Duncan et al v. MGC Mortgage, Inc. et al

Filing 24

MEMORANDUM OPINION. Signed by Judge R David Proctor on 5/23/2016. (AVC)

FILED
2016 May-23 AM 10:55
U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
RICHARD K. DUNCAN, et al.,
Plaintiffs,
v.
MGC MORTGAGE, INC., et al.,
Defendants.

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Case No.: 2:15-CV-1792-RDP

MEMORANDUM OPINION
This matter is before the court on Defendants’ Motion to Dismiss Plaintiffs’ Amended
Complaint. (Doc. # 16). The Motion has been fully briefed. (Docs. # 18 and 19).
I.

Background
On January 6, 1998, Plaintiffs borrowed money from Appleton Mortgage Corporation to

finance the purchase of a home. (Doc. # 11 ¶¶ 10, 13). At that time, Plaintiffs executed a
promissory note in favor of Appleton in the amount of $103,000.00. (Doc. # 11 ¶¶ 13-14; Doc.
# 16-1 pp. 1-6). The Note was secured by a mortgage granting to Appleton a first priority
security interest in the Property. (Doc. # 11 ¶ 13; Doc. # 16-1 pp, 8-13). The same day the Loan
was originated, the Mortgage, together with the Note and Indebtedness secured by the Mortgage,
was assigned to New South Federal Savings Bank. (Doc. # 11 ¶ 18; Doc. # 16-1 at 15). The
Note also contains an endorsement from Appleton to New South. (Doc. # 16-1 at 3).
The Loan Documents were eventually assigned ultimately to LPP. (Doc. # 11 ¶¶ 16, 18,
19; Doc. # 16-1). Plaintiffs’ Loan is serviced by MGC Mortgage, Inc., a corporate affiliate of
LPP. (Doc. # 11 ¶¶ 18, 24). Plaintiffs had difficulty making their monthly mortgage payments
and asked to be evaluated for loss mitigation options. (Doc. # 11 ¶ 24).

On February 12, 2015, Plaintiffs were offered a loan modification. (Doc. # 11 ¶ 29). In
order to accept the loan modification, Plaintiffs were required to execute a Closing Instruction
Letter and a Loan Modification Agreement, and return both of those documents within 14 days
to MGC, together with a $6000.00 down payment and a first modified mortgage payment of
$1,046.70. (Doc. # 11 ¶¶ 29, 31; Doc. # 16-1 p. 25).
Plaintiffs signed and returned the Loan Modification Agreement, but failed to execute the
Closing Instruction Letter setting out the conditions for acceptance of the loan modification, and
also failed to remit the required $6000.00 down payment. (Doc. # 11 ¶¶ 31, 34). Furthermore,
the first payment, which was due on March 1, 2015, was not received until March 23, 2015.
(Doc. # 16-1 at 40).
On March 30, 2015, MGC wrote Plaintiffs a letter advising that they were no longer
eligible for the loan modification offered to them because “they did not accept the offer for a
foreclosure alternative within the required time frame.” (Doc. # 11 ¶¶ 42, 46; Doc. # 16-1 pp.
27-28). On May 19, 2015, Plaintiffs were notified that the Loan had been accelerated to maturity
and the Property would be sold at foreclosure on June 22, 2015. (Doc. # 11 ¶ 50; Doc. # 16-1
pp. 30-32).
On or about June 18, 2015, Plaintiffs, through their counsel, wrote a letter to MGC
pursuant to 12 C.F.R. § 1024.35 of Regulation X asserting that MGC committed an error by
failing to implement and honor the Loan Modification Agreement. (Doc. # 11 ¶¶ 51-52; Doc. #
16-1 pp. 35-36). MGC timely acknowledged receipt of the Notice of Error and cancelled the
June 22, 2015 foreclosure sale so that it could fully investigate the claims raised in Plaintiffs’
Notice of Error. (Doc. # 11 ¶ 54).

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On July 16, 2015, MGC timely and fully responded Plaintiffs’ Notice of Error by
explaining that the loan modification was not implemented because Plaintiffs did not accept
MGC’s loan modification offer by signing the Closing Instruction Letter and remitting a
$6000.00 down payment, nor did they make their first modified payment of $1046.70 by the
March 1, 2015 deadline. (Doc. # 16-1 pp. 40-41).
A few days later, on July 22, 2015, Plaintiffs were again notified that the Loan had been
accelerated to maturity and the Property would be sold at foreclosure on September 4, 2015.
(Doc. # 11 ¶¶ 56, 60; Doc. # 16-1 pp. 96-98).
The day before the scheduled foreclosure sale, Plaintiffs initiated this lawsuit. (Doc. # 11).
II.

