Thomas v. PHH Mortgage Services et al

Filing 20

MEMORANDUM OPINION. Signed by Judge Richard D. Bennett on 5/23/2017. (bas, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
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STEDFIELD THOMAS,

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Plaintiff,

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v.

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PHH MORTGAGE SERVICES, et al.,

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Defendants.
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Civil Action No.: RDB-16-3700

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MEMORANDUM OPINION
Plaintiff Stedfield Thomas (“plaintiff” or “Thomas”) has filed this action 1 seeking a
declaratory judgment and claiming breach of contract, asserting that he is entitled to
property insurance proceeds jointly issued to him and defendant PHH Mortgage Services
(“PHH”), plaintiff’s former mortgage servicer, following a fire which destroyed the subject
secured property, a residence located on West Franklin Street in Baltimore, Maryland. (ECF
Nos. 2, 11.)

Plaintiff’s original Complaint was filed in the Circuit Court for Baltimore City, Maryland on September 23,
2016. (Notice of Removal, ECF No. 1 at ¶ 1.) Defendants timely removed the case to this Court on
November 14, 2016 pursuant to 28 U.S.C. §§ 1332 and 1441, invoking this Court’s diversity jurisdiction.
Defendants subsequently moved to dismiss this case on November 28, 2016. (ECF No. 10.) Plaintiff then
filed an Amended Complaint on January 3, 2017. (ECF No. 11.) The Amended Complaint seeks to cure
plaintiff’s asserted failure to name an indispensable party, Bank of New York Mellon Trust (“BNYM”), the
mortgagee, as a defendant. See ECF No. 10.
Defendants filed a Motion to Strike Plaintiff’s Amended Complaint on January 24, 2017. (ECF No. 19.)
Defendants argue that the Amended Complaint should be stricken because it was improperly filed outside the
period in which plaintiff could amend the Complaint as of right and, moreover, without leave of Court. See
Fed. R. Civ. P. 15.
In light of the liberal standard for granting leave to amend pleadings, the pending Motion to Strike (ECF
No. 19) is DENIED, and this Court will consider plaintiff’s Amended Complaint in ruling on the pending
Motion to Dismiss.
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Now pending before this Court is defendants’ Motion to Dismiss (“Defendants’
Motion”) (ECF No. 10). 2 The parties’ submissions have been reviewed, and no hearing is
necessary. See Local Rule 105.6 (D. Md. 2016). For the reasons stated below, Defendants’
Motion to Dismiss (ECF No. 10) is GRANTED, and this case is DISMISSED WITH
PREJUDICE.
BACKGROUND
Plaintiff was the owner of a residential property located at 934 West Franklin Street
in Baltimore, Maryland. (ECF No. 11 at ¶ 8.) Plaintiff acquired the property through a
mortgage loan in the amount of $63,900.00 provided by defendant PHH. (Id.) The property
was secured by a Deed of Trust dated May 19, 2005. (ECF No. 10-3.) Under the terms of
the Deed of Trust, plaintiff agreed that the trustee would have the power to sell the property
upon default. (Id. at ¶ 22.) The Deed of Trust also required plaintiff to insure the property
against loss by fire and other hazards. (Id. at ¶ 5.) The mortgage loan was later transferred
from PHH to defendant Bank of New York Mellon Trust (“BNYM”), with PHH remaining
the servicer of the loan. 3 (ECF No. 10-4.)
After Thomas defaulted on the mortgage loan, BNYM appointed substitute trustees
who initiated foreclosure proceedings in the Circuit Court for Baltimore City, Maryland on

Defendants moved to dismiss pursuant to Rules 12(b)(6) and 12(b)(7) of the Federal Rules of Civil
Procedure. (ECF No. 10.) As the Amended Complaint joins BNYM, which defendant asserts to be an
indispensable party, as a defendant, defendant’s argument in support of dismissal pursuant to Rule 12(b)(7) is
MOOT.
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While plaintiff has named Wells Fargo Bank, N.A. as a defendant, the Amended Complaint makes no
allegations related to this party. The only reference to Wells Fargo anywhere in the pleadings, it appears, is on
the Form 1099 issued to Plaintiff. (ECF No. 2-5 at 2.) This reference is not sufficient to state a plausible
claim for relief against Wells Fargo. Accordingly, all claims against it are DISMISSED WITH PREJUDICE.

