Michael v. CitiMortgage, Inc. et al

Filing 55

MEMORANDUM Opinion and Order Signed by the Honorable Amy J. St. Eve on 4/3/2017:Mailed notice(kef, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
Susan Michael, on behalf of herself and
on behalf of all other similarly situated,
Plaintiff,
v.
CitiMortgage, Inc. and Safeguard
Properties Management, LLC,
Defendants.

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Case No. 16-CV-07238
Hon. Amy St. Eve

MEMORANDUM OPINION AND ORDER
AMY J. ST. EVE, District Court Judge:
On August 10, 2016, Plaintiff Susan Michael brought the present Complaint against
Defendants CitiMortgage, Inc. (“CitiMortgage”) and Safeguard Properties Management, LLC
(“Safeguard”), collectively, “Defendants,” alleging violations of the Racketeer Influenced and
Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961(c)-(d), violations of the Fair Debt
Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692, et seq., and violations of Illinois law,
including breach of contract, fraud, and violations of the Illinois Consumer Fraud and Deceptive
Practices Act (“ICFA”), 815 ILCS §505/2 et seq. Both CitiMortgage and Safeguard moved to
dismiss Plaintiff’s Complaint for failure to state a claim pursuant to Federal Rule of Civil
Procedure 12(b)(6). CitiMortgage, alternatively, moved to strike the class allegations. For the
following reasons, the Court grants Defendants’ motions to dismiss.
BACKGROUND
Plaintiff is a homeowner residing in the Village of Lake Bluff in the Northern District of
Illinois. (R. 10, Second Am. Compl. ¶ 13.) Defendant CitiMortgage, the mortgage lending

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group of Citigroup, Inc., is a corporation organized under the laws of the State of New York with
its principal place of business in O’Fallon, Missouri. (Id. ¶ 14.) Defendant Safeguard is a
mortgage field services vendor headquartered in Valley View, Ohio and organized under the
laws of the State of Ohio. (Id. ¶ 15.) Defendants administered and serviced Plaintiff’s mortgage.
(Id. ¶ 1.)
Plaintiff alleges that CitiMortgage delegates default-related services, primarily property
inspections, to its vendor Safeguard. (Id. ¶ 16.) Safeguard conducts default-related property
inspections on the majority of CitiMortgage’s loan portfolio, including on Plaintiff’s home. (Id.
¶ 16.) Plaintiff alleges that CitiMortgage uses computer software programs to administer and
manage its mortgage loans, including to order default-related inspections of Plaintiff’s home and
the homes of others in the proposed class. (Id. ¶ 17.) Safeguard uses a compatible computer
program to generate default-related work order updates and invoices, which Plaintiff alleges are
not made available to borrowers. (Id. ¶ 18.) Plaintiff claims that CitiMortgage’s loans are
automatically managed by its computer program in accordance with predetermined guidelines.
(Id. ¶ 19.) If a loan in the system is past due, for example, the computer program will
automatically schedule a “drive-by” property inspection. (Id.) After the program receives a work
order update that the inspector has completed the property inspection, the program automatically
charges a fee to the borrower, which is reflected in the monthly mortgage statement mailed to the
borrower. (Id. ¶ 20.) Plaintiff alleges that CitiMortgage’s system is programmed to order
default-related property inspections at predetermined intervals. (Id. ¶ 21.)
In addition, Plaintiff claims that her deed of trust (“Security Instrument”) and promissory
note (“Note”) govern the actions CitiMortgage may take pursuant to her mortgage contract. (Id.
¶ 22-23.) Plaintiff’s Security Instrument provides as follows:

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If Borrower fails to perform the covenants and agreements contained in this Security
Instrument, Lender may do and pay for whatever is reasonable or appropriate to protect
Lender’s interest in the Propery[.] . . Lender may charge Borrower for services
performed in connection with Borrower’s default, including, but not limited to, attorneys’
fees, property inspections and valuation fees.
(Id. ¶ 24.) The Security Instrument provides that any service fees assessed by the lender shall
become additional debt and shall bear interest at the Note rate from the date of disbursement.
(Id. ¶ 26.) Plaintiff alleges that paragraph 9 of the mortgage contract does not permit inspection
fees to be charged to borrowers’ accounts for unnecessary1 or unreasonable inspections. (Id. ¶
27.)
According to Plaintiff, Defendants unlawfully assessed service fees for unreasonable
default-triggered inspections,2 which consisted of inspectors quickly driving past the property or
up an adjoining driveway. (Id. ¶¶ 28-29.) Plaintiff further alleges that these unnecessary
inspections were intended to charge default-related service fees as often as possible to as many
accounts as possible. (Id. ¶ 29.) Plaintiff claims that Defendants concealed and “camouflaged”
the property inspection fees by failing to provide sufficient information on borrowers’ mortgage
statements to determine whether the inspections were reasonable and necessary. (Id. ¶ 30.)
Plaintiff further claims that Defendants “implicitly represent[ed] that the inspection fees were
reasonable and necessary” and were consistent with the mortgage contract, which was false and
misleading. (Id. ¶ 71.)
Plaintiff also asserts that Defendants’ policy of conducting unnecessary inspections is
contrary to the guidelines in the U.S. Department of Housing and Urban Development (“HUD”)

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Plaintiff admits that she erroneously alleged that Defendants’ inspections were “unnecessary,” even
though Plaintiff’s mortgage contract only requires that the inspections be reasonable. (R. 47, Pl.’s Resp.
to Defs.’ Mot. to Dismiss 18.)
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Plaintiff does not allege that she actually paid any of the service fees.
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Handbook,3 which require that a lender attempt to contact the borrower when a mortgage
becomes delinquent to determine if the property is vacant or abandoned. (Id. ¶¶ 31-32.) The
HUD guidelines state that when a property is occupied, a lender can conduct inspections if
within the past 30 days: (1) there have been no mortgage payments; (2) the lender has been
unable to contact the borrower to determine occupancy status; and (3) there is an increased risk
of abandonment of the property. (Id. ¶ 33.) Defendants conducted inspections regardless of
whether there had been mortgage payments in the preceding 30 days and irrespective of the
occupancy status of the home. (Id. ¶ 34.)
Plaintiff alleges that Defendants conducted more than sixty drive-by inspections of her
residence over a period of five years, all while Plaintiff and her family occupied the home. (Id. ¶
35.) Defendants’ work order updates provide no indication that inspectors ever observed any
indication that the home was abandoned. (Id.) Nevertheless, Defendants charged Plaintiff an
inspection fee for every inspection. (Id. ¶ 36.) Plaintiff alleges that Defendants’ default-related
inspections are designed to maximize the service fees generated as long as the borrowers’
mortgage remained delinquent and regardless of whether the inspections are necessary. (Id. ¶¶
37-38.) Plaintiff claims that fees for default-related services could add thousands of dollars to
borrowers’ mortgages, all with interest accruing, making it increasingly difficult for borrowers to
pay off their loans because part of any mortgage payment is applied to any default-related
service fees. (Id. ¶¶ 41-42.) These unnecessary fees force borrowers deeper into default,
damage their credit scores, and reduce the equity they have in their properties. (Id. ¶¶ 43-45.)
Plaintiff alleges that the thousands of borrowers that were assessed default-related service fees

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Plaintiff admits in her Response that her mortgage was not insured by HUD and asks the Court to
disregard references to the HUD guidelines. (R. 47, Pl.’s Resp. to Defs.’ Mot. to Dismiss 18.)
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form a class of similarly situated individuals, sharing common questions of law or fact in the
adjudication of culpability and the assessment of damages. (Id. ¶¶ 47, 53.)
LEGAL STANDARD
“A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) challenges the
viability of a complaint by arguing that it fails to state a claim upon which relief may be
granted.” Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736 (7th Cir. 2014). Under the
federal pleading standards, a plaintiff’s “factual allegations must be enough to raise a right to
relief above the speculative level.” Twombly, 550 U.S. at 555. Put differently, a “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 Twombly, 550 U.S. at 570).
In determining the sufficiency of a complaint under the plausibility standard, courts must “accept
all well-pleaded facts as true and draw reasonable inferences in the plaintiffs’ favor.” Roberts v.
City of Chicago, 817 F.3d 561, 564 (7th Cir. 2016). In ruling on a Rule 12(b)(6) motion, district
courts may also consider documents attached to or referenced in the pleadings without
converting the motion into a motion for summary judgment, as long as the documents are
referred to in the complaint and central to the claims. Citadel Grp. Ltd. v. Washington Reg’l
Med. Ctr., 692 F.3d 580, 591 (7th Cir. 2012).
Beyond the requirements of Rule 12(b)(6), Rule 9(b) requires all allegations of fraud or
mistake to be “stated with particularity.” Borsellino v. Goldman Sachs Gro., Inc., 477 F.3d 502,
507 (7th Cir. 2007) (citing Fed. R. Civ. P. 9(b)). This requires a party to describe the “who,
what, when, where, and how of the fraud.” Cincinnati Life Ins. Co. v. Beyrer, 722 F.3d 939, 948
(7th Cir. 2013) (citation omitted). Applying this standard to a RICO claim, the plaintiff must, at
a minimum, “describe the two predicate acts of fraud with some specificity and state the time,