Standard of Review
The Federal Rules of Civil Procedure require only that the complaint provide “a short and

plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P.
8(a)(2). However, the complaint must include enough facts “to raise a right to relief above the
speculative level.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Pleadings that
contain nothing more than “a formulaic recitation of the elements of a cause of action” do not
meet Rule 8 standards, nor do pleadings suffice that are based merely upon “labels and
conclusions” or “naked assertion[s]” without supporting factual allegations. Twombly, 550 U.S.
at 555, 557. In deciding a Rule 12(b)(6) motion to dismiss, courts view the allegations in the
complaint in the light most favorable to the non-moving party. Watts v. Fla. Intl. Univ., 495 F.3d
1289, 1295 (11th Cir. 2007).
To survive a motion to dismiss, a complaint must Astate a claim to relief that is plausible
on its face.@ Twombly, 550 U.S. at 570. “A claim has facial plausibility when the plaintiff pleads

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factual content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Although “[t]he
plausibility standard is not akin to a ‘probability requirement,’” the complaint must demonstrate
“more than a sheer possibility that a defendant has acted unlawfully.” Id. A plausible claim for
relief requires “enough fact[s] to raise a reasonable expectation that discovery will reveal
evidence” to support the claim. Twombly, 550 U.S. at 556.
In considering a motion to dismiss, a court should “1) eliminate any allegations in the
complaint that are merely legal conclusions; and 2) where there are well-pleaded factual
allegations, ‘assume their veracity and then determine whether they plausibly give rise to an
entitlement to relief.’” Kivisto v. Miller, Canfield, Paddock & Stone, PLC, 413 Fed. Appx. 136,
138 (11th Cir. 2011) (quoting Am. Dental Assn. v. Cigna Corp., 605 F.3d 1283, 1290 (11th Cir.
2010)). That task is context specific and, to survive the motion, the allegations must permit the
court based on its “judicial experience and common sense . . . to infer more than the mere
possibility of misconduct.” Twombly, 550 U.S. at 556. Further, “courts may infer from the
factual allegations in the complaint ‘obvious alternative explanation[s],’ which suggest lawful
conduct rather than the unlawful conduct the plaintiff would ask the court to infer.” Am. Dental,
605 F.3d at 1290 (quoting Iqbal, 556 U.S. at 682). If the court determines that well-pleaded
facts, accepted as true, do not state a claim that is plausible, the claims are due to be dismissed.
Twombly, 550 U.S. at 556.
III.

Discussion
Defendants have moved to dismiss all eight of the claims asserted in Plaintiffs’

Complaint. For the reasons set forth below, Defendants’ Motion is due to be granted as to all
counts.

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A.

Count One - Negligence/Wantonness

In Count One of their Amended Complaint, Plaintiffs’ claim that MGC negligently
and/or wantonly failed to “properly book the modification agreement which would have brought
the loan current.” (Doc. # 11 ¶¶ 85-102). Plaintiffs further allege that Defendants failed to
“[e]valuate the borrower for all loss mitigation options available to the borrower” and “[p]rovide
the borrower with a notice in writing stating . . . which loss mitigation options, if any, it will
offer to the borrower on behalf of the owner or assignee of the mortgage” under 12 C.F.R. §
1024.41(b)-(j). This count actually asserts two different claims.
“The elements of a negligence claim are a duty, a breach of that duty, causation, and
damage.” Armstrong Bus. Servs., Inc. v. AmSouth Bank, 817 So.2d 665, 679 (Ala. 2001).
Wantonness is not just a higher level of negligence, but involves “the conscious doing of some
act or the omission of some duty while knowing of the existing conditions and being conscious
that, from doing or omitting to do an act, injury will likely or probably result.” Ex parte Essary,
992 So. 2d 5, 9 (Ala. 2007) (emphasis in original).
Plaintiffs’ negligence and wantonness claims fail as a matter of law based on the
allegations of Plaintiffs’ Amended Complaint. The allegations of the Amended Complaint
establish that Defendants indeed fulfilled their obligations to evaluate Plaintiffs for a
modification, and in fact offered Plaintiffs a modification, but Plaintiffs failed to fulfill the
requirements to properly accept that modification. In their Amended Complaint, Plaintiffs have
identified no legal duty with which Defendants failed to comply.

