Wilson (Thomas) v. Deutsche Bank Trust Company Americas

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

SUSAN LYNN WILSON (THOMAS), §

et al., §

§

Plaintiffs, §

§ Civil Action No. 3:18-CV-0854-D

VS. §

§

DEUTSCHE BANK TRUST §

COMPANY AMERICAS, AS §

TRUSTEE FOR RESIDENTIAL §

ACCREDIT LOANS, INC., §

MORTGAGE ASSET-BACKED §

PASS-THROUGH CERTIFICATES, §

SERIES 2006-QS5, et al., §

§

Defendants. §

MEMORANDUM OPINION

AND ORDER

This is a removed action arising from attempts to foreclosure on the residence of pro

se plaintiffs Susan Lynn Wilson (“Susan”) and Tommy Thomas.1 Defendants Deutsche

Bank Trust Company Americas, as Trustee for Residential Accredit Loans, Inc., Mortgage

Asset-Backed Pass-Through Certificates, Series 2006-QS5 (“Deutsche Bank”), and loan

servicer PHH Mortgage Corporation d/b/a PHH Mortgage Services (“PHH”), as the alleged

1This action is the subject of two prior opinions. In Wilson v. Deutsche Bank Trust

Co. Americas (Wilson I), 2019 WL 175078 (N.D. Tex. Jan. 10, 2019) (Fitzwater, J.), the

court granted the Rule 12(b)(6) motion to dismiss of Deutsche Bank and Ocwen, and granted

the Thomases leave to replead some, but not all, of their claims. Id. at *8. In Wilson v.

Deutsche Bank Trust Co. Americas (Wilson II), 2019 WL 2578625, at *1 (N.D. Tex. June

24, 2019) (Fitzwater, J.), the court granted defendants’ Rule 12(b)(6) motion to dismiss the

Thomases’ second amended complaint and permitted the Thomases to replead.

surviving entity of a merger between PHH and the Thomases’ former servicer, Ocwen Loan

Servicing, LLC (“Ocwen”), move under Fed. R. Civ. P. 12(b)(6) to dismiss the Thomases’

third amended complaint for failure to state a claim. The Thomases object to PHH’s

participation in this lawsuit and oppose the motion. They also move to supplement their third

amended complaint. For the reasons that follow, the court overrules the Thomases’

objection; grants in part and denies in part the motion of Deutsche Bank and PHH to dismiss;

raises sua sponte grounds for dismissing some of plaintiffs’ claims; and denies plaintiffs’

motion to supplement. The court grants the Thomases leave to replead the claims that the

court is dismissing on grounds that it has raised sua sponte.2

I

In 2006 the Thomases obtained a home equity loan from Wachovia Bank

(“Wachovia”) secured by the Thomases’ residence on Berkshire Lane in Dallas.3 They

became delinquent on the loan in 2008. The following year, the Thomases’ loan servicer,

Homecomings Financial, invited them to apply for a loan modification. The Thomases

applied, and a new loan servicer—GMAC ResCap, Inc. (“GMAC”)—approved their

application. Under the terms of the modification agreement, if the Thomases successfully

made three on-time payments in an agreed-upon reduced amount, the reduced payment

2In Wilson II the court stated that “it [would] grant [the Thomases] one last

opportunity to replead.” Wilson II, 2019 WL 2578625, at *6. But because the court is

raising grounds for dismissal sua sponte, it will give this additional opportunity to replead.

3As the court explains infra at § III, in deciding this motion to dismiss, the court

accepts all well-pleaded facts as true, viewing them in the light most favorable to plaintiffs.

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amount would become permanent. The Thomases allege that, although they upheld their end

of the bargain, GMAC did not: GMAC returned the third on-time payment, and Deutsche

Bank (the assignee of the lien against the Thomases’ residence) attempted to foreclose.

Deutsche Bank nonsuited the initial foreclosure action in 2013, but then initiated a new

foreclosure action in 2015.

Ocwen began servicing the Thomases’ loan at some point after it acquired GMAC in

October 2012. In 2016 Ocwen offered the Thomases a loan modification, but when the

Thomases contacted Ocwen about the option, the servicer reported that the modification was

no longer available. Instead, the Thomases were permitted to apply for loss mitigation. On

March 28, 2017 the Thomases submitted a loss mitigation application (“Application”) to

Ocwen. The following day, on March 29, 2017, while the Application was pending for

review, Ocwen and Deutsche Bank, by its substitute trustee, moved for expedited

foreclosure. On April 26, 2017 the Application was fully “receipted.”

When the Thomases contacted Ocwen to determine why the foreclosure was

proceeding, Ocwen’s representative informed them that the substitute trustee’s law firm had

been notified that the Application was complete and that evidence of the notification was in

the computer. Despite this evidence, the law firm pursued the foreclosure action, and the

Thomases were required to appear at the expedited foreclosure hearing on June 21, 2017 and

at subsequent rescheduled hearings. The expedited foreclosure was dismissed in 2018.

On March 9, 2018 the Thomases filed suit against Deutsche Bank and Ocwen in state

court, and the case was removed to this court. In April 2019 the Thomases received a letter

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from their new servicer, PHH, advising that they might have loss mitigation options with

PHH. PHH joined this lawsuit by filing the instant joint motion to dismiss.

In their third amended complaint, the Thomases allege that defendants violated the

Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2605(f), and subsections of

its implementing regulations, 12 C.F.R. § 1024.41, by “dual tracking” the Application. They

also assert that Ocwen violated the Truth-in-Lending Act (“TILA”), 15 U.S.C. § 1639h, by

failing to perform an adequate appraisal in conjunction with their request for loss mitigation,

and they challenge Deutsche Bank’s authority to foreclose based on alleged inaccuracies in

the assignment process. In addition to these claims, the Thomases assert a claim under §

1413 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank

Act”), 15 U.S.C. § 1640(k), as well as additional RESPA claims, including that defendants

violated 12 C.F.R. § 1024.37 by placing forced-placed insurance when the Thomases already

had coverage; violated § 1024.38 by allegedly failing to maintain reasonable practices and

procedures in communicating with borrowers; violated § 1026.36 by misapplying loan

payments; and violated 12 U.S.C. § 2605(c) by failing to respond to the Thomases’ May 17,

2017 email regarding the expedited foreclosure. The Thomases seek actual, statutory, and

exemplary damages as well as injunctive and equitable relief.

Deutsche Bank and PHH move to dismiss the third amended complaint under Rule

12(b)(6). The Thomases object to PHH’s participation in this lawsuit and oppose the motion.

They also move to supplement their third amended complaint.

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II

The court turns first to the Thomases’ objection to PHH’s participation in this suit.

A

Without filing a motion to substitute under Rule 25(c), PHH, together with Deutsche

Bank, filed the instant joint motion to dismiss as the alleged successor by merger to Ocwen,

the Thomases’ former loan servicer. Although the Thomases acknowledge that the loan at

issue was transferred to PHH in 2019, they object to defendants’ addition of PHH without

first seeking leave to join PHH or otherwise giving the Thomases and the court notice of this

addition. The Thomases maintain that Ocwen completed the acquisition of PHH in October

2018 but failed to add PHH, a new party, until now. They contend that because their claims

are against Ocwen, not PHH, defendants’ late addition of PHH to this case is an attempt to

thwart the resolution of their loan account issues with PHH as their current servicer. The

Thomases also posit that this substitution violates the joinder deadline set by the court’s June

8, 2018 scheduling order.

Defendants respond that they have not sought to join a new party to this lawsuit, but

instead have substituted the surviving entity of the merger between Ocwen and PHH. They

maintain that the merger between PHH and a wholly-owned subsidiary of Ocwen occurred

on October 4, 2018, and that Ocwen merged into PHH on June 1, 2019. In support of this

contention, defendants attach an announcement from Moody’s Investors Service

(“Moody’s”) that indicates that Moody’s assigned Ocwen’s master servicer assessment to

PHH because, “[o]n June 1, 2019, Ocwen Loan Servicing LLC merged into PHH Mortgage

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Corporation,” and that “PHH Mortgage Corporation is the surviving entity.” Ds. Resp. to

Ps. Obj. Ex. A. at 1.4 Defendants allege that referring to PHH as the proper surviving entity

does not jeopardize the Thomases’ claims in this case or their efforts to resolve the loan

account issues with PHH.

The Thomases reply that their interests have been prejudiced by PHH’s addition as

a party because they can no longer submit a new loss mitigation application to PHH as their

alleged transferee servicer unless they do so through PHH’s counsel. They contend that the

merger between Ocwen and PHH occurred in October 2018 and that defendants’ statement

that Ocwen merged into PHH in June 2019 is misleading. According to the Thomases, June

2019 is merely the date that the companies completed transferring the remainder of the loans

into a new servicing platform. The Thomases maintain that defendants’ statement that PHH

“stepp[ed] into the shoes of Ocwen” does not demonstrate that PHH is the same entity, and

they posit that defendants have used the same phrase to describe the transfer of the

Thomases’ loan among four different servicers.

