Pearson v. Specialized Loan Servicing, LLC et al (TWP2)

Filing 44

MEMORANDUM AND OPINION finding that 32 MOTION for Judgment on the Pleadings is GRANTED in part and DENIED in part to the extent set forth more fully in this memorandum and opinion.Signed by District Judge Thomas W Phillips on 7/24/2017. (MDG)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
CHATTANOOGA DIVISION

SHARON PEARSON,

)
)
Plaintiff,
)
)
v.
)
)
SPECIALIZED LOAN SERVICING, LLC;
)
THE BANK OF NEW YORK MELLON f/k/a )
THE BANK OF NEW YORK, as Trustee for )
the certificate holders of the CWABS, Inc.,
)
asset-backed pass through Certificates,
)
SERIES 2007-8,
)
)
Defendants.
)

No. 1:16-cv-318

MEMORANDUM OPINION
This matter is before the Court on Defendant Specialized Loan Servicing, LLC’s
Motion for Judgment on the Pleadings [doc. 32], Defendant’s Brief in Support of the
Motion [doc. 33], Plaintiff’s Response in Opposition [doc. 38], and Defendant’s Reply
[doc. 40]. For the reasons herein, the Court will grant Defendant’s motion in part and
deny it in part.
I.

BACKGROUND

Plaintiff Sharon Pearson (“Ms. Pearson”) alleges that several years ago she entered
into a refinance transaction with an entity called Countrywide Home Loans, Inc., and the
purpose of the transaction was to enable her to obtain a new mortgage loan so she could
pay off existing debt on her home. [Am. Compl., doc. 22, ¶¶ 32, 36]. As part of the

refinance transaction, she claims that she executed a deed of trust, which required her to
use her home as collateral for the new loan. [Id. ¶ 32]. She maintains that the money for
the new loan came from a “securitized trust,” which she describes as a body of residential
mortgages that financial institutions in the United States “resold” and “pooled” so that
they could amass capital to fund mortgage loans like her own. [Id. ¶¶ 13, 32–35].
According to Ms. Pearson, she became delinquent on her new loan in December 2011, at
which point Defendant Specialized Loan Servicing, LLC (“Specialized Loan Servicing”)
received servicing rights to it. [Id. ¶ 39]. In an effort to restructure her loan, she claims
that she applied for “loss mitigation alternatives,” or a loan modification, with
Specialized Loan Servicing and that she received one. [Id. ¶¶ 41–42]. Later, however, a
representative of Specialized Loan Servicing allegedly encouraged her, “with the promise
of a better modification,” to cease making payments on her existing loan modification
and to apply for a new loan modification. [Id. ¶¶ 42, 44, 56].
Relying on the representative’s advice, she claims that she stopped her payments
in October 2015 and applied for a new loan modification, but Specialized Loan Servicing
rejected her application. [Id. ¶¶ 42–44]. She states that its denial of her application was
based on an “improper[] review[].” [Id. ¶ 44]. Specifically, she asserts that, in denying
her application, it both negligently and willfully miscalculated “her gross monthly
income as $2,837.06, when, in fact and according to all documentation she supplied, her
monthly income is $2,268.85[.]” [Id. ¶¶ 44, 52, 56]. As a result, she claims that she did
not receive the new loan modification, and a non-judicial foreclosure sale of her home
took place a few months later. [Id. ¶ 45]. Ms. Pearson now brings this action against
2

Select Loan Servicing, as well as Defendant The Bank of New York Mellon in its
capacity as trustee of the securitized trust rather than in its corporate capacity as a bank.
Ms. Pearson’s causes of action include (1) wrongful foreclosure (Count I); a violation of
the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692(e), (f) (Count II); a
violation of the Consumer Financial Protection Act (“CFPA”), 12 U.S.C. § 5481, (Count
III); and a violation of the Tennessee Home Loan Protection Act (“THLPA”), Tenn.
Code. Ann. § 45-20-103 (Count IV). [Am. Compl. at 15–21]. Select Loan Servicing now
moves for judgment on the pleadings under Federal Rule of Civil Procedure 12(c),
arguing that Ms. Pearson does not state viable claims. [Def.’s Br. at 4–12].
II.

LEGAL STANDARD

Under Rule 12(c), “[t]he standard of review for a judgment on the pleadings is the
same as that for a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6).”
EEOC v. J.H. Routh Packing Co., 246 F.3d 850, 851 (6th Cir. 2001) (citation omitted).
To survive a motion to dismiss under Rule 12(b)(6), the 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, 678 (2009) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when the plaintiff
pleads facts that create a reasonable inference that the defendant is liable for the alleged
conduct in the complaint. Id. When considering a motion to dismiss under Rule 12(b)(6),
a court accepts the allegations in the complaint as true and construes them in a light most
favorable to the plaintiff. Mixon v. Ohio, 193 F.3d 389, 400 (6th Cir. 1999). “[T]he tenet

