Moss v. Manufacturers and Traders Trust Company et al
Filing
32
OPINION. See Opinion for details. Signed by District Judge John A. Gibney, Jr. on 3/13/2018. (sbea, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
Richmond Division
CONSTANCE MOSS,
Plaintiff,
Civil Action No. 3:17-cv-312-JAG
V.
MANUFACTURERS AND TRADERS
TRUST COMPANY, et al,
Defendants.
OPINION
The complaint in this case makes astounding allegations. Wind and rain damaged
Constance Moss's home in October 2015. Moss's homeowner's insurer soon issued a claim
check for over $15,000. In a move she has lived to rue. Moss sent the check to her mortgage
company. Manufacturers and Traders Trust Company ("M&T"). M&T kept the money, but
would not use it to fix her house. Moss also tried a second-best approach: she asked M&T to at
least apply the money to her mortgage. M&T still kept the money, but did not apply it to the
loan. Then, to rub salt in Moss's wounds, M&T told credit reporting agencies that the loan was
delinquent, without telling them that Moss had disputed M&T's claim.
But that's not all. At the direction of M&T's trustees on the deed of trust, ALG Trustee,
LLC ("Atlantic") and Orlans, PC ("Orlans"), have initiated numerous foreclosure proceedings
against Moss'sproperty without proper authorization.
The complaint does not say what happened to the $15,000 insurance check. Reading the
complaint in the light most favorable to Moss, it appears that the funds have gone, at best, to a
bank controlled limbo. In any event, Moss does not have the money, no one has repaired her
house, and the bank has not applied the money to her mortgage.
Notwithstanding these allegations, M&T, Atlantic, and Orlans now move to dismiss the
case on the ground that nothing bad happened to Moss. Moss has sufficiently alleged that M&T
failed to perform its required duties under the terms of her mortgage and under the various
statutes protecting consumers from creditors, and the Court denies its motion to dismiss. Moss
alleges viable claims against Orlans and Atlantic, and the Court denies their motion. There are
generally two sides to any story, and it may well prove true that the defendants have acted with
contractual kindness, but they cannotprevail on a motion to dismiss.
1. BACKGROUND
Moss entered into a home mortgage in 2007. M«feT now holds the note and services the
loan. On October 2, 2015, wind and rain damaged Moss's roof. Moss then fell behind on her
mortgage and, by November 20, 2015, had missed two payments. In December 2015, Moss
received a claim check from her insurance company for $15,826.81, to repair the roof damage.
Moss's mortgage note says that if she defaults on her loan, the note holder may accelerate
payments and demand the entire loan amount upon sending her a written notice 30 days before
acceleration. The notice must inform Moss of the need to pay her outstanding balance and of the
possible acceleration. The deed of trust contains a similar prerequisite as the note, and says that
prior to acceleration orthe initiation offoreclosure proceedings, M&T must send a notice that (1)
specifies "the action required to cure the defauh" and (2) informs Moss of her "right to bring a
court action to assert the non-existence of a defauh or any other defense." (Deed of Trust ^ 22,
Dk. No. 10-1.) On November 20, 2015, M&T sent Moss an acceleration notice that said "[i]n
the event foreclosure proceedings are initiated, you have certain right(s), including the right to
assert in the foreclosure proceedings the non-existence of default, the right to argue that you did
keep the promises and agreements under the Note ... [and the right] to raise any other applicable
defenses." (Am. Compl. H24, Dk. No. 10.) The notice also said that to cure the default, Moss
had to pay $11,730.26, "plus any additional payments, fees, and late charges that become due
between the date of this letter and the time your payment is received." {Id. H31.)
In January 2016, Moss endorsed the claim check to M&T. She also sent M&T an
estimate from a contractor to fix the roof. Moss tried to contact M&T for a few months about the
status of the repairs, and representatives told her that M&T was waiting for information from the
contractor. Without making any repairs, M&T then initiated foreclosure but canceled the sale
after Moss wrote a letter. M&T then sent another notice to Moss informing her that it planned to
foreclose on her home but saying that M&T would give her 35 days to pay $12,174.20 in
arrearages. Moss then independently gathered the documents needed from the contractor and
sent them to M&T.
She says that M&T never did anything or tried to repair her home.
