Cabrera v. Freedom Mortgage Corp

Background

Lolita Cabrera, proceeding without a lawyer, sued Freedom Mortgage Corp. and Mortgage Electronic Registration Systems Inc. concerning a 30-year fixed-rate mortgage on her home in the Bronx. The complaint alleged that Freedom Mortgage endorsed the fixed-rate note in blank while the mortgage had not been assigned. Cabrera claimed that separating the note from the mortgage violated mortgage, securitization, and consumer-protection requirements.

The complaint asserted claims under the Truth in Lending Act, Regulation Z, the Real Estate Settlement Procedures Act, Rule 10b-5 under the Securities Exchange Act, and various New York and California laws. It also alleged conversion of private property, fraudulent concealment, tax evasion, violations of consumer privacy laws, predatory lending, and an invalid foreclosure. Cabrera alleged that Mortgage Electronic Registration Systems Inc., as nominee, lacked legal authority to foreclose.

Motions concerning default

After the defendants were served, the Clerk issued certificates of default. Cabrera moved for default judgment and separately moved to strike the defendants’ answer as late. The defendants answered approximately two weeks after the deadline and then moved to vacate the certificates of default.

Under Federal Rule of Civil Procedure 55(c), an entry of default may be set aside for good cause. The court considered whether the delay was willful, whether the defendants had a potentially valid defense, and whether setting aside the default would prejudice Cabrera.

The court found that the defendants’ default was not willful. The defendants said they had not retained counsel by the response deadline and that the delay occurred during shortened holiday work weeks. The court also found little prejudice to Cabrera because the delay was short and did not cause the loss of evidence, make discovery more difficult, or create a greater opportunity for fraud or collusion.

The court further found that the defendants had made the required preliminary showing of a potentially valid defense to at least one claim. Specifically, the defendants questioned whether Cabrera could invoke criminal-law provisions as part of a civil lawsuit. The court emphasized that it was not deciding whether this defense would ultimately succeed. It concluded that the factors favored setting aside the default, especially the preference for resolving disputes on their merits.

Motion to dismiss

The defendants also moved to dismiss for lack of subject-matter jurisdiction, meaning a lack of legal authority for the federal court to hear the case. They argued that Cabrera’s state-law claims did not arise under federal law and that she had not adequately alleged an injury.

The court rejected both arguments. It concluded that Cabrera’s federal claims under the Truth in Lending Act, the Real Estate Settlement Procedures Act, and Rule 10b-5 gave the court original jurisdiction. It also concluded that the state-law claims concerned the same mortgage transaction and therefore fell within the court’s supplemental jurisdiction over related state-law claims.

Regarding standing, which requires a plaintiff to show a concrete injury, the court read Cabrera’s self-represented complaint liberally. It found that her allegations of misrepresentations about the mortgage and note, concealed information, predatory lending, conversion, an invalid foreclosure, and attempted foreclosure despite an allegedly improper assignment were sufficient at this stage to allege an injury.

Disposition

The court GRANTED the defendants’ motion to vacate the certificates of default. It DENIED Cabrera’s motion for default judgment and motion to strike the defendants’ answer. It also DENIED the defendants’ motion to dismiss. The court ordered the parties to appear for an initial pretrial conference and did not resolve the merits of Cabrera’s underlying mortgage claims.