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Pearson v. Specialized Loan Servicing, LLC

United States District Court, E.D. Tennessee, Chattanooga Division

July 24, 2017

SPECIALIZED LOAN SERVICING, LLC; THE BANK OF NEW YORK MELLON f/k/a THE BANK OF NEW YORK, as Trustee for the certificate holders of the CWABS, Inc., asset-backed pass through Certificates, SERIES 2007-8, Defendants.


          Thomas W. Phillips United States District Judge.

         This matter is before the Court on Defendant Specialized Loan Servicing, LLC's Motion for Judgment on the Pleadings [doc. 32], Defendant's Brief in Support of the Motion [doc. 33], Plaintiff's Response in Opposition [doc. 38], and Defendant's Reply [doc. 40]. For the reasons herein, the Court will grant Defendant's motion in part and deny it in part.

         I. Background

         Plaintiff Sharon Pearson (“Ms. Pearson”) alleges that several years ago she entered into a refinance transaction with an entity called Countrywide Home Loans, Inc., and the purpose of the transaction was to enable her to obtain a new mortgage loan so she could pay off existing debt on her home. [Am. Compl., doc. 22, ¶¶ 32, 36]. As part of the refinance transaction, she claims that she executed a deed of trust, which required her to use her home as collateral for the new loan. [Id. ¶ 32]. She maintains that the money for the new loan came from a “securitized trust, ” which she describes as a body of residential mortgages that financial institutions in the United States “resold” and “pooled” so that they could amass capital to fund mortgage loans like her own. [Id. ¶¶ 13, 32-35]. According to Ms. Pearson, she became delinquent on her new loan in December 2011, at which point Defendant Specialized Loan Servicing, LLC (“Specialized Loan Servicing”) received servicing rights to it. [Id. ¶ 39]. In an effort to restructure her loan, she claims that she applied for “loss mitigation alternatives, ” or a loan modification, with Specialized Loan Servicing and that she received one. [Id. ¶¶ 41-42]. Later, however, a representative of Specialized Loan Servicing allegedly encouraged her, “with the promise of a better modification, ” to cease making payments on her existing loan modification and to apply for a new loan modification. [Id. ¶¶ 42, 44, 56].

         Relying on the representative's advice, she claims that she stopped her payments in October 2015 and applied for a new loan modification, but Specialized Loan Servicing rejected her application. [Id. ¶¶ 42-44]. She states that its denial of her application was based on an “improper[] review[].” [Id. ¶ 44]. Specifically, she asserts that, in denying her application, it both negligently and willfully miscalculated “her gross monthly income as $2, 837.06, when, in fact and according to all documentation she supplied, her monthly income is $2, 268.85[.]” [Id. ¶¶ 44, 52, 56]. As a result, she claims that she did not receive the new loan modification, and a non-judicial foreclosure sale of her home took place a few months later. [Id. ¶ 45]. Ms. Pearson now brings this action against Select Loan Servicing, as well as Defendant The Bank of New York Mellon in its capacity as trustee of the securitized trust rather than in its corporate capacity as a bank. Ms. Pearson's causes of action include (1) wrongful foreclosure (Count I); a violation of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692(e), (f) (Count II); a violation of the Consumer Financial Protection Act (“CFPA”), 12 U.S.C. § 5481, (Count III); and a violation of the Tennessee Home Loan Protection Act (“THLPA”), Tenn. Code. Ann. § 45-20-103 (Count IV). [Am. Compl. at 15-21]. Select Loan Servicing now moves for judgment on the pleadings under Federal Rule of Civil Procedure 12(c), arguing that Ms. Pearson does not state viable claims. [Def.'s Br. at 4-12].

         II. Legal Standard

         Under Rule 12(c), “[t]he standard of review for a judgment on the pleadings is the same as that for a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6).” EEOC v. J.H. Routh Packing Co., 246 F.3d 850, 851 (6th Cir. 2001) (citation omitted). To survive a motion to dismiss under Rule 12(b)(6), the complaint must contain “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when the plaintiff pleads facts that create a reasonable inference that the defendant is liable for the alleged conduct in the complaint. Id. When considering a motion to dismiss under Rule 12(b)(6), a court accepts the allegations in the complaint as true and construes them in a light most favorable to the plaintiff. Mixon v. Ohio, 193 F.3d 389, 400 (6th Cir. 1999). “[T]he tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions, ” however. Iqbal, 556 U.S. at 678. A plaintiff's allegations must consist of more than “labels, ” “conclusions, ” and “formulaic recitation[s] of the elements of a cause of action.” Twombly, 550 U.S. at 555 (citation omitted); see Iqbal, 556 U.S. at 678 (“Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” (citation omitted)).

