Calcut v. Paramount Residential Mortgage Group Incorporated

• Court: District Court, D. Arizona
• Decided: January 22, 2024
• Docket: 2:22-cv-01215
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 George Calcut, et al., No. CV-22-01215-PHX-JJT

10 Plaintiffs, ORDER

11 v.

12 Paramount Residential Mortgage Group Incorporated, et al., 13 Defendants. 14 15 At issue is Plaintiffs George and Geri Calcut’s Motion for Partial Summary 16 Judgment & Memorandum of Law in Support Thereof (Doc. 46, “Pls.’ MSJ”) to which 17 Defendants Paramount Residential Mortgage Group, Inc. (“PRMG”), and Cenlar FSB filed 18 an Opposition (Doc. 65) and Plaintiffs filed a Reply (Doc. 69). Also at issue is Defendants’ 19 Motion for Summary Judgment (Doc. 50, “Defs.’ MSJ”) to which Plaintiffs filed an 20 Opposition (Doc. 63) and Defendants filed a Reply (Doc. 67). The Court finds these matters 21 appropriate for decision without oral argument. See LRCiv 7.2(f). For the reasons that 22 follow, the Court finds that Defendants are entitled to summary judgment. 23 I. BACKGROUND 24 In 2020, Plaintiffs obtained a mortgage loan from Defendant PRMG. The loan was 25 sub-serviced by Defendant Cenlar and guaranteed by the Department of Veterans Affairs 26 (“VA”). Eventually, the loan became eligible for forbearance under Section 4022 of the 27 Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. See 15 U.S.C. § 9056. 28 1 Plaintiffs requested and received forbearance, which, after two approved extensions, was 2 scheduled to run through August 2021. (Docs. 51-5, 51-6, 51-7.) 3 On May 11, 2021, Defendants sent Plaintiffs a letter explaining “several mortgage 4 assistance options that may be available to [them] after the forbearance period.” (Doc. 45-4 5 at 30.) Later that month, Mr. Calcut communicated to Cenlar that he may be interested in 6 ending the forbearance early and beginning a streamlined loan modification. (Doc. 45-4 at 7 35–37.) 8 On June 1, 2021, Defendants sent Plaintiffs a letter stating that they had been 9 approved for a VA Disaster Modification with a three-month trial period plan. (Doc. 51-8.) 10 As the letter explained, this modification would increase Plaintiffs’ interest rate and 11 monthly principal payments. (Doc. 51-8 at 6.) The letter also stated that Plaintiffs were 12 “un-evaluated” for any other type of modification or program. (Doc. 51-8 at 3–4.) Plaintiffs 13 began completing the trial period payments. 14 Meanwhile, Cenlar erroneously reported to the credit bureaus that Plaintiffs’ loan 15 was delinquent for the month of July 2021. Mr. Calcut submitted a complaint to the 16 Consumer Financial Protection Bureau (“CFPB”) on July 26, 2021, and ten days later, 17 Defendants acknowledged the error in a letter. (Docs. 45-5 at 39–44.) On August 16, 2021, 18 Cenlar contacted the credit bureaus to correct the errant reporting. (Doc. 51-12.) But 19 Plaintiffs allege that by then, their credit scores suffered, they could not increase their credit 20 lines, and Mrs. Calcut’s credit card was cancelled. 21 On September 10, 2021, Mr. Calcut submitted another complaint to the CFPB, this 22 time asking the CFPB to determine whether he should accept the permanent loan 23 modification and to assure him that PRMG’s offer was “legitimate” and in compliance with 24 the CARES Act. (Doc. 45-5 at 47–50.) Five days later, Plaintiffs accepted the permanent 25 modification by signing the loan modification agreement. (Doc. 51-10.) On October 26, 26 2021, Defendants sent Plaintiffs a letter in response to the September complaint explaining, 27 in sum, that Mr. Calcut was offered and agreed to the terms of the VA Disaster 28 Modification plan. (Doc. 45-5 at 52.) 1 In July 2022, Plaintiffs brought this suit alleging that Defendants: (1) violated the 2 Real Estate Settlement Procedures Act, 12 U.S.C. § 2605 (“RESPA”); (2) violated the 3 Arizona Consumer Fraud Act, A.R.S. 44-1521, et seq. (“ACFA”); and (3) committed 4 negligent performance of an undertaking. (Doc. 1-3, “Compl.”) Plaintiffs seek summary 5 judgment on only the RESPA claim. Defendants seek summary judgment on all claims. 6 The Court will address both motions. 