Golden v. Carrington Mortg. Servs. LLC (In re Golden)

568 B.R. 838

IN RE Kenneth E. GOLDEN, Billie M. Golden, Debtors

Kenneth Golden and Billie Golden, Plaintiffs

v.Carrington Mortgage Services LLC, Defendant

Case No. 10–11675–WRS

Adv. Pro. No. 16–1144–WRS

United States Bankruptcy Court, M.D. Alabama.

Signed May 12, 2017

Anthony B. Bush, The Bush Law Firm, LLC, Pike Road, AL, for Plaintiffs.

Martin Brent Yarborough, Maurice Wutscher LLP, Birmingham, AL, for Defendant.

MEMORANDUM DECISION

William R. Sawyer, United States Bankruptcy Judge

This Adversary Proceeding is before the Court on Defendant Carrington Mortgage Services, LLC's, Motion to Dismiss. (Doc. 9). Plaintiffs Kenneth and Billie Golden filed a memorandum opposing the motion. (Doc. 13). Carrington Mortgage filed a reply. (Doc. 14). The Court conducted a hearing on the matters on April 11, 2017. The question is whether a complaint is sufficient to survive a Fed. R. Civ. P. 12(b)(6) Motion when it merely alleges that a mortgage holder violated the discharge injunction by sending routine notices concerning mortgage servicing and foreclosure to a debtor after a discharge in bankruptcy. For the reasons set forth below, the motion is GRANTED and this Adversary Proceeding is DISMISSED WITH PREJUDICE.

I. FACTS

The Goldens filed a petition in bankruptcy pursuant to Chapter 7 of the Bankruptcy Code on August 30, 2010, initiating Case No. 10–11675. They falsely represented that they did not own any real property on Schedule A and they did not schedule Defendant Carrington Mortgage as the holder of a secured claim on Schedule D. (Case No. 10–11675, Doc. 1). The Goldens reported a foreclosure suit in their Statement of Financial Affairs but inaccurately indicated its status as having been disposed of by way of a judgment. In fact, a foreclosure suit was filed against the Goldens in Florida State Court but it was still pending at the time they filed their Chapter 7 petition here. Moreover, the Debtor's made no mention of the property in their Statement of Intention.

On October 15, 2010, BAC Home Loans (which appears to be Carrington's predecessor in interest) filed a Motion for Relief From the Automatic Stay. (10–11675, Doc. 16). This Court granted the motion on November 10, 2010. (10–11675, Doc. 26). Subsequently, the Goldens received a Chapter 7 discharge on December 21, 2010. (Case No. 10–11675, Doc. 30).

On December 20, 2016, the Goldens filed a complaint alleging that Carrington violated the discharge injunction and the Fair Debt Collection Practices Act ("FDCPA"). (Doc. 1). Specifically, the Debtors stated that Carrington mailed them Mortgage Statements, Delinquency Notices, Notices of Lender Placed Hazard Coverage, and a Notice of Intent to Foreclose. The Goldens alleged that Carrington "has absolutely no legitimate reason to correspond with Plaintiffs regarding the Property." (Doc. 1, Para. 37). The Goldens now seek damages for the alleged violations of the discharge injunction and the FDCPA.

II. LAW & ANALYSIS

The question here is whether a complaint, alleging that a mortgage holder violates the discharge injunction when it sends routine notices concerning mortgage servicing and foreclosure, states a claim for which relief may be granted. The Court will consider the scope of the discharge injunction and delineate permissible conduct involving routine mortgage servicing from impermissible conduct violating the discharge injunction.

A. Jurisdiction and Core Proceeding

This Court has jurisdiction to hear this matter pursuant to 28 U.S.C. § 1334(b) ; Green Point Credit, LLC v. McLean (In re McLean) , 794 F.3d 1313, 1318–19 (11th Cir. 2015). This is a core proceeding within the meaning of 28 U.S.C. § 157(b). This is a final order.

B. Standard for Granting a Motion to Dismiss

Motions to dismiss are governed by Rule 12(b)(6), Fed. R. Civ. P., which is made applicable to this proceeding by Rule 7012, Fed. R. Bankr. P. The standard applied when considering a motion to dismiss was recently described by the Eleventh Circuit as follows:

To survive a motion to dismiss, a complaint must allege enough well-pled facts, accepted as true and construed in favor of the plaintiff, to state a claim to relief that is plausible on its face. Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). For a claim to be facially plausible, a plaintiff must go beyond merely pleading the "sheer possibility" of unlawful activity by a defendant, and instead must offer sufficient "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Allegations that are no more than "labels and conclusions," a "formulaic recitation of the elements of a cause of action," or "naked assertions devoid of further factual enhancement" are not well-pled facts that must be accepted as true and will not be sufficient to withstand a motion to dismiss. Id. at 678, 129 S.Ct. 1937 (internal quotation marks omitted; alteration adopted); see also Oxford Asset Mgmt., Ltd. v. Jaharis , 297 F.3d 1182, 1188 (11th Cir. 2002) ("[C]onclusory allegations, unwarranted deductions of facts[,] or legal conclusions masquerading as facts will not prevent dismissal.")

