Srok et al v. Bank of America et al
Filing
25
DECISION AND ORDER signed by Magistrate Judge Nancy Joseph on 11/6/2015 granting in part and denying in part 18 Motion to Dismiss. The defendants' motion to dismiss the plaintiffs' breach of contract (Claims I and II of the Amended Complaint) and negligence (Claim III of the Amended Complaint) claims is GRANTED. However, the defendants' motion to dismiss the plaintiffs' claim under RESPA (Claim IV of the Amended Complaint) is DENIED. (cc: all counsel) (llc)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
STEVEN J. SROK and
CHRISTINE M. FISCHER-SROK,
Plaintiffs,
v.
Case No. 15-CV-239
BANK OF AMERICA, As Successor in Interest
To BAC Home Loan Servicing, LP; FEDERAL
NATIONAL MORTGAGE ASSOCIATION,
Defendants.
DECISION AND ORDER ON DEFENDANTS’
MOTION TO DISMISS AMENDED COMPLAINT
Steven J. Srok and Christine M. Fischer-Srok allege breach of contract, negligence,
and a violation of the Real Estate Settlement Procedures Act (“RESPA”) against Bank of
America and the Federal National Mortgage Association (“the defendants”) arising out of
the process of attempting to modify their mortgage loan. The Sroks allege that the bank
made explicit representations that they would accept and process a loan modification
application and then failed to follow through, causing the Sroks to fall further behind on
their mortgage payments. The defendants have moved to dismiss the plaintiffs’ amended
complaint pursuant to Fed. R. Civ. P. 12(b)(6) on the ground that it fails to state a claim
upon which relief can be granted. (Docket # 18.) The motion has been fully briefed and is
ready for disposition. For the reasons that follow, I will grant in part and deny in part the
defendants’ motion.
BACKGROUND
In their amended complaint, the Sroks allege that they signed a Note and Mortgage
dated January 9, 2008 in the amount of $328,800.00 with M&I Marshall and Ilsley Bank.
(Pls.’ Am. Compl. ¶ 7, Docket # 16.) The Note was a fixed rate note with an annual interest
rate of 6% and monthly principal and interest payments of $1,971.33. (Id.) The Sroks began
making payments on March 1, 2008. (Id.) In 2009, however, the Sroks experienced financial
difficulties and by the latter half of the year they fell behind on their mortgage payments. (Id.
¶ 8.) The Sroks allege that in August or September 2009, they contacted Bank of America,
and the bank represented that it would accept and process a loan modification application
for their mortgage loan under the Home Affordable Modification Program (“HAMP”). (Id.)
The Sroks allege that the bank told them to send two paystubs each for review, which they
did, and they maintained telephone contact with the bank on a weekly basis. (Id. ¶ 9.)
In November 2009, the Sroks allege that the bank advised them by telephone that it
would not consider them for a loan modification because their income was too high to
qualify under HAMP. (Id. ¶ 10.) The Sroks assert, however, that the bank miscalculated
their income. (Id.) The Sroks allege that even though they advised the bank of the error, they
were told that they would be required to send $3,000.00 per month for a trial period
payment to begin in November 2009. (Id. ¶ 11.)
In January 2010, the Sroks had further telephone communication with the bank, who
again advised them that they did not qualify for the HAMP program. (Id.) After questioning
the bank and again explaining the income issue, the Sroks allege that the bank recalculated
the trial period payments and advised them to begin a new trial period payment in the
amount of $1,835.38. (Id. ¶ 12.) The bank also advised the Sroks they would need to again
2
send in the loan modification application, a new hardship letter, paystubs, and bank
statements. (Id.) However, the bank never sent the Sroks written confirmation of a Trial
Period Plan. (Id.) The Sroks also allege that there was no provision in the underlying note
and mortgage that required the defendants to consider the Sroks for a HAMP modification.
(Id.) The Sroks faxed the requested information on or about January 21, 2010. (Id. ¶ 13.)
The Sroks began to make the trial period payments in the amount of $1,835.38 beginning in
February 2010 and continued making payments until June 2010. (Id.)