3

that a court must accept as true all of the allegations contained in a complaint is
inapplicable to legal conclusions,” however. Iqbal, 556 U.S. at 678. A plaintiff’s
allegations must consist of more than “labels,” “conclusions,” and “formulaic
recitation[s] of the elements of a cause of action.” Twombly, 550 U.S. at 555 (citation
omitted); see Iqbal, 556 U.S. at 678 (“Threadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not suffice.” (citation omitted)).
III. ANALYSIS
The Court begins its analysis by addressing a housekeeping matter as it relates to
the allegations in Count III, which Ms. Pearson, in her Amended Complaint, labels with
the heading “Violation of Consumer Financial Protection Act.” [Am. Compl. at 17]. She
pleads that the alleged violation of the CFPA is enforceable not through the CFPA’s
provisions themselves but through 12 C.F.R. § 1024.41, [id. at 18], which contains
regulations that a servicer must follow when reviewing any alternatives that a borrower
might have to foreclosure, see 12 C.F.R. § 1024.41(b)–(k). Section 1024.41, however,
provides borrowers with no right of action under the CFPA, contrary to Ms. Pearson’s
position in her Amended Complaint. Rather, § 1024.41 states that borrowers may enforce
its regulations through the Real Estate Settlement Procedures Act (“RESPA”): “A
borrower may enforce the provisions of this section pursuant to section 6(f) of RESPA
(12 U.S.C. 2605(f)).” 12 C.F.R. § 1024.41(a).
Ms. Pearson, in her response, recognizes for the first time—as she must—that the
redress she pursues in Count III is actually appropriate under the RESPA rather than

4

under the CFPA. [See Pl.’s Resp. at 4]. In this circuit, courts typically treat a legal theory
that a party raises for the first time in a responsive brief “as an implicit motion to amend
the complaint.” Super Sulky, Inc. v. U.S. Trotting Ass’n, 174 F. 3d 733, 740 (6th Cir.
1999) (citation omitted). Ms. Pearson, however, amended her Complaint once and may
not amend it again without either Specialized Loan Servicing’s consent or the Court’s
permission. Fed. R. Civ. P. 15(a)(2). Specialized Loan Servicing, though, does not argue
that the Court should preclude Ms. Pearson from relying on her new legal theory or that it
is inappropriate in any way. In fact, Specialized Loan Servicing concedes that her claim
is “actually a [RESPA] claim,” [Def.’s Br. at 11], and it proceeds to address the claim’s
legal sufficiency in the context of the RESPA—as if Ms. Pearson pleaded it this way in
her Amended Complaint, [Def.’s Reply at 4–5]. Because Specialized Loan Servicing
does not object to the implicit amendment that Ms. Pearson makes by recasting her claim,
and because Rule 15(a)(2) “embodies a ‘liberal amendment policy,’” Brown v. Chapman,
814 F.3d 436, 442–43 (6th Cir. 2016) (quotation omitted), the Court will construe Count
III as a claim in which Ms. Pearson pursues recourse under the RESPA.
A. Wrongful Foreclosure
In Ms. Pearson’s wrongful foreclosure claim, Ms. Pearson appears to espouse a
hybrid theory of liability against Specialized Loan Servicing,1 erecting her claim based in
part on violations of Tennessee law2 and in part on a violation of the RESPA:

1

Pleading in the alternative is permissible under the Federal Rules of Civil Procedure.
See Fed. R. Civ. P. 8(a)(3) (“A pleading . . . . may include relief in the alternative or different
types of relief.”); see also Fed. R. Civ. P. 8(d)(3) (“A party may state as many separate
claims . . . as it has, regardless of consistency.”).
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45.
By failing to comply with the terms of the securitized trust,
the Defendants violated the requirements of T.C.A. § 35-5-101, et seq.,
and Article 1 § 8 of the Tennessee Constitution.
46.
Additionally, and as more fully explained below, Defendant
[Specialized Loan Servicing] violated the terms of the [RESPA] and
such violations prohibit [Specialized Loan Servicing] from proceeding
with a foreclosure on Plaintiff’s home.
[Am. Compl. ¶¶ 45–46]. The Court will now consider whether these allegations are
sufficient to survive scrutiny under Rule 12(c).
1. Wrongful Foreclosure under Tennessee Law
In Tennessee, “[w]hile there are no specific elements for wrongful foreclosure,
Tennessee courts generally examine whether contractual or statutory requirements were
met in the foreclosure of the property in question.” Ringold v. Bank of Am. Home Loans,
No. 2:12-cv-02344-JPM-dkv, 2013 WL 1450929, at *6 (W.D. Tenn. Apr. 9, 2013) (citing
Hutchens v. Bank of Am. N.A., No. 3:11-CV-624, 2012 WL 1618316, at *9–10 (E.D.

Ms. Pearson alleges that the Court “has jurisdiction over the subject matter of this
litigation pursuant to Tennessee Code Annotated § 16-11-101 and 102(a),” although, clearly,
neither statute can be a source of the Court’s federal jurisdiction. [Am. Compl. ¶ 3]. Despite her
mistaken assertion that the Court derives federal jurisdiction over this action from state statutes,
the Court is not compelled to inquire into its authority to adjudicate the claims in this case
because it is confident that it has jurisdiction. See Ky. Press Ass’n v. Kentucky, 454 F.3d 505,
508–09 (6th Cir. 2006) (stating that courts may sua sponte inquire into their federal jurisdiction
if they have doubts). Ms. Pearson has two claims that clearly arise under federal law—one under
the RESPA and another under the FDCPA—and invoke federal question jurisdiction. See 28
U.S.C. § 1331. As for the other claims—the claim for wrongful foreclosure and the claim under
the THLPA—the Court is satisfied that it may exercise supplemental jurisdiction over them
because they are so related to the federal claims that they form part of the same controversy as
the federal claims. See 28 U.S.C. § 1367(a); Aldrich v. Univ. of Phoenix, Inc., 3:15-CV-00578JHM, 2015 WL 5923594, at *5 (W.D. Ky. Oct. 9, 2015) (“[S]upplemental jurisdiction need not
be specifically pled by a plaintiff in order for a district court to hear [the] state law claims.”
(citations omitted)).
2

