McCord et al v. Resurgent Mortgage Servicing et al

Filing 23

MEMORANDUM OPINION AND ORDER denying 6 Motion to Dismiss for Failure to State a Claim; granting 14 Motion to Amend/Correct; denying 15 Motion to Dismiss for Failure to State a Claim; granting 16 Motion to Strike and Substitute Document; Signed by Chief Judge Joseph H. McKinley, Jr on 8/20/14. cc: Counsel(DJT)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
LOUISVILLE DIVISION
CIVIL ACTION NO. 3:14-CV-00116
JAMES McCORD and EDITH McCORD

PLAINTIFFS

v.
RESURGENT MORTGAGE SERVICING, a/k/a
RESURGENT CAPITAL SERVICES, L.P.
and
BANK OF AMERICA, N.A.

DEFENDANTS

M EMORANDUM O PINION AND O RDER
In this action, the Plaintiffs allege that Resurgent Mortgage Servicing (“Resurgent”) and
Bank of America, N.A. (“BOA”) violated the Fair Debt Collections Practices Act (“FDCPA”), 15
U.S.C. §§ 1692 et seq., which prohibits debt collectors from engaging in abusive, deceptive, and
unfair collection practices. The Plaintiffs also bring fraud and negligent misrepresentation claims.
This matter is before the Court on Resurgent’s Motion to Dismiss [DN 15] and BOA’s Motion to
Dismiss [DN 6]. This matter is also before the Court on the Plaintiffs’ Motion to File their First
Amended Complaint [DN 14] and their Motion to Strike and Substitute Document [DN 16]. Fully
briefed, this matter is ripe for decision. For the following reasons, Resurgent’s motion is DENIED,

BOA’s motion [DN 6] is DENIED, and the Plaintiffs’ motions [DNs 14, 16] are GRANTED.
I. BACKGROUND
In their initial complaint in this action, the Plaintiffs allege that on October 19, 2005, they
executed a note and mortgage on their home with Countrywide Home Loans, Inc. (Compl. [DN
1-2] ¶ 9.) At some point, the note became in default. Thereafter, on August 5, 2008, the Bank of

New York brought a state-court action for foreclosure and judicial sale of the Plaintiffs’ home.
(Id. ¶ 11.) The Plaintiffs moved to dismiss the action on the grounds that the Bank of New York
did not have standing, as the Bank did not produce a copy of the note on the Plaintiffs’ home. (Id.
¶ 12.) In response, the Bank of New York produced a document that included an endorsement and
assignment of the note to it. (Id. ¶ 13.) Thereafter, on February 27, 2009, the Bank of New York
moved to substitute Countrywide Home Loans Servicing, LP (“Countrywide”) as the plaintiff, as
it had assigned the note to Countrywide. (Id. ¶ 15.) The court granted this motion and ultimately
awarded summary judgment to Countrywide. (Id. ¶ 18.)
On January 22, 2012, the Plaintiffs filed for bankruptcy. (Id. ¶ 20.) The Plaintiffs listed
BOA as one of their creditors, as BOA had purchased Countrywide. (Id. ¶ 21.) On September 25,
2012, the bankruptcy court issued an order of discharge. The Plaintiffs did not reaffirm their loan
with BOA or any other lender. (Id. ¶ 21-22.) In late April or early May of 2013, the Plaintiffs
received notice that their home was scheduled to be sold at a public auction on May 21, 2013.
(Id. ¶ 23.) The Plaintiffs allege that around the same time, Resurgent contacted them by phone
and told them that Resurgent had purchased their loan from BOA. (Id. ¶¶ 24-25.)
In this phone call, Resurgent told the Plaintiffs that their home would not be auctioned off
and that the payment due was approximately $895. Resurgent then sent the Plaintiffs a statement
showing a current balance due of $895.20. (Id. ¶¶ 27-28.) The Plaintiffs allege that they mailed
Resurgent a payment of $895.20, which Resurgent accepted. Thereafter, the Plaintiffs continued
to make payments. Resurgent, however, returned the payments to them. The Plaintiffs allege that
Resurgent contacted them for the purpose of inducing them to pay on their BOA loan, despite the
fact that the loan was discharged in their Chapter 7 bankruptcy, preying on their desire to keep
their home. The Plaintiffs state that Resurgent falsely led them to believe that they would be able
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to keep their home if they made the payments set forth in the account statement. Resurgent knew,
however, that the Plaintiffs could not stay in their home despite making the payments. (Id. ¶¶ 3637, 2.) The Plaintiffs state that on information and belief, Resurgent is the servicer of the
Plaintiffs’ loan with BOA and was acting on behalf of BOA at all times. (Id. ¶ 26.)
II. PROCEDURAL BACKGROUND
On February 19, 2014, BOA moved to dismiss the Plaintiffs’ complaint. BOA argues that
there is no basis in the complaint under which it could be held liable, as “Resurgent purchased
the servicing rights, Resurgent serviced Plaintiffs’ loan during the relevant times, and all of the
alleged conduct that forms the basis of Plaintiffs’ claims is directed at Resurgent.” (BOA’s Mem.
in Supp. of Mot. to Dismiss [DN 6-1] 1.) Thereafter, on March 31, 2014, the Plaintiffs moved to
file their First Amended Complaint, which includes additional allegations regarding the timing of
Resurgent’s communications with, and alleged false representations to, the Plaintiffs. (See Pls.’
Mot. to File their 1st Am. Compl. [DN 14] 2.) That same date, Resurgent filed a motion to
dismiss under Fed. R. Civ. P. 12(b)(6). (See Resurgent’s Mot. to Dismiss for Fail. to State a Cl.
[DN 15].) Soon thereafter, on April 2, 2014, the Plaintiffs moved to strike the tendered First
Amended Complaint [DN 14-2] and substitute an updated First Amended Complaint [DN 16-1].
The proposed updated complaint is in response to Resurgent’s motion to dismiss, as well as in
response to the Plaintiffs’ receipt of a notice that their home had been scheduled for judicial sale
on April 8, 2014. (Mot. to Strike & Substitute Doc. [DN 16] 1.)
The Court will first consider the Plaintiffs’ motion to strike and substitute [DN 16], as
well as their motion to file an amended complaint [DN 14]. The Court will then consider BOA’s
motion to dismiss [DN 6] and Resurgent’s motion to dismiss [DN 15].