Thus, there is no valid

negligence claim here.
Moreover, “federal courts applying Alabama law have repeatedly rejected attempts to
assert wantonness claims based on a lender’s actions handling and servicing a mortgage once the

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mortgage is executed.” U.S. Bank Nat. Ass’n v. Shepherd, 2015 WL 7356384, at *12 (Ala. Nov.
20, 2015) (citing James v. Nationstar Mortgage, LLC, 92 F.Supp.3d 1190, 1198-1200 (S.D. Ala.
2015)). Therefore, Plaintiffs’ negligence and wantonness claims asserted in Count One of their
Amended Complaint is due to be dismissed.
B.

Count Two - Breach of Contractual Obligations of Good Faith and Fair
Dealing

Count II of Plaintiffs’ Amended Complaint alleges that Defendants had “a contractual
duty to act in good faith and to deal fairly with [them] with regard to the note and mortgage,” and
that Defendants breached this duty by allegedly failing to honor to the terms of the Note,
Mortgage and/or Loan Modification Agreement. (Doc. # 11¶¶ 107-112).
Alabama recognizes that every contract carries an implied obligation of good faith and
fair dealing, which has been defined as “an implied covenant that neither party shall do anything
which will have the effect of destroying or injuring the rights of the other party to receive the
fruits of the contract.” Lloyd Noland Found., Inc. v. City of Fairfield Healthcare Auth., 837 So.
2d 253, 267 (Ala. 2002) (quoting Seller v. Head, 261 Ala. 212, 217, 73 So.2d 747, 751 (1954)).
“The parameters of this claim have not been well defined.

However, it is clear that the

obligation is not actionable unless the breach of that duty can be tied to the performance of a
specific term of the contract.” Shedd v. Wells Fargo Home Mortgage, Inc., 2015 WL 6479537
*5 (S.D. Ala. Oct. 26, 2015) (citing Lake Martin/Alabama Power Licensee Assoc. v. Alabama
Power Co., Inc., 601 So. 2d 942, 945 (Ala. 1992) (emphasis added). More specifically, Alabama
courts have recognized the duty of good faith and fair dealing when “the contract fails to specify
all the duties and obligations intended to be assumed.” Lloyd Noland Found., 837 So.2d at 267.
In those instances, “the law will imply an agreement to do those things that according to reason

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and justice the parties should do in order to carry out the purpose for which the contract was
made.” Id.
In Count Two of their Amended Complaint, Plaintiffs set forth no factual allegations to
support their conclusory contention that Defendants failed to act in good faith and deal fairly
with Plaintiffs. (Doc. # 11 && 106-112). Plaintiffs have made a bald assertion that Defendants
made it impossible for Plaintiffs to perform on their mortgage contract. (Doc. # 11 & 110; Doc.
# 18 p.16). However, they have failed to point to any allegation that would tie their claim to any
specific contractual term obligating Defendants in any way. Plaintiffs admit they were behind on
their mortgage. They were offered a loan modification but, according to their own allegations,
they failed to comply with the conditions necessary to accept that modification. At best, the
factual allegations of Count Two merely assert that Defendants took certain actions that they
were entitled to take under the contractual documents at issue. Because Plaintiffs’ Amended
Complaint does not allege a breach of duty related to any specific contractual term, their claim
for breach of implied duty of good faith and fair dealing is due to be dismissed. See Shedd, 2015
WL 6479537 at *5.
C.

Count Three - Breach of Contract

In Count III of their Complaint, Plaintiffs allege that Defendants breached the parties’
agreement by failing to “comply with essential terms of paragraph 2 [of the Mortgage] regarding
the application of payment and the notice requirements of paragraph 21 [of the Mortgage].”
(Doc. # 11 ¶ 114). Plaintiffs further allege that Defendants failed to properly apply payments
and assessed improper fees and expenses. However, Plaintiffs’ conclusory allegations fail to
identify or describe the misapplied payments, what fees or expenses were improperly assessed,
and the contractual obligations requiring Defendants to accept the payments or prohibiting them

