Montalvo v. Bank of America Corporation et al
ORDER GRANTING 47 Motion for Summary Judgment on Plaintiffs DTPA and unreasonable collection efforts, and certain aspects of Plaintiffs breach ofcontract claims. Signed by Judge Xavier Rodriguez. (tm, )
UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
BANK OF AMERICA CORPORATION,
BANK OF AMERICA, N.A.,
Civil Action No. SA-10-CV-360-XR
On this date, the Court considered the Magistrate Judge’s Report and Recommendation issued
January 6, 2012 (docket no. 88), and the objections thereto. Therein, the Magistrate Judge
recommends granting Defendants’ Motion for Summary Judgment (docket no. 47).
In connection with the purchase of her home, Plaintiff Lisette Montalvo executed a
Promissory Note, which was secured by a Deed of Trust, for $184,568 made payable to Countrywide
KB Home Loans. MERS was named as a beneficiary and nominee of the Lender (Countrywide). In
2009, both the Note and Deed of Trust were assigned by MERS as nominee to Defendant BAC Home
Loans Servicing, LP f/k/a Countrywide Home Loans Servicing, LP (“BAC”).
In the Summer of 2009, Montalvo began having trouble making payments. Bank of America
(“BoA”), on behalf of BAC,1 sent a letter to Montalvo on July 6, 2009, stating that Plaintiff’s loan
The letter notes that “BAC Home Loans Servicing, LP is a subsidiary of Bank of America,
N.A.” Docket no. 47, Ex. C-8. It appears that Bank of America purchased Countrywide at some
time before Plaintiff defaulted.
was “in serious default” because the May and June payments had not been made. The letter informed
Plaintiff of her right to cure the default by August 10, 2009, as well as other “options that may be
available to you through BAC Home Loans Servicing, LP to prevent a foreclosure sale of your
property,” including repayment assistance, loan modification, sale of the property without foreclosure,
or a deed-in-lieu of foreclosure.
Plaintiff alleges that she sought information from BAC, the loan servicer, regarding the loan,
including what services BAC offered to persons having trouble making their mortgage payments.
Plaintiff alleges that she had an absolute right under the Deed of Trust to cure any defaults, and had
family resources available to do so. BAC allegedly informed Plaintiff that it could give her the
information she needed to cure any default on her existing loan, and could also provide other services
relating to Plaintiff’s eligibility to participate in the government’s Making Home Affordable Program.
Plaintiff alleges that when BoA accepted $25 billion from the United States Government related to
its purchase of Countrywide, it entered into a Commitment to Purchase Financial Instruments and
Servicer Participation Agreement for the Home Affordable Modification Program (“HAMP”)
sponsored by the Federal National Mortgage Association (“Fannie Mae”).
Plaintiff alleges that on October 5, 2009, BAC represented to the Plaintiff’s agents that
Plaintiff would be eligible to participate in a trial loan modification offered by BoA under HAMP.
BAC allegedly told Plaintiff that, instead of making her delinquent payments as she had the right to
do under the Deed of Trust, she should use their services and participate in one of the many programs
available to borrowers under government programs such as HAMP. Plaintiff alleges that when she
“offered to cure any delinquency in her mortgage during the pendency of the Defendant’s preparation
of the documents, ... her offer was refused” and she was “informed that the best avenue for her to
follow in order to qualify for the benefits of the various programs offered by the government, she
should stay in default under the Note.”
Plaintiff alleges that BAC represented to Plaintiff that she should make three consecutive
monthly payments of $1,091.00, and in turn, the payments would and could postpone any pending
foreclosure.2 BAC allegedly told Plaintiff it would forward a written agreement placing the Plaintiff
on a permanent loan modification upon verification of financial statements, which BAC would
compile and send to the appropriate agency for processing. Plaintiff alleges and provides summaryjudgment evidence that on October 6, 2009, the day after the agreement was made, she submitted a
payment to BAC in the amount she was told. Plaintiff alleges that the events in October 2009 are just
the first in a series of events where BAC knowingly induced Plaintiff to breach and/or forego her
rights under the Note and Deed of Trust, which continued through the filing of the Complaint.
The Defendants’ summary-judgment evidence indicates that Defendants, through counsel,
served notice (by certified mail) to Montalvo on October 7, 2009 that the maturity of the Loan had
been accelerated and that the property would be sold at a foreclosure sale on November 3, 2009.
Docket no. 47, Ex. B-1. The notice provided that “[a]ll of the obligors and guarantors (if any) of the
Debt have the right to reinstate the loan as provided in the Deed of Trust and as provided by
applicable Texas law.” Id.
Plaintiff’s affidavit states that she contacted BoA on October 27, 2009, and that BoA
personnel confirmed that a verbal trial payment plan was offered by a BoA representative on October
5, and that Plaintiff’s payment of $1,091.00 was received in accordance with the agreement. The BoA
Plaintiff’s monthly payment of principal and interest under the mortgage was $1,290.53.
Docket no. 47, Ex. C-3.
representative stated that nothing further needed to be done to prevent the foreclosure. Plaintiff states
that she could have paid the arrearage at that time, but did not do so. However, on November 3, 2009,
BAC foreclosed and purchased the home at a sheriff’s sale. On November 20, 2009, BAC instituted
eviction proceedings, but the proceeding were dismissed when Plaintiff’s “lawyer got involved.”
Plaintiff states that, after the foreclosure, she “once again sought the services of BOA to
attempt to obtain relief under HAMP from the note holder.” On February 2, 2010, Plaintiff entered
into a “Negotiation Agreement” with BAC. Plaintiff alleges that BAC told her that it would help her
obtain assistance and review under HAMP and sent her instructions on how to fill out the government
forms that were necessary to qualify for one of the available government programs. Defendants
allegedly agreed to prepare and present to a “designated agent” the appropriate information that would
allow Plaintiff to obtain benefits under the appropriate government program, and that the services it
provided would include advice regarding the manner in which Plaintiff should make her monthly
payments to qualify for assistance under HAMP or other government programs. Plaintiff alleges that
BAC advised Plaintiff of the necessary steps to take to qualify for HAMP assistance, which included
more than loan modification. Plaintiff alleges that she understood that BAC would receive
compensation for the services rendered to her by charging fees to her lender.
For reasons that are not apparent from the record, BAC agreed to set aside the foreclosure, and
did so on February 25, 2010. The Rescission Deed states that BAC agreed to “rescind the
acceleration of the indebtedness, reinstate the Note and Deed of Trust existing immediately prior to
such foreclosure and conveyance, and return the parties to the status quo existing thereunder.”
The summary-judgment evidence indicates that Defendants again served notice (by certified
mail) to Montalvo on March 3, 2010 that the maturity of the Loan was accelerated and that the
property would be sold at a foreclosure sale on April 6, 2010. Docket no. 47, Ex. B-2. The notice
provided that “[a]ll of the obligors and guarantors (if any) of the Debt have the right to reinstate the
loan as provided in the Deed of Trust and as provided by applicable Texas law.” Id.
