Gogoe v. Wells Fargo Bank, N.A.

Filing 29

OPINION AND ORDER GRANTING 19 Defendant's Motion to Dismiss. Signed by District Judge Terrence G. Berg. (AChu)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
THOMAS A. GOGOE
v.

Plaintiff,

Case No. 14-12502
HON. TERRENCE G. BERG

WELLS FARGO BANK N.A.,
Defendant.

/

OPINION AND ORDER GRANTING
DEFENDANT’S MOTION TO DISMISS (DKT. 19)
Plaintiff Thomas A. Gogoe brings this lawsuit seeking to undo mortgage
contracts he signed with Defendant Wells Fargo Bank on the ground that the bank
has allegedly breached these contracts and committed fraud. Plaintiff filed suit
against Defendant in Oakland County Circuit Court on April 18, 2014. (Dkt. 2, p. 5.)
The allegations in the Complaint consist of three claims, two breach of contract
claims and one fraud claim, each of which arise out of a pair of mortgage
agreements and a loan modification agreement between Plaintiff and Defendant.
Defendant removed the case to this Court on June 25, 2014. (Dkt. 1.)
Defendant now moves to dismiss this case pursuant to Federal Rule of Civil
Procedure 12(b)(6). (Dkt. 19.) Defendant had filed an earlier motion to dismiss on
August 1, 2014, but that motion was terminated on September 23, 2014 when this
case was sent into facilitation. (Dkt. 13.) The case did not settle. Defendant argues,
and Plaintiff does not challenge, that Plaintiff is current on his mortgage and is able
to continue paying. (Dkt. 19.) Although Plaintiff is not in default, he contends that
1

Defendant has applied his payments in a manner inconsistent with the terms of the
mortgages, and that he was misled as to the nature of the mortgages before he
signed them. (Id.) The motion was fully briefed as of June 15, 2015. (See Dkt. 25.)
After careful review and consideration of the parties’ briefs, the Court finds that
oral argument would not significantly aid the Court’s decision. Accordingly, the
motion before the Court will be decided without a hearing. See E.D. Mich. LR
7.1(f)(2). For the reasons explained below, the Court will GRANT Defendant’s
motion to dismiss.
I.

FACTUAL BACKGROUND

Plaintiff is the fee simple owner of the property located at 201 Osprey St.
Walled Lake, Michigan (“the property”). Plaintiff bought this lakefront property for
no money down in 2006 in a transaction that involved two loans: one, a 30-year
mortgage which required a very onerous adjustable interest rate that favored the
Defendant bank, and a second loan to fully finance the down payment, which
required a gigantic balloon payment after fifteen years. (Dkt. 24, p. 3.) On July 21,
2006, Plaintiff entered into an adjustable rate mortgage (“the First Mortgage”)
consisting of a promissory note (“the First Note”) and a mortgage agreement (“the
First Mortgage Agreement”) with Defendant. (Id.) The First Mortgage Agreement
secured the First Note with the property. (Id.) Under the terms of the First
Mortgage, Plaintiff promised to pay Defendant $524,000 plus interest and to pay
this debt in full by August 1, 2036.1 (Dkt. 19, Ex. 2 at p. 3.)

As indicated in the Truth in Lending disclosure statement that accompanies the First Mortgage,
Plaintiff was loaned $524,000 at an annual percentage rate of 7.4840%. (Dkt. 19, Ex. 3 at p. 2.) In
1

2

On the same day, Plaintiff also entered into a second mortgage (“the Second
Mortgage”) consisting of a promissory note (“the Second Note”) and a mortgage
agreement (“the Second Mortgage Agreement”) with Defendant in order to make the
down payment of $131,000 needed to obtain The First Mortgage. (Dkt 19, Exs. 4-5.)
As a result of this highly leveraged deal, Plaintiff’s purchase of the property was
100% financed and Plaintiff had no equity in the property. Seeking to change the
terms of The First Mortgage, Plaintiff entered into a loan modification agreement
(“the Loan Modification Agreement”) with Defendant on June 28, 2010. (Dkt. 19,
Ex. 6.)
A. The First Mortgage
Defendant lent Plaintiff $524,000 in the First Mortgage. (Dkt. 19, Ex. 3 at pp.
2-3.) Under the terms of the First Mortgage, consisting of the First Mortgage
Agreement and the First Note, Plaintiff is to repay the $524,000 over 30 years. (Id.
at p. 3.) The contracts provide that between September 1, 2006 and September 1,
2016, Plaintiff is to make monthly payments of $3,165.83. (Dkt. 19, Ex. 1 at p. 2.)
This first decade of payments, as stated in the agreements, are “only for the interest
due on the unpaid principal,” which means that they only cover the accrued interest
on the loan and do not reduce the principal amount.2 (Id.) During this ten-year,

addition to the amount financed, Plaintiff would owe $907,805.31 in finance charges for a total debt
of $1,431,805.31 due in full by August 1, 2036. (Id.)
The fact that the first ten years of payments are interest only is made clear throughout the First
Mortgage and the First Note. The First Note states that the initial monthly payments “will be only
for the interest due on the unpaid principal of this Note.” (Dkt. 19, Ex. 1 at p. 2.) The First
Mortgage’s Adjustable Rate Rider notes that the payments will be “for interest only” until September
1, 2016. (Dkt. 19, Ex. 2 at p. 20.) Finally, the Truth in Lending Disclosure Statement that
2