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III. DISCUSSION
After moving to amend their complaint, but before BOA or Resurgent responded to their
motion to amend, the Plaintiffs moved to strike the tendered First Amended Complaint [DN 142] and substitute an updated First Amended Complaint [DN 16-1]. The Plaintiffs’ motion to strike
and substitute [DN 16] is GRANTED. Thus, the Court will consider the updated First Amended
Complaint [DN 16-1] when deciding whether the Plaintiffs shall be granted leave to amend.
A. PLAINTIFFS’ MOTION TO FILE FIRST AMENDED COMPLAINT [DN 14]
The Plaintiffs have filed a motion for leave to file their First Amended Complaint [DN
14]. This motion is governed by Fed. R. Civ. P. 15(a)(2), which states that absent the opposing
party’s consent, the Plaintiffs may not amend their pleading without the Court’s leave. A court
should “freely give leave when justice so requires.” Fed. R. Civ. P. 15(a)(2). But the court “should

deny a motion to amend where the proposed amended complaint could not withstand a Fed. R.
Civ. P. 12(b)(6) motion.” Massingill v. Ohio Adult Par. Auth., 28 Fed. App’x 510, 511 (6th Cir.
2002) (citation omitted). In other words, a court “may deny a plaintiff leave to amend . . . when
the proposed amendment would be futile.” Kottmyer v. Maas, 436 F.3d 684, 692 (6th Cir. 2006).
The proposed First Amended Complaint alleges that on April 23, 2013, the “Resurgent
employee or representative who called the McCords identified herself as ‘Tanqunera’ [and] told
the McCords that Resurgent had purchased their home loan from Bank of America.” (1st Am.
Compl. [DN 16-1] ¶¶ 24-25.) The First Amended Complaint further alleges that the Plaintiffs both
“understood and believed . . . Tanqunera’s representation that if they began making mortgage
payments of $895.00 a month, [they] would be allowed to retain and remain in their home for as
long as they continued to make timely payments of $895.00 a month.” (Id. ¶ 32.) The Plaintiffs
allege that “[a]s the servicer of the McCords’ home loan and mortgage, Resurgent was acting as
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Bank of America’s agent.” (Id. ¶ 29.) The Plaintiffs also allege that under the facts of the case,
“both Resurgent and Bank of America are debt collectors within the meaning of the FDCPA,
because the McCords’ mortgage was undeniably in default when Bank of America acquired the
McCord’s mortgage from the Bank of New York and the McCord’s mortgage was in default
when Resurgent began servicing the McCords’ mortgage.” (Id. ¶ 51.) Finally, the Plaintiffs’ First
Amended Complaint includes the additional allegation that the Plaintiffs received a notice that
their home was scheduled for judicial sale on April 8, 2014. (Id. ¶ 52.)
Resurgent and BOA each oppose the proposed amendment. In so doing, they argue that
the amendment would be futile, as it does not remedy the deficiencies in the Plaintiffs’ original
complaint. (See Resurgent’s Mem. in Opp. to Pls.’ Mot. for Leave to Am. [DN 20] 2 (arguing that
the First Amended Complaint “does not remedy the key problem with their original complaint—
a failure to plead sufficient facts for this Court to reasonably infer Resurgent’s liability under the
causes of action asserted”); BOA’s Resp. in Opp. to Pls.’ Mot. to File 1st Am. Compl. [DN 21] 2
(arguing that the Plaintiffs should not be granted leave because the “proposed amended complaint
repeats the same allegations as the original complaint and is deficient for the same reasons”).) In
addition, Resurgent argues that allowing the Plaintiffs to amend is unnecessarily prejudicial, as
“Resurgent has filed a meritorious motion to dismiss the McCords’ claims” and an amendment
would “invite yet another meritorious motion to dismiss under Rule 12(b)(6) from Resurgent.”
(Resurgent’s Mem. in Opp. to Pls.’ Mot. for Leave to Am. [DN 20] 1.)
The Court, however, finds that the proposed amendment is not futile, as the First Amended
Complaint contains additional facts that permit the Plaintiffs’ claims to survive a Rule 12(b)(6)
motion to dismiss. Moreover, the Court finds that granting leave to the Plaintiffs is not unfairly
prejudicial to Resurgent, as the parties are still in the earliest stages of this litigation and outside
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of ordinary litigation expenses, Resurgent will not be required to “expend significant additional
resources to conduct discovery and prepare for trial.” Phelps v. McClellan, 30 F.3d 658, 662-63
(6th Cir. 1994). Therefore, the Plaintiffs’ motion for leave [DN 14] is GRANTED.
B. BOA’S MOTION TO DISMISS [DN 6]
BOA has moved to dismiss the Plaintiffs’ complaint under Fed. R. Civ. P. 12(b)(6).  Upon
a motion to dismiss for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6), a court “must
construe the complaint in the light most favorable to plaintiffs,” League of United Latin Am.
Citizens v. Bredesen, 500 F.3d 523, 527 (6th Cir.2007) (citation omitted), accepting all of the
plaintiffs’ allegations as true. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). Under this standard,
the plaintiffs must provide the grounds for their entitlement to relief, which “requires more than
labels and conclusions, and a formulaic recitation of the elements of a cause of action.” Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 555 (2007). Plaintiffs satisfy this standard when they “plead[]
factual content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Iqbal, 556 U.S. at 678. A complaint falls short if it pleads facts that
are merely “consistent with a defendant’s liability” or if the facts do not “permit the court to infer