7 II. LEGAL STANDARD 8 Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is 9 appropriate when: (1) the movant shows that there is no genuine dispute as to any material 10 fact; and (2) after viewing the evidence most favorably to the non-moving party, the 11 movant is entitled to prevail as a matter of law. Fed. R. Civ. P. 56; Celotex Corp. v. Catrett, 12 477 U.S. 317, 322–23 (1986); Eisenberg v. Ins. Co. of N. Am., 815 F.2d 1285, 1288–89 13 (9th Cir. 1987). Under this standard, “[o]nly disputes over facts that might affect the 14 outcome of the suit under governing [substantive] law will properly preclude the entry of 15 summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A 16 “genuine issue” of material fact arises only “if the evidence is such that a reasonable jury 17 could return a verdict for the nonmoving party.” Id. 18 In considering a motion for summary judgment, the court must regard as true the 19 non-moving party’s evidence, if it is supported by affidavits or other evidentiary material. 20 Celotex, 477 U.S. at 324; Eisenberg, 815 F.2d at 1289. However, the non-moving party 21 may not merely rest on its pleadings; it must produce some significant probative evidence 22 tending to contradict the moving party’s allegations, thereby creating a material question 23 of fact. Anderson, 477 U.S. at 256–57 (holding that the plaintiff must present affirmative 24 evidence to defeat a properly supported motion for summary judgment); First Nat’l Bank 25 of Ariz. v. Cities Serv. Co., 391 U.S. 253, 289 (1968). 26 “A summary judgment motion cannot be defeated by relying solely on conclusory 27 allegations unsupported by factual data.” Taylor v. List, 880 F.2d 1040, 1045 (9th Cir. 28 1989). “Summary judgment must be entered ‘against a party who fails to make a showing 1 sufficient to establish the existence of an element essential to that party’s case, and on 2 which that party will bear the burden of proof at trial.’” United States v. Carter, 906 F.2d 3 1375, 1376 (9th Cir. 1990) (quoting Celotex, 477 U.S. at 322). 4 III. ANALYSIS 5 A. The RESPA Claim 6 Both parties move for summary judgment on the RESPA claim. The RESPA 7 imposes several obligations on mortgage loan servicers, two of which are central to 8 Plaintiffs’ claim. First, it provides that “[a] servicer of a federally related mortgage shall 9 not . . . fail to take timely action to respond to a borrower’s requests to correct errors 10 relating to allocation of payments, final balances for purposes of paying off the loan, or 11 avoiding foreclosure, or other standard servicer’s duties.” 12 U.S.C. § 2605(k)(1)(C). And 12 second, the Act prohibits a servicer from “fail[ing] to comply with any other obligation 13 found by the Bureau of Consumer Financial Protection, by regulation, to be appropriate to 14 carry out the consumer protection purposes of [the RESPA].” 12 U.S.C. § 2605(k)(1)(E). 15 Plaintiffs allege three violations under subsection (C): (1) Defendants breached their 16 duty to “take timely action to avoid foreclosure”; (2) Defendants failed to offer Plaintiffs 17 all available loss mitigation options instead of “steering” them toward the VA Disaster 18 Modification; and (3) Defendants breached their duty “to take timely and appropriate 19 action related to the [errant] credit reporting.” (Compl. ¶¶ 69–71.) 20 In both motions for summary judgment, the parties focus on whether Defendants 21 breached a “standard servicer’s duties” and whether their actions qualify as “error.” (Pls.’ 22 MSJ at 4–14; Defs.’ MSJ at 5–7.) But it is not necessary to reach those questions to dispose 23 of Plaintiff’s allegations. The fatal flaw in Plaintiffs’ arguments seems to be rooted in a 24 misreading of subsection (C) that would have it impose a duty on servicers to correct 25 certain errors. The plain language of this subsection, however, mandates only that a 26 servicer “take timely action to respond to a borrower’s requests to correct [certain] errors.” 27 12 U.S.C. § 2605(k)(1)(C) (emphasis added). Thus, subsection (C) does not require a 28 1 servicer to abide by standard servicer’s duties or correct errors relating to those duties, but 2 only to respond timely to certain requests. 