3

interest-only period, there is an interest rate of 7.25% on the loan. (Id.) After this
interest-only period, Plaintiff’s monthly payments increase to $4,382.95, for an
additional 20 years. (Dkt. 19, Ex. 1 at p. 2, Ex. 3 at p. 2.) These payments are
directed toward both accrued interest and the principal debt. The final payment is
to be made on August 1, 2036 for the remainder of the principal. (Dkt. 19, Ex. 2 at p.
3.)
Because there is no prepayment penalty on the loan, Plaintiff can freely
refinance or make advance payments on the principal to reduce the overall cost of
the loan. (Dkt. 19, Ex. 1 at p. 3.) At the end of the interest-only period, Defendant
can change Plaintiff’s interest rate annually according to a formula outlined in the
First Mortgage Note and the First Mortgage Agreement. (Dkt. 19, Ex. 2 at p. 20.)
The calculation of the new interest rate is not related to the interest rate that
Plaintiff paid during the interest only period. (See id.)
Plaintiff alleges that the First Note is internally inconsistent because it
states that “Plaintiff will make payments every month until he has paid all of the
principal that he owed under this note.” (Dkt. 24, p. 6.) He also points to language
stating that loan payment can be increased by 7.5% of the “then existing principal
and interest payment,” and that borrower “will pay [p]rincipal and interest by
making payments.” (Id. at 7.) Plaintiff further alleges that the payment schedule
outlined in the Truth in Lending Disclosure Form for the First Mortgage (“the First
TILDS”) is inconsistent with the interest rate listed in the promissory note for the

summarizes the terms of the First Mortgage shows that the first ten years of payments are interest
only. (Dkt. 19, Ex. 3 at p. 2.)
4

First Mortgage. (Id. at 8.) In short, Plaintiff takes the position that the First
Mortgage requires that Defendant apply Plaintiff’s monthly payments during the
interest-only period toward reducing the principal balance on the First Mortgage
Note, rather than simply paying off accrued interest.
C. The Second Mortgage
In the Second Mortgage, Defendant lends Plaintiff $130,815. (Dkt. 2, Ex. E at
p. 1.) Plaintiff is required to make monthly payments of $999.40 from September 4,
2006 until August 4, 2021. (Dkt. 19, Ex. 4 at pp. 3-4.) On August 4, 2021, Plaintiff is
to make a final “balloon payment” of $103,216.34. (Id.) This loan has a fixed interest
rate of 8.375%. (Id. at p. 3.) The loan is partially amortizing, which means that the
monthly payments leading up to the balloon payment pay off the accrued interest
and reduce the principal amount. (Id.) Unlike the First Mortgage, the Second
Mortgage has a prepayment penalty of $500 that Plaintiff has to pay if he prepays
the note in full at any time within the first three years (i.e. through 2009). (Id. at 4.)
D. The Loan Modification Agreement
On June 28, 2010, Plaintiff and Defendant entered into the Loan
Modification Agreement. (Dkt. 19, Ex. 6.) The Loan Modification Agreement
modifies the interest-only period (i.e. the first 10 years) of the First Mortgage.3 (Id.
at p. 2.) The Loan Modification Agreement increases the principal from $524,000 to
$530,027.49. (Id.) However, Plaintiff does not pay any interest on the additional

The Loan Modification Agreement “amends and supplements (1) the Mortgage, Deed or Trust or
Security Deed (the “Security Instrument”) dated July 21, 2006 and (2) the adjustable rate/fixed rate
note (the “Note”), bearing the same date as, and secured by, the Security instrument […]” (Dkt. 19,
Ex. 6 at p. 2.)
3

5

$6,027.49 and does not make monthly payments on it.4 (Id.) Instead, Plaintiff must
pay the $6,027.49 when he sells or transfers an interest in the property or when the
loan matures. (Id. at pp. 2-3.) Moreover, if Plaintiff prepays some of the principal
ahead of schedule, then Defendant can apply that prepayment to the interest-free
$6,027.49 before applying it to the interest bearing part of the principal. (Id. at 3.)
In return for the interest-free increase in principal, Plaintiff receives a lower
interest rate and correspondingly lower monthly payments for five of the six
remaining years in the interest-only period of the First Mortgage. (Id.) Between
August 1, 2010 and July 1, 2014, Plaintiff will pay an interest rate of 5.375% (down
from 7.25%), and his monthly payments will be $2,347.08 (down from $3,165.83).
(Id. at p. 2.) Beginning on July 1, 2014 and continuing until July 1, 2015 (with the
first payment being made on August 1, 2014), Plaintiff’s interest rate increased to
6.375% (still down from 7.25%), and his monthly payment became $2,783.75 (still
down from $3,165.83). (Id.) Starting on July 1, 2015, Plaintiff’s interest rate and
payments returned to what they were originally in the First Mortgage before the
Loan Modification Agreement. (Id.) No other changes were made to Plaintiff’s
mortgages in the Loan Modification Agreement.
In addition to the actual loan modification agreement, there is also a loan
modification agreement letter (“the letter”). (Dkt. 2, Ex. J at pp. 69-71.) This
document is dated June 24, 2010 and explains what Plaintiff’s payments and
interest rate would be on the First Mortgage if he signed the Loan Modification