more than the mere possibility of misconduct.” Id. at 678–79. The allegations must “‘show[] that
the pleader[s] [are] entitled to relief.’” Id. at 679 (quoting Fed. R. Civ. P. 8(a)(2)).
In this case, BOA argues that there is no basis in the complaint under which it could be
held liable because “Resurgent purchased the servicing rights, Resurgent serviced Plaintiffs’ loan
during the relevant times, and all of the alleged conduct that forms the basis of Plaintiffs’ claims
is directed at Resurgent.” (BOA’s Mem. in Supp. of Mot. to Dismiss [DN 6-1] 1.) According to
BOA, the Court does not have to (and should not) accept the Plaintiffs’ “conclusory allegations”
that Resurgent was the servicer of the Plaintiffs’ loan and that “Resurgent was acting on behalf of
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Bank of America.” (Id. at 5 (referencing ¶ 26 of the original complaint [DN 1-2], the content of
which is re-worded and re-numbered as ¶ 29 in the First Amended Complaint [DN 16-1]).)
In their response, the Plaintiffs state that based on the arguments raised in BOA’s motion
to dismiss, they “apparently sued the wrong principle [sic] for the loan servicer-agent’s torts and
violations of the Fair Debt Collection Practices Act” and their “claims against BOA should be
dismissed on grounds that the McCords sued the wrong party.” (See Pls.’ Resp. to BOA’s Mot. to
Dismiss [DN 12] 1.) The Plaintiffs argue that “BOA in a roundabout way argues that it is not the
owner of [sic] holder of the note and/or mortgage on the McCords’ home.” As such, they “should
have sued The Bank of New York.” (Id. at 2.) The Plaintiffs also imply, however, that if BOA is
the note’s owner and holder, then it can be held vicariously liable for Resurgent’s alleged actions.
(See Pls.’ Reply in Supp. of Mot. to File 1st Am. Compl. & Mot. to Strike & Sub. [DN 22] 1.)
The Court finds that in this case, it must accept the Plaintiffs’ factual allegations as true.
Thus, it will accept the Plaintiffs’ allegation that BOA is the owner or holder of the note on the
Plaintiffs’ home. (1st Am. Compl. [DN 16-1] ¶ 28.) Since “a mortgage holder is a lender which
owns a homeowner’s mortgage whereas a servicer is a separate entity that acts as the mortgage
holder’s agent to collect payments due on the mortgage,” Thomas v. U.S. Bank Nat’l Ass’n, 474
B.R. 450, 452 (D.N.J. 2012), the Court will not cursorily dismiss the Plaintiffs’ claims against
BOA on the general ground that there are no factual allegations against it. BOA argues, however,
that the Court must still dismiss the Plaintiffs’ claims. BOA argues that the Plaintiffs’ FDCPA
claims must be dismissed since it is not a “debt collector.” It also argues that the Plaintiffs’ fraud
and misrepresentation claims must be dismissed since the complaint lacks particularity.
FDCPA. By enacting the FDCPA, Congress sought “to eliminate abusive debt collection
practices by debt collectors . . . .” 15 U.S.C. § 1692a(e). The FDCPA defines a “debt collector” as
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“any person who uses any instrumentality of interstate commerce or the mails in any business the
principal purpose of which is the collection of any debts, or who regularly collects or attempts to
collect, directly or indirectly, debts owed or due or asserted to be owed or due to another.” Id. §
1692a(6). Notably, the FDCPA specifically excludes from this definition “any person collecting
or attempting to collect any debt owed or due or asserted to be owed or due another to the extent
that such activity . . . (ii) concerns a debt that was originated by such person [or] (iii) concerns a
debt which was not in default at the time it was obtained by such person . . . .” Id. § 1692a(6)(F).
Therefore, as a general rule, creditors (which are defined by 15 U.S.C. § 1692a(e) as persons who
offer or extend credit, creating a debt), lenders, mortgagees, and mortgage servicing companies
are exempt from liability under the FDCPA. See, e.g., Karl v. Quality Loan Serv. Corp., 759 F.
Supp. 2d 1240, 1248 (D. Nev. 2010) (noting that “mortgagees and their beneficiaries, including
mortgage servicing companies, are not debt collectors subject to the FDCPA”); Scott v. Wells
Fargo Home Mort., Inc., 326 F. Supp. 2d 709, 718 (E.D. Va. 2003) (noting that “creditors,
mortgagees, and mortgage servicing companies are not debt collectors and are statutorily exempt
from liability under the FDCPA”); Girgis v. Countrywide Home Loans, Inc., 733 F. Supp. 2d 835,
848-49 (N.D. Ohio 2010) (holding that the defendants were creditors, and not debt collectors, as
the plaintiffs’ loans were originated and serviced by them).
BOA argues that here, it is a creditor, originator, and initial servicer of the Plaintiffs’ loan
and, therefore, it is not subject to the FDCPA. In this respect, BOA argues that the Plaintiffs’ loan
originated with Countrywide, (1st Am. Compl. [DN 16-1] ¶ 8), and BOA purchased Countrywide
in 2008. (Id. ¶ 20.) The Court finds that BOA’s argument might be persuasive and entitle it to
dismissal if it were clear from the First Amended Complaint that BOA succeeded by merger to
Countrywide Home Loans, Inc., the original lender on the Plaintiffs’ loan. (Id. ¶ 8.) In this respect,
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it would not matter if the merger occurred after the Plaintiffs defaulted on the subject debt. The
FDCPA states that persons are not “debt collectors” if the activity “concerns a debt which was
not in default at the time it was obtained by such person.” 15 U.S.C. § 1692(6)(F)(iii)(emphasis
added). Several courts have thus held that “when a defendant company acquires a debt through its

