Boedicker et al v. Rushmore Loan Management Services, LLC

Filing 22

MEMORANDUM AND ORDER granting in part and denying in part 10 Motion to Dismiss for Failure to State a Claim; denying 17 Motion for Hearing. Signed by Chief Judge J. Thomas Marten on 04/20/2017. (aa)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
DOUGLAS AND SERENITY BOEDICKER,
Plaintiffs,
v.

Case No. 2:16-cv-02798-JTM

RUSHMORE LOAN MANAGEMENT
SERVICES, LLC,
Defendant.

MEMORANDUM AND ORDER
Plaintiffs claim that their mortgage loan servicer, Rushmore Loan Management
Services, LLC (“Rushmore”), violated the Fair Debt Collection Practices Act (FDCPA),
the Real Estate Settlement Procedures Act (RESPA), and the Truth in Lending Act
(TILA) with respect to plaintiffs’ loan, and also committed acts constituting fraudulent
misrepresentation and breach of contract. The matter is now before the court on
Rushmore’s motion to dismiss the complaint.
I. Summary of the Complaint.
The following allegations are taken from plaintiffs’ complaint (Dkt. 1). Plaintiffs
were behind on their home mortgage loan and contacted Rushmore for help in getting
the loan current. On January 11, 2016, Rushmore sent plaintiffs a Reinstatement
Payment Plan to bring their loan current and avoid foreclosure. The Plan stated in part
that “the amount required to reinstate your loan in full as of 7392.91 [sic] is $6686.55.”
Id., ¶17. Plaintiffs were confused by the Plan and spoke to a Rushmore representative,

but the amount they were told was in arrears was not consistent with the statements
that Rushmore sent. Serenity Boedicker obtained her credit report from Equifax on
February 2, 2016. In it, Rushmore reported that $8,449 was past due on the account as of
January 7, 2016. Plaintiffs continued to try to clarify the information from Rushmore
about the amount of the debt but “could never get a consistent answer.”
Prior to September 1, 2016, plaintiffs sent an application for loss mitigation (“LM
#1”) to Rushmore in which they listed their monthly gross income as $6,766.00.
Plaintiffs received correspondence from Rushmore indicating that LM #1 was denied a
review under the Home Affordable Modification Program (HAMP) because their debtto-income ratio was outside of the acceptable (25-42%) range. Rushmore stated in the
letter that plaintiffs’ gross monthly income was $8,378.50, although plaintiffs’
application indicated it was $6,766.00.
On September 6, 2016, plaintiffs received a letter from Rushmore offering a “Trial
Modification Agreement.” This letter stated that the amount in arrears through
September 30, 2016, was $14,450.09. It offered a repayment proposal calling for an initial
payment of $2,950.00, payments of $1,160.00 in the months of October-December 2016,
and monthly payments thereafter of $1,160.00 until confirmation of a permanent
modification. The proposal was silent as to the terms of a permanent modification.
Plaintiffs had 14 days from the date of the letter to accept.
Plaintiffs contacted counsel, who sent a Notice of Error/Request for Information
(“NOE #1”) to Rushmore requesting an explanation why the loan was ineligible for

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HAMP. Counsel requested the “waterfall analysis” used in the determination.
Rushmore never provided plaintiffs with the requested waterfall analysis.
Plaintiffs’ counsel sent a second Notice of Error/Request for Information dated
September 14, 2016, requesting information about whether the trial loan modification
agreement was a forbearance agreement or a modification agreement. Rushmore
allegedly never acknowledged whether it was a forbearance agreement or a loan
modification, and plaintiffs did not tender payment to Rushmore “because they did not
have sufficient information to make an informed decision to determine if the trial loan
modification was in their best interest.” Dkt. 1, ¶40.
On October 1, 2016, plaintiffs received a letter from Rushmore indicating that
their trial loan modification was denied due to a failure to return documents in a timely
manner.
On November 3, 2016, plaintiffs received an acknowledgement of receipt from
Rushmore of the two Notice of Error letters sent by plaintiffs, but Rushmore did not
address the requested waterfall analysis or whether the trial modification was in fact a
loan modification or a forbearance agreement.
On November 4, 2016, plaintiffs received a Notice of Acceleration of their
mortgage from a law firm representing Rushmore.
Plaintiffs’ complaint contains eight counts. The first three counts allege violations
of Regulation X of RESPA (12 CFR Part 1024). Counts four and five allege, respectively,
fraudulent misrepresentation and breach of contract. The last three counts allege