The Thomases also contend that, by adding PHH to this lawsuit and thereby requiring

the Thomases to communicate with PHH via counsel about their property, defendants’

4Defendants request that the court take judicial notice of the merger announcement

by Moody’s under Fed. R. Evid. 201. Because defendants cite no authority to support

judicial notice of a third party announcement of a merger and do not explain the reason for

their request, the court declines at this time to take judicial notice of the Moody’s

announcement. See Brendel v. Meyrowitz, 2017 WL 1178244, at *2 (N.D. Tex. Mar. 30,

2017) (Fitzwater, J.) (declining to take judicial notice when requesting party failed to cite

authority and the purpose for its judicial notice request).

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counsel is infringing their constitutional rights, depriving them of their property without due

process. The Thomases assert that defendants violated Rule 7.1(b)(2) regarding

supplemental filings by failing to promptly file a supplemental statement when they had

notice of the merger and change in parties. Finally, the Thomases contend that the addition

of PHH to the this lawsuit is a continuation of defendants’ practice of withholding

information. They request that the court deny PHH’s addition to this lawsuit, permit them

to communicate with PHH directly, and sanction defendants for alleged violations of the

Federal Rules of Civil Procedure.

B

Rule 25(c) provides that “[i]f an interest is transferred, the action may be continued

by or against the original party unless the court, on motion, orders the transferee to be

substituted . . . or joined with the original party.” “A ‘transfer of interest,’ as described in

Rule 25(c), includes circumstances where a corporation is the successor to the original

corporate party by merger.” IDQ Operating, Inc. v. Aerospace Commc’ns Holdings Co.,

2016 WL 6877772, at *1 (E.D. Tex. July 5, 2016) (quoting Luxliner P.L. Exp., Co. v.

RDI/Luxliner, Inc., 13 F.3d 69, 71 (3d Cir. 1993)).

Contrary to the Thomases’ contentions, Rule 25(c) does not require a successor by

merger to file a substitution motion or any other motion before asserting its interests in the

action. See FDIC v. SLE, Inc.,722 F.3d 264, 270 (5th Cir. 2013) (per curiam) (holding that

because of “Rule 25’s wholly permissive terms,” a plaintiff-transferee is “not required under

Rule 25(c) and (a)(3) to substitute as a transferee” before filing revival motion); see also

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Fairport Ventures, LLC v. Beneficial Fin. I, Inc., 2017 WL 7806388, at *1 (S.D. Tex. July

6, 2017) (concluding that a transferee “properly stands in the shoes of [the initial defendant]

as [its] successor in interest” and is not required to file a separate substitution motion before

moving for summary judgment). Because both parties maintain that a merger occurred

between PHH and Ocwen in October 2018 and that PHH began servicing the loan in April

2019, the court concludes that PHH is a transferee as contemplated by Rule 25(c), and its

substitution in this lawsuit is proper.5 For these reasons, the court overrules the Thomases’

objection to PHH’s proceeding as a defendant.

The court also overrules the Thomases’ objection because their objection implicates

the merits of the legal issues in this case. The gravamen of the Thomases’ complaint is that

a change in servicers—whether by merger or acquisition—constitutes a “transfer” for

purposes of their RESPA claims under 12 C.F.R. § 1024.41, thereby requiring the transferee

servicer to consider a loss mitigation application anew, regardless of whether a predecessor

servicer had already done so. Thus in requesting that the court exclude PHH from this suit

so that the Thomases may submit a new loss mitigation application to PHH as an alleged

transferee servicer, the Thomases are essentially seeking a ruling on a key issue in the case:

whether the Thomases are entitled to consideration of another loss mitigation application by

5The court notes that the term “transferee” may have different meanings within the

context of Rule 25(c) and 12 C.F.R. § 1024.41(I), which deals with servicing transfers. Thus

although the court concludes that PHH is a transferee for the purposes of Rule 25(c), the

court expresses no view on the question whether PHH is a “transferee” for purposes of

RESPA’s requirements for transferee servicers.

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a servicer who obtained the loan by merger. Such a request reaches beyond the procedural

matter of ensuring the party participating in the case is a true party-in-interest and extends

to the substance of the Thomases’ action and legal theory against Ocwen. For this reason,

the court concludes that such a matter is better decided in the context of a substantive motion,

such as a summary judgment motion.

III

The court now considers defendants’ motion to dismiss.

Under Rule 12(b)(6), the court evaluates the pleadings by “accept[ing] ‘all

well-pleaded facts as true, viewing them in the light most favorable to the plaintiff[s].’” In

re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007) (quoting Martin K. Eby

Constr. Co. v. Dall. Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004)). To survive a

motion to dismiss, the Thomases must allege enough facts “to state a claim to relief that is

plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has

facial plausibility when the plaintiff[s] plead[] factual content that allows the court to draw

the reasonable inference that the defendant[s] [are] liable for the misconduct alleged.”

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “The plausibility standard is not akin to a

‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has

acted unlawfully.” Id.; see also Twombly, 550 U.S. at 555 (“Factual allegations must be

enough to raise a right to relief above the speculative level[.]”). “[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.’”

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Iqbal, 556 U.S. at 679 (quoting Rule 8(a)(2)). Furthermore, under Rule 8(a)(2), a pleading

must contain “a short and plain statement of the claim showing that the pleader is entitled to

relief.” Although “the pleading standard Rule 8 announces does not require ‘detailed factual

allegations,’” it demands more than “labels and conclusions.” Iqbal, 556 U.S. at 678

(quoting Twombly, 550 U.S. at 555). And “a formulaic recitation of the elements of a cause

of action will not do.” Id. (quoting Twombly, 550 U.S. at 555).

IV

Defendants move to dismiss the Thomases’ claim that Ocwen violated RESPA, 12

U.S.C. § 2605(f), and subsections of its implementing regulations, 12 C.F.R. §

1024.41(c)(1)(i), (c)(3), (f), and (g), by “dual tracking” the Thomases’ first and only

“receipted and completed” loss mitigation application with Ocwen.

A

Section 1024.41 regulates loss mitigation procedures provided by loan servicers, and

is privately enforceable via § 6(f) of RESPA. See 12 C.F.R. § 1024.41. Section 1024.41

does not require that a servicer “provide any borrower with any specific loss mitigation

option.” Id. § 1024.41(a). Instead, it specifies required procedures, including deadlines for

reviewing timely loss mitigation applications and requirements for notifying borrowers in

writing, within 30 days of receipt of a complete loss mitigation application, which loss

mitigation options, if any, the loan servicer will offer the borrower, or the specific reasons

for denying a complete loss mitigation application. Id. § 1024.41(c)(1)(ii), (d).

To state a claim under § 6(f) and § 1024.41, plaintiffs must allege facts that

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demonstrate that the loan modification application at issue is their first complete loss

mitigation application and that they suffered actual damages as a result of defendants’ failure

to comply with the loss mitigation procedures established in § 1024.41. See Solis v. U.S.

Bank, N.A., 726 Fed. Appx. 221, 223 (5th Cir. 2018) (per curiam) (“The district court did not

err when it held that the [plaintiffs] failed to allege that this application was their first

complete loss mitigation application. . . . Thus, [plaintiffs] again failed to plead the

prerequisites of a plausible claim.”); see also Law v. Ocwen Loan Servicing, L.L.C., 587 Fed.

Appx. 790, 795 (5th Cir. 2014) (per curiam) (“In order to recover for a violation, a borrower

must show ‘actual damages to the borrower as a result of the [servicer’s] failure’ to comply

with RESPA.”). A prevailing plaintiff is entitled to recover actual damages and reasonable

attorney’s fees and costs. See 12 U.S.C. § 2605(f)(1)(A), (f)(3).6

B

Defendants move to dismiss the Thomases’ claim under 12 C.F.R. § 1024.41,

contending that a loan servicer is only required to comply once with the regulation’s

procedures under § 1024.41(i). Because Ocwen’s predecessor—GMAC—granted a loan

modification in 2009 before Ocwen acquired GMAC and the loan, Ocwen maintains that it

had no duty to comply with the loss mitigation procedures. Defendants also contend that the

6A plaintiff who proves a “pattern or practice of noncompliance” with RESPA may

also recover statutory damages of up to $2,000. 12 U.S.C. § 2605(f)(1)(B). Although the

Thomases allege that Ocwen engaged in a “pattern or practice of noncompliance” with

RESPA, defendants do not challenge the Thomases’ third amended complaint on this ground.

Therefore, the court will not address the sufficiency of these allegations.

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Thomases’ § 1024.41 claims fail because they have not adequately pleaded actual damages.

C

Defendants contend that the Thomases’ concession of a previous loan modification

with a predecessor servicer warrants dismissal of their 12 C.F.R. § 1024.41 claims.

