Roosevelt Cayman Asset Company II v. Heredia-Mercado et al
Filing
32
OPINION and ORDER denying 17 Motion to Dismiss for Failure to State a Claim. Signed by US Magistrate Judge Bruce J. McGiverin on July 22, 2016. (McGiverin, Bruce)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
ROOSEVELT CAYMAN ASSET
COMPANY II,
Plaintiff,
Civil No. 15-2314 (BJM)
v.
FEBIAN HEREDIA MERCADO, et al.,
Defendant.
OPINION AND ORDER
Plaintiff Roosevelt Cayman Asset Company II (“Cayman”) filed a complaint against
Febian Heredia Mercado and Clartiza Vera Nieves (“Mortgagors”) for collection of monies and
mortgage foreclosure. Docket No. 1. Defendants moved for dismissal of the complaint pursuant to
Federal Rule of Civil Procedure 12(b)(6), Docket No. 17, arguing that the complaint falls short of
alleging that Cayman complied with Consumer Financial Protection Bureau (“CFPB”) regulations.
Id. at 2. Cayman filed a response to the motion to dismiss, Docket No. 23, and Mortgagors filed a
reply to this response. Docket No. 26. The parties have consented to proceed before a magistrate
judge. Docket Nos. 18, 22. For the reasons set forth below, the motion is DENIED.
BACKGROUND
Cayman’s complaint alleges that on March 6, 2004, Mortgagors subscribed a mortgage
note payable to RG Premier Bank of Puerto Rico or to its order, for the principal amount of
$144,000.00, with a 6.25% annual interest rate. Docket No. 1 at 2 ¶ 6. The note was secured by a
first mortgage constituted by deed number 140, executed in Arecibo, Puerto Rico before Notary
Public Kermit R. Troche Mercado (Loan Number 800000666). Id. Cayman alleges it is the present
owner and holder of the note and mortgage deed, which is duly recorded at page 195 of volume
510 of the Utuado Registry of Property, Utuado Section, and that Mortgagors are the owners of
the mortgaged property according to the Registry of Property and Cayman’s best knowledge and
belief. Id. at 3 ¶¶ 8–9.
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Cayman alleges Mortgagors breached the loan repayment obligations by failing to make
the agreed-upon payments. Id. at 3 ¶ 10. As of September 3, 2015, Mortgagors owe to Cayman:
$119,340.35 in principal, accrued interest which continues to accrue at the annual rate of 6.125%
until full payment of the debt, accrued late charges, and any other advance, charge, fee, or
disbursements made by Cayman on behalf of Heredia, plus costs and ten percent attorney fees. Id.
Cayman alleges its “efforts to try and collect all outstanding amounts have been unsuccessful.” Id.
at 3 ¶ 11. Cayman seeks payment of the amounts detailed above, or on default, that the property
be sold at public auction and the money due to Cayman be paid from the proceeds of the sale. Id.
4 ¶ 12.
Mortgagors moved to dismiss for failure to state a claim upon which relief could be granted,
arguing that “Cayman’s complaint falls short of alleging that it complied with the [CFPB] rules,
which constitute a sine qua non requisite to file a foreclosure complaint.” Docket No. 17 at 2; see
Fed. R. Civ. P. 12(b)(6). Mortgagors state that Cayman did not allege that it provided written
notification of foreclosure alternatives to Mortgagors prior to filing its complaint, as required by
CFPB rules. See 12 C.F.R. § 1024.39(b). Mortgagors argue that instead of complying with the
CFPB’s rules, “[the complaint] simply alleges that [Cayman’s] ‘efforts to try to collect all
outstanding amounts have been unsuccessful.’” Id. at 5; see Docket No. 1 at 3 ¶ 11. Mortgagors
indicate that the applicable CFPB rules require more than mere collection efforts to commence a
foreclosure proceeding. Therefore, Mortgagors posit that the complaint does not set forth sufficient
factual allegations respecting each material element necessary to sustain recovery under some
actionable legal theory. Docket No. 17 at 5–6.
