Lau v. Specialized Loan Servicing, LLC

Background

Zong Lau and Hui Lau proceeded without lawyers in a dispute concerning the foreclosure of an apartment formerly owned by their late father, Jsang Kei Lau. The plaintiffs alleged that the defendants violated the Garn-St Germain Depository Institutions Act, the Real Estate Settlement Procedures Act (RESPA) and Regulation X, the Truth in Lending Act (TILA) and Regulation Z, the Dodd-Frank Act, and the Fifth and Fourteenth Amendments. They sought to stop a foreclosure sale, obtain an order allowing them to assume the mortgage, and recover damages.

The defendants moved to dismiss the amended complaint. Magistrate Judge Gabriel W. Gorenstein recommended dismissal of all six counts, with leave to amend only one RESPA theory. The plaintiffs objected. Judge Cronan reviewed the challenged portions of the recommendation independently and reviewed the unchallenged portions for clear error.

Court’s analysis

Count One—Garn-St Germain Act. The court dismissed the claim because the mortgage balance had been accelerated in connection with the borrower’s payment default and the earlier foreclosure action, not through enforcement of a due-on-sale clause after the borrower’s death. The court also noted that federal courts have concluded that this statute does not provide a private right to sue. To the extent the plaintiffs sought to challenge the earlier state foreclosure judgment, that challenge would also be barred by claim-preclusion principles.

Count Two—RESPA and Regulation X. The court dismissed the theory concerning missing mortgage statements because the plaintiffs did not allege that they submitted the type of written request required by RESPA for a servicer to respond. It dismissed the theory concerning notice of the transfer from Caliber to Fay because the plaintiffs did not adequately allege actual damages caused by the missing notice. The court also dismissed the theory that the defendants obstructed loss-mitigation efforts because RESPA does not require a servicer to provide a particular loss-mitigation option, and the cited regulatory provision did not create a private right to sue. The court nevertheless granted leave to amend only the failure-to-notify claim against Caliber and Fay and dismissed that claim without prejudice.

Count Three—TILA and Regulation Z. The court dismissed the claim concerning notice of the transfer from Caliber to Fay because TILA requires notice of a transfer of ownership of the debt, not merely a transfer of servicing. The claim also appeared to be outside TILA’s one-year filing deadline. The court dismissed the claim concerning an ability-to-repay evaluation because the plaintiffs identified no TILA provision that prohibited a creditor from evaluating a potential borrower’s ability to repay or from telling a potential borrower that such an evaluation would be required.

Count Four—Dodd-Frank Act and dual tracking. The court dismissed the claim because the plaintiffs did not allege that they submitted a complete loss-mitigation application, which was required for the foreclosure-related protection they invoked. The court also declined to allow a proposed unfair, deceptive, or abusive practices claim because the cited Dodd-Frank provision did not provide a private right to sue.

Counts Five and Six—constitutional claims. The court dismissed the Fifth Amendment claim as moot because the plaintiffs had eventually been able to have a judge assigned and file a motion in the state case. It also stated that the private defendants were not government actors who could be sued under the Fifth Amendment. The court dismissed the Fourteenth Amendment claim because the defendants likewise were not state actors. The Fifth Amendment count was dismissed without prejudice because the mootness ruling deprived the court of subject-matter jurisdiction; the Fourteenth Amendment count was dismissed with prejudice.

Claims against Newrez and requested remedies. Because the plaintiffs did not allege specific conduct by Newrez apart from its alleged acquisition of Caliber, the court dismissed Counts One, Two, Three, Four, and Six against Newrez with prejudice. The court explained that requests for declarations and injunctions are remedies rather than independent claims. After dismissing the substantive claims, it found no basis to award monetary, declaratory, or injunctive relief.

Disposition

Judge Cronan adopted the report and recommendation as modified. The court granted the defendants’ motions to dismiss. Counts One, Three, Four, and Six were dismissed with prejudice and without leave to amend. Count Five was dismissed without prejudice as moot and without leave to amend. Count Two was dismissed with prejudice and without leave to amend except for the failure-to-notify claim against Caliber and Fay, which was dismissed without prejudice with permission to amend. The plaintiffs had thirty days to file a second amended complaint; if they did not, the court stated that it would dismiss all of Count Two with prejudice. The clerk was directed to terminate Specialized Loan Servicing, Computershare Loan Services, U.S. Bank Trust, and Newrez as defendants.