1

In their third amended complaint, the Thomases allege that they submitted their first

and only receipted and completed Application with Ocwen on March 28, 2017, after the loan

was transferred to Ocwen from GMAC. The following day, March 29, 2017, Deutsche Bank

filed for expedited foreclosure, which the Thomases maintain violated § 1024.41. See, e.g.,

§ 1024.41(g) (“If a borrower submits a complete loss mitigation application . . . a servicer

shall not move for foreclosure judgment[.]”). Relying on the Consumer Financial Protection

Bureau (“CFPB”) official interpretation of 12 C.F.R. § 1024.41, the Thomases allege that,

for the purposes of compliance with § 1024.41, “[a] transferee servicer and a transferor

servicer, however, are not the same servicer.” 3d Am. Compl. 13. (quoting CFPB’s Official

Staff Commentary on Regulation X, F.R.R.S. 6-1444.94, 2014 WL 2195779, at *13 (June

2018)). They maintain that Ocwen, as “a transferee servicer[,]” was “required to comply

with the applicable requirements of § 1024.41 upon receipt of a loss mitigation application

from a borrower whose servicing the transferee servicer has obtained through a servicing

transfer, even if the borrower previously received an evaluation of a complete loss mitigation

application from the transferor servicer.” Id. In other words, according to the Thomases,

because Ocwen is a transferee servicer, it was required to consider the Thomases’

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Application and refrain from seeking foreclosure for the requisite period of time, despite the

fact that the Thomases received a loan modification in 2009 from a different servicer.

Defendants contend that the Thomases’ claims fail because one who alleges a claim

under 12 C.F.R. § 1024.41 must plead that he submitted a single complete loss mitigation

application, and the Thomases “concede that they obtained a loan modification in 2009.” Ds.

Mot. 8. Defendants maintain that a servicer need not entertain duplicative loss mitigation

requests because a “servicer is only required to comply with the requirements of [12 C.F.R.

§ 1024.41] for a single complete loss mitigation application for a borrower’s mortgage loan

account.” Id. at 9. (quoting 12 C.F.R. § 1024(i) (2016)).7 Relying on Germain v. U.S. Bank

Nat’l Ass’n., 920 F.3d 269, 276 (5th Cir. 2019), defendants posit that, because Ocwen’s

predecessor—GMAC—complied with the loss mitigation procedures in granting the 2009

loan modification, GMAC’s compliance “must be credited to the [current] servicer because

it need only comply with such a requirement once.” Id. at 276. Defendants posit that any

7As explained in Wilson II, § 1024.41(i) was amended effective October 2017. See

Amendments to the 2013 Mortgage Rules Under the Real Estate Settlement Procedures Act

(Regulation X) and the Truth in Lending Act (Regulation Z), 81 Fed. Reg. 72,373, 72,375

(Oct. 19, 2016) (codified at 12 C.F.R. § 1024.41). The current version of § 1024.41(i)

provides:

Duplicative requests. A servicer must comply with the

requirements of this section for a borrower’s loss mitigation

application, unless the servicer has previously complied with the

requirements of this section for a complete loss mitigation

application submitted by the borrower and the borrower has

been delinquent at all times since submitting the prior complete

application.

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loss mitigation application after the initial loan modification in 2009 with GMAC must be

considered a duplicative request that Ocwen was not obligated to honor.

The Thomases reiterate that the Application submitted on March 27, 2017 was their

first and only complete application for loss mitigation with the transferee servicer, Ocwen.

They also contend that the predecessor servicer—GMAC—could not have complied with the

regulations, because the loan modification occurred before the rule was adopted. Further,

the Thomases maintain that if, as defendants contend, Ocwen stepped into the shoes of

GMAC by way of acquisition, this transition constitutes a transfer, thereby obligating Ocwen

to comply with the loss mitigation regulations anew. Due to the alleged transfer, the

Thomases contend that their Application was not a duplicative request. Defendants do not

reply to this argument.

2

The court concludes that the Thomases have adequately pleaded the first prong of a

12 C.F.R. § 1024.41 claim: they have alleged that they submitted their first complete loss

mitigation application to their alleged transferee servicer, Ocwen. Although it is not yet

settled whether Ocwen was required to comply with the loss mitigation requirements anew

as a transferee servicer or whether it was entitled to rely on its predecessor’s compliance with

the rules, the court holds that, at the motion to dismiss stage, accepting as true the well-

pleaded facts of the third amended complaint, the Thomases have plausibly pleaded that they

submitted a single complete loss mitigation application to their alleged transferee servicer

and that such an application would be entitled to review in compliance with § 1024.41’s

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procedures.8

Defendants’ reliance on Germain does not alter the court’s conclusion. Germain

involved the early compliance of the same servicer before the rule was adopted, and did not

address the question whether a merger constitutes a transfer for the purposes of compliance

with 12 C.F.R. § 1024.41. See Germain, 920 F.3d at 269. Because the Thomases adequately

allege that Ocwen is a transferee servicer, not the same servicer, their admission of a loan

modification with GMAC in 2009 does not undercut the plausibility of their claim.

D

Defendants also move to dismiss the Thomases’ 12 C.F.R. § 1024.41 claim on the

basis that they have failed to adequately allege actual damages.

1

In their third amended complaint, the Thomases allege that they seek actual damages

in the amount of $12,164.00 for travel expenses and lost hours away from development

projects and their work to prepare for and attend scheduled and rescheduled hearings for the

expedited foreclosure. The Thomases also aver that Susan was diagnosed with chronic

cervical radiculopathy triggered by the extended hours spent at the computer to read,

research, and write documents “to respond to defendants . . . in defense of plaintiffs’ claims.”

3d Am. Comp. 10. The Thomases also seek damages for emotional distress and pain and

suffering that Susan has allegedly suffered from dealing with defendants’ violations of

8If future developments in the law call this into question, the court will reevaluate this

conclusion.

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consumer mortgage servicing laws and the resulting radiculopathy. Although not pleaded

in relation to their § 1024.41 claim, the Thomases allege in their third amended complaint,

and later in their response to the motion to dismiss, that the dual tracking violation prevented

them from selling their residence and avoiding further home ownership expenses. The

Thomases also request equitable relief in the form of clear title to their property and an

injunction preventing defendants from seeking foreclosure again.

Defendants move to dismiss the 12 C.F.R. § 1024.41 claim on the basis that the

damages alleged in the Thomases’ third amended complaint solely “relate[] to the alleged

inability to sell the [p]roperty,” and that these damages are not attributable to any alleged

violations of the loss mitigation procedures in § 1024.41. Ds. Mot. 10. Defendants also

maintain that only monetary damages are recoverable under RESPA, and that the Thomases

cannot obtain equitable relief.

2

The court concludes that plaintiffs have pleaded sufficient facts for the court to draw

the reasonable inference that the Thomases suffered actual damages resulting from Ocwen’s

alleged violation of 12 C.F.R. § 1024.41. Courts have interpreted “actual damages” under

§ 6(f) to include, inter alia:

(1) out-of-pocket expenses incurred dealing with the RESPA

violation including expenses for preparing, photocopying and

obtaining certified copies of correspondence, (2) lost time and

inconvenience, such as time spent away from employment while

preparing correspondence to the loan servicer, to the extent it

resulted in actual pecuniary loss[,] (3) late fees and (4) denial of

credit or denial of access to full amount of credit line.

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Ruiz v. PennyMac Loan Servs., LLC, 2018 WL 4772410, at *3 (N.D. Tex. Oct. 3, 2018)

(Fitzwater, J.) (quoting McLean v. GMAC Mortg. Co., 595 F.Supp.2d 1360, 1366 (S.D. Fla.

2009), aff’d, 398 Fed. Appx. 467 (11th Cir. 2010)). A well-pleaded claim under § 6(f)

should therefore allege facts showing not only that the plaintiff suffered damages, but also

that those damages were incurred “as a result of the failure” of the lender to comply with the

statute or regulations. See 12 U.S.C. § 2605(f)(1)(A); id. at *2. Thus even minimal damages

“suffice if the harm is traceable to the alleged RESPA violation.” Ruiz, 2018 WL 4772410,

at *3.

The court holds that, conclusory allegations notwithstanding, the Thomases have

plausibly pleaded that they incurred actual damages as a result of Ocwen’s alleged violations

of 12 U.S.C. § 2605 and 12 C.F.R. § 1024.41. For example, they allege that they lost time

and income as a result of preparing for and attending the expedited foreclosure hearings,

which are adequate to satisfy the damages prong of a § 1024.41 claim. See Ruiz, 2018 WL

4772410, at *3. Additionally, although courts in this circuit are split on whether emotional

damages are recoverable under RESPA, the court concludes that, until the law develops

further, emotional damages, as alleged here, are adequate to plead a plausible claim at the

motion to dismiss stage. See Anderson v. Wells Fargo Bank, N.A., 2018 WL 3426269, at *11

(N.D. Tex. July 13, 2018) (Godbey, J.) (collecting cases and holding that emotional damages

are recoverable under RESPA). Thus although the alleged relationship between the

Thomases’ ability to sell their residence and the asserted violations is tenuous, and “simply

having to file suit [does not] suffice as a harm warranting actual damages,” the court

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concludes that the Thomases have pleaded other plausible actual damages. Obazee v. Bank

of N.Y. Mellon, 2015 WL 4602971, at *4 (N.D. Tex. July 31, 2015) (Fitzwater, J.) (quoting

Lal v. Am. Home Servicing, Inc., 680 F.Supp.2d 1218, 1223 (E.D. Cal. 2010)). The court

therefore denies defendants’ motion to dismiss the Thomases’ 12 C.F.R. § 1024.41 claim.

