Markette v. HSBC Bank

JAMES MARKETTE, et al., Plaintiffs, v. HSBC BANK, USA, NATIONAL ASSOCIATION, as Trustee for SG Mortgage Securities Trust 2006-FRE1,Asset-Backed Certificates Series 2006-FRE1, et al., Defendants.

No. 15-cv-05271

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

March 11, 2019

Judge Andrea R. Wood

MEMORANDUM OPINION AND ORDER

After Plaintiffs James and Barbara Markette ("Markettes") fell behind on their residential mortgage payments, Defendant HSBC Bank, USA, National Association ("HSBC"), as trustee of the securitized trust that included the Markette's mortgage, initiated a foreclosure action in Illinois state court. The Markettes later brought this lawsuit alleging that HSBC and its legal counsel, Defendant Anselmo Lindberg Oliver LLC ("ALO," and collectively with HSBC, "Defendants"), employed unfair and deceptive methods of debt collection in the foreclosure action. This Court granted HSBC's and ALO's motions to dismiss the original complaint without prejudice and granted the Markettes leave to amend. In their First Amended Complaint ("FAC"), the Markettes now assert claims against Defendants under the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 et seq., and the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA"), 815 ILCS 505/1 et seq. Both HSBC and ALO have again filed motions to dismiss. (Dkt. Nos. 81, 85.) Because this action is barred by the doctrine of res judicata, the Court grants Defendants' motions.

BACKGROUND

The following facts taken from the FAC are accepted as true and viewed in the light most favorable to the Markettes. E.g., Apex Digital, Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 443-44 (7th Cir. 2009).

On August 27, 2010, Defendant HSBC filed a complaint in Illinois state court seeking to foreclose upon the Markettes' Fox Lake, Illinois home. (FAC ¶¶ 4, 32; FAC Ex. D, Dkt. No. 79-4.) While not a party to the state-court action, ALO was HSBC's counsel.¹ (FAC Ex. D.) A week after filing the foreclosure complaint, HSBC, through its attorneys at ALO, recorded a lis pendens. (Id. ¶ 38.) However, the lis pendens inaccurately transcribed the name of the foreclosure plaintiff and failed to provide the foreclosure plaintiff's address. (Id.)

Prior to the commencement of the foreclosure action, the Markettes entered into a loan-modification agreement with the mortgage servicer, Wells Fargo, N.A., doing business as America's Servicing Company ("ASC"). (Id. ¶¶ 7, 28, 43.) The Markettes were able to make the modified payments on their mortgage until April 1, 2009. (Id. ¶¶ 31, 45.) The previous month, the Home Affordable Modification Program ("HAMP") went into effect. (Id. ¶ 46.) Pursuant to HAMP Supplemental Directive 09-01, a "borrower that is current or less than 60 days delinquent who contacts the servicer for a modification, appears potentially eligible for a modification, and claims a hardship must be screened for imminent default." (Id. ¶ 12.) If the servicer determines that default is imminent, it must apply the Net Present Value test. (Id. ¶ 13.) Yet the Markettes continuously applied to ACS for a loan modification over the next four years only to receive often confusing and contradictory computer-generated correspondence informing the Markettes thatACS lost or did not receive certain documents and requesting that they provide those documents. (Id. ¶¶ 47-49.) And when ACS did recognize that the Markettes had submitted a complete application, it would inform them that their financial information had expired and that they would have to submit a new application. (Id. ¶ 50.) Ultimately, ACS denied the Markettes' modification request on October 4, 2012, stating that they had not demonstrated a long-term financial hardship. (Id. ¶ 104.)

Because the Markettes' mortgage was originated by Fremont Investment & Loan, and they had communicated with ASC regarding their modification requests, the Markettes were not aware that HSBC held any interest in their mortgage until the initiation of the foreclosure action. (FAC ¶¶ 26, 30, 34.) Consequently, they filed an answer and affirmative defense to the foreclosure complaint asserting that there was not a valid assignment to HSBC. (Id. ¶ 39.) When the Markettes challenged HSBC's standing during a hearing before the foreclosure court on HSBC's motion for summary judgment, the court ordered HSBC to produce an original copy of the note underlying the Markettes' mortgage. (Id. ¶ 41.) However, HSBC failed to produce the original note at the next hearing. (Id. ¶ 42.) During discovery, HSBC objected to all of the Markettes' requests and produced only a payment history and a copy of an Assignment of Mortgage. (Id. ¶¶ 110-11.) The Assignment of Mortgage indicated that it was executed on August 27, 2010—the same day that the foreclosure action was initiated. (Id. ¶ 112.) It also stated that the "instrument serves to memorialize the transfer of this mortgage which has previously taken place." (Id. ¶ 113.) The Markettes then sought to add an affirmative defense based on the backdating language in the Assignment of Mortgage and HSBC's failure to produce the original note. (Id. ¶ 116.) An ALO attorney prepared and signed a response to the Markettes' new affirmative defense, which stated that the note "carries an indorsement in blank," possession of the note by either the payee orendorsee "is prima facie evidence of ownership," and HSBC was "presumed to be an innocent holder in due course." (Id. ¶ 118.)

