Griffin v. US Bank National Association et al
Filing
121
MEMORANDUM Opinion and Order. Defendants' partial motion to dismiss plaintiff's first amended complaint 113 is granted in part and denied in part. Plaintiff may proceed on Count III; Count IV is dismissed without prejudice. Signed by the Honorable Jorge L. Alonso on 4/4/2018. Notices mailed by judge's staff (ntf, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
JONATHAN J. GRIFFIN,
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Plaintiff,
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v.
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U.S. BANK NATIONAL ASSOCIATION, )
et al.,
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Defendants.
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Case No. 15 CV 6871
Judge Jorge L. Alonso
MEMORANDUM OPINION AND ORDER
Defendants Ocwen Loan Servicing, LLC (“Ocwen”) and U.S. Bank, National Association,
as Trustee for TBW Mortgage-Backed Trust Series 2007-2, TBW Mortgage Pass Through
Certificates Series 2006-A35 (“U.S. Bank”) have filed a partial motion to dismiss plaintiff’s first
amended complaint. For the reasons set forth below, the motion [113] is granted in part and
denied in part.
BACKGROUND
In July 2007, plaintiff Jonathan Griffin executed a 30-year Mortgage Loan and Note for
$114,750.00 with Taylor Bean & Whitaker Mortgage Corp for certain property1 located in
Chicago, Illinois. (Am. Compl. ¶ 31, Exhibit A, ECF No. 99.) Beginning in November 2012,
plaintiff fell behind on his mortgage payments because his tenants were late in their payments.
(Am. Compl. ¶ 32.)
On March 3, 2013, defendant Ocwen Loan Servicing (“Ocwen”) acquired the servicing
rights for plaintiff’s loan. (Id. ¶ 33.) On August 27, 2013, U.S. Bank filed a foreclosure action
against the property and plaintiff. (Id. ¶ 34.) On March 6, 2015, plaintiff applied for a Loan
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The property was not plaintiff’s homestead property. (Am. Compl., Exhibit B, ECF No. 99-2.)
Modification from Ocwen. (Id. ¶ 35.) On April 24, 2015, Ocwen sent plaintiff a proposed Loan
Modification Agreement, which laid out certain terms. (Id. ¶ 36, Exhibit C.) On May 13, 2015,
plaintiff signed the Loan Modification Agreement and sent it to Ocwen. (Id. ¶ 40.) Plaintiff made
payments for the months of June and August 2015 under the Loan Modification Agreement. (Id.
¶¶ 50, 59.) On August 4, 2015, plaintiff received the countersigned Loan Modification
Agreement from Ocwen, which Ocwen had signed and dated on July 24, 2015. (Id. ¶¶ 40, 60.)
STANDARD
To survive a motion to dismiss pursuant to Rule 12(b)(6), a pleading that purports to
state a claim for relief must “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim
satisfies this standard when its factual allegations “raise a right to relief above the speculative
level.” Twombly, 550 U.S. at 555-56; see also Swanson v. Citibank, N.A., 614 F.3d 400, 404 (7th
Cir. 2010) (“[P]laintiff must give enough details about the subject-matter of the case to present a
story that holds together.”). For purposes of a motion to dismiss, the Court accepts “as true all of
the well-pleaded facts in the complaint and draw all reasonable inferences in favor of the
plaintiff.” Platt v. Brown, 872 F.3d 848, 851 (7th Cir. 2017). When ruling on a Rule 12(b)(6)
motion, the court considers “the complaint itself, documents attached to the complaint,
documents that are critical to the complaint and referred to in it, and information that is subject to
proper judicial notice.” Cohen v. Am. Sec. Ins. Co., 735 F.3d 601, 604 (7th Cir. 2013) (citing
Geinosky v. City of Chicago, 675 F.3d 743, 745-46 n. 1 (7th Cir. 2012)).
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DISCUSSION
Count III - Breach of Contract
In plaintiff’s initial complaint, he generally alleged that defendants breached the Loan
Modification Agreement by collecting unauthorized fees and costs. Defendants moved to dismiss
the breach of contract claim, arguing that plaintiff had failed to state a plausible claim for relief.