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violations of the FDCPA. Rushmore moves to dismiss all of the counts for failure to
state a claim upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6).
II. Standards Governing Motion to Dismiss – Rule 12(b)(6).
Rule 12(b)(6) allows dismissal of a complaint where the facts alleged fail 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 has facial
plausibility when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678.
Complaints containing no more than “labels and conclusions” or “a formulaic recitation
of the elements of a cause of action” may not survive a motion to dismiss. Robbins v.
Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008). All well-pleaded factual allegations in the
complaint are accepted as true and viewed in the light most favorable to the plaintiff for
purposes of determining whether the complaint states a plausible claim for relief. Smith
v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009). See Cunningham v. Wichita State
Univ., No. 6:14-CV-01050-JTM, 2014 WL 4542411, at *2 (D. Kan. Sept. 12, 2014), aff'd, 613
Fed.Appx. 758 (10th Cir. 2015).
III. Discussion.
Count 1. Count 1 alleges a violation of 12 CFR § 1024.41(e) in that Rushmore
“wrongfully deem[ed] a borrower to have rejected a loss mitigation option.” Dkt. at 8.
Plaintiffs allege that Rushmore’s proposed trial modification was not a loss mitigation
option because it did not have any specific terms for permanent modification. They

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allege that “Rushmore’s actions in unilaterally determining this was an acceptable offer
of loss mitigation pursuant to 12 C.F.R. 1024.41(e)(2) were improper….” Dkt. 1, ¶52.
Rushmore argues this fails to state a claim because § 1024.41 does not require a
servicer to offer a permanent modification and does not prohibit a servicer from
unilaterally determining what constitutes an acceptable offer of loss mitigation. Dkt. 11
at 3. Plaintiffs’ response is confusing, but appears to be that Rushmore violated the
regulation because the trial modification it offered “was not a loss mitigation option.”
Dkt. 12 at 6.
As Rushmore points out, the regulation does not require a servicer to offer any
particular modification, so the fact that no permanent modification was offered by
Rushmore was not a regulatory violation. See 12 CFR ¶1024.41(a) (“Nothing in § 1024.41
imposes a duty on a servicer to provide any borrower with any specific loss mitigation
option.”). Plaintiffs have thus failed to allege facts in Count 1 showing a violation of a
duty imposed by § 1024.41.
Count 2. Count 2 alleges a violation of 12 CFR § 1024.41(c) based on a “[f]ailure
to properly review a completed loss mitigation application.” Although the allegations
are unclear, plaintiffs allude to the monthly income figure used by Rushmore in
calculating plaintiffs’ debt-to-income ratio, and allege that the exhibits attached to the
complaint “demonstrate a clear pattern of [Rushmore’s] failure to review the Plaintiffs
for all loss mitigation options available by manipulating the gross income figure and
provide written notice within 30 days as there is no indication of all loss mitigation
options Plaintiffs were reviewed for.” Dkt. 1, ¶65.
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Section 1024.41(c) requires that, upon receipt of a complete loss mitigation
application, the servicer must evaluate the borrower for all available loss mitigation
options and provide the borrower with a notice in writing stating the servicer’s
determination of which loss mitigation options, if any, it will offer the borrower.
Plaintiffs’ allegations fail to show that Rushmore violated this regulation. As
Rushmore points out, there is no requirement in § 1024.41(c) that the servicer give
notice of all loss mitigation options that were considered. Plaintiffs’ allegations suggest
that Rushmore used an erroneous income figure in determining plaintiffs’ eligibility for
HAMP relief. But the facts do not show a violation of the duty to evaluate the plaintiffs
for loss mitigation options or to provide notice of the determination. Count 2 fails to
state a claim upon which relief can be granted.
Count 3. Count 3 alleges a violation of 12 CFR § 1024.35 based on Rushmore’s
“[f]ailure to properly investigate a Notice of Error.” Plaintiffs allege that in response to
