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Polanco v. HSBC Bank USA National Association

United States District Court, W.D. North Carolina, Charlotte Division

June 21, 2019



          Graham C. Mullen, United States District Judge.

         THIS MATTER COMES before this Court on Defendants' Motion to Dismiss Counts Two through Thirteen of the Amended Complaint. (Doc. No. 34). Plaintiff responded to the Motion (Doc. No. 40) to which Defendants replied. (Doc. No. 42). As such, this matter is ripe for disposition.


         The alleged facts relevant to this Motion are as follows. Plaintiff's husband obtained a loan from Defendant HSBC to purchase a home in 2007. (Am. Compl. ¶ 20). In 2013, Plaintiff's husband executed a quitclaim deed in favor of Plaintiff. (Id. ¶ 21). Plaintiff entered into a Loan Modification Agreement (“LMA”) with Defendants concerning that loan on November 5, 2015. (Id. ¶ 22). The amount outstanding on the loan at the time of the LMA was $222, 108.21. (Id. ¶ 23). The LMA adjusted the interest rate on the loan to 4.000% with the loan amortized over thirty-seven years and six months. (Id.). In addition to the monthly payment on the loan, the promissory note required the borrower (Plaintiff's husband) to pay into escrow an amount to cover the annual taxes and homeowner's insurance. (Id. ¶ 24). All associated monthly payments totaled $1, 493.46. (Id. ¶ 25).

         Defendant HSBC provided the original loan. (Id. ¶ 20). Defendant PHH serviced the loan and facilitated the LMA between HSBC and Plaintiff. (Id. ¶ 26- 27). Pursuant to the LMA, Plaintiff made her monthly payments of $1, 493.46 each month starting in November of 2015. (Id. ¶ 29). In December of 2015, Plaintiff began recognizing errors in her mortgage statements. (Id. ¶ 30). Plaintiff started writing and calling Defendants to alert them of the errors. (Id. ¶ 31). Plaintiff attempted to communicate with Defendants over a dozen times. (Id. ¶ 32).

         The account statements that Defendants sent Plaintiff showed that Plaintiff was not making her monthly payments despite the fact that she had made those payments every month after the LMA. (Id. ¶ 33, 29). Because the statements showed she was not making her payments, Plaintiff's arrearage continued to increase. (Id. ¶34). As a result of the arrearage increasing, Defendants threatened to foreclose on Plaintiff's home. (Id. ¶ 38). On October 13, 2016, Plaintiff received a letter from Defendant PHH that indicated Defendants would foreclose on Plaintiff's home unless Plaintiff paid the sum of $20, 001.73 on or before November 27, 2016. (Id. ¶ 39).

         On January 9, 2017, Plaintiff filed a complaint with the North Carolina Attorney General's Office (“AG's Office”). (Id. ¶ 45). On January 18, 2017, the AG's Office notified Defendants that the AG's Office was investigating Plaintiff's situation. (Id. ¶ 46). Even with the AG's Office investigating the situation, Defendants sent Plaintiff a notice in February of 2017 stating that Plaintiff's loan had been accelerated and the entire $241, 598.95 sum was due to prevent foreclosure. (Id. ¶ 48). Defendants ultimately initiated foreclosure proceedings against Plaintiff on February 27, 2017. (Id. ¶ 50).

         On March 8, 2017, Defendant HSBC acknowledged in a letter to the AG's Office that mistakes had been made on Plaintiff's account. (Id. ¶ 68). Defendant HSBC provided the following explanation for the errors on Plaintiff's account and the ultimate foreclosure proceedings on her home.

The loan was approved for a loan modification effective for the November 1, 2015 payment. However, the investor guidelines for the investor of the loan, 21st Century Mortgage Corporation, did not allow any amounts to be capitalized into the loan that would increase the outstanding principal balance, including the escrow advance, and at the time the modification was approved, the escrow advance totaled $17, 709.75. This amount was reflected due on the loan modification documents as a “modification transaction cost” because it could not be capitalized.
At the time the loan was modified, the most recent escrow analysis had been performed on January 20, 2015; however, after the loan modification was complete, another escrow analysis should have been performed and the $17, 709.75 escrow advance referenced in the loan modification spread over a period of 12 months. Unfortunately, it appears that certain coding on the account in connection with the loan modification was not removed from the account in a timely manner, which prevented the account from being analyzed. Additionally, that same coding resulted in payments received from November 1, 2015 to September 2016, in the amount of $18, 542.38 being placed in suspense. The payments remained in suspense until September 16, 2016, when the payments were applied to the account as follows:
$17, 709.95-Applied to the escrow shortage;
$1, 954.12-Applied to the November 1, 2015 payment; and $1, 315.59-Remaining suspense balance.
Because the account was reflected as due for the December 1, 2015 payment, the suspense balance of $1, 315.59 was returned to the property address on October 10, 2016, and the loan was referred to foreclosure counsel, Shapiro & Ingle, to initiate foreclosing proceedings on December 22, 2016.