The Loan Modification Agreement states that the new principle balance is $530,027.49 but that
$6,027.49 of this new balance, or the secondary principal balance, will be deferred and Plaintiff will
not pay interest or make monthly payments on that amount. (Dkt. 19, Ex. 6 at p. 2.)
4

6

Agreement. (Id.) Specifically, the letter states that his monthly payment would be
$2,347.08 and that this payment would be an “interest only payment.” (Id.) It also
states that there is no “principal and interest payment” and that “the payment
reflected in the Loan Modification Agreement is strictly the Principal and Interest
or the Interest only amount.” (Id.) It also states that $6,027.49 will be added to the
“principal and interest and escrow” in “[Plaintiff’s] second mortgage loan.” (Id.) The
document makes clear that these numbers are not necessarily final, noting that “the
amounts set forth in this letter […] may be subject to change.” (Id.)
II.

LEGAL STANDARD

Defendant moves to dismiss Plaintiff’s complaint pursuant to Federal Rule of
Civil Procedure 12(b)(6), arguing that Plaintiff’s Complaint fails to identify any
provision of any contract that Defendant has breached and that Plaintiff has failed
to plead his fraud claims with the requisite specificity. (Dkt. 19, p. 8.) Rule 12(b)(6)
provides for a motion to dismiss based on failure to state a claim upon which relief
can be granted. In Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 545 (2007), the
Supreme Court explained that “a plaintiff’s obligation to provide the ‘grounds’ of his
‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic
recitation of the elements of a case of action will not do[.] Factual allegations must
be enough to raise a right to relief above the speculative level.” Id. at 555 (internal
citations omitted). To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to “state a claim to relief that is plausible
on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S.

7

at 555). A claim is thus facially plausible when a plaintiff pleads factual content
that permits a court to reasonably infer that the defendant is liable for the alleged
misconduct. Id. (citing Twombly, 550 U.S. at 556).
When assessing whether a Plaintiff has set forth a “plausible” claim, the
district court must accept all of the complaint’s factual allegations as true. See
Ziegler v. IBP Hog Mkt., Inc., 249 F.3d 509, 512 (6th Cir. 2001). “Mere conclusions,”
however, “are not entitled to the assumption of truth. While legal conclusions can
provide the complaint’s framework, they must be supported by factual allegations.”
Iqbal, 556 U.S. at 664. A Plaintiff must provide “more than labels and conclusions,”
or “a formulaic recitation of the elements of a cause of action.” Twombly, 550 U.S. at
556. Therefore, “[t]hreadbare recitals of the elements of a cause of action, supported
by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678.
In ruling on a motion to dismiss, the Court primarily considers the allegations
in the complaint; although matters of public record, orders, items appearing in the
record of the case, and exhibits attached to the complaint may also be taken into
account. Amini v. Oberlin College, 259 F.3d 493, 502 (6th Cir. 2001); see also
Greenberg v. Life Ins. Co. of Virginia, 177 F.3d 507, 514 (6th Cir. 1999) (finding that
documents attached to a motion to dismiss that are referred to in the complaint and
central to the claim are deemed part of the pleadings). Where “the plaintiff fails to
attach the written instrument upon which he relies, the defendant may introduce
the pertinent exhibit,” which is then considered part of the pleadings. QQC, Inc. v.
Hewlett-Packard Co., 258 F. Supp. 2d 718, 721 (E.D. Mich. 2003) (citing Weiner v.

8

Klais & Co., Inc., 108 F.3d 86, 89 (6th Cir. 1997)). “Otherwise, a plaintiff with a
legally deficient claim could survive a motion to dismiss simply by failing to attach
a dispositive document.” Weiner, 108 F.3d at 89.
Here Plaintiff’s factual allegations fail to state a plausible claim. None of the
facts alleged by Plaintiff are sufficient to allow the court to infer that Defendant has
breached the First Mortgage, the Second Mortgage, or the Loan Modification
Agreement. Nor does the Complaint identify with specificity any conduct or
statements by Defendant that may plausibly be considered misrepresentations or
fraud, as is required by Federal Rule of Civil Procedure 9(b). Moreover, any claims
that Defendant may have made oral promises to Plaintiff are barred by statute
under Michigan law. MCL § 566.132. For all of the reasons set out in detail below,
Defendant’s to dismiss motion will therefore be granted.
III.