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January 16, 2014. (ECF No. 10-6.) While the foreclosure action was pending, the property
was extensively damaged by fire on October 9, 2014. (ECF No. 11 at ¶ 10.) On December
1, 2014, Standard Guaranty Insurance Company sent Thomas a check in the amount of
$20,591.84 to cover the damage to the property. (ECF No. 11 at ¶ 11.) Thomas endorsed
the check and forwarded the funds to PHH. (Id. at ¶ 12.) Thomas also engaged an
independent claims adjuster to revisit the insurer’s award. (Id. at ¶ 13.) Following further
investigation, plaintiff alleges that the adjuster persuaded the insurer to award $88,000.00 to
cover the damages in full. (Id.)
The property was sold at a foreclosure sale on June 11, 2015. (ECF No. 11 at ¶ 18.)
The property was purchased by the BNYM Trust for $45,000.00. (ECF No. 10-7.) On
August 4, 2015, Standard Guaranty Insurance Company issued to Thomas and PHH an
additional check in the amount of $44,508.16. (ECF No. 11 at ¶ 14; ECF No. 2-3 at 2.) The
sale was ratified by the Circuit Court for Baltimore City on August 6, 2015. (ECF No. 11 at
¶ 18; ECF Nos. 10-6, 10-7.) Recognizing the mortgage to be in default, plaintiff alleges that
he attempted to resolve his delinquency with PHH by tendering the insurance proceeds;
PHH rejected Thomas’ overtures. (ECF No. 11 at ¶¶ 16-17.)
Following the completion of the foreclosure proceedings, PHH notified Thomas that
there was a deficiency of $43,648.26. (ECF No. 11 at ¶ 24.) PHH elected not to pursue the
deficiency, however, and issued to plaintiff an IRS Form 1099-C reflecting the cancellation
of the debt in January 2016. (Id. at ¶ 25.) During this time, plaintiff remained in possession
of the insurance proceeds and requested that PHH endorse the check to plaintiff only. (Id.
at ¶ 28.) These funds, initially issued to plaintiff and later reissued to PHH in August 2016,

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are at the heart of plaintiff’s claims in the instant suit. (Id. at ¶ 14.) Defendants have refused
to release the insurance proceeds to plaintiff, as they maintain that any insurance proceeds
were assigned to them under the Deed of Trust and, moreover, that their losses exceed the
amount of the insurance proceeds. 4 (Id. at ¶ 29.)
Plaintiff originally filed his Complaint in the Circuit Court for Baltimore City,
Maryland on September 23, 2016. (Notice of Removal, ECF No. 1 at ¶ 1.) Defendants
timely removed the case to this Court on November 14, 2016 pursuant to 28 U.S.C. §§ 1332
and 1441, invoking this Court’s diversity jurisdiction. Defendants subsequently moved to
dismiss this case on November 28, 2016. (ECF No. 10.) Plaintiff then filed an Amended
Complaint on January 3, 2017. (ECF No. 11.)
STANDARD OF REVIEW
Rule 12(b)(6) of the Federal Rules of Civil Procedure authorizes the dismissal of a
complaint if it fails to state a claim upon which relief can be granted. Fed. R. Civ. P.
12(b)(6). The purpose of Rule 12(b)(6) is “to test the sufficiency of a complaint and not to
resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.”
Presley v. City of Charlottesville, 464 F.3d 480, 483 (4th Cir. 2006); see also Goines v. Valley Cmty.
Servs. Bd., 822 F.3d 159, 165-66 (4th Cir. 2016).

The sufficiency of a complaint is assessed

by reference to the pleading requirements of Rule 8(a)(2), which provides that a complaint
must contain a “short and plain statement of the claim showing that the pleader is entitled to
relief.” Fed. R. Civ. P. 8(a)(2).

Defendants note that BNYM sold the property to a third-party individual purchaser on May 4, 2016 for a
sum of $5,000.00. (ECF No. 10-2 at 11.)

