Background
In 2006, Ihor Chopko purchased a residence in Phoenix, financing it with a loan he refinanced the following year. In October 2023, Chopko entered into a contract to sell the property, but an appraisal revealed an unpermitted addition to the residence — apparently an enclosed former patio — that rendered it out of code compliance. The prospective buyer backed out. Newrez LLC, doing business as Shellpoint Mortgage Servicing, assumed responsibility as the loan servicer in December 2023, well after the events surrounding the purchase and refinance.
Chopko sued Shellpoint asserting breach of contract, fraud, and negligent misrepresentation, all premised on the theory that Shellpoint had a duty to disclose the unpermitted addition before he purchased and refinanced the property in 2006 and 2007. He alleged that Shellpoint’s failure to disclose this defect caused him losses from the failed sale and future costs to bring the structure into compliance. Chopko separately sought to amend his complaint to add a quiet title claim to guard against foreclosure based on what he characterized as unauthorized fees Shellpoint had added to his account.
The Maricopa County Superior Court granted Shellpoint’s Rule 12(b)(6) motion to dismiss with prejudice, finding that the complaint alleged no facts establishing a contractual relationship between Chopko and Shellpoint, and that Shellpoint had no connection to the property at the time of the 2006 purchase or 2007 refinance. The court also denied the motion to amend as futile. Chopko timely appealed.
The Court’s Holding
The Arizona Court of Appeals affirmed the dismissal in full. On the breach of contract claim, the court held that Chopko’s allegation of a “contractual agreement” was a bare conclusory assertion that the court was not required to accept as true under Rule 12(b)(6). The court noted broad authority — including federal circuit and district court decisions — for the proposition that a loan servicer does not, by virtue of its servicing role alone, stand in a contractual relationship with the borrower.
On the fraud and negligent misrepresentation claims, the court held that both required a duty owed by Shellpoint to Chopko, and that Chopko identified no authority imposing on a loan servicer any duty to discover or disclose physical defects or unpermitted improvements on the mortgaged property. Because Shellpoint did not assume the servicing role until December 2023 — after Chopko already knew of the unpermitted addition — it could not have made any pre-purchase or pre-refinance disclosure that Chopko could have relied upon.
The court also rejected Chopko’s attempt, raised for the first time on appeal, to reframe the case around Shellpoint’s post-2023 account administration (unauthorized fees, disabled online access, misapplied payments). Those allegations were irrelevant to the disclosure-based claims actually pleaded in the complaint, and Chopko had never moved to amend the complaint to assert claims based on that conduct. Because he did not seek leave to amend on those grounds below, dismissal with prejudice was appropriate.
Key Takeaways
- A mortgage loan servicer does not, without more, have a contractual relationship with the borrower; a conclusory allegation of a “contractual agreement” is insufficient to survive a Rule 12(b)(6) motion under Arizona law.
- Fraud and negligent misrepresentation claims based on nondisclosure require a legally recognized duty to disclose; courts will not recognize a loan servicer’s duty to discover and disclose physical defects or unpermitted improvements on mortgaged property.
- A defendant that did not service the loan at the time of the alleged misrepresentations cannot be liable for pre-existing disclosure failures, particularly where the servicer assumed responsibility only after the plaintiff already had notice of the defect.
- Arguments raised on appeal that are untethered to the claims actually pleaded in the complaint — and where no motion to amend was sought below — will not save a dismissal with prejudice.
Why It Matters
This unpublished decision reinforces the well-established principle, applied widely by federal courts and now adopted by an Arizona appellate panel, that successor mortgage servicers are not exposed to breach-of-contract liability simply by virtue of taking over loan administration. Servicers do not step into a contractual relationship with borrowers merely by collecting payments, and they owe no common-law duty to audit property records for code violations or unpermitted construction.
For practitioners, the case illustrates the pleading discipline required in Arizona. A borrower who believes a servicer has engaged in post-transfer misconduct — fee manipulation, payment misapplication — must plead those specific claims in the complaint; attempting to introduce them through opposition briefing or on appeal will not rescue a complaint built on a different theory. The decision is non-precedential under Arizona Supreme Court Rule 111(c) but may be cited as authorized by rule.