Sharma v. Rushmore Loan Mgmt. Servs., LLC
| Decision Date | 20 March 2020 |
| Docket Number | Case No.: GJH-18-656 |
| Citation | 611 F.Supp.3d 63 |
| Parties | Om SHARMA, et al., Plaintiffs, v. RUSHMORE LOAN MANAGEMENT SERVICES, LLC, et al., Defendants. |
| Court | U.S. District Court — District of Maryland |
Phillip R. Robinson, Consumer Law Center LLC, Silver Spring, MD, Scott C. Borison, Borison Firm LLC, Baltimore, MD, for Plaintiffs.
John Curtis Lynch, Troutman Sanders LLP, Virginia Beach, VA, for Defendants Rushmore Loan Management Services LLC, U.S. Bank, National Association.
John Thomas Troost, Shulman Rogers Gandal Pordy & Ecker, P.A, Potomac, MD, Andrew Karl Stutzman, Stradley Ronon Stevens and Young LLP, Philadelphia, PA, Thomas Francis Lucchesi, III, Stradley Ronon, Washington, DC, for Defendant Wilmington Savings Fund Society, FSB.
MEMORANDUM OPINION
Plaintiffs Om Sharma, Vaughn and Diane Riffe, Virginia Brown, and Susan Geiselman filed this putative class action on March 5, 2018 against mortgage servicer Rushmore Loan Management Services, LLC ("Rushmore") and the trustees of two New York common law trusts that own Plaintiffs' mortgages: Wilmington Savings Fund Society, FSB ("Wilmington"), doing business as Christiana Trust, sued solely in its capacity as trustee for the trust BCAT 2014-4TT ("BCAT"); and U.S. Bank, National Association ("U.S. Bank"), sued solely in its capacity as trustee for the trust RMAC 2016-CTT ("RMAC"). ECF No. 1. Plaintiffs assert a variety of federal and Maryland statutory claims premised on alleged violations of mortgage lending and servicing laws by Rushmore, Wilmington, and U.S. Bank ("Defendants"). Plaintiffs filed an Amended Complaint on October 9, 2018, ECF No. 25, which Defendants have each individually moved to dismiss, ECF Nos. 38, 39, 41. No hearing is necessary. See Loc. Rule 105.6. (D. Md.). For the following reasons, the Court will grant the motions to dismiss by Wilmington and U.S. Bank and grant in part and deny in part Rushmore's motion to dismiss.
Each of the Plaintiffs alleges that they initiated a residential mortgage with a non-party lender, that they fell behind on their payments, and that the mortgages were eventually purchased by BCAT or RMAC and serviced by Rushmore, which took steps toward foreclosure in each case. The Court recounts Plaintiffs' allegations about the structure and history of the entities at issue, and the federal housing programs in which they participated, before turning to the specifics of Plaintiffs' mortgages and how they came to be owned by one of the trusts.
The Amended Complaint includes an extensive history of public and private responses to the late 2000s housing and financial crisis. Among other topics, Plaintiffs describe the Federal Housing Administration ("FHA"), the office within the U.S. Department of Housing and Urban Development ("HUD") that provides mortgage insurance on loans made by approved lenders, allowing lenders to recover the unpaid principal balance of such mortgage loans if and when they foreclose on them. ECF No. 25 ¶¶ 42, 45–46. Funds for those payments are drawn from the Mutual Mortgage Insurance Fund ("MMI Fund"), which is funded through FHA's collection of insurance premiums and fees. Id. ¶ 47. Borrowers with FHA mortgages are also entitled to certain protections and rights to help avoid foreclosure, including access to favorable loan modification procedures. Id. ¶¶ 52–56, 60–61, 64.
In 2010, because the MMI Fund had been depleted by the foreclosure crisis, HUD began acquiring delinquent FHA mortgages and then selling them through its Single Family Loan Sale program. Id. ¶¶ 68–69. HUD expanded the program in 2012 and renamed it the Distressed Asset Stabilization Program ("DASP"). Id. ¶¶ 70–71. As a result of the sales of their mortgages through DASP, FHA borrowers lost access to the borrower protections and other rights that they had enjoyed when the mortgages were FHA-insured. Id. ¶ 73. Since 2010, over 98,000 loans have been sold through the program. Id. ¶ 73. Plaintiffs note that a July 2017 report by HUD's Office of Inspector General found that the agency lacked formal procedures or guidelines for administering DASP and concluded that it should have been implemented through a notice-and-comment rulemaking procedure compliant with the Administrative Procedure Act. Id. ¶ 72.
Plaintiffs also describe the emergence of the industry to which Defendants belong, in which "Wall Street related hedge funds have acquired hundreds and thousands of defaulted, consumer loans, which are non-performing and otherwise in default, for pennies on the dollar of what is claimed due and owing from consumers." Id. ¶ 74. These entities purchase distressed and defaulted loans through DASP and other sources in order to "acquire the properties to which they are secured and to turn a quick profit." Id. ¶ 41. Plaintiffs identify one such entity, Angelo, Gordon & Co. ("AGC"), which Plaintiffs allege is a New York hedge fund "which specializes in the acquisition of distressed and defaulted loans including DASP loans." Id. ¶ 79.
