## Facts

- On March 7, 2008, Maria Martinez bought a house in Tucson, Arizona, financed by a mortgage loan.
- In spring 2010, Martinez lost her job and began having trouble making mortgage payments.
- Martinez received a Notice of Trustee Sale dated August 9, 2010. After negotiations with the lender, the trustee’s sale was cancelled and her payments were temporarily reduced.
- The temporary modification ended around August 2011; her payments increased, and although she made the first two increased payments, she could not continue.
- Cenlar, FSB serviced Martinez’s loan.
- On August 26, 2011, Cenlar signed a contract with the Arizona Department of Housing to participate in Arizona’s Hardest Hit Fund (HHF) mortgage-assistance program for eligible homeowners.
- The HHF servicer contract required that, upon notification that a borrower had been conditionally approved for HHF, the servicer would not start foreclosure or—if foreclosure was already underway—would delay a scheduled foreclosure sale for 45 days, with extensions by mutual consent.
- Martinez eventually became unable to make any mortgage payments. In April 2012, Cenlar began (or continued) foreclosure proceedings against the property.
- Martinez applied for HHF assistance and was approved for underemployment assistance, described as up to $2,000 per month for up to 24 months.
- On June 26, 2012, the Arizona Department of Housing notified Cenlar of Martinez’s participation in HHF (an “I” record indicating an intent to provide payment assistance).
- Despite that notification, the foreclosure sale proceeded, and Martinez’s home was sold at auction on July 3, 2012, without her knowledge.
- On July 6, 2012, Cenlar objected to the HHF assistance on the ground that the property had already been foreclosed and the sale could not be reversed.
- Martinez was forced to vacate the home in July 2012.
- Martinez sued Cenlar in federal court, alleging, among other claims, that Cenlar breached the HHF servicer contract by failing to delay the foreclosure sale for 45 days after receiving notice of her HHF approval. Cenlar sought judgment on the pleadings, arguing Martinez lacked standing to sue on a contract between Cenlar and the state.

## Issues

1. Whether Martinez plausibly alleged she was an intended third-party beneficiary of Cenlar’s HHF servicer contract with the Arizona Department of Housing and therefore could pursue a breach-of-contract claim based on that agreement.
2. Whether Martinez’s allegations that Cenlar received HHF notification on June 26, 2012 but allowed the trustee’s sale to occur on July 3, 2012 stated a plausible claim for breach of the HHF contract’s foreclosure-delay provision.
3. Whether Martinez stated a claim for “wrongful foreclosure” under Arizona law based on the pleaded facts.
4. Whether Martinez should be granted leave to file a second amended complaint after the court ruled on Cenlar’s Rule 12(c) motion.

## Decision

- The court granted Cenlar’s Rule 12(c) motion for judgment on the pleadings as to Martinez’s wrongful-foreclosure claim and dismissed that claim.
- The court denied the Rule 12(c) motion in all other respects, allowing Martinez’s remaining theories—including claims tied to the HHF servicer agreement and third-party-beneficiary status—to proceed at the pleadings stage.
- The court granted Martinez’s motion for leave to amend and ordered that a second amended complaint be filed within 14 days.

## Legal Principles

- A Rule 12(c) motion is evaluated under the same standard as a Rule 12(b)(6) motion; the court accepts well-pleaded factual allegations as true and asks whether the complaint states a plausible claim for relief.
- Under Arizona law, a nonparty may sue for breach of contract when the contract manifests an intent to benefit that person (or a defined group that includes the person) as an intended beneficiary, not merely as an incidental beneficiary.
- Contract language requiring a mortgage servicer to pause or postpone foreclosure activity upon notice of a borrower’s conditional HHF approval can support a plausible breach claim when the servicer allegedly proceeds to sale within the contract’s delay period.
- A stand-alone wrongful-foreclosure claim, as pleaded here, was not legally sufficient under Arizona law, warranting judgment on the pleadings as to that count.
- Leave to amend under Rule 15(a) is generally granted when justice so requires, particularly where amendment may cure pleading problems and there is no showing of undue delay, bad faith, repeated failure to cure, undue prejudice, or futility.

## Conclusion

Martinez alleged that Cenlar agreed with the Arizona Department of Housing to delay foreclosure sales for 45 days after notice of a borrower’s HHF approval, that Cenlar received such notice on June 26, 2012, and that her home was nonetheless sold on July 3, 2012. The court dismissed only the wrongful-foreclosure claim on the pleadings, denied judgment on the pleadings as to the remaining claims (including Martinez’s contract-based theory as a potential intended beneficiary of the HHF agreement), and granted Martinez leave to file a second amended complaint.


Martinez v. Cenlar, FSB, No. CV-13-00589-TUC-CKJ (2014)