Gillis v. Household Finance Corporation III

          MEMORANDUM OPINION

          GEORGE J. HAZEL UNITED STATES DISTRICT JUDGE.

         Plaintiffs Alfonzo and Sandra Gillis brought this civil action alleging that Defendants improperly managed Plaintiffs' mortgage loan over several years including by imposing and collecting invalid loan charges and failing to respond to or conduct reasonable investigations related to Plaintiffs' written inquiries. Pending before the Court are Defendants Caliber Home Loans, Inc. (Caliber), Household Finance Corporation III (Household Finance), and Select Portfolio Servicing, Inc. (SPS)'s Motions to Dismiss. ECF Nos. 15, 16, & 17. No. hearing is necessary. See Loc. R. 105.6 (D. Md. 2016). For the following reasons, Defendants' Motions to Dismiss will be granted in part and denied in part.

         I. BACKGROUND^[1]

         Plaintiffs are owners of 9729 Green Apple Turn, Upper Marlboro, MD 20772 (the Property). ECF No. 1-2 ¶ 8. They have resided in the Property since March 11, 1988 and continue to reside there. Id. ¶ 17. In March 2007, Plaintiffs refinanced their home mortgage loan, which at the time was serviced by Defendant Household Finance. Id. ¶ 18. At the time of the refinance and continuing thereafter, Plaintiffs paid their property taxes and homeowners' insurance separately from their mortgage loan except for the taxes and insurance owed in 2014, which Household Finance paid on Plaintiffs' behalf, but which Plaintiffs repaid to Household Finance. Id. ¶ 19.

         In 2010, Mr. Gillis experienced congestive heart failure, which forced him to retire early. Id. ¶ 20. Early retirement reduced Plaintiffs' income by 60%, and they began to struggle to make their loan payments. Id. To mitigate their situation, Plaintiffs made several attempts to modify their mortgage. Id. ¶¶ 20-21. Despite Plaintiffs efforts, Household Finance offered only short-term forbearance plans, which temporarily alleviated Plaintiffs' financial pressures. Id.

         Plaintiffs' long-term economic stress continued, and in December 2014, Mrs. Gillis again spoke to an Household Finance representative about obtaining a loan modification. Id. ¶ 22. On March 13, 2015, Plaintiffs learned that they had apparently been approved for a loan modification, but a Household Finance representative informed Plaintiffs that to accept the modification they needed to pay a sum of $976.26 as well as a $15 processing fee. Id. Mrs. Gillis responded that she would contact the representative in a few days once she had discussed the agreement with her husband. Id.

         On March 17, 2015, Plaintiffs attempted to call the Household Finance representative to accept the modification and to make the first payment. Id. ¶ 23. However, the representative did not answer and did not return any messages left by the Plaintiffs that day or over the next several days. Id. Despite not receiving any written confirmation from Plaintiffs, Household Finance drafted $991.26 from Plaintiffs' bank account on March 20, 2015. Id.

         Plaintiffs eventually contacted a different Household Finance representative on March 24, 2015. Id. ¶ 24. The representative told them that there were “no notes in the system” regarding their prior conversations or the modification. Id. Later that day, the original Household Finance representative told Plaintiffs that she had made an error, that Plaintiffs were not approved for a modification after all, and that their “modification payment” would be applied to their account. Id. The representative suggested that Plaintiffs restart the process of applying for a modification. Id. Plaintiffs did so, submitting a new modification application two days later. Id. ¶ 26.

         Between April 21, 2015 and April 23, 2015, Plaintiffs received conflicting letters from Household Finance. Id. ¶ 27. One letter was a written denial of their loss mitigation application while another acknowledged a “repayment agreement and loss mitigation.” Id. ¶ 27. Plaintiffs relied on the repayment plan by making all the required payments, including a $1, 676.56 payment on April 24, 2015, a $2, 668 payment on May 11, 2015, and a $2, 960.34 payment on June 8, 2015. Id.