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Tenn. May 9, 2012))). Specialized Loan Servicing argues that Ms. Pearson’s allegations
lack facts that establish “a right to relief” and “merely describe the nature of the
underlying claim.” [Def.’s Br. at 4]. In response, Ms. Pearson reiterates that Tennessee
law requires no “specific elements for wrongful foreclosure,” [Pl.’s Resp. at 5], but fails
to explain how this assertion buttresses her claims under the Tennessee Constitution or
under Tenn. Code. Ann. section 35-5-101, a statute setting out requirements that a wouldbe seller of property must meet before initiating “any sale of land to foreclose a deed of
trust, mortgage or other lien,” Tenn. Code. Ann. § 35-5-101(a).
The Court agrees that Ms. Pearson’s claim for wrongful foreclosure is not tenable
under the Tennessee Constitution, because the Tennessee Constitution offers no private
right to relief. See Cline v. Rogers, 87 F.3d 176, 179 (6th Cir. 1996) (“Tennessee does not
recognize a private cause of action for violations of the Tennessee Constitution.” (citation
omitted)). The same shortcoming, however, does not compromise Ms. Pearson’s claim
under Tenn. Code. Ann. section 35-5-101, which does entitle an injured party to bring a
private action for civil damages against “[a]ny officer, or other person” who violates its
provisions. Tenn. Code. Ann. § 35-5-107. Under Tenn. Code. Ann. section 35-5-101,
however, parties are always free to “supersede” any statutory requirements by contract, or
in other words, to “vary the terms of foreclosure by contract . . . where a deed of trust
provision varies from the statutory requirements,” Fed. Nat’l Mortg. Ass’n v. Robilio, No.
W2007-01758-COA-R3-CV, 2008 WL 2502114, at *7 (Tenn. Ct. App. June 24, 2008)
(citation omitted); see Tenn. Code. Ann. § 35-5-101(d) (“Nothing in this section shall be

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construed as applying to any notice published in accordance with any contract entered
into heretofore, and expressed in a mortgage, deed of trust or other legal instruments.”).
Ms. Pearson’s allegations concerning Tenn. Code. Ann. section 35-5-101 appear
to strike at the very intersection between this statute and contract law; indeed, she pleads
that Specialized Loan Servicing violated Tenn. Code. Ann. section 35-5-101 “[b]y failing
to comply with the terms of the securitized trust.” [Am. Compl. ¶ 45]. The allegation that
this document known as a “securitized trust” existed between the parties—and more
precisely, not only existed but also through Specialized Loan Servicing’s alleged failure
to comply with its provisions, gave rise to her home’s wrongful foreclosure—uncouples
her claim from Tenn. Code. Ann. section 35-5-101 and shifts it into the ambits of contract
law. See Robilio, 2008 WL 2502114 at *7; see also Tenn. Code. Ann. § 35-5-101(d). To
plead a sufficient claim for breach of contract claim under Tennessee law, Ms. Pearson
must allege facts showing: (1) the existence of an enforceable contract, (2) nonperformance amounting to a breach, and (3) damages stemming from that breach. Ingram
v. Cendant Mobility Fin. Corp., 215 S.W.3d 367, 374 (Tenn. Ct. App. 2006).
Ms. Pearson, however, fails to identify any provision in the securitized trust—an
unspecified document that she has not attached to the Amended Complaint or filed in the
record—that Specialized Loan Servicing has breached. Seizing on Ms. Pearson’s failure
to plead the breach of any specific provision, Specialized Loan Servicing contends that
this defect is fatal to her claim, [Def.’s Br. at 6–7], and the Court agrees, see Shafron v.
Aviva Life & Annuity Co., No. 1:11 CV 00732, 2014 WL 763238, at 5* (N.D. Ohio Feb.
21, 2014) (“[F]or a breach of contract claim to survive a Rule 12(b)(6) motion to dismiss
8

under the pleading requirements of Ashcroft v. Iqbal, a plaintiff must adequately
plead . . . the specific contract provision breached.” (footnotes omitted)); Simmons v.
Countrywide Home Loans, No. 3:09-00621, 2010 WL 1408592, at *3 (M.D. Tenn. Feb.
25, 2010) (“Plaintiffs fail to allege which provisions of the Loan Agreement were
breached by Defendants, or how those provisions were breached[.]”). The Court will
therefore grant judgment on the pleadings to Specialized Loan Servicing, to the extent
that Ms. Pearson she seeks relief against it for wrongful foreclosure under Tennessee law.
2. Wrongful Foreclosure under the RESPA
Again, Ms. Pearson pleads that Specialized Loan Servicing “violated the terms of
the [RESPA]” and was therefore “prohibit[ed] . . . from proceeding with a foreclosure” of
her home. [Am. Compl. ¶ 46]. In her response, she elaborates on this allegation, noting
that “[t]he specific statutory scheme which [Specialized Loan Servicing] violated and
which supports a claim for wrongful foreclosure is 12 C.F.R. § 1024.41.” [Pl.’s Resp. at
5]. She pleads that Specialized Loan Servicing violated § 1024.41 by miscalculating her
income while reviewing her loss-mitigation application and by “encourag[ing] [her] to
miss payments on her modification with the promise of a better modification,” a promise
that she describes as a “false statement.” [Am. Compl. ¶¶ 44, 52, 56]. She claims that
these alleged actions were negligent and willful. [Id.]. Specialized Loan Servicing
maintains that it did not mishandle Ms. Pearson’s application, but even if it did, it argues
that Ms. Pearson’s claim must still fail because § 1024.41 imposes no duty on a servicer
to exercise reasonable care when reviewing an application. [Def.’s Reply at 4, 5]. Also, it