The Sroks allege that between January 2010 and June 2010 they had weekly contact
with the bank. (Id. ¶ 14.) The bank would also call and advise the Sroks that they were
behind on their mortgage payments, to which the Sroks responded that they were on a trial
period payment and were in the process of being assessed for a loan modification. (Id.) The
Sroks further allege that during this time period, the bank periodically advised them to send
in new supporting documents because the documents previously submitted were too old for
a HAMP modification. (Id.) The Sroks allege that the documents became outdated because
the bank failed and refused to process the Sroks’ loan for modification. (Id.) The loan
modification process was not complete as of June 2010. (Id.)
During the month of June 2010, the Sroks continued to receive telephone calls from
the bank’s collection department. (Id. ¶ 15.) The Sroks were informed by the bank that they
were working on the modification, but they were again asked to send a hardship letter, bank
statements, and paystubs. (Id.) In August 2010, the bank requested a Profit and Loss
statement from Steven Srok’s business, which he provided. (Id. ¶ 16.) The Sroks allege that
the bank again miscalculated their income and recalculated their trial period payment to
$2,800.00 per month. (Id.)
3
In October 2010, the Sroks discussed the loan with the bank, who advised them that
they would recalculate the Sroks’ payment and that the Sroks should begin making
payments at the recalculated amount in November 2010. (Id. ¶ 18.) However, the Sroks
were served with foreclosure papers during the first week of November 2010 without further
response on their trial period payments or loan modification. (Id.) During the foreclosure
action, the Sroks engaged in settlement discussions with the bank that again involved
submitting a loan modification application with supporting papers in April 2011. (Id. ¶ 21.)
The Sroks did not receive a response from the defendants during the course of 2011. (Id.)
On or about March 2012, the bank sent correspondence to the Sroks advising them
of a potential loan modification. (Id. ¶ 22.) The Sroks submitted further financial
documentation to pursue the loan modification, including paystubs and bank statements.
(Id.) Thereafter, the bank proposed a stipulation to dismiss the foreclosure action and the
Sroks agreed, based on the bank’s representations that they would consider and complete
the loan modification. (Id. ¶ 23.) The foreclosure action was dismissed on August 30, 2012.
(Id.)
Over the next two months, the Sroks maintained periodic telephone contact with the
bank, who advised them that they were approved for a loan modification and that they
would be getting written communication, including the loan modification. (Id. ¶ 24.) The
Sroks never received the written loan modification. (Id.) In October 2012, the Sroks were
advised that the Federal National Mortgage Association had approved them for a loan
modification but the bank was not going to accept it because of the amount of delinquent
interest on the account. (Id. ¶ 25.) The Sroks were told to reapply for another loan
modification, which they did. (Id.)
4
For the next six months, the bank failed to provide the Sroks with any explanation
regarding the status of their loan modification. (Id. ¶ 26.) In April 2013, the bank told the
Sroks that it was not processing their loan modification because their account was on a legal
hold due to litigation. (Id.) The Sroks allege they then sent a correspondence as a Qualified
Written Request (“QWR”) under RESPA to dispute the legal hold. (Id. ¶ 27.) For the next
five months, the Sroks did not communicate with the defendants. (Id.)
In November 2013, the bank advised the Sroks to once again submit a loan
modification. (Id.) The Sroks provided further paystubs and bank statements and completed
another loan modification application in December 2013. (Id. ¶ 28.) In April 2014, the bank
advised the Sroks that they had been approved for a trial modification, which required them
to make trial period plan payments in the amount of $2,575.74 beginning June 1, 2014. (Id.
¶ 29.) The Sroks made payments in the amount of $2,575.74 for June, July and August
2014. (Id.) The Sroks allege that they continued to make the Trial Period Plan payments and
waited for further communication and confirmation of their permanent loan modification
from the defendants. (Id.) The Sroks allege that they complied with the Trial Period Plan by
signing the Trial Period Plan and submitting all necessary monthly payments as well as all
necessary paperwork to the bank. (Id.)
In August 2014, the bank offered a loan modification to the Sroks with a new loan
balance of $456,656.68, including past due interest in the amount of $72,244.74. (Id. ¶ 30.)
The Sroks rejected this loan modification and advised the defendants that the additional
interest was not acceptable to them due to the failure of the bank, acting on behalf of the
Federal National Mortgage Association, to process multiple previous loan modifications
and financial documents accurately and in a timely manner. (Id.)