         Plaintiffs also contacted a Household Finance representative to seek clarification on the proposed repayment plan. Id. ¶ 28. The representative described to Plaintiffs how Household Finance anticipated applying the repayments and indicated that a portion of the purported past due balance in the amount of $3, 656.49 on Plaintiffs' loan consisted of “uncollected fees.” Id. ¶ 28. When Plaintiffs asked what these fees consisted of, the representative initially said they were arrearage tax payments fronted by Household Finance. However, after Plaintiffs explained that they had paid the Property's taxes, the representative indicated that the “uncollected fees” were past due late charges, which had accrued prior to the Plaintiffs' 2007 refinance. Yet Plaintiffs' pre-2007 loan had been fully paid and discharged in the refinance. Id. ¶ 29 (citing the land records for Prince George's County at Book 27974, Page 459). Plaintiffs therefore contacted Household Finance to verify that the representations regarding the purported “uncollected fees” were accurate. Id. ¶ 29. On May 18, 2015, an authorized Household Finance representative, the manager of customer disputes, responded to Plaintiffs by confirming what they had previously learned with the following:

You established this mortgage with Household Finance on March 19, 2007. We have enclosed a copy of the Loan Repayment and Security Agreement for your review. We have confirmed that you were not informed that the current fee balances were on record when Household Finance acquired the loan. Please be advised that there are two types of fee balances on the account. The first is for late fees, which has a current balance of $3, 611.50. The second is for corporate advances, which represents funds Household Finance has advanced your behalf for delinquent property taxes, which has a current balance of $6, 892.67.

Id.

         Plaintiffs understood this response to be an admission by Household Finance that the purported late fees were from their pre-2007-refiance loan, that Plaintiffs had not been informed that these costs would be added to the refinanced loan, and that Household Finance would fix its admitted error. Id. ¶ 31. Plaintiffs continued to make payments on their loan and repayment plan and confirmed that their account was paid and current through September 2015. Id. Plaintiffs continued making their timely payments for each month thereafter, believing that these payments were being applied to their loan principal. Id. ¶¶ 31, 34.

         On November 19, 2015, Household Finance notified Plaintiffs that it intended to transfer their loan servicing to Defendant Caliber effective December 8, 2015. Id. ¶ 32. Having finally succeeded in bringing their loan up to date, Plaintiffs contacted Caliber immediately upon receiving this notice to make sure that they understood where to make their payments and to ensure a smooth transition. Id. Although Plaintiffs believed that any uncollected-fee issues leftover from before their 2007 refinance had been resolved by Household Finance, Household Finance represented to Caliber that at the time of the servicing transfer, Plaintiffs had an “uncollected late charge” in the amount of $3, 656.49. Id. ¶ 33. Therefore, unbeknownst to Plaintiffs, the loan continued to be inappropriately infected by sums from a prior loan even though that loan had been completely satisfied more than three years prior. Id.

         After the servicing transfer to Caliber, Plaintiffs continued to make timely payments. Id. ¶ 35. However, they noticed that Caliber was applying portions of their payments to purported uncollected late charges. Id. To seek clarification, Mrs. Gillis contacted Caliber on April 7, 2016 and spoke with an authorized representative to (i) learn why Caliber was assessing a fee its predecessor had admitted it had no right to collect; and (ii) to obtain a payment history. Caliber's authorized representative was unable to answer Mrs. Gillis's questions, and only responded by stating that Household Finance had modified the loan on May 17, 2010 even though Household Finance had not modified Plaintiffs' loan in 2010. Id. ¶ 36. Mrs. Gillis requested that Caliber send her a copy of the purported modification agreement and an accounting of her payment history; however, Caliber never sent her either document. Id.

         On November 9, 2016, Caliber informed Plaintiffs that it would be transferring the loan servicing to Defendant SPS effective December 1, 2016. Id. Caliber relayed to SPS that Plaintiffs owed $2, 892.51 in “uncollected late charges.” Id. Caliber also told SPS that it had expended $4, 884.79 in lender-paid advances even though Plaintiffs did not have an escrow account set up with Caliber and had instead paid their property taxes and insurance separate from their mortgage. Id. In light of these representations, SPS believed the loan to be in default at the time the servicing transferred to it from Caliber. Id.