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place, and content of the alleged false representations, the method by which the
misrepresentations were communicated, and the identities of the parties to those
misrepresentations.” Bible v. United Student Aid Funds, Inc., 799 F.3d 633, 658 (7th Cir. 2015),
reh’g denied, 807 F.3d 839 (7th Cir. 2015), and cert. denied, 136 S. Ct. 1607 (2016). “Malice,
intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Fed. R.
Civ. P. 9(b).
ANALYSIS
In its Motion to Dismiss, CitiMortgage claims that the Court must dismiss Plaintiff’s
Complaint in its entirety because the Complaint does not allege that Plaintiff provided
Defendants with notice and an opportunity to cure any errors before suing as required by their
mortgage contract. Plaintiff’s mortgage states:
Neither Borrower nor Lender may commence . . . any judicial action . . . that arises from
the other party’s actions pursuant to this Security Instrument or that alleges that the other
party has breached any provision of, or any duty owed by reason of, this Security
Instrument, until such Borrower or Lender has notified the other party (with such notice
given in compliance with the requirements of Section 15) of such alleged breach and
afforded the other party hereto a reasonable period after the giving of such notice to take
corrective action.
(R. 31, Decl. of Stephen Kane, Ex. A ¶ 20.)
In response, Plaintiff argues that she did provide notice and attaches an affidavit setting
forth the factual details of the mailed notice and a copy of the letter that Plaintiff allegedly sent to
CitiMortgage on May 11, 2016. (R. 47, Pl.’s Resp. to Defs.’ Mot. to Dismiss, Ex. 2 and Ex. 3.)
Plaintiff, citing United States v. Midwest Generation, LLC, 781 F. Supp. 2d 677, 693 (N.D. Ill.
2011), argues that it may oppose Defendants’ motion to dismiss with additional facts—the notice
letter sent to CitiMortgage—asserted by affidavit because those facts are consistent with the
allegations in her Complaint. In that case, however, the court allowed the plaintiff to provide

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additional facts relating to the statute of limitations, an affirmative defense that the court
explained “need not be anticipated by a complaint.” Id. Here, Plaintiff is instead attempting to
amend her Complaint to include key facts regarding a condition precedent to litigation that she
does not dispute she completely excluded from the Complaint. Plaintiff may not amend her
Complaint in this way and is limited to the facts in her Complaint, which do not include any
allegations that she provided notice to CitiMortgage as required by her mortgage contract.4
Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co., 631 F.3d 436, 448
(7th Cir. 2011) (holding that plaintiff could not alter his claims due to “the axiomatic rule that a
plaintiff may not amend his complaint in his response brief”).
Several courts have dismissed claims, including RICO and FDCPA claims, against
mortgage lenders relating to property-inspection fees where, as here, the borrower-plaintiffs
failed to plead compliance with the notice-and-cure provisions in mortgage contracts. In Giotta
v. Ocwen Fin. Corp., No. 15-CV-00620-BLF, 2016 WL 4447150, at *5-6 (N.D. Cal. Aug. 24,
2016), for example, the court dismissed the plaintiffs’ RICO, FDCPA, statutory-fraud, and
common-law fraud claims against a loan servicer at the motion to dismiss stage because the
plaintiff failed to allege compliance with a notice-and-cure provision identical to that in this case.