Plaintiff alleges that, since February 2010, she has attempted to determine her eligibility for
HAMP or other programs for which BAC has represented that it would determine Plaintiff’s
eligibility. BAC has informed Plaintiff that the workout assistance she sought was not an option
(November 2009), that no information could be given without proper authorization (December 23,
2009), that BAC could not provide a response within the time frame originally quoted (March 4,
2010), that BAC was still in need of additional documentation to complete Plaintiff’s loan
modification review (October 4, 2010), and that the hardship letter could not be found (October 8,
2010). Plaintiff asserts she still has not been told that she does not qualify for HAMP, and that the
most recent request by BAC regarding necessary documentation was at the end of November 2010.
Plaintiff alleges that, despite representing that no foreclosure would be held during the loss mitigation
eligibility review, and despite continuing such review from February through November 2010, BAC
again accelerated the Note and posted the home for foreclosure in April 2010. She further states that
she has learned that she was denied a loan modification because she is more than twelve months
delinquent, even though Defendants told her not to make the note payments so that she could qualify
for a government loan modification.
Plaintiff commenced this lawsuit in state court on April 5, 2010 to prevent the scheduled
foreclosure. Defendants timely removed the case on the basis of diversity jurisdiction.3 Plaintiff
asserts claims for breach of contract, unreasonable collection efforts, and DTPA violations. On June
24, Defendants moved for summary judgment. Defendants contend that: (1) Plaintiff’s claims relying
upon an alleged oral agreement to modify the terms of her loan are barred by the Statute of Frauds,
and no exception applies; (2) the HUD regulations that Plaintiff claims were breached do not apply
to her loan4; (3) Plaintiff cannot maintain a DTPA claim because she is not a consumer; and (4) the
record refutes the allegation that Defendants engaged in unreasonable collection efforts.
On July 29, Plaintiff filed a Second Motion to Amend Complaint (docket no. 58) and a
response to the motion for summary judgment. Acknowledging that the HUD regulations cited in the
complaint do not apply, Plaintiff sought to change the reference to the applicable HUD regulations
from 24 C.F.R. § 201.50 to 24 C.F.R. § 203.604. The language of Paragraph 5.3 of the current
Complaint generally tracks the language of 24 C.F.R. § 201.50. Thus, it is not the case that Plaintiff
included language from § 203.604 but erroneously included the wrong citation.5 Defendants opposed
This Court has diversity jurisdiction, and claims against the Substitute Trustee have been
BAC pointed out that 24 C.F.R. § 201.50, the HUD regulation cited in the Amended
Complaint, is located in the title governing “Title I Property Improvement and Manufactured Home
Loans,” and thus does not apply to Plaintiff’s loan.
The proposed Second Amended Complaint would state:
The Note states that BAC’s ability to accelerate the terms of the Note are subject to
the regulations issued by the Secretary of the Department of Housing and Urban
Development. The regulations are found at 24 C.F.R. § 203.500, et seq, Subpart
C—Servicing Responsibilities. Section 203.604, Contact with the Mortgagor,
requires that BAC may only institute foreclosure proceedings in certain
circumstances. In particular, BAC is required to contact the Plaintiff, either in a
face-to-face meeting prior to accelerating the Note. If the Plaintiff had been allowed
a face to face meeting with BoA, she presumably would have been correctly informed
the proposed amendment on the ground that it would be futile and because Plaintiff failed to satisfy
the good cause standard of Rule 16. As discussed below, the Magistrate Judge denied the motion for
leave to amend.
Plaintiff’s response to the motion for summary judgment states that she “cannot dispute that
one or the other of the Defendants are the owners of her Note and Deed of Trust.” However, Plaintiff
contends that (1) Defendants are estopped from asserting Plaintiff’s default as a defense to her claim
for breach of contract because Defendants induced her default; (2) the statute of frauds defense fails
because HUD regulations, which are incorporated into the note, allow oral forbearance agreements,
and thus oral modification of the time for payment is allowed by the terms of the contract; (3) Plaintiff
may assert BOA’s breach of the HUD regulations requiring a face-to-face meeting; (4) the following
exceptions to the statute of frauds also apply: (i) oral extensions of time to make payments are outside
the statute of frauds, (ii) partial performance; (5) material fact issues exist concerning Plaintiff’s
consumer status for DTPA purposes; and (6) fact issues exist as to her unreasonable collection efforts
On August 19, Defendants filed a motion to strike Plaintiff’s Summary Judgment Evidence
(docket no. 62). Defendants complained that Montalvo’s Affidavit contradicts her prior deposition
testimony, and moved to strike specific statements from her Affidavit. Defendants also objected to
the third page of the “Negotiation Agreement” attached as Exhibit B to Montalvo’s Affidavit,
asserting that the third page is fraudulent and not part of the Agreement. Defendants moved to strike
the third page and statements in the Affidavit that rely on it. Last, Defendants objected to the affidavit
of what she needed to do and the acceleration and foreclosure could have been
avoided. As a direct and proximate result of BAC’s breach of the Note, the Plaintiff
has suffered damages as set forth below.
of Gregory Rubiola as improper expert testimony. On August 31, Defendants also filed a motion to
exclude Plaintiff’s Experts.
On October 10, the Court referred the pending motions to Magistrate Judge Nowak pursuant
to Rule 72. On December 13, she issued orders denying Plaintiff’s Motion for Leave to Amend
Complaint (docket no. 79), denying Defendants’ Motion to Exclude Plaintiff’s Expert Witnesses
(docket no. 81), and denying Defendants’ Motion to Strike Summary-Judgment Evidence (docket no.
82). Defendants filed an objection to the denial of their motion to strike the summary-judgment
evidence (docket no. 84). On January 6, 2012, the Magistrate Judge issued her Report and
Recommendation on Defendants’ motion for summary judgment, in which she recommends that the
motion be granted. Plaintiff timely filed her objections on January 20. And Defendants also timely
filed their objection to the denial of their motion to exclude Plaintiff’s experts (docket no. 91).
Defendants responded to Plaintiff’s objections on January 31. Plaintiff did not object to the denial
of her motion for leave to amend. Thus, all issues are ripe for disposition.
The Magistrate Judge recommends granting Defendants’ Motion for Summary Judgment,
which addresses the claims in Plaintiff’s First Amended Complaint, including breach of contract,
DTPA violations, and unreasonable collection efforts. The Magistrate Judge found that Plaintiff
effectively abandoned her unreasonable collection efforts claim and thus recommends summary
judgment be granted on that claim. On the breach of contract claim, the Magistrate Judge concluded
that: (1) the claim based on an alleged agreement to modify the payment terms of the loan is barred
by the statute of frauds for loan agreements; (2) the equitable estoppel exception to the statute of
frauds does not apply; (3) an oral extension of time to make payments on the loan is also barred by
the statute of frauds; (4) the partial performance exception to the statute of frauds does not apply; (5)
the claim based on insufficient notice of default and foreclosure fails as a matter of law; and (6) the
claim based on violation of the HUD regulations fails as a matter of law because the regulation does
not apply to Plaintiff’s loan, and even considering the proper regulation, the summary-judgment
evidence indicates that the regulation was not breached. The Magistrate Judge also found that
Plaintiff’s request to equitably enforce the agreement to modify the loan should be denied. Last, with
regard to the DTPA claim, the Magistrate Judge concluded that Plaintiff was not a consumer for
purposes of the DTPA.