In its prior order, the Court found that plaintiff insufficiently pled a breach of contract claim,
dismissed the claim, and gave plaintiff an opportunity to amend his complaint. (See ECF No.
85.) Plaintiff filed an amended complaint, in which he specified that defendants breached the
Note and Mortgage “by charging and colleting property inspection fees, and BPO that were not
permitted by the mortgage and note.” (Am. Compl. ¶ 97, ECF No. 99.)
Defendants again move to dismiss, arguing that plaintiff has failed to plausibly allege a
breach of contract claim because he did not include specific facts indicating exactly how
defendants breached the contract. Plaintiff responds that the key difference between the initial
complaint and the amended complaint is plaintiff’s allegation that defendants breached the Note
and Mortgage by improperly charging and collecting property inspection fees. Plaintiff also
includes in the amended complaint the actual dollar amount charged by defendants for the
inspection fees and alleges that the fees were improper because the inspections were never
conducted. Because plaintiff’s allegations are accepted as true in a motion to dismiss, plaintiff’s
allegation that the fees were for charges never incurred is sufficient to state a claim for breach of
contract. Chatman v. Fairbanks Capital Corp., No. 02 C 665, 2002 WL 1338492, at *4 (N.D. Ill.
June 18, 2002) (denying defendant’s motion to dismiss for failure to state a claim for a breach of
contract claim alleging defendant improperly collected property preservation fees). Furthermore,
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whether defendants actually incurred the property inspection fees is a factual issue that is more
appropriate for summary judgment. Id.
Defendants next argue that plaintiff is unable to state a claim because he previously
defaulted on his loan and therefore materially breached the contract. To support this argument,
defendants cite Fireman’s Fund Mortg. Corp. v. Zollicoffer, 719 F. Supp. 650 (N.D. Ill. 1989),
where the court found that the plaintiffs, who made the first two payments under their Note and
Mortgage and were 33 payments in arrears, materially breached their Note and Mortgage. 719 F.
Supp. 655-656. After the plaintiffs missed several payments, the defendants accelerated the loan,
took action to secure the premises, and filed a complaint to foreclose on the loan. Id. at 655. The
court found that the plaintiffs’ material breach of the loan precluded the plaintiffs from seeking
recovery for any subsequent breach by the lender and, therefore, granted summary judgment in
favor of defendants. Id. at 657. The facts and procedural posture of Zollicofer are distinguishable
from this case. Here, the limited facts before the Court show that plaintiff missed two payments
on his Note and Mortgage, U.S. Bank filed a foreclosure action, plaintiff applied for a Loan
Modification Agreement, and plaintiff later entered into a Loan Modification Agreement with
Ocwen. It is too early at this stage to determine whether plaintiff’s missed payments constitute a
material breach under the Note and Mortgage that completely precludes him from alleging a
breach of contract claim. Furthermore, the Seventh Circuit has rejected an argument similar to
the one brought by defendants—that any failure by a borrower to perform under the contract
precludes a borrower from bringing a breach of contract claim against a lender. See Catalan v.
GMAC Mortg. Corp., 629 F.3d 676, 692 (7th Cir. 2011). Accordingly, the Court finds that
plaintiff has plausibly alleged a breach of contract claim, and defendant’s motion to dismiss
plaintiff’s breach of contract claim is denied.
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Count IV - Truth in Lending Act
Plaintiff next alleges that Ocwen violated the Truth in Lending Act (“TILA”). TILA, 15
U.S.C. § 1601, et seq., and its implementing Regulation Z, 12 C.F.R. § 226, et seq., “require that
certain material disclosures be made to a consumer seeking an extension of credit secured by real
property.” Drake v. Ocwen Fin. Corp., No. 09-C-6114, 2010 WL 1910337, at *7 (N.D. Ill. May
6, 2010). Regulation Z’s purpose “is to promote the informed use of consumer credit by
requiring disclosures about its terms and cost.” 12 C.F.R. § 226.1.