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points out that § 1024.41 does not obligate it to grant a modification to any borrower to
begin with. [Def.’s Br. at 11; Def.’s Reply at 4, 5].
Section 1024.41 “prohibits a loan servicer from foreclosing on a property after a
borrower submits a loan modification application unless certain conditions are met.” Ray
v. U.S. Bank Nat’l Ass’n, 627 F. App’x 452, 454 (6th Cir. 2015). Specifically, § 1024.41
preserves a borrower’s right, before a property’s foreclosure sale occurs, to submit and
have a servicer review a “loss mitigation application,” 12 C.F.R. § 1024.41(b), which is a
request for an alternative to foreclosure that the servicer may make available to the
borrower, id. § 1024.31. To invoke this right, the borrower needs to submit a complete
loss-mitigation application to the servicer either before it has initiated foreclosure
proceedings, id. § 1024.41(f)(1)–(2), or no later than 37 days before a foreclosure sale is
to take place, id. § 1024.41(c)(1), (g).3 If the borrower meets either criterion, the servicer
must review the borrower’s application and determine whether he is eligible for lossmitigation options. Id. § 1024.41(c)(1), (f)(2), (g)(1). After reviewing the application, if
the servicer determines that the borrower is ineligible for loss-mitigation options, it may
then refer the property to foreclosure once it informs the borrower of the application’s
rejection. Id. § 1024.41(f)(2)(i). At that point, the borrower may exercise his right to
pursue an administrative appeal. Id. § 1024.41(h). Again, if the servicer violates any of
these procedures under § 1024.41, the borrower may then bring suit under § 2605(f) of

A borrower’s filing of an incomplete application also requires review by a servicer if the
borrower submits it at least 45 days before a foreclosure sale. 12 C.F.R. § 1024.41(b)(2)(i).
3

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the RESPA, id. § 1024.41(a), which permits the borrower to recover actual damages and
limited additional damages, 12 U.S.C. § 2605(f)(1)(A)–(B).
As an initial matter, the Court first observes that Specialized Loan Servicing does
not challenge whether § 2605(f)—as a remedy for a servicer’s violation of the lossmitigation provisions in 12 C.F.R. § 1024.41—permits borrowers to contest foreclosures
that they deem to be wrongful. See Houston v. U.S. Bank Home Mortg. Wis. Serv., 505 F.
App’x 543, 546 n.3 (6th Cir. 2012) (“RESPA . . . does not contemplate that a court could
set aside a sale.” (citing 12 U.S.C. § 2605(f))). Because Specialized Loan Servicing does
not raise this argument, the Court will not reject Ms. Pearson’s claim based on the
unavailability of a remedy under § 2605(f). Instead, it will assess whether the claim is
insufficient based on Select Loan Servicing’s argument that neither a servicer’s negligent
review nor a servicer’s denial of an application is actionable under 12 C.F.R. § 1024.41.
“[A] duty of care . . . [is] an essential element of any negligence claim.” Ray, 627
F. App’x at 457 (citation omitted). Ms. Pearson fails to allege that 12 C.F.R. § 1024.41
puts a duty on servicers to review loss-mitigation applications with reasonable care, and
her claim fails on this basis alone. Even if Ms. Pearson had alleged that § 1024.41
imposes this type of duty on servicers like Specialized Loan Servicing, her claim would
run counter to this circuit’s common law. See Andrade v. Carrington Mortg. Servs., LLC,
No. 1:15-CV-713, 2015 WL 7108119, at *4 (W.D. Mich. Nov. 13, 2015) (“With regard
to § 1024.41, courts have rejected negligence claims based on alleged violations of that
section, concluding that it imposes no duty on servicers to exercise reasonable care in
evaluating a borrower’s application for a loan modification.”); Szczodrowski v.
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Specialized Loan Serv., LLC, No. 15-10668, 2015 WL 1966887, at *6 (E.D. Mich. May
1, 2015) (dismissing a negligence claim under § 1024.41—which the plaintiff had
brought against Specialized Loan Servicing—after concluding that this regulation does
not support this type of claim). The Court has no need to address whether it concurs with
its sister courts’ conclusions that a negligence claim is unavailable under § 1024.41
because, again, in this case the Amended Complaint lacks an allegation that § 1024.41
places a duty of care on servicers. The absence of this allegation, in and of itself,
precludes Ms. Pearson from moving forward with a negligence claim. See Ray, 627 F.
App’x at 457.
Still, while some courts have determined that a negligence claim is not available
under § 1024.41, this Court is unaware of a case—and Specialized Loan Servicing cites
none—in which a court has addressed whether § 1024.41 allows for a claim when a
borrower alleges that a servicer denied an application after deliberately relying on
inaccurate information. Ms. Pearson alleges that Select Loan Servicing encouraged her to
halt payment on her first loan modification, elicited a new application from her, rejected
that application by intentionally relying on inaccurate information, and then referred her
home for foreclosure. [Am. Compl. ¶¶ 41–45, 56]. These allegations are serious, partly
because once a servicer denies a loss-mitigation application, it can then take action to
refer a property to foreclosure, so long as a borrower is not eligible for an appeal or has
not requested one within fourteen days. 12 C.F.R. § 1024.41(f)(2)(i); id. § 1024.41(h)(1)–
(2). The seriousness of these allegations, however, does not make them actionable;
instead, to be actionable, these allegations have to support a plausible claim for relief
12