According to the deed of trust, M&T would apply insurance proceeds to restoration or repair of
the home "if the restoration or repair is economically feasible and [M&T's] security is not
lessened." (Am. Compl. H55.) If M&T deemed the repairs infeasible, then the deed of trust
requires M&T to apply the insurance proceeds to the loan principal. Due to M&T's failure to
repair, Moss says that M&T effectively elected not to repair the home and should have applied
the claim check to her balance.
Moss also sent two Qualified Written Requests ("QWRs") to M&T in the spring of 2016,
asking about a number of issues such as applying the insurance proceeds to her loan and about
$7,800 in unexplained fees on her billing statement. M&T quickly responded to her letters by
saying that it would apply the proceeds to her loan, but it never answered her questions about the
$7,800. In March 2017, M&T then said that it would not apply the insurance proceeds to the
mortgage because M&T needed them for necessary repairs. From the face of the amended
complaint, it remains unclear whether M&T has foreclosed upon the home. Defendants Atlantic
and Orlans initiated foreclosure proceedings on multiple occasions but stopped them after
Moss's objections.
11. discussion'
Moss brings eleven counts in her amended complaint: Counts one through nine against
M&T and Counts one, ten, and eleven against defendants Atlantic and Orlans. In Counts one
and two Moss brings a breach of contract claim based on the defendants' failure to give proper
notice prior to acceleration and foreclosure. She seeks a declaratory judgment in Count one that
the defendants may not foreclose on her home and in Count two seeks compensatory damages.
In Count three. Moss brings a breach of contract claim seeking a declaratory judgment for
M&T's failure to apply her insurance proceeds to her loan; in Count four, she also seeks
compensatory damages for this alleged breach. In Count five. Moss alleges a breach of the
implied covenant of good faith and fair dealing. Count six brings an action for a violation of the
federal Real Estate Settlement Procedures Act for failing to respond to her QWRs. Counts seven
through nine allege that M&T violated the Fair Credit Reporting Act ("FCRA") by reporting a
delinquency on Moss's mortgage and failing to properly investigate her disputes, failing to
review all relevant information provided to it by the credit reporting agencies, and failing to
' A Rule 12(b)(6) motion gauges the sufficiency of a complaint without resolving any factual
discrepancies or testing the merits of the claims. Republican Party ofN.C. v. Martin, 980 F.2d
943, 952 (4th Cir. 1992). In considering the motion, a court must accept all allegations in the
complaint as true and must draw all reasonable inferences in favor of the plaintiff. Nemet
Chevrolet, Ltd. v. Consumeraffairs.com, Inc., 591 F.3d 250, 253 (4th Cir. 2009) (citing Edwards
V. City ofGoldsboro, 178 F.3d 231, 244 (4th Cir. 1999)). The principle that a court must accept
all allegations as true, however, does not apply to legal conclusions. Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009). To survive a Rule 12(b)(6) motion to dismiss, a complaint must state facts that,
when accepted as true, state a claim to reliefthat is plausible on its face. Id. "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." Id. (citing Bell Atl Corp. v.
Twombly, 550 U.S. 544, 556 (2007)).
disclose Moss's disputes to the credit reporting agencies. Count ten alleges that Atlantic and
Orlans breached their fiduciary duties as trustees. Finally, Count eleven alleges violations of the
Fair Debt Collection Practices Act ("FDCPA") against Atlantic and Orlans.
A. Breach of Contract Claims
In Virginia, "[t]he elements of a breach of contract action are (1) a legally enforceable
obligation of a defendant to a plaintiff; (2) the defendant's violation or breach of that obligation;
and (3) injury or damage to the plaintiff caused by the breach of obligation." Ulloa v. QSP, Inc.,
271 Va. 72, 79 (2006) (quoting Filak v. George, 267 Va. 612, 619, 594 S.E.2d 610, 614 (2004)).
Moss alleges plausible breach of contract claims based on M&T's failure to apply her insurance
proceeds to hermortgage loan and its failure to provide a proper acceleration notice.
The parties here do not dispute the existence of a legally enforceable obligation. Instead,
M&T says that it did not breach any agreement. The deed of trust at issue in this case requires
M&T to apply insurance proceeds to her mortgage where a) the repair at issue is not
economically feasible and b) M&T's security would not be lessened by doing so. M&T initially
said in a letter that it would apply the insurance proceeds to Moss's principal, but almost a year
later it sent another letter that said M&T would apply the insurance proceeds to repairs instead.