Plaintiff contends that Ocwen violated TILA by failing to comply with 12 C.F.R. §
226.18(h) (requiring a creditor to make the necessary disclosures), 12 C.F.R. § 226.20(a)(4)
(requiring disclosures for the consumer upon a refinancing), and 12 C.F.R. § 1026.20(c)
(requiring a creditor or servicer to provide consumers disclosures “in connection with the
adjustment of interest rates pursuant to the loan contract that results in a corresponding
adjustment to the payment.”). Plaintiff says that Ocwen’s violations were intentional, deliberate,
and caused confusion. The Court will address each allegation in turn.
a) Violation of 12 C.F.R. § 226.18(h) - creditor failing to provide disclosures
Plaintiff contends that Ocwen violated TILA because, as a creditor, it failed to provide the
necessary disclosures required under § 226.18(h). Ocwen responds that it was not required to
comply with the disclosure requirements under TILA because it is a loan servicer, not a creditor.
Plaintiff says that it is not clear whether Ocwen is a servicer or a creditor because the Loan
Modification Agreement required plaintiff to pay Ocwen in more than four installments, which is
an attribute of a creditor under 15 U.S.C. § 1602(g).
Only creditors are bound by the disclosure requirements under § 226.18(h) of TILA. See
12 C.F.R. § 226.18(h). Under TILA, a “creditor” is defined as “a person who both (1) regularly
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extends, whether in connection with loans, sales of property, or otherwise, consumer credit
which is payable by agreement in more than four installments or for which the payment of a
finance charge is or may be required, and (2) is the person to whom the debt arising from the
consumer credit transaction is initially payable on the fact of the indebtedness.” 15 U.S.C. §
1602(g). Absent an ownership interest in the loan, a loan servicer cannot be held liable under
TILA. See Iroanyah v. Bank of Am., 753 F.3d 686, 688 n.2 (7th Cir. 2014) (noting that a loan
servicer is not the originator or assignee of a loan and therefore cannot be liable for damages
under TILA); Horton v. Country Mortg. Servs., No. 07-CV-6530, 2010 WL 55902, at *3 (N.D.
Ill. Jan. 4, 2010) (“Only creditors and assignees can be liable under TILA.”). The term
“servicer,” means “the person responsible for servicing a loan . . . .” 15 U.S.C.A. § 1602 (cc)(7)
(definition adopted from 12 U.S.C.A. § 2605 (i)(2)). Section 2605 (i)(2) goes on to define
“servicing” as meaning “receiving periodic payments from a borrower.” 12 U.S.C.A. § 2605
(i)(3).
In the amended complaint, plaintiff refers to Ocwen as a “servicer,” but never as a
creditor. (See Am. Compl. ¶¶ 6, 33, ECF No. 99.) Furthermore, plaintiff fails to allege that
Ocwen has any ownership interest in the loan. Plaintiff contends that whether Ocwen is a
creditor is unclear because the loan modification agreement was payable in more than four
installation payments. However, the adopted definition of a “servicer” under TILA includes
receiving periodic payments. Based on the allegations in plaintiff’s amended complaint, Ocwen
appears to be a loan servicer, not a creditor.
b) Violation of 12 C.F.R. § 226.20(a)(4) - requiring disclosures upon a refinancing
Plaintiff contends that Ocwen was required to provide disclosures pursuant to 12 C.F.R. §
226.20(a)(4) because the Loan Modification Agreement qualifies as a refinancing. Ocwen
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opposes application of § 226.20(a)(4), arguing that loan modifications do not qualify as a
refinancing triggering such obligations.
Disclosures are required when a loan is refinanced. 12 C.F.R. §226.20(a). The relevant
section of Regulation Z states that, “A refinancing occurs when an existing obligation that was
subject to this subpart is satisfied and replaced by a new obligation undertaken by the same
consumer.” Id. The section further identifies instances that shall not be treated as a refinancing,
including “[A] change in the payment schedule or a change in collateral requirements as a result
of the consumer’s default or delinquency, unless the rate is increased, or the new amount
financed exceeds the unpaid balance plus earned finance charge and premiums for continuation
of insurance of the types described in § 226.4(d).” Id. (emphasis added).
Plaintiff contends that because his Note had a balance of $114,750.00 and his Loan
Modification Agreement had a balance of $139,598.43, he qualifies for this exception and thus
the loan modification should be treated as a refinancing. Ocwen responds that in order to qualify
for the exception, the loan modification must first meet the basic definition of a refinancing,
which it does not.
