Gale v. Select Portfolio Servicing

JAMES E. GALE, SR., et al. v. SELECT PORTFOLIO SERVICING, INC., et al.

Civil Action No. DKC 20-1289

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

January 19, 2021

MEMORANDUM OPINION

Presently pending and ready for resolution in this mortgage fraud case is the motion to dismiss filed by Defendants Select Portfolio Servicing, Inc. and U.S. Bank, National Association. (ECF No. 9). The issues have been briefed, and the court now rules, no hearing being deemed necessary. Local Rule 105.6. For the following reasons, the motion to dismiss will be granted, albeit with leave to amend in part.

I. Background

Unless otherwise noted, the facts outlined here are set forth in the complaint and construed in the light most favorable to Plaintiffs. Plaintiffs James E. Gale, Sr. and Terri L. Gale (collectively "The Gales") are residents of Charles County, Maryland. On October 8, 2004, the Gales secured a home mortgage loan in the amount of $310,000 ("the Loan") memorialized in a promissory note ("the Note") with a "Mortgage One Corp," they claim, as lender. They contend that, on the same day, the "note was later sold, transferred, assigned, and securitized into the HSBC Mortgage Services, Inc. CIM Trust 2016-1." A copy of the Note and recorded Deed of Trust ("the DOT"), however, signed and initialed by both Plaintiffs, each clearly shows "HSBC MORTGAGE SERVICES, INC. f/k/a HFSI" as the "Lender" on their respective first page of terms.¹

Plaintiffs allege that there was a subsequent assignment of the DOT recorded in Charles County on July 25, 2016. Defendants do not dispute that on or around that day the DOT was assigned to a "DLJ Mortgage Capital, Inc." They assert that this was the first assignment and was properly recorded and available in the public record as shown in an attachment. (ECF No. 9-6). Defendants assert that, on December 6, 2019, the DOT was assigned a second time to Defendant U.S. Bank, National Association as indenture trustee, for the CIM Trust 2016-1, Mortgage-Backed Notes, Series 2016-1, ("U.S. Bank"), which was also duly recorded. (ECF No. 9-7). On January 21, 2020, Defendant Select Portfolio Services("SPS"), acting as attorney-in-fact for U.S. Bank, executed an "Appointment of Substitute Trustee" to exercise its purported right as a beneficiary to appoint new trustees: Diane S. Rosenberg, Mark D. Meyer, Maurice Obrien, and Cristian Mendoza (collectively the "Substitute Trustees"), to replace Mortgage One Corporation as trustee for the DOT. (ECF No. 9-8); (see ECF No. 9-5, ¶ 24).

As outlined by Mrs. Gale,² since 2002, Mr. Gale has suffered from the time "when a miss-step caused 4 discs to bulge." Mrs. Gale reports that they have "fought to pay bills" ever since, as he has subsequently had two strokes, three heart attacks, two pacemakers/defibrillators and "at least" three "near death experiences" with pneumonia. In February 2019, he developed sepsis from pneumonia and went into shock, sending him to the ICU for fourteen days. There, two "inoperable masses" were found in his right lung. He has been confined to his house, too weak to leave, since then. On October 6, 2019, he broke his leg in multiple places after another misstep which, after further bouts with sepsis, has required four surgeries. Moreover, the antibiotics prescribed to fight this infection caused him kidney failure. He is, as a result, on dialysis. Ultimately, his leg was amputated.Mrs. Gale reports missing a significant amount of work to care for him. She alleges having reached out to SPS, as the loan servicer, multiple times to report these challenges in order to seek a loan modification but was "repeatedly denied and told [her husband's] medical problems were not serious enough to warrant a loan modification."³

The Substitute Trustees subsequently filed with the Circuit Court for Charles County, Maryland, to "initiate[] foreclosure" on the Gales' property on March 19, 2020, and have appended the docket entry. (ECF No. 9-9). On April 24, 2020, in response, Plaintiffs brought a complaint against Defendants SPS and U.S. Bank⁴ in the Circuit Court for Charles County, Maryland for: 1) Unjust Enrichment, 2) Violations of the Fair Credit Extension Uniformity Act ("FREUA"), 3) Violations of the Fair Debt Collection Practices Act ("FDCPA"), 4) "Reasonable reliance; detrimental reliance," 6) Slander of Title,⁵ 7) Fraud in the Concealment, 8) Fraud in theInducement, 9) Unconscionability, 10) Breach of Contract, 11) Violations of the Consumer Credit Protection Act ("CCPA"), 12) "Violations of Federal Regulations, Regulation X, 12 C.F.R. § 1024.41(b)(2)(i)(A)," and 13) Intentional and Negligent Infliction of Emotional Distress. As a "Fourteenth Claim," they also seek declaratory relief, asking for a "judicial determination of their rights, obligation and interest of the parties with regard to the subject property," and for the court to quiet title by declaring "the Subject Property is vested in Plaintiff alone." As a coda and general allegation, they also accuse Defendants of "unfair or deceptive acts or practices and misleading misrepresentatives and non-disclosure of material facts relating to their debt collection practices." (ECF No. 2).

