Chandler v. Greenlight Fin. Servs., Civil Action No. 2:20-cv-00217

• Decision Date: 30 March 2021
• Docket Number: Civil Action No. 2:20-cv-00217
• Parties: CHARLENE CHANDLER, Plaintiff, v. GREENLIGHT FINANCIAL SERVICES; U.S. BANK NATIONAL ASSOCIATION, as Trustee for TERWIN MORTGAGE TRUST 2006-4SL, ASSET-BACKED CERTIFICATES, SERIES 2006-4SL and SPECIALIZED LOAN SERVICING LLC, Defendants.
• Court: U.S. District Court — Southern District of West Virginia

CHARLENE CHANDLER, Plaintiff, v. GREENLIGHT FINANCIAL SERVICES; U.S. BANK NATIONAL ASSOCIATION,as Trustee for TERWIN MORTGAGE TRUST 2006-4SL,ASSET-BACKED CERTIFICATES, SERIES 2006-4SLand SPECIALIZED LOAN SERVICING LLC, Defendants.

Civil Action No. 2:20-cv-00217

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF WEST VIRGINIA AT CHARLESTON

March 30, 2021

MEMORANDUM OPINION AND ORDER

Pending are the motion to dismiss plaintiff Charlene Chandler's original complaint (ECF No. 3) and the motion to dismiss plaintiff Charlene Chandler's first amended complaint (ECF No. 12), filed April 1, 2020, and May 6, 2020, respectively, by defendants U.S. Bank National Association ("U.S. Bank") and Specialized Loan Servicing LLC ("Specialized Loan Servicing"), collectively referred to herein on occasion as "the defendants."

I. Background

Chandler alleges that she is a single mother who resides in Cross Lanes, Kanawha County, West Virginia. ECF No. 8, at ¶ 2 (First Amended Complaint). She states that she has a high school education and has worked as a secretary for the State of West Virginia for more than thirty years. Id.

After her former home was flooded in 2004, Kanawha County purchased that property from Chandler with money from a Federal Emergency Management Agency grant. Id. at ¶¶ 8-9. Chandler bought a $95,000 townhome located at 4 Maple Tree Lane in Cross Lanes on March 30, 2004, using the money from Kanawha County's purchase of her former home to make a down payment on the townhome. Id. at ¶¶ 8-9. She "financed the remaining balance of the purchase price of her new home with a mortgage loan from America's Wholesale Lender, the sub-prime division of Countrywide Home Loans ("Countrywide"), on March 30, 2004, for $60,500, at an interest rate of 5.5% for a term of thirty years." Id. at ¶ 10. "Approximately six months later," Countrywide solicited Chandler for a second mortgage, which it thereafter originated for $16,200 on November 16, 2004, at an interest rate and term that are not stated in the complaint. Id. at ¶¶ 11-12.

"In or about November 2005," Chandler claims that she, "responded to a solicitation from Defendant Greenlight Financial about debt consolidation." Id. at ¶ 13. Greenlight thereafter originated a $46,000 home-secured loan with a 13.9% interest rate for a twenty-five-year term on December 20, 2005. Id. at ¶ 14. The loan is now held by U.S. Bank. Id. at ¶ 4.

Chandler alleges that Greenlight directed her to "sign the closing papers in a public setting at Wendy's during busy meal hours without the benefit of a person licensed to conduct a real estate secured loan closing." Id. at ¶ 16. Inasmuch as the "circumstances of the closing" of the loan were "very public," Chandler asserts that she "was not able to freely ask questions and was unable to understand the terms or import of the transaction." Id. at ¶ 17. Chandler used the proceeds from this loan to satisfy the second mortgage from Countrywide, the then outstanding balance of which is not stated, as well as unsecured credit card debt, which is also unstated. Id. at ¶ 15.

"[I]n approximately April 2006," defendant Specialized Loan Servicing began to service this loan for Greenlight. Id. at ¶ 18. Chandler alleges that defendant U.S. Bank is now holder of the mortgage, as Trustee for Terwin Mortgage Trust 2006-4SL, Asset-Backed Certificates, Series 2006-4SL, and "is liable for all claims and defenses against the loan." Id. at ¶ 4.

On October 27, 2008, Chandler filed for Chapter 7 bankruptcy in the United States Bankruptcy Court for the Southern District of West Virginia. Id. at ¶ 19. See generally In re: Cathy Charlene Chandler, 2:08-bk-21032 (Bankr. S.D. W. Va. 2008). She alleges that she was current with her paymentsto Specialized Loan Servicing on the December 20, 2005 loan originated by Greenlight at the time she filed for bankruptcy. ECF No. 8, at ¶ 19.

U.S. Bank and Specialized Loan Servicing have produced filings from the bankruptcy proceeding, which include Chandler's "Schedule D - Creditors Holding Secured Claims" form, filed November 10, 2008. ECF No. 12-1, at 11 (Chandler's Bankruptcy Filings). This filing includes a list of creditors holding secured claims. Id. Countrywide is listed as a creditor owed $56,500 secured by a deed of trust on the 4 Maple Tree Lane townhome, and Specialized Loan Servicing is listed as a creditor owed $45,300 secured by a "Second Lien on Residence" with respect to the same property. Id. Schedule D values the townhome as being worth $95,500. Id.

