Arace v. Quicken Loans, Inc. et al

Filing 27

ORDER AND OPINION: Quicken Loans moved to dismiss pursuant to Rule l 2(b)(6), arguing that Plaintiff fails to state a claim in light of Freeman because she does not allege her tax service fee was split. The Court agrees. Quicken Loans' motion to dismiss is therefore granted. The Clerk of Court is respectfully directed to terminate item number 21 on the docket and close this action. (As further set forth in this Order.) (Signed by Judge Ronnie Abrams on 2/1/2016) (cf)

USDC-SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC#:
DATE FILED: 02/01/2016

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

ALEXANDRA ARACE, individually and on
behalf of all others similarly situated,
No. 15-CV-382 (RA)

Plaintiff,

OPINION & ORDER

v.
QUICKEN LOANS, INC. and DOES 1-20,
Defendants.

RONNIE ABRAMS, United States District Judge:
Plaintiff brings this putative class action pursuant to the Real Estate Settlement Procedures
Act alleging that Defendants Quicken Loans, Inc. and up to 20 unknown associates engaged in an
improper mortgage lending practice by charging and splitting an unnecessary "tax service fee" in
connection with Plaintiffs mortgage loan.

Specifically, Plaintiff alleges that because her

residential building is run as a cooperative and owned by a cooperative corporation that pays the
real estate taxes on all the units, Quicken Loans had no need to charge Plaintiff a tax service fee
on behalf of itself or any other entity. Plaintiff brings her claim pursuant to 12 U.S.C. § 2607(b),
which prohibits the splitting of unearned fees related to mortgage loans. The Supreme Court
recently made clear, however, that§ 2607(b) proscribes only the splitting of fees "between two or
more persons" and does not provide a remedy when fees are unearned but not split. Freeman v.

Quicken Loans, Inc., 132 S. Ct. 2034, 2044 (2012).
Quicken Loans moved to dismiss pursuant to Rule l 2(b )( 6), arguing that Plaintiff fails to
state a claim in light of Freeman because she does not allege her tax service fee was split. The
Court agrees. Quicken Loans' motion to dismiss is therefore granted.

BACKGROUND
I.

Facts

On January 14, 2015, Plaintiff obtained a thirty-year fixed-rate mortgage loan from
Quicken Loans to finance her purchase of the shares allocated to an apartment in a residential
cooperative building in Manhattan.

Am. Com pl. ~~ 5, 15.

Residential buildings owned as

cooperatives, or "co-ops," are unusual in that residents do not own the physical units in which they
live but rather shares "of the residential housing corporation ... that owns the subject building."
Id. ~ 12. The corporation is thus "the owner of the real property subject to real estate taxes, and
the unit space is not identified by an individual tax lot designation." Id. (emphasis omitted).
Typically, cooperative corporations "charge maintenance fees to unit owners, remittance of which
is used to pay the operating expenses of the [c]ooperative [c]orporation, which include[] remittance
of the real estate taxes applicable to the entire [building]." Id. ~ 13.
Plaintiff alleges that, at some point before she obtained her mortgage loan, Quicken Loans'
counsel notified her that she would be charged "a Tax Service Fee in the sum of Seventy-Eight
($78.00) Dollars." Id. ~ 15. According to Plaintiff, that fee "was split by [Quicken Loans] with
payment subsequent to Plaintiff's purchase of the sum of Sixty ($60.00) Dollars to First American
Real Estate Tax Service and Eighteen ($18.00) Dollars to Title Source, Inc." Id. Plaintiffs HUD1 Settlement Statement referenced in her First Amended Complaint indicates, however, that
Plaintiff was charged a "Tax Service Fee" in the amount of $60.00 paid to First American Real
Estate Tax Service ("First American") and a separate "Tax Certification" fee in the amount of
$18.00 paid to Title Source, Inc. Rose-Smith Deel. Ex. A ("HUD-1") at 2; see Am. Compl. ~ 15.
Plaintiff further alleges that neither Quicken Loans nor the entities with which she claims
Quicken Loans split the tax service fee performed any service in exchange for the charge. Am.

