Kelly v. Clear Recon Corp.

• Decision Date: 13 August 2021
• Docket Number: 3:19-cv-00185-TMB
• Parties: ETHEL and LEWIS KELLY, Plaintiffs, v. CLEAR RECON CORP, FEDERAL NATIONAL MORTGAGE ASSOCIATION and LOAN DEPOT.COM, LLC, Defendants.
• Court: U.S. District Court — District of Alaska

ETHEL and LEWIS KELLY, Plaintiffs, v. CLEAR RECON CORP, FEDERAL NATIONAL MORTGAGE ASSOCIATION and LOAN DEPOT.COM, LLC, Defendants.

No. 3:19-cv-00185-TMB

United States District Court, D. Alaska

August 13, 2021

ORDER ON LOAN DEPOT.COM, LLC'S MOTION TO DISMISS COUNT IV OF PLAINTIFFS' THIRD AMENDED COMPLAINT (DKT 52)

TIMOTHY M. BURGESS, UNITED STATES DISTRICT JUDGE

I.INTRODUCTION

The matter comes before the Court on Defendant loanDepot.com, LLC's (“loanDepot” or “Defendant loanDepot”)Motion to Dismiss Count IV of Plaintiffs' Third Amended Complaint (the “Motion”).^[1] The Motion seeks to dismiss Count IV of Plaintiffs Ethel and Lewis Kelly's (collectively, “the Kellys”) Third Amended Complaint (“TAC”)^[2] pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim.^[3] Count IV of the Kellys' claim is brought under the Real Estate Settlement Procedure Act (“RESPA”).^[4] The Motion was fully briefed by the Parties.^[5]The Parties have not requested oral argument, and the Court finds it would not be helpful.For the reasons stated below, loanDepot's Motion is GRANTED in part and DENIED in part.

II.BACKGROUND

The present dispute before the Court arises from a foreclosure sale coordinated by loanDepot, Federal National Mortgage Association(“Fannie Mae”), and Clear Recon Corporation(“Clear Recon” and, collectively, the “Defendants”).^[6] The allegations contained in the TAC are summarized below.

A.Procedural History and Third Amended Complaint

In 2001, the Kellys acquired a home loan with Homestate Mortgage Company, LLC.^[7] The resulting Deed of Trust (“DOT”) named Homestate Mortgage Company, LLC as a beneficiary and Pacific Northwest Title as trustee.^[8] After executing several subsequent Deeds of Trust, in 2013, the Kellys claim they executed the DOT that named loanDepot as the beneficiary.^[9] Sometime in the period between 2016 and 2018, the Kellys fell behind on their loan payments to loanDepot.^[10]In response, loanDepot accelerated the Kellys' loan.^[11] On August 22, 2018, loanDepot appointed Clear Recon as successor trustee.^[12] On that same day, Clear Recon recorded a Notice of Default, which stated that a foreclosure sale by public auction would occur on November 28, 2018.^[13]

However, on or about November 19, 2018, Ethel Kelly filed for bankruptcy, which stayed the foreclosure proceedings.^[14] Clear Recon postponed the auction.^[15]Ethel Kelly's bankruptcy proceedings were eventually dismissed.^[16] After the dismissal, on January 30, 2019, Clear Recon conducted a foreclosure auction without notifying them of the time or place of the rescheduled sale.^[17] The Kellys were unaware that the rescheduled sale had taken place until they were informed by Alaska Legal Services Corporation.^[18] Following the sale, on February 8, 2019, Clear Recon assigned the property to Fannie Mae.^[19] Fannie Mae scheduled a second sale of the property for April8-10, 2019.^[20] On March 15, 2019, the Kellys requested information from loanDepot pursuant to RESPA to no avail.^[21] In their RESPA request, the Kellys identified the property address and loan number, and specifically listed the information requested.^[22] Despite the foreclosure sale, the Kellys remain in possession of the property.^[23]

On March 29, 2019, the Kellys filed a Complaint in the Superior Court for the State of Alaska.^[24] On June 12, 2019, the Kellys filed an Amended Complaint in state court.^[25] On July 2, 2019, loanDepot and Fannie Mae removed this action to federal court invoking the Court's federal question jurisdiction under 28 U.S.C. § 1331.^[26] On July 9, 2019, loanDepot and Fannie Mae filed a Motion to Dismiss the Amended Complaint(the “First Motion to Dismiss”) pursuant to Fed.R.Civ.P. 12(b)(6), which Clear Recon joined.^[27]

The Kellys' Amended Complaint raised four claims.^[28] First, the Kellys requested that the Court quiet title in their favor for the property at issue here, or alternatively “remove the cloud on plaintiffs' title.”^[29] Second, the Kellys claimed that their DOT mandated that loanDepot give them notice before accelerating their loan, which it failed to do.^[30] Therefore, the Kellys claimed that loanDepot is in breach of contract and requested that the Court rescind the foreclosure sale and award damages to the Kellys.^[31] Third, the Kellys claimed that their DOT mandated loanDepot give them notice of the time and place of a foreclosure sale before conducting the sale, which it failed to do.^[32] Therefore, the Kellys claimed that loanDepot again breached its contract and requested that the Court rescind the foreclosure sale and award damages.^[33] Fourth, by failing to respond to their request for information, the Kellys claimed loanDepot violated RESPA, entitling them to actual damages, statutory damages, costs, and attorney's fees.^[34]

