Roberts v. Carrington Mortg. Servs.

Decision Date06 November 2020
Docket NumberCase No. 19-cv-2355
CourtU.S. District Court — Northern District of Illinois

Judge Robert M. Dow, Jr.


Plaintiff Jason Roberts ("Plaintiff") brings this proposed class action against Defendant Carrington Mortgage Services, LLC ("Defendant" or "CMS") for alleged violations of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. ("FDCPA") and state law. Currently before the Court is Defendant's motion [38] to dismiss Plaintiff's governing second amended complaint. For the reasons explained below, Defendant's motion [38] is granted. Plaintiff's second amended complaint is dismissed without prejudice. Plaintiff shall have until December 7, 2020 to file a motion for leave to file a third amended complaint, if he can do so consistent with this opinion and Federal Rule of Civil Procedure 11. If no such motion is filed by that date, the Court will convert the dismissal to with prejudice and enter a final judgment.

I. Background

The following facts are taken from Plaintiffs' second amended complaint [37] ("Complaint") and assumed to be true for purposes of Defendant's motion to dismiss. Plaintiff is an individual who resides in this District. Defendant is a Delaware limited liability company engaged in the business of mortgage servicing. According to the Complaint, Defendant is a "special server," which is "mortgage industry jargon for a servicer that specializes in delinquent and defaulted loans." [37] at 2. Defendant is also allegedly a "debt collector" as defined in the FDCPA.

Plaintiff had a residential mortgage loan ("Loan") that was past due at the time Defendant took over as the servicer on February 2, 2018. Plaintiff's Loan was a Federal Housing Administration ("FHA") loan. FHA regulations relied on by Plaintiff provide in relevant part that: "The mortgagee, upon learning that a property subject to a mortgage insured under this part is vacant or abandoned, shall be responsible for the inspection of such property at least monthly, if the loan thereon is in default. When a mortgage is in default and a payment thereon is not received within 45 days of the due date, and efforts to reach the mortgagor by telephone within that period have been unsuccessful, the mortgagee shall be responsible for a visual inspection of the security property to determine whether the property is vacant. The mortgagee shall take reasonable action to protect and preserve such security property when it is determined or should have been determined to be vacant or abandoned until its conveyance to the Secretary [of Housing and Urban Development ('Secretary')], if such action does not constitute an illegal trespass[.]" 24 C.F.R. § 203.377. According to the Complaint, the FHA "interprets the regulation to mean that once a property has been found to be occupied, no further inspections may be charged." [37] at 3, ¶ 21 (citing HUD Handbook 4330.1 Ch. 9-9(A)(c)(2)(d); Mortgagee Letter 81-26, 1981 WL 389744 at *1 (June 16, 1981)). The FHA regulations allegedly are incorporated into Plaintiff's note and mortgage and limit what may be charged to the borrower.

Plaintiff has continually occupied the mortgaged property. According to the Complaint, CMS knew that the property was occupied by August 15, 2018, when Defendant served Plaintiff at the property in a mortgage foreclosure action. Defendant also corresponded with Plaintiff at the property's address in connection with a loss mitigation application. Despite its knowledge thatPlaintiff had been occupying the property, Defendant charged Plaintiff $20 property inspection fees on the following dates: March 20, 2018, April 13, 2018, June 1 and 20, 2018, August 16, 2018, September 13, 2018, October 17, 2018, November 9, 2018, March 1, 13, and 22, 2019, April 9 and 18, 2019, May 17, 2019, and June 18, 2019. Defendant included these amounts in its monthly mortgage statements. The Complaint alleges that Defendant's inspection fees were unauthorized and improper. As a result of the fees, Plaintiff allegedly "incurred expenses such as hiring an attorney, mailing costs, distress, annoyance, and time spent addressing the matter." [37] at 4, ¶ 30. The addition of the fees to his monthly mortgage statements also "increased the past due amount, which made it harder for Plaintiff to rehabilitate the loan, and which increased the amount needed to payoff the loan." Id.

Between April and May 2019, Defendant sent two letters to Plaintiff's counsel concerning Plaintiff's dispute of his debt. See [37-1] at 59-60, The April 2, 2019 letter stated that "the current 'investor' or owner of the loan is" Defendant. [37] at 5. However, the May 6, 2019 letter stated that the current owner of the note is TIAA Bank. Both letters identify Defendant as the servicer. See [37] at 5; [37-1] at 55-60 (Appendices K & L).

