Mangum v. First Reliance Bank & Dovenmuehle Mortg., Inc.

• Decision Date: 21 March 2017
• Docket Number: Civil Action No.: 4:16-CV-02214-RBH
• Court: U.S. District Court — District of South Carolina
• Parties: ALICE M. MANGUM, Individually, Plaintiff, v. FIRST RELIANCE BANK and DOVENMUEHLE MORTGAGE, INC., Defendants.

ALICE M. MANGUM, Individually, Plaintiff, v. FIRST RELIANCE BANK and DOVENMUEHLE MORTGAGE, INC., Defendants.

Civil Action No.: 4:16-CV-02214-RBH

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF SOUTH CAROLINA FLORENCE DIVISION

March 21, 2017

ORDER

Currently pending before the court is Defendants' Motion to Dismiss Plaintiff's Complaint. [ECF #5]. Both parties have had the opportunity to extensively brief the issues raised in the Motion, and this Court has thoroughly considered all pleadings filed in this case.¹ The Court will now consider this Motion.

Factual Background and Procedural History

On May 9, 2008 Plaintiff executed a Promissory Note (the "Note") and corresponding Mortgage (the "Mortgage") in favor of Defendant First Reliance Bank ("FRB") with a principal amount of $350,447.00 and an interest rate of 6.625%. [ECF #5-2]. On October 19, 2011, Defendant FRB commenced a foreclosure action against Plaintiff in the Court of Common Pleas for Florence County after Plaintiff defaulted on her monthly payment obligations. [ECF #5-2]. Plaintiff filed an Answer and Counterclaim in that lawsuit, including claims against FRB for negligent training and supervision and gross and wanton training and supervision. [ECF #5-2].During the course of litigation, Plaintiff's loan was permanently modified by agreement dated May 1, 2013. [ECF #5-2]. Plaintiff acknowledges in her brief that a "previously completed loan modification" was entered into between Plaintiff and Defendant FRB on May 1, 2013. [ECF #7, p. 6]. The Parties entered into a Stipulation of Dismissal providing for a dismissal of all of Plaintiff's claims against Defendant FRB with prejudice. [ECF #5-2].

On May 8, 2015, Defendant FRB commenced a second foreclosure action after Plaintiff defaulted on the loan obligations provided for in the permanent modification. [ECF #5-2]. During the course of this second round of litigation, the case was stayed for foreclosure intervention until Defendant FRB served the Denial of Foreclosure Intervention on January 22, 2016. [ECF #5-2]. Defendants assert the denial of foreclosure intervention was based upon Plaintiff's failure to submit a complete loss mitigation package for review. [ECF #5-1, p. 2]. Plaintiff disputes the contention that she failed to provide all requested documentation to complete a loss mitigation package. [ECF #1, pp. 4-5]. To that end, Plaintiff filed an objection to the Denial of Foreclosure Intervention on February 17, 2016. [ECF #5-2]. In fact, Plaintiff asserts that she sent completed information to Defendants on several occasions. [ECF #1, pp. 4-8]. Around this time, Defendant FRB released the servicing rights to the subject loan to Defendant Dovenmuehle Mortgage, Inc. ("DMI") on September 3, 2015. Plaintiff asserts that on March 30, 2016, Defendant DMI again received her complete loss mitigation package via certified mail. [ECF #1, p. 10]. According to Defendant DMI, DMI continued the loss mitigation efforts with Plaintiff, and offered Plaintiff a trial modification program on April 11, 2016. [ECF #5-2]. Plaintiff admits she received two letters from Defendants on April 15, 2016. [ECF #1, p. 11]. The first letter, dated April 11, 2016, statedthat Defendants referred her loan to foreclosure. [ECF #1, p. 11]. The second letter, also dated April 11, 2016, stated that Defendants were offering Plaintiff a trial period plan for a mortgage modification. [ECF #1, p. 11]. However, because the trial payment was higher than her previous mortgage payment, and payment was demanded in less than two weeks, Plaintiff was unable to make the payment under this trial period plan. [ECF #1, p. 11].

The foreclosure action remains pending in state court. On June 24, 2016, Plaintiff commenced this action against Defendants in federal court, asserting violations of the Real Estate Settlement Procedures Act ("RESPA"), negligence, negligent training and supervision, and reckless and wanton training and supervision. [ECF #1, p. 17]. On August 1, 2016, Defendants filed their Motion to Dismiss Plaintiff's Complaint arguing that the Complaint fails to set forth sufficient facts to assert a violation of the loss mitigation procedures under the Real Estate Settlement Procedures Act ("RESPA"), failure to set forth causes of action for the negligence claims, and that the application of res judicata should apply as to Defendant FRB.