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from assessing the fees. (Doc. # 11 ¶¶ 116-118). Plaintiffs were undisputedly in default on their
loan and undisputedly failed to perform the actions necessary to accept the offered loan
modification. (Doc. # 11 && 29-34).
Additionally, Plaintiffs’ admitted default entitled Defendants to enforce certain rights
under the Note, including charging late fees and requiring the payment of the full amount of
unpaid principal. (Doc. # 16-1 at 2-3). Furthermore, although Plaintiffs have made conclusory
allegations that the Notice of Acceleration was not in compliance with the terms of the
Mortgage, a review of the Notice of Acceleration (Doc. # 16-1 at 30-31) reveals that all of the
conditions Plaintiffs allege were violated were in fact met.

The parties had previously

corresponded regarding a loan modification. Plaintiffs were approved for the loan modification
and were offered the loan modification, but Plaintiffs did not fulfill all of the conditions of
acceptance. Plaintiffs may have intended to accept the loan modification; but did not comply
with all applicable prerequisites. (Doc. # 11 && 29-34).
Plaintiffs’ Amended Complaint simply fails to identify any plausible breach by
Defendants of an enforceable contractual term. Therefore, Plaintiffs’ breach of contract claim is
due to be dismissed.
D.

Count Four - Violation of 12 C.F.R. § 1024.41(f)

Plaintiffs allege that Defendants violated 12 C.F.R. § 1024.41(f) by proceeding with
foreclosure activities when Plaintiffs had submitted a loss mitigation application. (Doc. # 11 &&
132-141).
Title 12 C.F.R. § 1024.41(f) provides as follows:
(f) Prohibition on foreclosure referral.
(1) Pre-foreclosure review period. A servicer shall not make the first notice or
filing required by applicable law for any judicial or non-judicial foreclosure
process unless:
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(i) A borrower’s mortgage loan obligation is more than 120 days delinquent;
(ii) The foreclosure is based on a borrower’s violation of a due-on-sale clause; or
(iii) The servicer is joining the foreclosure action of a subordinate lienholder.
(2) Application received before foreclosure referral. If a borrower submits a
complete loss mitigation application during the pre-foreclosure review period set
forth in paragraph (f)(1) of this section or before a servicer has made the first
notice or filing required by applicable law for any judicial or non-judicial
foreclosure process, a servicer shall not make the first notice or filing required by
applicable law for any judicial or non-judicial foreclosure process unless:
(i) The servicer has sent the borrower a notice pursuant to paragraph (c)(1)(ii) of
this section that the borrower is not eligible for any loss mitigation option and the
appeal process in paragraph (h) of this section is not applicable, the borrower has
not requested an appeal within the applicable time period for requesting an
appeal, or the borrower’s appeal has been denied;
(ii) The borrower rejects all loss mitigation options offered by the servicer; or
(iii) The borrower fails to perform under an agreement on a loss mitigation option.
12 C.F.R. § 1024.41
The applicable regulation requires a servicer to accept and process one complete loss
mitigation application. 12 C.F.R. § 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.”). See Mortgage Servicing Rules Under the Real Estate Settlement
Procedures Act (Regulation X), 78 Fed. Reg. 10696-01, 10836 (Feb. 14, 2013) (“The [Consumer
Financial Protection] Bureau believes that it is appropriate to limit the requirements in § 1024.41
to a review of a single complete loss mitigation application. Specifically, the Bureau believes
that a limitation ... to a single complete loss mitigation application provides appropriate
incentives for borrowers to submit all appropriate information in the application ....”).
Although Plaintiffs allege in Count Four that “they had not rejected an offer nor failed to
comply with the terms of an agreement,” the allegations of their own Amended Complaint