under § 1024.41. And the Court believes that they do, based on a plain reading of the
regulation as a whole. See King v. St. Vincent Hosp., 502 U.S. 215, 220 (1991) (following
the “cardinal rule that a statute is to be read as a whole, since the meaning of statutory
language, plain or not, depends on context” (internal citation and citation omitted)).
In contending that Ms. Pearson’s allegations cannot support a plausible claim
under § 1024.41, Select Loan Servicing directs the Court to § 1024.41(a)’s plain
language, which provides that “[n]othing in § 1024.41 imposes a duty on a servicer to
provide any borrower with any specific loss mitigation option.” While the Court agrees
that this subsection does not obligate a servicer to grant a modification to a borrower, it
in no way states that a servicer is without an obligation to perform an accurate review
before reaching a decision on whether to grant a modification. The reality is that no
provision in § 1024.41 expressly addresses whether a servicer’s willfully inaccurate
review of a borrower’s application creates a cause for relief—though some of its
provisions highly suggest that it does. See 12 C.F.R. § 1024.41(c)(2)(i)–(ii) (providing
that a servicer “shall not” conduct an evaluation of an incomplete application unless it
remains incomplete for “a significant period of time” after the servicer has “exercised
reasonable diligence in obtaining” missing information); id. § 1024.41(c)(2)(iv) (referring
to a servicer’s responsibility to make “corrections” to an application when they are
necessary).
If a regulation is ambiguous—that is, “not free from doubt,” Martin v.
Occupational Safety & Health Review Comm’n, 499 U.S. 144, 150–51 (1991) (quotation
omitted)—a court may look to an agency’s interpretation of that regulation, see Auer v.
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Robbins, 519 U.S. 452, 461–63 (1997); see also Christensen v. Harris County, 529 U.S.
576, 588 (2000). The Court notes that the Bureau of Consumer Financial Protection—the
agency to which Congress delegated authority to prescribe and interpret regulations that
promote the RESPA’s objectives, 12 U.S.C. § 2617(a)—interprets § 1024.41’s appeal
process as a way for borrowers to address “issues relating to a servicer’s evaluation,”
including a “failure to correctly evaluate” an application.4 Mortgage Servicing Rules
under the Real Estate Settlement Procedure Act (Regulation X), 78 Fed. Reg. 10696
(Feb. 14, 2013) (emphasis added). The Bureau’s explanation of the scope of the appeals
process under § 1024.41(h) speaks to the broader regulation’s objective to ensure a
thorough and accurate evaluation process. But the Court mentions the Bureau’s
interpretation only for the sake of edification; it has no need to assess whether § 1024.41
is in fact ambiguous because, simply, Specialized Loan Servicing does not contend that it
is ambiguous. See Christensen, 529 U.S. at 588 (stating that deference to an agency’s
interpretation of its own regulation “is warranted only when the language of the
regulation is ambiguous”).
Rather, Specialized Loan Servicing’s contention is that § 1024.41(a)’s plain
language exempts it from liability for the alleged inaccurate review that occurred during

Specialized Loan Servicing does not argue that Ms. Pearson’s claims should fail
because she did not exhaust her administrative remedies through this appellate process.
4

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the evaluation process.5 [Def.’s Br. at 10; Def.’s Reply at 4, 5]. Section 1024.41(a)’s
plain language, however, contains no such exemption. Specialized Loan Servicing, in
proposing otherwise, grafts words into § 1024.41(a) that are not there—while ignoring
the bulk of § 1024.41, which is in large part a compendium of standards that servicers
have to abide by to ensure the integrity of every application’s evaluation. See King, 502
U.S. at 220 (emphasizing the “cardinal rule that a statute is to be read as a whole”
(internal citation and citation omitted)); see also Shell Oil Co. v. Iowa Dep’t of Revenue,
488 U.S. 19, 25 n.6 (1988) (“Words are not pebbles in alien juxtaposition; they have only
a communal existence; and not only does the meaning of each interpenetrate the other,
but all in their aggregate take their purport from the setting in which they are used[.]”
(quotation omitted)). In sum, Specialized Loan Servicing, with the argument it raises
under § 1024.41(a), does not convince the Court that Ms. Pearson lacks a cause of action
under § 1024.41. The Court will therefore permit her to move forward with her claim
under the RESPA—but only to the extent she maintains that Specialized Loan Servicing
purposefully, and not negligently, relied on inaccurate information when it reviewed and
rejected her application.