Defendants subsequently removed the case based on diversity jurisdiction on May 22, 2020. (ECF No. 1). Defendants filed a motion to dismiss all claims on June 28, 2020 (ECF No. 9), and notice was sent to the Gales. (ECF No. 10). Despite the warning that a failure adequately to respond could result in dismissal of the complaint, Plaintiffs have failed to respond.

II. Standard of Review

A motion to dismiss under Fed.R.Civ.P. 12(b)(6) tests the sufficiency of the complaint. Presley v. City of Charlottesville,464 F.3d 480, 483 (4^th Cir. 2006). When evaluating the complaint, unsupported legal allegations need not be accepted. Revene v. Charles Cty. Comm'rs, 882 F.2d 870, 873 (4^th Cir. 1989). Legal conclusions couched as factual allegations are insufficient, Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), as are conclusory factual allegations devoid of any reference to actual events. United Black Firefighters of Norfolk v. Hirst, 604 F.2d 844, 847 (4^th Cir. 1979); see also Francis v. Giacomelli, 588 F.3d 186, 193 (4^th Cir. 2009). "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not 'show[n]' - 'that the pleader is entitled to relief.'" Iqbal, 556 U.S. at 679 (quoting Fed.R.Civ.P. 8(a)(2)). Thus, "[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." Id.

Pro se pleadings are to be liberally construed and held to a less stringent standard than pleadings drafted by lawyers. Erickson v. Pardus, 551 U.S. 89, 94 (2007) (quoting Estelle v. Gamble, 429 U.S. 97, 106 (1976)); Haines v. Kerner, 404 U.S. 519, 520 (1972). Liberal construction means that the court will read the pleadings to state a valid claim to the extent that it is possible to do so from the facts available; it does not mean that the court should rewrite the complaint to include claims neverpresented. Barnett v. Hargett, 174 F.3d 1128, 1132 (10^th Cir. 1999). Even when pro se litigants are involved, the court cannot ignore a clear failure to allege facts that support a viable claim. Weller v. Dep't of Soc. Servs., 901 F.2d 387, 391 (4^th Cir. 1990).

III. Analysis

Defendants do not dispute Mr. Gale's reported medical challenges or the fact that the Gales were denied a loan modification, but imply that such allegations constitute Plaintiffs' concession that the loan was fully enforceable: "Plaintiffs admit that Mr. Gale suffered a medical hardship, and had been denied a loan modification as recently as November 25, 2019." (ECF No. 9-1, at 5) (citing ECF No. 2, ¶ 22).

Lurking in the background of Plaintiffs' claims, as Defendants correctly point out, is an entirely discredited theory that the assignment or securitization⁶ of home loans without noticeto the borrower is either illegal or renders the Note and Deed of Trust unenforceable. (ECF No. 9-1, at 8-9) (discussing ECF No. 2, ¶ 55) ("Plaintiff[s] requests that this Court find the purported power of sale contained in the Deed of Trust is a nullity by operation of law."). Among other things, Plaintiffs argue that "none of the Defendants in this case hold a perfected and secured claim in the Real Property" as the assignments were "never submitted for recordation" by MERS [Mortgage Electronic Registration Systems, Inc.] at the Secretary of State's Office where the property sits as required by the UCC and thus constitute "Secret [,unenforceable] Liens." (ECF No. 2, ¶¶ 19, 81, 87, 88).

Maryland caselaw⁷ has squarely rejected similar claims of purportedly defective debt assignment or securitization. SeeParker, 179 F.Supp.3d. at 516 (rejecting a claim that the defendants could not foreclose on a property because they "'failed to perfect any security interest'" in it); see also Suss v. JP Morgan Chase Bank, N.A., No. WMN-09-1627, 2010 WL 2733097, at *5 (D.Md. July 9, 2010) ("As to Plaintiff's criticism of MERS, courts . . . have found that the system of recordation is proper and assignments made through that system are valid."); Flores v. Deutsche Bank Nat'l. Trust, Co., No. DKC 10-0217, 2010 WL 2719849, at *5 (D.Md. July 7, 2010) (collecting cases) (finding that "[a]ccording to the Note, the Lender may transfer the Note and subsequent lenders may appoint substitute trustee.").

U.S. Bank argues that it was validly assigned both the Note and the DOT. (ECF No. 9-1, at 14) (citing ECF No. 9-7). Both documents give notice that the Note might be sold. The Note provides that "the Lender may transfer this Note. The Lender or anyone who takes this Note by transfer and who is entitled to receive payments under this Note is called the 'Note Holder.'" (ECF No. 9-4, at 2). The DOT comments...