E

The court agrees with defendants that the Thomases have not identified a legal basis

to recover equitable relief under RESPA. See 12 U.S.C. § 2605(f)(1) (providing for damages

only). Several courts have concluded that equitable relief is not available under RESPA.

See, e.g., Billings v. Seterus, Inc., 170 F.Supp.3d 1011, 1014 (W.D. Mich. 2016) (“Plaintiff

cannot seek equitable relief under RESPA, but Plaintiff has properly alleged actual

damages[.]”); Vilkofsky v. Specialized Loan Servicing, 2017 WL 2573874, at *7 n.11 (W.D.

Pa. June 14, 2017) (collecting cases and dismissing RESPA claims to the extent they sought

equitable remedies). Because the Thomases have not plausibly alleged a legal basis for

obtaining equitable relief under RESPA, the court dismisses with prejudice their RESPA-

based claims for equitable relief.

F

Because the Thomases’ allegations enable the court to reasonably infer that they

submitted a single complete loss mitigation application to Ocwen as an alleged transferee and

that they suffered actual damages as a result of Ocwen’s alleged failure to comply with the

loss mitigation procedures, the court concludes that the Thomases have pleaded a plausible

RESPA claim under 12 C.F.R. § 1024.41. Accordingly, without suggesting a view on the

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ultimate merits of this case, the court denies defendants’ motion to dismiss the Thomases’

§ 1024.41 claim, but grants the motion with regard to the Thomases’ requests for equitable

relief under RESPA.

V

Defendants also move to dismiss the Thomases’ TILA claims under 15 U.S.C. §§

1639e and 1639h.

A

The Thomases allege that Ocwen violated 15 U.S.C. §§ 1639e and 1639h. Section

1639e imposes appraisal independence requirements on creditors in extending credit secured

by a dwelling. See 15 U.S.C. § 1639e(a). Section 1639h(a) provides that “[a] creditor may

not extend credit in the form of a higher-risk mortgage to any consumer without first

obtaining a written appraisal of the property to be mortgaged,” and prescribes a series of

requirements with which the appraisal must comply. Id. § 1639h(a).

The Thomases contend that they were seeking an extension of credit by way of a loan

modification from Ocwen. They maintain that the appraisal obtained in conjunction with the

potential loan modification did not meet the variety of requirements imposed by TILA, which

resulted in an overvaluation of their residence, and, in turn, impacted “the loan to value

equation” for a loan and may have ultimately led to a denial of the modification.9

Defendants contend that the Thomases have failed to state a claim under TILA

9 In their response, the Thomases also allege that defendants violated Federal Deposit

Insurance Corporation Rule 323.3 for obtaining appraisals performed by a licensed appraiser.

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because its provisions—specifically § 1639h—only apply to extensions of credit.

Defendants maintain that because the Thomases fail to state how an appraisal or a loan

modification is a form of consumer credit under TILA, the claim must be dismissed.

Defendants also posit that, to the extent the Thomases’ claims arose from the 2006 extension

of credit, they are barred by TILA’s one- or three-year statute of limitations.

B

The court concludes that the Thomases have failed to state a claim under 15 U.S.C.

§§ 1639e and 1639h because Ocwen did not extend any credit to the Thomases in the loan

modification process, and, even if a loan modification could be considered an extension of

credit, the claim is time-barred.

1

Sections 1639e and 1639h only apply to extensions of credit. See 15 U.S.C. §§

1639e(a), 1639h(a). But even assuming that a loan modification could be considered credit,

Ocwen never extended credit. Indeed, the basis of the Thomases’ complaint is that Ocwen

failed to appropriately evaluate their Application, and, as a result, withheld loss mitigation

options, including loan modification, and sought foreclosure instead. Thus the Thomases

have failed to plausibly plead that Ocwen extended credit to them, because it never granted

the Thomases’ request for a modification. Therefore, the court concludes that the Thomases

have failed to plead a plausible claim under 15 U.S.C. § 1639h.

2

Moreover, even assuming arguendo that merely seeking without obtaining a loan

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modification qualifies as an extension of credit under the 15 U.S.C. § 1639h, the claims are

time-barred. Limitations is an affirmative defense. See Rule 8(c)(1). To obtain a Rule

12(b)(6) dismissal based on an affirmative defense, the “successful affirmative defense

[must] appear[] clearly on the face of the pleadings.’” Cochran v. Astrue, 2011 WL

5604024, at *1 (N.D. Tex. Nov. 17, 2011) (Fitzwater, C.J.) (quoting Clark v. Amoco Prod.

Co., 794 F.2d 967, 970 (5th Cir.1986)). In other words, defendants are not entitled to

dismissal under Rule 12(b)(6) unless the Thomases have “pleaded [themselves] out of court

by admitting to all of the elements of the defense.” Id. (quoting Sivertson v. Clinton, 2011

WL 4100958, at *3 (N.D. Tex. Sept. 14, 2011) (Fitzwater, C.J.)).

Section 1640(e) provides that, with the exception of violations of 15 U.S.C. §§ 1639,

1639b, or 1639c, any TILA claim must be brought within “one year from the date of the

occurrence of the violation[.]” 15 U.S.C. § 1640(e). The Thomases allege violations of §§

1639e and 1639h; therefore, the one-year statute of limitations applies. Thus whether the

date of the occurrence is 2006, as defendants contend, or the date of the appraisal (October

3, 2016), as the Thomases’ maintain, the Thomases’ allegation that the violation occurred

outside of the one-year statute of limitations bars their claim. The court therefore dismisses

the Thomases’ § 1639h claim.

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VI

The court now considers the Thomases’ challenge to defendants’ authority to

foreclose.

A

The Thomases contend that defendants do not have authority to foreclose on their

property. They make the unsupported assertion that it is mandatory for the challenged party

to present evidence of its right to foreclose. Defendants move to dismiss this contention,

alleging that Deutsche Bank has authority to foreclose as mortgagee by virtue of the 2013

recorded Assignment of Deed of Trust under § 51.0025 of the Texas Property Code. To the

extent the Thomases challenge the assignment of deed, defendants argue that borrowers do

not have standing to contest the assignment.

The Thomases respond that the trust that held the property was liquidated in 2017 and

was recently listed with another fund in a limited duration fund. Given the trust’s relatively

recent bankruptcy, the Thomases allege that Deutsche Bank, on behalf of the trust, may no

longer own the trust and therefore the assignment of deed of trust may no longer be valid.

For this reason, the Thomases demand proof of the validity of the assignment.10 Defendants

reply that they have already provided adequate evidence of Deutsche Bank’s authority to

foreclose by their production of the recorded Assignment of Deed of Trust.

10The Thomases assert that “[i]n 2019, Rali 2006 QS5 was listed with Cavanal Hill

Funds in a Limited Duration Fund. Deutsche Bank, on behalf of Rali 2006 QS5, as

defendants filing the expedited fore[c]losure lawsuit may no longer own the Trust due to its

liquidation as most have been divested.” Ps. Resp. 16.

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B

As the court concluded in Wilson I and Wilson II, the Thomases have failed to plead

sufficient facts to permit a reasonable inference that Deutsche Bank lacks authority to

foreclose and that the Thomases are therefore entitled to the relief they seek. As a

preliminary matter, the Thomases’ assertion that there is a possibility of a defect in the

assignment based on the liquidation of the trust is too conclusory to credit in the context of

a Rule 12(b)(6) motion to dismiss. See Wilson v. Deutsche Bank Tr. Co. Ams. (Wilson II),

2019 WL 2578625, at *6 (N.D. Tex. June 24, 2019) (Fitzwater, J.) (quoting Wilson v.

Deutsche Bank Tr. Co. Ams., 2019 WL 175078, at *3 (N.D. Tex. Jan. 10, 2019) (Fitzwater,

J.)). Moreover, as explained in Wilson II, the Thomases’ demands for more evidence

improperly attempt to shift the burden of proof to defendants. See Wilson II, 2019 WL

2578625 at *6.

The Thomases have thus failed to plausibly allege that defendants lack authority to

foreclose because of some defect in the assignment. The Thomases’ speculative allegation

that Deutsche Bank may no longer have authority to foreclose due to the recent liquidation

of the trust is insufficient to state a plausible claim for relief. Accordingly, to the extent the

Thomases have attempted to bring a claim based on defendants’ lack of authority to foreclose

on their property, the court dismisses this claim.