Specialized Loan Servicing also argues that it “clearly complied” with § 1024.41.
[Def.’s Reply at 5]. But the question of whether it did or did not deliberately rely on inaccurate
information when reviewing Ms. Pearson’s application is one of fact, which the Court cannot
resolve at this stage. See, e.g., Ecclesiastical Order of the ISM of AM, Inc. v. IRS, 725 F.2d 398,
403 (6th Cir. 1984) (Jones, J., concurring in part and dissenting in part); Mike Vaughn Custom
Sports, Inc. v. Piku, 15 F. Supp. 3d 735, 753 (E.D. Mich. 2014).
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B. Violation of the FDCPA
The FDCPA’s purpose is to protect consumers from abusive debt-collection
practices, 15 U.S.C. § 1692e, and a plaintiff may bring a civil action under the FDCPA to
recover damages against a debt collector who engages in abusive debt-collection
practices, id. § 1692k. To state a claim under the FDCPA, a plaintiff must plead (1) that
the money or property subject to collection qualifies as a “debt” under § 1692a(5),6 (2)
that the entity acting as a collector qualifies a “debt collector” under § 1692a(6), and (3)
that the debt collector violated one of the FDCPA’s provisions. Stamper v. Wilson &
Assocs., No. 3:09-cv-270, 2010 WL 1408585, at *3 (E.D. Tenn. Mar. 31, 2010). In
pursuing judgment on the pleadings, Select Loan Servicing argues that Ms. Pearson fails
to state a plausible claim under the second and third elements. [Def.’s Br. at 8–10].
1. Debt Collector under § 1692a(6)
The term “debt collector” means “any person7 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 another.” 15 U.S.C.
§ 1692a(6). More succinctly, a debt collector “includes any non-originating debt holder
that . . . acquired a debt in default.” Bridge v. Ocwen Fed. Bank, FSB, 681 F.3d 355, 362
(6th Cir. 2012). Ms. Pearson alleges that Select Loan Servicing is as a debt collector
Subsection 1692a(5) defines a “debt” as “any obligation or alleged obligation of a
consumer to pay money arising out of a transaction in which the money, property, insurance, or
services which are the subject of the transaction are primarily for personal, family, or household
purposes, whether or not such obligation has been reduced to judgment.”
7
The term “person” means “a natural person or an organization.” 15 U.S.C. § 1602(e).
6

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under this definition because it became the servicer of her modification loan when it was
in default. [Am. Compl. ¶ 50]. More specifically, she alleges that it began servicing this
loan on December 23, 2011, “at which time the loan was delinquent. [Id. ¶ 39]. In
response, Select Loan Servicing argues that the Court should not accept this allegation as
true because it is conclusory. [Def.’s Br. at 9]. Specialized Loan Servicing also contends
that this allegation is inconsistent with information appearing in documentation attached
to Ms. Pearson’s Amended Complaint, as well as with her allegation that she stopped
making payments on the loan in October 2015. [Id.; Def.’s Reply at 2].
Ms. Pearson’s allegation, however, is not conclusory; instead, it is her assertion
that Select Loan Servicing performed a particular action—specifically, that it acquired
the servicing rights to her loan when it was already in default—and this allegation is
therefore entitled to the Court’s deference. See Riley v. Kurtz, 893 F. Supp. 709, 721
(E.D. Mich. 1995). (“[The allegation] specifically states that defendant performed a
particular action . . . . This is not conclusory.”). Also, the fact Ms. Pearson’s pleading
puts forward two different dates for the loan’s delinquency is not fatal to her claim
because the Court’s task is to review her pleading for “any set of facts that could be
proved consistent with the allegations.” Hishon v. King & Spalding, 467 U.S. 69, 73
(1984) (emphasis added) (citation omitted). As a result, the Court is bound to accept as
true the allegation that Select Loan Servicing became the servicer of Ms. Pearson’s loan
in 2011 and that the loan was delinquent at that time. If this allegation later turns out to
be untrue, the specter of sanctions should guide Ms. Pearson’s counsel to take the
necessary course of action. See Fed. R. Civ. P. 11(b)(3) (“By presenting to the court a
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pleading . . . an attorney . . . certifies that . . . . the factual contentions have evidentiary
support or, if specifically so identified, will likely have evidentiary support after a
reasonable opportunity for further investigation or discovery[.]”); Bontkowski v. Smith,
305 F.3d 757, 763 (7th Cir. 2002) (“[W]e must reverse [dismissal], but we warn [the
plaintiff] that if he persists in this litigation and his suit turns out to be frivolous . . . he is
courting sanctions.” (citations omitted)).8
2. Violation of the FDCPA’s Provisions
Ms. Pearson alleges that Specialized Loan Servicing violated two provisions under
the FDCPA, § 1692e and § 1692f. [Am. Compl. ¶¶ 51, 53]. Section 1692e states that a
debt collector cannot use “any false, deceptive, or misleading representation or means in
connection with the collection of any debt.” Similarly, § 1692f provides that a debt
collector cannot use “unfair or unconscionable means to collect or attempt to collect any
debt.” Ms. Pearson alleges that Specialized Loan Servicing violated each of these
provisions when it “encouraged [her] to miss payments on her modification with the
promise that she would qualify for a better modification” if she filed a new loanmodification application. [Id. ¶¶ 42–44, 56]. She also attaches to her Amended Complaint
the Rejection Letter [doc. 22-3] that she received from Specialized Loan Servicing when
it denied her application. In the Rejection Letter, Specialized Loan Servicing writes in

All this aside, the Court notes the Supreme Court’s recent opinion in Henson v.
Santander Consumer USA Inc., No. 16-349, 2017 WL 2507342 (June 12, 2017), in which the
Supreme Court determined that only a third-party collector—that is, an agent working for a debt
owner and not a debt owner itself—can qualify as a debt collector under § 1692a(6), id. at *3, *7.
Had the Supreme Court authored this opinion a few months ago, it may well have served as a
useful citation in Specialized Loan Servicing’s brief.
8

