The court largely dismissed with prejudice the claims of two former homeowners seeking rescission of the foreclosure sale of their property, finding that their legal theories were not viable. However, the court granted the plaintiffs leave to amend as to one claim, which hinged on the dates plaintiffs provided documents to the lender.
In 2005, Plaintiffs Robert and Jodi Mastin executed a promissory note and deed of trust in order to finance the purchase of real property. On August 22, 2016, the Mastins submitted a loan modification application to Defendant Ditech, the noteholder. Ditech also requested a profit-and-loss statement, which the Mastins submitted on August 30, 2016.
In the days leading to the foreclosure sale, Ditech informed the Mastins of a “math error” on the profit-and-loss statement and advised that, if they submitted a revised copy, the planned foreclosure sale would be cancelled. The Mastins resubmitted the document to Ditech the same day as this notice. But the foreclosure auction was not postponed, and the property was sold in November 2016. Over the following months, the Mastins corresponded with Ditech about cancelling the sale, but were unsuccessful. Therefore, they filed this action asserting claims of violation of 12 C.F.R. § 1026.36(c)(1)(ii). They seek rescission of the foreclosure sale.
Truth in Lending
The Mastins are incorrect that Ditech’s refusal to accept partial payments constitutes a violation of 12 C.F.R. § 1026.36(c)(1)(ii). Although the regulation addresses home loan servicers who retain partial payments, this alone does not mandate that a servicer must accept partial payments. The mere fact of referring to “any servicer who retains a partial payment” naturally suggests that there are servicers who do not retain such payments. If all servicers were required to retain partial payments, one might expect the regulation to begin with: “A servicer shall retain partial payments ….” The regulation, by its explicit terms, is permissive.
Further, the deed of trust states that Ditech “may return any payment or partial payment if the payment is insufficient to bring the loan current.” The Mastins do not allege anywhere in their amended complaint that their attempted payments would bring the loan current.
Therefore, this claim fails as a matter of law. Moreover, the legal insufficiency of the claim could not be remedied by amendment because their theory is not viable as a matter of law; it will be dismissed with prejudice.
Real Estate Settlement Procedures
Insofar as the Mastins assert a cause of action under 12 C.F.R. § 1024.41, this claim should be dismissed because they do not allege that they submitted to Ditech a complete loss mitigation application more than 37 days before the foreclosure sale, and Ditech was under no obligation to evaluate an incomplete loss mitigation application.
According to the text of the regulation itself and the Consumer Financial Protection Bureau’s official interpretation, a servicer has discretion to decide what applications it considers to be “complete.” Here, the Mastins submitted a loss mitigation application directly to Ditech on August 22, 2016. After Ditech informed them that a profit-and-loss statement was needed, they submitted this document on August 30, 2016. It is clear that, up to that point, Ditech considered the Mastins’ loss mitigation application to be incomplete. Because the regulation gives Ditech flexibility with regard to what it requires in evaluating such applications, its assessment of the Mastins’ application should be considered proper, and the application should be deemed not to have triggered any obligation for Ditech to postpone the foreclosure sale.
Although the Mastins do allege that Ditech contacted them regarding the error “in the days leading to the foreclosure sale,” they do not allege any specific date on which they received such notice. Unfortunately for them, time here is of the essence. In order for the Mastins to state a valid claim under 12 C.F.R. § 1024.41(g) and to support an obligation on Ditech to cease any foreclosure sale, they were required to submit the loss mitigation application to Ditech “more than 37 days before [the] foreclosure sale.” Without alleging a specific date on which they submitted the corrected information to Ditech, they do not allege enough facts to state a claim to relief that is plausible on its face.
The court rejects the Mastins’ argument that the regulation “almost” requires Ditech to review their application, even if incomplete. The regulation states that “a servicer may, in its discretion, evaluate an incomplete loss mitigation application and offer a borrower a loss mitigation option.” It further states that nothing in its terms “imposes a duty on a servicer to provide any borrower with any specific loss mitigation option.” In light of this language, any choice Ditech had to evaluate the Mastins’ loss mitigation application was merely discretionary, not compulsory. Therefore, the Mastins have failed to state a claim for violation of 12 C.F.R. § 1024.41.
However, the Mastins should be given leave to amend their complaint as it relates to the claim based on § 1024.41(g), and only that claim. It appears that the Mastins may be able to include the specific dates upon which they received Ditech’s notice of the alleged “math error” and, more importantly might be able to allege facts concerning the date on which that revised document was submitted to Ditech. If the submission was made more than 37 days before the foreclosure sale, the Mastins’ allegations likely would survive a motion to dismiss.
Mastin v. Ditech Fin. LLC, Case No. 3:17cv368, Jan. 23, 2018; EDVA at Richmond (Payne). VLW 018-3-013, 31 pp.