Jones v. Citimortgage, Inc. , 666 Fed.Appx. 766, 772 (11th Cir. 2016).

C. The Discharge Injunction

1. Test to Determine if a Violation of the Discharge Injunction Occurred

A discharge in bankruptcy "operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor." 11 U.S.C. § 524(a)(2). While the statute does not specifically provide for damages, courts frequently award actual damages under a court's inherent contempt powers. Hardy v. United States (In re Hardy) , 97 F.3d 1384, 1389 (11th Cir. 1996) (citing to 11 U.S.C. § 105 ). In addition, sanctions and costs may be awarded in appropriate cases. Id. In Jove Engineering, Inc., v. IRS , the Eleventh Circuit established a two-part test for cases involving violations of the automatic stay—(1) whether the defendant knew that the automatic stay was invoked and (2) whether the defendant intended the actions which violated the automaticstay. 92 F.3d 1539, 1555–56 (11th Cir. 1996). The Eleventh Circuit thereafter adopted this test for use in cases involving violations of the discharge injunction—(1) whether the defendant knew that the discharge injunction was invoked and (2) whether the defendant intended the action which violated the discharge injunction. Hardy , 97 F.3d at 1390. The relevant part here is not whether the defendant "knew" of the discharge injunction¹ , but whether it "intended" to violate the injunction.

2. Acts That Do Not Violate the Discharge Injunction

Acts intended to collect a debt "as a personal liability of the debtor" after a discharge in bankruptcy potentially make the actor liable to the debtor for any resulting damages. 11 U.S.C. § 524. However, it is well established that a discharge in bankruptcy does not affect the attachment of a mortgage to property of the debtor. Johnson v. Home State Bank , 501 U.S. 78, 82, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991) (stating that a discharge in bankruptcy extinguishes only the personal liability of the debtor but that the creditor's right to foreclose on the mortgage survives the bankruptcy); Long v. Bullard , 117 U.S. 617, 6 S.Ct. 917, 29 L.Ed. 1004 (1886) ; Wrenn v. American Cast Iron Pipe Co., (In re Wrenn) , 40 F.3d 1162, 1164 (11th Cir. 1994) (a discharge in bankruptcy does not affect liability in rem, and prepetition liens remain enforceable after discharge); Holloway v. Southeast Alabama Med. Ctr. (In re Holloway) , 254 B.R. 289, 292 (Bankr. M.D. Ala. 2000). As mortgages survive a discharge in bankruptcy, it necessarily follows that acts reasonably taken to service or foreclose a mortgage do not violate the discharge injunction.

There is considerable case law supporting the proposition that acts reasonably taken to service a mortgage or to foreclose a mortgage do not violate the discharge injunction, even if the debtor discharged his personal liability on the indebtedness secured by the mortgage. Last year, this Court handed down a decision dismissing a complaint that alleged a violation of the automatic stay, holding that the acts of sending monthly mortgage statements and notices concerning hazard insurance did not violate the automatic stay. Thomas v. Seterus, Inc., (In re Thomas) , 554 B.R. 512 (Bankr. M.D. Ala. 2016).

Other courts have also held that acts taken to service or foreclose a mortgage do not violate the automatic stay. Morris v. Wells Fargo, N.A., (In re Morris) , 514 B.R. 658 (Bankr. N.D. Ala. 2014) (holding that giving notice of default, inspecting property and taking other action preceding a foreclosure did not violate the automatic stay). While others have similarly held that such acts do not violate the discharge injunction. Henriques v. Green Tree Servicing, LLC, (In re Henriquez) , 536 B.R. 341 (Bankr. N.D. Ga. 2015) (holding that informational letters and notices concerning force placed insurance did not violate the discharge injunction); Mele v. Bank of America Home Loans, (In re Mele) , 486 B.R. 546 (Bankr. N.D. Ga. 2013) (holding that sending informational statements and inquiring whether the Debtor intended to remain in the home did not violate the discharge injunction); Giles v. James B. Nutter & Co., (In re Giles) , 502 B.R. 892 (Bankr. N.D. Ga. 2013). Where, as here, a creditor has the right to foreclose a mortgage and where the creditor is required to give the debtor certain notices either under the terms of the mortgage or applicable law, it necessarily follows that the giving of such notices does not violate the discharge injunction. Moreover, until the time the mortgage is foreclosed, and for a period thereafter, the debtor has a right to redeem the property from the creditor...