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bold-type words at the letter’s head: “This communication is from a debt collector. This
is an attempt to collect a debt and any information obtained will be used for that
purpose.” [Id. at 3]. These statements, and Rejection Letter’s contents in general, form
part of Ms. Pearson’s allegations. (“[I]f documents are attached to, incorporated by, or
specifically referred to in the complaint, they are considered part of the complaint[.]”
(citing Weiner v. Klais & Co., 108 F.3d 86, 89 (6th Cir. 1997))).
Specialized Loan Servicing, however, maintains that these allegations cannot
possibly support a claim under either § 1692e or § 1692f because they do not establish
that it engaged in any communications “in connection with the collection of a debt.”
[Def.’s Br. at 10]. Referring to the allegations, Specialized Loan Servicing argues that “it
is implausible that such a communication would induce a debtor to pay a debt.” [Id.]. To
buttress this argument, it contends that the allegations fail to satisfy the Sixth Circuit’s
requirement that a communication, to be in connection with the collection of a debt, has
to have “an animating purpose . . . to induce payment by the debtor.” [Id. (quoting Grden
v. Leikin Ingber & Winters PC, 643 F.3d 169, 173 (6th Cir. 2011)].
The test for an “animating purpose” is objective, and under this test, “[w]hether
language used by a debt collector is deceptive or misleading is determined from the
perspective of the least-sophisticated consumer.” Grden, 643 F.3d at 172 (citation
omitted). But whether a debt collector’s communication satisfies this test—from the
perspective of the least-sophisticated consumer—is generally a question of fact and
therefore not one that the Court can address at this stage. See Kistner v. Law Officers of
Michael P. Margelefsky, LLC, 518 F.3d 433, 440–41 (6th Cir. 2008) (“[A] jury should
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determine whether the letter is deceptive and misleading[.]”); see also Lox v. CDA, Ltd.,
689 F.3d 818, 822 (7th Cir. 2012) (“[W]e treat the question of whether an unsophisticated
consumer would find certain debt collection language misleading as a question of fact.”
(citation omitted)); Evory v. RJM Acquisitions Funding LLC, 505 F.3d 769, 776 (7th Cir.
2007) (“[J]udges are not experts in the knowledge and understanding of unsophisticated
consumers facing demands by debt collectors. We are no more entitled to rely on our
intuitions in this context than we are in deciding issues of consumer confusion in
trademark cases, where the use of survey evidence is routine.”); Von Brincken v. GMAC
Mortg., No. 2:12-cv-01689-GEB-CKD PS, 2013 WL 322909, at *5 (E.D. Cal. Jan. 25,
2013) (“Th[e] [least-sophisticated consumer] standard has nothing to do with the
sufficiency of the pleadings . . . . Rather, [it] applies to whether communications between
creditor and debtor violate the FDCPA.” (citation omitted)); Robins v. Wolpoff &
Abramson LLP, 422 F. Supp. 2d 1011, 1014 (E.D. Wis. 2006) (“‘[H]ow a particular
notice affects its audience is a question of fact’ and ‘may not be dismissed under [Rule]
12(b)(6).’” (quotation and footnote omitted)).
Even if this question were legal and not factual, the Court would still be doubtful
that judgment on the pleadings is proper in this particular case, based on the argument
that Specialized Loan Servicing raises. While the Court is mindful that the Sixth Circuit,
in Montgomery v. Huntington Bank, 346 F.3d 693 (6th Cir. 2003), indicated that, as a
matter of law, the enforcement of a security interest is not a debt-collection practice

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unless it occurs under § 1692f(6),9 id. at 700–01, Specialized Loan Servicing does not
broach Montgomery or its progeny. In fact, Specialized Loan Servicing does not at all
propose that Ms. Pearson’s claim must fail because the debt-collection activity at issue
involves mortgage-related payments under a deed of trust. The Court is unable to wade
into issues that, though possibly relevant, Specialized Loan Servicing has not itself
introduced under Montgomery. Cf. McPherson v. Kelsey, 125 F.3d 989, 995–96 (6th Cir.
1997) (“[I]ssues adverted to in a perfunctory manner, unaccompanied by some effort at
developed argumentation, are deemed waived. It is not sufficient for a party to mention a
possible argument in the most skeletal way, leaving the court to . . . put flesh on its
bones.” (quotation omitted)). Based on Specialized Loan Servicing’s lone argument from
the perspective of the least-sophisticated consumer, the Court is simply reluctant to
unhitch Ms. Pearson’s FDCPA claim from this action, because a determination from the
perspective of the least-sophisticated consumer usually, if not necessarily, requires the
resolution of factual issues. The Court will decline Select Loan Servicing’s invitation to
resolve these issues at this stage. See, e.g., Ecclesiastical Order of the ISM of AM, Inc. v.
IRS, 725 F.2d 398, 403 (6th Cir. 1984) (Jones, J., concurring in part and dissenting in
part).

Section 1692f(6)(A) exposes a debt collector to liability for “taking or threatening to
take any nonjudicial action to effect dispossession or disablement of property if . . . there is no
present right to possession of the property claimed as collateral through an enforceable security
interest.” In this case, Ms. Pearson alleges that Specialized Loan Servicing threatened her with
eviction. [Am. Compl. ¶ 54].
9

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C. Violation of the RESPA
Ms. Pearson’s allegations in Count III, which the Court construes as a claim under
the RESPA for the reasons it already mentioned, are virtual facsimiles of the allegations
in Count I, which is also a claim under the RESPA. The Court has already determined
that Ms. Pearson alleges a plausible claim under the RESPA, and the Court will not
revisit its reasoning here. The Court, however, cannot permit Count I and Count III to
proceed in their current state, as duplicative claims. See BAC Home Loans Serv. LP v.
Fall Oaks Farm LLC, No. 2:11-cv-274, 2012 WL 3283397, at *3 (S.D. Ohio Aug. 10,
2012) (“[I]t is axiomatic that [the plaintiff] cannot assert two separate counts alleging the
exact same claims.”) (quotation omitted)); cf. Foster v. City of Southfield, Nos. 95-1032,
95-1072, & 95-1526, 1996 WL 742291, at *6 (6th Cir. Dec. 20, 1996) (concluding that
the district court committed no error when it declined to submit two claims to the jury
that were “duplicative and potentially confusing to the jury”). In light of the overlap
between these counts, the Court will not allow Count III to continue as a separate count
but will allow its allegations to remain part of the Amended Complaint as an extension of
the allegations in Count I. See Urban Assocs., Inc. v. Sunarrow Ltd., No. 04-CV-74835DT, 2006 WL 539556, at *3 (E.D. Mich. Mar. 6, 2006) (dismissing two counts that
mirrored the first count but electing to retain their allegations as “an extension or
elaboration” of the first count).