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establish that Defendants accepted and processed Plaintiffs’ loss mitigation application and
offered Plaintiffs a modification, but that Plaintiffs failed to comply with the instructions on how
to properly accept the loan modification. In particular, Plaintiffs were instructed to “return 2
copies” of the Modification Agreement and “return 1 copy” of the Cover page. As to the
Modification Agreement, the instructions further directed Plaintiffs to return “two signed and
notarized copies to us along with a certified check or money order for the required $6,000.00
down payment and the first modified payment of $1,046.70 due for March 1, 2015 in the prepaid envelope.” (Doc. # 11 at && 29-35; Doc. # 16-1 at 25)). Plaintiffs allege that they
“executed the Loan Modification Agreement … [and] returned the agreement to MGS next day
air via FedEx.” (Doc. # 11 at & 34). Nowhere do Plaintiffs allege that they complied with the
other instructions to accept the Loan Modification, including making the required payments.
Under 12 C.F.R. § 1024.41, a servicer is prohibited from proceeding with a foreclosure
sale until the servicer either (a) notifies the borrower of its decision regarding loss mitigation
options, (b) the borrower rejects all loss mitigation options offered, or (c) the borrower fails to
perform under an agreement on a loss mitigation option. Ramos v. Wells Fargo Bank, N.A., 2016
WL 233142 *4 (S.D. Fla. Jan. 13, 2016); Lage v. Ocean Loan Servicing LLC, 2015 WL 7294854
(S.D. Fla. Nov. 19, 2015) (citing 12 C.F.R. § 1024.41(g)). The loan modification closing
instructions required Plaintiffs to do more than return an executed copy of the Loan Modification
agreement. The instructions required them to return “two signed and notarized copies to us along
with a certified check or money order for the required $6,000.00 down payment and the first
modified payment of $1,046.70 due for March 1, 2015 in the pre-paid envelope” within 14 days
of receipt. (Doc. # 11 at && 29-35; Doc. # 16-1 at 25) (emphasis added). Plaintiffs did not send
the $6,000 down payment, nor did they make the first payment by March 1, 2015. (That

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payment was not received until March 23, 2015. (Doc. # 16-1 at 40)). By failing to comply with
all of the instructions to accept the loan modification, Plaintiffs failed to accept Defendants’ loan
modification agreement. At that point, Defendants had fulfilled all obligations under 12 C.F.R. §
1024.41.1
For all these reasons, Plaintiffs’ claim alleging a violation of 12 C.F.R. § 1024.41(f) is
due to be dismissed.
E.

Count Five - Violation of 12 C.F.R. § 1024.41(c)

Title 12 C.F.R. § 1024.41(c), provides: “[i]f a servicer receives a complete loss mitigation
application ... within 30 days of receiving a borrower’s complete loss mitigation application, a
servicer shall: (a) [e]valuate the borrower for all loss mitigation options available to the
borrower; and (b) [p]rovide the borrower with a notice in writing stating the servicer’s
determination of which loss mitigation options, if any, it will offer to the borrower on behalf of
the owner or assignee of the mortgage[.]” Ramos, 2016 WL 233142, at *4.
Count Five of Plaintiffs’ Complaint alleges that Defendants violated 12 C.F.R. §
1024.41(c) because they “wholly failed to evaluate the borrower for all loss mitigation options
available and provide written notice to the borrower stating which loss mitigation options, if any,
it will offer to the borrower … .” (Doc. # 11 ¶ 149). For reasons similar to those already
addressed, however, this allegation is belied not only by the allegations of the Amended
Complaint which establish that Defendants evaluated Plaintiffs for loss mitigation and offered a
loan modification (Doc. # 11 ¶¶ 24 - 31), but also by the correspondence to Plaintiffs offering the

1

In addition, the court questions whether Plaintiffs’ claim under 12 C.F.R. § 1024.41(f) is ripe. See
Simmons v. Wells Fargo Bank, N.A., 2015 WL 4759441 *4 (D. N.H. Aug. 11, 2015) (citing Wenegieme v. Bayview
Loan Servicing, 2015 WL 2151822 *2 n. 3 (S.D. N.Y. May 7, 2015)). In Wenegieme, the plaintiffs asserted a claim
that the defendants were liable to them for violating 12 C.F.R. § 1024.41(f). Wenegieme, 2015 WL 2151822 at *2.
The court dismissed that claim on grounds that a § 1024.41(f) claim does not become ripe until the plaintiff has lost
his or her property to foreclosure. Id; see also 2015 WL 4759441 at *4.

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loan modification (Doc. # 16-1 at 25). Therefore, Count Five of Plaintiffs’ Amended Complaint
is due to be dismissed.
F.

Count Six - Violations of the Fair Debt Collection Practices Act 15 U.S.C. §
1692 et. seq.

Plaintiffs’ Amended Complaint contains two count Sixes.