         On December 27, 2016, Plaintiffs received their first monthly statement from SPS. Id. ¶ 41. Plaintiffs learned SPS was continuing to charge the fees associated with the pre-2007 loan. Id. Further, SPS had added $27, 362.37 to the Plaintiffs' loan, which it labeled “deferred principal.” Id. None of Plaintiffs' statements from Caliber or Household Finance indicated that there were any deferred sums owed on the loan, so Mrs. Gillis contacted SPS on December 27, 2016 to clarify the monthly statement and was told that SPS would research the matter and send her a response. Id. After not receiving a response, Mrs. Gillis followed up with SPS for a complete accounting of the loan; however, on March 6, 2017, SPS responded that it was “unable to fulfill” Plaintiffs “inquiry for documentation.” Id.

         Mrs. Gillis contacted SPS several more times for clarification regarding what SPS claimed Plaintiffs owed, and why it arrived at that conclusion. Id. at 43. On January 13, 2017, Mrs. Gillis spoke with Jeannie Ford who represented that $27, 000 had been added to the loan in 2010 as “deferred principal resulting from a modification” even though Plaintiffs had not received a modification. Id. On January 21, 2017, Mrs. Gillis spoke with Kevin who could not provide Plaintiffs with an explanation for the fees being charged by SPS and informed Plaintiffs that there was a 16-day grace period for them to make payments on the loan. Id.

         On February 9, 2017, SPS sent Plaintiffs a notice of interest rate change for the upcoming year. Id. ¶ 45. The notice indicated that the interest rate would remain the same, and, as had been the case with prior servicers, there would not be any escrowed funds for taxes or insurance. Id. Plaintiffs therefore continued to pay the property taxes and homeowners' insurance owed on the loan separately from the mortgage. Id. But on April 28, 2017, SPS sent Plaintiffs a notice of delinquent property taxes. Id. ¶ 46. Fearful that their home could be auctioned at a tax sale without their knowledge, Plaintiffs relied upon SPS's representations and immediately contacted the Prince George's County Office of Finance to determine their status; no tax payment was due because Plaintiffs had already paid the tax assessment, and there were no past-due or delinquent taxes owed on their account. Id. ¶ 47. Plaintiffs further inquired from the Office of Finance whether the prior servicer, Caliber, had ever made a payment towards the property taxes and were informed that it had not. Id. In further reliance upon SPS's representations, on May 5, 2017, Plaintiffs contacted SPS to clarify that no tax payment was due. Id. ¶ 48.

         On May 3, 2017, SPS sent another notice to Plaintiffs informing them that it intended to begin collecting escrow for taxes and insurance on the Property even though Plaintiffs were paying for taxes and insurance separate from their mortgage and were current on these payments. Id. SPS also wrote that Plaintiffs' loan had a negative escrow advance balance of $4, 733.82 from prior servicers, which it intended to collect. Id. Confused by this accounting and not wanting to pay sums not owed, Plaintiffs contacted SPS on May 8, 2017 to request an itemization of how and when the $4, 733.82 had purportedly accrued. Id. ¶ 50. SPS's authorized representative told Plaintiffs that Caliber had submitted that sum to the Prince George's County Treasurer. Id. In light of her prior conversation with the Finance Office, Mrs. Gillis further requested to know the date that purported payment had been made, but SPS's representative responded that she was “unable to disclose that information” and that she could not find any records related to the payment. Id. Mrs. Gillis requested that SPS research and send her a copy of the purported payment. Id.

