Chen v. Bell–smith

• Decision Date: 08 March 2011
• Docket Number: Civil Action No. 08–0999 (JDB).
• Citation: 768 F.Supp.2d 121
• Parties: Gavin M. CHEN and Sara J. Lee, Plaintiffs,v.Jewell BELL–SMITH, Darryl A. Smith, EK Settlements, Inc., Sandy Kim, Ocwen Loan Servicing, and HSBC Bank USA, N.A., Defendants.
• Court: U.S. District Court — District of Columbia

768 F.Supp.2d 121

Gavin M. CHEN and Sara J. Lee, Plaintiffs,
v.
Jewell BELL–SMITH, Darryl A. Smith, EK Settlements, Inc., Sandy Kim, Ocwen Loan Servicing, and HSBC Bank USA, N.A., Defendants.

Civil Action No. 08–0999 (JDB).

United States District Court, District of Columbia.

March 8, 2011.

[768 F.Supp.2d 126]

Dawn R. Anderson–Jackson, Baylor & Jackson, PLLC, Washington, DC, for Plaintiff.Christopher L. Hamlin, Mark W. Schweitzer, McNamee, Hosea, Jernigan, Kim, Greenan & Walker, P.A., Greenbelt, MD, James Andrew Sullivan, Jr., Miles & Stockbridge, P.C., Rockville, MD, for Defendant.

MEMORANDUM OPINION JOHN D. BATES, District Judge.

Plaintiffs Sara Lee and Gavin Chen (collectively, “plaintiffs”) bring this action against defendants Jewell Bell–Smith, Darryl Smith, EK Settlements, Inc., Sandy Kim, Ocwen Loan Servicing, and HSBC Bank USA, N.A., asserting various claims arising from an allegedly fraudulent mortgage foreclosure rescue scheme orchestrated by a woman named Carline Charles. Plaintiffs maintain that in late 2005, Charles—purporting to act on behalf of a company named “C & O Property Solutions”—approached them about a mortgage refinancing program by which they could avoid foreclosure of their home at 5011 14th St., NW, Washington DC. Plaintiffs

[768 F.Supp.2d 127]

agreed to participate in the program, and signed several documents provided to them by Charles, including (allegedly unbeknownst to them) a deed of sale dated December 28, 2005, which transferred title to their home to defendants Bell–Smith and Smith (“the Smiths”) for $425,000.

The Smiths financed their purchase of plaintiffs' home with two loans that they obtained from Pinnacle Financial Corporation, which were secured by deeds of trust in the property. The beneficial interest in the loans has since been assigned to HSBC Bank (“HSBC”), while the servicing obligation on the loans has been assigned to Ocwen Loan Servicing (“Ocwen”). EK Settlements oversaw the “sale” and prepared a HUD–1 settlement statement, which plaintiffs and the Smiths signed, and which indicates that the $425,000 purchase price was used to satisfy two existing loans on the property and several mysterious charges— i.e., a “security escrow” fee, a “property management” fee, and a “consultant” fee. Plaintiffs received $32,119.76 from the transaction, which they continued to believe was a mortgage refinancing until 2007, when Bell–Smith contacted Lee to inform her that the Smiths were, in fact, the owners of plaintiffs' home.

Plaintiffs filed this suit on June 11, 2008, alleging fraud (Count 1), violations of the D.C. Consumer Protection Procedures Act (Count 2), the D.C. Loan Shark Act (Count 3), the D.C. Interest and Usury Law (Count 4), the D.C. Consumer Credit Service Organization Act (Count 5), and the Real Estate Settlement and Procedures Act (Count 6), as well as breach of fiduciary duty (Count 7), conversion (Count 8), injurious falsehood, disparagement, and slander of title (Count 9), unjust enrichment (Count 10), breach of contract (Count 11), and negligence (Count 12). Plaintiffs seek to quiet title (Count 17), and request a declaratory judgment voiding the deed of sale (Count 13), as well as $425,000 in actual damages and $1.275 million in punitive damages. The Smiths have counter-claimed for unjust enrichment and declaratory relief, and also seek $425,000 in damages. Presently before the Court are the motions for summary judgment filed by the Smiths, see Smiths' Mot. for Summ. J. (“Smiths' Mot.”) [Docket Entry 68] and by HSBC and Ocwen, see Defs.' Ocwen and HSBC's Renewed Mot. for Summ. J. (“HSBC Mot.”) [Docket Entry 72]. For the reasons explained below, the Court will grant in part and deny in part the Smiths' motion, and grant the motion filed by HSBC and Ocwen.

BACKGROUND I. The Alleged Fraudulent Mortgage Foreclosure Rescue Program

Plaintiffs Lee and Chen are both college-educated, and they both have master's degrees, in social work and economics, respectively. See Pls.' Opp. to Smiths' Mot. for Summ. J. (“Pls.' Opp.”) [Docket Entry 73], Ex. 8 (“Lee's Resp. to Interrog.”) no. 3; see also Reply Mem. in Supp. of Defs.' Ocwen and HSBC's Renewed Mot. for Summ. J. (“HSBC Reply Mem.”) [Docket Entry 77], Ex. 9 (“Reply Chen Dep.”) at 18–19. In late 2005, plaintiffs were facing foreclosure of their home at 5011 14th St., NW, Washington, DC. 2nd Am. Compl. ¶ 6. At the time, they had a mortgage of $172,040.59, and an additional lien on the property in the amount of $65,224.09. See Pls.' Opp., Ex. 3 (“HUD–1 Statement”). Carline Charles, an alleged representative of C & O Property Solutions, approached plaintiffs and explained that she could help them refinance their mortgage to avoid foreclosure. 2nd Am. Compl. ¶ 8. Specifically, Charles proposed that plaintiffs enter into a mortgage refinancing program whereby C & O Property Solutions would “hold title to the property for six months,