         III. Analysis

         The Court begins its analysis by addressing a housekeeping matter as it relates to the allegations in Count III, which Ms. Pearson, in her Amended Complaint, labels with the heading “Violation of Consumer Financial Protection Act.” [Am. Compl. at 17]. She pleads that the alleged violation of the CFPA is enforceable not through the CFPA's provisions themselves but through 12 C.F.R. § 1024.41, [id. at 18], which contains regulations that a servicer must follow when reviewing any alternatives that a borrower might have to foreclosure, see 12 C.F.R. § 1024.41(b)-(k). Section 1024.41, however, provides borrowers with no right of action under the CFPA, contrary to Ms. Pearson's position in her Amended Complaint. Rather, § 1024.41 states that borrowers may enforce its regulations through the Real Estate Settlement Procedures Act (“RESPA”): “A borrower may enforce the provisions of this section pursuant to section 6(f) of RESPA (12 U.S.C. 2605(f)).” 12 C.F.R. § 1024.41(a).

         Ms. Pearson, in her response, recognizes for the first time-as she must-that the redress she pursues in Count III is actually appropriate under the RESPA rather than under the CFPA. [See Pl.'s Resp. at 4]. In this circuit, courts typically treat a legal theory that a party raises for the first time in a responsive brief “as an implicit motion to amend the complaint.” Super Sulky, Inc. v. U.S. Trotting Ass'n, 174 F.3d 733, 740 (6th Cir. 1999) (citation omitted). Ms. Pearson, however, amended her Complaint once and may not amend it again without either Specialized Loan Servicing's consent or the Court's permission. Fed.R.Civ.P. 15(a)(2). Specialized Loan Servicing, though, does not argue that the Court should preclude Ms. Pearson from relying on her new legal theory or that it is inappropriate in any way. In fact, Specialized Loan Servicing concedes that her claim is “actually a [RESPA] claim, ” [Def.'s Br. at 11], and it proceeds to address the claim's legal sufficiency in the context of the RESPA-as if Ms. Pearson pleaded it this way in her Amended Complaint, [Def.'s Reply at 4-5]. Because Specialized Loan Servicing does not object to the implicit amendment that Ms. Pearson makes by recasting her claim, and because Rule 15(a)(2) “embodies a ‘liberal amendment policy, '” Brown v. Chapman, 814 F.3d 436, 442-43 (6th Cir. 2016) (quotation omitted), the Court will construe Count III as a claim in which Ms. Pearson pursues recourse under the RESPA.

         A. Wrongful Foreclosure

         In Ms. Pearson's wrongful foreclosure claim, Ms. Pearson appears to espouse a hybrid theory of liability against Specialized Loan Servicing, [1] erecting her claim based in part on violations of Tennessee law[2] and in part on a violation of the RESPA:

45. By failing to comply with the terms of the securitized trust, the Defendants violated the requirements of T.C.A. § 35-5-101, et seq., and Article 1 § 8 of the Tennessee Constitution.
46. Additionally, and as more fully explained below, Defendant [Specialized Loan Servicing] violated the terms of the [RESPA] and such violations prohibit [Specialized Loan Servicing] from proceeding with a foreclosure on Plaintiff's home.

[Am. Compl. ¶¶ 45-46]. The Court will now consider whether these allegations are sufficient to survive scrutiny under Rule 12(c).

         1. Wrongful Foreclosure under Tennessee Law

         In Tennessee, “[w]hile there are no specific elements for wrongful foreclosure, Tennessee courts generally examine whether contractual or statutory requirements were met in the foreclosure of the property in question.” Ringold v. Bank of Am. Home Loans, No. 2:12-cv-02344-JPM-dkv, 2013 WL 1450929, at *6 (W.D. Tenn. Apr. 9, 2013) (citing Hutchens v. Bank of Am. N.A., No. 3:11-CV-624, 2012 WL 1618316, at *9-10 (E.D. Tenn. May 9, 2012))). Specialized Loan Servicing argues that Ms. Pearson's allegations lack facts that establish “a right to relief” and “merely describe the nature of the underlying claim.” [Def.'s Br. at 4]. In response, Ms. Pearson reiterates that Tennessee law requires no “specific elements for wrongful foreclosure, ” [Pl.'s Resp. at 5], but fails to explain how this assertion buttresses her claims under the Tennessee Constitution or under Tenn. Code. Ann. section 35-5-101, a statute setting out requirements that a would-be seller of property must meet before initiating “any sale of land to foreclose a deed of trust, mortgage or other lien, ” Tenn. Code. Ann. § 35-5-101(a).

