Leszanczuk v. Carrington Mortg. Servs., LLC

• Court: U.S. Court of Appeals — Seventh Circuit
• Writing for the Court: Kanne, Circuit Judge.
• Citation: Leszanczuk v. Carrington Mortg. Servs., LLC, 21 F.4th 933 (7th Cir. 2021)
• Decision Date: 28 December 2021
• Docket Number: No. 21-1367,21-1367
• Parties: Sylvia LESZANCZUK, Plaintiff-Appellant, v. CARRINGTON MORTGAGE SERVICES, LLC, Defendant-Appellee.

21 F.4th 933

Sylvia LESZANCZUK, Plaintiff-Appellant,

v.CARRINGTON MORTGAGE SERVICES, LLC, Defendant-Appellee.

No. 21-1367

United States Court of Appeals, Seventh Circuit.

Argued October 29, 2021

Decided December 28, 2021

Jeffrey A. Berman, Patrick J. Solberg, Attorneys, Anderson & Wanca, Rolling Meadows, IL, for Plaintiff-Appellant.

Fredrick S. Levin, Attorney, Buckley LLP, Santa Monica, CA, for Defendant-Appellee.

Before Sykes, Chief Judge, and Kanne and Hamilton, Circuit Judges.

Kanne, Circuit Judge.

After Sylvia Leszanczuk defaulted on her mortgage, her mortgage servicer, Carrington Mortgage Services, inspected her residence and charged her a $20.00 fee for the inspection. Leszanczuk brought a putative class action against Carrington, alleging that the fee constituted a breach of her mortgage contract under Illinois law and violated the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA"). The district court dismissed her second amended complaint with prejudice for failure to state plausible claims. We affirm.

I. BACKGROUND

On January 29, 2010, Leszanczuk executed a mortgage contract to secure a loan on her Illinois residential property. The mortgage was insured by the Federal Housing Administration ("FHA") of the U.S. Department of Housing and Urban Development ("HUD").

After Carrington acquired the mortgage and took over loan servicing, Leszanczuk contacted Carrington by phone in December 2016 to make her December mortgage payment. Leszanczuk's asserts that during this conversation, Carrington told her that her account was not yet set up in their system and they had no way to receive a payment from her at that time, and then assured her that her account was in a "grace period" and she did not have to make payments until her account was set up. Nonetheless, at some point in early 2017 Carrington found Leszanczuk to be in default on the mortgage by failing to make required payments. (These facts do not affect the outcome of the case. At oral argument, Leszanczuk's counsel affirmed that, for purposes of her claims, it does not matter what the reason for the default was.)

Carrington then conducted a visual drive-by inspection of Leszanczuk's property. Carrington charged Leszanczuk $20.00 for the inspection and disclosed the fee to Leszanczuk in her March 2017 monthly statement. According to Leszanczuk, Carrington knew or should have known that she occupied her property because (1) they had spoken on the phone prior to the inspection about setting up the loan in Carrington's system and (2) Carrington would mail monthly mortgage statements to Leszanczuk at the property's address. Despite alleging that she had an earlier phone conversation with Carrington, Leszanczuk also alleged that Carrington made no attempt to contact her by phone prior to the drive-by inspection.

Leszanczuk sued Carrington, bringing claims for breach of the mortgage contract and for violations of the ICFA, 815 Ill. Comp. Stat. 505/2, on behalf of putative nationwide and Illinois classes. In the operative second amended complaint, Leszanczuk alleged that Carrington breached her mortgage contract by charging her the $20.00 inspection fee when it "knew, or should have known," that she occupied her property, in purported violation of a HUD regulation, 24 C.F.R. § 203.377 (2021), which Leszanczuk claimed limits the fees Carrington may charge under the contract and is incorporated into her contract. Leszanczuk also alleged that charging the inspection fee was an unfair practice under the ICFA.

The district court granted Carrington's motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) and dismissed both of Leszanczuk's claims with prejudice. The court rejected Leszanczuk's interpretation of her mortgage contract and found that the fees Carrington may charge under the contract are not limited by § 203.377. The court also concluded that charging Leszanczuk the $20.00 inspection fee was not an unfair practice because it did not offend public policy and was not oppressive. Noting that Leszanczuk had not cured the defects the court identified in earlier complaints and that further amendment would therefore be futile, the court denied Leszanczuk leave to amend. Leszanczuk now appeals.

II. ANALYSIS

Leszanczuk maintains that she has stated claims for breach of contract and for violations of the ICFA. We review de novo the district court's grant of the Rule 12(b)(6) motion to dismiss, accepting all well-pleaded factual allegations as true and drawing all reasonable inferences in Leszanczuk's favor. See Kubiak v. City of Chicago , 810 F.3d 476, 480 (7th Cir. 2016).