merger with a previous creditor of the plaintiff rather than via a specific assignment, the debt was
not ‘obtained’ while it was in default; thus, the defendant company was not a debt collector under
the FDCPA.” Esquivel v. Bank of America, N.A., No. 2:12-CV-02502, 2013 WL 682925, at *2
(E.D. Cal. Feb. 21, 2013); see Meyer v. Citimortgage, Inc., No. 11-13432, 2012 WL 511995, at
*7 (E.D. Mich. Feb. 16, 2012) (“[The defendant] is the successor by merger to . . . the originating
lender and mortgagee, and therefore it is impossible for the loan to have been in default at the
time [the defendant] received its interest.”)
Here, though, the First Amended Complaint is not clear that BOA succeeded by merger
to Countrywide Home Loans, Inc. Instead, it appears that the note was assigned to Countrywide
Home Loans Servicing, LP, after the debt was in default. (1st Am. Compl. [DN 16-1] ¶ 14, 16.)
Moreover, it seems that BOA purchased or merged with “Countrywide Financial.” (Id. ¶ 20.)
There is no allegation that these companies are the same as Countrywide Home Loans, Inc. The
Court thus finds that at this time, dismissal is inappropriate. When the facts are construed in the
light most favorable to the Plaintiffs, the Plaintiffs have alleged that BOA is a “debt collector,” as
it merged with a company other than the original lender, which company purchased the note
while it was in default. BOA’s motion to dismiss [DN 6] is DENIED in part.1