VII

The court now turns to defendants’ motion to dismiss the remaining claims: § 1413

of the Dodd-Frank Act, 15 U.S.C. § 1640(k); 12 C.F.R. §§ 1024.37, 1024.38, and 1026.36(c);

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and 12 U.S.C. § 2605(c). The court raises grounds for dismissal of each claim sua sponte.11

“This court may dismiss a case for failure to state a claim even if it does so based on

arguments that defendants did not themselves raise.” Coates v. Heartland Wireless

Commc’ns, Inc., 55 F.Supp.2d 628, 633 (N.D. Tex. 1999) (Fitzwater, J.) (citing Guthrie v.

Tifco Indus., 941 F.2d 374, 379 (5th Cir. 1991)). “Even if a party does not make a formal

motion, the court on its own initiative may note the inadequacy of the complaint and dismiss

it for failure to state a claim as long as the procedure employed is fair.” Id. (quoting 5A

Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 1357, at 301 (2d

ed. 1990) (footnote omitted)). To ensure that the procedure is fair, the court will allow the

Thomases 21 days from the date this memorandum opinion and order is filed to replead in

an effort to plead plausible claims under § 1413 of the Dodd-Frank Act, 15 U.S.C. § 1640(k);

12 C.F.R. §§ 1024.37, 1024.38, and 1026.36(c); and 12 U.S.C. § 2605(c).

11Defendants move to dismiss the Thomases’ remaining “new RESPA claims” as time-

barred. Although 12 U.S.C. § 2614 provides that a claim under 12 U.S.C. § 2605 must be

brought within three years “from the date of the occurrence of the violation,” defendants

allege that the Fifth Circuit has interpreted the “date of the occurrence” to mean the date of

the closing of the loan. See Snow v. First Am. Title Ins. Co., 332 F.3d 356, 359 (5th Cir.

2003). Because the Thomases’ loan closed in 2006, defendants maintain that new allegations

of RESPA violations are time-barred as having been alleged more than 12 years after the date

of closing.

Contrary to defendants’ contentions, the Fifth Circuit has held that claims arising

under 12 U.S.C. § 2605 accrue when the alleged violation occurs, which is not necessarily

the date of closing. See Haase v. Countrywide Home Loans, Inc., 748 F.3d 624, 629-30 (5th

Cir. 2014) (holding that transferee’s failure to notify the borrower of the transfer was within

the statute of limitations). But because the court is raising alternate grounds for dismissal sua

sponte, it need not address defendants’ contentions regarding the statute of limitation as they

pertain to the remaining claims.

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VIII

The court turns to the question whether the Thomases have stated a claim under §

1413 of the Dodd-Frank Act, 15 U.S.C. § 1640(k).

A

15 U.S.C. § 1640(k)(1) applies when a lender has violated § 1639b(c)(1)-(2) or §

1639c(a), which requires, inter alia, that creditors and assignees make a good faith

determination of a consumer’s ability to repay before issuing a residential loan. See 15

U.S.C. §§ 1639b(c)(1)-(2), 1639c(a). Under § 1640(k)(1), a consumer can raise the failure

to assess the borrower’s ability to repay “when a creditor, assignee, or other holder . . .

initiates a judicial or nonjudicial foreclosure of the residential loan, or any other action to

collect the debt . . . without regard for the time limit on a private action[.]” Id. § 1640(k)(1).

But to obtain the benefit of the extended statute of limitations, the consumer must raise the

violation “as a matter of defense by recoupment or set off[.]” Id.

B

The Thomases allege that Deutsche Bank and Trust Americas, as a successor or

assignee of Wachovia Bank, failed to comply with the ability to repay provision of TILA by

failing to properly consider the impact of the Thomases’ debt-to-income and residual income

ratio, their commission-only careers, and the amount they would be required to spend on

home maintenance before granting the home equity loan in 2006. The Thomases allege that,

by failing to complete a proper “ability to repay” assessment, Deutsche Bank allegedly “gave

the plaintiffs a sub-prime loan that immediately set them up for failure[.]” 3d Am. Compl.

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21. They maintain that a claim that Deutsche Bank violated the “ability to repay” provision

is not time-barred because there is no statute of limitations on a recoupment and set off.

C

The court concludes that the Thomases’ claim for recoupment or set off under § 1413

of the Dodd-Frank Act, 15 U.S.C. § 1640(k)(1), due to alleged violations of §§ 1639b and

1639c fails because it was not raised “as a matter of defense.” Although § 1640(k)(1)

provides a defense by recoupment or set off “without regard for the time limit on a private

action for damages[,]” § 1640(k)(1) only extends the statute of limitations for claims against

a creditor when raised as a matter of defense to a foreclosure action. See Derbabian v. Bank

of Am., N.A., 587 Fed. Appx. 949, 955 (6th Cir. 2014) (holding that expanded statute of

limitations did not apply to action against nonjudicial foreclosure because recoupment claim

was not raised as defense to foreclosure action brought by lender).

Here, by bringing a claim for recoupment or set off, the Thomases are attempting to

use the provision as an offensive right of action against their creditors rather than an

affirmative defense to an action brought against them. Because the instant action was not

initiated by defendants, but instead was brought by the Thomases, 15 U.S.C. § 1640(k)(1)

is inapplicable. See Hibner v. Regions Bank, 2018 WL 3552350, at *3 (W.D. Tenn. July 24,

2018) (“§ 1640(k)(1) has no applicability when a borrower sues a lender under TILA.”); see

also Mullen v. Se. Bank, 2018 WL 2445129, at *2 n.1 (M.D. Tenn. May 31, 2018) (holding

that in an action seeking to prevent foreclosure, § 1640(k) is “not substantively relevant”

- 26 -

because it does not apply to offensive TILA claims).12

Therefore, because the Thomases’ action is offensive, they may not obtain the benefit

of an extended statute of limitations reserved for use “as a matter of defense.” Any offensive

TILA claims relating to the Thomases’ 2006 mortgage, including their claims under §§

1639b and 1639c, have thus expired even under the TILA’s longer three-year statute of

limitations. See § 1640(e) (“Any action under this section with respect to any violation of

section . . . 1639b[] or 1639c of this title may be brought . . . before the end of the 3-year

period beginning on the date of the occurrence of the violation.”). The Thomases explicitly

plead that the violations giving rise to their § 1640(k)(1) claim stem from the “appli[cation]

for the home equity loan in 2006.” 3d Am. Compl. 21. Therefore, the statute of limitations

bars the Thomases’ claims as well beyond the three years provided by statute. Accordingly,

12Several courts have held that 15 U.S.C. § 1640(k) does not apply where a borrower

brings an action against its lender. See Walker v. Nationstar Mortg. LLC, 2017 WL 588465,

at *2 (D. Md. Feb. 13, 2017) (“Because the instant case is not a foreclosure action, and

because the Walkers are plaintiffs, the TILA does not allow them to invoke recoupment.”);

Pitts v. Wells Fargo Bank, 2015 WL 5728879, at *4 (D.D.C. Sept. 29, 2015) (“Because

Plaintiffs assert TILA violations as affirmative claims, rather than defenses to foreclosure,

§ 1640(k) does not allow them to assert those violations without regard to time limit.”);

Bhandari v. Capital One, N.A., 2013 WL 1736789, at *5 (N.D. Cal. Apr. 22, 2013) (same);

Qadeer v. Bank of Am., N.A., 2013 WL 424776, at * 4 (E.D. Mich. Feb. 4, 2013) (same).

These courts’ holdings accord with the Fifth Circuit’s interpretation of a similar

provision, § 1640(e), which states that the statute of limitations provision “does not bar a

person from asserting a violation . . . in an action to collect the debt . . . as a matter of defense

by recoupment or set-off in such action[.]” In Moor v. Travelers Ins. Co., 784 F.2d 632 (5th

Cir. 1986), the Fifth Circuit held that the plaintiff could not avoid the statute of limitations

under a recoupment theory because the plaintiff initiated the suit. Id. at 634. The court

concluded that, “[w]hen the debtor hales the creditor into court . . . the claim by the debtor

is affirmative rather than defensive.” Id.

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the court dismisses the Thomases’ claim for recoupment or set off under § 1413 of the Dodd-

Frank Act, 15 U.S.C. § 1640(k)(1), and their related TILA claims as time-barred.

IX

The court considers next whether the Thomases have pleaded a plausible claim under

12 C.F.R. § 1024.37.

A

Section 1024.37(a) provides that a servicer may not impose force-placed hazard

insurance without a reasonable basis, and it mandates compliance with a variety of

requirements. See 12 C.F.R. § 1024.37(a). The regulation also provides that a servicer must

cancel any force-placed hazard insurance and refund the charges to the borrowers within 15

days of the borrowers’ demonstrating proof that they had existing coverage. Id. §

1024.37(g).

