Date: 09-04-2015

Case Style: Daniel Avila v. CitiMortgage, Inc.

Case Number: 14-1949

Judge: Sykes

Court: United States Court of Appeals for the Seventh Circuit on appeal from the Northern District of Illinois (Cook County)

Plaintiff's Attorney:

Defendant's Attorney:

Description: Daniel Avila alleges that CitiMortgage,
Inc., violated a fiduciary duty and breached its mortgage
agreement with him by using the payout from his
homeowner’s insurance policy to pay down his loan rather
than repair his damaged house. The district court dismissed
Avila’s suit—a proposed class action—for failure to state a
2 No. 14-1949
claim, reasoning that (1) his allegations do not support a
fiduciary duty on CitiMortgage’s part; and (2) Avila was
barred from pursuing his contract claim because he had
materially defaulted on his own contractual obligations by
missing several mortgage payments prior to CitiMortgage’s
purported breach.
We agree with the district court on the first point: Avila’s
allegations of a fiduciary relationship are inadequate as a
matter of law. But his claim that the mortgage agreement
remained enforceable after his missed payments is plausible
in light of the agreement’s structure and the remedies it
prescribes in the event of default. The breach-of-contract
claim should not have been dismissed.
I. Background
Avila bought his Chicago home in 2005 with a $100,500
mortgage loan from CitiMortgage. Five years later, a serious
fire made the house uninhabitable. Avila filed a claim with
his homeowner’s insurance carrier, which paid out just over
$150,000. Pursuant to the terms of the mortgage agreement,
CitiMortgage took control of the insurance proceeds. Avila
selected a contractor, and CitiMortgage paid $50,000 of the
insurance money to get the restoration underway. CitiMortgage
later inspected the work and found that it was of poor
quality and needed to be redone, but by that time Avila had
missed several mortgage payments. CitiMortgage then
applied the remaining $100,000 from the insurance payout
toward Avila’s outstanding mortgage loan. Avila’s home was
never repaired.
No. 14-1949 3
The parties’ respective obligations regarding homeowner’s
insurance are spelled out in section 5 of the mortgage
agreement.1 Avila was required to obtain a homeowner’s
policy that included a standard mortgage clause and named
CitiMortgage as a loss payee.2 CitiMortgage had the right to
disapprove Avila’s choice of carrier, take possession of the
insurance documents, and demand proof that Avila was
paying the premiums.
Section 5 also addressed the parties’ obligations in the
event that damage to the property resulted in an insurance
claim:
Unless Lender and Borrower otherwise agree
in writing, any insurance proceeds … shall be
applied to restoration or repair of the Property,
if the restoration or repair is economically feasible
and Lender’s security is not lessened.
During such repair and restoration period,
Lender shall have the right to hold such insurance
proceeds until Lender has had an opportunity
to inspect such Property to ensure that
the work has been completed to Lender’s satisfaction
… . … Lender shall not be required to
pay Borrower any interest or earnings on such
1 The mortgage agreement was based on the Fannie Mae/Freddie Mac
Uniform Instrument for single-family homes in Illinois.
2 As we discuss in more detail later, “the ‘standard’ mortgage
clause … forms a separate and distinct contract between the insurer and
the mortgagee, the effect of which is to shield the mortgagee from being
denied coverage based upon the acts or omissions of the insured or the
insured’s noncompliance with the terms of the policy.” Old Second Nat’l
Bank v. Ind. Ins. Co., 29 N.E.3d 1168, 1175 (Ill App. Ct. 2015).
4 No. 14-1949
proceeds. … If the restoration or repair is not economically