5
STANDARD OF REVIEW
A motion to dismiss under Fed. R. Civ. P. 12(b)(6) challenges the sufficiency of the
complaint on the basis that the plaintiff has failed to state a claim upon which relief can be
granted. A complaint must contain “a short and plain statement of the claim showing that
the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). The Supreme Court has interpreted
this language to require that the plaintiff plead “enough facts to state a claim to relief that is
plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). In Ashcroft v.
Iqbal, the Supreme Court elaborated further on the pleadings standard, explaining that 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,”
though this “standard is not akin to a ‘probability requirement.’” 556 U.S. 662, 678 (2009).
The allegations in the complaint “must be enough to raise a right to relief above the
speculative level.” Twombly, 550 U.S. at 555 (internal citation omitted).
When determining the sufficiency of a complaint, the court should engage in a twopart analysis. See McCauley v. City of Chicago, 671 F.3d 611, 616 (7th Cir. 2011). First, the
court must “accept the well-pleaded facts in the complaint as true” while separating out
“legal conclusions and conclusory allegations merely reciting the elements of the claim.” Id.
(citing Iqbal, 556 U.S. at 680). Next, “[a]fter excising the allegations not entitled to the
presumption [of truth], [the court must] determine whether the remaining factual allegations
‘plausibly suggest an entitlement to relief.’” Id. (citing Iqbal, 556 U.S. at 681). As explained
in Iqbal, “[d]etermining whether a complaint states a plausible claim for relief will . . . be a
context-specific task that requires the reviewing court to draw on its judicial experience and
common sense.” 556 U.S. at 679.
6
ANALYSIS
In their amended complaint, the Sroks allege three causes of action against the
defendants. First, the Sroks allege two causes of action for breach of contract stemming
from representations the bank made regarding the loan modifications. In the first cause of
action, the Sroks allege that the bank offered on multiple occasions to process a loan
modification and the Sroks accepted the offers, but the bank never followed through in
processing the loan modification. In the second cause of action, the Sroks allege that they
entered into an agreement with the bank to dismiss the foreclosure action based on the
bank’s representations that they would accept and process a loan modification for the Sroks,
and the bank breached this agreement. Second, the Sroks allege that the bank assumed a
duty of ordinary care to accept and process their loan modifications and negligently
breached this duty. Third, the Sroks allege that the bank violated RESPA by failing to
provide a proper response to their qualified written request. I will address each in turn.
1.
Breach of Contract
The Sroks’ first two causes of action allege that the bank breached its contract with
them, as well as breaching the duty of good faith and fair dealing implicit in every contract.
To state a claim for breach of contract, the plaintiffs must allege (1) the existence of a
contract creating obligations flowing from defendant to plaintiff; (2) a breach of those
obligations; and (3) damages from the breach. Uebelacker v. Paula Allen Holdings, Inc., 464 F.
Supp. 2d 791, 801 (W.D. Wis. 2006) (citing Northwestern Motor Car, Inc. v. Pope, 51 Wis. 2d
292, 296, 187 N.W.2d 200, 203 (1971)). To be enforceable, the obligations arising from the
contract must be definite or reasonably certain. Id. (citing Farnsworth, McKoane & Co. v. N.
Shore Sav. & Loan Ass’n, 504 F. Supp. 673, 675–76 (E.D. Wis. 1981)). The Sroks argue that
7
the parties had an oral agreement to accept and process a loan modification under HAMP,
which the defendants breached. (Pls.’ Resp. Br. at 14, Docket # 23, Pls.’ Am. Compl. ¶¶ 27,
35.) The defendants principally rely on two cases in support of their argument that the Sroks
failed to state a claim for breach of contract, Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547
(7th Cir. 2012), and Pulsifer v. U.S. Bank et al., No. 13-CV-648, 13-CV-835, 2014 WL 61230
(E.D.Wis. Jan. 8, 2014) (Pulsifer I).
By way of background, the U.S. Department of the Treasury implemented HAMP to
help homeowners avoid foreclosure amidst the sharp decline in the nation’s housing market
in 2008. Wigod, 673 F.3d at 554. When a borrower qualifies for a HAMP loan modification,
the modification process consists of two stages: a Trial Period Plan under the new loan
repayment terms and a permanent loan modification. Id. at 557. HAMP, however, does not
create a private federal right of action for borrowers against servicers. Id. at 559 n.4.