Between the time M&T sent those two letters. Moss says that M&T repeatedly failed to follow
up with a contractor to initiate repairs, despite her own efforts to move along the process, and she
says that M&T never responded to her QWRs about the status of repairs. Based on these
allegations. Moss makes a plausible claim that M&T's long delay in making repairs shows that it
found the repairs economically infeasible, yet failed to apply the proceeds to her principal.
Although the deed of trust gives M&T the right to hold insurance proceeds long enough
to inspect a contractor's repair work, the lengthy delay and course of inaction by M&T plausibly
allege a breach of the deed of trust. At the pleadings stage, this extended delay creates a
reasonable inference that the repairs are not economically feasible and that the proceeds should
have been applied to Moss's mortgage.
Finally, Moss adequately alleges damages because she claims that she could have
brought her mortgage up to date had M&T applied the insurance proceeds to her mortgage
balance. M&T disputes that assertion, but a motion to dismiss is not the proper avenue to attack
the factual accuracy of the complaint. Moss alleges a plausible breach of contract.
Moss also alleges sufficient facts to support her claim that M&T failed to provide a
proper acceleration notice. She says M&T's failure to apply her insurance proceeds to the
insurance principal resulted in the acceleration notice overstating the amount owed and that
M&T included $7,800 in inappropriate fees.
In support of its motion to dismiss, M&T
challenges those assertions based on documents outside of the complaint, but M&T must make
those defenses at summary judgment or at trial, and not at this stage. The Court denies M&T's
motion to dismiss on these grounds.
Atlantic and Orlans also move to dismiss Count one by arguing that they are not parties
to the contracts at issue and that M&T may not bring a breach of contract claims against them.
Such is not the case. Moss seeks a declaratory judgment stating that Atlantic and Orlans cannot,
under the terms of the loan and deed of trust, foreclose upon her home until M&T has met
certain conditions precedent. Moss is not actually claiming that Atlantic and Orlans have
breached the contract, but she instead seeks judgment that they cannot foreclose until pre
conditions to foreclosure have been met.
dismiss Count one.
The Court denies Atlantic and Orlans' motion to
B, Implied Covenant of Good Faith and Fair Dealing Claim
The implied covenant of good faith and fair dealing is not quite the dead letter M&T says
it is. SunTrust Mortg., Inc. v. Mortgages Unlimited, Inc., No. 3:11CV861-HEH, 2012 WL
1942056, at *3 (E.D. Va. May 29, 2012) ("[A]lthough the duty of good faith does not prevent a
party from exercising its explicit contractual rights, a party may not exercise contractual
discretion in bad faith, even when such discretion is vested solely in that party.") (citing Va.
Vermiculite, Ltd. v. W.R. Grace & Co., 156 F.3d 535, 542 (4th Cir. 1998)). In the present case.
Moss says thatM&T repeatedly failed to apply insurance proceeds to her mortgage after initially
saying that it would and that M&T then failed—for over a year—^to work towards using those
insurance proceeds to repair the damage to her home. Moss's amended complaint details many
letters and phone calls in which she sought to get M&T's assistance in repairing her home, and
she even contacted a contractor herself to get signatures that M&T said it needed. Although
M&T had discretion to approve of repairs before authorizing them, Moss alleges a plausible
claim that M&T carried out that discretion in bad faith. The Court denies M&T's motion to
dismiss this claim.
C Real Estate Settlement Procedures Act Claim
To state a claim under the Real Estate Settlement Procedures Act ("RESPA"), "a plaintiff
must allege facts to support that: (1) the defendant is a loan servicer, (2) the plaintiff sent the
defendant a valid QWR, (3) the defendant failed to adequately respond within the statutory
period, and (4) the plaintiff is entitled to actual or statutory damages." Tieffert v. Equifax Info.
Servs., LLC, No. 3:14CV609-HEH, 2014 WL 7240263, at *5 (E.D. Va. Dec. 19, 2014) (citing
Bowman v. Vantium Capital, Inc., 2014 U.S. Dist. LEXIS 3558, at *9-10, 2014 WL 109463
(W.D.Va. Jan. 13, 2014)). The parties only dispute the last two elements. Moss alleges
sufficient facts to survive M&T's 12(b)(6) motion.