ANALYSIS

A. Plaintiff Cannot Sue for Breach of Any Oral Promise
In the first instance, although Plaintiff denies in his response brief that he is
suing for breach of an oral promise (Dkt. 24, p. 21), the lack of clarity in Plaintiff’s
Complaint compels the Court to address the possibility that Defendant breached an
oral agreement with Plaintiff. (See e.g., Dkt. 2, p. 11.) Any oral promise that
Defendant may have made to Plaintiff is unenforceable by law, however. Pursuant
to MCL 566.132(2):
An action shall not be brought against a financial institution to enforce
any of the following promises or commitments of the financial
institution unless the promise or commitment is in writing and signed
with an authorized signature by the financial institution:
9

(a) A promise or commitment to lend money, grant or extend credit,
or make any other financial accommodation.
(b) A promise or commitment to renew, extend, modify, or permit a
delay in repayment or performance of a loan, extension of credit,
or other financial accommodation.
(c) A promise or commitment to waive a provision of a loan,
extension of credit, or other financial accommodation.
This statute precludes any claim to enforce a financial institution’s alleged promise
relating to a loan or some other financial commitment where there is no signed
writing. See Crown Technology Park v. D & N Bank, FSB, 242 Mich. App. 538, 54951 (2000).
Although the claims in the Complaint speak in terms of breaches of written
contracts, the allegations also include references to breaches of oral agreements.
Among them are Plaintiff’s claims that Defendant made and breached oral
agreements not to add fees to the principal and to adjust the amortization schedule
during in the Loan Modification Agreement. (Dkt. 2, ¶¶ 65-66.) Whether or not
these oral agreements existed, MCL 566.132(2) renders them unenforceable.
Similarly, any oral promise made by Defendant to the effect that the monthly
payments during the interest-only period of the First Mortgage would be sufficient
to pay both the principal and interest owed on the loan would also be unenforceable.
(Dkt. 2, p. 8-9.)
To survive, any breach of contract claim that Plaintiff has must be based on
the written terms of the First Mortgage, the Second Mortgage, or the Loan
Modification Agreement. The Court will therefore examine Plaintiff’s allegations
10

concerning the Loan Modification Agreement, the First Mortgage as modified by the
Loan Modification Agreement, and the Second Mortgage to determine whether
Plaintiff has plead sufficient facts to plausibly establish that Defendant breached
any of these contracts.
B. Count I: Breach of the Loan Modification Agreement
Plaintiff claims that the Loan Modification Agreement is not only ambiguous,
but internally inconsistent, and therefore Defendant necessarily breached it. (Dkt.
24, p. 12.) The proper interpretation of a contract is a question of law. See Wilkie v.
Auto-Owners Ins. Co. 469 Mich. 41, 47 (2003). A contract is ambiguous if its words
can reasonably be understood in different ways. See Bianchi v. Automobile Club of
Michigan, 437 Mich. 65, 70 (1991). However, the Court does not consider disputed
language in isolation. See Wilkie, 469 Mich. at 50. Even if the words in question are
ambiguous when read in isolation, they are unambiguous if there is only one
reasonable understanding of them in light of the rest of the contract. See id.
1. The Loan Modification Agreement is not Internally Inconsistent
Although Plaintiff’s response brief is frequently unclear, Plaintiff appears to
argue that the Loan Modification Agreement is internally inconsistent and can
reasonably be understood to say that Defendant must apply Plaintiff’s payments
during the remainder of the interest-only period to pay both the principal balance
on the First Mortgage as well as the accrued interest. (Dkt. 24, pp. 20-21.) In
support of his arguments, Plaintiff points to language found in four places: (1) the
first page of the Loan Modification Agreement;(2) certain portions of the Loan

11

Modification Agreement letter; (3) language in the First Note; and (4) sections of the
Truth in Lending Disclosure Statement (TILDS), which was part of the First
Mortgage. (Id. at pp. 7-8, 20-21.) Plaintiff’s interpretation of relevant language in
the Loan Modification Agreement is only plausible if the language is read in
complete isolation from the surrounding text, however; it becomes untenable when
read in the context of the agreement as a whole.
With respect to the first page of the Loan Modification Agreement, Plaintiff
quotes the Agreement as stating that “[b]orrower will continue to make monthly
payments until principal and interest are paid.” (Dkt. 24, p. 21.) In fact, the
Agreement states that once the interest only period expires, the borrower “will
continue to make monthly payments on the same day of each succeeding month
until principal and interest are paid in full […]” (Dkt. 19, Ex. 6 at p. 2.) While
Plaintiff contends that this statement supports his argument that the Agreement
required Plaintiff’s monthly payments during the interest-only period to also be
applied to reduce the principal balance, this reading takes the statement completely
out of context.
The paragraph in which this statement appears describes in detail Plaintiff’s
obligation to pay the entire “$530,027.49, (‘New Principal Balance’) plus interest.”
(Dkt. 19, Ex. 6 at p. 1.) In this paragraph, Plaintiff’s payment schedule through
September 1, 2016 is broken down into three phases. (Id.) Each phase includes
beginning and ending dates as well as the applicable interest rate. (Id.) In addition,
the description of each payment phase repeats, three times, that “[b]orrower