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Even if the Court permitted Plaintiff to amend her Complaint or converted this motion into one for
summary judgment on the notice issue, the alleged notice letter Plaintiff provided is plainly deficient
because she sent it to the wrong address. Plaintiff’s mortgage states: “Any notice to Lender shall be given
by delivering it or by mailing it first class mail to Lender’s address stated herein. . .” (R. 31, Decl. of
Stephen Kane, Ex. A ¶ 15.) The mortgage also states: “Lender’s address is 1 Court Square, Floor 20,
Long Island City, NY 11120.” (Id. ¶ 1.) Plaintiff, however, allegedly sent her notice letter to a St. Louis
address. Plaintiff’s failure to use the designated address would also require dismissal of all her claims
because use of an incorrect address does not constitute notice. See, e.g., Page v. JPMorgan Chase Bank,
No. 4:15-CV-367-A, 2016 WL 3023303, at *3 (N.D. Tex. May 24, 2016 (finding that letter does not
“constitute notice” because it “reflects that the address to which it was sent is different from the property
address shown in the deed of trust”); Hickerson v. Wells Fargo Bank, No. 3:11-CV-0812-LRH-WGC,
2012 WL 194616, at *2 (D. Nev. Jan. 12, 2012) (dismissing claim because plaintiffs “were on notice that
all attempts to cure their default should be directed to . . . a specific mailing address”); In re Phelps, 186
B.R. 655, 658 (Bankr. E.D. Va. 1995) (“Notice sent to an incorrect address is insufficient.”).
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The court explained that the plaintiffs’ “claims f[e]ll squarely within the ambit of the notice-andcure provision” because they “ar[o]se from the property inspections . . . charged to Plaintiffs
pursuant to the terms of the Deed of Trust.” Id. at *4. As a result, the court found, citing noticeand-cure language identical to that at issue here, that all of the plaintiffs’ claims “ar[o]se[ ] from
the other party’s actions pursuant to this Security Instrument,” and accordingly dismissed the
complaint in its entirety. See also Hill v. Nationstar Mortg. LLC, No. 15-60106-CIV, 2015 WL
4478061, at *3 (S.D. Fla. July 2, 2015) (dismissing RICO, breach-of-contract, and unjustenrichment claims related to collection of property-inspection fees because plaintiffs’ “claims are
entirely based on their mortgage contract”); Johnson v. Countrywide Home Loans, Inc., No.
1:10CV1018, 2010 WL 5138392, at *2 (E.D. Va. Dec. 10, 2010) (applying identical notice-andcure provision and dismissing TILA, RESPA, FDCPA, and FCRA claims because “all of
Plaintiff’s allegations arise from actions taken pursuant to the Deed of Trust”) (emphasis in
original); LaSalle Bank Nat. Ass’n v. Mudd, No. 03 C 1785, 2003 WL 22048158, at *2 (N.D. Ill.
Aug. 29, 2003) (dismissing foreclosure claim because plaintiff “failed to comply with the notice
and cure provision” of the mortgage guaranty contract).
Here, the Court dismisses Plaintiff’s claims because she failed to allege compliance with
the notice provision in her contract. As Plaintiff herself stated in her Complaint, “it is the
Mortgage and Note that suppl[y] any purported legal justification or contractual warrant to
charge . . . for alleged property inspections.” (Second Am. Compl. ¶ 20.) Indeed, it is the
mortgage contract itself that allows CitiMortgage to charge delinquent borrowers for property
inspection fees, and Plaintiff bases her claim on language found in paragraph 9 of the mortgage
contract stating that CitiMortgage may “do and pay for whatever is reasonable or appropriate to
protect [its] interest in the property. (Id. ¶ 24; see also R. 31, Decl. of Stephen Kane, Ex. A ¶

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14.) As a result, like in Giotta, Hill, and the other cited cases, all of Plaintiff’s claims, even her
RICO and FDCPA claims, arise out of and are entirely based on the property fees that were
charged pursuant to her mortgage contract, and she failed to comply with the notice requirements
of that contract. Accordingly, the Court grants CitiMortgage’s motion to dismiss.
CitiMortgage is the only Defendant alleged to have entered into a contract or
communicated with Plaintiff. Safeguard is alleged to be liable as CitiMortgage’s co-conspirator.
(Second Am. Compl. ¶ 31.) “Aider and abettor liability requires actual commission of the
underlying tort.” Giotta, 2016 WL 4447150, at *6 (citations and quotations omitted) (dismissing
claim against mortgage services vendor because claims were dismissed against mortgage lender
due to failure to satisfy notice requirement). Because the Court is dismissing Plaintiff’s claims
against CitiMortgage, it also dismisses her claims against Safeguard.
CONCLUSION
For these reasons, the Court grants Defendants’ Rule 12(b)(6) motions to dismiss
Plaintiff’s Complaint without prejudice.
Dated: April 3, 2017

ENTERED

______________________________
AMY J. ST. EVE
United States District Court Judge 

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