The Thomases contend that “GMAC-later Ocwen” violated 12 C.F.R. § 1024.37,

thereby exhibiting a pattern and practice of noncompliance with RESPA. They allege that

they notified GMAC of “2 forced placed insurance entries on their statements exceeding

$5,000 per year . . . when plaintiffs had coverage with USAA at a rate of approximately

$1500.00 per year.” 3d Am. Compl. 18. The Thomases maintain that their insurance agent

sent confirmation of their insurance in 2016. They therefore request that the funds from the

forced-placed insurance be credited back.

Defendants rely on a case from the Southern District of Florida, maintaining that

“violations of [12 C.F.R. § 1024.37] are not privately enforceable.” Ds. Mot. 7 n.2 (citing

- 28 -

Wing Kei Ho v. Bank of Am., N.A., 2016 WL 8679254, at *2 (S.D. Fla. June 21, 2016)); see

also Iaffaldano v. Sun W. Mortg. Co., 2018 WL 2221872, at *4 (S.D. Fla. Feb. 21, 2018)

(citing Wing Kei Ho, 2016 WL 8679254, at *2), aff’d, 768 Fed. Appx. 907 (11th Cir. 2019)).

Defendants contend for this reason that the Thomases’ § 1024.37 claim must be dismissed.

B

There is conflicting authority on whether 12 C.F.R. § 1024.37 confers a private right

of action, and the Fifth Circuit has not decided this question. But because the court

concludes that the Thomases’ claim fails for another reason, it will assume arguendo that

there is a private right of action.

The court holds that the Thomases’ allegations are inadequate to state a claim under

12 C.F.R. § 1024.37. Although the Thomases do not specifically identify a subsection that

they contend defendants violated under § 1024.37, their allegations most closely track §

1024.37(g). Section 1024.37(g) provides that “[w]ithin 15 days of receiving, from the

borrower or otherwise, evidence demonstrating that the borrower has had in place hazard

insurance coverage that complies with the loan contract’s requirements,” a servicer must

cancel the force-placed insurance and refund the charges to the borrower. 12 C.F.R. §

1024.37(g)(1)-(2).

The Thomases allege that they notified their servicer of two force-placed insurance

entries despite the fact that they had existing coverage, and that their insurance provider sent

confirmation of insurance in 2016. But the Thomases do not allege that the insurance they

had in place “complie[d] with the loan contract’s requirements,” as 12 C.F.R. § 1024.37(g)

- 29 -

requires. In the absence of this essential component, the court cannot draw the reasonable

inference that the force-placed insurance was placed in violation of 12 C.F.R. § 1024.37(g).

See Aguilar v. Ocwen Fin. Corp., 2015 WL 12659913, at *4 (C.D. Cal. Jan. 27, 2015) (“A

claim for a violation of § 1024.37 requires more than the sole allegation that a servicer

force-placed insurance despite knowledge that the borrower had insurance.”); see also Iqbal,

556 U.S. at 679 (“[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.’”).

To the extent the Thomases intend to allege other violations of § 1024.37—such as

failure to provide notice in compliance with the regulation—they have failed to plead

sufficient facts for the court to reasonably infer that a violation occurred. The court therefore

dismisses the Thomases’ § 1024.37 claim.

X

The court now considers whether the Thomases have plausibly pleaded a claim for

relief under 12 C.F.R. § 1024.38.

A

Section 1024.38 requires that loan servicers implement reasonable policies and

procedures. See 12 C.F.R. § 1024.38. The regulation specifically requires servicers to

“investigate, respond to, and as appropriate, make corrections in response to complaints,”

to “[p]rovide a borrower with accurate and timely information . . . in response to the

borrower’s request for information,” and to properly evaluate loss mitigation applications by

- 30 -

evaluating a borrower “for all loss mitigation options for which the borrower may be

eligible[.]” Id. § 1024.38(b)(ii), (iii), (2)(v).

The Thomases allege that Ocwen violated 12 C.F.R. § 1024.38 in 2016 by failing to

accurately respond to an email regarding its loan modification from 2009 and failing to

further investigate payments that the Thomases alleged were misapplied. They also aver that

Ocwen violated several other subsections of § 1024.38 by failing to properly evaluate their

loss mitigation application and proceeding with foreclosure instead. The Thomases allege

that these violations entitle them to relief and demonstrate an “institutionalized practice of

non-compliance with RESPA,” for which they request “actual and statutory damages for

violation of the rule.” 3d Am. Compl. 16.

B

To the extent the Thomases assert 12 C.F.R. § 1024.38 as a claim for relief rather than

merely as evidence of Ocwen’s alleged pattern and practice of noncompliance with RESPA,

the court concludes they have failed to plead a plausible claim because “RESPA does not

create a private right of action to enforce Section 1024.38[].” Longmire v. Wells Fargo Bank,

N.A., 2017 WL 4075187, at *3 (N.D. Tex. Aug. 16, 2017) (Horan, J.), rec. adopted, 2017

WL 4022888 (N.D. Tex. Sept. 13, 2017) (Lynn, C.J.). In its explanation of the final rule, the

CFPB stated that it would rely on the “supervision and enforcement by the Bureau and other

Federal regulators for compliance with and violations of § 1024.38” to “provide robust

consumer protection without subjecting servicers to the same litigation risk and concomitant

compliance costs as civil liability for asserted violations of § 1024.38.” Mortgage Servicing

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Rules Under the Real Estate Settlement Procedures Act (Regulation X), 78 Fed. Reg. 10696,

10778 (Feb. 14, 2013). The CFPB reasoned that “allowing a private right of action for the

provisions that set forth general servicing policies, procedures and requirements would create

a significant litigation risk” and therefore restructured “the final rule so that it neither

provides private liability for violations of § 1024.38 nor contains a safe harbor[.]” Id. at

10778, 10779. To further ensure that there would be no private right of action under §

1024.38, the CFPB “no longer rel[ied] on its authorit[y] under section 6 of RESPA,” which

carries with it a private right of action, but instead adopted the rule “pursuant to [its] section

19(a)” authority. Id. at 10779. Because the court holds that § 1024.38 does not provide a

private right of action, the Thomases cannot plead a plausible claim under this rule as a

matter of law, and the claim is therefore dismissed.

XI

The court next considers whether the Thomases have pleaded a plausible claim under

12 C.F.R. § 1026.36(c).

A

Section 1026.36(c)(1)(i) prohibits a servicer from “fail[ing] to credit a periodic

payment to the consumer’s loan account as of the date of receipt[.]” Id. Section

1026.36(c)(1)(ii) provides that, when a servicer retains partial payments, the servicer must

“[d]isclose to the consumer the total amount of funds held in such suspense or unapplied

funds account on the periodic statements” and “treat such funds as a periodic payment

received in accordance with paragraph (c)(1)(i)[.]” Id. § 1026(c)(1)(ii)(A), (B).

- 32 -

The Thomases allege that Ocwen violated “RESPA § 1026(c)[(1)](i)[-](ii)” by

misapplying payments on their loan account in 2009 in accordance with their loan

modification, and that evidence provided by Ocwen’s ombudsman in 2016 revealed that

these payments were improperly applied. The Thomases posit that two of their 2009

payments have neither been returned to them nor applied as a loan modification. They allege

that Ocwen explained that it had no record of a loan modification transferred from GMAC,

and that Ocwen “recharacterized” the payments as forbearance rather than a loan

modification, despite having never sent any forbearance-related documents or disclosures in

2016. 3d Am. Compl. 17.

B

The court concludes that the statute of limitations bars the Thomases’ claim under 12

C.F.R. § 1026.36(c). Although the Thomases characterize their § 1026.36(c) claim as a

RESPA claim, which would subject the claim to a three-year statute of limitations, § 1026.36

was promulgated as part of Regulation Z to implement TILA, which has a much shorter

statute of limitations for most claims. See Mastin v. Ditech Fin., LLC, 2018 WL 524871, at

*2 n.2 (E.D. Va. Jan. 23, 2018) (“Plaintiffs seemingly characterize . . . 12 C.F.R. §

1026.36(c)(1)(ii) as one contained in RESPA’s implementing regulation,” but 12 C.F.R. §

1026, “known as ‘Regulation Z,’ was promulgated under the authority of, and with the

intention of implementing, TILA.”); see also In re Davis, 2014 WL 1339720, at *2 (N.D. Ill.

Apr. 3, 2014) (“The regulation that implements TILA is commonly referred to as ‘Regulation

Z’. It was codified at 12 C.F.R. [§] 226 until 2011, when it was re-codified at 12 C.F.R. [§]

- 33 -

1026.”); Truth in Lending (Regulation Z), 76 Fed. Reg. 79768, 79769, 79916 (Dec. 22, 2011)

(“The [CFPB] is issuing this interim final rule [§ 1026] pursuant to its authority under TILA

and the Dodd-Frank Act. . . . This commentary is the vehicle by which the [CFPB] issues

official interpretations of Regulation Z. . . . [C]ompliance with this commentary affords

protection from liability under section 130(f) of [TILA].”).