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D. Violation of the THLPA
The THLPA provides borrowers in Tennessee with a private right of action to
redress “predatory lending practices” by a lender, servicer, or person. Sparks v.
Dillingham, No. M2012-01535-COA-R3-CV, 2013 WL 2456386, at *2 (Tenn. Ct. App.
June 4, 2013) (citation omitted); see Tenn. Code. Ann. §§ 45-20-103, 45-20-104, 45-20106 (containing requirements that lenders, servicers, and persons must follow to avoid
liability for predatory lending practices). The THLPA’s prohibitions, however, apply
only to certain lending practices involving a precise type of loan known as a “high-cost
home loan.”10 Sparks, 2013 WL 2456386 at *2; see Tenn. Code. Ann. §§ 45-20-103, 4520-104, 45-20-106. In contending that Ms. Pearson’s claim under the THLPA is
inadequate, Specialized Loan Servicing maintains that Ms. Pearson “does not make any
allegations against [it]” but “alleges only that the securitized trust . . . has violated the
THLPA.” [Def.’s Br. at 11].
The Court finds no allegations in the Amended Complaint in which Ms. Pearson
pleads that Specialized Loan Servicing violated the THLPA, much less allegations of
particular conduct that amounts to a violation. Specialized Loan Servicing is correct in
that Ms. Pearson alleges a violation of the THLPA only by the securitized trust:
60.
[T]he securitized trust failed to act with due diligence and is
liable as an assignee under the THLP [sic].

The THLPA’s definition of a “high-cost home loan” is convoluted but basically covers
home loans that exceed certain thresholds under the statutory language. See Tenn. Code. Ann.
§ 45-20-102(8).
10

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62.
Given the securitized trust’s position as the original lender on
this loan (or assignee of Countrywide), its failure to comply with the THLP
[sic], subjects it to liability thereunder.
63.
The origination of this loan violated THLP [sic] in the
following particulars:
a. The securitized trust (and/or Countrywide) failed to provide
notice as required under T.C.A. § 45-20-103(16);
b. The securitized trust (and/or Countrywide) caused this high
cost loan to be closed at the home of the borrower in violation of
T.C.A. § 45-20-103(17)(B);
c. The Deed of Trust failed to state that it was a ‘high cost
loan’ in violation of T.C.A. § 45-20-103(19)(A);
d. The Note failed to state that it was a ‘high cost loan’ in
violation of T.C.A. § 45-20-103(19)(B);
e. The securitized trust (and/or Countrywide) failed to provide
the borrower with a notice of availability of loan counselors in
violation of T.C.A. § 45-20-103(21).
64.
As a result of the Defendant securitized trust’s violations of
the THLP [sic], Ms. Pearson is entitled to her actual damages[.]
[Am. Compl. ¶¶ 60, 62–64]. Again, in not one of these allegations does Ms. Pearson
implicate, or even mention, Specialized Loan Servicing. In addition, Ms. Pearson pleads
that Specialized Loan Servicing is a servicer, not a lender, [id. ¶ 39], yet the particular
provisions that she cites under the THLPA apply only to lenders. See Tenn. Code. Ann.
§§ 45-20-103(16), 45-20-103(17)(B), 45-20-103(19)(A)–(B), § 45-20-103(21). The Court
has no reason to proceed any further with its analysis. Ms. Pearson falls well short of
mounting a sufficient claim against Specialized Loan Servicing under the THLPA.

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IV. CONCLUSION
Accepting the allegations in the Amended Complaint as true and viewing them in
the light most favorable to Ms. Pearson, the Court concludes that Ms. Pearson alleges
plausible claims in some respects but not in others. Ms. Pearson states a plausible claim
in Count I but only apart from her allegations under Tennessee law, and she also alleges
plausible claims in Count II and Count III. While the allegations in Count III comprise a
plausible claim, they are duplicative of those in Count I, and the Court therefore cannot
permit Count III to stand as an independent claim. Finally, Ms. Pearson fails to plead a
plausible claim in Count IV. As a result, Select Loan Servicing’s Motion for Judgment on
the Pleadings [doc. 32] is GRANTED in part and DENIED in part. The Court orders
as follows:
1. The Court GRANTS judgment on the pleadings as to Count I only to the extent
that Ms. Pearson pursues relief under Tennessee law. The Court DENIES
judgment on the pleadings as to Count I in all other respects.
2. The Court DENIES judgment on the pleadings as to Count II.
3. The Court DENIES judgment on the pleadings as to Count III, but Count III
remains intact not as an independent claim but as an extension of Count I.
4. The Court GRANTS judgment on the pleadings as to Count IV.
IT IS SO ORDERED.

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ENTER:

s/ Thomas W. Phillips
United States District Judge

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