In Wigod, the Seventh Circuit considered whether a Trial Period Plan under HAMP
was an offer which, if accepted, could form the basis for an enforceable contract under
Illinois law. Id. at 560-566. The court also considered whether the fact that HAMP does not
provide a private federal right of action prevents a borrower from bringing a state cause of
action (such as breach of contract) against the servicer. Id. at 581. As to the first question,
the court found, looking at the terms of the Trial Period Plan, that it could form the basis for
an enforceable contract, but only if the loan servicer actually executed the Trial Period Plan.
Id. at 562. It stated: “[W]hen Wells Fargo executed the TPP, its terms included a unilateral
offer to modify Wigod’s loan conditioned on her compliance with the stated terms of the
bargain . . . . [h]ere a reasonable person in Wigod’s position would read the TPP as a
definite offer to provide a permanent modification that she could accept so long as she
8
satisfied the conditions.” Id. As to the second question, the court found that the fact there is
no private federal right of action under HAMP did not foreclose a proper state law claim
and thus allowed the plaintiff’s breach of contract claim to stand. Id. at 576.
In Pulsifer I, the court, following Wigod, dismissed the plaintiffs’ claim for breach of
the duty of good faith and fair dealing because the defendant did not execute the plaintiffs’
Trial Period Plan. 2014 WL 61230 at *3. The Pulsifer court found that because the defendant
did not execute the Trial Period Plan, there was no unilateral offer to modify the plaintiffs’
loan conditioned on their compliance with the stated terms of the agreement. Id. The court
found that without a valid offer, there could be no underlying contract, and without an
underlying contract, the plaintiffs’ claim for breach of the duty of good faith and fair dealing
failed. Id.
When the plaintiffs moved for reconsideration of the court’s finding, arguing that an
unexecuted Trial Period Plan could reasonably be interpreted as an offer to modify their
loan so long as they complied with the conditions of the Trial Period Plan, the court
disagreed. The court found, based on the express language of the Trial Period Plan, that the
lender was required to provide a fully executed copy of the Plan. Pulsifer v. U.S. Bank, et al.,
No. 13-CV-648, 13-CV-835, 2014 WL 4748233, *3 (E.D. Wis. Sept. 23, 2014) (Pulsifer II)
(internal quotations and citations omitted). In response to the plaintiffs’ argument that the
Trial Period Plan was an offer to process their application for a loan modification in
compliance with HAMP guidelines, the court stated:
When the issue is framed as such, it becomes clear that the Pulsifers have no
cause of action. Home loan servicers, such as Wells Fargo, undertake their
HAMP obligations voluntarily via contract with the Department of the
Treasury. As the Seventh Circuit observed in Wigod, “Congress did not create
a private right of action to enforce the HAMP guidelines, and since Astra
[USA, Inc. v. Santa Clara Cnty., ––– U.S. ––––, 131 S. Ct. 1342, 179 L.Ed. 2d
9
457 ( 2011) ], district courts have correctly applied the Court’s decision to
foreclose claims by homeowners seeking HAMP modifications as third-party
beneficiaries of SPAs.” Therefore, the Court must reject the Pulsifers’ attempt
to enforce the HAMP guidelines under the guise of a claim sounding in
contract.
Id.
Although the Sroks make no attempt to distinguish their case from either Wigod or
Pulsifer, there is one important difference—there is no Trial Period Plan document to
examine in the record. Both Wigod and Pulsifer turn on the fact that the express language of
the Trial Period Plan provided that there was no binding offer unless the lender provides the
borrower a fully executed copy of the Trial Period Plan. The Sroks argue that they had an
oral agreement with the bank and thus the dispute “cannot be determined from the motion
on file by the defendant at this stage in the case.” (Pls.’ Resp. Br. at 14.) However, the Sroks
pled in their amended complaint that they signed a Trial Period Plan. (Pls.’ Am. Compl. ¶
29.) Thus, even though a written agreement exists, the Sroks did not include a copy of the
Plan as an exhibit to their complaint so that the terms of the proposed agreement could be
examined.
