Jones v. Fay Servicing

ROGER N. JONES, Plaintiff, v. FAY SERVICING, LLC, Defendant.

Case No. 19-01124-EFM

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS

February 5, 2020

MEMORANDUM AND ORDER

Before the Court is Defendant Fay Servicing, LLC's ("Fay") Motion to Dismiss for Failure to State a Claim (Doc. 8). Jones alleges that Fay violated the Fair Debt Collection Practices Act ("FDCPA"), the Real Estate Settlement Procedures Act ("RESPA"), and the Kansas Consumer Protection Act ("KCPA") in its servicing of his mortgage loan. Fay now moves the Court to dismiss all counts, arguing that Jones has failed to state a claim for relief. For the following reasons, the Court grants Fay's motion to dismiss.

I. Factual and Procedural Background¹

In 1993, Jones obtained a loan secured by a mortgage against his house located in Viola, Kansas. Fay—a Delaware LLC authorized to do business in Kansas—began servicing Jones' mortgage on July 1, 2017, at which time Jones was current on his loan obligations. Beginning with his payment due in July 2017, Jones paid amounts in addition to the $542.74 mortgage payment owed to Fay. Jones asked that Fay apply his additional payments to the principal balance on the mortgage loan. Fay held these additional payments in "suspense" before applying them to the loan as directed. Jones continued to make additional payments on his mortgage in August, September, and December 2017, as well as January, February, March, April, May, June, and July 2018. The total amount of Jones' additional payments equaled $2,000. By holding Jones' additional payments in "suspense" rather than applying them to the loan on the date it received them, Fay caused Jones to accrue greater interest expense than he otherwise would have.

Fay sent Jones a statement in May 2018 that indicated he owed $13,339.56 in "Total Fee Charges" in addition to his regular mortgage payment. This statement contained no explanation of what the fees resulted from. Jones received no other separate explanation of these fees. Jones contacted Fay to inquire about the fees but received no further clarification or explanation. Fay continued to send Jones statements attempting to collect the "Total Fee Charges," including them on his mortgage statements from June 2018 through January 2019.

On December 3, 2018, Jones' counsel sent Fay a qualified written request ("QWR") notifying Fay of Jones' disagreement regarding his additional payments being held in suspense, Fay's purchase of "Forced Place Insurance," and Fay's lack of explanation concerning the $13,339.56 in fees. Fay replied to Jones directly, informing him that it planned to respond to his QWR within 30 days. On December 20, Jones' counsel sent Fay another letter asking Fay to correct the aforementioned disagreements with Jones' account. Fay did not respond to this letter, but on January 24, 2019, it sent another letter directly to Jones indicating that it needed more time to research the alleged errors. On February 25, Fay directly sent Jones a letter alleging that he was delinquent on his mortgage payments. Three days later, on February 28, Fay directly sent Jones its response to the QWR from December 3. Jones received both the delinquency notice and response to the QWR on March 3.

In its response to Jones' QWR, Fay addressed the following concerns. It confirmed that it investigated the source of the $13,339.56 in fees and could not determine where the original servicer had derived that amount. As a result, Fay waived those fees in their entirety. Fay also explained its reasoning for buying Forced Place Insurance, indicating that it had warned Jones twice of the need for hazard insurance coverage with no response. However, after subsequently learning that Jones purchased adequate hazard insurance, Fay canceled the Forced Place Insurance, received a full refund for the premiums paid, and charged Jones no fees for those transactions.

Finally, Fay explained its process of accepting un-earmarked additional payments. It applied Jones' additional payments to his principal only if he directly specified that arrangement. Otherwise, Fay held additional payments in a suspense account until the suspense account accumulated enough funds to cover the cost of a monthly payment, at which time Fay applied those monies to any accrued interest, then to principal. Fay explained its position that Jones directed only the January and May 2018 additional payments to apply to the principal, whereas the February to April 2018 additional payments lacked the necessary instructions and were therefore held in suspense. Fay also noted that it received additional payments in January 2019, which it applied to Jones' principal as directed.