their Notice of Error, Rushmore failed to provide the requested waterfall analysis, failed
to determine whether plaintiffs’ debt-to-income ratio had been miscalculated, and failed
to answer with clarity whether the trial modification agreement was a modification or
repayment plan. Plaintiffs allege that Rushmore’s “actions in reviewing, with [sic] any
diligence, and timely corrected [sic] the errors alleged … constitute a least [sic] two
separate … violations of 12 C.F.R. 1024.35(e).”
Rushmore argues that the regulations did not require it to provide a waterfall
analysis. Dkt. 11 at 4-5. It further argues that plaintiffs do not specify how Rushmore
failed to comply with the procedures required by § 1024.35. Id. at 5. Although plaintiffs’
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complaint is not a model of clarity, it alleges a plausible claim for violation of 12 CFR
§ 1024.35(e), which requires a servicer to respond to a notice of error either by correcting
the error or by conducting a reasonable investigation, and, in either case, by providing
the borrower with a written explanation of its determination. The complaint fairly
alleges that plaintiffs notified Rushmore of an error in the amount of their income with
respect to the HAMP determination, but that Rushmore failed to respond with the
explanation required by § 1024.35(e)(1). See § 1024.41(b)(7) (failure to provide accurate
information to a borrower regarding loss mitigation options is an error subject to this
section). The motion to dismiss count 3 is therefore denied.
Count 4. Count 4 alleges fraudulent misrepresentation in that Rushmore
“knowingly and recklessly reviewed the application for loan modification” and offered
the trial modification “knowing full well [that it] was not a modification within the
scope and spirit of RESPA,” Dkt. 1, ¶84, all of which allegedly damaged plaintiffs and
was part of a pattern “to deceive and defraud borrowers and force them into
foreclosure and/or compel bankruptcies or loss of property.”
Under Kansas law, the elements of fraudulent misrepresentation are: (1) an
untrue statement of past or present fact by the defendant; (2) known to be untrue by the
defendant; (3) made with intent to deceive or reckless disregard for the truth of the
statement; (4) on which plaintiff justifiably relies and acts to his detriment. Alires v.
McGehee, 277 Kan. 398, 403, 85 P.3d 1191, 1195 (2004).
As an initial matter, the complaint does not make clear what false representation
Rushmore made or how the representation was false. The allegation that Rushmore
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knew that what it offered “was not a modification within the scope and spirit of
RESPA,” does not allege or identify a misrepresentation. Nor does it explain what
constitutes a modification “within the scope and spirit of RESPA.” Neither does the
complaint specifically allege that Rushmore made a representation to plaintiffs with
intent to deceive or with reckless disregard of its truth. Instead it alleges that Rushmore
“knowingly and recklessly reviewed the application….” The complaint contains a general
allegation of a pattern to deceive and defraud borrowers, but no factual allegations are
cited in support of that conclusory allegation. Finally, no facts are alleged to show that
plaintiffs justifiably relied on a specific misrepresentation to their detriment. In sum, the
complaint states no claim for fraudulent misrepresentation.
Count 5. Count 5 alleges that the parties “have a binding contractual relationship
as [Rushmore] at all relevant times has been the servicer of Plaintiffs’ mortgage loan.”
Dkt. 1, ¶89. Rushmore allegedly “breached the Mortgage Contract” by providing
information to the plaintiffs that grossly misstated their income and contained
incomplete responses “as to all loss mitigation programs that the Plaintiffs’ application
may have been removed under.” Id. at ¶93.
The elements of a breach of contract claim under Kansas law are: “(1) the
existence of a contract between the parties; (2) sufficient consideration to support the
contract; (3) the plaintiff's performance or willingness to perform in compliance with
the contract; (4) the defendant's breach of the contract; and (5) damages to the plaintiff
caused by the breach.” Stechschulte v. Jennings, 297 Kan. 2, 23, 298 P.3d 1083 (2013).

