JOHN K. SHERWOOD, Bankruptcy Judge.
Dear Counsel:
Before the Court is the motion (the "
On September 21, 2005, the Debtor and his wife, Amanda Johns (collectively, the "
In March 2008, the Mortgagors entered into a loan modification with Wells Fargo, as servicer of the Loan for U.S. Bank, to recapitalize $16,074.57 in interest (the "
The Mortgagors filed a voluntary joint chapter 13 bankruptcy petition on December 16, 2008. (See In re James Hartman and Amanda Johns ("
In February 2011, the Mortgagors submitted a new application for a loan modification to Wells Fargo (the "
On October 11, 2013, the state court dismissed the Foreclosure Action for lack of prosecution. (Id. at ¶ 34). On March 3, 2014, the Mortgagors completed their 2008 chapter 13 plan and received a discharge. (Id. at ¶ 36). Wells Fargo moved to reinstate the Foreclosure Action in July 2014 and the case was reinstated on the condition that it would remain dismissed if the Defendants failed to file a motion for final judgment by December 12, 2014. (Id. at ¶ 37). After the deadline passed without the filing of a motion for final judgment, Wells Fargo moved for an extension of time to submit the motion. (Id. at ¶¶ 39, 41). On January 22, 2015, the Debtor filed the instant chapter 13 bankruptcy petition. (In re James Hartman ("
On June 3, 2015, the Debtor filed the Complaint. Count One seeks declaratory and injunctive relief prohibiting the Defendants from taking any action to foreclose on the Property because such claims are time barred pursuant to N.J.S.A. § 2A:50-56.1(a). Count Two asserts that the Defendants negligently made misrepresentations that the Mortgagors were eligible for the 2009 Loan Modification and 2011 Loan Modification despite the fact that they did not qualify for a modification because they received the 2008 Loan Modification.
Federal Rule of Civil Procedure 12(b)(6), made applicable to this adversary proceeding by Federal Rule of Bankruptcy Procedure 7012, provides that a motion to dismiss may be granted if the complaint fails "to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6); Fed. R. Bankr. P. 7012. A complaint is sufficiently pled as long as it provides the opposing party with notice of claims against it and includes "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). In considering a 12(b)(6) motion to dismiss, courts must "accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief." Phillips v. County of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008) (citations and quotations omitted). However, factual allegations "must be enough to raise the right to relief above the speculative level" and "should `plausibly suggest[ ]' that the pleader is entitled to relief." Wilkerson v. New Media Tech. Charter Sch. Inc., 522 F.3d 315, 322 (3d Cir. 2008) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 557 (2007)). A claim is implausible in the context of a Rule 12(b)(6) motion to dismiss if its allegations "are too conclusory or the complaint fails to include essential facts about the elements of a claim." In re Neale, 440 B.R. 510, 518 (Bankr. W.D. Wis. 2010).
Count One of the Complaint seeks declaratory and injunctive relief barring the Defendants from taking action to foreclose on the Property because the six-year statute of limitations for commencing a mortgage foreclosure under section 2A:50-56.1(a) of the Fair Foreclosure Act allegedly expired on or about October 5, 2014. See N.J.S.A. § 2A:50-56.1(a). In analyzing the limitations periods set forth in N.J.S.A. § 2A:50-56.1(a), the Court must begin with the plain language of the statute. See U.S. Bank Nat. Ass'n v. Guillaume, 209 N.J. 449, 471, 38 A.3d 570, 582 (2012) (applicable principles of statutory construction require that the "inquiry begins with the literal language of the statute."); N.J.S.A. § 1:1-1 ("[w]ords and phrases shall be read and construed with their context, and shall, unless inconsistent with the manifest intent of the legislature or unless another or different meaning is expressly indicated, be given their generally accepted meaning.").
N.J.S.A. § 2A:50-56.1 ("Statute of limitations relative to foreclosure proceedings") provides:
N.J.S.A. § 2A:50-56.1 (emphasis added).