Although the Sroks attempt to reframe this issue as a breach of an oral agreement, I
do not see how their situation differs from that in Wigod or Pulsifer. Just as in those cases,
the Sroks argue that the defendants breached an agreement to process a loan modification
under HAMP. The Wigod court found that the Trial Period Plan formed the basis for the
breach of contract action. 673 F.3d at 560. Thus, it is the Sroks’ Trial Period Plan that forms
the basis of their breach of contract action. While the Sroks allege that they signed the Trial
Period Plan (Pls.’ Am. Compl. ¶ 29), they do not allege that the defendants completed the
process. In fact, the Sroks allege multiple times that the defendants never completed the loan
10
modification process. (Id. ¶¶ 14, 19, 24, 35, 40.) Although I do not have the language of the
Trial Period Plan before me, I would be surprised if it differed greatly from the language at
issue in Wigod and Pulsifer and thus just as in those cases, without a Trial Period Plan
executed by the bank, there was no offer. Further, although the Sroks argue that the
defendants failed to follow through and complete the loan modification process, they also
allege that the defendants did offer them a loan modification, which they rejected. (Id. ¶ 30.)
Thus, the Sroks’ breach of contract claims fail. Without a valid contract, the Sroks’ claim for
breach of the duty of good faith and fair dealing also fails. See Pulsifer I, 2014 WL 61230 at
*3 (citing Tabatabai v. West Coast Life Ins. Co., 664 F.3d 663, 668 (7th Cir. 2011)).
2.
Negligence
The Sroks also allege that the bank was negligent in the processing of their loan
modification. The defendants argue that the Sroks’ negligence claim is barred by the
economic loss doctrine. The Sroks argue that the economic loss doctrine does not preclude
their negligence claim because the bank was providing a service in processing the loan, and
the economic loss doctrine does not apply to contracts for services.
The economic loss doctrine is a judicially created rule to preserve the distinction
between contract and tort by requiring transacting parties to pursue only their contractual
remedies when asserting an economic loss claim. Kaloti Enterprises, Inc. v. Kellogg Sales Co.,
2005 WI 111, ¶ 27, 283 Wis. 2d 555, 578-579, 699 N.W.2d 205, 216. The economic loss
doctrine precludes contracting parties from pursuing tort recovery for purely economic or
commercial losses associated with the contract relationship. Id. The economic loss doctrine
applies only to contracts for products, not contracts for services. Insurance Co. of North
America v. Cease Elec. Inc., 2004 WI 139, ¶ 52, 276 Wis. 2d 361, 381, 688 N.W.2d 462, 472.
11
In this case, the Sroks argue that their negligence claim is not barred by the economic
loss doctrine because Bank of America’s actions “are in the nature of a service to modify an
existing mortgage loan.” (Pls.’ Resp. Br. at 5.) The Sroks argue that they do not seek to
recover damages based on the terms of the mortgage they took out in 2008; rather, they seek
recovery “for actions of the servicer of the loan, starting with the bank’s explicit verbal
representations in 2009 when it specifically told the Plaintiffs that it would accept and
process a loan modification to help them keep their home.” (Id.) The Sroks argue that the
“actions of BOA as the servicer of the loan do not constitute a real estate transaction.” (Id.
at 6.) I disagree. The processing of the paperwork for a loan modification is a necessary step
to obtaining the modified product—the mortgage loan. Just as the lender’s processing of
paperwork so that the borrower can receive a mortgage in the first instance does not
transform the mortgage contract into a contract for services, the bank’s processing of
paperwork in relation to the loan modification does not transform it into a contract for
services. Thus, I do not find that the alleged contract to modify the mortgage loan was a
contract for services.