1

The Court notes that if it is later determined that BOA is not a “debt collector” within the meaning of the FDCPA,
it is doubtful that BOA can be held vicariously liable for Resurgent’s FDCPA violations. The Sixth Circuit has held:
We do not think it would accord with the intent of Congress, as manifested in the terms of the
[FDCPA], for a company that is not a debt collector to be held vicariously liable for a collection
suit filing that violates the [FDCPA] only because the filing attorney is a “debt collector.” Section
1692 imposes liability only on a “debt collector who fails to comply with [a] provision of this

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Fraud and Misrepresentation. BOA argues that the Plaintiffs’ fraud and misrepresentation
claims fail as to it, as those claims arise from alleged statements made by Resurgent concerning
the loan’s payments and status. The Plaintiffs do not specifically respond to this argument. The
Court finds, however, that the Plaintiffs have sufficiently pleaded fraud and misrepresentation
claims at this stage in the litigation. As noted above, the Court must accept as true the Plaintiffs’
factual allegation that BOA is the owner or holder of the note on the Plaintiffs’ home. The First
Amended Complaint thus contains allegations that an agency relationship existed between BOA
and Resurgent, with Resurgent acting on BOA’s behalf when it contacted the Plaintiffs. This is
all that is required at this point. BOA’s motion to dismiss [DN 6] is DENIED on this issue.
C. RESURGENT’S MOTION TO DISMISS [DN 15]
Resurgent has also moved to dismiss the Plaintiffs’ complaint under Fed. R. Civ. P. 12(b)(6).
Resurgent argues that the Plaintiffs have not alleged facts for this Court to infer that it could be
liable under the FDCPA, as no facts indicate that it “made any false or deceptive representations
to them, nor that Resurgent engaged in any unfair or unconscionable debt collection activity.”
(Resurgent’s Mot. to Dismiss for Fail. to St. Cl. [DN 15] 1.) Resurgent also argues that the Court
should not exercise supplemental jurisdiction over the Plaintiffs’ state claims—and that if it does,
the claims should nevertheless be dismissed for insufficient facts. (Id. 1-2.)
FDCPA. To state a claim for relief under the FDCPA, the plaintiff must allege sufficient
facts to show that: (i) the plaintiff is a “consumer” under the FDCPA; (ii) the “debt” arises out of
a transaction, the purpose of which is “primarily . . . personal, family or household”; (iii) the
defendant is a “debt collector” under the FDCPA; and (iv) the defendant violated the FDCPA’s
prohibitions against specific forms of “debt collection communication and/or activity.” Wallace

subchapter . . . .” 15 U.S.C. § 1692k(a). The plaintiffs would thus have us impose liability on nondebt collectors too. This we decline to do.
Wadlington v. Credit Acceptance Corp., 76 F.3d 103, 108 (6th Cir. 1996).