12

promises to pay monthly payments of interest” until the interest-only period
expires.5 (Id.) (emphasis added). Only then do we find the language identified by
Plaintiff, which describes the remaining period of payments, from September 2016
through August 2036, as the period after the conversion date of September 1, 2016,
when Plaintiff’s payments will actually reduce the principal. (Id.) Plaintiff’s position
that this paragraph of the agreement may be interpreted to mean that all payments
were to be applied to pay both principal and interest is untenable. Only when taken
completely out of context can the language relied upon by Plaintiff support this
reading. When read as a whole, the loan modification agreement does not support
Plaintiff’s position.
Plaintiff also relies on the June 24, 2010 letter, arguing that it is part of the
Loan Modification Agreement, although there is nothing in the letter to suggest
that, and Plaintiff does not present evidence of its intended incorporation into the
agreement. According to Plaintiff, the letter presents terms inconsistent with those
of the Loan Modification Agreement and suggests that Plaintiff’s initial payments
would reduce the principal balance as well as the interest. (See Dkt. 24, p. 12.) The
letter is a two-page confirmation letter consisting of five sections. (Dkt. 2, p. 70-71.)
Plaintiff points to several sections of this letter in support of his argument. First, he
argues that “[s]ection C expressly provides that Plaintiff Gogoe shall pay ‘Principal
and Interest and Escrow’” in clear contradiction of the rest of the agreement. (Dkt.
24, p. 20.) Next, Plaintiff argues somewhat inarticulately that “the June 24, 2010

For example, the Agreement states that “[b]orrower promises to pay monthly payments of interest
to U.S. $2,347.08, beginning on August 1, 2010 until July 1, 2014.” (Dkt. 19, Ex. 6 at p. 2.) (emphasis
added).
5

13

correspondence to the mortgage modifications Section A, 4th Paragraph it requires
payments of ‘unpaid Balance’” (Id. at 21.) Finally, Plaintiff asserts that “the
mortgage modification letter purports to increase the principal of the second
mortgage(sic).” (Id.)
Once again, when taken as a whole, the letter does not support Plaintiff’s
interpretation. Section C of the letter does include the phrase “Principal and
Interest and Escrow” as Plaintiff alleges, but rather a general notice of the total
interest-free $6,027.49 secondary principal amount “included in the Loan
Agreement.” (Dkt. 2, Ex. J at 70.) This phrase is a mere category descriptor that
does not imply that Plaintiff will be required to pay any interest on this amount or
that his monthly payment would be applied to the principal. All Section C clarifies
is that a total of $6,027.49 in “Principal and Interest and Escrow” has been included
in the loan agreement. This does not clearly contradict the agreement itself, which
explicitly states that this new secondary principal amount is interest-free and will
become due when the loan matures, or when Plaintiff sells or transfers an interest
in the property or defaults on the loan. (Dkt. 19, Ex. 6 at pp. 2-3.)
Moreover, while the fourth paragraph under Section A of the letter does give
an address to mail “the payment towards the unpaid balance amount,” any such
payment is due by July 4, 2010 only “if required” and is not, as Plaintiff argues,
required per se. (Dkt. 2, Ex. J at p. 69) (emphasis added). The third paragraph,
found immediately above the paragraph Plaintiff cites to, states that “the unpaid
balance amount” is $0. (Id.) Section D of the letter also states that the “payment

14

towards the unpaid balance” is $0. (Id. at 70.) The only payment described in the
letter is the monthly “interest only payment” of $2,347.08 listed in Section B. (Id.)
The letter therefore makes clear that there is no “unpaid balance amount” required,
but that Plaintiff will pay $2,347.08 in interest each month, consistent with the
terms of the agreement.6
Finally, the letter does state in Section C that the $6,027.49 in interest-free
principal “will be included in [Plaintiff’s] second mortgage loan.” (Id.) Plaintiff
argues that this is inconsistent with the loan modification agreement because the
agreement purports to modify the First Mortgage and Note and not increase the
principal of the Second Mortgage. (Dkt. 24, p. 12.) It is true that the agreement adds
the $6,027.49 in new principal to the original principal of the First Mortgage and
Note, and does not explicitly mention the Second Mortgage. (See Dkt. 19, Ex. 6, at
pp. 2-3.) Plaintiff, however, will not be charged any interest on this new secondary
principal amount, and will only have to pay it when the loan matures on August 1,
2036, or when sells or transfers an interest in the property or defaults on the loan.
(Id. at 3.) To the extent that the letter is inconsistent with the agreement in this
respect, this inconsistency is immaterial and does not render the agreement
unconscionable.
In addition to the language Plaintiff cites in the letter and the agreement, the
Court notes that Section B of the letter, titled “Monthly Payment Breakdown,”