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To survive a motion under Fed. R. Civ. P. 12(b)(6), a complaint must contain facts
sufficient to “state a claim to relief that is plausible on its face.” Bell Atl., Corp. v. Twombly,
550 U.S. 544, 570 (2007); Ashcroft v. Iqbal, 556 U.S. 662, 684 (2009). Under the plausibility
standard, a complaint must contain “more than labels and conclusions” or a “formulaic
recitation of the elements of a cause of action.” Twombly, 550 U.S. at 555; see Painter’s Mill
Grille, LLC v. Brown, 716 F.3d 342, 350 (4th Cir. 2013).
In reviewing a Rule 12(b)(6) motion, a court “‘must accept as true all of the factual
allegations contained in the complaint’” and must “‘draw all reasonable inferences [from
those facts] in favor of the plaintiff.’” E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637
F.3d 435, 440 (4th Cir. 2011) (citations omitted); see Houck v. Substitute Tr. Servs., Inc., 791 F.3d
473, 484 (4th Cir. 2015); Semenova v. Maryland Transit Admin., 845 F.3d 564, 567 (4th Cir.
2017). While a court must accept as true all the factual allegations contained in the
complaint, legal conclusions drawn from those facts are not afforded such deference. Iqbal,
556 U.S. at 678 (“[t]hreadbare recitals of the elements of a cause of action, supported by
mere conclusory statements, do not suffice” to plead a claim); see A Society Without a Name v.
Virginia, 655 F.3d 342, 346 (4th. Cir. 2011).
Under limited exceptions, a court may consider documents beyond the complaint
without converting the motion to dismiss to one for summary judgment. Goldfarb v. Mayor
& City Council of Baltimore, 791 F.3d 500, 508 (4th Cir. 2015). A court may properly consider
documents that are “explicitly incorporated into the complaint by reference and those
attached to the complaint as exhibits . . . .” Goines, 822 F.3d at 166 (citations omitted); see
U.S. ex rel. Oberg, 745 F.3d at 136 (quoting Philips v. Pitt Cty Memorial Hosp., 572 F.3d 176, 180

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(4th Cir. 2009)); Anand v. Ocwen Loan Servicing, LLC, 754 F.3d 195, 198 (4th Cir. 2014); Am.
Chiropractic Ass’n v. Trigon Healthcare, Inc., 367 F.3d 212, 234 (4th Cir. 2004), cert. denied, 543
U.S. 979 (2004); Phillips v. LCI Int’l Inc., 190 F.3d 609, 618 (4th Cir. 1999).
A court may also “consider a document submitted by the movant that was not
attached to or expressly incorporated in a complaint, so long as the document was integral to
the complaint and there is no dispute about the document’s authenticity.” Goines, 822 F.3d
at 166 (citations omitted). To be “integral,” a document must be one “that by its ‘very
existence, and not the mere information it contains, gives rise to the legal rights asserted.’”
Chesapeake Bay Found., Inc. v. Severstal Sparrows Point, LLC, 794 F. Supp. 2d 602, 611 (D. Md.
2011) (citation omitted) (emphasis in original).
DISCUSSION
I.

Count I – Declaratory Judgment

In support of their Motion to Dismiss, defendants argue that plaintiff cannot
plausibly assert his entitlement to the insurance proceeds because the terms of the Deed of
Trust expressly attribute the insurance proceeds to BNYM as mortgagee, and, moreover,
because BNYM’s losses exceeded the amount of the insurance proceeds received. (ECF No.
10-2 at 16-17.)
In opposition, plaintiff relies on a decision of the Maryland Court of Special Appeals,
also cited by defendants in their Motion to Dismiss, which provides, in pertinent part, that:
[W]here the insured premises are damaged before foreclosure proceedings
have been instituted or, if after they have been instituted, prior to the sale
being held, and the mortgagee purchases the property at the foreclosure sale,
the mortgagee is permitted to retain the insurance proceeds pursuant to a
mortgage clause requiring insurance, to the extent of any deficiency between
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the amount brought at foreclosure and the amount of the debt. The remainder
of the proceeds is payable to the mortgagor.
Rollins v. Bravos, 80 Md. App. 617, 628, 565 A.2d 382, 387 (1989).
It is undisputed that this principle applies in the case now before this Court. See ECF
No. 10-2 at 16; ECF No. 12 at 13. Indeed, Section 5 of the Deed of Trust provides for
largely same result. (ECF No. 10-3 at ¶ 5.) However, in asserting his entitlement to the
insurance proceeds, plaintiff overlooks the consequence of defendants’ waiver of his
deficiency. As the Court of Special Appeals explained in Garland v. Hill:
[W]hen a mortgager purchases at a foreclosure sale the property upon which
he holds the mortgage, for an amount less than the mortgage debt and costs,
and the mortgagee thereafter waives any claim to a deficiency judgment, the
effect of the waiver is the same as if the bid had been for the full amount
of the mortgage debt and costs.
Garland v. Hill, 28 Md. App. 622, 630, 346 A.2d 711, 716 (1975), aff’d, 277 Md. 710, 357 A.2d
374 (1976). The effect of this rule in the instant case is that plaintiff is unable to allege his
entitlement to any of the $44,508.16 in insurance proceeds now in dispute, as explained in
detail below.
Based on BNYM’s waiver of the deficiency, the rule announced in Garland v. Hill
treats the foreclosure sale cost as $88,648.26, equal to the total amount claimed by BNYM
(original loan plus accrued interest and foreclosure costs). (ECF No. 10-2 at 18, n. 11.)
Thus, BNYM’s total ‘receipts’ are the $20,591.84 in insurance proceeds (the first check) and
$88,648.26 from the foreclosure sale; these amounts total $109,240.10. 5 On the other hand,