feasible or Lender’s security would be
lessened, the insurance proceeds shall be applied to
the sums secured by this Security Instrument,
whether or not then due, with excess, if any, paid to
Borrower.
(Emphasis added.) Section 5 also provided that CitiMortgage
could use the insurance proceeds to pay down the loan
on the occurrence of any of three additional conditions: if the
borrower abandoned the property, ignored notice concerning
the insurance carrier’s offer to settle a claim, or if
CitiMortgage foreclosed on the property.
As we’ve noted, CitiMortgage used the insurance proceeds
to pay down the loan rather than repair the house, but
it never claimed that restoration was economically infeasible
or would reduce its security interest. Nor had any of the
three special conditions described above occurred.
Avila sued CitiMortgage in Cook County Circuit Court
alleging that its actions breached a fiduciary duty and the
mortgage contract. He sought to represent a class of all
defaulting CitiMortgage borrowers whose homeowner’s
insurance proceeds had been applied to their mortgage loans
rather than home repairs. CitiMortgage removed the case to
federal court.3
3 Federal jurisdiction arose under the Class Action Fairness Act,
28 U.S.C. § 1332(d), based on minimal diversity. After an Illinois-based
codefendant was dropped, the parties became completely diverse, so
jurisdiction was also proper under 28 U.S.C. § 1332(a)(1).
No. 14-1949 5
CitiMortgage moved to dismiss for failure to state a
claim. See FED. R. CIV. P. 12(b)(6). The district court granted
the motion, concluding that CitiMortgage owed no fiduciary
duty and Avila was precluded from bringing a breach-ofcontract
claim because his default on his payment obligations
preceded CitiMortgage’s alleged breach.4 The dismissal
order was without prejudice, and Avila twice tried to amend
his complaint. The later iterations of the complaint were also
dismissed—the last one with prejudice. This appeal followed.
II. Discussion
We review de novo the judge’s order dismissing Avila’s
complaint under Rule 12(b)(6) for failure to state a claim.
Carmody v. Bd. of Trs. of the Univ. of Ill., 747 F.3d 470, 471 (7th
Cir. 2014). To survive a motion to dismiss, a complaint must
contain sufficient factual allegations to state a claim for relief
that is legally sound and plausible on its face. Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). Avila brought state-law
claims for breach of fiduciary duty and breach of contract.
Illinois law controls.
A. Fiduciary Duty
Avila alleges that CitiMortgage’s use of his homeowner’s
insurance proceeds to pay down his mortgage loan was a
4 Avila’s initial complaint also alleged claims for conversion and negligence.
These claims too were dismissed, and Avila does not challenge
this aspect of the judge’s ruling.
6 No. 14-1949
breach of its duty as a fiduciary. “[I]n order to state a claim
for breach of fiduciary duty, [a complaint] must … allege[]
that a fiduciary duty exists, that the fiduciary duty was
breached, and that such breach proximately caused the
injury of which the plaintiff complains.” Neade v. Portes,
739 N.E.2d 496, 502 (Ill. 2000). The judge concluded that
Avila’s complaint failed to allege facts sufficient to support
the existence of any fiduciary duty. We agree.
“A fiduciary relationship exists when there is a special
confidence reposed in one who, in equity and good conscience,
is bound to act in good faith and with due regard to
the interest of the one reposing the confidence.” Hensler v.
Busey Bank, 596 N.E.2d 1269, 1274 (Ill. App. Ct. 1992). Some
fiduciary relationships exist as a matter of law (e.g., the
attorney-client relationship), but the mortgagor-mortgagee
relationship is not one of them.5 See Teachers Ins. & Annuity

