Lopez et al v. JPMorgan Chase Bank, National Association, Successor By Merger to Chase Home Finance, LLC et al

Filing 19

ORDER GRANTING IN PART AND DENYING IN PART 13 Motion to Dismiss. Signed by Judge Xavier Rodriguez. (rf)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION

ANTONIO LOPEZ, JR. and MARIA D.
LOPEZ,
Plaintiffs,
VS.
JP MORGAN CHASE BANK, N.A.,
SUCCESSOR BY MERGER TO
CHASE HOME FINANCE, LLC,
Defendant.

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Civil Action No. SA-11-CA-0936-XR

ORDER
On this date, the Court considered Defendant JPMorgan Chase Bank’s Motion to Dismiss
Plaintiffs’ First Amended Complaint (docket no. 13) and the response and reply thereto.
Factual and Procedural Background
Plaintiffs filed this lawsuit in state court on October 28, 2011, seeking injunctive relief to
prevent foreclosure on their home. Plaintiffs’ Original Petition and Motion for Temporary
Restraining Order and Temporary Injunction stated that Plaintiffs financed their property through
Defendants “as current mortgagee secured by a Deed of Trust.” The Original Petition asserted that
the substitute trustee posted the residence for foreclosure sale on November 1, 2011, but that prior
to receipt of the foreclosure notice, Plaintiffs had contacted JPMorgan Chase Bank (“Chase”) for
modification of the loan and were told they “are considered for said modification.” Plaintiffs allege
that they were informed that “the modification documents would not be completed for sixty to ninety
(60-90) days and that the property would not be foreclosed upon during the process.” Plaintiffs
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sought to enjoin the foreclosure and “such other further relief at law or in equity to which the
Plaintiffs may show themselves to be justly entitled.” Chase removed the case to this Court on
November 9, 2010.
After removal, Chase filed a motion to dismiss or, alternatively, for more definite statement.
On November 22, the parties filed an agreed motion to dismiss all claims against the Substitute
Trustee, Marty LaCouture, and that motion was granted that same day. On December 13, the Court
granted Chase’s motion to dismiss because Plaintiffs’ Original Petition, filed in state court before
removal, did not clearly assert a cause of action against Chase and sought primarily injunctive relief
to prevent the foreclosure of the property. Plaintiffs were given an opportunity to replead, however,
and they did so by filing an Amended Complaint (docket no. 10). Chase then filed a second motion
to dismiss the Amended Complaint.
Analysis
The Amended Complaint alleges the following: Plaintiff purchased residential property
located at 3110 McDonald Oak “through the Defendants as current mortgagee secured by a Deed of
Trust.” Plaintiffs became delinquent on their mortgage payments and went into default. They began
discussions with Chase about modifying their mortgage. Plaintiffs “forwarded to the Defendant all
of the information that the Defendant requested in order for the modification to take place.” “The
Plaintiffs were concerned about being in default on their mortgage and that the Defendant would
exercise its right to foreclose on the property while the modification was in review” and they
“discussed this concern with the Defendant.” “Defendant informed the Plaintiffs that it would not
foreclose on the property while the modification request was under review.” Plaintiffs and
Defendant “agreed that the Plaintiffs would provide all the information that the Defendant requested
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during the modification process and would live in the home while this review was in process, and
the Defendant agreed that in consideration of these promises, the Defendant would not exercise its
right to foreclose on the property until such time as the review is complete.” “In reliance upon this
agreement the Plaintiffs provided and continue to provide the information requested by the
Defendant and have not searched for or located substitute housing.” Despite this agreement, the
Substitute Trustee posted the residence for foreclosure sale. Plaintiffs contacted Defendant to see
if it was a mistake, but Defendant did not respond, and thus Plaintiffs filed this suit. Plaintiffs allege
causes of action for breach of contract and promissory estoppel. Defendant moves to dismiss for
failure to state a claim.
Analysis