3 Accordingly, Plaintiffs’ first allegation fails as a matter of law because subsection 4 (C) does not require Defendants to “take timely action to avoid foreclosure.”1 Similarly, 5 Plaintiffs’ second allegation fails because nothing in subsection (C) requires Defendants to 6 offer Plaintiffs “all loss mitigation options.” Indeed, as Defendants aptly point out, the 7 CFPB has expressly declined to impose “a duty on servicers to provide any borrower with 8 any specific loss mitigation option.” 12 C.F.R. § 1024.41(a). (Defs.’ MSJ at 6.) Plaintiffs 9 respond that this point mischaracterizes their argument; they do not argue that Defendants 10 had a duty to offer a specific loss mitigation option, but that Defendants had a duty to 11 evaluate Plaintiffs for all loss mitigation options available to them. (Doc. 63 at 4–5.) 12 Subsection (C), however, does not impose either duty. 13 Plaintiffs’ third theory under subsection (C) is that Defendants failed “to take timely 14 and appropriate action related to the [errant] credit reporting.” (Compl. ¶ 70.) Plaintiffs 15 argue that by incorrectly reporting the loan as delinquent, Defendants violated their 16 standard servicer duties under the CARES Act, and Defendants failed to promptly correct 17 the error after they received “notice” from Plaintiffs. (Pls.’ MSJ at 5.) 18 First, as mentioned, subsection (C) does not require a servicer to abide by standard 19 servicer duties. Furthermore, the word “appropriate” appears nowhere in subsection (C). 20 The subsection mandates timely responses to requests, but it is not concerned with the 21 propriety of those responses. Moreover, the subsection requires timely responses only to 22 “a borrower’s requests to correct errors.” 12 U.S.C. § 2605(k)(1)(C). Plaintiffs have 23 identified no evidence in the record of such a request. Although Plaintiffs cite their CFPB 24 complaint to show that they provided Defendants “notice,” nothing in the RESPA suggests 25 that a complaint to a third party constitutes a “request” within the meaning of subsection 26

27 1 The Court also notes that Plaintiffs do not allege any foreclosure occurred, and they only briefly allege, without any factual support, that they “now face the real risk of 28 foreclosure.” (Compl. ¶ 71.) 1 (C).2 Even if the complaint were a sufficient request, the subsection contemplates “requests 2 to correct errors relating to . . . standard servicer’s duties,” and Plaintiffs fail to show that 3 credit reporting errors are such errors. Plaintiffs argue that the CARES Act prohibited such 4 reporting, and thus Defendants breached “their standard servicing duties under the CARES 5 Act.” (Pls.’ MSJ at 7–8.) But Plaintiffs fail to explain how duties imposed by the CARES 6 Act are “standard servicer’s duties.” And nothing in the RESPA or in the CFPB’s 7 regulations suggests that credit reporting errors relate to a standard servicer’s duties.3 See 8 12 C.F.R. § 1024.35(b). Accordingly, this allegation, like Plaintiffs’ others under 12 U.S.C. 9 § 2605(k)(1)(C), fails as a matter of law. 10 Plaintiffs’ final RESPA allegation is that Defendants violated 12 U.S.C. 11 § 2605(k)(1)(E), which requires servicers to comply with obligations set forth in CFPB 12 regulations. (Compl. ¶ 68.) In their motion, Plaintiffs allege violations of several regulatory 13 provisions. 14 Plaintiffs first point to 12 C.F.R. § 1024.41(c)(1)(i), which requires servicers to 15 “[e]valuate the borrower for all loss mitigation options available to the borrower.” (Pls.’ 16 MSJ at 12.) They also cite 12 C.F.R. § 1024.41(c)(1)(ii), which requires servicers to notify 17 borrowers of their right to appeal the denial of a loss mitigation option. (Pls.’ MSJ at 12.) 18 Plaintiffs allege that Defendants failed to comply with either provision. However, these 19 provisions only apply “if a servicer receives a complete loss mitigation application more 20 than 37 days before a foreclosure sale.” 12 C.F.R. § 1024.41(c)(1). Plaintiffs proffer no 21 evidence of such an application. Defendants notified Plaintiffs several times that their 22 forbearance plan was “based on information that [Plaintiffs] provided verbally or through 23 an evaluation of an incomplete mortgage assistance application,” each time reminding 24 2 PRMG also instructed Plaintiffs to send all qualified written requests and 25 notifications of error directly to PRMG. (Doc. 45-4 at 73–74.)