         The Court agrees that Ms. Pearson's claim for wrongful foreclosure is not tenable under the Tennessee Constitution, because the Tennessee Constitution offers no private right to relief. See Cline v. Rogers, 87 F.3d 176, 179 (6th Cir. 1996) (“Tennessee does not recognize a private cause of action for violations of the Tennessee Constitution.” (citation omitted)). The same shortcoming, however, does not compromise Ms. Pearson's claim under Tenn. Code. Ann. section 35-5-101, which does entitle an injured party to bring a private action for civil damages against “[a]ny officer, or other person” who violates its provisions. Tenn. Code. Ann. § 35-5-107. Under Tenn. Code. Ann. section 35-5-101, however, parties are always free to “supersede” any statutory requirements by contract, or in other words, to “vary the terms of foreclosure by contract . . . where a deed of trust provision varies from the statutory requirements, ” Fed. Nat'l Mortg. Ass'n v. Robilio, No. W2007-01758-COA-R3-CV, 2008 WL 2502114, at *7 (Tenn. Ct. App. June 24, 2008) (citation omitted); see Tenn. Code. Ann. § 35-5-101(d) (“Nothing in this section shall be construed as applying to any notice published in accordance with any contract entered into heretofore, and expressed in a mortgage, deed of trust or other legal instruments.”).

         Ms. Pearson's allegations concerning Tenn. Code. Ann. section 35-5-101 appear to strike at the very intersection between this statute and contract law; indeed, she pleads that Specialized Loan Servicing violated Tenn. Code. Ann. section 35-5-101 “[b]y failing to comply with the terms of the securitized trust.” [Am. Compl. ¶ 45]. The allegation that this document known as a “securitized trust” existed between the parties-and more precisely, not only existed but also through Specialized Loan Servicing's alleged failure to comply with its provisions, gave rise to her home's wrongful foreclosure-uncouples her claim from Tenn. Code. Ann. section 35-5-101 and shifts it into the ambits of contract law. See Robilio, 2008 WL 2502114 at *7; see also Tenn. Code. Ann. § 35-5-101(d). To plead a sufficient claim for breach of contract claim under Tennessee law, Ms. Pearson must allege facts showing: (1) the existence of an enforceable contract, (2) non-performance amounting to a breach, and (3) damages stemming from that breach. Ingram v. Cendant Mobility Fin. Corp., 215 S.W.3d 367, 374 (Tenn. Ct. App. 2006).

         Ms. Pearson, however, fails to identify any provision in the securitized trust-an unspecified document that she has not attached to the Amended Complaint or filed in the record-that Specialized Loan Servicing has breached. Seizing on Ms. Pearson's failure to plead the breach of any specific provision, Specialized Loan Servicing contends that this defect is fatal to her claim, [Def.'s Br. at 6-7], and the Court agrees, see Shafron v. Aviva Life & Annuity Co., No. 1:11 CV 00732, 2014 WL 763238, at 5* (N.D. Ohio Feb. 21, 2014) (“[F]or a breach of contract claim to survive a Rule 12(b)(6) motion to dismiss under the pleading requirements of Ashcroft v. Iqbal, a plaintiff must adequately plead . . . the specific contract provision breached.” (footnotes omitted)); Simmons v. Countrywide Home Loans, No. 3:09-00621, 2010 WL 1408592, at *3 (M.D. Tenn. Feb. 25, 2010) (“Plaintiffs fail to allege which provisions of the Loan Agreement were breached by Defendants, or how those provisions were breached[.]”). The Court will therefore grant judgment on the pleadings to Specialized Loan Servicing, to the extent that Ms. Pearson she seeks relief against it for wrongful foreclosure under Tennessee law.

         2. Wrongful Foreclosure under the RESPA

         Again, Ms. Pearson pleads that Specialized Loan Servicing “violated the terms of the [RESPA]” and was therefore “prohibit[ed] . . . from proceeding with a foreclosure” of her home. [Am. Compl. ¶ 46]. In her response, she elaborates on this allegation, noting that “[t]he specific statutory scheme which [Specialized Loan Servicing] violated and which supports a claim for wrongful foreclosure is 12 C.F.R. § 1024.41.” [Pl.'s Resp. at 5]. She pleads that Specialized Loan Servicing violated § 1024.41 by miscalculating her income while reviewing her loss-mitigation application and by “encourag[ing] [her] to miss payments on her modification with the promise of a better modification, ” a promise that she describes as a “false statement.” [Am. Compl. ¶¶ 44, 52, 56]. She claims that these alleged actions were negligent and willful. [Id.]. Specialized Loan Servicing maintains that it did not mishandle Ms. Pearson's application, but even if it did, it argues that Ms. Pearson's claim must still fail because ยง ...

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