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v. Wash. Mutual Bank, F.A., 683 F.3d 323, 326 (6th Cir. 2012). Here, Resurgent does not dispute
that the Plaintiffs have alleged facts to satisfy the first three elements. Resurgent argues instead
that the Plaintiffs have failed to allege facts that it violated the FDCPA’s provisions.
Resurgent argues that rather than alleging facts from which it could be inferred that it “led
the McCords astray and unfairly manipulated their fear of losing their home,” it is clear from the
factual allegations that “the McCords received what they bargained for—a stay of the judicial
sale of their home that continues more than a year after Resurgent contacted them, while the
covenants and agreements in their unreleased mortgage remain in full force and effect.” (See
Resurgent’s Mot. to Dismiss for Fail. to St. Cl. [DN 15] 6-7.) Resurgent argues that the Plaintiffs
simply have not alleged facts to indicate that it violated either § 1692e or § 1692f.
§ 1692e. Section 1692e states that a debt collector “may not use any false, deceptive, or
misleading representation or means in connection with the collection of any debt.” 15 U.S.C. §
1692e. In specific, § 1692e(5) bars a debt collector from making a “threat to take any action that
cannot legally be taken or that is not intended to be taken,” § 1692e(2)(A) bars a debt collector
from misrepresenting the “character, amount, or legal status of any debt,” and § 1692e(10) bars a
debt collector from “[t]he use of any false representation or deceptive means to collect any debt
or to obtain information concerning a consumer.” Id. Resurgent argues that the telephone call at
issue in the complaint did not contain any threats. Further, Resurgent argues that the McCords do
not allege that their mortgage was released or that Resurgent’s employee represented that the
Plaintiffs remained personally liable on their mortgage despite their prior bankruptcy discharge.2

2

 In this respect, Resurgent argues that a mortgagor’s bankruptcy discharge eliminates in personam liability for the
promissory note given to obtain a mortgage loan. 11 U.S.C. § 524(a). However, a mortgagee’s security interest in
the property survives, Johnson v. Home St. Bank, 501 U.S. 78, 82-83 (1991), and payment is a term of a mortgage.
Resurgent argues that a bankruptcy discharge “does not give the McCords a free house.” Thus, to avoid foreclosure
and a sale of their property, the Plaintiffs would have been required to continue to make payments.

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The Court finds, however, that the Plaintiffs have alleged facts from which a jury could
reasonably find that Resurgent violated § 1692e. The Plaintiffs have alleged that in the April 23,
2013 telephone call, Resurgent’s employee “Tanqunera” falsely represented that they were liable
on their home loan—and that if they began making timely mortgage payments of $895.00 per
month, they would be allowed to remain in their home. When these allegations are taken as true,
and inferences are drawn in the Plaintiffs’ favor, it is clear that the Plaintiffs allege that Resurgent
made a “false, deceptive, or misleading representation” in violation of § 1692e. As the Plaintiffs
correctly note, “[a] demand to collect a discharged debt is considered a false collection activity
under Section 1692e(2)(A).” Miller v. Allied Interstate, Inc., No. 04-C-7126, 2005 WL 1520802,
at *1 (N.D. Ill. June 27, 2005). In this case, the Plaintiffs allege that Resurgent implied that the
Plaintiffs owed $895.00 on discharged debt, and that if they paid it, they could keep their home.
§ 1692f. Section 1692f states that a debt collector “may not use unfair or unconscionable
means to collect or attempt to collect any debt.” 15 U.S.C. § 1692f(1). Section 1692f is deemed
violated if the debt collector engages in “[t]he collection of any amount (including any interest,
fee, charge, or expense incidental to the principal obligation) unless such amount is expressly
authorized by the agreement creating the debt or permitted by law.” Id. Resurgent argues that
there are no allegations that it violated § 1692f, as the terms of the Plaintiffs’ mortgage remained
in effect, regardless of the fact that their personal obligations on their promissory note had been
discharged. Resurgent also argues that by making payments that were sufficient to comply with
the terms of the Plaintiffs’ mortgage, the Plaintiffs were enabled to avoid a judicial sale of their
home. Resurgent argues that because the McCords’ agreement with the initial lender under the
mortgage “expressly authorizes” payment, and necessarily withstands their bankruptcy discharge

