United States District Court, D. Oregon
L. Koen, Legal Aid Services of Oregon, Emily Teplin Fox and
Ed Johnson, Oregon Law Center, Of Attorneys for Plaintiffs.
G. Grant, Donald G. Grant, P.S., Washougal Town Square, Suite
Neeru Jindal, Yu Mohandesi LLP, Of Attorneys for Defendants.
OPINION AND ORDER
Michael H. Simon United States District Judge.
Linda Marquard (“Ms. Marquard”) and David
Marquard (“Mr. Marquard”) (collectively,
“the Marquards” or “Plaintiffs”)
bring this lawsuit against Defendants New Penn Financial,
LLC, dba Shellpoint Mortgage Servicing
(“Shellpoint”) and the Bank of New York Mellon,
fka the Bank of New York (the “Bank”)
(collectively, “Defendants”). The Marquards
allege that Defendants collected escrow payments for property
taxes that the Marquards did not owe because of a state
deferral program. The Marquards assert claims alleging
violations of the Real Estate Settlement Procedures Act
(“RESPA”), breach of contract, breach of the
covenant of good faith and fair dealing, violation of the
Unlawful Trade Practices Act, conversion, violation of Oregon
Revised Statutes (“ORS”) § 659A.142,
violation of the Fair Housing Amendments Act
(“FHA”),  violation of ORS § 659A.145,
declaratory judgment, and contract reformation. Under Rule
12(b)(6) of the Federal Rules of Civil Procedure, Defendants
move to dismiss the Marquard's claims of conversion,
violation of ORS § 659A.142, violation of the FHA,
violation of ORS § 659A.145, declaratory judgment, and
contract reformation. For the reasons stated below,
Defendants' motion is granted in part and denied in part.
motion to dismiss for failure to state a claim may be granted
only when there is no cognizable legal theory to support the
claim or when the complaint lacks sufficient factual
allegations to state a facially plausible claim for relief.
Shroyer v. New Cingular Wireless Servs., Inc., 622
F.3d 1035, 1041 (9th Cir. 2010). In evaluating the
sufficiency of a complaint's factual allegations, the
court must accept as true all well-pleaded material facts
alleged in the complaint and construe them in the light most
favorable to the non-moving party. Wilson v.
Hewlett-Packard Co., 668 F.3d 1136, 1140 (9th Cir.
2012); Daniels-Hall v. Nat'l Educ. Ass'n,
629 F.3d 992, 998 (9th Cir. 2010). To be entitled to a
presumption of truth, allegations in a complaint “may
not simply recite the elements of a cause of action, but must
contain sufficient allegations of underlying facts to give
fair notice and to enable the opposing party to defend itself
effectively.” Starr v. Baca, 652 F.3d 1202,
1216 (9th Cir. 2011). All reasonable inferences from the
factual allegations must be drawn in favor of the plaintiff.
Newcal Indus. v. Ikon Office Solution, 513 F.3d
1038, 1043 n.2 (9th Cir. 2008). The court need not, however,
credit the plaintiff's legal conclusions that are couched
as factual allegations. Ashcroft v. Iqbal, 556 U.S.
662, 678-79 (2009).
complaint must contain sufficient factual allegations to
“plausibly suggest an entitlement to relief, such that
it is not unfair to require the opposing party to be
subjected to the expense of discovery and continued
litigation.” Starr, 652 F.3d at 1216. “A
claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct
alleged.” Iqbal, 556 U.S. at 678 (citing
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556
2005, Ms. Marquard purchased a home in Portland, Oregon.
First Amended Complaint (“FAC”) ¶ 15 (ECF
39). In 2007, the Marquards refinanced their home with the
loan that is at issue in this lawsuit, and Mr. Marquard was
added to the title. FAC ¶ 16. In February 2011, Ms.
Marquard was laid off from her job as an associate director
of strategic planning for an energy conservation non-profit
organization. FAC ¶ 21. Later in 2011, the Marquards
became unable to make payments on their home loan. FAC ¶
Marquard has two ruptured discs in his lower back, stemming
from prior work, most recently from lifting a concrete
fountain at a nursery. FAC ¶ 23. His injury causes him
back pain and numbness in his legs. FAC ¶ 24. In 2015,
the Social Security Administration found him to be disabled.
FAC ¶ 23.
August 2015, Ms. Marquard began working part-time as a
cashier at a Fred Meyer supermarket, earning $10.50 per hour.
FAC ¶ 26. In March 2016, Ms. Marquard was diagnosed with
non-small cell lung cancer. FAC ¶ 27. She then underwent
surgery to remove the upper lobe of her right lung. FAC
¶ 27. In September 2016, Ms. Marquard learned that her
cancer had spread, and she was diagnosed with Stage IV
non-small cell lung cancer. FAC ¶ 37. On September 29,
2016, Ms. Marquard applied for Social Security Disability
Insurance (“SSDI”) under the Social Security
Administration's expedited Compassionate Allowances
Initiative. Her application was approved. FAC ¶ 39. She
receives $2, 485 per month in SSDI benefits. FAC ¶ 2.