AGC, Plaintiffs allege, "controls the day to day management" of BCAT, which is a New York common law trust established to acquire defaulted mortgage debts owed by Maryland consumers. Id. ¶¶ 20, 79a. Plaintiffs allege that BCAT "is nothing more than a paper entity that holds and owns mortgage accounts and loans on behalf of its investors" and "does not have any employees and does not operate like a bank, credit union, or trust company." Id. ¶ 20. BCAT "only intends to acquire defaulted, consumer debts for the primary purpose of commencing property acquisition by foreclosures, deeds in lieu, and short sales." Id. The trust's named trustee is Defendant Wilmington, which unlike AGC "has no day-to-day management of any of the activities subject to this action." Id. ¶ 79a.
Plaintiffs also identify non-party Roosevelt Management Company LLC ("Roosevelt"), "a New York-based investment management firm focused on investments in, management of, and servicing of, seasoned residential mortgage loans." Id. ¶ 22. Roosevelt is the "agent" of RMAC and "runs its affairs," in contrast to Defendant U.S. Bank, which is its trustee but "has no responsibility for it." Id. ¶ 21. Like BCAT, RMAC is a New York common law trust established to acquire defaulted mortgage debts owed by Maryland consumers, has no employees, and is "nothing more than a paper entity that holds mortgage accounts." Id. Plaintiffs also allege that RMAC "is an investment entity established to acquire defaulted mortgages and to thereafter collect upon the intangible and tangible assets associated thereto on behalf of its investors." Id.
Defendant Rushmore, Plaintiffs allege, is a mortgage servicer and a wholly owned subsidiary of Roosevelt that was established in 2010 and is headquartered in Irvine, California. Id. ¶¶ 19, 31. Rushmore services "hundreds of Maryland mortgage loans," id. ¶ 32, and was retained by BCAT and RMAC to act as the mortgage servicer for the loans at issue in this action, id. ¶¶ 19, 80, 178–81. In its role as mortgage servicer for the trusts, Rushmore "was delegated and assigned all duties related to [Plaintiffs'] loans...as their authorized agent on their behalf." Id. ¶ 19. These duties included "retention of attorneys/substitute trustees to act and to initiate foreclosure proceedings against Maryland residents." Id.
The Court now turns to the specific allegations asserted about each Plaintiff's mortgage, a discussion that necessarily includes some of the procedural history of the litigation, which the Court addresses in full in the next section. Each Plaintiff's allegations include as an element that BCAT or RMAC improperly profited from the Plaintiffs' loans because the trusts were acting as mortgage servicers without the relevant required state licenses.
Plaintiff Virginia Brown ("Brown") and her brother, non-party Leroy Culp, Sr., are the owners of a parcel of real property in Pikesville, Maryland, which Brown purchased for herself and her family in June 2001. Id. ¶¶ 17, 75.2 To finance the purchase, Brown initiated an FHA-insured loan. Id. ¶ 75. At some point, Brown fell behind on her payments and applied for loss mitigation with the owner of the mortgage, Bank of America, N.A. ("BANA"), which did not respond to Brown's requests. Id. ¶¶ 76–77.
At some time in November or December 2014, BANA conveyed all interest in Brown's loan to HUD as part of DASP. Id. ¶ 77. On December 1, 2014, Rushmore acquired the servicing rights to the loan. Id. ¶ 78. HUD then sold Brown's loan, along with hundreds of others of similar federally regulated loans, to an affiliate of AGC, which in turn transferred it to BCAT. Id. ¶ 79.3 Based on loan records prepared by BANA and HUD, Rushmore and BCAT believed the loan was in default. Id. ¶ 83. On behalf of BCAT, Rushmore began communicating with Brown to attempt to collect on her loan, including by sending monthly mortgage statements. Id. ¶¶ 80– 81. Beginning in January 2015, Rushmore reported to credit reporting agencies that Brown was past due in loan payments owed to Rushmore and that her loan was in foreclosure status. Id. ¶ 85. In February 2015, Rushmore, acting on BCAT's behalf, retained the Law Offices of Jeffrey Nadel for the purpose of collecting Brown's mortgage debt. Id. ¶¶ 82, 86.
On June 4, 2015, Brown mailed Rushmore a "Request for Mortgage Assistance" that included "all the documents Rushmore commonly requested for a complete loss mitigation application." Id. ¶ 87. Rushmore received the application on June 9, 2015 and sent Brown a letter on June 12, 2015 asking for certain additional information by June 27, 2015. Id. ¶¶ 87–88. On June 26, 2015, Brown faxed Rushmore all of the documents it had requested in its June 12 letter. Id. ¶ 89. Rushmore received the entire transmission but never sent Brown a written acknowledgment. Id. Instead, on July...
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