Standard of Review

Defendants file their Motion pursuant to 12(b)(6) of the Federal Rules of Civil Procedure. Federal Rule of Civil Procedure 12(b)(6) governs motions to dismiss for "failure to state a claim upon which relief can be granted." The purpose of such a motion is to test the sufficiency of the facts alleged in a plaintiff's complaint. See Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999). To survive a Rule 12(b)(6) motion to dismiss, the "[f]actual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555. The United States Supreme Court recently stated that

[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.

Iqbal, 129 S.Ct. at 1949 (quoting Twombly, 550 U.S. at 570). When ruling on a motion to dismiss, the court "must accept as true all of the factual allegations contained in the complaint." Erickson v. Pardus, 551 U.S. 89, 94 (2007). In considering a motion to dismiss, the factual allegations in a complaint are accepted as true, and the plaintiff is afforded the benefit of all reasonable inferences to be drawn from the allegations contained within the complaint. Mylan Laboratories, Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993).

Discussion

I. RESPA Claims

The Real Estate Settlement Protections Act ("RESPA") is designed to protect potential homeowners by requiring lenders to provide certain amounts of information throughout the loan settlement process. 12 U.S.C. § 2605 et seq. The Consumer Financial Protection Bureau ("CFPB" or the "Bureau") implemented a set of mortgage servicing rules, effective January 10, 2014, which contain a number of loss mitigation procedures that servicers must follow after a payment default. Alleged violations of these servicing rules form the basis of Plaintiff's Complaint. For example, the CFPB enacted 12 C.F.R. § 1024.41, which provides that prior to pursuing a foreclosure, servicers need to provide borrowers an opportunity to submit a completed loan modification application (known as the "loss mitigation rule"). Further, among additional requirements, the loss mitigation rules require servicers to make a good faith effort to contact borrowers to inform themof loss mitigation options. 12 C.F.R. § 1024.39. If a lender fails to comply with the provisions of RESPA, borrowers may recover actual damages and any additional damages, in the case of a pattern of noncompliance, in an amount not to exceed $2,000. 12 U.S.C. § 2605. However, the loss mitigation rule is not limitless. 12 CFR § 1024.41(a) provides: "[n]othing in 1024.41 imposes a duty of a servicer to provide any borrower with any specific loss mitigation option. Nothing in 1024.41 should be construed to create a right for a borrower to enforce the terms of any agreement between a servicer and the owner or assignee of a mortgage loan, including with respect to the evaluation for, or offer of, any loss mitigation option or to eliminate any such right that may exist pursuant to applicable law."

Furthermore, the regulations currently in effect provide that a servicer is only required to follow the loss mitigation rule procedures for a single, complete loss mitigation application. 12 CFR § 1024.41(i) ("A servicer is only required to comply with the requirements of this section for a single complete loss mitigation application for a borrower's mortgage loan account."). In other words, a borrower may not bring an action for violation of the loss mitigation rule if that borrower has previously availed herself of the loss mitigation process. Houle v. Green Tree Servicing, LLC, No. 14-CV-14654, 2015 WL 1867526, at *3 (E.D. Mich. Apr. 23, 2015); see also Wentzell v. JPMorgan Chase Bank, Nat. Ass'n, 627 Fed. Appx. 314, 318 n. 4 (5th Cir. 2015) (considering the federal restriction on a mortgage servicer's ability to engage in "dual tracking," the process when lenders evaluate a loss mitigation application while also pursuing a foreclosure. The Fifth Circuit acknowledged that the federal restrictions in the regulations apply only to a borrower's first loss mitigation application and noting that because the claims in that case relatedto later alleged loan modifications, they did not state a claim under the federal regulation.). Finally, the loss mitigation rule does not require a borrower actually receive a loan modification; instead, it requires simply that a completed application be properly processed and considered. Id.

Defendants argue several reasons why the RESPA claims must be dismissed based on the loss mitigation rules. First, Defendants argue that in considering the plain language of 12 CFR § 1024.41(i), because Defendant FRB previously permanently modified Plaintiff's loan following a default under the terms of the original Note, Plaintiff is unable to bring an action based on the alleged violations of a subsequent loss mitigation application. While Plaintiff does not dispute RESPA includes this language, Plaintiff urges this Court to consider the purpose of RESPA. Plaintiff cites to the official interpretation of the mortgage servicing rules to argue that 12 CFR § 1024.41(i) should not apply because during the course of the second loss mitigation application, Defendant FRB transferred this loan to Defendant Dovenmuehle. Plaintiff argues that this...