Plaintiff filed objections, arguing that (1) Montalvo is a consumer for purposes of the DTPA
claim, and fact issues preclude summary judgment on this claim; (2) the statute of frauds does not bar
the breach-of-contract claim because (i) the doctrine of equitable estoppel precludes Defendants from
asserting a breach based on Plaintiff’s making payments in the amount they directed, (ii) the HUD
regulations, which are incorporated into the Note, allow oral forebearance agreements, and (iii) the
doctrine of partial performance is an applicable exception to the statute of frauds; and (3) a jury
should decide whether Defendants’ twice posting Plaintiff’s home for foreclosure after telling her they
would not is “willful and wanton” and thus amounts to unreasonable collection efforts.
A. Whether Plaintiff is a DTPA consumer?
The Magistrate Judge recommends granting summary judgment on the DTPA claim because
the Plaintiff is not a consumer. The DTPA permits only a “consumer” to sue, and a consumer is one
who seeks or acquires, by purchase or lease, goods or services. TEX . BUS. & COMM . CODE § 17.45.
Under Texas law, money (including loans) and intangibles are not “goods,” and thus this case turns
on whether Plaintiff sought “services” by purchase or lease. The Texas Supreme Court has defined
the term “services” as “action or use that furthers some end or purpose: conduct or performance that
assists or benefits someone or something: deeds useful or instrumental toward some object.”
Riverside Nat’l Bank v. Lewis, 603 S.W.2d 169, 174 (Tex. 1980). In other words, “services” is
“similar in nature to work or labor” and includes an activity on behalf of one party by another. Id.
In Riverside Bank v. Lewis, the Texas Supreme Court held that seeking an extension of credit
or borrowing money is not seeking a service under the DTPA. And it also held that incidental
services provided by a bank in the course of extending credit, such as “help in filling out [a] loan
application, financial counseling, and the processing of [a] loan,” were not DTPA services because
(1) the plaintiff’s goal was to obtain money (by refinancing his car loan), (2) the argument that
services existed in the lending of money was not supported by the evidence but was merely
hypothetical, and (3) the plaintiff made no complaint about the quality of the collateral activities that
he claimed to be a service. Id. at 175.
The Magistrate Judge cited to a number of federal court cases in which the courts have
concluded that a person seeking a loan modification under HAMP using a loan servicer is not a DTPA
consumer. Plaintiff contends that the federal court cases cited by the Magistrate Judge do not address
the type of evidence offered by Plaintiff, and that the Magistrate Judge failed to liberally construe the
DTPA. Plaintiff contends that it is the Plaintiff’s intent in seeking to acquire services that determines
consumer status, and that a loan transaction may include a DTPA “service” if the activity at issue is,
from the plaintiff’s point of view, an objective of the transaction, not merely incidental to it. Plaintiff
cites to La Sara Grain Co. v. First Nat’l Bank, 673 S.W.2d 558, 567 (Tex. 1984), in which the Texas
Supreme Court held that a lender may be subject to a DTPA claim if the borrower’s objective is the
purchase or lease of a good or service, thereby qualifying the borrower as a consumer.
Plaintiff recognizes that courts have not necessarily agreed on when ancillary services are an
“independent objective” as opposed to incidental to a loan. Plaintiff cites Federal Deposit Insurance
Corp. v. Munn, 804 F.2d 860 (5th Cir. 1986), in which the Fifth Circuit noted that consumer status
is ordinarily a question of law, but may be a fact question that must be submitted to the jury “if the
existence of an agreement for services collateral to a credit extension is a ‘basic ingredient’ of DTPA
consumer status” in the case. Id. at 863. The Munn court further discussed Riverside Bank v. Lewis
and noted that “Texas courts have generally confined Riverside’s denial of consumer status to cases
in which the loan is the sole basis of the complaint and was the plaintiff’s central objective.” Id. at
The Munn court further discussed “three categories of cases involving intangibles, from which
emerges the key principle to determining consumer status under the DTPA: the purchased goods or
services must be an objective of the transaction, not merely incidental to it.” Id. at 865. Thus,
Flenniken, which involved mortgagor activities connected with the purchase of a home, represents
the category of cases in which a loan is connected to the purchase of a good, which is the objective
of the transaction, and thus the court finds as a matter of law that the plaintiff is a consumer. In
contrast, Riverside Bank and Ritenour “reflect the tension in the statute when the objective of the
transaction is the exchange of intangibles.” Riverside Bank “represents the category of cases in which
the court denies consumer status because the transaction’s sole objective is the exchange of
intangibles (present money for future money or money for stocks) and because the complaint’s basis
is the purchase of the intangible instead of any collateral services.” Ritenour “represents the category
of cases in which the court grants consumer status even though an important objective is the purchase
of an intangible, for the service that forms the basis of the complaint is also an important objective
of the transaction and hence is a purchased ‘service.’” Id. The distinction is a difficult one, as
recognized in Munn: “Unfortunately, Ritenour does not clearly identify when an activity is an
objective of a transaction that also involves an intangible and when the activity is merely incidental
to the central objective of acquiring the intangible.” Id.
The Magistrate Judge noted that Texas federal courts addressing DTPA claims like
Montalvo’s have concluded that a person seeking a loan modification under the HAMP using a loan
servicer is not a consumer under the DTPA. MNR at 19 n.69 (listing cases). These cases generally
view the facts as a straightforward application of Riverside Bank v. Lewis (although the Court notes
that Riverside Bank did not foreclose a DTPA claim upon proper proof). Montalvo criticizes the
Magistrate Judge for not considering cases from Texas state courts as opposed to federal courts, and
emphasizes that “the services in this case are alleged to be performed by [BAC], who is not the
lender, and who negotiates loan renewals between the customers whose loans it services, the
Government, and borrowers like the Plaintiff.” Pl. Obj. at 11.
By way of background, HAMP is a government program in which participating mortgage
servicers determine whether mortgagors are eligible for permanent loan modification. Certain
mortgage servicers (such as servicers of loans owned or guaranteed by Fannie Mae or Freddie Mac)
are required to participate, and those who voluntarily participate enter into contracts with Fannie Mae
as the Department of Treasury’s agent, through which they agree to review potentially eligible
homeowners who ask to be considered for HAMP and receive incentives in exchange.6 In this case,
the evidence shows that BAC was the mortgage servicer and thus was the entity responsible for
determining whether Montalvo was eligible for HAMP.
This Court considered the issue of DTPA consumer status in Pagan-Negron v. Wells Fargo,
Civ. A. No. 11-CV-398, Docket no. 17 (W.D. Tex. Sept. 6, 2011). In Pagan-Negron, the plaintiff
made allegations similar to those asserted by Montalvo in this case. Pagan-Negron argued that she
was seeking a complete review of her loan modification applications with the objective of saving her
home, and was thus seeking services and not merely an extension of credit. This Court reviewed
certain Texas cases cited by the plaintiff, including Herndon v. First National Bank of Tulia, 802
S.W.2d 396 (Tex. App.–Amarillo 1991, writ denied), Commercial Escrow Co. v. Rockport Rebel,
Inc., 778 S.W.2d 532, 536 (Tex. App.–Corpus Christi 1989, writ denied), Juarez v. Bank of Austin,
659 S.W.2d 139, 142 (Tex. App.–Austin 1983, writ ref’d n.r.e.), Fortner v. Fannin Bank, 634 S.W.2d
74, 75-76 (Tex. App.–Austin 1982, no writ), and Knight v. Int’l Harvester Credit Corp., 627 S.W.2d
382, 389 (Tex. 1982), in which Texas courts had found the plaintiff to be a DTPA consumer.