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Compl. , 16. Plaintiff concedes that mortgage lenders may charge "a one time 'tax service fee'
for the cost to contact the taxing authority, create [a] tax escrow [account], and [e]nsure timely
payment of applicable taxes pertaining to real property." Id. , 11 (emphasis omitted). Plaintiff
contends, however, that none of these reasons apply to a cooperative corporation. She alleges that
"Quicken Loans independently ... verified the absence of any tax lien either against the [u ]nit
purchased by Plaintiff or the [c]ooperative [as a whole] by requiring a lien search" separate from
the tax service fee, for which Plaintiff alleges she was charged $350.00. Id. , 16. Plaintiff also
alleges that because the cooperative corporation is responsible for paying the real estate taxes on
all the apartments in the building, Quicken Loans had no reason to create a tax escrow account or
ensure that the building's real estate taxes were paid in a timely manner. Id. ,, 12-13. Plaintiff
thus claims that she was charged an unearned tax service fee that was split in violation of§ 2607(b ).
II.

Procedural History
Plaintiff initiated this action on January 20, 2015, less than a week after obtaining the

mortgage loan at issue. Dkt. 1. On April 27, 2015, Quicken Loans moved to dismiss pursuant to
Rule 12(b)(6), relying on Freeman. Dkt. 13. On May 7, 2015, Plaintiff filed her First Amended
Complaint, which clarified her allegations as to how she believed the tax service fee was split and
why it was unearned. Dkt. 20. On May 21, 2015, Quicken Loans again moved to dismiss pursuant
to Rule 12(b )( 6), arguing that Plaintiff's allegations were still insufficient in light of Freeman.
Dkt. 21. On June 18, 2015, the Court stayed all discovery pending resolution of Quicken Loans'
motion. Dkt. 26.

LEGAL STANDARD
To survive a motion to dismiss brought pursuant to Rule 12(b)(6) of the Federal Rules of
Civil Procedure, a complaint must allege "enough facts to state a claim to relief that is plausible

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on its face." Bell At!. 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." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
In other words, facial plausibility "asks for more than a sheer possibility that a defendant has acted
unlawfully." Id. "Where a complaint pleads facts that are 'merely consistent with' a defendant's
liability, it 'stops short of the line between possibility and plausibility of entitlement to relief."'

Id. (quoting Twombly, 550 U.S. at 557). Ultimately, although "the pleading standard Rule 8
announces does not require 'detailed factual allegations,' ... it demands more than an unadorned,
the-defendant-unlawfully-harmed-me accusation." Id. (quoting Twombly, 550 U.S. at 555). In
applying this standard, courts must "accept all factual allegations as true, and draw all reasonable
inferences in the plaintiffs favor." DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104, 110-111 (2d
Cir. 2010) (quoting Shomo v. City of New York, 579 F.3d 176, 183 (2d Cir. 2009)) (internal
alterations omitted).

DISCUSSION
Plaintiff raises a single claim, namely that Defendants violated 12 U.S.C. § 2607(b), which
provides that "[n]o person shall give and no person shall accept any portion, split, or percentage
of any charge made or received for the rendering of a real estate settlement service in connection
with a transaction involving a federally related mortgage loan other than for services actually
performed." In Freeman, however, the Supreme Court held that§ 2607(b) "unambiguously covers
only a settlement-service provider's splitting of a fee with one or more other persons; it cannot be
understood to reach a single provider's retention of an unearned fee." 132 S. Ct. at 2040. In light
of Freeman, a plaintiff seeking to state a claim under§ 2607(b) "must demonstrate that a charge
for settlement services was divided between two or more persons." Id. at 2044.

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Plaintiff alleges that Quicken Loans charged her $78 for a tax service fee that was
subsequently split between First American, which received $60, and Title Source, which received
$I 8. Am. Com pl. ~ I 5. This allegation is belied, however, by Plaintiffs HUD-I, which indicates
that Plaintiff was charged a $60 "Tax Service Fee" to be paid to First American and an $I 8 "Tax
Certification" fee to be paid to Title Source. HUD-I at 2. Relying on the HUD-I, Quicken Loans
argues that Plaintiff fails to plausibly allege she was charged a split tax service fee. See Def. 's
Mem. 8-9.
As a preliminary matter, the Court may consider the HUD-I in deciding Quicken Loans'
motion. "When presented with a motion to dismiss pursuant to Rule I2(b)(6), the Court may
consider documents that are referenced in the complaint, documents that the plaintiff relied on in
bringing suit and that are either in the plaintiff's possession or that the plaintiff knew of when
bringing suit, or matters of which judicial notice may be taken." Graham v. Select Portfolio

Servicing, Inc.,_ F. Supp. 3d __ , 20I6 WL 2I5237, at *2 (S.D.N.Y. Jan. I8, 2016) (citing
Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002)). In Chambers, the Second
Circuit made plain "that a plaintiff's reliance on the terms and effect of a document in drafting the
complaint is a necessary prerequisite to the court's consideration of the document on a dismissal
motion." 282 F.3d at 153. Here, the First Amended Complaint explicitly references the HUD-1
and alleges that Plaintiff received notice of the split fee "pursuant to the HUD-I Settlement
Statement." Am. Com pl. ~ I 5. Plaintiff also signed two of the HUD-1 's four pages. See HUD-1
at 2, 4. Plaintiff thus both possessed the HUD- I before filing this action and explicitly relied on
its contents in drafting the First Amended Complaint. In these circumstances, the Court may rely
on the HUD- I.

