Caldwell v. Freedom Mortg. Corp.

• Decision Date: 14 August 2020
• Docket Number: Civil Action No. 3:19-CV-2193-N
• Parties: HELENE BREEDLOVE CALDWELL, et al., Plaintiffs, v. FREEDOM MORTGAGE CORPORATION, Defendant.
• Court: U.S. District Court — Northern District of Texas

HELENE BREEDLOVE CALDWELL, et al., Plaintiffs, v. FREEDOM MORTGAGE CORPORATION, Defendant.

Civil Action No. 3:19-CV-2193-N

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF TEXAS DALLAS DIVISION

August 14, 2020

MEMORANDUM OPINION AND ORDER

This Memorandum Opinion and Order addresses Defendant Freedom Mortgage Corporation's ("Freedom Mortgage") motion to dismiss [28] Plaintiffs Helene Breedlove Caldwell, James Earl Stearns, Reginald Reddick, Angela Reddick, and Jose Palacios's (collectively, "Plaintiffs") claims against it. For the reasons below, the Court grants in part and denies in part the motion.

I. ORIGINS OF THE DISPUTE

All the Plaintiffs have deeds of trust insured by the Federal Housing Administration ("FHA") and serviced by Freedom Mortgage. Pltfs.' First Am. Compl. 3 [20]. The parties' dispute originated when Plaintiffs incurred several "pay-to-pay" fees, or convenience fees, for paying their mortgage payments through online or phone payment methods. Id. Freedom Mortgage's convenience charges are allegedly facilitated by an automated telephone and online paying processing system, Speedpay, operated by Western Union. Id. In addition to the online and phone payment options, which allegedly charge fees to users, Freedom Mortgage also offers free payment methods, such as mail or automatic payments. Def.'s Mot. Dismiss 7 [24].

The Plaintiffs' deeds of trust contain provisions stipulating that the "Lender may collect fees and charges authorized by the Secretary [of Housing and Urban Development]." Pltfs.' First Am. Compl. 11-12 [20]. Plaintiffs take the position that this language incorporate Housing and Urban Development ("HUD") regulations into their deeds, that HUD's Handbook 4000.1: FHA Single-Family Housing Policy Handbook ("HUD Handbook") prohibits charging "pay-to-pay" fees, and that Freedom Mortgage consequently has breached their contracts by charging these convenience fees. Id. at 8. Plaintiffs also allege that these fees violate the Texas Debt Collection Act ("TDCA"). Freedom Mortgage filed this motion to dismiss both claims.

II. RULE 12(B)(6) LEGAL STANDARD

When ruling on a Rule 12(b)(6) motion to dismiss, a court must determine whether the plaintiff has asserted a legally sufficient claim for relief. Blackburn v. City of Marshall, 42 F.3d 925, 931 (5th Cir. 1995). A viable complaint must include "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). To meet this standard, a plaintiff must "plead[ ] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

A court generally accepts well-pleaded facts as true and construes the complaint in the light most favorable to the plaintiff. Gines v. D.R. Horton, Inc., 699 F.3d 812, 816 (5th Cir. 2012). But a court does not "accept as true conclusory allegations, unwarranted factualinferences, or legal conclusions." Ferrer v. Chevron Corp., 484 F.3d 776, 780 (5th Cir. 2007) (citation omitted). Courts "may take into account documents incorporated into the complaint by reference or integral to the claim, items subject to judicial notice, matters of public record, orders, items appearing in the record of the case, and exhibits attached to the complaint whose authenticity is unquestioned." Meyers v. Textron, Inc., 540 F. App'x 408, 409 (5th Cir. 2013).

III. THE COURT DISMISSES THE BREACH OF CONTRACTCLAIM AND DENIES DISMISSAL ON THE TDCA CLAIM

Here, Plaintiffs allege both breach of contract and TDCA claims against Freedom Mortgage. The Court holds that as a matter of law, Plaintiffs have failed to state a breach of contract claim but that they have alleged a TDCA claim.

A. Plaintiffs Have Not Stated a Breach of Contract Claim

The breach of contract claim is premised on Freedom Mortgage's purported violation of HUD Handbook guidelines. Even assuming the handbook constitutes binding regulations, "HUD regulations do not give the borrower a private cause of action unless the regulations are expressly incorporated into the lender-borrower agreement." Johnson v. World Alliance Fin. Corp., 830 F.3d 192, 196 (5th Cir. 2016). Herein lies the crux of the parties' dispute regarding this claim. The deed of trust states that the lender "may collect fees and charges authorized by the Secretary [of Housing and Urban Development]." First Am. Compl. 45-46 [20] (emphasis added). Plaintiffs say this suffices to expressly incorporate HUD regulations. Freedom Mortgage insists it does not. The Court agrees with Freedom Mortgage. The language both parties rely upon ispermissive rather than restrictive and does not "expressly limit[] additional fees that may be charged to the borrower." See id. In fact, the deed never expressly mentions the HUD Handbook that Plaintiffs reference or HUD regulations at all. That strikes this Court as falling shy of "expressly incorporat[ing]" HUD regulations.