Though these cases involved loans, the courts found that the plaintiffs sought services
independent from the loan. In Herndon, it was purchased financial services (“financial advice on
where and when to obtain financing, or abstain from borrowing and how to structure the various
financial arrangements”). In Rockport Rebel, it was escrow services used in connection with a
financed sale of real property. In Juarez, the plaintiff “specifically requested and was provided other
‘services’ including the credit insurance” that was the subject of the complaint. In Fortner, the bank
allegedly agreed to process the title papers to Fortner’s car, and that was the subject of the complaint.
And in Knight, the plaintiff sought to purchase a truck via an extension of credit, and the Texas
Supreme Court held that he was a consumer because he was purchasing a good (the truck) and the
extension of credit was part of that transaction. In Knight, the Texas Supreme Court noted that
Riverside Bank was nothing more than the plaintiff’s attempt to obtain a loan to avoid repossession
of his car: “Other than Lewis’ payment for the use of money, there was nothing else for which he
paid, or which he sought to acquire.” Riverside, supra at 173. The Texas Supreme Court further
stated that, in Riverside, the plaintiff “approached Riverside Bank with one objective; he sought to
acquire money. He attempted to obtain this money by promising to repay the indebtedness in the
future with interest. Put simply, he sought to exchange future amounts of money for that amount
which he desired to have in the present. There is no evidence that he sought to acquire anything other
than this use of money.”
In Pagan-Negron, this Court concluded that the facts were most analogous to Riverside Bank
because the plaintiff had already obtained a home through a separate transaction, and the ultimate goal
of the loan modification was a loan of money, though on different terms than the current mortgage.
The Court reasoned that any review of her application would be incidental to obtaining the new loan
and therefore not an independent service conferring consumer status.
Similarly, in Maginn v. Norwest Mortgage, Inc., 919 S.W.2d 164, 166-67 (Tex. App.–Austin
1996, no writ), the Austin court of appeals held that plaintiffs who applied for a mortgage loan were
not consumers with regard to the “ancillary banking services” of evaluating their credit history and
assisting in the closing because the “end aim” of the dealings with Norwest was to obtain a mortgage
loan and Norwest’s ancillary services “served no purpose apart from facilitating a mortgage loan.”
Pagan-Negron was decided on a motion to dismiss, however, and the plaintiff did not make
the same allegations that Montalvo makes in this case. In fact, Montalvo’s complaint survived
dismissal under Rule 12(c) on this basis because she expressly contended that she sought to and did
acquire services from BAC/BoA, not a loan of money, and that she did not expect BAC to renegotiate
the terms of the loan. Rather, she alleged that she sought to acquire BAC’s services to determine her
eligibility to participate in HAMP or other government programs because of BAC’s professed special
expertise and knowledge about how Plaintiff could qualify, that BAC agreed, in exchange for fees
paid to it by BoA, to help Plaintiff prepare and present to a “designated agent” the appropriate
information to allow Plaintiff to receive the most assistance, to compile documents that BAC
represented to be necessary for Plaintiff to qualify, and to advise Plaintiff on what payments on the
Note she should or should not make in order to qualify.
In conjunction with her summary-judgment evidence, Montalvo relies on Herndon and
Fortner (discussed above) and additional Texas court cases to establish that she is a DTPA consumer.
In Western National Bank v. Conover, Civ. A. No. 07-97-197, 1998 WL 270003 (Tex. App.–Amarillo
1998, no pet.), the court of appeals held that the plaintiffs were consumers because they purchased
real estate, which was financed, and also because they purchased services in the form of the Bank’s
monitoring the construction progress and disbursement of funds to ensure that the plaintiffs were
protected from potential losses because of excessive advances under the note. Thus, when the
plaintiffs financed the real estate with the bank, they intended both to build a house and to rely on the
bank’s monitoring service, and these monitoring services are not those normally incidental to an
ordinary real estate mortgage loan.
In Lubbock Mortgage & Investment Co. v. Thomas, 626 S.W.2d 611, 613 (Tex. App.–El Paso
1981, no writ), the plaintiff sought to obtain a loan to purchase a laundromat, and worked with
Lubbock Mortgage and Investment Company. The district court found that Lubbock had publicly
advertised the availability of loans and financing through its offices, that it represented to the plaintiff
that loan services would be provided that were never provided, and that plaintiff, induced by
statements and assurances by Lubbock’s agents and employees, paid it for services for which he
received no benefit. Plaintiff never obtained the loan, and Lubbock turned out to be a loan broker and
not a lender. The court of appeals held that, because Lubbock was a loan broker, “in consideration
for the value it received [Lubbock] could and did offer only a ‘service’ as that term is used in
Riverside.” Id. at 613. Further, the plaintiff complained not only that he received no loan, but also
that Lubbock had represented its services to have characteristics, uses, benefits and standards that it
did not have, such that plaintiff’s complaints were “directed to the quality of services he had paid for
in connection with the extension of credit he sought.” Id. The court emphasized that Lubbock itself
“insisted throughout the trial that it was not a lender but had only its services as a loan broker to sell.”
In Allen v. American General Finance, Inc., 251 S.W.3d 676, 694 (Tex. App.–San Antonio
2007, pet. granted and vacated pursuant to settlement) and White v. Mellon Mortgage Co., 995
S.W.2d 795, 801 (Tex. App.–Tyler 1999, no pet.), the courts of appeals stated the proposition that
when the borrower seeks services from the lender as an independent objective and not merely
ancillary to a loan, the borrower is a consumer with respect to the provision of such services. Allen,
251 S.W.3d at 694; White, 995 S.W.2d at 801. Further, the courts stated that “[a]n activity related
to a loan transaction is a ‘service’ for DTPA purposes only if the activity at issue is, from the
plaintiff’s point of view, an objective of the transaction, not merely incidental to it.” White, 995
S.W.2d at 801. In Allen, the court held that the determining factor is whether the borrower’s
“objective” is solely to obtain a loan or to obtain a good or service. Although Allen sought an
extension of credit, the summary judgment evidence established that his objective in going to the
defendant was to get a tax lawsuit taken care of, and defendant agreed “to take care of it” and
undertook to loan Allen money and provide escrow services to accomplish this objective, thus
providing more than a scintilla of evidence that his primary objective was to obtain the services that
formed the basis of his complaint.
In White, the court actually found that the plaintiff was not a consumer with regard to her
complaint that she had been unnecessarily paying PMI premiums in connection with the purchase of
real estate. The court noted that “Mellon’s collection of premium payments for MetLife, as required
by the deed of trust, is not a service that White sought to purchase,” that purchase of PMI was not her
objective, and that she would have bypassed it if her mortgage lender had not required it as a
condition of the loan.