The $5,000.00 received through the subsequent third-party sale, as plaintiff notes, is not relevant to the
instant analysis. (ECF No. 12 at 14.)
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BNYM’s total ‘losses’ are the $88,648.26 ‘paid’ at the foreclosure sale 6 and the $88,648.26 in
debt claimed; these amounts total $177,296.52. Thus, BNYM’s total deemed losses under
Garland exceed its total deemed receipts by $68,056.42. These calculations are summarized
in the following table:
Insurance Proceeds (First Check)
Deemed Sale Price
Debt Claimed
Total Receipts
Total Losses
Balance (deficiency)

BNYM Receipts
$ 20,591.84

BNYM Losses

$ 88,648.26

$ (88,648.26)
$ (88,648.26)

$ 109,240.10
$ (68,056.42)

$ (177,296.52)

As the foregoing calculations indicate, BNYM’s $68,056.42 in losses exceed the
$44,508.16 in insurance proceeds now in dispute. Thus, BNYM is entitled to the entire
$44,508.16 in insurance proceeds, leaving it with a total deemed loss of $23,548.26. These
calculations are summarized in the following table:
Insurance Proceeds (First Check)
Insurance Proceeds (Second Check)
Deemed Sale Price
Debt Claimed
Total Receipts
Total Losses
Balance (deficiency)

BNYM Receipts
$ 20,591.84
$ 44,508.16

BNYM Losses

$ 88,648.26

$ (88,648.26)
$ (88,648.26)

$ 153,748.26
$ (23,548.26)

$ (177,296.52)

Accepting as true the well-pleaded factual allegations in plaintiff’s Amended
Complaint, there remains $22,900.00 in insurance proceeds still to be paid. (ECF No. 11 at
As is its right, BNYM paid at the foreclosure sale using the indebtedness owed to it. See Citibank Fed. Sav.
Bank v. New Plan Realty Trust, 131 Md. App. 44, 52, 748 A.2d 24, 28 (2000) (“It is well-settled in Maryland that
a mortgagee may purchase the mortgaged property at a foreclosure sale by applying the mortgage debt to the
purchase price, rather than by paying with cash or a certified check.”).
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¶¶ 11-14.) Were these funds to be distributed, BNYM’s remaining $23,548.26 in losses
exceed the $22,900.00 which are allegedly pending, leaving it with a total deemed loss of
$648.26. 7 These calculations are summarized in the following table:
Insurance Proceeds (First Check)
Insurance Proceeds (Second Check)
Insurance Proceeds (Third Check)
Deemed Sale Price
Debt Claimed
Total Receipts
Total Losses
Balance (deficiency)

BNYM Receipts
$ 20,591.84
$ 44,508.16
$ 22,900.00
$ 88,648.26
$176,648.26
$ (648.26)

BNYM Losses

$ (88,648.26)
$ (88,648.26)
$ (177,296.52)

Thus, even if the additional insurance funds alleged to be pending were distributed, BNYM
would still be entitled to the total amount of such funds, and plaintiff is unable to
demonstrate his entitlement to any part thereof. 8
As plaintiff is unable to demonstrate his entitlement to any part of the insurance
proceeds or in the allegedly forthcoming additional insurance proceeds, he fails to state a
plausible claim for relief. Accordingly, Count I of plaintiff’s Amended Complaint, seeking a
declaratory judgment, must be DISMISSED WITH PREJUDICE. 9

While, for purposes of assessing plaintiff’s pleadings, this Court must accept as true plaintiff’s allegation that
Standard Guaranty Insurance Company intends to distribute these additional funds, it bears mention that the
memorandum accompanying the second insurance check states: “ACV APPRAISAL LESS DED AND
PRIOR PMT.” (ECF No. 2-3 at 2.) It appears that these abbreviations stand for the phrase, “[Actual Cash
Value] Appraisal Less [Deductible] and Prior [Payment],” perhaps suggesting that all funds due from the
insurer have been paid.

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While BNYM limits its claimed entitlement to any additional funds to $18,548.26 (presumably based on the
$5,000.00 received in the subsequent third-party sale), the subsequent sale, as previously noted, is not relevant
to the instant calculations, as it was BNYM’s right as titleholder of the property following foreclosure to sell
or otherwise convey the property as it deemed fit.
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Dismissal with prejudice is appropriate because plaintiff has filed both his original Complaint (ECF No. 2)

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II.

