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Bankr. M.D.N.C.: In re Miller- Fraud and Similar Claims Related to Denial of Mortgage Modifications

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By Ed Boltz, 21 February, 2024

Summary:

Yitzhak Miller  brought claims against related to the mortgage servicers related to  three rental properties:

  1. constructive fraud;
  2. fraudulent inducement; 
  3. negligent  misrepresentation; 
  4. breach of duty of good faith and fair dealing; 
  5. abuse of process;
  6. breach of settlement agreement 
  7. civil conspiracy; 
  8. UDTPA ; 
  9. racketeering in violation of 18 U.S.C. § 1961 et seq.

The bankruptcy court dismissed the constructive fraud claims  finding,  in reliance on  Dallaire v. Bank of America that the defendant mortgage servicers did not have any fiduciary duty to Miller.

As to fraudulent inducement,  Miller was required, with sufficient detail to satisfy Rule 9(b), to allege:

  1.  a false representation or concealment of a material fact, 
  2. that was reasonably calculated to deceive, 
  3. that was made with the intent to deceive, 
  4. which does in fact deceive, 
  5. resulting in damage to the injured party.” 

Packrite, LLC v. Graphic Packaging Int'l, Inc., No. 1:17CV1019, 2019 U.S. Dist. LEXIS 113428, at *7-8 (M.D.N.C. July 9, 2019).  Miller's generalized allegations that the loans implied they were for the borrower's principal residence and made in compliance with Fannie Mae guidelines  failed as insufficient.  

Similarly the claims of negligent representation that the loans were "governed by regulations and/or trade practices intended to prevent unjustified foreclosures"  failed due to insufficient support.  

The claim for breach of duty of good faith and fair dealing failed because there was no "special relationship between the parties" beyond a contractual one.  

Abuse of process   "is the misapplication of civil or criminal process to accomplish some purpose not warranted or commanded by the process" and requires a showing of

  1. the existence of an ulterior motive, and 
  2. an act  in the use of the process not proper in the regular prosecution of the proceeding.

The bankruptcy court rejected the allegation that the foreclosures against the properties were sought for the improper purpose of "cheating [Miller] of the equity".

Miller asserted breach of settlement claim   based on an agreement  to "stand down on all foreclosure efforts"  while he sought to sell one of the three properties,  with the anticipation of using the expected proceeds to bring the other to mortgages current.  Shortly after obtaining a contract to sell that first property,  the foreclosures were nonetheless immediately recommenced. Unfortunately for Miller,  the bankruptcy found there was no settlement contract,  as the mortgage servicer's North Carolina counsel had no authority regarding the property in Lousiana,  especially as any such oral settlement would not be enforceable as it lacked any specificity to constitute a contract.

Because all of Miller's tort claims were dismissed, the civil conspiracy and UDTPA claims do not rest on any underlying tortious conduct and failed as well.  

The racketeering claim failed as such requires the showing of an "enterprise" with  least four  features: 

  1. a purpose, 
  2. relationships among those associated with the enterprise,
  3. longevity sufficient to permit  these associates to pursue the enterprise's purpose; and
  4. it  affected interstate commerce.

Commentary:

With the competing allegations that Miller submitted  multiple Requests for Mortgage Assistance (RMAs)  but with Specialized asserting that those had not been received,  the underlying bankruptcy would certainly seem to have been an instance that could have benefited from Miller seeking to participate in the bankruptcy court's LMM program.  While strictly speaking that is limited to Chapter 13 debtors and their principal residence,  the underlying bases for that program could similarly allow this in a Chapter 11 case for rental properties. Whether Miller truly wanted  mortgage modifications or instead to use litigation to force negotiations for more reasonable terms is unclear.

For a copy of the opinion, please see:

 

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