Last, Montalvo cites West v. State, 212 S.W.3d 513, 518 (Tex. App.–Austin 2006, no pet.),
in which the State sought a temporary injunction and asset freeze under the DTPA against a defendant
advertising a debt elimination service for sale to consumers. To establish that the defendant was
violating the DTPA, the State argued that West was offering a loan forgiveness service, and the
“banking opportunity” was not a loan because it specified that repayment was unnecessary. The court
of appeals noted that the service being offered was similar to the function of a credit services
organization, which performs services such as improving a consumer’s credit rating, obtaining an
extension of consumer credit for a consumer, or providing advice or assistance with regard to either.7
Montalvo contends that “the services in this case are similar to the services offered in the
Lubbock case, where a third party holds itself out as being able to obtain credit from a lender.” She
Montalvo also cites Farmers & Merchants State Bank v. Ferguson, 605 S.W.2d 320, 324
(Tex. Civ. App.–Fort Worth 1980), although that case was modified on appeal, 617 S.W.2d 918
(Tex. 1981) because the plaintiff failed to prove that the banking services were for personal use as
opposed to commercial use. The facts of that case are also not on point, because the court of appeals
held that the bank agreed to perform certain services – honoring checks drawn on plaintiff’s account
– and had the right to receive a service charge for the use of its services.
emphasizes “that BOA represented that it could provide the services necessary to obtain a loan
modification from the government.” Montalvo contends that her specific evidence is key because
consumer status depends on whether the services that the Plaintiff sought to acquire from BAC in
obtaining a loan modification was an objective of (and not merely incidental to) the transaction, from
Plaintiff’s point of view. Montalvo thus points to her affidavit, which states: (1) that BAC told her
it could help her out with her current difficulties and help her do what was necessary to apply for
government programs to get some relief under programs such as HAMP and HARP (Home
Affordable Refinance Program), (2) that she did not seek to borrow money from BAC/BOA but
sought to acquire the services of BAC to obtain help with the government programs, (3) that she told
BAC she would like to use their services to help her qualify for a government program and they said
they would help, (4) that she entered into a Negotiation Agreement and that BAC told her they would
help her obtain assistance and review under HAMP and sent her instructions on how to fill out the
government forms that BAC represented were necessary to qualify for the available government
programs, (5) that BAC agreed to prepare and present to a Designated Agent the appropriate
information that would allow her to obtain benefits under the appropriate government program, (6)
that BAC represented that it would provide advice about what manner she should make monthly
payments in order to qualify for assistance, that BAC did advise her of the necessary steps to qualify
for assistance under HAMP, which included much more than just loan modification, and (7) that she
understood that BAC would receive compensation for the services rendered to her by charging fees
to the government.
Plaintiff also offers the affidavit of Gregory Rubiola, a licensed mortgage broker, who testified
that he is familiar with the types of services that are usually offered to borrowers when they seek to
refinance their loans, and that the service provided by BAC is not a service usually incidental to a
completed loan transaction. Rubiola states that services such as filling out and preparing government
forms, putting them and required information together in a form required by a “designated agent” in
such a manner as would allow a borrower to qualify for participating in a government program, and
advising a customer in what manner to make monthly payments to qualify for assistance under HAMP
or other available government programs are not usually provided in the furnishing of a Texas
residential mortgage loan. Rather, he states, these are new services that have only arisen in the past
few years since the government began its modification programs, and there is now quite a marketplace
in firms that offer “for profit loan modification, mortgage refinance/origination and/or foreclosure
rescue services.” Rubiola states that there are companies that provide these services for a fee.
Plaintiff argues that this evidence is sufficient to raise a fact issue regarding whether Plaintiff
had an objective independent of the loan and is thus a DTPA consumer. In contrast, Defendants
contend that the Magistrate Judge correctly dismissed this claim as a matter of law. Defendants note
that Plaintiff cites no case in which a plaintiff such as Montalvo was found to be a consumer, and that
Plaintiff ignores the numerous cases holding to the contrary.
After carefully considering the case law and the summary-judgment evidence, the Court
accepts the Magistrate Judge’s recommendation to resolve this issue as a matter of law and to grant
summary judgment in favor of Defendants on Plaintiff’s DTPA claim. The claim need not be
submitted to a jury because, even assuming all facts as alleged by Plaintiff to be true, Plaintiff fails
to establish that she is a DTPA consumer.
Plaintiff seeks to divorce the services provided by BAC as the loan servicer participating in
the government programs for homeowners from the ultimate loan modification. To the extent she
does so, Plaintiff’s claim ultimately fails because, while there may be services involved and those
services may have value, Plaintiff fails to provide any summary-judgment evidence that she sought
to obtain such services by purchase or lease. There is no summary-judgment evidence that Plaintiff
paid or sought to pay for the services offered by BAC. Rather, the only evidence is that Plaintiff
understood that BAC would be compensated by the lender.8 And though Plaintiff alleges that she
“could have hired someone else to do this, as there are numerous web sites that offer to help
borrowers get qualified to participate in a government program to help borrowers,” the fact that other
entities offer these services for a fee or that the services have commercial value does not render
Plaintiff a consumer. See Rayford v. Maseilli, 73 S.W.3d 410 (Tex. App.–Houston [1st Dist.] 2002,
no pet.) (party receiving gratuitous legal services is not a DTPA consumer).
The reality is that, under the facts of this case, the services provided by BAC cannot be
divorced from the ultimate loan modification. Under HAMP, BAC’s obligation as the mortgage
servicer is to evaluate the Plaintiff to determine whether she is eligible for permanent loan
modification and to take steps in furtherance of such evaluation and ultimate modification. The
mortgage servicer is not a loan broker. Defendants’ summary-judgment evidence establishes that
“BAC does not offer advice, assistance, or counsel on loss mitigation options to borrowers whose
loans are not being serviced by BAC and who are not seeking a loss mitigation alternative offered by
BAC.” Docket no. 46, Decl. of Casheena Chaney. In addition, as noted, after the assignment from
MERS, BAC was both the loan servicer and the loan owner. Thus, to the extent BAC offered services
Plaintiff’s Complaint alleges that she “understood that BAC would receive compensation
for the services rendered to her by charging fees to her lender,” while her Affidavit states that she
“understood that BOA would receive compensation for the services rendered to [her] by charging
fees to the government.” However, there is no evidence that Plaintiff herself would pay for any of
the services either directly or indirectly as part of the entire transaction.
regarding modification of the note/loan, the services were offered only to determine whether Plaintiff
would be eligible to modify the loan it owned, meaning that the services were incidental to a loan
modification. As such, BAC did not function like a broker or credit repair organization as alleged,
since its services and agreements “served no purpose apart from facilitating a loan modification of
an existing loan” that it held. See Maginn, 919 S.W.2d at 167; Pennington v. HSBC Bank USA, Civ.
A. No. A-10-CA-785-LY, 2011 WL 6739609 (W.D. Tex. Dec. 22, 2011).9
Accordingly, the Court accepts the recommendation to grant summary judgment on Plaintiff’s
DTPA claim because Plaintiff is not a consumer as a matter of law.