5 Where the alleged fiduciary relationship does not exist as a matter of
law, Illinois requires that the facts from which the fiduciary relationship
arises be “pleaded and proved by clear and convincing evidence.”
Hensler v. Busey Bank, 596 N.E.2d 1269, 1275 (Ill. App. Ct. 1992). But
federal pleading standards apply when considering a motion to dismiss
a complaint that rests on diversity jurisdiction. See Windy City Metal
Fabricators & Supply, Inc. v. CIT Tech. Fin. Servs., Inc., 536 F.3d 663, 670–72
(7th Cir. 2008) (discussing the contemporary framework for determining
whether a federal procedural rule applies); Caraluzzi v. Prudential Sec.,
Inc., 824 F. Supp. 1206, 1213 (N.D. Ill. 1993) (holding that federal pleading
standards control in a breach-of-fiduciary-duty action brought under
Illinois law); 5 CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FED. PRAC.
& PROC. CIV. § 1204 (3d ed. 2004) (“[The] suggesti[on] that state pleading
tests must be followed insofar as the manner or the particularity of
pleading in a federal court … [is] erroneous … .”). To survive CitiMortgage’s
motion to dismiss, Avila only needed to plead facts that plausibly
stated a claim for relief arising out of CitiMortgage’s violation of a
fiduciary duty.
No. 14-1949 7
Ass’n of Am. v. La Salle Nat’l Bank, 691 N.E.2d 881, 888 (Ill
App. Ct. 1998). Avila counters that the fiduciary relationship
at issue in this case “is limited to the use of the insurance
proceeds” and arose because “the insurance proceeds [were]
placed in the hands of [CitiMortgage],” thus “creat[ing] an
escrow” under Illinois law.
An escrow is “[a] legal document or property delivered
by a promisor to a third party to be held by the third party
for a given amount of time or until the occurrence of a
condition, at which time the third party is to hand over the
document or property to the promisee.” BLACK’S LAW
DICTIONARY (10th ed. 2014); see also Wiczer v. Wojciak,
30 N.E.3d 670, 679 (Ill. App. Ct. 2015). In effect, an escrow
reduces the degree of trust necessary to complete a deal by
reducing the risk that one party won’t turn over money or
documents as promised. Under Illinois law “[a]n escrow
agent has a fiduciary duty to the party making the deposit
and the party for whose benefit the deposit is made. As a
result, an escrow agent must act impartially toward all
parties.”6 Wells Fargo Bank Minn., N.A. v. EnviroBusiness, Inc.,
22 N.E.3d 125, 136 (Ill. App. Ct. 2014) (citation omitted).
More specifically, an escrow agent’s “duty [is] to act only in
accordance with the … escrow instructions.” Int’l Capital
Corp. v. Moyer, 806 N.E.2d 1166, 1170 (Ill. App. Ct. 2004). If
under the mortgage agreement CitiMortgage was an escrow
6 Illinois courts have described escrow agents both as “special agents”
and “trustees,” see Estate of Reinhold v. Mansfield, 412 N.E.2d 1146, 1149
(Ill. App. Ct. 1980), but in either case the agent assumes fiduciary duties,
see Albrecht v. Brais, 754 N.E.2d 396, 399 (Ill. App. Ct. 2001) (distinguishing
an escrow agent from a trustee).
8 No. 14-1949
agent, then Avila has adequately alleged the existence of a
fiduciary duty.
CitiMortgage objects that Avila’s escrow theory comes
too late—he never used the word “escrow” in any of his
three complaints and did not argue below that a fiduciary
relationship between the parties arose based on an escrow.
There’s no question that Avila could have helpfully clarified
his case if he had characterized the alleged fiduciary relationship
as an escrow from the beginning. That said, plaintiffs
are not required to plead specific legal theories. King v.
Kramer, 763 F.3d 635, 642 (7th Cir. 2014). Avila’s complaint
alleged that a fiduciary duty existed because
“Citi[Mortgage] had the right to retain exclusive control over
these insurance proceeds” and he “had no right to object to
or interfere with Citi[Mortgage]’s determination regarding
the satisfactory completion of the [repair] work.” These
allegations gave CitiMortgage and the court adequate notice
of the scope of, and basis for, the alleged fiduciary relationship.
Cf. Vincent v. City Colleges of Chi., 485 F.3d 919, 923 (7th
Cir. 2007) (holding that Rule 8(a)(2) of the Federal Rules of
Civil Procedure “calls for a short and plain statement; the
plaintiff pleads claims, not facts or legal theories”).
It’s true that Avila did not utter a word about an “escrow
theory” in opposition to any of CitiMortgage’s Rule 12(b)(6)
motions in the district court. Issues raised for the first time