The Seventh Circuit has adopted a statement from the Official Staff Commentary to 12
C.F.R. § 226.20(a) to define what constitutes a refinancing. See Jackson v. Am. Loan Co., 202
F.3d 911, 913 (7th Cir. 2000). The Commentary says that “[c]hanges in the terms of an existing
obligation, such as the deferral of individual installments, will not constitute a refinancing unless
accomplished by the cancellation of that obligation and the substitution of a new obligation.” See
Jackson v. Am. Loan Co., 202 F.3d 911, 912-13 (7th Cir. 2000) (citing 12 C.F.R. Pt. 226, Supp.
I, p. 399). Appling this rule, courts have found that a loan modification does not constitute a
refinancing since it does not cancel the existing obligation. See e.g. Drake, 2010 WL 1910337, at
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*7 (holding that a loan modification does not constitute a refinancing); CitiMortgage, Inc. v.
Bukowski, 2015 IL App (1st) 140780, ¶ 21 (finding that TILA does not apply to loan
modifications).
In Drake, the court considered whether a loan modification constituted a refinancing.
Drake, 2010 WL 1910337, at *8. The modification agreement at issue included a paragraph that
stated that the covenants and agreements from the original note and mortgage remained in full
force and effect and that none of the obligations under the original note and mortgage were
diminished or released as a result of the loan modification. Id. In that case, the court held that it
was clear that the modification did not replace the existing obligation and replace it with a new
one such that the loan modification did not constitute a refinancing. Id. at *9.
Similar to Drake, plaintiff entered into a Loan Modification Agreement with Ocwen.
Plaintiff contends that, per the agreement, the terms of his mortgage did not stay the same
because there were additional fees added to the principal balance and the interest rate was
changed to become an adjustable rate. However, just as in Drake, plaintiff’s Loan Modification
states, “Nothing in this agreement will be understood or construed to be a satisfaction or release
in whole or in part of your Note and Mortgage.” (Am. Compl., Exhibit C, ECF No. 99-3.) Given
this, the terms of the original note and mortgage were not cancelled and replaced by the Loan
Modification Agreement. Accordingly, the modification did not trigger 12 C.F.R. §
226.20(a)(4)’s disclosure obligations.
c) Violation of 12 C.F.R. § 1026.20(c) - requiring disclosures for an adjustable rate
mortgage
Plaintiff contends that Ocwen violated TILA’s requirement that servicers of adjustable
rate mortgages provide certain disclosures to consumers. Ocwen states that the only adjustable
rate mortgages for which disclosures are required are those for homestead properties. Because
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the property in question is not plaintiff’s homestead, Ocwen argues it was not required to provide
the additional disclosures under 12 C.F.R. § 1026.20(c).
Section 1026.20(c) defines an adjustable rate mortgage as, “a closed-end consumer credit
transaction secured by the consumer’s principal dwelling in which the annual percentage rate
may increase after consummation.” 12 C.F.R. § 1026.20(c)(1)(i) (emphasis added). In arguing
that the property is not plaintiff’s homestead, Ocwen points to the amended complaint where
plaintiff states that he leased the property to tenants. While this suggests that the property was
not plaintiff’s principal dwelling, having renters does not necessarily mean that plaintiff was not
also living there. Nonetheless, plaintiff’s original mortgage document states, “this is not a
homestead property as to said buyer.” (Am. Compl, Exhibit B, ECF No. 99-2.) Further,
paragraph 24 of the mortgage states that borrower, plaintiff, waives all rights under the Illinois
homestead exemption laws, showing that the property was not plaintiff’s principal dwelling. Id.
Thus, although the mortgage was an adjustable rate mortgage, the mortgage does not appear to
be secured by the consumer’s principal dwelling. As such, Ocwen would have no obligation to
provide the additional disclosures under 12 C.F.R. § 1026.20(c).
Accordingly, plaintiff has failed to plausibly allege a TILA claim. The claim is dismissed
without prejudice.
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CONCLUSION
For these reasons, defendants’ partial motion to dismiss plaintiff’s first amended
complaint is granted in part and denied in part. Plaintiff may proceed on Count III; Count IV is
dismissed without prejudice.
SO ORDERED.
ENTERED: April 4, 2018
______________________
HON. JORGE ALONSO
United States District Judge
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