With exceptions not applicable here, claims under TILA and Regulation Z must be

brought within one year of the date of the occurrence of the violation.13 See 15 U.S.C. §

1640(e); see also Val-Com Acquisitions Tr. v. Bank of Am., N.A., 2011 WL 2312284, at *3

(N.D. Tex. June 9, 2011) (Lynn, J.) (citing Moor v. Travelers Ins. Co., 784 F.2d 632, 633

(5th Cir. 1986)) (dismissing plaintiffs’ TILA and Regulation Z claims as time-barred under

the one-year statute of limitations). Thus whether the violation of 12 C.F.R. § 1026.26(c)(1)

occurred in 2006, when the loan closed (as defendants contend), in 2009, when the loan

modification and misapplication occurred, or in 2016, when the Thomases maintain that they

discovered the violation and Ocwen “recharacterized” the payment, it is apparent from the

face of the Thomases’ third amended complaint that their § 1026.36 claim is barred by

TILA’s one-year statute of limitations. Accordingly, the court dismisses the claim under §

13Section 1640(e) provides for an extended statute of limitations of three years for

violations of 15 U.S.C. §§ 1639, 1639b, or 1639c. As the Seventh Circuit noted, 12 C.F.R.

§ 1026.36(c)(1)(i) of Regulation Z implements and repeats the language of 15 U.S.C.

1639f(a). See Fridman v. NYCB Mortg. Co., 780 F.3d 773, 775-76 (7th Cir. 2015). Because

the violations the Thomases allege do not arise under any of the statutes that would give rise

to an extended statute of limitations for private claims, the one-year statute of limitations

controls here.

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1026.36(c) as time-barred.

XII

Finally, the court considers the Thomases’ claim that Ocwen violated 12 U.S.C. §

2605(c).

A

Section 2605(c), entitled “Notice by transferee of loan servicing at the time of

transfer[,]” requires a “transferee servicer to whom the . . . loan is assigned, sold, or

transferred” to “notify the borrower of any such assignment, sale, or transfer.” 12 U.S.C. §

2605(c)(1). The notice must be provided to the borrower “not more than 15 days after the

effective date of transfer of the servicing of the mortgage loan,” or “not more than 30 days

after the effective date of assignment, sale, or transfer” of the loan when the transfer of the

loan is preceded by occurrences not pertinent here. Id. § 2605(c)(2)(A), (B).

The Thomases allege that Ocwen violated 12 U.S.C. § 2605(c) “by failing to respond

to an email about Ocwen’s failure to halt the expedited foreclosure hearing scheduled . . . for

June 21, 2017.” 3d Am. Compl. 18. They maintain that they emailed Ocwen on May 17,

2017, explaining to the servicer that foreclosure proceedings had not been halted, contrary

to an email they allegedly received from Ocwen on May 5, 2017. They also allege that the

court clerk received no notice to cancel the hearing.

B

The court holds that the Thomases have failed to allege sufficient facts on which the

court can reasonably infer a violation of 12 U.S.C. § 2605(c). By its plain language, the

- 35 -

statute applies to notice by a transferee of loan servicing “at the time of transfer.” 12 U.S.C.

§ 2605(c). This provision does not impose a continuing communication requirement on a

servicer beyond giving notice of a transfer, whether the transfer was achieved by assignment,

sale, or another means. Therefore, it is unclear how Ocwen could have violated this section

by failing to respond to the Thomases’ email, which was unrelated to a notification of the

loan’s transfer.

The court’s conclusion is bolstered by the implementing regulations. 12 C.F.R.§

1024.33(b), entitled “Notices of transfer of loan servicing,” provides that “each transferor

servicer and transferee servicer of any mortgage loan shall provide to the borrower a notice

of transfer for any assignment, sale, or transfer of the servicing of the mortgage loan.” Id.

§ 1024.33(b)(1). The regulation mandates that the notice contain “the information described

in paragraph (b)(4) of this section.” Id. Section 1024.33(b)(4) merely requires that the

transferee provide information related to the transfer of the loan, including the effective date

of transfer, contact information of the transferee and transferor servicers that can be used to

obtain answers to servicing transfer inquiries, the date on which the transferor will stop

accepting payments, the transfer’s impact on mortgage insurance, and a statement that the

transfer does not affect any term or condition of the loan. See id. § 1024.33(b)(4)(i)-(vi).

The Thomases have failed to plead any facts that enable the court to draw the

reasonable inference that Ocwen, as an alleged transferee servicer, failed to provide notice

of the loan transfer. In fact, the Thomases allege that they “received a letter offering them

a loan modification from new transferee servicer, Ocwen,” and the Thomases subsequently

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initiated a loss mitigation application that was never receipted or completed in 2016. 3d Am.

Compl. 5 (emphasis in original). The reasonable inference to be drawn from these

allegations is that the Thomases received notice of the transfer. Further, the Thomases fail

to allege that any notice that may have been given was inadequate or deficient under the

statute and its implementing regulations. Because the court concludes that the statute applies

to notices of transfer, not ancillary actions taken regarding the loan, and the Thomases have

pleaded no facts regarding lack of notice or deficiencies in such a notice, the court dismisses

the Thomases’ 12 U.S.C. § 2605(c) claim.

XIII

The court turns now to the Thomases’ motion for leave to supplement their third

amended complaint. This motion is not mooted by the court’s decision to permit the

Thomases to replead. As the court states infra at § XIII(c)(5), as a matter of procedural

fairness, the court is granting the Thomases leave to replead the claims that it is today

dismissing sua sponte, not to replead generally.

A

The Thomases seek leave to supplement their complaint with the allegation that

“defendants, through violation of 12 C.F.R. [§] 1024.41 . . . prevented plaintiffs from taking

tax planning action while the Mortgage Debt Forgiveness Act [(“the Act”)] . . . was still in

effect.” Ps. Mot. 2. They contend that, if Ocwen had complied with the loss mitigation

application procedures in 2017, they would have been able to minimize or eliminate their

potential tax exposure under the Act. The Thomases maintain that, because Ocwen did not

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provide “numbers for a deed in lieu of foreclosure or straight foreclosure” when the

Thomases’ loss mitigation application was submitted and when the losses could have been

avoided, they will be liable for a capital gains tax assessment upon foreclosure, which has

not yet occurred. Id. at 3.

Defendants oppose the Thomases’ motion. They maintain that the Thomases’ have

already had three opportunities to plead plausible claims and permitting them to supplement

their third amended complaint would only delay the ruling on defendants’ motion to dismiss.

Defendants also assert that, because dispositive motion deadlines have or will soon elapse,

granting the Thomases leave to supplement would prejudice defendants and only cause

further delay in resolving the case. They also contend that the Thomases’ 12 C.F.R. §

1024.41 claim fails as a matter of law and therefore supplementing this specific claim with

additional damages would be futile.

The Thomases reply that their motion for leave to supplement is not intended to delay

the action but is based on newly-acquired information that the Act likely will not be renewed.

They contend that defendants will not suffer any prejudice because the issues regarding their

12 C.F.R. § 1024.41 claim are otherwise fully briefed in their third amended complaint, and

the supplement only adds damages to this claim. Finally, the Thomases assert that the

request for leave to supplement is not futile because they are genuinely harmed by the tax

liability exposure due to Ocwen’s failure to comply with RESPA in 2017, when the Act was

still in effect.

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B

When, as here, the deadline to amend pleadings has expired, a court considering a

motion to amend or supplement pleadings must first determine whether to modify the

scheduling order under the Rule 16(b)(4) good cause standard.14 See S & W Enters., L.L.C.

v. S. Tr. Bank of Ala., N.A., 315 F.3d 533, 536 (5th Cir. 2003); Am. Tourmaline Fields v. Int’l

Paper Co., 1998 WL 874825, at *1 (N.D. Tex. Dec. 7, 1998) (Fitzwater, J.). If the movant

satisfies the requirements of Rule 16(b)(4), the court must next determine whether to grant

leave to amend under the more liberal standard of Rule 15(a)(2), which provides that “[t]he

court should freely give leave when justice so requires.” Rule 15(a)(2); see S & W Enters.,

315 F.3d at 536; Am. Tourmaline Fields, 1998 WL 874825, at *1.

The court assesses four factors when deciding whether to grant an untimely motion

for leave to amend or supplement: “(1) the explanation for the failure to timely move for

leave to amend; (2) the importance of the amendment; (3) potential prejudice in allowing the

amendment; and (4) the availability of a continuance to cure such prejudice.” S & W Enters.,

315 F.3d at 536 (internal quotation marks and brackets omitted). “The ‘good cause’ standard

focuses on the diligence of the party seeking to modify the scheduling order.” Cut-Heal

Animal Care Prods., Inc. v. Agri-Sales Assocs., Inc., 2009 WL 305994, at *1 (N.D. Tex. Feb.