The Sroks attempt to bolster their argument that the economic loss doctrine does not
apply to their case by citing two Wisconsin cases that allowed negligence actions in a
borrower/lender context. (See id. at 8-10) (citing First. Nat. Bank v. Wernhart, 204 Wis. 2d
361, 370 555 N.W.2d 819 (1996) and Kornitz & Ewert Co. v. Earling & Hiller, 49 Wis. 2d 97,
181 N.W.2d 403 (1970)). As an initial matter, neither of these cases analyzed the
application of the economic loss doctrine. Further, to the extent the Sroks are arguing that
these cases support the general proposition that negligence actions are always available in
the borrower/lender context, the cases do not say this and are distinguishable from the case
12
at hand. In Wernhart, the court found that the mortgage lender owed a duty of care to the
borrower because the mortgage lender became the agent of the borrower when it
“consent[ed] to disburse the loan proceeds and personal funds of the borrower, without
further participation by the borrower . . . .” 204 Wis. 2d at 363, 555 N.W.2d at 820. The
court found that “[a]ll agents owe their principal a fiduciary duty with respect to matters
within the scope of their agency.” Id. at 370, 555 N.W.2d at 823. In Kornitz, the court
allowed a negligence claim against a mortgage lender to go forward even though the
plaintiff was not a party to the contract but was allegedly in privity with the contracting
party because the court was unable, without a trial, to do a “fair and complete evaluation of
the policy considerations involved in determining the issue raised as to what liability, if any,
attaches to an interm mortgage lender.” 49 Wis. 2d at 103, 181 N.W.2d at 406.
The Sroks further argue that the bank undertook an extra-contractual duty by
agreeing to accept and process the loan modification. I again disagree. Although addressing
the economic loss doctrine in the context of Illinois law, I find the Seventh Circuit’s
reasoning in Catalan v. GMAC Mortg. Corp., 629 F.3d 676 (7th Cir. 2011) persuasive. In
Catalan, the court dismissed a negligence claim against the mortgage servicer based on
Illinois’ economic loss doctrine, stating that the plaintiffs “attempt to fashion a duty from
the note-and-mortgage contract, from common law, and from GMAC Mortgage’s
obligations under RESPA . . . . However, each duty that the plaintiffs identify has its root in
the note-and-mortgage contract itself. No matter GMAC Mortgage’s failings, the contract
itself cannot give rise to an extra-contractual duty without some showing of a fiduciary
relationship between the parties.” 629 F.3d at 693. This holding is consistent with Wernhart
in which the Wisconsin Court of Appeals allowed a negligence action in the
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borrower/lender context based on the fiduciary relationship between the parties. Thus, as in
Catalan, to the extent Bank of America had a duty of care in accepting and processing the
Sroks’ loan modification paperwork, the duty emerged solely out of its contractual
obligations—there was no extra-contractual duty.
Further, many courts have held that HAMP guidelines do not impose a state tort law
duty of care. See Pulsifer II, 2014 WL 4748233 at *5 (collecting cases); see also Ahmad v. Wells
Fargo Bank, NA, 861 F. Supp. 2d 818 (E.D. Mich. 2012) (“Additionally, because of the
overwhelming case law finding that plaintiffs do not have a private right of action to sue for
a violation of HAMP . . . courts should be reluctant to allow plaintiffs to recast these
claims—involving alleged failures to conform to the provisions of HAMP—as tort
violations.”). Although the Sroks argue that they are not asserting a HAMP violation and
are rather asserting a common law negligence claim (Pls.’ Resp. Br. at 10), their negligence
allegations arise directly from duties related to HAMP. Thus, it appears to me that the Sroks
are attempting to recast a HAMP violation as a tort claim.
Finally, the Sroks rely on Speleos v. BAC Home Loan Servicing, L.P., 755 F. Supp. 2d
304 (D. Mass. 2010) for the proposition that a violation of the HAMP Guidelines may
constitute evidence of negligence. However, it appears Speleos is an outlier case and several
subsequent Massachusetts courts have rejected its reasoning. See Provost v. Saxon Mortg.
Services, Inc., No. 4:11–cv–40137–TSH, 2012 WL 1065481, *3 (D. Mass. Mar. 27, 2012)
(finding no duty of care for alleged violation of HAMP); Markle v. HSBC Mortgage Corp., 844
F. Supp. 2d 172, 185 (D. Mass. 2011) (declining to recognize a new duty of care based on
the HAMP guidelines); Brown v. Bank of America Corp., No. 10–11085, 2011 WL 1311278, *4
(D. Mass. Mar. 31, 2011) (“[W]hile violation of a regulation such as HAMP may provide
14
evidence of a breach of a duty otherwise owed, it does not create such a duty in the first
place.”). Accordingly, the Sroks’ negligence claim against the defendants is barred by the
economic loss doctrine and must be dismissed.
