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Phillips v. Wells Fargo Bank, N.A.

United States District Court, E.D. Virginia, Richmond Division

April 25, 2018



          John A. Gibney, Jr. United States District Judge.

         The plaintiffs, Anthony D. Phillips and Rebecca E. Phillips (collectively, ''the Phillips"), obtained a mortgage loan from defendant Wells Fargo Bank, N.A. ("Wells Fargo"). They fell behind on their payments, and Wells Fargo denied their loss mitigation application, resulting in a foreclosure sale of their home.

         In their amended complaint, the Phillips sued Wells Fargo and U.S. Bank National Association, Trustee for JP Morgan Mortgage Acquisition Trust 2006-WFI ("U.S. Bank"), for fraud, breach of the duty of good faith and fair dealing, and breach of the deed of trust's cure notice requirement. The defendants moved to dismiss the fraud and cure notice counts.[1]

         The Phillips have adequately plead actual and constructive fraud, so the Court denies the motion to dismiss Counts One and Two. The Phillips, however, fail to state a claim for a breach of the deed of trust's cure notice requirement. The Court, therefore, grants the motion to dismiss Count Four.

         I. BACKGROUND

         In 2006, with Wells Fargo as their lender, the Phillips bought a home on Winterpock Road in Chesterfield County. In July 2012, Rebecca Phillips reached out to Wells Fargo to ask about loan modification or loss mitigation options, including under the Home Affordability Modification Program ("HAMP"). A representative from Wells Fargo told Rebecca that she and Anthony "could not be considered for a HAMP loan modification (and could not be considered for a loan modification) unless they fell at least three months in arrears." (Dk. No. 28, at ¶ 9.) This statement contradicted HAMP guidelines, which state that borrowers in imminent danger of default may qualify for loan modifications. Relying on the representative's statement, the Phillips fell behind on their payments beginning in August 2012.

         The Phillips applied for a loan modification in October 2012. Wells Fargo indicated that they should not make payments while it considered their application, so they did not pay from November 2012 to April 2013. The deed of trust required Wells Fargo to send a cure notice indicating the action required to cure a default before accelerating the amount owed under the note. In April 2017, Wells Fargo provided the Phillips with a cure notice dated four years earlier, April 5, 2013. The cure notice showed that Wells Fargo had sent the notice by certified mail to the Phillips's address. The Phillips acknowledge that Wells Fargo sent a cure notice specifying that they needed to pay $46, 885.64 by May 10, 2013, but allege they did not receive it. Even if they had received it, they argue that Wells Fargo's instructions not to make payments contradicted the contents of the notice.

         Wells Fargo denied the loan modification application on May 6, 2013. Wells Fargo then notified the Phillips that it had referred their mortgage for foreclosure on May 14, 2013. On May 16, 2013, Wells Fargo conveyed its rights to U.S. Bank, making U.S. Bank the noteholder and Wells Fargo the servicer of the Phillips's loan. The Phillips appealed the loan modification denial, but U.S. Bank proceeded with the foreclosure process, scheduling a sale for July 27, 2017. The Phillips attempted to enjoin the sale, but this Court denied injunctive relief. On July 27, 2017, U.S. Bank bought the home at the foreclosure sale.

         After partially dismissing the original complaint and allowing their breach of the duty of good faith and fair dealing claim to survive, the Court permitted the Phillips to amend their complaint. They added U.S. Bank as a defendant and pled additional counts for fraud and breach of the cure notice requirement in the deed of trust.

         The defendants have moved to dismiss Count One for actual fraud against Wells Fargo; Count Two for constructive fraud against Wells Fargo; and Count Four for breach of the cure notice requirement. Both fraud counts concern Wells Fargo's alleged statement to Rebecca that the bank would not consider their HAMP modification application unless they defaulted.

         II. DISCUSSION[[2]]

         A. Actual and Constructive Fraud (Against Wells Fargo)

         A complaint for fraud under Virginia law must plausibly allege: "(1) a false representation, (2) of material fact, (3) made intentionally and knowingly, (4) with intent to mislead, (5) reliance by the party misled, and (6) resulting damage to the party misled." Evaluation Research Corp. v. Alqequin, 439 S.E.2d 387, 390 (Va. 1994) (citations omitted). A claim for constructive fraud contains the same elements except that "the misrepresentation of material fact is not made with the intent to mislead, but is made innocently or negligently." Id. These elements must meet the pleading requirements of Federal Rule of Civil Procedure 9(b), which requires a plaintiff to "state with particularity the circumstances constituting fraud." Fed.R.Civ.P. 9(b). These circumstances include "the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby." Baker v. Elam, 883 F.Supp.2d 576, 580 (E.D. Va. 2012) (quoting Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999)).

         Wells Fargo first argues that the statute of limitations bars the fraud claims. In Virginia, plaintiffs must bring fraud claims two years from the date the fraud "is discovered or by the exercise of due diligence reasonably should have been discovered." Va. Code Ann. §§ 8.01-243(A); 8.01-249(1). The plaintiff bears the burden of showing that he acted with due diligence but failed to discover the fraud within the statutory period. Hughes v. Foley, 128 S.E.2d 261, 263 (Va. 1962). When the Court confronts a statute of limitations argument in a 12(b)(6) motion to dismiss, all facts necessary for ...

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