In the spring of 2016, Moss senttwo QWRs in which she (1) asked M&T about the status
of the insurance proceeds; (2) requested that M&T apply the proceeds to her loan balance in
order to bring her loan up to date; (3) requested that M&T stop its planned foreclosure sale; and
(4) asked for an explanation of the $7,800 in fees on her account. M&T's briefing does not
address its failure to respond to her request about the $7,800 in fees. Further, M&T's response to
the QWRs incorrectly stated that it would apply her insurance proceeds to her loan, and months
later it reneged on that statement and said it would not actually apply the proceeds to her loan.
As a result of M&T's insufficient responses. Moss alleges that she has suffered damage to her
credit, incurred fees and interest on her mortgage, and spent money to prevent the foreclosure on
her home. Moss has therefore alleged a plausible violation of RESPA.
D. Fair Credit Reporting Act Claims
Moss plausibly alleges that M&T violated the FCRA by failing to denote herdelinquency
as disputed. M&T essentially argues that the information sent to the credit agencies was not in
fact false due to Moss's failure to pay. In response. Moss says that she had disputed the status of
her delinquency and that M&T failed to report this dispute in its reports. Even if Moss had
defaulted on her loan, the failure to report the existence of a dispute has been held to support a
violation of the statute. Armeni v. Trans Union LLC, Inc., No. 3:15-cv-00066-NKM, 2016 WL
4098540, at *7 (W.D. Va. July 28, 2016), reconsideration deniedsub nom. Armeni v. Transunion
LLC, Inc., 2016 WL 5317593 (W.D. Va. Sept. 22, 2016). M&T fails to respond to this argument
in its reply brief. Moss has alleged plausible violations of the FCRA.
E. Breach ofFiduciary Duties Claim
Moss asserts a plausible breach of fiduciary duty claim against Atlantic and Orlans. This
Court has found that '"deeds of trust are treated under the same principles as contracts, and the
trustee only owes those duties that are listed in the deed of trust itself.'" Wilson-McClain v.
Specialized Loan Servicing, LLC, No. 3:15CV541-MHL, 2016 WL 5662002, at *4 (E.D. Va.
Sept. 29, 2016) (quoting Carter v. Countrywide Home Loans, Inc., No. 3:07cv651, 2008 WL
4167931, at *11 (E.D. Va. Sept. 3, 2008)). In Squire v. Virginia Hons. Dev. Auth., 287 Va. 507,
518, 758 S.E.2d 55, 61 (2014), however, the Supreme Court of Virginia found that the plaintiff
stated a plausible claim for a breach of fiduciary duty by failing to comply with a condition
precedent to foreclosure—^there, a requirement that the bank and the trustee have a face-to-face
meeting with the borrower. Id. Although the Squire court did not outline the parameters of a
breach of fiduciary duty claim, it creates a plausible argument that Atlantic and Orlans owed a
duty not to initiate foreclosure proceedings without M&T giving her proper notice. Here, Moss
claims that Atlantic knew that M&T had not given her notice but nonetheless initiated
foreclosure proceedings on multiple occasions. She has alleged a plausible claim under Virginia
law.
F. Fair Debt Collection Practices Act Claim
Moss alleges that Atlantic and Orlans violated the FDCPA by initiating foreclosure
proceedings against her without proper authorization. To show an FDCPA violation, a plaintiff
must allege that the plaintiff has been subjected to collection activity, the defendant is a debt
collector, and that the defendant has committed an act or omission that violates the FDCPA.
Ruggia V. Washington Mut., 719 F. Supp. 2d 642, 647 (E.D. Va. 2010), aff d, 442 F. App'x 816
(4th Cir. 2011) (citation omitted). The defendants take issue only with the final element by
claiming they did not have a duty to act with due diligence. The FDCPA is a strict liability
statute, however, with a limited exception for bona fide debt collectors who violate the statute
unintentionally and as a result of a "bona fide error notwithstanding the maintenance of
procedures reasonably adapted to avoid any such error." McLean v. Ray, 488 F. App'x 677, 682
(4th Cir. 2012). Moss alleges that Atlantic and Orlans knew they lacked the power to foreclose
but initiated proceedings anyway. This states a plausible claim for relief at this stage of the
litigation.
III. CONCLUSION
Moss has alleged viable causes of action in each count of her amended complaint, andthe
Court denies the motions to dismiss.
The Court will enter an appropriate order.
Let the Clerk send a copy of this Opinion to all counsel of record.
John A. Gibney, Jr.
Date: March
United States Distrtet J6c e
2018
Richmond, VA
10
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