on appeal are generally treated as waived. County of
McHenry v. Ins. Co. of the W., 438 F.3d 813, 820 (7th Cir. 2006)
(explaining that new factual allegations may be considered
on appeal if consistent with the complaint, but new issues
raised for the first time on appeal ordinarily will not be
No. 14-1949 9
addressed). Even if we set the waiver aside, however, Avila’s
escrow theory comes up short.
“The dominant party must accept the responsibility, accept
the trust of the other party before a court can find a fiduciary
relationship.” Pommier v. Peoples Bank Marycrest, 967 F.2d
1115, 1119 (7th Cir. 1992) (emphases added); see also DeWitt
Cnty. Pub. Bldg. Comm’n v. County of DeWitt, 469 N.E.2d 689,
701 (Ill. App. Ct. 1984) (“Those who have in the law’s view
been strangers remain such, unless both consent by word or
deed to an alteration of that status.” (quoting S. Trust Co. v.
Lucas, 245 F. 286, 288 (8th Cir. 1917))). Section 5 of the mortgage
agreement does not explicitly create an escrow, and
nothing in Avila’s complaint supports an inference that
CitiMortgage affirmatively accepted the role of escrow
agent. Still, the existence of an escrow, like any fiduciary
relationship, can “be determined from the relations of the
parties and their respective rights and duties.” Albrecht v.
Brais, 754 N.E.2d 396, 399 (Ill. App. Ct. 2001). Avila argues
that section 5 implicitly creates an escrow. In other words, he
argues that the implied escrow is so self-evident that
CitiMortgage accepted the duties of escrow agent merely by
entering into the mortgage agreement. This is essentially a
question of contract interpretation.
The function of an escrow agent is to serve as intermediary,
faithfully delivering the escrowed property in strict
conformity with the instructions issued by the parties to the
escrow agreement. See Wiczer, 30 N.E.3d at 679; Int’l Capital
Corp., 806 N.E.2d at 1170. Avila says that CitiMortgage is the
intermediary between his insurance carrier and himself. But
that’s not an accurate characterization of CitiMortgage’s role.
The insurance carrier was not party to the mortgage agree-
10 No. 14-1949
ment and thus could not be the grantor in any escrow created
by section 5. The insurance carrier’s involvement was
completed as soon as it issued the check for the policy
proceeds; it gave no instructions about how CitiMortgage
should use the money, and without instructions there can be
no escrow.7
Instead, section 5 is an agreement between Avila and
CitiMortgage alone. And as a term of the contract, it exists
almost exclusively for CitiMortgage’s benefit. Without
section 5, Avila could use the insurance proceeds to repair
his house or pay down his loan at his discretion. The mortgage
agreement shifts that discretion to CitiMortgage to
ensure that repairs are “economically feasible,” that its
“security is not lessened,” and that it will have “an opportunity
to inspect such Property to ensure the work has been
completed to [its] satisfaction.”8 Avila suggests that these are
the escrow instructions, but it’s not consistent with a typical
escrow arrangement to give an escrow agent authority to
make self-interested and discretionary decisions about when
and where to disburse the escrowed funds. Contract law
imposes an implied duty of good faith on parties empowered
by the contract to exercise discretion, see RBS Citizens,
7 Avila’s homeowner’s insurance policy is not in the record, but any
conditions it might impose on the use of the insurance proceeds are
independent of the obligations imposed on CitiMortgage in section 5 of
the mortgage agreement.
8 The fact that Avila will also benefit from the insurance funds in the
sense that they will ultimately be used either to repair his house or pay
down his mortgage loan does not alter the conclusion that the purpose of
the arrangement in section 5 is to enable CitiMortgage to protect its own
interests, not Avila’s.
No. 14-1949 11
Nat’l Ass’n v. RTG-Oak Lawn LLC, 943 N.E.2d 198, 206–07 (Ill.
App. Ct. 2011), but that duty doesn’t create a fiduciary
relationship. Simply put, nothing in section 5 indicates that
CitiMortgage assumed a duty to act for Avila’s benefit in
place of its own. See RESTATEMENT (THIRD) OF TRUSTS § 2
cmt.b (2003) (“Despite the differences in the legal circumstances
and responsibilities of various fiduciaries, one
characteristic is common to all: a person in a fiduciary
relationship to another is under a duty to act for the benefit
of the other as to matters within the scope of the relationship.”).