A. Breach-of-Contract Claim

Leszanczuk argues that her mortgage contract did not permit Carrington to charge her the $20.00 inspection fee. In pertinent part, the mortgage contract provides as follows:

• Paragraph 5, titled "Occupancy, Preservation, Maintenance and Protection of the Property; Borrower's Loan Application; Leaseholds," provides: "Lender may inspect the Property if the Property is vacant or abandoned or the loan is in default. Lender may take reasonable action to protect and preserve such vacant or abandoned Property."

• Paragraph 7, titled "Charges to Borrower and Protection of Lender's Rights in the Property," provides that, if the borrower fails to perform the covenants and agreements contained in the contract, then "Lender may do and pay whatever is necessary to protect the value of the Property and Lender's rights in the Property." It further provides, "Any amounts disbursed by Lender under this paragraph shall become an additional debt of Borrower and be secured by this Security Instrument."

• Paragraph 8, titled "Fees," states in its entirety: "Lender may collect fees and charges authorized by the Secretary [of HUD]."

Leszanczuk contends that Paragraph 8 incorporates § 203.377 and thereby limits the fees the lender may collect from the borrower to those authorized by that regulation. That regulation provides that the lender is responsible for monthly inspections of a property after the borrower has defaulted on the loan and vacated the property. 24 C.F.R. § 203.377. It further provides that, once a mortgage payment is forty-five days late and the lender has been unable to reach the borrower by phone, the lender is responsible for a visual inspection of the property to determine whether it is vacant. Id. According to Leszanczuk, § 203.377 has been interpreted to mean that if a property is known to be occupied, no inspections are required by HUD or authorized for reimbursement. Therefore, she continues, because she alleged that Carrington knew or should have known that she was occupying her property, the mortgage contract, incorporating § 203.377, prohibited Carrington from charging her the inspection fee.

Whether § 203.377 means what Leszanczuk says it means is discussed in further depth below as that issue relates to Leszanczuk's ICFA claim. For purposes of her breach-of-contract claim, suffice to say that the mortgage contract does not evince an intent to incorporate § 203.377 or to prohibit inspection fees. "Under Illinois law, a document is incorporated by reference into the parties' contract only if the parties intended its incorporation." 188 LLC v. Trinity Indus., Inc. , 300 F.3d 730, 736 (7th Cir. 2002) (citing Wilson v. Wilson , 217 Ill.App.3d 844, 160 Ill.Dec. 752, 577 N.E.2d 1323, 1329 (1991) ). Mere reference to "HUD regulations fall[s] short of the showing necessary to demonstrate that the parties intended to incorporate the regulations, in their entirety, into their mortgage agreement." Hayes v. M & T Mortg. Corp. , 389 Ill.App.3d 388, 329 Ill.Dec. 440, 906 N.E.2d 638, 641 (2009). Leszanczuk fails to identify specific contractual language that shows an intent to completely adopt HUD regulations. Paragraph 8's reference to "fees and charges authorized by the Secretary" does not demonstrate an intent to make the relevant regulations enforceable under the mortgage contract, let alone § 203.377, which does not even mention fees. See Hayes , 329 Ill.Dec. 440, 906 N.E.2d at 641.

At bottom, the plain language of the contract does not prohibit Carrington from charging inspection fees. See Gallagher v. Lenart , 226 Ill.2d 208, 314 Ill.Dec. 133, 874 N.E.2d 43, 58 (2007) ("A court must initially look to the language of a contract alone, as the language, given its plain and ordinary meaning, is the best indication of the parties' intent."). The mortgage contract expressly allows Carrington's charge of the inspection fee as a "necessary" expenditure to protect the value of the property after Leszanczuk's default. Paragraph 5 permits the lender to inspect the property "if ... the loan is in default," while Paragraph 7 authorizes the lender to "pay whatever is necessary to protect the value of the Property" if the borrower fails to keep her end of the bargain and to make those expenditures "an additional debt of Borrower." Leszanczuk points out that the contract is silent on whether the lender may collect fees for inspecting properties that are owner-occupied, but there is nothing prohibiting it from doing so, either.

Leszanczuk does not argue that the inspection fee fails to qualify as a "necessary" expenditure under the plain language of Paragraphs 5 and 7; rather, she contends that Paragraph 8 "defines the contours of ‘necessary’ described in Paragraph 7." (Appellant's Br. at 22.) But contrary to Leszanczuk's contention, Paragraph 8's permissive language does not operate to "explicitly" restrict the authority granted by Paragraphs 5 and 7. (Id. at 11.) Paragraph 8 simply states that the lender "may collect fees and charges authorized by the Secretary." Given its plain and ordinary meaning, this language does not indicate that the lender can collect only fees and charges authorized by the Secretary and is barred from collecting unauthorized fees. Rather, it conveys that the lender may, but does not have to, collect additional fees that are permitted by...