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Wilson v. Deutsche Bank Trust Company Americas

United States District Court, N.D. Texas, Dallas Division

November 7, 2019

SUSAN LYNN WILSON (THOMAS), et al., Plaintiffs,



         This is a removed action arising from attempts to foreclosure on the residence of pro se plaintiffs Susan Lynn Wilson (“Susan”) and Tommy Thomas.[1] Defendants Deutsche Bank Trust Company Americas, as Trustee for Residential Accredit Loans, Inc., Mortgage Asset-Backed Pass-Through Certificates, Series 2006-QS5 (“Deutsche Bank”), and loan servicer PHH Mortgage Corporation d/b/a PHH Mortgage Services (“PHH”), as the alleged surviving entity of a merger between PHH and the Thomases' former servicer, Ocwen Loan Servicing, LLC (“Ocwen”), move under Fed.R.Civ.P. 12(b)(6) to dismiss the Thomases' third amended complaint for failure to state a claim. The Thomases object to PHH's participation in this lawsuit and oppose the motion. They also move to supplement their third amended complaint. For the reasons that follow, the court overrules the Thomases' objection; grants in part and denies in part the motion of Deutsche Bank and PHH to dismiss; raises sua sponte grounds for dismissing some of plaintiffs' claims; and denies plaintiffs' motion to supplement. The court grants the Thomases leave to replead the claims that the court is dismissing on grounds that it has raised sua sponte.[2]


         In 2006 the Thomases obtained a home equity loan from Wachovia Bank (“Wachovia”) secured by the Thomases' residence on Berkshire Lane in Dallas.[3] They became delinquent on the loan in 2008. The following year, the Thomases' loan servicer, Homecomings Financial, invited them to apply for a loan modification. The Thomases applied, and a new loan servicer-GMAC ResCap, Inc. (“GMAC”)-approved their application. Under the terms of the modification agreement, if the Thomases successfully made three on-time payments in an agreed-upon reduced amount, the reduced payment amount would become permanent. The Thomases allege that, although they upheld their end of the bargain, GMAC did not: GMAC returned the third on-time payment, and Deutsche Bank (the assignee of the lien against the Thomases' residence) attempted to foreclose. Deutsche Bank nonsuited the initial foreclosure action in 2013, but then initiated a new foreclosure action in 2015.

         Ocwen began servicing the Thomases' loan at some point after it acquired GMAC in October 2012. In 2016 Ocwen offered the Thomases a loan modification, but when the Thomases contacted Ocwen about the option, the servicer reported that the modification was no longer available. Instead, the Thomases were permitted to apply for loss mitigation. On March 28, 2017 the Thomases submitted a loss mitigation application (“Application”) to Ocwen. The following day, on March 29, 2017, while the Application was pending for review, Ocwen and Deutsche Bank, by its substitute trustee, moved for expedited foreclosure. On April 26, 2017 the Application was fully “receipted.”

         When the Thomases contacted Ocwen to determine why the foreclosure was proceeding, Ocwen's representative informed them that the substitute trustee's law firm had been notified that the Application was complete and that evidence of the notification was in the computer. Despite this evidence, the law firm pursued the foreclosure action, and the Thomases were required to appear at the expedited foreclosure hearing on June 21, 2017 and at subsequent rescheduled hearings. The expedited foreclosure was dismissed in 2018.

         On March 9, 2018 the Thomases filed suit against Deutsche Bank and Ocwen in state court, and the case was removed to this court. In April 2019 the Thomases received a letter from their new servicer, PHH, advising that they might have loss mitigation options with PHH. PHH joined this lawsuit by filing the instant joint motion to dismiss.

         In their third amended complaint, the Thomases allege that defendants violated the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2605(f), and subsections of its implementing regulations, 12 C.F.R. § 1024.41, by “dual tracking” the Application. They also assert that Ocwen violated the Truth-in-Lending Act (“TILA”), 15 U.S.C. § 1639h, by failing to perform an adequate appraisal in conjunction with their request for loss mitigation, and they challenge Deutsche Bank's authority to foreclose based on alleged inaccuracies in the assignment process. In addition to these claims, the Thomases assert a claim under § 1413 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), 15 U.S.C. § 1640(k), as well as additional RESPA claims, including that defendants violated 12 C.F.R. § 1024.37 by placing forced-placed insurance when the Thomases already had coverage; violated § 1024.38 by allegedly failing to maintain reasonable practices and procedures in communicating with borrowers; violated § 1026.36 by misapplying loan payments; and violated 12 U.S.C. § 2605(c) by failing to respond to the Thomases' May 17, 2017 email regarding the expedited foreclosure. The Thomases seek actual, statutory, and exemplary damages as well as injunctive and equitable relief.