In its response to defendants’ motion to dismiss, Docket No. 23, Cayman contends that as
the real party in interest, it is not required, at this stage of proceedings, to describe or detail “all of
the steps under the requirements of the [CFPB] and/or under the terms of the loan documents it
took before accelerating the debt and filing the complaint.” Docket No. 23 at 2 ¶ 5. Cayman further
argues that it has set forth all of the factual allegations necessary to sustain recovery, including: an
establishment of jurisdiction, a description of the note executed by Mortgagors, a description of
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the mortgage, a description of the real property over which the mortgage was executed, an
allegation that it is the owner and holder of the note, an allegation that Mortgagors are the owners
of the mortgaged property, an allegation that Mortgagors defaulted on the loan repayment
obligation, an explanation of the outstanding debt, and a notice to Mortgagors that Cayman will
file a lis pendens in the Registry of Property. Id. at 3–4 ¶¶ 13–14.
Mortgagors replied that Cayman does not contest the key facts supporting the motion to
dismiss. Docket No. 26. Additionally, in a letter dated January 20, 2016, after the complaint was
filed, Mortgagors received an invitation from Rushmore Loan Management Services
(“Rushmore”) to evaluate foreclosure alternatives. On February 8, 2016, Mortgagors formally
accepted Rushmore’s invitation and requested access to a loss mitigation application. Id. at 1–3.
To this date, Mortgagors have not received an answer from Rushmore. Docket No. 26 at 3.
Mortgagors allege that Cayman cannot continue foreclosure while Rushmore simultaneously
considers their application because this would constitute illegal dual tracking (a practice where
servicers institute foreclosure proceedings at the same time that a borrower in default seeks a loan
modification). Id. at 2, 4 (citing Kloss v. RBS Citizens, N.A., 996 F. Supp. 2d 574, 585 (E.D. Mich.
2014); 12. C.F.R. § 1024.41(f)(2)).
DISCUSSION
Mortgagors argue Cayman’s complaint should be dismissed for failure to state a claim upon
which relief can be granted because Cayman was required to allege compliance with the newly
created rules to state a claim for foreclosure. Docket No. 17; Docket No. 26; see Fed. R. Civ. P.
12(b)(6). Mortgagors also argue that because Cayman cannot legally continue the foreclosure
while they await acceptance or denial for the application, Cayman does not have a cause of action.
Docket No. 26 at 4.
12(b)(6) Standard
Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain a short and plain
statement of the claim showing that the pleader is entitled to relief. This rule does not require
detailed or elaborate factual allegations, but a pleading that offers labels and conclusions or a
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formulaic recitation of the elements of a cause of action will not suffice. Bell Atl. Corp. v. Twombly,
550 U.S. 544, 555 (2007) (citing Conley v. Gibson, 355 U.S. 41, 47 (1957)); Papasan v. Allain,
478 U.S. 265, 286 (1986) (on a motion to dismiss, courts “are not bound to accept as true a legal
conclusion couched as a factual allegation.”)).
A trial court considering a Rule 12(b)(6) motion accepts as true all well-pleaded allegations
in the complaint, drawing all reasonable inferences in the defendant’s favor. To survive dismissal,
a complaint must allege a plausible set of facts sufficient “to raise a right to relief above the
speculative level.” Twombly, 550 U.S. at 555. In other words, “a complaint must contain sufficient
factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v.
Iqbal, 556 U.S. 662, 663 (2009) (quoting Twombly, 550 U.S. at 570). “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.” Iqbal, 556 U.S. at 663; Sanchez
v. Pereira-Castillo, 590 F.3d 31, 41 (1st Cir. 2009). Mere conceivability that the plaintiff is entitled
to relief based on the factual allegations presented is not sufficient. Iqbal, 550 U.S. at 662 (citing
Twombly, 550 U.S. at 567); Torres v. Bella Vista Hosp., Inc., 523 F. Supp. 2d 123, 133 (D.P.R.
2007). Applying the plausibility standard is “a context-specific task that requires the reviewing
court to draw on its judicial experience and common sense.” Iqbal, 556 U.S. at 662.
Cause of Action
In this diversity action, Puerto Rico law applies. See CitiMortgage, Inc. v. RiveraAnabitate, 39 F. Supp. 3d 152, 154 (D.P.R. 2014). It is well settled under Puerto Rico law that
“[a] person receiving money or any other perishable thing on loan acquires its ownership, and is
bound to return to the creditor an equal amount of the same kind and quality.” Puerto Rico Civil
Code, Article 1644, P.R. Laws Ann. tit. 31, § 4571. See Espino v. Frias, No. 139, 1904 WL 3781
(P.R. Dec. 19, 1904). Further, “[o]bligations arising from contracts have legal force between the
contracting parties, and must be fulfilled in accordance with their stipulations.” Puerto Rico Civil
Code, Article 1044, P.R. Laws Ann. tit. 31, § 2994. Therefore, courts may not relieve a party of
its agreed-upon contractual obligations. See Cerveceria Corona v. Commonwealth Ins. Co., No.