14The court entered a scheduling order on June 6, 2018 that set August 20, 2018 as the

deadline for a party to file a motion for leave to amend the pleadings. The Thomases’ filed

their motion for leave to supplement their complaint on September 10, 2019, over one year

after the deadline. Amendment as a matter of course under Rule 15(a)(1) is inapposite

because the motion was filed almost two months after the Thomases’ July 22, 2019 third

amended complaint and over 35 days after defendants’ August 5, 2019 motion to dismiss.

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9, 2009) (Fitzwater, C.J.). Mere inadvertence on the part of the movant is insufficient to

constitute “good cause.” Nunn v. State Farm Mut. Auto. Ins. Co., 2011 WL 248523, at *2

(N.D. Tex. Jan. 26, 2011) (Fitzwater, C.J.). Instead, the movant must show that, despite its

diligence, it could not have reasonably met the scheduling deadline. See Am. Tourmaline

Fields, 1998 WL 874825, at *1. But “[w]hen a party files an untimely motion for leave to

amend and does not address the good cause standard under Rule 16(b)(4), this court typically

denies the motion for that reason alone.” Wachovia Bank Nat’l Ass’n v. Schlegel, 2010 WL

2671316, at *3 (N.D. Tex. June 30, 2010) (Fitzwater, C.J.).

Although the Thomases move to supplement under Rule 15(d) and make no mention

of Rule 16(b)(4), their motion implicitly addresses several of the factors that are pertinent to

the Rule 16(b)(4) analysis. Therefore, the court will not deny their motion based on their

failure to explicitly address good cause. See, e.g., Grimsley v. Methodist Richardson Med.

Ctr. Found., Inc., 2011 WL 825749, at *5-6 (N.D. Tex. Mar. 3, 2011) (Fitzwater, C.J.)

(analyzing the Rule 16(b)(4) factors although the pro se movant “ha[d] not explicitly

addressed the good cause standard of Rule16(b)(4)”); see also Harrison v. Wells Fargo Bank,

N.A., 2015 WL 1649069, at *9 (N.D. Tex. Apr. 14, 2015) (Fitzwater, C.J.) (“[T]he court has

made exceptions in cases where the movant does not address the Rule 16(b)(4) good cause

standard but the grounds on which he relies to establish good cause are relatively clear.”).

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C

1

As to the first factor, which considers the movants’ explanation for the delay, the

Thomases allege that, until recently, they were unaware that the Act would not be renewed.

But the plain language of the statute indicates that, before the Thomases filed suit on March

9, 2018, they should have been aware that the Act might not be extended beyond 2017. The

current version of the Act excludes from gross income “qualified principal residence

indebtedness which is discharged before January 1, 2018,” or “[qualified principal residence

indebtedness] subject to an arrangement that is entered into and evidenced in writing before

January 1, 2018.” 26 U.S.C. § 108(a)(1)(E) (emphasis added). The Act was last extended

on February 9, 2018 in the Bipartisan Budget Act of 2018, one month before the Thomases

filed suit and almost two years before they filed the instant motion. See Bipartisan Budget

Act of 2018, Pub. L. No. 115-123, sec. 40201, § 108(a)(1)(E), 132 Stat. 64 (“Section

108(a)(1)(E) is amended by striking ‘January 1, 2017’ each place it appears and inserting

‘January 1, 2018’”). Thus the Thomases should have been aware well before they filed their

September 10, 2019 motion for leave to supplement the third amended complaint that the Act

might not apply to any foreclosures beyond 2017.

The Thomases’ recent awareness that the Act would not apply to any future

foreclosures is not an adequate explanation for their late request to supplement. “Lack of

knowledge regarding the law . . . does not constitute good cause to amend a scheduling

order.” Conceal City, L.L.C. v. Looper Law Enf’t, LLC, 2013 WL 5786281, at *4 (N.D. Tex.

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Oct. 28, 2013) (Fitzwater, C.J.); see also Escribano v. Travis Cty., Tex., 2016 WL 8856918,

at *2 (W.D. Tex. Aug. 25, 2016) (“[T]he fact that Plaintiffs were unaware of the relevant law

prior to discovery is not a compelling explanation for waiting to amend their pleading until

three months after the scheduling order deadline.”). This is especially the case where, as

here, all relevant facts, including Ocwen’s alleged failure to comply with the loss mitigation

procedures and the potential of foreclosure, have been known to the Thomases since the time

of filing. See Conceal City, L.L.C., 2013 WL 5786281, at *4 (quoting Am. Tourmaline

Fields, 1998 WL 874825, at *1) (“[T]he court can deny a motion to amend the scheduling

order if the movant ‘knows or should have known of the facts upon which the proposed

amendment is based.’”). Moreover, the Thomases have had three opportunities to uncover

and plead the potential tax liability as damages, but have failed to do so until now. For these

reasons, the court finds that this factor weighs against a finding of good cause.

2

Under the second factor, the court considers the importance of the amendment. The

Thomases allege that, although the foreclosure has not yet occurred, they will have “no other

opportunity to show the Court the tax consequence of the dual tracking violation if and when

the foreclosure takes place after the disposition of this case.” Ps. Mot. 2. Thus the Thomases

appear to raise a preclusion argument—that is, if foreclosure occurs after the resolution of

this case, they will incur tax consequences as a result of defendants’ RESPA violation,

without the ability to bring another RESPA claim against them because that claim will

already have been adjudicated.

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The importance of this argument is undercut by the speculative nature of the damages

the Thomases seek to add. Foreclosure has not yet occurred. Because the Thomases seek

to add damages that are contingent on uncertain future events, the court concludes that the

importance factor weighs slightly against a finding of good cause. See Morris v. McDonald,

2015 WL 1546436, at *3 (W.D. Tex. Apr. 6, 2015) (“The Court notes that even without the

amendment, Plaintiff would still have claims to prosecute against Defendant. Denying the

Motion would therefore not preclude Plaintiff from all relief. . . . Accordingly, this factor

supports denying the Motion.”).

3

The third factor contemplates the potential prejudice to the nonmovants. Defendants

contend that the 12 C.F.R. § 1241.41 claim pleaded in the Thomases’ last amended complaint

fails as a matter of law and that their proposed supplement is therefore futile. The court

disagrees. As already explained, the Thomases have succeeded in pleading a plausible claim

under 12 C.F.R. § 1241.41. Their allegation of additional damages to an already fully-

briefed claim causes no unfair surprise or delay in ruling on the pending motions in the case.

The court therefore finds that the supplement would not prejudice defendants and that this

factor weighs in favor of good cause.

4

The fourth factor considers the availability of a continuance to cure any prejudice.

Given the absence of prejudice, the court need not address this factor.

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5

The court now considers the factors holistically. “It does not mechanically count the

number of factors that favor each side.” Harrison, 2015 WL 1649069, at *11 (quoting

EEOC v. Serv. Temps, Inc., 2009 WL 3294863, at *3 (N.D. Tex. Oct. 14, 2009) (Fitzwater,

C.J.)). Assessing the factors as a whole, the court concludes that the Thomases have not

established good cause for their failure to assert additional damages in support of their

RESPA claim. The Thomases filed their complaint in March 2018, at which point they

should have been aware that the Act might not apply to any future foreclosures. For this

reason, the court finds that the Thomases have failed to demonstrate that, despite their

diligence, they could not have reasonably met the deadline in the scheduling order or in the

multiple opportunities the court has provided them to amend their complaint. The Thomases’

lack of diligence and the speculative nature of the damages they seek to add do not warrant

a finding of good cause. See Mallory v. Lease Supervisors, LLC, 2019 WL 3253364, at *4

(N.D. Tex. July 19, 2019) (Fitzwater, J.) (quoting Matamoros v. Cooper Clinic, 2015 WL

4713201, at *3 (N.D. Tex. Aug. 7, 2015 (Fitzwater, J.)) (“Courts deny motions to amend the

scheduling order when the moving part[ies] fail[] to demonstrate that, despite [their]

diligence, [they] could not have reasonably met the scheduling deadline.”).

For these reasons, the court denies the Thomases’ motion for leave to supplement their

complaint. Thus, although as a matter of procedural fairness the court is granting the

Thomases leave to replead the claims that it is dismissing sua sponte, the court declines to

permit the Thomases to supplement their 12 C.F.R. § 1024.41 claim because they have failed

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to carry their burden of demonstrating good cause under Rule 16(b)(4).

* * *

Accordingly, the court grants in part and denies in part defendants’ motion to dismiss,

overrules the Thomases’ objection, and raises sua sponte grounds for dismissing some of the

Thomases’ claims. The court denies plaintiffs’ motion to supplement. The Thomases may

file an amended complaint within 21 days of the date this memorandum opinion and order

is filed. If they fail to replead, the claims dismissed sua sponte under this memorandum

opinion and order will remain dismissed. If they replead, Deutsche Bank and PHH may

move anew to dismiss, if they have grounds to do so.

SO ORDERED.

November 7, 2019.

SENIOR JUDGE

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