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in the absence of a judicial sale and release of the mortgage, the Plaintiffs have not stated a claim
against Resurgent under § 1692f(1).
The Court disagrees. In essence, Resurgent attempts to argue that its alleged efforts to
collect payment were permissible because the mortgagee’s interest in the property survived the
bankruptcy proceedings. To be sure, a mortgagee’s security interest in the property does survive
a bankruptcy, notwithstanding the discharge of the mortgagor’s personal liability. See Johnson v.
Home State Bank, 501 U.S. 78, 82-83 (1991) (citing 11 U.S.C. § 522(c)). Further, the FDCPA
does draw a distinction between general debt collection and enforcement of a security interest.
See Kaltenbach v. Richards, 464 F.3d 524, 527 n.3 (5th Cir. 2006). “A person whose business has
the principal purpose of enforcing security interests but who does not otherwise satisfy the
definition of debt collector is subject only to § 1692f(6) [which prohibits certain non-judicial
repossession abuses].” Id. at 527. However, as noted by the court in Donnelly-Tovar v. Select
Portfolio Serv., Inc., several Circuit Courts of Appeal have recently applied the FDCPA to cases
involving mortgage foreclosures. 945 F. Supp. 2d 1037, 1045-46 (D. Neb. 2013) (citing cases).
The Sixth Circuit has even chimed in on the issue, holding that a mortgage loan servicer can be
either a “creditor” or a “debt collector” but cannot “define itself out of either category,” and was
a debt collector in that case. Bridge v. Ocwen Fed. Bank, FSB, 681 F.3d 355, 362 (6th Cir. 2012).
Indeed, the Sixth Circuit has held that FDCPA coverage is not defeated by clever arguments for
technical loopholes that seek to devour the protections Congress intended. See id. at 361.
In Donnelley-Tovar, the court considered an argument similar to the one Resurgent makes
and found that the plaintiffs’ complaint set forth sufficient facts to state a claim for an FDCPA
violation. The plaintiff alleged that the defendant was a debt collector and that it obtained an
interest in the debt after it was in default. 945 F. Supp. 2d at 1047. The defendant had sent a letter
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asking for money, and implying that payment was obliged, in attempt to collect the underlying
loan debt, despite the fact that the plaintiff’s debt had been discharged in Chapter 7 bankruptcy.
Id. The Court found that in light of the defendant’s letter, “an unsophisticated consumer would be
uncertain of the nature and amount of debt she actually owed, unaware of the consequences of
either payment or nonpayment, and would be left ‘scratching [her] head upon receipt of such a
letter.’” Id. (citation omitted). In this case, the Court finds that a similar rationale is applicable.
The Plaintiffs have alleged that their mortgage obligation was discharged in bankruptcy. Thus,
the Court finds that they have validly stated an FDCPA claim. Resurgent’s motion to dismiss
[DN 15] is DENIED on this issue. Other courts have reached similar conclusions. See, e.g., Rios
v. Bakalar & Assocs., P.A., 795 F. Supp. 2d 1368, 1369-70 (S.D. Fla. 2011) (finding that a debtor
stated an FDCPA claim against a debt collector in alleging that the debt collector made false or
misleading representations when it attempted to collect debts that were discharged in bankruptcy);