The Court granted in part the First Motion to Dismiss without prejudice and denied it in part.^[35] Relevant here is the Court's treatment of Count IV, the RESPA claim.The Court found that the Kellys “sufficiently pleaded that loanDepot was their loan servicer bound by RESPA.”^[36]However, the Court found that the Kellys did not provide any information about their request sent to loanDepot, such as “the date on which the request was sent” or “the contents of the request[, ]” which would be necessary to allege that it complied with RESPA.^[37] As a result, the Court found that the “Amended Complaint [did] not properly put Defendants on notice of a RESPA violation.”^[38]The Court further found that “the Kellys have not adequately pleaded damages.”^[39]The Amended Complaint only alleged that loanDepot was “liable for actual damages, statutory damages, and costs[, ]” but did not “allege a basis for actual damages” or “a pattern or practice which would entitle them to statutory damages.”^[40]The Court accordingly granted the First Motion to Dismiss as to Count IV, but gave the Kellys leave to amend.^[41]

The Kellys filed a Second Amended Complaint.^[42]Defendants then filed a Second Motion to Dismiss, which was denied as moot because subsequent to Defendants' filing of the Second Motion to Dismiss, the Court granted the Kellys' Motion to File Third Amended Complaint.^[43] The TAC was filed on April 2, 2020, bringing four claims on substantially the same basis as the Amended Complaint previously considered by the Court.^[44]The parties then engaged in settlement discussions over several months, which were unsuccessful.^[45] Clear Recon and Fannie Mae subsequently filed Answers to the TAC, and loanDepot filed the present Motion, seeking to dismiss Count IV.^[46]

B.Motion to Dismiss Count IV

Defendant loanDepot moves to dismiss Count IV of the TAC.^[47] It makes two arguments in support of its Motion.First, it argues that “Plaintiffs are still unable to plead any cognizable claim for RESPA” because “information requests sent after a foreclosure sale occurs . . . trigger[] no duties or obligations under RESPA.”^[48]Defendant loanDepot argues that once the foreclosure sale occurs, there is “no mortgage loan and thus no servicing relationship subject to RESPA's obligations” and “[o]n that basis alone, Count IV should be dismissed.”^[49] For RESPA to apply, loanDepot states that “at the time loanDepot received Plaintiffs' correspondence, it must have been a servicer of a federally-related mortgage loan.”^[50] It cites various federal regulations, including 12 C.F.R. §§ 1024.36(a),1024.31, and1024.2 for the proposition that loanDepot had to be actively servicing the Kellys' loan at the time the Kellys submitted their qualified written request (“QWR”).^[51] Since the foreclosure sale took place on January 30, 2019, and the QWR was sent on March 15, 2019, “no duties or obligations under RESPA were triggered.”^[52]

Second, loanDepot argues that, even if the Kellys could state a claim under RESPA, Count IV should still be dismissed because “[the Kellys] failed to plead any facts supporting their conclusory allegation of damages.”^[53] It argues that the Kellys “must show actual injury” and that the actual damages alleged, including “‘costs of copy documents, travel expenses to and from their attorney's office, postage fees and emotional and psychological damages'” are insufficient to carry the Kellys' burden to sufficiently allege actual damages.^[54] More specifically, loanDepot argues that the Kellys have not alleged sufficient facts to show that their damages were suffered as a result ofthe RESPA violation.^[55] It notes that authority in the Ninth Circuit is split as to the recoverability of damages for emotional distress, however, it asserts that the Kellys have not alleged how emotional distress arose from the alleged RESPA violation.^[56] Finally, loanDepot argues that the Kellys' “conclusory allegation of loanDepot's purported ‘pattern and practice' of violations . . . must also be rejected.”^[57] It argues that the Kellys have alleged no additional facts that would cure the deficiency as to these statutory damages.^[58]

C.The Kellys' Response

The Kellys oppose the Motion and argue that they have pleaded sufficient facts to state a claim under RESPA.^[59] First, they argue that the cases cited by loanDepot pertain to judicial foreclosures-as opposed to here, which was a non-judicial foreclosure-and that “[h]ere, [] there is no final judgment for foreclosure and there is nothing in Alaska law holding that a homeowner's claims are ‘merged' once a non-judicial foreclosure sale occurs.”^[60] The Kellys further argue that federal regulations provide “that servicers must respond to qualified written requests up to a year after the loan is transferred or discharged.”^[61]

Second the Kellys argue that their pleading sufficiently alleges actual and statutory damages.^[62]They cite Watson v. Bank of Am., N.A....