         Deutsche Bank and PHH move to dismiss the third amended complaint under Rule 12(b)(6). The Thomases object to PHH's participation in this lawsuit and oppose the motion. They also move to supplement their third amended complaint.


         The court turns first to the Thomases' objection to PHH's participation in this suit.


         Without filing a motion to substitute under Rule 25(c), PHH, together with Deutsche Bank, filed the instant joint motion to dismiss as the alleged successor by merger to Ocwen, the Thomases' former loan servicer. Although the Thomases acknowledge that the loan at issue was transferred to PHH in 2019, they object to defendants' addition of PHH without first seeking leave to join PHH or otherwise giving the Thomases and the court notice of this addition. The Thomases maintain that Ocwen completed the acquisition of PHH in October 2018 but failed to add PHH, a new party, until now. They contend that because their claims are against Ocwen, not PHH, defendants' late addition of PHH to this case is an attempt to thwart the resolution of their loan account issues with PHH as their current servicer. The Thomases also posit that this substitution violates the joinder deadline set by the court's June 8, 2018 scheduling order.

         Defendants respond that they have not sought to join a new party to this lawsuit, but instead have substituted the surviving entity of the merger between Ocwen and PHH. They maintain that the merger between PHH and a wholly-owned subsidiary of Ocwen occurred on October 4, 2018, and that Ocwen merged into PHH on June 1, 2019. In support of this contention, defendants attach an announcement from Moody's Investors Service (“Moody's”) that indicates that Moody's assigned Ocwen's master servicer assessment to PHH because, “[o]n June 1, 2019, Ocwen Loan Servicing LLC merged into PHH Mortgage Corporation, ” and that “PHH Mortgage Corporation is the surviving entity.” Ds. Resp. to Ps. Obj. Ex. A. at 1.[4] Defendants allege that referring to PHH as the proper surviving entity does not jeopardize the Thomases' claims in this case or their efforts to resolve the loan account issues with PHH.

         The Thomases reply that their interests have been prejudiced by PHH's addition as a party because they can no longer submit a new loss mitigation application to PHH as their alleged transferee servicer unless they do so through PHH's counsel. They contend that the merger between Ocwen and PHH occurred in October 2018 and that defendants' statement that Ocwen merged into PHH in June 2019 is misleading. According to the Thomases, June 2019 is merely the date that the companies completed transferring the remainder of the loans into a new servicing platform. The Thomases maintain that defendants' statement that PHH “stepp[ed] into the shoes of Ocwen” does not demonstrate that PHH is the same entity, and they posit that defendants have used the same phrase to describe the transfer of the Thomases' loan among four different servicers.

         The Thomases also contend that, by adding PHH to this lawsuit and thereby requiring the Thomases to communicate with PHH via counsel about their property, defendants' counsel is infringing their constitutional rights, depriving them of their property without due process. The Thomases assert that defendants violated Rule 7.1(b)(2) regarding supplemental filings by failing to promptly file a supplemental statement when they had notice of the merger and change in parties. Finally, the Thomases contend that the addition of PHH to the this lawsuit is a continuation of defendants' practice of withholding information. They request that the court deny PHH's addition to this lawsuit, permit them to communicate with PHH directly, and sanction defendants for alleged violations of the Federal Rules of Civil Procedure.


         Rule 25(c) provides that “[i]f an interest is transferred, the action may be continued by or against the original party unless the court, on motion, orders the transferee to be substituted . . . or joined with the original party.” “A ‘transfer of interest,' as described in Rule 25(c), includes circumstances where a corporation is the successor to the original corporate party by merger.” IDQ Operating, Inc. v. Aerospace Commc'ns Holdings Co., 2016 WL 6877772, at *1 (E.D. Tex. July 5, 2016) (quoting Luxliner P.L. Exp., Co. v. RDI/Luxliner, Inc., 13 F.3d 69, 71 (3d Cir. 1993)).