3.
RESPA
Finally, the Sroks allege that the defendants violated RESPA by failing to provide a
proper response to their Qualified Written Request dated April 18, 2013. The defendants
move to dismiss the Sroks’ claim, arguing that it complied with the statutory requirements
for responding to the Sroks’ request.
RESPA is a consumer protection statute that regulates the real estate settlement
process, including servicing of loans and assignment of those loans. Catalan, 629 F.3d at
680. The statute imposes a number of duties on lenders and loan servicers. Id. This includes
the duties of a loan servicer to respond promptly to a borrower’s written request for
information. See 12 U.S.C. § 2605(e). A “qualified written request” will trigger a loan
servicer’s duties under RESPA to acknowledge and respond. Id.
Within 30 days after receiving a qualified written request, the servicer must take one
of three actions: either (1) make appropriate corrections to the borrower’s account and
notify the borrower in writing of the corrections; (2) investigate the borrower’s account and
provide the borrower with a written clarification as to why the servicer believes the
borrower’s account to be correct; or (3) investigate the borrower’s account and either
provide the requested information or provide an explanation as to why the requested
information is unavailable. Catalan, 629 F.3d at 680; 12 U.S.C. § 2605(e)(2)(A), (B), and
(C).
15
The defendants argue that the bank’s response to the Sroks’ qualified written request
was sufficient under option two in that it investigated their account and provided them with
written clarification as to why it believed the account was correct. In their QWR, the Sroks
asked why there was a legal hold on their account. (Pls.’ Am. Compl., Exh. 2.) The bank
responded by stating that “the legal hold on your account is because you are represented by
counsel in a litigation action against Bank of America, N.A. Because you are represented by
the Law Office of Rollie R. Hanson, S.C. all communication regarding your loan will be
counsel to counsel until the litigation is resolved.” (Pls.’ Am. Compl., Exh. 3.) The
defendants argue that the bank’s response was sufficient because the Sroks asked why there
was a legal hold on their account, to which the bank responded by stating that the legal hold
was due to the fact the Sroks were represented by counsel. The Sroks argue that the bank’s
response was false and inaccurate because there was no litigation action against the bank at
that time and that this false response evidences the bank’s failure to investigate their
account.
The Sroks are correct that the bank stated in its response to the QWR that the legal
hold was not simply due to the fact they were represented by counsel (as the defendants
argue), but was because they were represented by counsel in a litigation action against the
bank. The Sroks have alleged that this was incorrect because the QWR was sent on April
18, 2013 and the foreclosure action was dismissed on August 30, 2012. (Pls.’ Am. Compl. ¶¶
56-57.) The Sroks allege that the bank violated 12 U.S.C. §§ 2605(e)(2)(C)(i), (e)(2)(C)(i),
and (e)(2)(a) for failure to conduct a proper investigation, correct their records, and take the
necessary steps to resolve the dispute. (Id. ¶ 55.) I need not decide whether the bank’s June
18, 2013 response to the Sroks’ QWR was sufficient under the statute. Rather, at this
16
juncture, I find that the Sroks’ pleadings alleging that Bank of America provided incorrect
information in response to their QWR states a claim upon which relief can be granted under
§ 2605(e)(2) and the defendants’ motion with respect to the same will be denied. See
Friedman v. Maspeth Federal Loan and Sav. Ass’n, 30 F. Supp. 3d 183, 194 (E.D.N.Y. 2014)
(finding that complaint stated valid claim under RESPA when defendant gave incorrect
information in response to a QWR).
NOW, THEREFORE, IT IS HEREBY ORDERED that the defendants’ motion to
dismiss is GRANTED IN PART AND DENIED IN PART. The defendants’ motion to
dismiss the plaintiffs’ breach of contract (Claims I and II of the Amended Complaint) and
negligence (Claim III of the Amended Complaint) claims is GRANTED. However, the
defendants’ motion to dismiss the plaintiffs’ claim under RESPA (Claim IV of the Amended
Complaint) is DENIED.
Dated at Milwaukee, Wisconsin this 6th day of November, 2015.
BY THE COURT
s/Nancy Joseph_____________
NANCY JOSEPH
United States Magistrate Judge
17
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