The bankruptcy filings produced by the defendants also include Chandler's November 10, 2008 "Chapter 7 Individual Debtor's Statement of Intention." Id. at 32. This filing specifies that with respect to the 4 Maple Tree Lane townhome, Chandler intended to "retain the collateral and continue to make regular payments" to both Countrywide and Specialized Loan Servicing; that is, each Countrywide and Specialized Loan Servicing is stated separately and the language just quoted is also stated separately as to each of them. Id. The statementof intention is set forth on a single page and bears Chandler's digital signature. Id.

According to the Discharge of Debtor order provided by the defendants, Chandler was discharged from bankruptcy on February 9, 2009, pursuant to 11 U.S.C. § 727.¹ ECF No. 12-2 (Discharge of Debtor order). Notably, the Discharge of Debtor order contains the following information as a part of its "Explanation of Bankruptcy Discharge in a Chapter 7 Case":

Collection of Discharged Debts Prohibited

The discharge prohibits any attempt to collect from the debtor a debt that has been discharged. For example, a creditor is not permitted to contact a debtor by mail, phone, or otherwise, to file or continue a lawsuit, to attach wages or other property, or to take any other action to collect a discharged debt from the debtor . . . . A creditor who violates this order can be required to pay damages and attorney's fees to the debtor.

However, a creditor may have the right to enforce a valid lien, such as a mortgage or security interest, against the debtor's property after the bankruptcy, if that lien was not avoided or eliminated in the bankruptcy case. Also, a debtor may voluntarily pay any debt that has been discharged.

Id. at 2.

Chandler alleges that "[h]ad the subject loan been a debt consolidation loan and not a second mortgage, as Plaintiff understood, the loan would have been discharged in bankruptcy. Indeed, given the high 13.9% interest rate, Plaintiff's understanding that the subject loan was not home secured was reasonable." ECF No. 8, at ¶ 20. Of course, the loan was a consolidation loan and was known by Chandler to be such a loan inasmuch as the very purpose of the loan was to combine in one loan her obligations on the Countrywide second mortgage and her credit card debt, the latter of which is a kind of debt that customarily carries a higher rate of interest than that of the combined loan she signed. Further, when a second mortgage is being refinanced along with other debt, there is nothing unusual for the lender, who is paying off the existing second mortgage, to succeed to second mortgage status on all that is refinanced.

The plaintiff also states that Specialized Loan Servicing failed to collect on the lien following her discharge and did not send, "monthly statements, coupon books, or other demands for payment." Id. at ¶¶ 21-22. Yet, not sending these statements and demands is entirely consistent with the Discharge of Debtor order just quoted. The debt was discharged.

The plaintiff adds that "[m]ore than ten years later, after failing to collect on the lien or advise Plaintiff of her obligations, Defendant SLS issued a notice of right to cure default in July 2019." Id. at ¶ 23. Chandler alleges that Specialized Loan Servicing is now attempting to foreclose on its lien. Id. at ¶ 24.

Chandler filed this action in the Circuit Court of Kanawha County on February 10, 2020. ECF No. 1-1 (Original Complaint). Her original complaint included three counts: "Count I - Unconscionable Inducement," "Count II - Contract Defense of Fraud," and "Count III - Estoppel." Id. at ¶¶ 27-44.

U.S. Bank and Specialized Loan Servicing removed the case to this court on March 25, 2020.² ECF No. 1 (Notice ofRemoval). These defendants thereafter filed their original motion to dismiss on April 1, 2020. ECF No. 3 (Original Motion to Dismiss).

Pursuant to Federal Rule of Civil Procedure 15(a)(1)(b), Chandler filed her first amended complaint on April 22, 2020. ECF No. 8. On April 29, 2020, she filed a response to the original motion to dismiss requesting that the court consider it moot since she filed the first amended complaint. ECF No. 9 (Response in Opposition to Original Motion to Dismiss).

The first amended complaint alleges six counts: "Count I - Unconscionable Inducement," "Count II - Contract Defense of Fraud," "Count III - Estoppel," "Count IV - Violation of Regulation Z Periodic Statement Rule," "Count V - Declaratory Judgment," and "Count VI - Unconscionable Debt Collection." Id. at ¶¶ 27-52. With respect to Count I, the plaintiff claims that she and Greenlight "occupied dramatically unequal bargaining positions," and "[t]he contract was formed without a true meeting of the minds" inasmuch as she is not financially sophisticated, the mortgage contract drafted by Greenlight was adhesive, "[t]he contract at issue was induced by misrepresentations/suppressions including that the loan would be a home secured loan," and the contract closing "did not provide Plaintiff with a reasonable opportunity to understand the importor impact of the transaction." Id. at ¶¶ 27-29. She asserts that the contract's terms are substantively unconscionable and commercially unreasonable inasmuch as "the loan is home-secured, includes previously unsecured debt, and has an interest rate typically accompanying unsecured loans," i.e., 13.9%. Id. at ¶ 30. Chandler requests set-off of the amount claimed to be due under...