There’s another important way in which CitiMortgage
differs from a typical escrow agent: While “[a]n escrow
agent … is not vested with title to the property,” Albrecht,
754 N.E.2d at 399, CitiMortgage did have title to the insurance
proceeds. CitiMortgage was a loss payee under the
insurance policy, as well as the beneficiary of the insurance
contract’s standard mortgage clause.9 See GRANT S. NELSON &
DALE A. WHITMAN, REAL ESTATE FINANCE LAW 173 (5th ed.
2007) (“The effect of the [standard mortgage] provision is to
insure the mortgagee’s interest, as fully and to the same
extent as if the mortgagee had taken out a separate policy
directly from the insurer … .”); Old Second Nat’l Bank v. Ind.
Ins. Co., 29 N.E.3d 1168, 1175 (Ill. App. Ct. 2015). In other
words, CitiMortgage was not merely a custodian of Avila’s
money; the insurance proceeds were issued to CitiMortgage
directly, and it had a property interest in them. While it’s
9 Avila emphasizes that section 5 says that CitiMortgage will “hold” the
insurance proceeds. That single use of the term does not alone change
the formal legal relationships established by or mandated in the mortgage
agreement.
12 No. 14-1949
common for escrow agents to be compensated out of the
funds in the escrow, it’s not consistent with an escrow for the
agent to have title to those funds while they remain in escrow.
This conclusion is bolstered by the fact that CitiMortgage
expressly agreed to the creation of escrows (and to be an
escrow agent) elsewhere in the mortgage agreement. Specifically,
section 3 allows for the use of escrows to pay for
property taxes, lease payments, insurance premiums, and
community association dues. The “Definitions” section of
the mortgage contract defines “Escrow Items” solely as
“those items that are described in [s]ection 3.”
Comparing sections 3 and 5 is telling. Section 3 allows
third-party banks to collect money from Avila and disburse
it to the relevant tax authorities, insurance carriers, and
homeowner’s associations in accordance with the instructions
agreed to by Avila and CitiMortgage. These “instructions”
are clear and the payment amounts are fixed by law
or contract. Distribution of the escrowed funds is not subject
to the escrow agent’s discretion, nor is the agent entitled to
determine whether a given use of the funds furthers its own
economic interests. Finally, the intermediary bank does not
have an independent property interest in the funds—it’s just
a custodian until the money can be paid out in accordance
with the escrow instructions.
Section 3 expressly authorizes CitiMortgage to serve as
the escrow agent, assuming it is “an institution whose
deposits are insured by a federal agency.” But the important
point is that its function is simply to possess the funds and
disburse them in accordance with the escrow instructions.
There can be no conflict of interest between Avila and
No. 14-1949 13
CitiMortgage with respect to the section 3 escrows because
both parties share a common interest in ensuring that the
taxes, premiums, and fees are paid on time. Also, section 3
(unlike section 5) requires CitiMortgage, if it’s serving as
escrow agent, to provide an annual accounting of the escrowed
funds. Cf. Midwest Decks, Inc. v. Butler & Baretz
Acquisitions, Inc., 649 N.E.2d 511, 517 (Ill. App. Ct. 1995)
(noting, in the course of finding that no escrow existed, that
“the purchase agreement in the case at bar did not call for
setting up an escrow account or for segregating the funds”).
In sum, while the parties clearly intended for section 5 to
govern their interlocking contractual obligations with respect
to Avila’s homeowner’s insurance policy, Avila has not
plausibly alleged that CitiMortgage assumed any additional,
extra-contractual duties of a fiduciary nature. See Zelickman
v. Bell Fed. Sav. & Loan Ass’n, 301 N.E.2d 47, 51 (Ill. App. Ct.
1973) (holding that a fund from which the lender paid
insurance premiums on behalf of the homeowner was not a
trust but rather “an additional contractual security device for
the protection of defendant’s rights as creditor, specifically
agreed to in the contract between the parties”). The claim for
breach of a fiduciary duty was properly dismissed.
B. Breach of Contract
Avila’s breach-of-contract claim is based on the following
language from section 5: “Unless Lender and Borrower
otherwise agree in writing, any insurance proceeds … shall