Jones filed this lawsuit on May 10, 2019, alleging that Fay violated the FDCPA (Counts I, II, and III), RESPA (Counts IV and V), and KCPA (Counts VI and VII) in its servicing of Jones' mortgage.² Fay now moves to dismiss Jones' complaint for failure to state a claim. Jones additionally asks for leave to amend his complaint if the Court grants Fay's motion to dismiss.

II. Legal Standard

Under Rule 12(b)(6), a defendant may move for dismissal of any claim for which the plaintiff has failed to state a claim upon which relief can be granted.³ Upon such motion, the court must decide "whether the complaint contains 'enough facts to state a claim to relief that is plausible on its face.' "⁴ A claim is facially plausible if the plaintiff pleads facts sufficient for the court to reasonably infer that the defendant is liable for the alleged misconduct.⁵ The plausibility standard reflects the requirement in Rule 8 that pleadings provide defendants with fair notice of the nature of claims as well the grounds on which each claim rests.⁶ Under Rule 12(b)(6), the court must accept as true all factual allegations in the complaint, but need not afford such a presumption to legal conclusions.⁷ Viewing the complaint in this manner, the court must decide whether the plaintiff's allegations give rise to more than speculative possibilities.⁸ If the allegations in the complaint are "so general that they encompass a wide swath of conduct, much of it innocent, then the plaintiffs 'have not nudged their claims across the line from conceivable to plausible.' "⁹

III. Analysis

A. Counts I-III: FDCPA

In his first three claims, Jones alleges that Fay violated the FDCPA by communicating directly with Jones rather than Jones' counsel, by making false representations concerning the $13,339.56 in fees, and by making false representations regarding Jones' loan delinquency. Fay asks the Court to dismiss these claims, arguing that the FDCPA does not apply to Fay because it is not a "debt collector" under the act.

The FDCPA was enacted to eliminate abusive debt collection practices.¹⁰ To do so, the FDCPA regulates interactions between consumer debtors and "debt collectors."¹¹ The FDCPA does not "prohibit a debt collector from merely attempting to collect on a debt. Nor are threats to take legal action or to report a debtor to credit agencies actionable, unless the action threatened cannot legally be taken, is not intended to be taken, or involves the communication of false information."¹²

To present a claim under the FDCPA, the claimant must show that the monetary obligation in dispute is a "debt" and that the entity collecting the debt is a "debt collector."¹³ The FDCPA defines a "debt collector" as "any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another."¹⁴ The statute creates multiple exceptions for the term "debt collector."¹⁵ Under the FDCPA, the "term 'debt collector' . . . does not include . . . any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity . . . concerns a debt which was not in default at the time it was obtained by such person . . . ."¹⁶ The Tenth Circuit has confirmed that this exception applies to mortgage loan servicers.¹⁷

A servicing company is subject to the FDCPA, however, if the loan was in default at the time the servicer acquired it.¹⁸ The FDCPA does not define the term "default."¹⁹ Without clarity from Congress, the determination of whether a debt is in default is to be made by the court on a case-by-case basis.²⁰ Any applicable contractual or regulatory language that defines a point of default may be instructive.²¹ But language in a servicing company's notice that states that an entity is a debt collector or is collecting the recipient's debt is relevant—but not sufficient—evidence that the servicing company is a "debt collector" subject to the FDCPA.²²

The Court concludes that Jones has failed to state a facially plausible claim that Fay is a "debt collector" governed by the FDCPA. Jones argues that the mortgage was in default at the time Fay acquired it and that Fay treated it as such. The facts do no support this conclusion though. First, contrary to his present argument concerning this motion, Jones admitted in his complaint that the mortgage was not in default at the time Fay became the servicer. Second, Fay sent Jones no notice of default after acquiring the mortgage. In fact, in the oldest mortgage statement Jones attached as an exhibit to his complaint (dated November 25, 2017), Fay clearly indicated that Jones was current on his loan obligations. This statement—which is dated well after Fay acquired the mortgage—lists both "Overdue Payments" and "Total Fees Charged" as $0.00. This statement also includes Jones' payment history for the preceding three months, none of which list additional charges or overdue payments. Jones' complaint and attached exhibits show that the first time Fay declared Jones to be overdue on his payments was on February 25, 2019.

Jones further argues that Fay is a "debt...