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Plaintiffs HUD-1 directly contradicts her allegation that she was charged a $78 tax service
fee that was split by First American and Title Source. The HUD- I indicates at line 806 that
Plaintiff was charged $60 as a tax service fee-not $78-all of which was distributed to First
American. See HUD-I at 2. The remaining $18 that Plaintiff alleges was also part of the tax
service fee and was distributed to Title Source appears at line 8 I 0 as a "Tax Certification" charge.
See id. These are two separate fees distributed to two separate entities, not one fee split between

two entities: the Department of Housing and Urban Development's instructions for completing
HUD-1 settlement statements explain that line 806 "is used to record the fee for any tax service"
and line 810 is "used to record other third party services required by the loan originator." 24 C.F.R.
Pt. 3500, App'x A at 430.
Plaintiff makes no attempt to square her First Amended Complaint with her HUD- I, nor
does she allege any facts that might suggest that the tax service fee and tax certification charge
were in fact one and the same. 1 The Court therefore concludes, contrary to the First Amended
Complaint, that Plaintiff was charged two separate fees: a $60 tax service fee and an $18 tax
certification fee. See Zappulla v. Fischer, No. I I-CV-6733 (IMF), 20I3 WL 1387033, at *1
(S.D.N.Y. Apr. 5, 2013) ("When a court considers documents outside the four corners of the
complaint, it is not required to accept as true facts alleged in the complaint that are contradicted

1 The Department of Housing and Urban Development's settlement costs booklet indeed defines "tax service
fee" differently than "tax certificate." A tax service fee "covers the cost of your lender engaging a third party to
monitor and handle the payment of your property tax bills," while a tax certificate is "official proof of payment of
taxes due provided at the time of transfer of property title by the state or local government." U.S. Dep't of Housing
& Urban Dev., Shopping for Your Home Loan: HUD's Settlement Cost Booklet, at 42 (2010), available at
http ://portal. hud .gov/hudportal/HUD?src=/program _ offices/hous ing/rmra/res/settlement-cost-booklet03252010 (last
visited Feb. I, 2016). The Court may take judicial notice of the settlement costs booklet, as it is a "document[]
retrieved from [an] official government website[]." Wells Fargo Bank, NA. v. Wrights Mill Holdings, LLC, ~ F.
Supp. 3d _ _ , 2015 WL 5122590, at *7 (S.D.N.Y. Aug. 31, 2015); see also Simon v. Smith & Nephew, Inc., 990 F.
Supp. 2d 395, 399 n. l (S.D.N.Y. 2013) (taking judicial notice on motion to dismiss of "documents issued by
government agencies").

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by the documents." (citing NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., 693
F.3d 145, 149 n.1 (2d Cir. 2012))).
Because Plaintiff concedes-and her HUD- I confirms-that all of her $60 tax service fee
was paid to First American, Plaintiff has not alleged "that a charge for settlement services was
divided between two or more persons." Freeman, 132 S. Ct. at 2044; compare Am. Compl. ~ 15
with HUD-1 at 2. This failure is fatal to Plaintiffs claim under § 2607(b ).

For this reason, the Court dismisses Plaintiffs § 2607(b) claim and need not even
determine whether Plaintiff plausibly alleges that the tax service fee was unearned.

As the

Supreme Court recognized in Freeman, "Congress may well have concluded [in enacting §
2607(b )] that existing remedies, such as state-law fraud actions, were sufficient to deal with the
problem of entirely fictitious fees, whereas legislative action was required to deal with the
problems posed by kickbacks and fee splitting." 132 S. Ct. at 2044. Because she fails to allege
fee splitting, Plaintiffs§ 2607(b) claim fails even if the fee was unearned.
CONCLUSION

Quicken Loans' motion to dismiss is granted. The Clerk of Court is respectfully directed
to terminate item number 21 on the docket and close this action.
SO ORDERED.
Dated:

February 1, 2016
New York, New York
Ron ie
rams
United States District Judge

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