         On June 2, 2017, SPS sent Plaintiffs a letter informing them that it needed an additional 30-45 days to complete its research into her request. Id. ¶ 51. Days earlier though, on May 30, 2017, SPS had sent Plaintiffs a second notice of delinquent property taxes. Id. ¶ 52. In reliance on this correspondence, on June 5, 2017, Mrs. Gillis called SPS and verified once again to an SPS representative that the property taxes were current. Id. ¶ 53. The representative acknowledged that the March 31, 2017 property tax payment was verified and told Mrs. Gillis that she did not need to take any further actions. Id. Since she had not heard any further from SPS regarding her research request, Mrs. Gillis further inquired about the purported $4, 733.82 negative escrow balance. Id. The representative responded that the sum might be related to property insurance rather than taxes, and that she should speak to the insurance department. Id. Mrs. Gillis called SPS's insurance department that same day and a representative informed her that there were no issues regarding Plaintiffs' insurance policy. Id. ¶ 54. She was transferred to a service representative who informed her that SPS was still researching the purported negative escrow balance, and that Plaintiffs should pay the higher monthly payment while SPS continued to research. Id.

         Frustrated that SPS continued to ignore her inquiries while simultaneously adding unexplained fees and charges to her mortgage account, Mrs. Gillis wrote to SPS on June 5, 2017, using the address designated for qualified written requests (QWRs) reiterating what she had explained to SPS's representatives on multiple occasions: (i) that Plaintiffs' loan had never included an escrow account; (ii) that the property taxes and homeowners' insurance were current; (iii) that her loan had not been modified in 2010; and (iv) she did not owe an escrow balance or late fees. Id. ¶ 55. Mrs. Gillis sent a copy of the SPS QWR to the Consumer Financial Protection Bureau on June 26, 2017, and Plaintiffs filed a complaint with the CFPB against Caliber on the same date. Id. ¶ 56.

         On June 21, 2017, SPS sent Plaintiffs a notice that it intended to impose retroactive insurance on the Property from May 2, 2017 through May 30, 2017 and requested that Plaintiffs sign and return a document to establish an escrow account going forward. Id. ¶ 57. Plaintiffs elected not to entrust SPS with even more funds, instead deciding they would continue to pay their taxes and insurance separately. Id.

         On July 5, 2017, SPS responded to Plaintiffs' inquiries regarding their account by claiming Caliber believed that Household Finance had paid property taxes in 2013, 2014, and part of 2015, that Plaintiffs owed a late fee balance of $2, 892.51 at the time the servicing transferred to SPS, and that SPS determined that this balance was valid. Id. ¶ 58. SPS further included an inaccurate transaction history from Caliber, which included purported loan transactions dating back to 2007, before Caliber had begun servicing the loan. Id. The transaction history included a purported payoff statement concerning the amount needed to satisfy the loan as well as a purported escrow disbursement history, which contained just one transaction. Id. Despite Plaintiffs' prior communications with SPS regarding inaccuracies, the payoff statement included the “deferred interest” that SPS had added when it began servicing Plaintiffs' loan as well as the unexplained negative escrow balance. Id. The payoff statement also included interest on the purposed escrow advances even though Plaintiffs had explained several times that they had no escrow account associated with their loan. Id. The payoff statement also claimed that Plaintiffs owed $2, 711 in “late charges outstanding”-the fees purportedly associated with the pre-2007 loan. Id.

         Given the deficiencies in SPS's response, Plaintiffs sent another letter to SPS on July 19, 2017 at the address designated for QWRs. Id. ¶ 62. Plaintiffs requested that SPS provide them with (i) all documents received from Caliber (ii) all documents related to the purchase and owner of their loan; (iii) any documents related to any loss mitigation application or decision; (iv) all audio recordings made related to the loan; and (v) a complete account of the loan, including a complete accounting of the escrow account. Id. On July 28, 2017, SPS partially responded to Plaintiffs' request by sending them another payoff statement. Id. ¶ 66. The payoff statement included the same inaccurate details that SPS had previously provided. Id.

         On August 16, 2017, SPS further responded by providing Plaintiffs with the date of the servicing transfer and the name of the loan's owner. Id. ¶ 67. SPS also informed Plaintiffs that the purported escrow deficiency was because although their account was not escrowed, SPS was collecting for an escrow advance balance transferred from Caliber for tax advances made by the prior servicer. Id. SPS also included a printout of Plaintiffs' servicing history, which indicated that as of August 16, 2017, SPS had collected $55 in ...