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R-83-418, 1984 WL 270942 (P.R. Apr. 26, 1984); Hennes v. Sun Life Assurance Co. of Canada,
291 F. Supp. 670, 673 (D.P.R. 1968).
A mortgage “directly and immediately binds an estate and the rights on which it is
imposed, whoever its owner or titleholder may be, to the fulfillment of the obligation for the
security of which it was constituted.” Mortgage Law of 1979, Article 155, P.R. Laws Ann. tit.
30, § 2551. Puerto Rico's Civil Code additionally states that “[a] mortgage directly and
immediately subjects the property on which it is imposed, whoever its possessor may be, to the
fulfillment of the obligation for the security of which it was created.” Roosevelt Cayman Asset
Co. v. Brea, Civil No. 15-1653 (CVR) 2016 WL 1716837, at *3 (D.P.R. April 28, 2016) (citing
Puerto Rico Civil Code, Article 1775, P.R. Laws Ann. tit. 31, § 5043); see also Cristy v. Banco
Territorial y Agrícola, 11 P.R.R. 525 (1906). “The real right of a mortgage, once constituted
subject to the mortgaged good, grants whoever is its title holder or possessor the power to demand
the fulfillment of the obligation that it warranties, with preference corresponding to the degree of
registration.” Brea, 2016 WL 1716837, at *3 (internal citations omitted).
Under Puerto Rico law, the elements of a cause of action for breach of contract are: (1) a
valid contract, (2) a breach by one of the parties to the contract, and (3) resulting damages. Mega
Media Holdings, Inc. v. Aerco Broadcasting Corp., 852 F. Supp. 2d 189, 200 (D.P.R. 2012)
(quoting Citibank Global Mkts., Inc. v. Santana, 573 F.3d 17, 24 (1st Cir.2009) (citing P.R. Laws
Ann. tit. 31, § 3391; Quiñones López v. Manzano Pozas, 141 D.P.R. 139 (1996)); Bianchi–
Montana v. Crucci–Silva, 720 F. Supp. 2d 159, 164 (D.P.R. 2010) (internal citations omitted))).
CFPB Regulations
The Mortgage Servicing Rules under Regulation X were promulgated by the CFPB
pursuant to section 1022(b) of the Dodd-Frank Act, 12 U.S.C. § 5512(b), and the Real Estate
Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2601 et seq. Regulation X became effective
on January 10, 2014, and is codified at 12 C.F.R. 1024. The pertinent regulations require, among
other things, that loan servicers provide to borrowers a written notification of foreclosure
alternatives after the borrower’s second consecutive missed payment. 12 C.F.R. § 1024.39(b).
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The notice must explain “loss mitigation” options (such as changing the interest rate, extending
the terms of the loan, deferring or forgiving the principal, or coming up with some other
alternative payment plan) and how to obtain more information about these options from the
servicer. 12 C.F.R. § 1024.39(b)(2). The regulations restrict a servicer from moving for a
foreclosure judgment or an order of sale if a borrower submits a complete loss mitigation
application after a servicer has made the first notice or filing required by law for a judicial
foreclosure but more than 37 days before a foreclosure sale, unless: (1) the servicer informs the
borrower that the borrower is not eligible for any loss mitigation option; (2) the borrower rejects
all loss mitigation options offered by the servicer; or (3) the borrower fails to comply with the
terms of an agreement on a loss mitigation option. 12 C.F.R. § 1024.41(g).