As the loan modification agreement makes clear, this payment amount was what Plaintiff was
required to pay beginning on August 1, 2010 until July 1, 2014. (Dkt. 19, Ex. 6 at p. 2.) At the time
the agreement was entered into and the letter drafted, this was Plaintiff’s new monthly interest-only
payment amount. As the agreement explains, however, that payment amount will increase in stages
through September 1, 2016. (Id.)
6

15

describes Plaintiff’s payments as interest only and amounting to $2,347.08 per
month. (Dkt. 2, Ex. J at 70.) Furthermore, this Section clarifies that the “principal
and interest payment” is $0. (Id.) Far from bolstering Plaintiff’s interpretation of
the letter, Section B renders it even less reasonable. The loan modification
agreement clearly details: (1) Plaintiff’s new payment obligations during the
interest-only period of the loan; and (2) the amount of new interest-free principal
added to the original $524,000.00 principal amount and the conditions of
repayment. (Dkt. 19, Ex. 6, pp. 2-3.) Nothing in the letter contradicts these terms.
Although Plaintiff does not formally allege that Defendant breached the First
Mortgage, he relies on language in the First Note to argue that the First Mortgage
as modified by the Loan Modification Agreement requires Defendant to apply some
percentage of his payments during the interest-only period to reducing the principal
on the First Note. (Dkt. 2, pp. 7-8.) In particular, Plaintiff references language in
paragraph 3(A) of the First Note stating that Plaintiff agrees to “make these
payments every month until I have paid all of the principal and interest and any
other charges described below that I owe under this Note.” (Dkt. 19, Ex. 1 at p. 2.)
Reading the Note as a whole, however, it is clear that this statement simply
describes the borrower’s agreement to make all the payments on the Note, whether
interest, principal, or other charges. It says nothing whatsoever about whether
certain payments will be applied to interest only or to the principal and interest
both.

16

The following paragraph, paragraph 3(B), makes it absolutely clear that the
initial monthly payments will be applied only to the interest. It reads: “Before the
first fully amortizing principal and interest payment due date stated in subsection
(C) below (the ‘First P&I Payment Due Date’), my monthly payments will be only
for the interest due on the unpaid principal of this Note.” (emphasis added).
Moreover, paragraph 3(C), titled “Monthly Payment Changes,” states that the first
“P & I” payment due date is not until September 1, 2016. (Id.) Plaintiff’s argument
that any language in the First Note could be reasonably interpreted to mean that
Plaintiff’s initial payments would be applied to both interest and principal finds no
support in the language of the Note itself.
Finally, Plaintiff alleges that there is similar language in Truth in Lending
Disclosure Statement for the First Mortgage, or TILDS 1. (Dkt. 24, pp. 7-8.)
Plaintiff argues that Defendant “caused uncertainty and ambiguity by purposefully
stating in the Adjustable Rate Note and TILDS that borrower will pay Principal
and interest by making payments…and then providing a payment schedule which is
inconsistent with, and not based on the interest rate listed in the Adjustable Rate
Notes.” (Id.) Plaintiff, however, does not cite to any specific language in the First
Mortgage’s TILDS in his response brief, and after careful examination of the
document, the Court cannot determine what statement Plaintiff is relying upon
support his claim. (See Dkt. 19, Ex. 3 at 2.) The payment schedule disclosed in the
TILDS clearly states that Plaintiff is to make 120 “interest-only” payments between
September 1, 2006 and September 1, 2016. (Id.) Ultimately, Plaintiff’s

17

interpretations of the Loan Modification Agreement as inconsistent, or as requiring
Defendant to apply some percentage of Plaintiff’s payments to reducing the
principal balance during the interest-only period, are unsupported by the
Agreement as a whole. The Loan Modification Agreement is not ambiguous and
clearly states that Plaintiff’s payments will not reduce the principal amount on the
First Note until September 1, 2016. Accordingly, Plaintiff cannot rely on the fact
that Defendant has not yet applied his payments toward reducing the principal
balance of the First Mortgage to establish a claim for breach.
2. Defendant Has Not Breached the Loan Modification Agreement
While a contract clearly exists between Plaintiff and Defendant, Plaintiff has
not plead sufficient facts to state a plausible claim that Defendant has breached the
Loan Modification Agreement. To recover for breach of contract under Michigan
law, a Plaintiff must allege (1) the existence of a contract, (2) the terms of the
contract, (3) that the Defendant breached the contract, and (4) that the breach
caused Plaintiff injury. See Webster v. Edward D. Jones & Co., L.P., 197 F.3d 815,
819 (6th Cir. 1999). Plaintiff alleges that Defendant breached the Loan Modification
Agreement by (1) failing to apply portions of Plaintiff’s payment to the principal
amount on the note, adding $6,027.38 to the principal; (2) causing negative
amortization; and (3) otherwise increasing the total amount that Plaintiff has to pay
on the First Mortgage. (Dkt. 2.) None of these claims are sufficient to avoid
dismissal.