B. Breach of Contract
Plaintiff’s breach-of-contract claim contains a number of facets. First, Paragraphs 5.1 and 5.2
allege that Defendants have breached the terms of the Note and Deed of Trust by declaring a default
in payment when no default occurred, that BAC excused Plaintiff’s non-compliance with the terms
of the Note and Deed of Trust by instructing Plaintiff to make payments in the amount that it did, and
that BAC is estopped from insisting that Plaintiff comply with the terms of the Note after it
represented to Plaintiff that she make the payments as instructed, and Plaintiff relied on those
instructions to her detriment.
Second, Paragraph 5. 3 alleges that BAC breached the terms of the Note by accelerating the
Note without servicing the Loan with diligence, without using any prudent measures to induce the
Though some government programs, such as Home Affordable Foreclosure Alternatives
(“HAFA”) may involve solutions other than loan modification (e.g., HAMP) or refinancing (e.g.,
HARP), Plaintiff does not complain about any services related to such other programs with any
specificity. Rather, her pleadings and evidence relate only to HAMP and HARP and her desire to
remain in her home under the terms of a modified loan. The Court makes no ruling as to whether
complaints about such other types of programs like HAFA would render a plaintiff a consumer for
Plaintiff to bring the loan account current, and failing to discuss with Plaintiff the reason for default,
in violation of HUD regulations incorporated into the Note.
Third, Paragraph 5.4 alleges that Plaintiff and Defendant entered into an oral contract to
modify the terms of the Note and Deed of Trust on October 5, 2009, in which they agreed that if
Plaintiff “made three payments of $1,091.00 and submitted the appropriate paperwork, BAC would
induce BofA to modify the Loan in accordance with the terms and conditions of such modifications
under HAMP.” Plaintiff alleges that she fully performed the agreement, and Defendant partially
performed the agreement, but breached the agreement by accelerating the Note and foreclosing on the
Plaintiff’s home. Plaintiff “seeks damages from BoA for breach of the oral agreement to modify the
Loan in accordance with HAMP.”
Last, Paragraph 5.5 “seeks specific performance of the terms of the Note and Deed of Trust,
and requests the equitable intervention of this Court to order that both the Note and Deed of Trust be
reinstated, and that BAC and BoA be ordered to continue to perform the terms of both the Note and
Deed of Trust as agreed.” Plaintiff further seeks to offset the principal amount due on the reinstated
Note by the damages proximately caused by Defendant’s breaches and other wrongful contract.
Paragraph 5.3 alleges that BAC breached the terms of the Note by accelerating the Note
without servicing the Loan with diligence, without using any prudent measures to induce the Plaintiff
to bring the loan account current, and failing to discuss with Plaintiff the reason for default, in
violation of HUD regulations incorporated into the Note. As noted, in support of this claim, the
Amended Complaint cites to inapplicable HUD regulations that Defendants allegedly violated, and
the Magistrate Judge denied the motion for leave to amend to cite the correct regulations. That order
has not been objected to.
The Magistrate Judge concluded that, even considering the correct regulations, the claim that
BAC was required to have a face-to-face meeting cannot survive summary judgment because the
regulations contain an exception to the requirement if the mortgaged property is not within 200 miles
of the mortgagee, its servicer, or a branch office of either. The Magistrate Judge noted that
Defendants presented summary-judgment evidence that the lender did not operate a servicing center
within a 200-mile radius of the mortgaged property that was staffed with employees familiar with
servicing issues, and thus the exception applies.
Plaintiff has filed no objections to the portion of the Magistrate Judge’s order concerning this
aspect of Plaintiff’s claims. The Court finds the recommendation to be neither clearly erroneous nor
contrary to law, and accepts the recommendation to grant summary judgment on this claim.
Paragraph 5.4 alleges that Plaintiff and Defendants entered into an oral contract to modify the
terms of the Note and Deed of Trust on October 5, 2009, in which they agreed that if Plaintiff “made
three payments of $1,091.00 and submitted the appropriate paperwork, BAC would induce BoA to
modify the Loan in accordance with the terms and conditions of such modifications under HAMP.”
Plaintiff alleges that she fully performed the agreement, and Defendants partially performed the
agreement, but then breached the agreement by accelerating the Note and foreclosing on the Plaintiff’s
home. Plaintiff “seeks damages from BoA for breach of the oral agreement to modify the Loan in
accordance with HAMP.”
The Magistrate Judge concluded that, because this allegation relied on an alleged oral
agreement to modify the loan, the claim must satisfy the statute of frauds. Texas has a special statute
of frauds for loan agreements that exceed $50,000. Section 26.02 of the Texas Business & Commerce
Code provides that “[a] loan agreement in which the amount involved in the loan agreement exceeds
$50,000 in value is not enforceable unless the agreement is in writing and signed by the party to be
bound or by that party’s authorized representative.” Further, lenders are required to give notice to
debtors that the “written loan agreement represents the final agreement between the parties and may
not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the
parties.” Id. § 26.02(e). The summary-judgment evidence demonstrates that this notice was provided
to Plaintiff. Docket no. 47, Ex. C-19. Thus, the terms of Plaintiff’s loan agreement may not be
contradicted by subsequent oral agreements.
In addition, both Texas state and federal courts have concluded that, generally, both the
original loan and any alleged agreement to modify the original loan are governed by section 26.02 and
must be in writing. See, e.g., Deuley v. Chase Home Finance, LLC, Civ. A. No. H-05-04253, 2006
WL 1155230, at *2 (S.D. Tex. April 26, 2006). Not every oral modification of the terms of a written
contract falls within the statute of frauds. See Garcia v. Karam, 276 S.W.2d 255 (Tex. 1955).
Rather, the general rule is that an oral modification may be enforceable if it does not materially alter
the obligations imposed by the original contract. Horner v. Bourland, 724 F.2d 1142, 1148 (5th Cir.
1984). An oral agreement to modify the percentage of interest to be paid, the amounts of installments,
security rights, the terms of the remaining balance of the loan, the amount of monthly payments, the
date of the first payment, and the amount to be paid monthly for taxes and insurance is an
impermissible oral modification. Id. (citing Foster v. Mutual Savings Ass’n, 602 S.W.2d 98
(Tex.Civ.App.–Fort Worth 1980, no writ)).
The Deuley court concluded that, although oral extensions of the time for performance are
often found to be outside the statute of frauds, where the plaintiffs allege that they applied for a
specific program altering their obligations under the original loan and came to an oral agreement with
the bank regarding this program, this is a material alteration of the underlying contract and thus
subject to the statute of frauds. Deuley, 2006 WL 1155230 at *2. Further, to the extent plaintiffs
contend that a new oral contract was created (as opposed to a modification of the original loan), such
an oral contract would also be governed by the statute of frauds for loan agreements. Id. at *3.