Here, the Mortgagors executed the Note and Mortgage on September 21, 2005 and the maturity date of the Note is October 1, 2035. Applying the plain language of the limitations period described in subsection (a), an action to foreclose on the Mortgage is timely as long as it is commenced no later than six years from the October 5, 2035 maturity date set forth in the Note (i.e., on or about October 5, 2041). See N.J.S.A. § 2A:50-56.1(a). However, the Plaintiff asserts that the limitations period under subsection (a) expired on or about October 5, 2014. The Plaintiff suggests that the maturity date set forth in the Mortgage was changed to October 5, 2008, the date on which Wells Fargo issued the Acceleration Notice that declared the full amount of the Loan due,
This interpretation of the applicable limitations period is contrary to the plain language and legislative history of the statute. While courts have held in other contexts that the maturity date of a note may be advanced by virtue of acceleration,
Also, as noted by the Defendants, the statute's silence with respect to the effect of acceleration on the mortgage foreclosure limitations period is particularly significant since New Jersey's statute of limitations for negotiable instruments, N.J.S.A. § 12A:3-118(a), specifically addresses acceleration. N.J.S.A. § 12A:3-118(a) provides:
N.J.S.A. § 12A:3-118(a). Thus, there is no doubt that the New Jersey legislature knows how to clearly draft a statute that provides for the commencement of a statute of limitations from an accelerated due date. The fact that the legislature did not include such language when it enacted N.J.S.A. § 2A:50-56.1 is evidence that it did not intend for the six-year limitations period to commence upon acceleration of a mortgage.
In addition, the legislative history of the Fair Foreclosure Act does not support the Plaintiff's position. Prior to the enactment of N.J.S.A. § 2A:50-56.1(a), New Jersey did not have a statute of limitations for mortgage foreclosure actions and courts applied a 20-year limitations period based on the common law adverse possession period. Section 2A:50-56.1 of the Fair Foreclosure Act was enacted to codify the New Jersey Appellate Division's holding in Security National Partners v. Mahler, 336 N.J.Super. 101, 104, 763 A.2d 804, 806 (App. Div. 2000), that a 20-year limitations period limits a mortgagee's right to commence a foreclosure action, running from the date of the debtor's default.
Finally, even if the Court accepted the Plaintiff's interpretation of the statute, equitable principles do not support a strict application of the statute of limitations to find that the Defendants are time-barred from exercising their foreclosure rights. See Zaccardi v. Becker, 88 N.J. 245, 258-59 (1982) (while a limitations period continues to run after a complaint is filed, it should not be mechanistically applied when the purposes of the statute of limitations are not served). The Supreme Court of New Jersey has noted that the purpose of a statute of limitations is to ensure defendants a fair opportunity to defend against claims, to prevent parties from sitting on their rights, and to promote repose. See Gantes v. Kason Corp., 145 N.J. 478, 486 (1996) (quoting Rivera v. Prudential Property & Casualty Ins. Co., 104 N.J. 32, 39 (1986)). Here, the Defendants promptly brought the Foreclosure Action shortly after the Mortgagors defaulted and have not sat on their rights. The Mortgagors have been on constant notice of the Foreclosure Action and have pursued loan modifications in order to save the Property from foreclosure for nearly seven years. Thus, the purposes of the statute of limitations are not served by a strict application in this case.
Accordingly, Count One of the Complaint is dismissed.
The Complaint asserts that the Defendants made negligent misrepresentations by failing to inform the Mortgagors that they were not eligible for the 2009 Loan Modification or the 2011 Loan Modification due to their having entered into the 2008 Loan Modification (and then defaulting). The elements of a claim for negligent misrepresentation are that "the defendant negligently made an incorrect statement of a past or existing fact, that the plaintiff justifiably relied on it and that his reliance caused a loss or injury." Masone v. Levine, 382 N.J.Super. 181, 187, 887 A.2d 1191, 1195 (App. Div. 2005) (citing Kaufman v. i-Stat Corp., 165 N.J. 94, 109, 754 A.2d 1188, 1195 (2000)). The Court is not aware of any cases applying a negligent misrepresentation theory of liability in the context of a loan modification.