18

Plaintiff alleges that Defendant has not applied any of his payments to the
principal balance on the First Note. (Dkt. 2, p. 2.) However, neither the First
Mortgage nor the Loan Modification Agreement obligates Defendant to apply
Plaintiff’s payments to the principal balance until September 1, 2016. (Dkt. 19, Ex.
1 at p. 2, Ex. 6 at pp. 2-3.) The Mortgage Agreements before the Court have been
honored, and there is no support for the inference that Defendant has breached the
Loan Modification Agreement by failing to apply some of Plaintiff’s monthly
payment to the principal. Plaintiff cannot point to any part of these contracts which
require Defendant to so apply the payments until September 2016.
In addition, Plaintiff’s claim that Defendant breached the Loan Modification
Agreement by creating “negative amortization” and increasing the total costs that
Plaintiff had to pay must also be dismissed. Negative amortization occurs when a
borrower’s monthly payment is insufficient to pay off the interest accrued over that
month and the remaining accrued interest is added to the interest bearing loan
balance.7 See Peter Moles and Nicolas Terry, “Negative Amortization” in The
Handbook of International Financial Terms (online ed. 2005), available at http:// 
http://www.oxfordreference.com. Rather than create negative amortization as
Plaintiff alleges, the Loan Modification Agreement reduces the amount that
Plaintiff has to pay per month until August 1, 2015 at which point the loan

For example, if a borrower borrows $100,000 at an interest rate of 1% per month, but only makes
payments of $500 per month, negative amortization will occur. After the first month, $1000 of
interest will have accrued. Although $500 in accrued interest is paid off by the first payment, the
other $500 (from the first month of accrued interest, which was not paid) is added to $100,000,
increasing the total amount due. The next month, the borrower will be charged 1% interest on
$100,500 rather than $100,000.
7

19

continues as outlined in the First Mortgage. (Dkt. 19, Ex. 6 at 2.) A reduction in
payments could cause negative amortization if there is not a corresponding
reduction in the interest rate, but in this case the interest rates were reduced. (Id.)
The $6,027.49 added to the principal balance in the Loan Modification Agreement
cannot create negative amortization either as Plaintiff is not charged any interest
on it per the terms of the agreement. (Id.)
Moreover, Plaintiff has not alleged any facts suggesting that Plaintiff will
ultimately have to pay more under the Loan Modification Agreement. The Loan
Modification Agreement reduces Plaintiff’s payments from $3,165.83 per month to
$2,347.08 per month for 48 months and to $2,783.75 for 12 months, resulting in a
net savings to Plaintiff of $43,884.96. (Id.) The only other effect that the Loan
Modification Agreement has is to require Plaintiff to pay $6,027.49 by the end of the
loan. (Id.) Ultimately, the Loan Modification Agreement reduces the total amount
that Plaintiff has to pay by $37,857.47. (See id.)
Considering the terms of the Loan Modification Agreement, and taking into
account Plaintiff’s claims, there is no plausible allegation that Defendant has
breached the Loan Modification Agreement. There are no facts alleged that suggest
that negative amortization has occurred or that Plaintiff is being forced to pay more
than he had to previously. Those facts that Plaintiff does allege, when examined in
the context of the agreement, mortgages, and notes, actually support the position
that Defendant is in full compliance with the Loan Modification Agreement.
Therefore, this claim will be dismissed.

20

C. Count II: Breach of the Second Mortgage Agreement
Plaintiff alleges that Defendant has breached the Second Mortgage by failing
to disclose clearly that there were fees for paying off the loan early and that there
was a huge balloon payment at the end of the loan. (Dkt. 2, ¶¶ 58-66.) However,
these terms were clearly disclosed on the Truth in Lending Disclosure Statement for
the Second Mortgage (“TILDS 2”). (Dkt 2, p. 43.) TILDS 2 indicates that if Plaintiff
pays off the loan early, he “may have to pay a penalty” and lists one large balloon
payment of $103,216.34 due on August 4, 2021 in addition to 179 monthly payments
of $999.40 beginning on September 4, 2006. (Id.) The Second Note is consistent with
these terms, indicating that Plaintiff “agree[s] to pay a prepayment fee of
$500.00…if [borrower] prepay[s] this note in full at any time within the first (3)
years after the date of this note” and that Plaintiff agrees to “pay a final balloon
payment equal to the unpaid Principal plus all remaining interest.” (Dkt. 19, Ex. 4
at pp. 3-4.) Because Plaintiff has not alleged any facts that suggest that Defendant
has breached the Second Mortgage, this claim will also be dismissed.
D. Count III: Fraudulent Misrepresentation Claim
Finally, Plaintiff alleges that Defendant is liable for fraudulent
misrepresentation.8 To plead a claim of fraudulent misrepresentation in Michigan,