In its prior order, the Court noted that Plaintiffs’ allegation that they sought to enforce an
agreement that their property would not be foreclosed upon while the Defendant was reviewing the
loan modification request failed to establish a cause of action. The Court noted that Plaintiffs failed
to establish the existence of a contract and at most established a unilateral promise by Chase not to
foreclose. The Court further noted that Plaintiffs failed to establish a promissory estoppel claim
because they alleged no change in position in reliance on the alleged promise not to foreclose. Last,
the Court noted that it was possible that the statute of frauds for loan agreements (section 26.02 of
the Texas Practice & Remedies Code) would bar Plaintiffs’ breach-of-contract and promissory
estoppel claims, but that it lacked information to determine whether section 26.02 applied.
Specifically, the Court noted that section 26.02 may not apply if the oral agreement not to foreclose
did not contradict or materially alter any terms of the mortgage agreement, and that it lacked
information concerning whether the required notice was given to trigger 26.02.
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A. Breach of Contract
Plaintiffs allege they entered into a contract that Defendant would not exercise its right to
foreclose on the property while the modification process was ongoing, that the contract was
supported by valuable consideration (submission of requested modification documentation by
Plaintiffs and forebearance by Defendant), and that Defendant breached this agreement by posting
the property for foreclosure after Plaintiffs submitted the requested documentation and while the
modification review was pending. Plaintiffs seek specific performance of this agreement.
Plaintiffs do not clearly state whether the alleged contract is a bilateral contract, where both
sides make mutual promises, or a unilateral contract, where a promisor promises a benefit if a
promisee performs. See City of Houston v. Williams, 353 S.W.3d 128 (Tex. 2011) (discussing the
types of contracts). They allege that “Plaintiffs and the Defendant agreed that the Plaintiffs would
provide all the information that the Defendant requested during the modification process and would
live in the home while this review was in process, and the Defendant agreed that in consideration
of these promises, the Defendant would not exercise its right to foreclose on the property until such
time as the review is complete.” Thus, it appears that they are alleging a bilateral contract supported
by mutual promises. Plaintiffs allege that, “despite this agreement and while the modification
process and review was still ongoing,” the property was posted for foreclosure on November 1, 2011.
Thus, unlike their original pleading, in their amended complaint Plaintiffs now allege that
they gave consideration in exchange for Chase’s promise not to foreclose. The contract that
Plaintiffs allege was formed was an agreement that Plaintiffs would submit necessary documents for
a loan modification, and that Chase would consider Plaintiffs’ application and would not exercise
its existing right to foreclose during the review process. Chase’s promise to forebear its right to
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foreclose constitutes consideration. See RESTATEMENT (SECOND ) OF CONTRACTS § 71(1), (3)(b)
(1981) (consideration may consist of forbearance); Foote v. Tate, Civ. A. No. 01-06-00956, 2008
WL 257335 (Tex. App.–Houston [1st Dist.] Jan. 31, 2008, no pet.). And some courts have held that
a homeowner’s submitting loan application documents and financial information as part of a loan
modification process, when not already obligated to do so, can constitute consideration. See Durmic
v. J.P. Morgan Chase Bank, Civ. A. NO. 10-CV-10380, 2010 WL 4825632 (D. Mass. Nov. 24,
2010); Bosque v. Wells Fargo Bank, 762 F. Supp. 2d 342, 352 (D. Mass. 2011); In re Bank of
America HAMP Contract Litigation, Civ. A. No. 10-md-02193-RWZ (D. Mass. July 6, 2011).1
Thus, Plaintiffs have adequately alleged the existence of a contract, and that Defendant breached the
contract by posting the property for foreclosure.
Defendant also argues that, if a contract exists, it is barred by the statute of frauds set forth
in Texas Business & Commerce Code § 26.02. Defendant asserts that, because the alleged loan
modification here was oral, it is unenforceable. Plaintiffs argue that their alleged contract is not