         Contrary to the Thomases' contentions, Rule 25(c) does not require a successor by merger to file a substitution motion or any other motion before asserting its interests in the action. See FDIC v. SLE, Inc., 722 F.3d 264, 270 (5th Cir. 2013) (per curiam) (holding that because of “Rule 25's wholly permissive terms, ” a plaintiff-transferee is “not required under Rule 25(c) and (a)(3) to substitute as a transferee” before filing revival motion); see also Fairport Ventures, LLC v. Beneficial Fin. I, Inc., 2017 WL 7806388, at *1 (S.D. Tex. July 6, 2017) (concluding that a transferee “properly stands in the shoes of [the initial defendant] as [its] successor in interest” and is not required to file a separate substitution motion before moving for summary judgment). Because both parties maintain that a merger occurred between PHH and Ocwen in October 2018 and that PHH began servicing the loan in April 2019, the court concludes that PHH is a transferee as contemplated by Rule 25(c), and its substitution in this lawsuit is proper.[5] For these reasons, the court overrules the Thomases' objection to PHH's proceeding as a defendant.

         The court also overrules the Thomases' objection because their objection implicates the merits of the legal issues in this case. The gravamen of the Thomases' complaint is that a change in servicers-whether by merger or acquisition-constitutes a “transfer” for purposes of their RESPA claims under 12 C.F.R. § 1024.41, thereby requiring the transferee servicer to consider a loss mitigation application anew, regardless of whether a predecessor servicer had already done so. Thus in requesting that the court exclude PHH from this suit so that the Thomases may submit a new loss mitigation application to PHH as an alleged transferee servicer, the Thomases are essentially seeking a ruling on a key issue in the case: whether the Thomases are entitled to consideration of another loss mitigation application by a servicer who obtained the loan by merger. Such a request reaches beyond the procedural matter of ensuring the party participating in the case is a true party-in-interest and extends to the substance of the Thomases' action and legal theory against Ocwen. For this reason, the court concludes that such a matter is better decided in the context of a substantive motion, such as a summary judgment motion.


         The court now considers defendants' motion to dismiss.

         Under Rule 12(b)(6), the court evaluates the pleadings by “accept[ing] ‘all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff[s].'” In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007) (quoting Martin K. Eby Constr. Co. v. Dall. Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004)). To survive a motion to dismiss, the Thomases must allege enough facts “to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff[s] plead[] factual content that allows the court to draw the reasonable inference that the defendant[s] [are] liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “The plausibility standard is not akin to a ‘probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id.; see also Twombly, 550 U.S. at 555 (“Factual allegations must be enough to raise a right to relief above the speculative level[.]”). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not ‘show[n]'-‘that the pleader is entitled to relief.'” Iqbal, 556 U.S. at 679 (quoting Rule 8(a)(2)). Furthermore, under Rule 8(a)(2), a pleading must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Although “the pleading standard Rule 8 announces does not require ‘detailed factual allegations, '” it demands more than “labels and conclusions.” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555). And “a formulaic recitation of the elements of a cause of action will not do.” Id. (quoting Twombly, 550 U.S. at 555).


         Defendants move to dismiss the Thomases' claim that Ocwen violated RESPA, 12 U.S.C. § 2605(f), and subsections of its implementing regulations, 12 C.F.R. § 1024.41(c)(1)(i), (c)(3), (f), and (g), by “dual tracking” the Thomases' first and only “receipted and completed” loss mitigation application with Ocwen.


         Section 1024.41 regulates loss mitigation procedures provided by loan servicers, and is privately enforceable via § 6(f) of RESPA. See 12 C.F.R. § 1024.41. Section 1024.41 does not require that a servicer “provide any borrower with any specific loss mitigation option.” Id. § 1024.41(a). Instead, it specifies required procedures, including deadlines for reviewing timely loss mitigation applications and requirements for notifying borrowers in writing, within 30 days of receipt of a complete loss mitigation application, which loss mitigation options, if any, the loan servicer will offer the borrower, or the specific reasons for denying a complete loss mitigation application. Id. § 1024.41(c)(1)(ii), (d).

         To state a claim under § 6(f) and § 1024.41, plaintiffs must allege facts that demonstrate that the loan modification application at issue is their first complete loss mitigation application and that they suffered actual damages as a result of defendants' failure to comply with the loss mitigation procedures established in § 1024.41. See Solis v. U.S. Bank, N.A., 726 Fed.Appx. 221, 223 (5th Cir. 2018) (per curiam) (“The district court did not err when it held that the [plaintiffs] failed to allege that this application was their first complete loss mitigation application. . . . Thus, [plaintiffs] again failed to plead the prerequisites of a plausible claim.”); see also Law v. Ocwen Loan Servicing, L.L.C., 587 Fed.Appx. 790, 795 (5th Cir. 2014) (per curiam) (“In order to recover for a violation, a borrower must show ‘actual damages to the borrower as a result of the [servicer's] failure' to comply with RESPA.”). A prevailing plaintiff is entitled to recover actual damages and reasonable attorney's fees and costs. See 12 U.S.C. § 2605(f)(1)(A), (f)(3).[6]


         Defendants move to dismiss the Thomases' claim under 12 C.F.R. § 1024.41, contending that a loan servicer is only required to comply once with the regulation's procedures under § 1024.41(i). Because Ocwen's predecessor-GMAC-granted a loan modification in 2009 before Ocwen acquired GMAC and the loan, Ocwen maintains that it had no duty to comply with the loss mitigation procedures. Defendants also contend that the Thomases' § 1024.41 claims fail because they have not adequately pleaded actual damages.