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Plaintiffs allege that Rushmore was the servicer of their mortgage loan but fail to
allege any facts showing the existence of a contract between them and Rushmore.
Plaintiffs also fail to allege that Rushmore promised in the agreement to accurately state
plaintiffs’ income or to provide complete responses to all loss mitigation programs that
plaintiffs applied for. For these and perhaps other reasons, Count 5 fails to allege a
plausible claim for breach of contract.
Count 6. According to its heading, Count 6 alleges an “unconscionable means to
attempt to collect a debt” in violation of 15 U.S.C. § 1692k. The body of Count 6 alleges
that Rushmore “repeatedly violated 15 U.S.C. 1692(d) and (f) by failing to properly
review LM #1 and offering an unconscionable payment proposal disguised as a loan
modification.” Dkt. 1 at ¶104.
Section 1692k makes a debt collector liable who fails to comply with any
provision of Subchapter V on Debt Collection Practices. 15 U.S.C. § 1692k(a). Section
1692d prohibits acts of harassment or abuse by a debt collector. Count 6 does not state a
claim under this subsection, however, because it fails to allege any acts of harassment or
abuse by Rushmore. As for section 1692f, that provision states that a debt collector may
not use “unfair or unconscionable means to collect or attempt to collect any debt.”
Plaintiffs do not allege that Rushmore engaged in any of the acts specifically identified
by § 1692f as violations of the rule. Although the list of prohibited acts in the statute is
not exclusive, plaintiffs fail to allege sufficient facts to plausibly explain why
Rushmore’s offer of a payment plan was otherwise an unfair or unconscionable means
to collect the debt. Cf. Shroeder v. Kahrs, 2015 WL 5837689, *3 (D. Kan. Oct. 7, 2015)
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(dismissing claim where plaintiff did “not allege that defendant seeks to recover from
him an amount greater than the actual debt” or committed any act specified in § 1692f.)
As such, Count 6 fails to state a claim upon which relief can be granted.
Count 7. Count 7 alleges that Rushmore materially misrepresented the character,
amount, or legal status of the alleged debt, in violation of 15 U.S.C. § 1692e, when it
communicated to Equifax and to plaintiffs a loan balance which it knew or should have
known was false.
Section 1692e provides in part that a debt collector may not use any false
representation in connection with collection of any debt, including a false
representation of the amount of the debt or a communication of credit information
which is known or which should be known to be false. § 1692e subs. (2)(A) and (8).
Rushmore argues that this claim fails because no facts are provided to show the
materiality of any error by Rushmore respecting the amount of plaintiffs’ loan balance.
Dkt. 11 at 11-12 (Citing Maynard v. Cannon, 401 F.App’x 389, 2010 WL 4487113 (10th Cir.
2010)). Rushmore concedes that under plaintiffs’ version of the facts, the amount of the
balance “could be off by less than $2,000,” but argues that plaintiffs fail to allege any
facts showing such a discrepancy is material.
Several circuit courts have held that a misstatement must be material to sustain a
claim under 15 U.S.C. § 1692e. See e.g., Conteh v. Shamrock Cmty. Ass’n, Inc., 648 F.App’x
377 (4th Cir. May 19, 2016); Simon v. FIA Card Svcs. NA, 639 F.App’x 885, 888 (3rd Cir.
Feb. 17, 2016); Walker v. Shermeta, Adams, Con Allmen, PC, 623 F.App’x 764, 766 (6th Cir.
Aug. 10, 2015). To be material, a misstatement “must have the potential to ‘frustrate [the
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least sophisticated] consumer’s ability to intelligently choose his or her response,’ … or
must be the type of misstatement that ‘would have been important to the consumer in
deciding how to respond to efforts to collect the debt.’” Conteh, 648 F.App’x at 379 (quoting
Powell v. Palisades Acquisition XVI, LLC, 782 F.3d 119, 126-27 (4th Cir. 2014) [emphasis in
Powell]). As plaintiffs point out, they allege that over the course of four days Rushmore
reported three different account balances, with an unexplained discrepancy between
them approaching $2,000. Under the circumstances, such a false statement could
reasonably be viewed by an ordinary consumer as a material misstatement that could
affect the consumer’s weighing of options and the selection of a response. Rushmore’s
motion to dismiss this claim is accordingly denied.
Count 8. Count 8 alleges that Rushmore was a debt collector within the meaning
of the FDCPA, that it attempted to collect a debt via the January Reinstatement Payment
Plan, and that Rushmore violated 15 U.S.C. § 1692e(11) by failing to inform plaintiffs
that the plan was a communication from a debt collector attempting to collect a debt.
Rushmore argues among other things that the Payment Plan made obvious that
it was a communication from a debt collector. Dkt. 11 at 13. The court agrees. The
January Payment plan was, according to the complaint, sent by Rushmore in response
to a specific request from the plaintiffs, and was unmistakably from a debt collector
seeking to collect a debt (e.g., “As you are aware, your loan with Rushmore … is in
default. You have asked for our help in curing the default and reinstating the loan,
through a payment plan that could eventually bring your payments current and help
you avoid foreclosure on your property.”). Plaintiffs do not allege the Payment Plan
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was the initial communication with them, so § 1692e(11) actually only required that
Rushmore disclose “that the communication is from a debt collector.” Under the facts
alleged, the Payment Plan effectively did so, even if it did not use those exact words.
Even the least sophisticated consumer could not have been misled into thinking the
communication did not come from a debt collector. See Emanuel v. Am. Credit Exch., 870
F.2d 805, 808 (2nd Cir. 1989) (there is “no requirement that the letter quote verbatim the
language of the statute”). Accordingly, Count 8 will be dismissed.
IT IS THEREFORE ORDERED this 20th day of April, 2017, that defendant
Rushmore’s Motion to Dismiss (Dkt. 10) is GRANTED IN PART and DENIED IN
PART. Counts 1, 2, 4, 5, 6 and 8 are dismissed for failure to state a claim upon which
relief can be granted. The motion is denied with respect to Counts 3 and 7. Plaintiff’s
Motion for Oral Argument (Dkt. 17) is DENIED.

__s/ J. Thomas Marten________
J. THOMAS MARTEN, JUDGE

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