Plaintiff paid off the Loan by August 2019 because he feared losing his home and was concerned about the fees being added to his balance every month. Plaintiff's mother took out a home equity line of credit ("HELOC") in order to provide Plaintiff with the funds necessary to pay off the Loan. The interest rate on the HELOC loan (3.6%) was lower than the interest rate being charged by Defendant (4.5%). Prior to paying off the Loan, Plaintiff received a Payoff Statement from Defendant dated April 8, 2019. The detail of charges that came with that document included multiple property inspection fees, although in other places the amount for such fees was recordedas zero. There is also a charge for $6,688.22 for "other unpaid expenses," which has increased by over $1,300.00 since the payoff statement.

Plaintiff brings four claims based on these allegations. In Count I, Plaintiff alleges that Defendant violated the FDCPA, 15 U.S.C. §§1692, 1692e(2), 1692e(10), 1692f and 1692f(1), by charging Plaintiff for unauthorized property inspection fees and representing that it had the right to collect a balance that included unauthorized property inspection fees. In Count II, Plaintiff alleges that Defendant "engaged in unfair and deceptive acts and practices ... by charging Plaintiff for property inspection fees," in violation of Illinois' Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2. [37] at 7. In Count III, for breach of contract, Plaintiff alleges that Defendant "violated the note and mortgage by charging Plaintiff for property inspection fees." Id. at 9. Finally, in Count IV, Plaintiff asserts an "individual FDCPA" claim on behalf of herself only (not the proposed class). Count IV alleges that Defendant violated 15 U.S.C.§ 1692e by issuing conflicting statements in April and May 2009 showing different entities as the current owner of Plaintiff's Loan.

Currently before the Court is Defendant's motion to dismiss the Complaint for failure to state a claim.

II. Legal Standard

Defendant's Rule 12(b)(6) motion challenges the legal sufficiency of the Complaint. For purposes of a motion to dismiss under Rule 12(b)(6), the Court "'accept[s] as true all of the well-pleaded facts in the complaint and draw all reasonable inferences in favor of the plaintiff.'" Calderon-Ramirez v. McCament, 877 F.3d 272, 275 (7th Cir. 2017) (quoting Kubiak v. City of Chicago, 810 F.3d 476, 480-81 (7th Cir. 2016)). "A motion under Rule 12(b)(6) can be based only on the complaint itself, documents attached to the complaint, documents that are critical tothe complaint and referred to in it, and information that is subject to proper judicial notice." Geinosky v. City of Chicago, 675 F.3d 743, 745 (7th Cir. 2012); see also Paulsen v. Abbott Labs., 368 F. Supp. 3d 1152, 1180 (N.D. Ill. 2019). To survive a motion to dismiss under Rule 12(b)(6), the Complaint must allege facts which, when taken as true, "'plausibly suggest that the plaintiff has a right to relief, raising that possibility above a speculative level.'" Cochran v. Illinois State Toll Highway Auth., 828 F.3d 597, 599 (7th Cir. 2016) (quoting EEOC v. Concentra Health Servs., 496 F.3d 773, 776 (7th Cir. 2007)). The Court reads the Complaint and assesses its plausibility as a whole. See Atkins v. City of Chicago, 631 F.3d 823, 832 (7th Cir. 2011).

III. Analysis
A. The Property Inspection Charges

Defendant moves to dismiss Plaintiff's first FDCPA claim, breach of contract claim, and consumer fraud claim on the basis that Plaintiff's mortgage agreement authorizes the property inspection charges on which all three claims are based. In particular, the mortgage agreement (which is attached to and central to the Complaint, see Geinosky, 675 F.3d at 745) authorizes Defendant to "inspect the Property if ... the loan is in default" and to "do or pay whatever is necessary to protect the value of the Property and [Defendant's] rights in the Property." [37-1] at 9-10.

Reviewing the relevant contract language and case law, the Court concludes that Plaintiff has not plausibly alleged that Defendant violated the mortgage agreement by imposing property inspection fees that are not "necessary" to protect the value of the mortgaged property and Defendant's rights in the property. Because neither party has identified any on-point precedent from the Seventh Circuit or Illinois Supreme Court, the Court is guided by decisions from this district. The limited case law from this district establishes that a "necessary" expense, as that termis used in mortgage agreements with the same language at issue here, means an expense that the mortgagor actually incurred, rather than an expense that is considered "reasonable" according to some other criteria.

In Majchrowski v. Norwest Mortgage, Inc., 6 F. Supp. 2d 946 (N.D. Ill. 1998), the court considered nearly identical mortgage language (also governed by Illinois law), but in the procedural posture of summary judgment: "If Borrower fails to perform the covenants and agreements contained in this Security...

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