         Defendants contend that the Thomases' concession of a previous loan modification with a predecessor servicer warrants dismissal of their 12 C.F.R. § 1024.41 claims.


         In their third amended complaint, the Thomases allege that they submitted their first and only receipted and completed Application with Ocwen on March 28, 2017, after the loan was transferred to Ocwen from GMAC. The following day, March 29, 2017, Deutsche Bank filed for expedited foreclosure, which the Thomases maintain violated § 1024.41. See, e.g., § 1024.41(g) (“If a borrower submits a complete loss mitigation application . . . a servicer shall not move for foreclosure judgment[.]”). Relying on the Consumer Financial Protection Bureau (“CFPB”) official interpretation of 12 C.F.R. § 1024.41, the Thomases allege that, for the purposes of compliance with § 1024.41, “[a] transferee servicer and a transferor servicer, however, are not the same servicer.” 3d Am. Compl. 13. (quoting CFPB's Official Staff Commentary on Regulation X, F.R.R.S. 6-1444.94, 2014 WL 2195779, at *13 (June 2018)). They maintain that Ocwen, as “a transferee servicer[, ]” was “required to comply with the applicable requirements of § 1024.41 upon receipt of a loss mitigation application from a borrower whose servicing the transferee servicer has obtained through a servicing transfer, even if the borrower previously received an evaluation of a complete loss mitigation application from the transferor servicer.” Id. In other words, according to the Thomases, because Ocwen is a transferee servicer, it was required to consider the Thomases' Application and refrain from seeking foreclosure for the requisite period of time, despite the fact that the Thomases received a loan modification in 2009 from a different servicer.

         Defendants contend that the Thomases' claims fail because one who alleges a claim under 12 C.F.R. § 1024.41 must plead that he submitted a single complete loss mitigation application, and the Thomases “concede that they obtained a loan modification in 2009.” Ds. Mot. 8. Defendants maintain that a servicer need not entertain duplicative loss mitigation requests because a “servicer is only required to comply with the requirements of [12 C.F.R. § 1024.41] for a single complete loss mitigation application for a borrower's mortgage loan account.” Id. at 9. (quoting 12 C.F.R. § 1024(i) (2016)).[7] Relying on Germain v. U.S. Bank Nat'l Ass'n., 920 F.3d 269, 276 (5th Cir. 2019), defendants posit that, because Ocwen's predecessor-GMAC-complied with the loss mitigation procedures in granting the 2009 loan modification, GMAC's compliance “must be credited to the [current] servicer because it need only comply with such a requirement once.” Id. at 276. Defendants posit that any loss mitigation application after the initial loan modification in 2009 with GMAC must be considered a duplicative request that Ocwen was not obligated to honor.

         The Thomases reiterate that the Application submitted on March 27, 2017 was their first and only complete application for loss mitigation with the transferee servicer, Ocwen. They also contend that the predecessor servicer-GMAC-could not have complied with the regulations, because the loan modification occurred before the rule was adopted. Further, the Thomases maintain that if, as defendants contend, Ocwen stepped into the shoes of GMAC by way of acquisition, this transition constitutes a transfer, thereby obligating Ocwen to comply with the loss mitigation regulations anew. Due to the alleged transfer, the Thomases contend that their Application was not a duplicative request. Defendants do not reply to this argument.


         The court concludes that the Thomases have adequately pleaded the first prong of a 12 C.F.R. § 1024.41 claim: they have alleged that they submitted their first complete loss mitigation application to their alleged transferee servicer, Ocwen. Although it is not yet settled whether Ocwen was required to comply with the loss mitigation requirements anew as a transferee servicer or whether it was entitled to rely on its predecessor's compliance with the rules, the court holds that, at the motion to dismiss stage, accepting as true the well-pleaded facts of the third amended complaint, the Thomases have plausibly pleaded that they submitted a single complete loss mitigation application to their alleged transferee servicer and that such an application would be entitled to review in compliance with § 1024.41's procedures.[8]

         Defendants' reliance on Germain does not alter the court's conclusion. Germain involved the early compliance of the same servicer before the rule was adopted, and did not address the question whether a merger constitutes a transfer for the purposes of compliance with 12 C.F.R. § 1024.41. See Germain, 920 F.3d at 269. Because the Thomases adequately allege that Ocwen is a transferee servicer, not the same servicer, their admission of a loan modification with GMAC in 2009 does not undercut the plausibility of their claim.