The Magistrate Judge applied this reasoning and held that the alleged modification agreement
(to make three monthly payments of $1,091 to avoid acceleration and foreclosure and to ultimately
obtain a modification) was governed by the statute of frauds. She noted that there was no writing
evidencing such an agreement, and thus enforcement of the agreement was barred by the statute of
With respect to alleged exceptions to the statute of frauds, she concluded that promissory or
equitable estoppel does not overcome the statute of frauds defense. The Magistrate Judge followed
Texas law, which holds that when a plaintiff attempts to enforce an oral agreement subject to the
statute of frauds, for promissory estoppel to create an exception to the statute of frauds, there must
have been a promise to sign a written agreement that had been prepared and would satisfy the statute
of frauds. See, e.g., 1001 McKinney Ltd. v. Credit Suisse First Boston Mortg. Capital, 192 S.W.3d
20, 29 (Tex. App.–Houston [14th Dist.] 2005, pet. denied).10 The Magistrate Judge found that
See also RESTATEMENT (SECOND ) OF CONTRACTS § 139, Reporter’s Note to comment b
(“Other courts have permitted reliance to displace the requirement of a writing only in narrowly
circumscribed situations, refusing to act unless there has been a misrepresentation that the Statute
has been complied with or a failure to carry out a promise to make a memorandum of an oral
agreement. The Texas Supreme Court enforced oral promises to avoid injustice in “Moore” Burger,
Inc. v. Phillips Petrol. Co., 492 S.W.2d 934 (Tex. 1972) and Cooper Petrol. Co. v. LaGloria Oil &
Gas Co., 436 S.W.2d 889 (Tex. 1969), but later cases have noted that those Texas Supreme Court
Plaintiff produced no such evidence, and thus promissory estoppel did not permit enforcement of the
oral modification agreement that was governed by the statute of frauds.
With regard to partial performance as an exception to the statute of frauds, the Magistrate
Judge noted that Texas courts have not clearly accepted partial performance as an exception to the
statute of frauds in section 26.02. But to the extent it could apply, the Magistrate Judge concluded
that the evidence was insufficient to raise a fact issue because there is no evidence of virtual fraud,
that Montalvo suffered substantial detriment for which she has no adequate remedy, and making
payments in the amount of $1,091 is equally consistent with Montalvo’s claims as with merely
making partial payments due on her existing loan.
In her objections, Montalvo agrees that seeking to enforce an oral agreement to modify the
original loan “may fall to the Statutory Statute of Frauds.” She thus accedes that she may not attempt
to enforce such an oral agreement and she apparently no longer seeks to assert new contract rights
under a modified loan agreement. Pl. Obj. at 18.11 But, she contends, “[n]ot allowing BOA to enforce
the contractual terms [of the original loan agreement] based on its inequitable conduct does not create
a new agreement which would be barred by the Statutory Statute of Frauds.” Id.
In other words, Montalvo contends that she may estop BOA from insisting on its strict legal
rights to accelerate and foreclose under the original Note and Deed of Trust when it would be unjust
to do so. This claim is asserted in paragraphs 5.1 and 5.2, and will be addressed in that section.
opinions emphasized broken promises to make subsequent writings . . . .” (citations omitted).
To the extent she is still arguing that the HUD regulations and partial performance allow
her to enforce the oral agreement to modify the loan, the Court rejects those arguments. The fact that
HUD regulations allow specific oral forbearance agreements does not enable Plaintiff to enforce an
oral agreement different from what the HUD regulations contemplate. The Court further accepts the
Magistrate Judge’s conclusion that the partial performance exception is not satisfied.
The Magistrate Judge’s recommendation to grant summary judgment on Plaintiff’s claim
related to breach and enforcement of an alleged oral agreement to modify the loan is accepted.
Paragraphs 5.1 and 5.2
Paragraphs 5.1 and 5.2 allege that Defendants have breached the terms of the Note and Deed
of Trust by declaring a default in payment when no default occurred, that BAC excused Plaintiff’s
non-compliance with the terms of the Note and Deed of Trust by instructing Plaintiff to make
payments in the amount that it did, and that BAC is estopped from insisting that Plaintiff comply with
the terms of the Note after it represented to Plaintiff that she make the payments as instructed, and
Plaintiff relied on those instructions to her detriment. Paragraph 5.2 also alleges that Defendants
breached the Note and Deed of Trust by failing to give adequate notice to allow Plaintiff to exercise
her right to cure any defaults prior to accelerating the balance due on the Note.
With regard to the notice claims, the Magistrate Judge observed that the summary-judgment
evidence disproves these claims. Defendants provided Plaintiff with notice of default and the right
to cure (on October 7, 2009 and March 3, 2010), and Plaintiff knew she had defaulted when she
contacted BAC about modifying the loan.
The crux of this claim is that Defendants breached the Note and Deed of Trust by accelerating
the note and foreclosing when they were estopped from doing so. The Magistrate Judge recognized
that Plaintiff asserted that Defendants were estopped from seeking to take advantage of Plaintiff’s
default, “when it was their false promise that led to Plaintiff being in default.” See docket no. 59 at
5. However, the Magistrate Judge viewed this claim as part of Plaintiff’s claim to enforce the alleged
oral modification, which is barred by the statute of frauds.
Plaintiff contends, however, that this aspect of her claim does not seek to enforce the oral
agreement to modify the loan. Rather, Plaintiff asserts a more limited claim – that Defendants cannot
assert that Plaintiff is in default under the original loan because Defendants themselves induced the
default. This estoppel argument is in the nature of waiver or excuse. It is addressed by the
Restatement (Second) of Contracts § 150 comment b, which provides that
Where a contract is modified by subsequent agreement and the contract as modified
is within a provision of the Statute of Frauds, the modified contract is unenforceable
unless the Statute is satisfied. In such a case, if the original contract was enforceable
it is not rescinded or modified but remains enforceable. But the unenforceable
modification may operate as a waiver. To the extent that the waiver is acted on before
it is revoked, it excuses the other party from performance of his own duty and of
conditions of the duty of the waiving party.
(Emphasis added). Thus, if a mortgagor changes her position and defaults in reliance on an oral
modification agreement, which is unenforceable under the statute of frauds, such that reinstatement
of the original terms of the loan would be unjust, the mortgagor’s default may be excused and the
mortgagee estopped from asserting its rights (such as acceleration and foreclosure) triggered by the
default. Such a claim does not attempt to enforce the unenforceable oral agreement, but rather
excuses the mortgagor’s default under the existing, enforceable loan agreement.
Texas courts do not appear to have considered, much less adopted, § 150 of the Restatement.
However, the Court concludes that the Texas Supreme Court might adopt such a rule. Cf. Haase v.
Glazner, 62 S.W.3d 795 (Tex. 2001) (noting that the statute of frauds does not apply to a claim for
out-of-pocket damages caused by reliance, but rather only to a claim trying to enforce the benefit of
the bargain of an agreement subject to the statute of frauds).
Although Plaintiff’s briefing implies that Plaintiff’s default was caused by Defendants telling
her to make the payments of $1,091,12 the undisputed evidence shows that Plaintiff was already in
default before contacting BAC about modifying the loan. Thus, this is not a case in which the
mortgagor would not have defaulted but for being told by the mortgage servicer to make a lower
payment than required by the Note under an unenforceable oral agreement. In such a case, a
mortgagor would have a strong argument that the mortgage servicer induced the default and thereby
excused it or is otherwise estopped from relying on the default to accelerate the note and foreclose.