26 3 One court has commented that “Congress and the [CFPB] are surely well-aware that credit reporting may occur, yet this activity is not expressly identified anywhere as a 27 ‘servicing duty’ or servicing ‘error.’ This may be because the Fair Credit Reporting Act is a remedial statutory scheme that covers credit reporting errors.” Richissin v. Rushmore 28 Loan Mgmt. Servs., LLC, No. 20 CV 871, 2020 WL 7024848, at *4 (N.D. Ohio Nov. 30, 2020). 1 them that they had “the option to submit a complete mortgage assistance application to 2 receive an evaluation for all options.” (Doc. 45-4 at 15, 24, 32.) Plaintiffs proffer no 3 evidence that, when they chose to pursue a modification, they submitted a “complete loss 4 mitigation application more than 37 days before a foreclosure sale,” such that the 5 protections under 12 C.F.R. § 1024.41(c)(1) would apply. 6 Plaintiffs also assert that Defendants breached their duties under 12 C.F.R. 7 § 1024.38(b)(1)(i)–(iii), (2)(i), and (2)(v). (Pls.’ MSJ at 12.) These provisions set forth 8 certain objectives, and 12 C.F.R. § 1024.38(a) requires servicers to “maintain policies and 9 procedures that are reasonably designed to achieve [those] objectives.” Thus, in arguing 10 that Defendants breached their duties under 12 C.F.R. § 1024.38(b), Plaintiffs misinterpret 11 the regulation. Subsection (b) does not impose any duties. Rather, subsection (a) imposes 12 the duty to maintain policies and procedures that are reasonably designed to achieve the 13 objectives in subsection (b). Plaintiffs do not challenge Defendants’ policies or procedures 14 in their motion. And in their complaint, Plaintiffs’ only reference to Defendants’ policies 15 and procedures is that “Cenlar knows it has . . . credit reporting problems but failed to put 16 in proper policies, practices, and procedures to prevent the negative consequences of its 17 actions,” which is not an objective under subsection (b). (Compl. ¶ 50.) Plaintiffs’ 18 allegations under 12 C.F.R. § 1024.38(b) therefore fail as a matter of law. 19 Plaintiffs proffer no evidence from which a reasonable jury could find that 20 Defendants violated 12 U.S.C. § 2605(k)(1)(C) or (E). Therefore, the Court will deny 21 Plaintiffs’ Motion for Summary Judgment and grant Defendants’ Motion for Summary 22 Judgment as it relates to the RESPA claim. 23 II. The ACFA Claim 24 Defendants also move for summary judgment on the ACFA claim. Plaintiffs allege 25 that (1) Defendants violated the ACFA by performing a “bait and switch” on Plaintiffs to 26 induce them into initiating the VA Disaster Modification despite there being more 27 favorable loss mitigation options available to them; (2) Defendants violated the ACFA by 28 concealing that more favorable options existed before Plaintiffs finalized the VA Disaster 1 Modification; and (3) PRMG violated the ACFA by concealing Cenlar’s role in servicing 2 the loan. (Compl. ¶¶ 77–82.) 3 As a consumer protection statute, the ACFA is “a broad act intended to eliminate 4 unlawful practices in merchant-consumer transactions.” Holeman v. Neils, 803 F. Supp. 5 237, 242 (D. Ariz. 1992) (internal citation omitted). The ACFA prohibits any “deception, 6 deceptive act or practice, fraud, false pretense, false promise, misrepresentation, or 7 concealment, suppression or omission of any material fact with intent that others rely on 8 such concealment, suppression or omission, in connection with the sale or advertisement 9 of any merchandise whether or not any person has in fact been misled, deceived or damaged 10 thereby.” A.R.S. § 44-1522. “The elements of a private cause of action [under the ACFA] 11 are a false promise or misrepresentation made in connection with the sale or advertisement 12 of merchandise and the hearer’s consequent and proximate injury.” Holeman, 803 F. Supp. 13 at 242. 