be applied to restoration or repair of the Property, if the
restoration or repair is economically feasible and Lender’s
security interest is not lessened.” (Emphasis added.) Because
14 No. 14-1949
CitiMortgage never indicated that repairing the house was
economically infeasible or would harm its security interest,
Avila argues that it breached the mortgage agreement. He
also points out that the other three conditions listed in
section 5 that would permit CitiMortgage to use the insurance
proceeds to pay down the loan—abandonment, the
failure to respond to an insurance settlement, and foreclosure—did
not occur.
The judge concluded that Avila could not prevail on his
breach-of-contract claim even assuming CitiMortgage had, in
fact, breached section 5. The elements of a claim for breach of
contract are (1) the existence of a valid and enforceable
contract; (2) substantial performance by the plaintiff;
(3) breach of contract by the defendant; and (4) resultant
injury to the plaintiff. W.W. Vincent & Co. v. First Colony Life
Ins. Co., 814 N.E.2d 960, 967 (Ill. App. Ct. 2004). The judge
reasoned that since Avila had defaulted on his mortgage
payments prior to CitiMortgage’s alleged misuse of the
insurance proceeds, he fell short on the “substantial performance”
element of the claim. See RESTATEMENT (SECOND) OF
CONTRACTS § 237 (1981) (“[I]t is a condition of each party’s
remaining duties to render performances to be exchanged
under an exchange of promises that there be no uncured
material failure by the other party to render any such performance
due at an earlier time.”). Avila responds that the
parties intended that section 5 would remain enforceable
even after a default by the borrower.
Section 22 of the mortgage agreement describes
CitiMortgage’s remedies in the event of a default by the
homeowner. Specifically, the lender is entitled to accelerate a
loan and initiate judicial foreclosure proceedings, but only
No. 14-1949 15
after giving the homeowner notice of the alleged default and
providing 30 days to cure it. (Acceleration in turn triggers
the borrower’s right to reinstate the mortgage agreement if
certain conditions are met.) Avila argues that because section
22 establishes a specific process for dealing with a
default, the homeowner’s first default would not make the
mortgage agreement thereafter wholly unenforceable. And
while CitiMortgage could have accelerated Avila’s loan in
response to his default, applying the insurance proceeds to
pay down his loan balance was not a remedy for missed
payments.
That’s a reasonable reading of the mortgage contract. Section
5 appears to envision the survival of its terms after a
default. As we’ve explained, that section gives CitiMortgage
the right to apply insurance proceeds toward the outstanding
loan balance under certain specified conditions, including
the homeowner’s abandonment of the property or
foreclosure by CitiMortgage. Abandonment is a default per
se under certain circumstances (under section 6 of the
agreement), and foreclosure necessarily follows a default.
These provisions of section 5 would be superfluous if any
default immediately gave CitiMortgage the right to apply an
insurance payout toward the mortgage loan. See Cent. Ill.
Light Co. v. Home Ins. Co., 821 N.E.2d 206, 213 (Ill. 2004) (“[A]
contract[] is to be construed as a whole, giving effect to every
provision, if possible, because it must be assumed that every
provision was intended to serve a purpose.”).
Indeed, CitiMortgage concedes that the mortgage agreement
does not become a nullity at the moment of default,
though it apparently thinks that the contract becomes entirely
unenforceable (from the breaching party’s perspective) from
16 No. 14-1949
that point forward. But CitiMortgage’s position would give it
a carte blanche of indeterminate duration to hold Avila to his
contractual obligations while its own performance is subject
to nothing but its own whims.
Contracting parties are free to negotiate in advance how
breaches should be handled. For example, a nondefaulting
party cannot recover in excess of the amount it agreed to in a
liquidated damages clause, regardless of its actual damages.
See Berggren v. Hill, 928 N.E.2d 1225, 1229 (Ill. App. Ct. 2010).
A contrary holding would raise equitable concerns similar to
those addressed by the election-of-remedies principle, which
holds that
