffs' loan
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modification under HAMP. Compl. at 5. Plaintiffs also allege that defendant Citi breached
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its contractual duties under HAMP by failing to accept the third trial payment. Finally,
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plaintiffs allege that Citi promised plaintiffs that it was sending new permanent loan
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modification documents, and promised that the pending trustee sale would be postponed until
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plaintiffs received and signed these new documents. Citi allegedly breached these promises
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by failing to postpone the trustee sale.
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"To prevail on a claim for breach of contract, the plaintiff must prove the existence
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of a contract between the plaintiff and defendant, a breach of the contract by the defendant,
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and resulting damage to the plaintiff." Frank Lloyd Wright Found. v. Kroeter, 697 F. Supp.
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2d 1118, 1125 (D. Ariz. 2010). Plaintiffs cannot pursue any claims premised on defendants'
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violation of HAMP. HAMP does not contain a private right of action. See Puzz v. Chase
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Home Fin., 763 F. Supp. 2d.1116, 1122 (D. Ariz. 2011). Moreover, plaintiffs are not third
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party beneficiaries of HAMP. See Astra USA, Inc. v. Santa Clara Cnty., __ U.S. __, 131
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S.Ct. 1342, 1348 (2011) ("[t]he absence of a private right to enforce the statutory [
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obligations. . . would be rendered meaningless if [ ]entities could overcome that obstacle
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by suing to enforce the contract. . .instead."); Wright v. Chase Home Fin. LLC, No. CV-11-
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0095-PHX-FJM, 2011 WL 2173906, at *2 (D. Ariz. June 2, 2011). To the extent that count
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one alleges HAMP violations, we dismiss these claims.
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Next, plaintiffs aver that once defendants started negotiating a possible loan
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modification, they owed a duty of good faith and fair dealing, which they breached by failing
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to postpone the trustee sale. "The law implies a covenant of good faith and fair dealing in
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every contract," which requires that "neither party will act to impair the right of the other to
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receive the benefits which flow from their agreement." Rawlings v. Apodaca, 151 Ariz. 149,
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153, 726 P.2d 565, 569 (1986). If no contract is alleged, however, no implied covenant of
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good faith and fair dealing exists. Narramore v. HSBC Bank USA, N.A., No. 09-CV-635-
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TUC-CKJ, 2010 WL 2732815, at *6 (D. Ariz. July 7, 2010).
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Plaintiffs point to Citi's failure to adhere to HAMP guidelines while engaging in loan
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modification negotiations as evidence of Citi's breach of the covenant of good faith and fair
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dealing "which is a part of the Deed of Trust." Response at 4. As we have already stated,
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plaintiffs cannot assert claims premised on HAMP violations. Plaintiffs have not pled the
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existence of a separate enforceable contract to negotiate for a loan modification in good faith,
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and thus any claims alleging a violation of good faith and fair dealing arising from the loan
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modification negotiations fail. Finally, plaintiffs' claim that Citi breached its duty by
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executing the trustee sale after representing it would postpone the sale is also unavailing. By
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signing the DOT, plaintiffs agreed that if they defaulted on their loan obligations, which they
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admit occurred, a trustee sale could proceed. Mot. to Dismiss, ex. A at ¶ 22. Plaintiffs have
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not alleged that they entered into a separate contract with Citi to postpone the sale. For all
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of these reasons, we dismiss count one.
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IV
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Plaintiffs allege in count two that defendant Citi breached its fiduciary duty by failing
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to negotiate the loan modification in good faith, failing to accept the third trial payment,
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failing to send new permanent loan modification documents as requested, and failing to
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postpone the trustee sale as promised. In Arizona it is "well settled" that, absent special
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agreement, the relationship between a bank and its customer is that of lender and borrower
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and is not a fiduciary relationship. McAlister v. Citibank (Arizona), 171 Ariz. 207, 212, 829
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P.2d 1253, 1258 (Ct. App. 1992). Taking out a mortgage loan with a bank and engaging in
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loan modification negotiations represents "nothing more than an ordinary banking
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relationship." Bowman v. Wells Fargo Bank, N.A., CV-09-271-PHX-DGC, 2010 WL
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1408893, at *3 (D. Ariz. Apr. 7, 2010). Plaintiffs have not pled any facts suggesting that
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their relationship with Citi was anything more than that of borrower and lender. Without the
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existence of a fiduciary duty, there can be no breach. Count two is dismissed.