14 Defendants argue in part that Plaintiffs cannot prevail on their ACFA claim because 15 communications regarding loan modifications are not the “sale or advertisement of 16 merchandise.” (Defs.’ MSJ at 11.) Plaintiffs respond that they are. (Doc. 63 at 10–11.) The 17 parties cite opposing lines of cases, each of which stem from Villegas v. Transamerica 18 Financial Services, Inc., 708 P.2d 781 (Ariz. Ct. App. 1985). In Villegas, the borrowers 19 defaulted on their loan payments, and the lender offered them a new loan but allegedly 20 omitted material facts. Villegas, 708 P.2d at 782–83. In determining whether the ACFA 21 applied, the Arizona Court of Appeals held that “the lending of money is subject to the 22 provisions of the [ACFA]” because a loan is “the sale of the present use of money on a 23 promise to repay in the future,” and “an oral inducement to take a loan, in which material 24 facts are omitted, would involve an advertisement” under the ACFA. Id. at 102. 25 As Plaintiffs argue, this Court has cited Villegas to state that “any oral negotiations 26 to restructure a consumer loan have been considered an ‘advertisement’ within the meaning 27 of the [ACFA].” Narramore v. HSBC Bank USA, N.A., No. 09-CV-635-TUC-CKJ, 2010 28 WL 2732815, at *13 (D. Ariz. July 7, 2010). Relying on Narramore, this Court later held 1 that the ACFA “will apply to actions in connection with the origination of a loan or a loan 2 modification.” Bergdale v. Countrywide Bank FSB, No. CV-12-8057-PCT-GMS, 2012 3 WL 4120482, at *5 (D. Ariz. Sept. 18, 2012). And following Bergdale, this Court 4 eventually concluded that the ACFA applies to actions in connection with a loan 5 modification even if the defendants did not offer the plaintiff a new loan. Myrick v. Bank 6 of Am. Corp., No. CV-11-00824, 2013 WL 12097453, at *3 (D. Ariz. May 30, 2013). 7 On the other hand, Defendants cite a slightly newer string of cases, starting with 8 Rich v. BAC Home Loans Servicing LP, No. CV-11-00511-PHX-DLR, 2014 WL 7671615 9 (D. Ariz. Oct. 9, 2014), aff’d sub nom. Rich v. Bank of Am., N.A., 666 F. App’x 635 (9th 10 Cir. 2016). The facts in Rich did not involve an offer for a new loan but rather “concern[ed] 11 communications surrounding potential offers to modify an already existing debt.” Rich, 12 2014 WL 7671615, at *10. This Court acknowledged that money lending is a “sale of 13 merchandise” under Villegas, but it held that offers to modify an existing debt “[do] not 14 concern the sale or advertisement of merchandise, but instead concern[] discussions about 15 modifying the payment schedule for merchandise previously purchased.” Id. It thus 16 concluded that the ACFA does not apply. Id. This Court has followed Rich in several cases 17 since, including in a case decided after the parties briefed the motions at issue. See Rozich 18 v. MTC Fin. Inc., CV-23-00210, 2023 WL 7089801, at *4 (D. Ariz. Oct. 26, 2023); 19 Zoldessy v. MUFG Union Bank, N.A., CV-20-08329-PCT-SPL, 2021 WL 1733398, at *3 20 (D. Ariz. May 3, 2021); Jahn v. Caliber Home Loans Inc., No. CV-18-02244-PHX-DLR, 21 2019 WL 7049105, at *3 (D. Ariz. Oct. 25, 2019), aff’d, 840 F. App’x 975 (9th Cir. 2021). 22 Although the cases cited by Plaintiffs eventually reached the conclusion that the 23 ACFA will apply to loan modifications even without an offer of a new loan, the Court 24 declines to follow those cases because their reasoning is rooted in Villegas, and the Villegas 25 court held that the ACFA applied because defendant offered the plaintiffs a new loan. See 26 Villegas, 708 P.2d at 782–83. The Court is instead persuaded by the cases Defendants cite. 27 Like Rich and its progeny, this case does not involve the solicitation of a new loan, but 28 rather the possibility of modifying an existing debt. Defendants therefore did not act “in 1 connection with the sale or advertisement of merchandise” within the meaning of the 2 ACFA, and the claim fails as a matter of law. The Court will grant Defendants’ motion on 3 the ACFA claim. 