         Defendants also move to dismiss the Thomases' 12 C.F.R. § 1024.41 claim on the basis that they have failed to adequately allege actual damages.


         In their third amended complaint, the Thomases allege that they seek actual damages in the amount of $12, 164.00 for travel expenses and lost hours away from development projects and their work to prepare for and attend scheduled and rescheduled hearings for the expedited foreclosure. The Thomases also aver that Susan was diagnosed with chronic cervical radiculopathy triggered by the extended hours spent at the computer to read, research, and write documents “to respond to defendants . . . in defense of plaintiffs' claims.” 3d Am. Comp. 10. The Thomases also seek damages for emotional distress and pain and suffering that Susan has allegedly suffered from dealing with defendants' violations of consumer mortgage servicing laws and the resulting radiculopathy. Although not pleaded in relation to their § 1024.41 claim, the Thomases allege in their third amended complaint, and later in their response to the motion to dismiss, that the dual tracking violation prevented them from selling their residence and avoiding further home ownership expenses. The Thomases also request equitable relief in the form of clear title to their property and an injunction preventing defendants from seeking foreclosure again.

         Defendants move to dismiss the 12 C.F.R. § 1024.41 claim on the basis that the damages alleged in the Thomases' third amended complaint solely “relate[] to the alleged inability to sell the [p]roperty, ” and that these damages are not attributable to any alleged violations of the loss mitigation procedures in § 1024.41. Ds. Mot. 10. Defendants also maintain that only monetary damages are recoverable under RESPA, and that the Thomases cannot obtain equitable relief.


         The court concludes that plaintiffs have pleaded sufficient facts for the court to draw the reasonable inference that the Thomases suffered actual damages resulting from Ocwen's alleged violation of 12 C.F.R. § 1024.41. Courts have interpreted “actual damages” under § 6(f) to include, inter alia:

(1) out-of-pocket expenses incurred dealing with the RESPA violation including expenses for preparing, photocopying and obtaining certified copies of correspondence, (2) lost time and inconvenience, such as time spent away from employment while preparing correspondence to the loan servicer, to the extent it resulted in actual pecuniary loss[, ] (3) late fees and (4) denial of credit or denial of access to full amount of credit line.

Ruiz v. PennyMac Loan Servs., LLC, 2018 WL 4772410, at *3 (N.D. Tex. Oct. 3, 2018) (Fitzwater, J.) (quoting McLean v. GMAC Mortg. Co., 595 F.Supp.2d 1360, 1366 (S.D. Fla. 2009), aff'd, 398 Fed.Appx. 467 (11th Cir. 2010)). A well-pleaded claim under § 6(f) should therefore allege facts showing not only that the plaintiff suffered damages, but also that those damages were incurred “as a result of the failure” of the lender to comply with the statute or regulations. See 12 U.S.C. § 2605(f)(1)(A); id. at *2. Thus even minimal damages “suffice if the harm is traceable to the alleged RESPA violation.” Ruiz, 2018 WL 4772410, at *3.

         The court holds that, conclusory allegations notwithstanding, the Thomases have plausibly pleaded that they incurred actual damages as a result of Ocwen's alleged violations of 12 U.S.C. § 2605 and 12 C.F.R. § 1024.41. For example, they allege that they lost time and income as a result of preparing for and attending the expedited foreclosure hearings, which are adequate to satisfy the damages prong of a § 1024.41 claim. See Ruiz, 2018 WL 4772410, at *3. Additionally, although courts in this circuit are split on whether emotional damages are recoverable under RESPA, the court concludes that, until the law develops further, emotional damages, as alleged here, are adequate to plead a plausible claim at the motion to dismiss stage. See Anderson v. Wells Fargo Bank, N.A., 2018 WL 3426269, at *11 (N.D. Tex. July 13, 2018) (Godbey, J.) (collecting cases and holding that emotional damages are recoverable under RESPA). Thus although the alleged relationship between the Thomases' ability to sell their residence and the asserted violations is tenuous, and “simply having to file suit [does not] suffice as a harm warranting actual damages, ” the court concludes that the Thomases have pleaded other ...

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