The first Count Six of

Plaintiffs’ Amended Complaint utterly fails to state a claim. (Doc. # 11 ¶¶ 153-159). That count
sets forth the purpose for which 15 U.S.C. § 1692 was enacted (Doc. # 11 ¶¶ 153-155) and
makes the conclusory assertion that Defendants’ unspecified “acts or omissions … constitute
numerous and multiple violations” of the Federal Debt Collection Practices Act (“FDCPS”).
(Doc. # 11 ¶ 158). The problem here is that this Count Six is virtually devoid of any factual
allegations.

Pleadings that are based merely upon “labels and conclusions” or “naked

assertion[s]” without supporting factual allegations do not suffice to withstand a motion to
dismiss. Twombly, 550 U.S. at 555, 557.
Moreover, Congress enacted the FDCPA to “eliminate abusive debt collection practices
by debt collectors. . . .” 15 U.S.C. § 1692(e) (emphasis added). The FDCPA both requires and
forbids specific conduct by debt collectors. See, e.g., id. at §§ 1692g(a) (collector must provide
thirty-day notice to dispute debt), 1692e (prohibition of use of “false, deceptive, or misleading
representation or means in connection with” debt collection). To prevail on a FDCPA claim, a
plaintiff must show, among other things, that (1) Defendant is a “debt collector” and (2) the
challenged conduct is related to debt collection. Reese v. Ellis, Painter, Ratterree & Adams,
LLP, 678 F.3d 1211, 1216 (11th Cir. 2012).
“A debt collector is anyone whose principal business is the collection of debts or the
enforcement of security instruments or anyone who regularly attempts to collect debts owed to
another.” Saint Vil v. Perimeter Mortgage Funding Corp., 630 F. App’x 928, 930 (11th Cir.
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2015) (citing 15 U.S.C. § 1692a(6)) (emphasis added). However, “an enforcer of a security
interest, such as [a mortgage company] foreclosing on mortgages of real property . . . falls
outside the ambit of the FDCPA except for the provisions of section 1692f(6).”2 Warren v.
Countrywide Home Loans, Inc., 342 Fed. Appx. 458, 460-61 (11th Cir. 2009) (per curiam)
(collecting cases); accord Ausar-El ex el. Small, Jr. v. BAC (Bank of America) Home Loans
Servicing LP, 448 Fed. Appx. 1, 1 (11th Cir. 2011) (per curiam) (“an enforcer of a security
interest only qualifies as a ‘debt collector’ for the purpose of § 1692f(6)”); see also Dunavant v.
Sirote & Permutt, P.C., 603 Fed. Appx. 737, 739-40 (11th Cir. 2015) (favorably discussing
Warren’s holding).
Moreover, and in any event, Defendant MGC assumed the mortgage debt in
approximately 2010 (Doc. # 11 & 19), years before instituting foreclosure proceedings, which
reasonably suggests that Defendants’ business is not primarily to collect debts but rather to
finance and service mortgages. Thus, Defendants are not a “debt collectors” as that term is
defined by the FDCPA.
Finally, the potential foreclosure of Plaintiffs’ home is not a “debt collection” for
purposes of the FDCPA. See Roberts v. Chase Home Fin., No. 12-1883, 2012 WL 2862033, at
*2 (N.D. Ala. July 11, 2012) (citing Warren, 342 Fed. Appx. at 460-61). “[I]f a person enforcing
a security interest is not a debt collector, it likewise is reasonable to conclude that enforcement of
a security instrument through the foreclosure process is not debt collection for purposes of the
[FDCPA].” Warren, 342 Fed. Appx. at 460.

2

Section 1692f(6) does not apply here. It prohibits “[t]aking or threatening to take any nonjudicial action
to effect dispossession or disablement of property if – (A) there is no present right to possession of the property
claimed as collateral through an enforceable security interest; (B) there is no present intention to take possession of
the property; or (C) the property is exempt by law from such dispossession or disablement.” 15 U.S.C. § 1692f(6).
Plaintiffs have not alleged a threat to take any nonjudicial action to effect dispossession or disablement of property.

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For all these reasons, the first Count Six of Plaintiffs’ Amended Complaint, alleging a
violation of 15 U.S.C. § 1692, is due to be dismissed.
G.