Shellpoint has been the mortgage servicer for Plaintiffs'
home loan since December 1, 2016, when it succeeded
Plaintiffs' former servicer, Specialized Loan Servicing
LLC (“SLS”). FAC ¶ 49.
loan that is at issue in this lawsuit, Plaintiffs entered
into their mortgage arrangement on January 26, 2007. The Bank
is the Note Holder and Lender. FAC ¶ 19. Paragraph 3 of
its Deed of Trust provides:
Borrower shall pay to Lender . . . a sum (the
“Funds”) to provide for payment of amounts due
for: (a) taxes and assessments and other items which can
attain priority over this Security Instrument as a lien or
encumbrance on the Property . . . . These items are called
“Escrow Items.” . . . Borrower shall pay Lender
the Funds for Escrow Items unless Lender waives
Borrower's obligation to pay the Funds for any or all
Lender may, at any time, collect and hold Funds in an amount
(a) sufficient to permit Lender to apply the Funds at the
time specified under RESPA, and (b) not to exceed
the maximum amount a lender can
require under RESPA. Lender shall estimate the
amount of Funds due on the basis of current data and
reasonable estimates of expenditures of future Escrow Items
or otherwise in accordance with Applicable Law.
41-1 at 4 (Deed of Trust ¶ 3) (emphasis added). The Deed
of Trust also provides: “If there is a surplus of Funds
held in escrow, as defined under RESPA, Lender shall account
to Borrower for the excess funds in accordance with
RESPA.” Id. at 4 (Deed of Trust ¶ 3).
2016, the Oregon Department of Revenue (“DOR”)
approved Plaintiffs' application for the Oregon Property
Tax Deferral for Disabled and Senior Citizens program
(“the “Oregon Tax Deferral Program” or
“the Program”). FAC ¶ 31. The purpose of the
Program is to keep low-income senior citizens and people with
disabilities in their homes by relieving them of having to
pay property taxes while they are incapable of making such
payments. FAC ¶ 161. Under the Program, the State of
Oregon agreed to pay Plaintiffs' property taxes to
Multnomah County on an annual basis, beginning November 2016.
FAC ¶ 31. Also under the Program, on July 14, 2016, the
State recorded a lien on Plaintiffs' property to secure
eventual repayment of the property taxes paid by the State
for Plaintiffs. FAC ¶ 34. Under the Program, the
deferred property taxes need not be repaid until “[t]he
ownership of the property changes, ” “[t]he
deferral applicant[s] die, ” or “[t]he deferral
applicant[s] move from the property for any reason other
than health reasons.” FAC ¶ 30. To remain in the
Program, Plaintiffs need only certify every two year that
they continue to meet all eligibility requirements. FAC
November 1, 2016, Plaintiffs applied for a loan modification
under the Home Affordable Modification Program
(“HAMP”). FAC ¶ 41. Plaintiffs' loan
modification application included a copy of their property
tax deferral approval letter. FAC ¶ 41.
November 7, 2016, Plaintiffs and their attorney met with a
representative of SLS, who informed Plaintiffs that they
could make trial-period modification payments in the monthly
amount of $2, 105.83. FAC ¶ 44. This payment would
include an escrow for one-twelfth of Plaintiffs'
anticipated annual property taxes. FAC ¶ 44. The
inclusion of the escrow for property taxes would make their
monthly payments higher by $376.68 than it would otherwise
have been. FAC ¶ 44. At that meeting, Plaintiffs'
attorney requested that SLS not require as part of
Plaintiffs' trial-period payments any amount for an
escrow of property taxes. FAC ¶ 45 At the meeting, SLS
refused to grant the request. FAC ¶ 46. Instead, SLS
stated at the meeting that if Plaintiffs made all three
payments under the trial-period modification, SLS would
reanalyze the escrow account for Plaintiffs' loan. FAC
¶ 47. SLS's representation that it would reanalyze
the escrow account led Plaintiffs to believe that after the
trial period, an escrow for property taxes would no longer be
included in Plaintiffs' loan. FAC ¶ 47. Plaintiffs
made their first trial period payment on November 30, 2016.
FAC ¶ 48.
January 20, 2017, Mr. Marquard sent Shellpoint, SLS's
successor loan servicer, another copy of the State of Oregon
Property Tax Deferral Application Approval along with a
statement. FAC ¶ 51. On February 1, 2017, Plaintiffs
paid their final trial period payment. FAC ¶ 43. On that
date, they also sent Shellpoint a notice of error under
RESPA, which prohibits servicers from escrowing amounts for
property taxes unless they are “reasonably anticipated
to be paid on dates during the ensuing twelve
months[.]” FAC ¶¶ 54-53.
responded on February 20, 2017, stating that “[w]e do
not have information from the state of Oregon advising that
your property taxes will be temporarily paid for by another
entity or that your taxes are not due for 2017.” FAC
¶ 56. On February 27, Plaintiffs' attorney provided
to Shellpoint copies of the letter from the Oregon Department
of Revenue confirming Plaintiffs' participation in the
Oregon Tax Deferral Program. FAC ¶ 62. On March 1, 2017,
Plaintiffs sent a complaint to the Consumer Financial
Protection Bureau. Shellpoint responded “[b]ecause the
tax deferral program does not eliminate the borrower's
liability for the payment of the property tax, we must
continue to escrow for the property taxes and disburse
payments to your taxing authority accordingly.” FAC
¶ 64. Shellpoint sent a similar letter to
Plaintiffs' counsel. FAC ¶ 65.
about March 14, 2017, Plaintiffs signed a permanent HAMP
Agreement. FAC ¶ 72. The HAMP Agreement includes monthly
escrow payments of 1/12 of Plaintiffs' annual property
tax bill plus a 10 percent cushion. FAC ¶ 72.
Plaintiffs' monthly mortgage payment constitutes more
than 80 percent of the income they receive from the Social
Security Administration. FAC ¶ 82. Plaintiffs have
continued to pay the monthly escrow payments, under protest,
out of fear of foreclosure. FAC ¶ 73.
fear that, due to their financial situation, they will fall
behind again, default on their loan, risk losing their home,
and end up homeless. FAC ¶ 82. As a result of this fear,
Ms. Marquard has suffered severe emotional distress,
including but not limited to anxiety, depression, nausea,
headaches, anger, irritability, and sleeplessness. FAC ¶
75. Mr. Marquard has suffered and will likely continue to
suffer severe emotional distress, depression, headaches,
anger, irritability, and sleeplessness. FAC ¶ 76. As a
further result, Mr. Marquard grinds his teeth during his
sleep, leading to headaches, hearing loss, and trouble
eating. FAC ¶ 76. His teeth-grinding also has forced him
to seek treatment from a physical therapist and will require
that he obtain special dental care. FAC ¶ 76. On May 31,
2017, the Court granted Plaintiffs' motion for a
preliminary injunction, enjoining Shellpoint from collecting
the escrow payments for anticipated property taxes. FAC
issuance of the preliminary injunction, Plaintiffs noticed
that the terms of their loan modification agreement were not
what they thought they had agreed to. FAC ¶ 83. The loan
modification agreement that they signed accounts for an
interest bearing principal of $435, 850.00, on which
Plaintiffs were required to make monthly payments, and a
deferred principal balance of $64, 226.82, on which
Plaintiffs were not required to make monthly payments. FAC
¶ 86. Under the signed agreement, Plaintiffs are to make
monthly principal and interest payments of $1, 560.28 at
three percent interest over a repayment term of 362 months.
FAC ¶ 91. Under these terms, Plaintiffs will owe two
balloon payments on May 1, 2047: one of $159, 664.60 on the
balance of the interest bearing principal, and one of $64,
226.82 on the deferred interest principal. FAC ¶ 91. The
signed agreement contains no explicit reference to a balloon
payment of $159.664.60, but does state that for mortgages
that do not fully amortize over the term of the note,
“there is a final remaining balance that is due upon
maturity.” ECF 41-2 at 2 (HAMP mortgage modification
agree with all terms of the signed agreement, except the
repayment period and the resulting balloon payment on the
interest bearing principal. FAC ¶¶ 84-87.
Plaintiffs allege that “[t]he parties intended and
agreed” to a repayment term of 480 months, with a
maturity date of March 1, 2057. FAC ¶¶ 84-85. Under
such an agreement, Plaintiffs would owe only one balloon
payment on March 1, 2057: the deferred interest principal of
$64, 226.82. FAC ¶ 92. By March 1, 2057 (the completion
of the 480 month term), the interest bearing principal would
have completely amortized and only the deferred interest
principal would remain. FAC ¶ 90.
allege that all parties understood that they had agreed to
the longer repayment term, FAC ¶ 95, and the shorter
term in the signed agreement was a result drafting error, FAC
¶ 107. Plaintiffs allege that the terms of the
modification were subject to HAMP Tier 2, which requires that
loan servicers extend the note term to 480 months. FAC ¶
103; ECF 41-3 at 2 (“HAMP Handbook” ¶
18.104.22.168). The HAMP Handbook states that servicers may not
adjust the HAMP Tier 2 mortgage adjustment requirements,
unless “an investor restriction or applicable law
requires them to do so.” ECF 41-3 at 2 (HAMP Handbook
¶ 6.3.2). Alternatively, Plaintiffs allege that
Defendants unilaterally and intentionally shortened the
repayment term in the signed agreement and added the balloon
payment, despite neither party agreeing to the shorter term
or balloon payment. FAC ¶ 109.
Request for Judicial Notice
30, 2017, Defendants filed a request for judicial notice of
Exhibit A: Deed of Trust recorded
on February 7, 2017 in the Multnomah County Clerk's
office (ECF 41-1);
: Pages 21-28 of Exhibit
18-8 filed in support of the Declaration of David L. Koen on
April 28, 2017 in the ...