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Marquard v. New Penn Financial, LLC

United States District Court, D. Oregon

September 22, 2017


          David L. Koen, Legal Aid Services of Oregon, Emily Teplin Fox and Ed Johnson, Oregon Law Center, Of Attorneys for Plaintiffs.

          Donald G. Grant, Donald G. Grant, P.S., Washougal Town Square, Suite Neeru Jindal, Yu Mohandesi LLP, Of Attorneys for Defendants.


          Michael H. Simon United States District Judge.

         Plaintiffs 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”), [1] 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.


         A 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).

         A 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 (2007)).


         In 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 ¶ 22.

         Mr. 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.

         In 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.

         Defendant 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.

         For the 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 Escrow Items.
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.

         ECF 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).

         In June 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 ¶ 59.

         On 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.

         On 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.

         On 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.

         Shellpoint 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.

         On or 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.

         Plaintiffs 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 ¶ 81.

         After 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 summary).

         Plaintiffs 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.

         Plaintiffs 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” ¶ 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.


         A. Request for Judicial Notice

         On June 30, 2017, Defendants filed a request for judicial notice of three documents:

Exhibit A: Deed of Trust recorded on February 7, 2017 in the Multnomah County Clerk's office (ECF 41-1);
Exhibit B : Pages 21-28 of Exhibit 18-8 filed in support of the Declaration of David L. Koen on April 28, 2017 in the ...

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