Count II – Breach of Contract

Count II of plaintiff’s Amended Complaint alleges that defendants breached the
Deed of Trust contract by failing to apply the insurance proceeds to plaintiff’s indebtedness.
(ECF No. 11 at ¶¶ 47-48.) Thomas further alleges that defendants acted in bad faith by
refusing to “negotiate a resolution of his indebtedness including…negotiat[ing] a refinancing
of the mortgage loan.” (ECF No. 11 at ¶¶ 49-50.)
With respect to the alleged breach of the express terms of the Deed of Trust
requiring defendants to apply the insurance proceeds to plaintiff’s indebtedness, defendants
point to Section 5 of the Deed of Trust, which provides that:
[I]f Lender acquires the Property under Section 22 or otherwise, Borrower
hereby assigns to Lender (a) Borrower’s rights to any insurance
proceeds in an amount not to exceed the amounts unpaid under the Note or
this Security Instrument. … Lender may use the insurance proceeds either
to repair or restore the Property or to pay amounts unpaid under the Note or
this Security Instrument, whether or not then due.
(ECF No. 10-3, ¶ 5) (bold and underline added). Section 22 of the Deed of Trust pertains to
the lender’s right to accelerate payments on the loan and to initiate foreclosure proceedings.
(Id. at ¶ 22.) Section 22 requires the lender to notify the borrower of his right to reinstate
the loan following default.
In this case, defendants initiated foreclosure proceedings on the property on January
16, 2014. (ECF No. 10-6.) At the time of the foreclosure, plaintiff owed $49,240.92 on the
loan. (ECF No. 11 at ¶ 16.) The fire which destroyed the property occurred on October 9,
2014. (Id. at ¶ 10.) The first insurance check, for $20,341.84, was issued on December 1,
2014. (Id. at ¶ 11.) Plaintiff does not allege that he could have reinstated the loan with the
and his Amended Complaint (ECF No. 11).

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proceeds of the first insurance check. (Id. at ¶ 18.) The property was ultimately sold at a
foreclosure sale on June 11, 2015.

(Id.) Plaintiff does not allege that he could have

reinstated the loan before the sale. Indeed, it was not until plaintiff received the second
insurance check, for $44,508.16, on August 4, 2015, that he alleges he could have reinstated
the loan. (Id. at ¶¶ 14-16.) As plaintiff does not allege that he could have reinstated the loan
before the date of the foreclosure sale, he cannot plausibly allege that defendants breached the
contract by declining to apply the partial payment tendered ($20,341.84 in insurance
proceeds) to reinstate his debt of $49,240.92.
Moreover, Thomas fails to state a plausible claim that defendants acted in ‘bad faith’
by refusing to accept plaintiff’s partial tender of payment or his requests to renegotiate the
mortgage. “While it is true that a contract in Maryland gives rise to an implied duty of good
faith and fair dealing, that duty concerns the ‘performance and enforcement’ of the contract
itself.” Blondell v. Littlepage, 413 Md. 96, 113, 991 A.2d 80, 90 (2010) (internal citations
omitted). “[T]he covenant of good faith and fair dealing ‘does not obligate a [party] to take
affirmative actions that the [party] is clearly not required to take under [the contract].’” Id.
(quoting Parker v. Columbia Bank, 91 Md. App. 346, 604 A.2d 521, 531 (1992)). In this case,
plaintiff fails to allege any affirmative actions that defendants were required to take with
respect to his defaulted mortgage. Rather, the Amended Complaint offers the conclusory
allegation that defendants acted in bad faith by “pursuing a cause of action based on
foreclosure to secure the insurance proceeds for their benefit.” (ECF No. 11 at 50.) As
defendants had the right to initiate foreclosure proceedings following plaintiff’s default and
also had the right under the contract to receive the insurance proceeds to mitigate the

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diminution in value of the secured property, it cannot be said that defendants acted in bad
faith by doing so. Accordingly, plaintiff fails to state a plausible claim for breach of contract,
and Count II of the Amended Complaint must be DISMISSED WITH PREJUDICE. 10
CONCLUSION
For the reasons stated above, Defendants’ Motion to Dismiss (ECF No. 10) is
GRANTED, and this case is DISMISSED WITH PREJUDICE.
A separate Order follows.
Dated: May 23, 2017

/s/
Richard D. Bennett
United States District Judge

While the heading to Count II refers to a “Breach of Fiduciary Duty,” plaintiff does not allege or identify
any fiduciary relationship on the part of defendants. This mere label is unavailing and insufficient to survive a
motion to dismiss. Twombly, 550 U.S. at 555.
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