[768 F.Supp.2d 128]

[and] then transfer it back to the Plaintiffs.” Id. ¶ 4. During this time, plaintiffs could “rebuild their credit, [and] pay the monthly mortgage” via checks made payable to C & O Property Solutions. Id. ¶ 8; see also Pls.' Opp., Ex. 6 (“Lee Dep.”) at 39–40, 121–124, 134–136. After six months had elapsed and plaintiffs' credit had improved, plaintiffs could refinance their mortgage again, at which point the title to their home would be transferred back to them. See 2nd Am. Compl. ¶ 8; see also Lee Dep. at 121–122.

Plaintiffs understood their arrangement with Charles to be a pure mortgage refinancing transaction, and never believed that they would be selling their home. See Lee Dep. at 39–40; see also Pls.' Opp., Ex. 1 (“Lee Aff.”) ¶ 7; id., Ex. 2 (“Chen Aff.”) ¶ 3. Indeed, Lee only agreed to the transaction because she thought that her dealings with Charles would prevent her from having to sell her home. See Lee Dep. at 122. Shortly after proposing the refinancing plan, Charles came to plaintiffs' home and presented plaintiffs with some documents, which they signed. 2nd Am. Compl. ¶ 9; see also HSBC Mot., Ex. 3 (“Defs.' Lee Dep.”) at 47–48, 51; id., Ex. 1 (“Chen Dep.”) at 39. Later, a representative from EK Settlements came to plaintiffs' home with some additional documents for plaintiffs' signature. See Defs.' Lee Dep. at 52–54. Lee maintains that when she signed the documents, no names were listed on them as purchasers of her home, see Defs.' Lee Dep. at 45–49, 340; Chen also claims that the documents he signed were at least partially blank, see Chen Dep. at 56, 87. Regardless, plaintiffs both allege that Charles led them to believe the documents they signed were related to a mortgage refinancing—not to a sale of their home. See Lee Dep. at 31, 35–40; Chen Dep. at 38; Lee's Resp. to Interrog. no. 5.

In actuality, the documents that plaintiffs signed included a notarized “deed of sale” and a HUD–1 settlement statement, both dated December 28, 2005, which transferred title to their home to the Smiths for $425,000. See Pls.' Opp., Ex. 18 (“Deed of Sale”); HUD–1 Statement.¹ At the time of the transaction, the property had an appraised value of $627,000. See Pls.' Opp., Ex. 4 (“Dec. 2005 Appraisal”). The settlement statement prepared by EK Settlements—and signed by plaintiffs and the Smiths—indicates that the $425,000 purchase price was used to pay (1) the existing $172,040.59 mortgage; (2) a $65,224.09 lien on the property to a company identified as “Purdue, LLC”; (3) $23,063.69 in closing costs; and (4) a series of mysterious charges— i.e., a “security escrow” fee ($40,004.00), a “property management” fee ($45,996.00), and a “consultant” fee ($40,000.00). See HUD–1 Statement. The settlement statement also shows that the deal was brokered by a company called Mortgage Star, which commissioned the appraisal of the property. See id.; see also Dec. 2005 Appraisal. Finally, the settlement statement reflects a $32,119.79 cash payment to plaintiffs, which plaintiffs concede was made by C & O Property Solutions to Lee's checking account on January 3, 2006. See Pls.' Opp., Ex. 13. This payment was consistent with Lee's understanding, based on her discussions with Charles and EK Settlements,

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that she would receive some money pursuant to the “refinancing” to pay her outstanding debts. See Lee Dep. at 121; Defs.' Lee Dep. at 55–56.

The same day that Lee received that cash payment, plaintiffs received a letter from C & O Property Solutions welcoming them as “new customer[s]” and informing them that the first payment on their refinanced “mortgage loan,” in the amount of $1,900, would be due on February 1, 2006. See Pls.' Opp., Ex. 5 (“Welcome Letter”). The letter also explained that C & O Property Solutions would maintain an “escrow account” on plaintiffs' behalf, which would be used to pay their “taxes” and “insurance.” Id. From January 2006 through August 2007, plaintiffs wrote C & O Property Solutions monthly $1,900 checks, which they believed were being applied to their newly-refinanced mortgage. See Lee Dep. at 124, 134–35; see also Lee's Resp. to Interrog. no. 14. After six months had passed, plaintiffs contacted Charles to inquire about the second refinancing of their mortgage, but Charles told plaintiffs that it was not the appropriate time to refinance. 2nd Am. Compl. ¶ 11.

In the spring of 2007, Charles' scheme began to unravel. Lee started to have difficulty reaching Charles, and she received several telephone messages from a woman identifying herself as Bell–Smith. See Lee Dep. at 137–39, 145–47. Lee did not know anyone by that name, but she eventually returned Bell–Smith's call after Charles advised her to do so. Id. At that point, Bell–Smith—for the first time—informed Lee that the Smiths were the owners of plaintiffs' home. 2nd Am. Compl. ¶ 12.² Bell–Smith told Lee that C & O Property Solutions had ceased paying the mortgage on the property, and that Lee should make all future mortgage payments to Bell–Smith, or directly to the mortgage...