4 III. The Negligent Performance of an Undertaking Claim 5 Plaintiffs’ final claim is for negligent performance of an undertaking. Specifically, 6 Plaintiffs allege that Defendants “induced the Plaintiffs to end their CARES Act 7 forbearance by promising them a loss mitigation option which would allow them to 8 continue making their former payments and the payments not made during the forbearance 9 period would be put on the back of the loan.” (Compl. ¶ 85.) Plaintiffs further allege that, 10 after they relied on Defendants’ promise and gave notice to exit the forbearance, 11 Defendants informed Plaintiffs that only a materially different loan modification was 12 available to them. (Compl. ¶¶ 86–87.) Plaintiffs also allege that Defendants failed to notify 13 them of more favorable loan modifications that arose before they finalized the VA Disaster 14 Loan Modification. (Compl. ¶ 88.) And Plaintiffs allege harm in the form of increased 15 interest and principal payments, which would have been avoided but for Defendants’ 16 negligence. (Compl. ¶ 89.) 17 Arizona recognizes negligent performance of an undertaking as it appears in the 18 Second Restatement of Torts. Steinberger v. McVey ex rel. Cnty. of Maricopa, 318 P.3d 19 419, 431 (Ariz. Ct. App. 2014). The Restatement provides that an individual may be 20 “subject to liability . . . for physical harm resulting from his failure to exercise reasonable 21 care to perform” an undertaking. Restatement (Second) of Torts § 323 (1965). Although 22 the Restatement contemplates only physical harm, the Arizona Supreme Court extended 23 this cause of action to apply to economic harm as well. McCutchen v. Hill,710 P.2d 1056, 24 1059 (1985). In cases since McCutchen, state and federal courts have determined that this 25 cause of action is applicable, under certain circumstances, to loan modification procedures. 26 See, e.g., Steinberger, 318 P.3d at 431 (citing state and federal cases); Martinez v. Cenlar 27 FSB, 13-CV-00589, 2014 WL 4354875, at *9–10 (D. Ariz. Sept. 3, 2014) (citing additional 28 || federal cases). The parties rely on those cases to argue whether the cause of action is 2 || cognizable here. 3 Recently, however, the Arizona Supreme Court “disavow[ed] McCutchen to the 4|| extent it interpreted [Restatement (Second) of Torts] § 323 to encompass purely economic || harm.” Cal-Am Props. Inc. v. Edais Eng’g Inc., 509 P.3d 386, 391 n.1 (Ariz. 2022). 6|| Accordingly, under Arizona law, a plaintiff alleging negligent performance of an undertaking must allege some sort of physical harm. Plaintiffs here do not allege or proffer 8 || evidence of any harm that is not purely economic. (Compl. § 89.) Therefore, Plaintiffs’ 9|| claim fails as a matter of law, and the Court will grant Defendants’ motion on this claim. 10 IT IS THEREFORE ORDERED granting Defendants’ Motion for Summary 11 || Judgment (Doc. 50). 12 IT IS FURTHER ORDERED denying Plaintiffs George and Geri Calcut’s Motion for Partial Summary Judgment & Memorandum of Law in Support Thereof (Doc. 46). 14 IT IS FURTHER ORDERED denying as moot Plaintiffs’ Motion to Exclude or Strike Defendants’ Expert Disclosure of Non-Retained Expert Raymond Crawford 16|| (Doc. 47), Defendants’ Motion to Exclude Expert Testimony from Thomas Tarter 17|| (Doc. 49), Defendants’ Motion to Exclude Testimony from Christy Hancock (Doc. 52), 18 || and Defendants’ Motion to Exclude Expert Testimony from Terri Wilson (Doc. 53). 19 IT IS FURTHER ORDERED directing the Clerk of Court to enter judgment in 20 || favor of Defendants and to close this case. 21 Dated this 22nd day of January, 2024. CN 22 “wok: 73 Unifgd State#District Judge 24 25 26 27 28

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