V
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Finally, we address plaintiffs' claims in count five of fraud and negligent
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misrepresentation. Plaintiffs allege that Citi actively represented that the trustee sale would
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be postponed both during the HAMP loan modification process and during the time that
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plaintiffs were awaiting their approved private investor permanent loan modification
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documents. According to plaintiffs, defendants failed to notify plaintiffs that the trustee sale
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would proceed and did so with the intent to deprive plaintiffs of their home. Plaintiffs
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detrimentally relied on defendants' representations by failing to take actions to forestall the
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sale. Defendants move to dismiss both claims under Rule 9(b), Fed. R. Civ. P., and to
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dismiss the negligent misrepresentation allegation for failure to state a claim.
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We first address the negligent misrepresentation claim. In Arizona,"[a] promise of
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future conduct is not a statement of fact capable of supporting a claim of negligent
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misrepresentation." McAlister, 171 Ariz. at 215; 829 P.2d at 1261. Here, plaintiffs allege
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that Citi stated it would postpone the trustee sale and that it would resend the permanent loan
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modification documentation. These allegations relate to promises of future conduct and are
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not statements of past or existing fact. Therefore, we dismiss the negligent misrepresentation
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claim in count five for failure to state a claim.
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We now turn to plaintiffs' fraud claim. Defendants first argue this is barred by the
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statute of frauds. In Arizona, mortgage loan agreements are interests in real property.
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According to the statute of frauds, they must be in writing to be enforceable. Fremming
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Const. Co. v. Security Sav. & Loan Assn., 115 Ariz. 514, 516, 566 P.2d 315, 317 (Ct. App.
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1977). Modifications to contracts falling within the statute of frauds must also be in writing.
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Best v. Edwards, 217 Ariz. 497, 501-02, 176 P.3d 695, 699-700 (Ct. App. 2008). Defendants
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argue that Citi's alleged promise to stall the trustee sale amounted to a modification of the
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DOT. Thus, according to defendants plaintiffs' fraud claim must fail because it is based on
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an allegedly oral agreement to alter a DOT, a modification which must be in writing. We
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disagree. Viewing the complaint in the light most favorable to the plaintiffs, the complaint
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does not allege that the postponement of the trustee sale amounted to a modification of the
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DOT. Plaintiffs are not alleging that Citi's representations were an agreement never to
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proceed with a trustee sale in the future. Instead, plaintiffs allege that Citi represented that
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it would not enforce its rights under the DOT while the loan modification process was
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pending, and plaintiffs relied on this representation to their detriment. Consequently, the
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statute of frauds does not bar plaintiffs' fraud claim.
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Alternatively, defendants argue that the fraud claim lacks particularity. When alleging
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claims of fraud, a party "must state with particularity the circumstances constituting fraud or
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mistake." Fed. R. Civ. P. 9(b). Allegations of fraud must be specific enough to give
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defendants notice of specific misconduct, including the "who, what, when, where, and how"
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of the challenged conduct. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir.
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2003) (quoting Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997)). Plaintiffs generally
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allege that Citi represented it would postpone the trustee sale. These statements were
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apparently made by Citi representatives to plaintiffs at some point during the loan
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modification process. However, the complaint does not include facts illuminating, among
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other things, the conditions under which defendants promised to postpone the sale (the
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"what"), when the postponement of the sale was first proposed (the "when"), who at Citi
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promised to postpone the sale (the "who"), and the means in which this promise was
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communicated (the "how" and "where"). Even construing the complaint in the light most
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favorable to the plaintiff, it is not possible to ascertain with sufficient particularity the
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specific misconduct that Citi, or Freddie Mac, or both, committed. We thus dismiss the fraud
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claim in count five under Rule 9(b), Fed. R. Civ. P.
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VI
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Therefore, IT IS ORDERED GRANTING defendants' motion to dismiss (doc. 6).
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DATED this 4th day of October, 2011.
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