Comment d of § 150 recognizes that “[i]f the duty or condition would not have been
performed in any event, or if there is a waiver of performance after a failure of performance, the
failure is not in reliance on the modifying agreement.” Thus, where the mortgagor’s default is not
caused by reliance on the unenforceable modifying agreement, estoppel does not apply.
Plaintiff does allege, however, that she “offered to cure any delinquency in her mortgage,
during the pendency of the Defendant’s preparation of the documents, but her offer was refused.”
Am. Compl. ¶ 4.11. She further alleges that she was told “she should stay in default under the Note”
in order to qualify for the “various programs offered by the government.” Id.13 These allegations are
supported by her Affidavit. Thus, although Plaintiff was not induced to default, her argument is that
she was induced into remaining in default and not exercising her right to cure the default by
See, e.g., Pl. Obj. at 3 “The conclusion in the Report that the Defendants can tell the
Plaintiff what payments to make under the Note, and then find her in default when she does so, is
incorrect as a matter of law for the following reasons . . . . The doctrine of equitable estoppel
precludes the Defendants from asserting a breach in making payments in the amount the Defendants
told her to . . . .”; Pl. Obj. at 17 “The doctrine of Equitable Estoppel prohibits BOA from seeking to
take advantage of the Plaintiff’s default, when it was their false promise which led to the Plaintiff
being in default.”
Homeowners do not need to be in default to be eligible for HAMP. Rather, they are
eligible if they reasonably believe they are very likely to default on their mortgage soon and can
provide the necessary documentation.
Defendant’s representations and agreements.
The Magistrate Judge did not consider this aspect of Plaintiff’s claim, likely because
Defendants characterized it as a claim that “an oral agreement existed between [Plaintiff] and BAC
to modify her payment obligations under the Loan,” which it asserts was an oral agreement barred by
the Statute of Frauds. Docket no. 47 at 6. Defendants further contended that they did not breach the
Deed of Trust by declaring Montalvo in default because she was, undisputably, in default and had not
cured the default. Id. Defendants’ motion does not address Plaintiff’s argument that it waived the
default or is estopped from asserting the default as a basis for acceleration. Even in their response
to Plaintiff’s objections, Defendants continue to ignore any distinction between seeking to enforce
an agreement barred by the statute of frauds and seeking to estop a party to an enforceable contract
from asserting a breach.
Plaintiff was aware of her right to cure the default (she alleges that she offered to do so), and
Defendants twice informed her of the right to cure the default. Although she states that she had the
resources to do so, there is no evidence that she in fact ever tendered the past due amounts to cure the
default. Thus, Plaintiff’s claim turns on whether she was wrongfully induced by Defendants not to
cure and, if so, whether that amounts to a waiver or estoppel of Defendants’ right to foreclose.
Plaintiff’s affidavit provides that she was able to cure the default, that she informed
Defendants that she was able to make up the past unpaid payments if she should, but that Defendants
told her not do to do so. As a result of Plaintiff’s not curing the default, BAC foreclosed in November
2009.14 Though this foreclosure was set aside, Plaintiff did incur costs associated with the
The foreclosure appears to be a violation of HAMP procedures, since lenders are not
permitted to foreclosure during the loan modification process, and Plaintiff’s evidence shows that
she was in compliance with her obligations for the loan modification process at the time BAC
foreclosure, and argues that she lost the right to qualify for HAMP or possibly other loan
modifications as a result of Defendant’s wrongful conduct.
Because Defendants did not expressly move for summary judgment on this claim, it remains
pending. Defendant may file an additional motion for summary judgment on this claim within
twenty-one days of this Order. The motion should address both the factual and legal basis for
Plaintiff’s claim, and should address both whether Defendants were in breach by accelerating and
foreclosing in November 2009 (and any damages flowing therefrom) and whether Defendants were
in breach by accelerating and giving notice of intended foreclosure in March 2010. If Defendant does
not file such a motion, the Court may order briefing sua sponte.
Insofar as Defendants argue that they provided adequate notice and that actual enforcement
of an oral modification agreement is barred by the statute of frauds, summary judgment is granted.
Paragraph 5.5 “seeks specific performance of the terms of the Note and Deed of Trust, and
requests the equitable intervention of this Court to order that both the Note and Deed of Trust be
reinstated, and that BAC and BoA be ordered to continue to perform the terms of both the Note and
Deed of Trust as agreed.” Plaintiff further seeks to offset the principal amount due on the reinstated
Note by the damages proximately caused by Defendant’s breaches and other wrongful conduct.
Insofar as this claim depends on Plaintiff’s estoppel claim, it also remains pending.
C. Unreasonable Collection Efforts
The Magistrate Judge concluded that Montalvo presented no evidence raising a fact question
foreclosed. Plaintiff cannot assert a private right of action under HAMP, but it appears relevant to
whether Plaintiff reasonably relied on Defendants’ representations that she need not cure the default
and that no foreclosure would occur during the HAMP process.
about whether the Defendants’ conduct was willful and wanton and “effectively abandoned her
Unreasonable collection efforts is an intentional tort that lacks clearly defined elements. B.F.
Jackson, Inc. v. Costar Realty, 2009 WL 1812922, at *5 (S.D. Tex. 2009). “Unreasonable debt
collection efforts are defined as efforts that amount to a course of harassment that was willful,
wanton, malicious, and intended to inflict mental anguish or bodily harm.” Baker v. Countrywide
Home Loans, Civ. A. No. 3:08-CV-916, 2009 WL 1810336, at *7 (N.D. Tex. June 24, 2009). The
case law varies on the degree of conduct necessary to give rise to an actionable claim. Id. at *8.
Though Plaintiff alleges facts showing that Defendants may have violated HAMP and may have been
negligent, the Court agrees that summary judgment on this claim is proper and accepts the
recommendation on the basis that Plaintiff fails to show a course of harassment that was willful,
wanton, malicious, and intended to inflict mental anguish. The elements of harassment and malicious
intent are necessary to differentiate this claim from negligence or breach of contract. See Watson v.
Citimortgage, Inc., 4:10-CV-707, 2012 WL 381205, at *7 (E.D. Tex. Feb. 3, 2012); Narvaez v.
Wilshire Credit Corp., 757 F. Supp. 2d 621, 635-36 (N.D. Tex. 2010) (“evidence of negligence is
insufficient to support a cause of action for unreasonable collection efforts”). Plaintiff has not shown
that Defendants attempted to collect a debt that had been fully paid, intentionally violated HAMP,
intentionally lied or deceived her into remaining in default, intentionally foreclosed while knowing
they had no legal right to do so, or the like, and thus summary judgment is proper.
The Court ACCEPTS the Magistrate Judge’s recommendation to grant Defendants’ Motion
for Summary Judgment (docket no. 47) so far as it goes. Thus, summary judgment is granted on
Plaintiff’s DTPA and unreasonable collection efforts, and certain aspects of Plaintiff’s breach of
contract claims. With regard to the remaining breach of contract claims, Defendant may file an
additional motion for summary judgment for the Court’s consideration within twenty-one days of this
It is so ORDERED.
SIGNED this 30th day of March, 2012.
UNITED STATES DISTRICT JUDGE
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