In a series of motions and affidavits associated with its motion for summary judgment, HSBC submitted a Lost Note Affidavit, a Loss Mitigation Affidavit, and a motion to correct misnomer. (Id. ¶¶ 119-21.) The Lost Note Affidavit stated that an original version of the note underlying the Markettes' mortgage had been lost. (Id. ¶ 120.) Although the Lost Note Affidavit was dated April 18, 2013, it was only filed with the court fourteen months later on June 10, 2014. (Id. ¶ 123.) Thus, the affidavit predated by eight days the representation made in HSBC's response to the Markettes' affirmative defense that HSBC had possession of the note. (Id. ¶ 124.) Moreover, at the time the Lost Note Affidavit was executed, the Markettes had multiple discovery requests outstanding concerning the custody and care of the note. (Id. ¶¶ 126, 128-29.) In the Loss Mitigation Affidavit, HSBC certified its compliance with Illinois Supreme Court Rule 114, which requires compliance with all applicable loss mitigation programs. (Id. ¶ 121.) Finally, the motion to correct misnomer informed the foreclosure court that the action's caption had incorrectly named the foreclosure plaintiff as HSBC Bank USA, National Association, as Trustee for SG Mortgage Securities Trust 2006-FRE1, when the plaintiff should have been named as HSBC Bank USA, National Association, as Trustee for SG Mortgage Securities Trust 2006-FRE1, Asset Backed Certificate Securities 2006-FRE1. (FAC ¶ 120; FAC Ex. HH, Dkt. No. 79-34.)

Following these disclosures by HSBC, the Markettes filed a motion for discovery sanctions. (FAC ¶ 131.) In its response, HSBC claimed that it never alleged it was a holder in due course of the note, despite representations to the contrary in its response to the Markettes' affirmative defense. (Id.) It further stated that the parties never held a conference to resolvediscovery disputes, as required by Illinois Supreme Court Rule 201(k). (Id. ¶ 132.) Subsequently, however, the Markettes supplied evidence that such a conference was held. (Id. ¶ 133.) Yet, at a hearing before the foreclosure court, an ALO attorney once again insisted that such a conference had never occurred. (Id. ¶ 133-34.) The foreclosure court would later admonish ALO for its attorney's misrepresentation. (Id. ¶ 136.) At the same hearing, an ALO attorney informed the foreclosure court that the note underlying the Markettes' mortgage had a blank endorsement. (Id. ¶ 135.) After the foreclosure court observed that a copy of the note contradicted that representation, the ALO attorney claimed that he misspoke and the note was specially endorsed to HSBC. (Id.) The ALO attorney's concession also contradicted HSBC's claim in its response to the Markettes' affirmative defense that the note carried a blank endorsement. (Id. ¶¶ 118, 139.)

Ultimately, on November 8, 2016, the foreclosure court entered an Order Approving Sale and for Possession against the Markettes. (Id. ¶ 141.) It further entered a personal deficiency judgment of $368,200.67 against the Markettes. (Id. ¶ 142.) Shortly thereafter, the Markettes vacated their home. (Id. ¶ 143.)

DISCUSSION

To survive a motion under Federal Rule of Civil Procedure 12(b)(6), "a complaint must contain sufficient factual allegations, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). This pleading standard does not necessarily require a complaint to contain detailed factual allegations. Twombly, 550 U.S. at 555. Rather, "[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." Adams v. City of Indianapolis, 742 F.3d 720, 728 (7th Cir. 2014) (quoting Iqbal, 556 U.S. at 678).

In the FAC, the Markettes bring six claims against Defendants. Five of those claims arise under the FDCPA; one consists of a state-law claim under the IFCA. Both Defendants contend that all the Markettes' claims are now precluded by the doctrine of res judicata due to the foreclosure court's confirmation of the judicial sale of the Markettes' home.²

Under the doctrine of res judicata, "a final judgment rendered by a court of competent jurisdiction on the merits is conclusive as to the rights of the parties and their privies, and, as to them, constitutes an absolute bar to a subsequent action involving the same...