[i]f a party to a contract breaks it, the other party
can abandon the contract (unless the breach
is very minor) and sue for damages, or it can
continue with the contract and sue for damages.
But if it makes the latter election, it is bound
to the obligations that the contract imposes on
it.
Emerald Invs. Ltd. P’ship v. Allmerica Fin. Life Ins. & Annuity
Co., 516 F.3d 612, 618 (7th Cir. 2008) (citations omitted); see
also Omni Partners v. Down, 614 N.E.2d 1342, 1346 (Ill. App.
Ct. 1993) (“[I]f the injured party chooses to continue performance,
he has doubtless lost his right to stop performance.”);
14 SAMUEL WILLISTON & RICHARD A. LORD, WILLISTON ON
CONTRACTS § 43:15 (4th ed. 2014) (“[B]y outward manifestations
indicating that the defective performance has been
accepted, the obligor has sent the unmistakable signal—by
conduct, rather than by an express promise—that it still
considers the contract to be binding.”).
No. 14-1949 17
In light of the bargained-for remedies for default contained
in section 22 of the mortgage agreement, and the
presumption against superfluity as applied to section 5,
Avila has stated a facially plausible claim that the parties did
not intend that his missed payments preclude him from
enforcing section 5 of the agreement. Though CitiMortgage
could have accelerated Avila’s loan in response to his missed
mortgage payments, it did not do so.
CitiMortgage cites Hukic v. Aurora Loan Services, 588 F.3d
420 (7th Cir. 2009), for the proposition that a borrower’s
breach makes him powerless to enforce a mortgage agreement.
That’s a significant overreading of the opinion. Hukic’s
mortgage agreement required him to provide his lender
with proof that he was paying his property taxes and insurance
premiums. If he didn’t, the lender was entitled to pay
the taxes and insurance itself and then add the costs to the
monthly mortgage payment. Id. at 433. Hukic paid his taxes
and premiums but ignored the lender’s repeated requests for
proof of payment and then sued when the lender paid the
bills on his behalf. Id. We affirmed the dismissal of Hukic’s
breach-of-contract claim. Id. As we explained in a later case,
“Hukic’s failure to comply with his contractual obligations
was material and absolved the servicers from liability because
it directly caused the servicers’ actions that were the
basis of his own breach of contract claims.” Catalan v. GMAC
Mortg. Corp., 629 F.3d 676, 692 (7th Cir. 2011).
Here, Avila’s claim is that CitiMortgage’s use of the insurance
proceeds to reduce his loan was not a contractually
permitted response to his default. In Hukic the lender’s
response to the borrower’s default was expressly permitted.
The two cases are not analogous.
18 No. 14-1949
CitiMortgage also claims that Avila’s complaint is defective
unless it asserts his compliance with each and every
affirmative duty imposed on him by the mortgage agreement.
We disagree, for essentially the same reasons discussed
above; Avila has pleaded a facially plausible claim
that the mortgage agreement survived his default. The
possibility that Avila has other unknown (and uncured)
defaults does not necessarily defeat his claim.
We do not, of course, express any view on the ultimate
merits of Avila’s claim. CitiMortgage may have contract
defenses that eventually prove decisive. Perhaps Avila’s suit
should be barred because he breached the contract by filing
suit without providing the lender with notice and a “reasonable
period” in which to “take corrective action,” as required
by section 20. Perhaps CitiMortgage can muster evidence
that the parties did not intend for section 22 to be conclusive
as to CitiMortgage’s remedies in the face of a default and in
fact wanted the breaching party to be precluded from enforcing
the mortgage agreement. Or perhaps CitiMortgage can
revive its argument—rejected in passing by the district
court—that Avila suffered no economic damages because the
insurance proceeds reduced his loan balance. None of these
potential defenses have been litigated, and they were not
part of the judge’s order dismissing the case. CitiMortgage is
free to raise them on remand.

Outcome: For the foregoing reasons, we AFFIRM the dismissal of the
claim for breach of fiduciary duty, REVERSE the dismissal of
the breach-of-contract claim, and REMAND for further proceedings
consistent with this opinion.

Plaintiff's Experts:

Defendant's Experts:

Comments: