Burke v. Nationstar Mortg.

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THOMAS S. BURKE, et al., Plaintiffs, v. NATIONSTAR MORTGAGE, LLC, et al., Defendants.

No. 21-cv-1549

United States District Court, N.D. Illinois, Eastern Division

March 25, 2022

MEMORANDUM OPINION AND ORDER

Steven C. Seeger United States District Judge.

Thomas and Courtney Burke wired $137, 341.18 to their lender as part of a refinancing of their home mortgage loan. Or so they thought. The Burkes received the wiring instructions by email, and they believed that the instructions had come from their lender, Nationstar Mortgage. In reality, the wiring instructions came from a fraudster who directed the Burkes to send their money to his bank account.

Someway somehow, the fraudster had compromised the email communications between the Burkes and Nationstar. The fraudster sent emails to the Burkes, posing as Nationstar. And the fraudster sent emails to Nationstar, posing as the Burkes. When the Burkes received the wiring instructions they believed that they were following the lender's directions, and were on the cusp of improving their financial situation. Instead, they were wiring their hard-earned money to someone who planned to take advantage of them.

A few days later, the Burkes received an alarming call from the receiving bank. The bank noticed that the account was burning through the cash at an unusual rate, with lots of spending in a short period of time. The bank then locked down the account, and the Burkes got on the phone with Nationstar. They quickly figured out that the communications were phony. They lost over $35, 000.

A few months later, the Burkes sent two letters to Nationstar asking for information about how the theft could have happened. In response, Nationstar didn't have much to say, except that Nationstar had done nothing wrong.

So the Burkes sued. They brought a collection of claims under state law, including negligence, breach of fiduciary duty negligent misrepresentation, and so on. They also brought a claim under a federal statute, the Real Estate Settlement Procedures Act, which requires loan servicers (like Nationstar) to provide information in certain circumstances. They sued Nationstar and its affiliate company, Title365.

Defendants moved to dismiss. For the reasons stated below, the motion to dismiss is granted in part and denied in part.

Background

At the motion to dismiss stage, the Court must accept as true the well-pleaded allegations of the complaint. See Lett v City of Chicago, 946 F.3d 398, 399 (7th Cir. 2020). The Court “offer[s] no opinion on the ultimate merits because further development of the record may cast the facts in a light different from the complaint.” Savory v. Cannon, 947 F.3d 409, 412 (7th Cir. 2020).

Plaintiffs Thomas and Courtney Burke wanted to refinance their home mortgage loan. See Am. Cplt., at ¶ 2 (Dckt. No. 15). As part of the refinancing, they wanted to pay a substantial portion of the principal of their existing loan before getting a new loan. Id. The couple reached out to their lender, Defendant Nationstar Mortgage (d/b/a “Mr. Cooper”), and got the ball the rolling. Id.

Nationstar was the lender and servicer of the existing loan, and it would be the lender and servicer for the new loan, too. Id. at ¶¶ 2, 42. As the name suggests, a servicer is an entity that services a loan, by collecting payments, providing customer service, and otherwise handling dealings with the borrower.

The Burkes had a balance of $376, 000 on their loan, and the couple agreed to pay Nationstar $137, 341.18 by wire transfer. Id. at ¶¶ 18, 30. Nationstar set the refinance for closing in March or April 2020. Id. at ¶ 3.

Nationstar designated its affiliate title company, Defendant Title365, as the closing agent. Id. A closing agent basically handles the documentation during the closing process for a mortgage loan. Despite its title as the closing agent, Title365 never communicated with the Burkes. Id. at ¶ 47. Instead, Nationstar took the lead and shepherded the Burkes through the refinancing process.

Specifically, Michael Sanford - a Nationstar loan officer - handled the communications with the Burkes. Id. at ¶ 19. Some of the communications took place over the phone. Id. at ¶ 18. But many of the communications took place by email. Id.

In particular, Nationstar sent the closing documents and the wiring instructions by email. Id. at ¶¶ 4, 18-19. Nationstar used regular, unsecured email. Id. at ¶¶ 4, 46, 56. Thomas Burke communicated with Nationstar using a Gmail address. Id. at ¶ 40(c).

According to the complaint, Nationstar knew the risks associated with sending funding and wiring instructions through email. Id. at ¶ 23. The “high risks of using emails to transmit bank wire transfer instructions” are well known in the industry. Id. at ¶ 87; see also Id. at ¶¶ 4, 85(b) of Count II, 85(h) of Count II, 121. In fact, Nationstar's own policy prohibited the use of email for loan closing documents. Id. at ¶¶ 40(a), 48-49. But Nationstar used email communications for its own “pecuniary interests.” Id. at ¶ 23.

Unlike Nationstar, the Burkes did not know the risks of communicating wire instructions by email. They are “unsophisticated consumers, ” and they “did not know how unusual it was for the lender to provide funding instructions, and did not know how risky it is to transmit wire instructions through email.” Id. at ¶ 22.

On March 20, 2020, Nationstar emailed the closing documents to Thomas Burke. Id. at ¶ 19. Nationstar explained that Burke needed to “use the email” to sign the documents electronically. Id. Thomas Burke signed them that day (presumably electronically). Id. at ¶ 20.

Nationstar then sent another email, saying that the company would send wiring instructions. Id. at ¶ 21. Sanford didn't reveal how, exactly, he would send the wiring instructions. He wrote: “Thanks, once I have the final dollar amount for closing I'll let you know and send the instructions for wiring it.” Id. But the Burkes “expected” Nationstar to send the wiring instructions by email. Id.

At some point, it appears that Nationstar did, in fact, email legitimate wiring instructions to the Burkes. According to the complaint, Defendants “emailed the Burkes' wire instructions.” Id. at ¶ 23. But the complaint does not reveal when, exactly, Nationstar emailed the legitimate wiring instructions to the Burkes.

And more importantly, the complaint does not reveal whether the Burkes ever received the legitimate wiring instructions from Nationstar. Maybe Nationstar did email legitimate wiring instruction to the Burkes, but the email was intercepted and redirected somehow to the fraudster. The existence of legitimate wiring instructions seems to be an important part of the story, but in the complaint, that chapter is largely untold.

The Burkes expected the closing to take place within a few days. Id. at ¶ 24. On March 22, the Burkes and Nationstar agreed through email on a closing date of March 27. Id.

As it turns out, those communications were not secure. A fraudster intercepted the email exchanges between Nationstar and the Burkes. Id. at ¶ 25. The complaint doesn't reveal when the fraudster became involved, or how the fraudster entered the picture. The Burkes believe that the fraudster intercepted the communications through Nationstar's email system. Id.

The fraudster began sending emails to the Burkes and Nationstar, pretending to be the other party. Id. at ¶¶ 26-27. So the fraudster sent emails to the Burkes, pretending to be Nationstar. Id. at ¶ 26 (“It appears as though the fraudster used an email address of michaelsanford@tuta.com, but masked such email address so that it looked like the email came from Mr. Sanford's Mr. Cooper address.”). And on the flipside, the fraudster sent emails to Nationstar, pretending to be Thomas Burke. Id. at ¶ 27 (“Upon information and belief, at the same time, the fraudster sent messages to Mr. Cooper using an email address such as ‘tsburke@tuta.com.'”).

At that point, the fraudster “took control of the transaction.” Id. at ¶ 28. Nationstar communicated with the fraudster, thinking that it was Thomas Burke. And Thomas Burke communicated with the fraudster, thinking that it was Nationstar.

On March 25, two days before the closing date, the fraudster - disguised as Nationstar - emailed wiring instructions to the Burkes. Id. at ¶ 30. The email told the Burkes to wire $137, 341.18 from their account at Chase Bank to an account at First Columbia Bank of Pennsylvania. Id. Unbeknownst to the Burkes, that account belonged to the fraudster. Id.

The couple wired the money on March 25, believing that they were following Nationstar's instructions. Id. Fortunately, that wire didn't go through.

First Columbia Bank refused to accept the wire and cancelled the transaction. Id. The complaint alleges that the bank detected suspicious conduct, but did not tell the Burkes. Id.

Meanwhile, the Burkes believed that they were on the cusp of refinancing their mortgage. They were blissfully unaware that a fraudster was out there, scheming to steal their money. They stayed at their home on the day of closing, waiting for the closing agent to show up. Id. at ¶ 32. But no one came. Id.

Nationstar provided no explanation for the non-appearance. The complaint alleges that Nationstar knew that the wire didn't go through - meaning the real wire, to the right account - so it cancelled the deal. Id. But Nationstar did not tell the Burkes that the company did not receive the funds. Id. The complaint alleges failure to receive the funds should have been a red flag. Id.

Nationstar never informed the Burkes that the initial transaction was cancelled because of fraud, either. Id. at ¶¶ 31, 33. As an aside, it is unclear what exactly, Nationstar knew about the...