In a recent decision, the Fifth Circuit determined that HUD regulations were not incorporated into a contract where there was no "evidence that the parties intended to incorporate into the HECM the specific HUD term at issue." Johnson, 830 F.3d at 196 (emphasis added).¹ Similarly, other courts have held HUD regulations were incorporated when the contracts referenced specific HUD regulations or used mandatory language. See Baker v. Countrywide Home Loans, Inc., 2009 WL 1810336, *3 n.2 (N.D. Tex. 2009) (holding HUD regulations were expressly incorporated under the following language: "This note does not authorize acceleration when not permitted by HUD regulations."); see also Bates v. JPMorgan Chase Bank, N.A., 768 F.3d 1126, 1132-33 (11th Cir. 2014) (determining that a deed "clearly makes compliance with HUD regulations a condition" of the contract where it stated: "This [deed] does not authorize acceleration or foreclosure if not permitted by regulations of the Secretary.") (emphasis added).² Because Plaintiffs havenot identified any language referencing HUD regulations generally or specifically, much less any mandatory language, the Court holds that the deed here likewise fails to expressly incorporate HUD regulations.

B. Plaintiffs Have Stated a TDCA Section 392.303(a)(2) Claim

Turning to the TDCA claim, the Court holds that Plaintiffs have plausibly stated a section 392.303(a)(2) violation. Section 392.303(a)(2) of the TDCA prohibits:

[C]ollecting or attempting to collect interest or a charge, fee, or expense incidental to the obligation unless the interest or incidental charge, fee, or expense is expressly authorized by the agreement creating the obligation or legally chargeable to the consumer.

TEX. FIN. CODE § 392.303(a)(2).³ Freedom Mortgage proffers several arguments that its fee collection here is legally insufficient to support a TDCA violation. First, it argues thata fee-based payment method cannot be "incidental" to the debt when it is optional and borrowers are given other, fee-free options. District courts are split on this question in the related, Federal Debt Collection Practices Act ("FDCPA") context.⁴ See Lindblom v. Santander, (2016) (analyzing district court split). This Court is persuaded, like the majority of courts that have opined on the issue, that convenience fees derived from debt-payment methods are "incidental" to the debt being paid.⁵ See, e.g., Wittman v. CB1, Inc., 2016 WL 1411348, at *1, *5 (D. Mont. 2016) (following "the majority of courts [that] have found that similar transaction fees are incidental"); Weast v. Rockport Fin., 115 F. Supp. 3d 1018, 1023 (E.D. Mo. 2015) ("Offering a payment option that does not violate the statute does not save offering a payment option that would violate the statute, as the latter is still an attempt to collect a fee which is prohibited."); Quinteros v. MBI Assocs., Inc., 999 F. Supp. 2d 434, 437-39 (E.D.N.Y. 2014) ("What matters is § 1692(f)(1)'s plain instruction that thecollection of any amount incidental to the principal obligation . . . violates the FDCPA."); Shami v. Nat'l Enter. Sys., 2010 WL 3824151, at *3-4 (E.D.N.Y. 2010) (holding that convenience fees charged for some payment methods were "incidental to Plaintiff's purported actual debt," even though other payment methods existed). But see Flores v. Collection Consultants of Ca., 2015 WL 4254032, at *10 (C.D. Cal. 2015) (holding an optional convenience fee legally insufficient to support a FDCPA claim).⁶

Making a debt payment method and its related fee optional does not insulate it against a relationship to the debt. Here, Freedom Mortgage charges and collects the associated fee only when its borrowers make a payment on their debt. Further, section 392.303(a)(2) is focused on lender' collections of fees, and the fact that Plaintiffs could have avoided this fee does not detract from the fact that Freedom Mortgage ultimately collected it.⁷ The TDCA provides no protection for lenders merely because their collection of a fee was dependent upon a borrower's selection of the lender's fee-based payment method. This result may be unsatisfactory, as Plaintiffs complain of a charge they arguablycould have avoided, but the Court determines that it is required by the plain language of the TDCA.

Second, Freedom Mortgage argues that the convenience fee is expressly authorized by the parties' deed of trust, which states that the lender "may collect fees and charges authorized by the Secretary [of HUD]." Def.'s Appx. Ex. 6 41 [25]. Freedom Mortgage then points to the HUD Handbook, which states that the Secretary has authorized "reasonable and customary fees and charges." Id. at Ex. 8 55-56. The HUD Handbook does not indicate, however, that convenience fees fall within this category. While Freedom Mortgage argues that optional payment methods with convenience fees are "reasonable and customary" in the mortgage business, it has not established this as a matter of law or shown that its fee here is "rea...