Count Six [sic] - Violation of 12 C.F.R. § 1024.35

The second Count Six contained in Plaintiffs’ Complaint asserts that, although
Defendants timely responded to Plaintiffs’ Notice of Error, they “failed to provide a meaningful
investigation of the errors to correct the errors.” (Doc. # 11 ¶¶ 162-165). Plaintiffs further allege
the conduct of MGC with regard to the notices of errors “constitutes a willful violation of the
applicable provisions of Regulation X.” (Doc. # 11 ¶ 165). Again, however, Plaintiffs have not
provided any factual detail to support these conclusory allegations. Thus, again, the allegations
of this count do not suffice to withstand a motion to dismiss. Twombly, 550 U.S. at 555, 557.
Moreover, Regulation X, codified at 12 C.F.R. § 1024, delineates procedures for
responding to a borrower’s Notice of Error. The regulations impose the following obligations
upon a servicer with respect to its response to a Notice of Error:
(e) Response to notice of error.
(1) Investigation and response requirements.
(i) In general[,] ... a servicer must respond to a notice of error by either:
(A) Correcting the error or errors identified by the borrower and providing the
borrower with a written notification of the correction, the effective date of the
correction, and contact information, including a telephone number, for further
assistance; or
(B) Conducting a reasonable investigation and providing the borrower with a
written notification that includes a statement that the servicer has determined that
no error occurred, a statement of the reason or reasons for this determination, a
statement of the borrower’s right to request documents relied upon by the servicer
in reaching its determination, information regarding how the borrower can request
such documents, and contact information, including a telephone number, for
further assistance.
12 C.F.R. § 1024.35(e) (emphasis added).

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Plaintiffs’ counsel’s Notice of Error reported as follows:
On February 22, 2015 the Duncans executed and timely returned (via FedEx) a
loan modification agreement to MGC Mortgage, Inc., which modified the UPB to
$79,534.02 making the first payment of $867.25 due the first day of March 2015.
The March 16, 2015 statement clearly acknowledged receipt of the modification
and noted “You accepted a Modification. Please refer to your documentation.” In
accordance with the modification, the Duncans made their March payment in the
amount of $867.25. However, on March 23, 2015 MGC Mortgager, Inc. [sic]
wrongfully returned the check indicating the account had been referred to Sirote
for foreclosure. When the Duncans contacted Sirote they were advised the file
was closed on December 26, 2014 because of the acceptance of a loan
modification. Then on March 30, 2015 MGC Mortgage, Inc. wrote the Duncans
wrongfully advising them the modification was denied because they did not
accept the modification within the required timeframe.
(Doc. # 11 at & 52; Doc. # 16-1 at 35-36).
Defendants appropriately acknowledged the Notice of Error and provided a substantive
response to the Notice within thirty days. (Doc. # 16-1 at 40-94). That response indicated, as is
otherwise established by the allegations of Plaintiffs’ own Amended Complaint, that although
Plaintiffs “were approved for a loan modification in February 2015,” Defendants “did not receive
the signed cover letter [] or the $6,000 required down payment,” and that “the first payment,
which was due on March 1, 2015, was not received until March 23, 2015.” (Doc. # 16-1 at 40).
Defendants fully complied with their obligations under 12 C.F.R. § 1024.35 in response to
Plaintiffs’ Notice of Error. Therefore, the second Count Six of Plaintiffs’ Amended Complaint,
alleging a violation of 12 C.F.R. § 1024.35, is due to be dismissed.
H.

Count Seven - Declaratory and Injunctive Relief

To state a valid claim for injunctive relief, a plaintiff must show: “(1) that he has
prevailed in establishing the violation of the right asserted in his complaint; (2) there is no
adequate remedy at law for the violation of this right; (3) irreparable harm will result if the court
does not order injunctive relief; and (4) if issued, the injunction would not be adverse to the
public interest.” Thomas v. Bryant, 614 F.3d 1288, 1317 (11th Cir. 2010).
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To establish any right to declaratory and injunctive relief, a plaintiff must establish that
he has “prevailed in establishing the violation of the right asserted in his complaint.” The only
rights which Plaintiffs contend were violated arose in connection with other claims in Plaintiffs’
Amended Complaint. For the reasons discussed above, all of those other claims are due to be
dismissed. Therefore, it follows that Plaintiffs’ claim for declaratory and injunctive relief is
likewise due to be dismissed.
IV.

Conclusion
For the foregoing reasons, all of the claims in Plaintiffs’ Amended Complaint are due to

be dismissed. A separate order will be entered.
DONE and ORDERED this May 23, 2016.

_________________________________
R. DAVID PROCTOR
UNITED STATES DISTRICT JUDGE

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