 Plaintiff also alleges that Defendant is liable for innocent or silent misrepresentation. (Dkt. 2, p.
11.) In Michigan, a claim for innocent misrepresentation is shown where a party detrimentally relies
on a false representation in such a manner that the injury inures to the benefit of the party making
the misrepresentation. Roberts v. Saffell, 280 Mich.App. 397, 404, 760 N.W.2d 715 (2008). It is
unnecessary to prove that the party making the representation had knowledge that it was false. Id.
There must be privity of contract between the party making the representation and the party
claiming to have detrimentally relied on it. Id. Innocent misrepresentation is different from
fraudulent misrepresentation in that in a common law fraud action, Plaintiff must establish that the
defendant knowingly or recklessly misrepresented a material fact with the intent that the other
8

21

Plaintiff must plead (1) that Defendant made a material representation, (2) that it
was false, (3) that when he made it he knew that it was false, or made it recklessly,
without any knowledge of its truth and as a positive assertion, (4) that he made it
with the intention that it should be acted upon by Plaintiff, (5) that Plaintiff acted
in reliance upon it, and (6) that he thereby suffered injury. See U.S. Fid. & Guar.
Co.v. Black, 412 Mich. 99, 313 N.W.2d 77, 82 (1981). Moreover, Federal Rule of Civil
Procedure 9(b) requires Plaintiffs to plead “with particularity the circumstances
constituting fraud.” To survive a motion to dismiss pursuant to Federal Rule of Civil
Procedure 12(b)(6), Plaintiff must “specify the statement they contend is fraudulent,
identify the speaker, time, and location of the statement, and explain why the
statement is indeed untrue or a misrepresentation.” Rautu v. U.S. Bank, 557 Fed.
Appx. 411, 414 (6th Cir. 2014).
In his Complaint, Plaintiff simply asserts that Defendant “made material
false representations” concerning the amortization schedule and principal amount
that Defendant “knew were false or made such representations recklessly, without
knowledge of their truth and as a positive assertion,” with the intention that
Plaintiff would rely on them. (Dkt. 2, ¶¶ 69-76.) Plaintiff, however, does not allege
that whether those statements were oral or written, that a particular person made

party rely on it. Id. As to silent fraud, a Plaintiff must prove Defendant knew of a material fact but
concealed or suppressed the truth through false or misleading statements or actions with the intent
to deceive. Id. at 405, 760 N.W.2d 715. Plaintiff does not allege any facts that would support either of
these claims. (See Dkt. 2.) Because the Sixth Circuit has held that fraud claims, including innocent
misrepresentation and silent fraud claims under Michigan law, must meet the particularity
requirements under Rule 9(b), these claims fail for the same reason as Plaintiff’s claim for
fraudulent misrepresentation. Smith v. Bank of America, Corp., 2012 WL 2301645 (6th Cir. Jun.8,
2012).  
22

them, that they were made at any particular time or place, nor does he identify how
they were false.
In his response brief to this motion, Plaintiff points to the June 24, 2010
letter as a fraudulent misrepresentation made by Defendant, perhaps suggesting
that the entire letter is a particular fraudulent statement. (Dkt. 24, pp. 15-16.)
Plaintiff fails to quote any particular language in the letter that he considers
fraudulent, or explain why such language is fraudulent. Instead, Plaintiff repeats
his assertion that the letter “indicates that principal will be paid” and that
Defendant “added $6,027.49 to the principal of the first mortgage loan,” creating
negative amortization. (Id. at 16.) As the Court explained above, the letter clearly
indicates that Plaintiff’s payments will be applied to the principal beginning in
September 2016 and the additional principal cannot create negative amortization
because interest will not be charged on it. Plaintiff fails to allege that Defendant
made this representation knowing that it was false or that Plaintiff suffered any
injury from any misrepresentation in the letter.
In sum, the terms of Plaintiff’s mortgages are clearly onerous for the
borrower and arguably unfair. The Court, however, is not authorized to re-write
contracts in order to rescue one party or another from a bad deal. The Court must
analyze the claims and determine whether they meet the applicable legal
standards. Here, Plaintiff has failed to plead his fraudulent misrepresentation
claim in accordance with Michigan Law and Rule 9(b). Consequently, this claim
must be dismissed. As to both of Plaintiff’s breach of contract claims, these will be

23

dismissed because Plaintiff has not alleged facts sufficient to state a plausible claim
that Defendant breached either the Loan Modification Agreement or the Second
Mortgage.
III. CONCLUSION
For the reasons stated above, Defendant’s motion to dismiss (Dkt. 19.) is
GRANTED with prejudice with respect to all of Plaintiff’s claims.
SO ORDERED.
s/Terrence G. Berg
TERRENCE G. BERG
UNITED STATES DISTRICT JUDGE
Dated: September 21, 2015
Certificate of Service
I hereby certify that this Order was electronically submitted on September
21, 2015, using the CM/ECF system, which will send notification to each party.
s/A. Chubb
Case Manager

24