Wagner v. Ocwen Fed. Bank, FSB, No. 99-C-5404, 2000 WL 1382222, at *1-3 (N.D. Ill. Aug.
28, 2000) (concluding that the Bankruptcy Code did not preclude the plaintiff from bringing an
FDCPA claim, as the plaintiff alleged that the defendant had improperly asked her to repay her
mortgage loan after the loan had been discharged in bankruptcy).
Fraud and Misrepresentation. Because the Court has found that the Plaintiffs have
sufficiently pleaded an FDCPA claim, the Court rejects the argument that it lacks supplemental
jurisdiction over the Plaintiffs’ non-federal claims. But Resurgent also argues that the Plaintiffs’
non-federal claims must be dismissed under Rule 12(b)(6). In this respect, Resurgent argues that
according to the complaint’s allegations, “the McCords made a one-time payment of $895.20 to
effect a stay of a judicial sale of their home, and received the benefit of a stay that continues to
this day. The McCords do not allege facts to indicate (i) that Resurgent promised them they could
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resume payments, (ii) that Resurgent sent them any further payment statements beyond the initial
payment statement, nor (iii) that Resurgent falsely represented that they remained personally
liable on their debt.” (Resurgent’s Mot. to Dismiss for Fail. to St. Cl. [DN 15] 11.)
The Court finds, however, that Resurgent’s argument is based on a mischaracterization of
the complaint’s allegations. The complaint makes clear that the Plaintiffs have not alleged that
they were bargaining for a stay of a judicial sale. Instead, the complaint alleges that the Plaintiffs
paid Resurgent due to its representation that it would accept regular mortgage payments from the
Plaintiffs, such that they could stay in their home permanently if they continued to make timely
payments. The Plaintiffs have alleged that Resurgent implied that they owed around $895.00 per
month on their mortgage. Therefore, Resurgent’s first argument is without merit.
Second, Resurgent argues that the Plaintiffs do not allege that they have been injured.
According to Resurgent, the Plaintiffs made a one-time payment of $895.20 that has enabled
them to avoid a judicial sale of their property for over a year. Resurgent argues that this is not a
legally cognizable injury. However, the Court finds that the complaint sufficiently alleges that
the Plaintiffs were injured, as the Plaintiffs made payments that they were not obligated to make.
The Plaintiffs also allege that their home has been scheduled for a judicial sale, despite the fact
that they attempted to make additional payments to Resurgent, in accordance with its instructions.
Finally, Resurgent argues that the Plaintiffs have not stated a valid misrepresentation
claim under Kentucky law. According to Resurgent, while Kentucky recognizes the existence of
the tort, it does so only in a business context when both parties engage in a business transaction:
One who, in the course of his business, profession or employment, or in any other
transaction in which he has a pecuniary interest, supplies false information for the
guidance of others in their business transactions, is subject to liability for
pecuniary loss caused to them by their justifiable reliance upon the information, if
he fails to exercise reasonable care or competence in obtaining or communicating
the information.
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Presnell Constr. Managers, Inc. v. EH Constr., LLC, 134 S.W.575, 580 (Ky. 2004) (citing the
Restatement (2d) of Torts § 552) (emphasis added). Resurgent argues, without citation, that the
Plaintiffs’ claim for negligent misrepresentation must be dismissed under this standard, as the
Plaintiffs do not allege the existence of a business transaction with Resurgent. In other words,
Resurgent argues that the Plaintiffs fail to allege that it made any representations to guide the
Plaintiffs in a business transaction. Instead, the Plaintiffs allege that the loan covered their
personal residence (and thus was not a business loan). According to Resurgent, any alleged false
information Resurgent supplied the Plaintiffs is accordingly not actionable under Kentucky law.
In response, the Plaintiffs counter, without citation, that Resurgent contacted the Plaintiffs
as a normal part of its business as a loan servicer—and that Resurgent clearly had a pecuniary
interest in the loan and mortgage. The Plaintiffs argue that this is sufficient under Kentucky law
to support a negligent misrepresentation claim, as the debt was incurred pursuant to a business
transaction between a bank and its borrower.
Unfortunately, “Kentucky case law gives very little guidance with respect to claims of
negligent misrepresentation.” Goldman Servs. Mech. Contracting, Inc. v. Citizens Bank & Trust
Co. of Paducah, Inc., 9 F.3d 107 (Table), 1993 WL 428641, at *2 (6th Cir. Oct. 21, 1993). The
Court finds, however, that the Plaintiffs’ position is more persuasive. The Plaintiffs have alleged
that Resurgent supplied false information for the Plaintiffs’ guidance in their business transaction
of borrowing money from the bank and satisfying their mortgage obligation. The parties have
failed to cite, and the Court has been unable to find, any Kentucky cases dismissing a negligent
misrepresentation claim on the grounds that the transaction at issue was a personal or consumer
loan, as opposed to a business loan. The Court has found, however, a Kentucky case where the
court addressed a negligent misrepresentation claim in the context of a bank that allegedly failed
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to reveal to the plaintiffs the absence of any restrictions as to the use of the residential properties
purchased by the plaintiffs. Lamb v. Branch Banking & Trust Co., 2009 WL 4876796, at *1-2
(Ky. App. Dec. 18, 2009). The court granted motions in favor of the bank on the ground that the
plaintiffs failed to demonstrate justifiable reliance. Id. However, the court did not indicate that a
distinction should be drawn between loan transactions for personal uses and loan transactions for
business loans. In fact, the court cited and discussed another case involving a loan transaction for
personal uses, Danca v. Taunton Savings Bank, 429 N.E.2d 1129 (Mass. 1982), in which a bank
was held liable under a misrepresentation theory. Id. at *4. The Court finds that this indicates that
the Plaintiffs’ position is more persuasive. Courts do not appear to distinguish between personal
or consumer loans and business loans. Thus, the Plaintiffs’ negligent misrepresentation claim will
not be dismissed on that basis. The Plaintiffs have adequately pleaded fraud and negligent
misrepresentation claims. Resurgent’s motion [DN 15] is accordingly DENIED.
IV. C ONCLUSION
For the foregoing reasons, and consistent with the Court’s conclusions, IT IS HEREBY
ORDERED that the Plaintiffs’ Motion to Strike and Substitute Document [DN 16] is GRANTED.
IT IS FURTHER ORDERED that the Plaintiffs’ Motion to File their First Amended
Complaint [DN 14] is GRANTED.
FURTHER that BOA’s Motion to Dismiss [DN 6] is DENIED.
FURTHER that Resurgent’s Motion to Dismiss [DN 15] is DENIED.

cc:

counsel of record

August 20, 2014

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