Count Two of the Complaint relies on the general allegation that the Plaintiff "expended considerable costs and fees over an eighteen (18) month period based upon misrepresentations that Plaintiff may be eligible for a loan modification." (Compl. at ¶ 36). The Complaint suggests that the statement by the Defendants that the Plaintiff "may be eligible for a loan modification" constituted an incorrect statement of a past or existing fact that Plaintiff justifiably relied on and suffered damages as a result.
The Complaint's criticism with respect to the failure of the Defendants to inform the Mortgagors that they did not qualify for the 2009 Loan Modification or 2011 Loan Modification because of the 2008 Loan Modification (and subsequent default) is fair. If there was no way that the Mortgagors would ever qualify for another loan modification with respect to the Property after the 2008 Loan Modification was executed, it would have been better if the Defendants had set forth this position promptly and consistently. Another example of inconsistent conduct by the Defendants in the settlement process is the fact that the Defendants were apparently willing to enter into a Forbearance Agreement with respect to the Property in December 2010, a situation that would not seem possible if the Defendants strictly adhered to the principle "Investor guidelines allow capitalization only once in the life of the Loan." (Compl. at ¶¶ 26, 32). Thus, throughout the history of this relationship, the Defendants did not appear to apply their settlement criteria, to the extent they had any, in a uniform fashion.
Nevertheless, as set forth above, the Court is not aware of any precedent for holding a lender liable for negligent statements or omissions made during the course of a loan modification review. By submitting the applications for loan modifications and engaging in state court foreclosure mediation, the Mortgagors attempted to convince the Defendants to suspend the exercise of their foreclosure rights in favor of a consensual resolution that would address the Loan delinquencies. In this regard, the 2009 Loan Modification and 2011 Loan Modification constituted formalized settlement negotiations in which the parties attempted, but were not required, to reach a mutually agreeable restructuring of the Plaintiff's Mortgage obligations. In this setting, the Defendants' only obligation was to evaluate the Mortgagors' proposals in good faith. Although it is not clear whether the New Jersey Foreclosure Mediation program imposes a good faith requirement,
In similar contexts, courts have declined to recognize negligent misrepresentation claims arising out of a lender's alleged breach of duty during the loan modification process. See Legore v. OneWest Bank, FSB, 898 F.Supp.2d 912, 919 (D. Md. 2012) (dismissing mortgagor's negligent misrepresentation claim because a lender's obligation to review a loan modification application under the Federal Home Affordable Modification Program (HAMP) "does not create the `special circumstances' required to form a tort duty under Maryland law"); Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 573-74 (7th Cir. 2012) (holding that economic loss doctrine [which bars recovery in tort for purely economic losses arising out of a contract] required dismissal of mortgagor's negligent misrepresentation claim against servicer because any duties the servicer may have had to "provide accurate information to [the Plaintiff] arose directly from their commercial and contractual relationship" and therefore "do not sound in the torts of negligent misrepresentation or negligent concealment").
Finally, it is worth noting that the Plaintiff's damages consist solely of the "costs and fees" he incurred while pursuing the loan modifications. Any costs and expenses incurred by the Plaintiff would certainly be exceeded by the damages of the Defendants, who have not received principal or interest payments on the Loan for most of the seven years that have transpired since the Mortgagors filed their bankruptcy petition in December 2008. (See 2015 Bankruptcy Case, Claim No. 6-1). Accordingly, Count Two of the Complaint is dismissed.
The Plaintiff's Complaint fails to state a claim for relief under N.J.S.A. § 2A:50-56.1 or for negligent misrepresentation. An Order in conformance with this Opinion will be entered.
Cited at N.J.S.A. § 2A:50-56-1.