A borrower may enforce the provisions of Regulation X pursuant to Section 6(f) of RESPA,
12 U.S.C. § 2605(6)(f), by bringing suit against the servicer. 12 C.F.R. § 1024.41(a). These rules
subject servicers and lenders to sanctions in the form of money damages if they commence or
continue the prosecution of claims for foreclosure and sale in cases where the borrower may be
eligible for a loan modification or other loss-mitigation alternatives. See 12 C.F.R. §§ 1024.39–
1024.41; 12 U.S.C. § 2605(6)(f) (“[w]hoever fails to comply with any provision of this section
shall be liable to the borrower for each such failure . . . an amount equal to the sum of and actual
damages to the borrower as a result of the failure; and any additional damages . . . in an amount
not to exceed $2000.00.”). But Regulation X does not provide for injunctive relief. Clark v. Ocwen
Loan Servicing, LLC, No. 1:15-cv-659, 2015 WL 6159447, at *6 (W.D. Mich. October 20, 2015);
Caggins v. Bank of N.Y. Mellon, No. 1511124, 2015 WL 4041350, at *2 (E.D. Mich. July 1, 2015)
(“[t]here is no provision found in RESPA under which [p]laintiff can seek to have foreclosure
proceedings nullified, or force [d]efendants to negotiate a loan modification.”); Ayala v. Pacific
Coast National Bank, No. 5:16-cv-00723, 2016 WL 1700376, at *2 (C.D. Cal. April 27, 2016)
(“[a]s to the [RESPA] claim, it does not appear that the Act provides for injunctive relief, and
therefore cannot be used to enjoin (even temporarily) the impending foreclosure.”) (internal
citations omitted). While CFPB regulations “obligate some mortgage foreclosure plaintiffs to
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conform to review standards . . . they do not provide defendant mortgagors with any viable defense
to a . . . mortgage foreclosure action. Instead, the regulations merely provide a federal monetary
remedy . . . .” Federal Nat’l Mortg. Ass’n v. Karastamatis, No. 45992-09, 2016 WL 3583881, at
*2 (N.Y. Sup. Ct. June 20, 2016) (citing 12 C.F.R. § 1024.41; 12 U.S.C. § 2605(f)).
Mortgagors have not yet completed or started a loss mitigation application, nor has a
foreclosure sale date been set. Many of the provisions within 12 C.F.R. § 1024 et seq. prohibit a
servicer from continuing a foreclosure proceeding only after a complete loss mitigation application
has been submitted by the borrower. See 12 C.F.R. § 1024.41(g). Further, even if it were found that
Cayman violated any of the CFPB regulations, the statute does not provide for injunctive relief or
a stay or adjourning of the prosecution of the impending foreclosure action. Karastamatis, 2016
WL 3583881, at *2; Ayala, 2016 WL 1700376, at *2. This indicates that a servicer is not required
to allege compliance with these regulations in a foreclosure complaint, as noncompliance with
these rules will not bar a pending foreclosure action.
At this stage in the proceedings, the court must merely inquire if sufficient factual
allegations were pleaded in Cayman’s complaint to indicate a plausible claim for relief of the
breach of contract between Mortgagors and Cayman, as the holder of the note. Accepting as true
Cayman’s pleading that its “efforts to try and collect all outstanding amounts have been
unsuccessful,” along with the other pleadings alleged in the complaint stated above, there is a
plausible claim under the Twombly and Iqbal standard for collection of the outstanding debt and
for mortgage foreclosure. And this is so because Cayman’s complaint sufficiently alleges an
establishment of jurisdiction and venue, a description of the note executed by Mortgagors (a valid
contract), a description of the mortgage, a description of the real property over which the mortgage
was executed, an allegation that it is the owner and holder of the note, an allegation that Mortgagors
are the owners of the mortgaged property, an allegation that Mortgagors defaulted on the loan
repayment obligation (a breach), an explanation of the outstanding debt (damages), and a notice
to Mortgagors that Cayman will file a lis pendens in the Registry of Property. Docket No. 1 at 3–
4 ¶¶ 13–14. These are the material elements that, when accepted as true, plausibly give rise to
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relief for the outstanding debt. Moreover, mortgagors have not cited any case law that holds a
borrower must allege compliance with Regulation X in its foreclosure complaint to state a
plausible claim for relief. These regulations provide for a private cause of action for borrowers,
and the remedy is limited to actual damages, attorney’s fees, and costs. They do not impose
additional burdens at the pleading stage for servicers initiating foreclosure, though failure to abide
by these regulations potentially subjects servicers to a claim under Regulation X.
CONCLUSION
For the foregoing reasons, the motion to dismiss is DENIED.
IT IS SO ORDERED.
In San Juan, Puerto Rico, this 22nd day of July, 2016.
S/Bruce J. McGiverin
BRUCE J. MCGIVERIN
United States Magistrate Judge
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