In October 2015, wind and rain damaged Plaintiff Constance Moss’s home. Moss’s homeowner’s insurer soon issued a claim check for over $15,000. In a move she has lived to regret, Moss sent the check to her mortgage company, Defendant Manufacturers & Traders Trust Co. M&T kept the money, but used it neither to repair her house nor to bring her mortgage loan current. Then, to rub salt in Moss’s wounds, M&T told credit-reporting agencies that the loan was delinquent, without telling them that Moss had disputed M&T’s claim.
But that’s not all. At the direction of M&T’s trustees on the deed of trust, numerous foreclosure proceedings have been initiated against Moss’s property without proper authorization. In the meantime, it appears that the funds have, at best, gone to a bank-controlled limbo. In any event, Moss does not have the money, no one has repaired her house, and the bank has not applied the money to her mortgage. Thus, she has filed the present action, asserting 11 counts against M&T and the foreclosure firms.
Notwithstanding these allegations, the defendants have moved to dismiss the case on the ground that nothing bad happened to Moss. There are generally two sides to any story, and it may well prove true that the defendants have acted with contractual kindness. But they cannot prevail on a motion to dismiss.
Breach of contract
M&T says it did not breach any agreement, but the deed of trust at issue requires M&T to apply insurance proceeds to her mortgage where (a) the repair at issue is not economically feasible, and (b) M&T’s security would not be lessened by doing so. M&T initially said in a letter that it would apply the insurance proceeds to Moss’s principal, but almost a year later it sent another letter saying it would apply proceeds to repairs instead. Between the two letters, Moss says that M&T repeatedly failed to follow up with a contractor for repairs and never responded to her qualified written requests about the status of repairs.
Based on these allegations, Moss plausibly claims that the long delay in making repairs show that it found the repairs economically infeasible, yet failed to apply the proceeds to her principal. The deed of trust gives M&T the right to hold insurance proceeds long enough to inspect a contractor’s repair work, but its lengthy delay and course of inaction plausibly allege a breach of the deed of trust.
At the pleadings stage, this extended delay creates a reasonable inference that the repairs are not economically feasible and should have been applied to Moss’s mortgage. M&T can dispute whether the proceeds could have brought Moss’s loan up to date, as she claims, and whether its acceleration notice overstated the amount she owed, but not in support of a motion to dismiss. The motion is denied as to Moss’s breach-of-contract claims.
Good faith and fair dealing
Moss says that M&T repeatedly failed to apply insurance proceeds to her mortgage after saying it would. Her complaint details many letters and phone calls in which she sought to get M&T’s assistance in repairing her home, and she even contacted a contractor herself to get signatures that M&T said it needed. Although M&T had some discretion to approve of repairs before authorizing them, Moss alleges a plausible claim that M& T carried out that discretion in bad faith. The court thus denies M&T’s motion to dismiss this claim.
In 2016, Moss sent two QWRs in which she (1) asked M&T about the status of the insurance proceeds; (2) requested that M&T apply the proceeds to her loan balance; (3) requested that M&T stop its planned foreclosure sale; and (4) asked for an explanation of $7,800 in additional fees on her account.
M&T does not address its failure to respond to her inquiry about the fees. Further, its response to the QWRs incorrectly stated that it would apply her insurance proceeds to her loan but, months later, reneged on that statement. As a result of M&T’s insufficient responses, Moss alleges that she has suffered damage to her credit, incurred fees and interest on her mortgage, and spent money to prevent the foreclosure on her home. Moss has therefore alleged a plausible violation of the Real Estate Settlement Procedures Act.
Even if Moss was in default on her loan, a reporting entity’s failure to also report the existence of a dispute has been held to support a violation of the Fair Credit Reporting Act. M&T did not address this argument in its briefing. Accordingly, the court finds that Moss has alleged plausible violations of the FCRA.
Breach of fiduciary duty
The case of Squire v. Va. Hous. Dev. Auth., 287 Va. 507 (2014), suggests that the foreclosure firms owed Moss a duty not to initiate foreclosure proceedings before M&T gave her proper notice. In that case, the Supreme Court of Virginia found that the plaintiff stated a plausible claim for a breach of fiduciary duty by failing to comply with a condition precedent to foreclosure — there, a requirement that the bank and the trustee meet face-to-face with the borrower.
Here, Moss claims that at least one of the firms knew that M&T had not given her notice but nonetheless initiated foreclosure proceedings on multiple occasions. Therefore, she has alleged a plausible claim under Virginia law.
The Fair Debt Collection Practices Act is a strict-liability statute, with a limited exception for bona fide debt collectors who violate the statute unintentionally and as a result of a bona fide error notwithstanding their maintenance of procedures reasonably adapted to avoid any such error. Moss alleges that the foreclosure firms knew they lacked the right to foreclose but initiated proceedings anyway. This states a plausible claim for relief at this stage of the litigation.
Motions to dismiss denied.
Moss v. Mfrs. & Traders Trust Co., Case No. 3:17cv312, Mar. 13, 2018. EDVA at Richmond (Gibney). VLW No. 018-3-072, 10 pp.