(Id. at ¶ 69).

         After communication with Plaintiff, HSBC investigated the account and realized its mistake. Ultimately, Defendant HSBC stated to the AG's Office that Defendant HSBC would take the following remedial measures:

PHHMC will be correcting the account by reversing the September 16, 2016 application of $17, 709.95 to the escrow advance, and will instead be applying that amount to the account as monthly payments in the amount of $1, 804.94. This will bring the account due for December 1, 2016 PHHMC will also be waiving the $17, 709.95 escrow advance, any foreclosure fees and cost incurred since the November 1, 2015 loan modification, and the 4 monthly payments due for December 1, 2016 to March 1, 2017 payments. After the payments are reversed and re-applied to the account, the loan will be current and due for the April 1, 2017 payment. PHHMC will also perform an escrow analysis, and any remaining escrow shortage will be spread over a period of 60 months.


         In April of 2017, Plaintiff sent her payment of $1, 493.46 as required under the LMA and the letter sent from Defendant HSBC to the AG's Office. However, when Plaintiff received her April statement, her account showed that she owed $2, 880.77: $1, 493.46 of regular payments, $632.85 in shortage, and $723.46 in expenses. These extra expenses constituted fees assessed to Plaintiff's account for default-related services. (Id. ¶ 103).

         On May 12, 2017, Plaintiff received a letter from Defendants stating that Plaintiff's account was two payments past due despite the fact that she made both the April and May payments. As of May 16, 2017, Plaintiff's account showed a negative escrow balance of $7, 001.14 with a suspense balance of $2, 986.92. Both the May and June statements showed a late charge fee, returned item charge, shortages, and other fees of $643.05. The May 16, 2017 statement further required Plaintiff to remit a sum of $5, 395.64 by June 1, 2017 to avoid foreclosure. Plaintiff managed to pay the sum prior to June 1, 2017; however, Plaintiff still is unaware of how those payments were applied to her account. (Id. ¶ 122). Defendants' actions allegedly caused Plaintiff to suffer from severe mental anguish including depression, anxiety, and sleeplessness. (Id. ¶ 43).

         As a result of the above alleged actions, Plaintiff sued Defendants in a thirteen count Amended Complaint. Defendants moved to dismiss Counts Two through Thirteen. Each Count will be discussed below.


         When faced with a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court must “accept as true all well-pleaded allegations and . . . view the complaint in a light most favorable to the plaintiff.” Mylan Labs, Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993). The Court “assume[s] the[] veracity” of these factual allegations, and “determine[s] whether they plausibly give rise to an entitlement to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). However, the court “need not accept as true unwarranted inferences, unreasonable conclusions, or arguments.” E. Shore Mkts., Inc. v. J.D. Assocs. LLP, 213 F.3d 175, 180 (4th Cir. 2000). Thus, to survive a motion to dismiss, the plaintiff must include within his complaint “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Iqbal, 556 U.S. at 678 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).


         a. Tort Claims

          First, Defendants argued that Plaintiff's tort claims should be dismissed as the only appropriate claim in this case is one for breach of contract. In North Carolina, a tort

does not lie against a party to a contract who simply fails to properly perform the terms of the contract, even if that failure to perform was due to the negligent or intentional conduct of that party, when the injury resulting from the breach is damage to the subject matter of the contract.

Rountree v. Chowan Cty., 796 S.E.2d 827, 830 ( N.C. Ct. App. 2017). Contract law, rather than tort law, provides proper redress in those situations. Id. In order to state a tort claim based upon the actions surrounding the performance of a contract, a plaintiff must state a claim that is “identifiable and distinct from the primary breach of contract claim.” Broussard v. Meineke Disc. Muffler Shops, Inc., 155 F.3d 331, 346 (4th Cir. 1998) (internal citations omitted). "To pursue a tort claim and a breach of contract claim concerning the same conduct, a plaintiff must allege a duty owed him by the defendant separate and distinct from any duty owed under a contract." Kelly v. Georgia-Pacific, LLC, 671 F.Supp.2d 785, 791 (E.D. N.C. 2009) (internal citations and quotations omitted).

         Defendants argued in their Motion that Plaintiff has pled only a breach of contract and not a separate and distinct duty owed to her. Plaintiff in response argues that North Carolina law, specifically the North Carolina SAFE Act, provides a separate and distinct duty that supports her tort actions. The North Carolina Secure and Fair Enforcement Mortgage Licensing Act (“SAFE Act”) states the following: “Any mortgage servicer engaged in the mortgage business as defined by G.S. 53-244.030(11)c., in addition to duties imposed by other statutes or at common law, shall do all of the following: . . . (3) Act with reasonable skill, care, and diligence.” ...

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