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Plaintiffs may also be able to demonstrate a unilateral contract. See City of Houston v.
Williams, 353 S.W.3d 128 (Tex. 2011). A unilateral contract consists of a promise, which is a
manifestation of an intention to act or refrain from acting in a specified way, so made as to justify
a promisee in understanding that a commitment has been made, acceptance of which by performance
will form a contract. Id. Thus, a unilateral contract becomes enforceable when the promisee
performs rather than when the parties make mutual promises. Id. Unilateral contracts are part of
Texas common law. Id. Almost all unilateral contracts begin as illusory promises; what matters is
whether the promise became enforceable by the time of the breach. Id. Thus, if Defendant asked
Plaintiffs to submit an application with supporting documentation and promised to review Plaintiffs’
application and refrain from foreclosing during its review, Plaintiffs could accept by their
performance of submitting the application. Defendant argues that the contract is illusory, and cites
Watson v. CitiMortgage Inc., 814 F. Supp. 2d 726 (E.D. Tex. 2011). However, the court in that case
held that “the promise remained illusory because Defendant neither required nor received any
performance from Plaintiffs.”

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barred by the statute of frauds because it is not a loan modification, but a promise not to foreclose
during loan modification review, and is therefore not subject to the statute of frauds. Plaintiffs argue
that the cases cited by Defendant all involve alleged oral modifications to the loan, not a contract to
delay foreclosure or forebear.
Section 26.02(b) 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.” Section 26.02(a)(2) defines
a “loan agreement” as “one or more promises, promissory notes, agreements, undertakings, security
agreements, deeds of trust or other documents, or commitments, or any combination of those actions
or documents, pursuant to which a financial institution loans or delays repayment of or agrees to loan
or delay repayment of money, goods, or another thing of value or to otherwise extend credit or make
a financial accommodation.”
Some courts have held that an oral forebearance agreement related to a mortgage loan is itself
a “loan agreement” covered by the statute of frauds set forth in Texas Business and Commerce Code
§ 26.02, and some courts have held that it is a modification of such a loan agreement and thus subject
to § 26.02. See Milton v. U.S. Bank, No. 4:10-CV-538, 2012 WL 1969935 (E.D. Tex. May 31, 2012)
(holding that it is a loan agreement); In re Harris, Civ. A. No. 10-39586, 2011 WL 2708691 (Bkr.
S.D. Tex. July 11, 2011); Ellen v. F.H. Partners, LLC, Civ. A. No. 03-09-CV-310, 2010 WL
4909973 (Tex. App.–Austin Dec. 1, 2010, no pet.). But see Stiggers v. Fleet Mortgage Corp., Civ.
A. No. 04-01-00024-CV, 2001 WL 984795 (Tex. App.–San Antonio Aug. 29, 2001, pet. denied )
(“[W]e likewise hold that any oral agreement to provide a second six-month period of forebearance
was also not a contract modification.”).
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Defendant argues only that the alleged forebearance agreement is a modification of a loan
agreement covered by the statute of frauds; it does not argue that the forebearance agreement itself
is a “loan agreement.” Even if the Court were to agree with Defendant and cases supporting
Defendant’s position, on which it makes no decision at this time, there is nothing in the Amended
Complaint to demonstrate that section 26.02, which applies only to loan agreements exceeding
$50,000 in value, applies.2 Even if the loan does exceed $50,000, Defendant has not demonstrated
that the oral forebearance agreement materially modified any terms of the mortgage note and/or deed
of trust. Further, whether modifications to the loan are barred by section 26.02 may depend on
whether the required statutory notice was given, and, as before, the Court lacks information to make
this determination.3 The statute of frauds is an affirmative defense, and thus its application must be
conclusively established in the pleadings to support a dismissal under Rule 12(b)(6).
Accordingly, Plaintiffs have sufficiently alleged a breach of contract to survive the motion
to dismiss.
B. Promissory Estoppel
In the alternative, Plaintiffs allege that “the agreement to prevent foreclosure is supported by
the doctrine of promissory estoppel.” They allege that the Defendant promised it would not
foreclose on the property in the event the Plaintiffs submitted the proper documentation to modify

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Although the Court took judicial notice of the fact that the market value of the property
exceeds $75,000 for purposes of diversity jurisdiction, the market value of the property is not the
same thing as the amount of the mortgage note.
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Section 26.02(e) requires that each loan agreement that is subject to this section notify the
debtor or obligor, in a separate written document, about section 26.02(d)’s prohibition against oral
modifications. The sample language from 26.02(e) includes the following: “This 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.”
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the loan, that Plaintiffs relied upon this promise to submit the documentation and to not find
alternative housing, and it was foreseeable that they would rely on the promise. Defendant argues
that the promissory estoppel claim fails because it requires that the Defendant promised to sign a
written document that would have satisfied the statute of frauds, and Plaintiffs fail to do so.4 Further,
Defendant argues, Plaintiffs fail to show detrimental reliance insofar as they do not allege facts
demonstrating that they “materially changed” their position in reliance on any promise.
A promissory estoppel claim requires (1) a promise; (2) foreseeability of reliance by the
promisor; and (3) substantial reliance by the promisee to his detriment. English v. Fischer, 660
S.W.2d 521, 524 (Tex. 1983). Plaintiffs contend that Defendant promised not to foreclose during
the modification review, that it was foreseeable that they would rely on this promise, and that they
relied by not seeking refinancing elsewhere or finding alternate housing. Plaintiffs’ allegations do
not establish that they substantially relied on Defendant’s promise to foreclose to their detriment.
They do not allege that, but for the promise, they would have sought refinancing elsewhere or that
they had a likelihood of being able to obtain such refinancing, given that they were already in default
on their mortgage. In addition, they do not allege any harm from failing to find alternative housing,
given that they remain in possession of their home and have not yet been foreclosed upon such that
they would need alternative housing. The Court thus finds that Plaintiffs have failed to state a claim
for promissory estoppel, and grants the motion to dismiss this claim.

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The Court notes that this requirement only applies if the agreement is subject to the statute
of frauds, and the Court has already concluded that it lacks information to make this determination.
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Conclusion
For the reasons stated above, the Court GRANTS IN PART and DENIES IN PART
Defendant’s motion to dismiss the amended complaint (docket no. 13).
It is so ORDERED.
SIGNED this 9th day of June, 2012.

_________________________________
XAVIER RODRIGUEZ
UNITED STATES DISTRICT JUDGE

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