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Tanasi v. CitiMortgage, Inc.

United States District Court, D. Connecticut

June 30, 2017




         Table of Contents

         I. Introduction 1

         II. Factual Allegations 2

         A. State Foreclosure Proceedings 3

         B. Mortgage Modification Requests 5

         C. Other Correspondence between the Tanasis and CitiMortgage 6

         D. Single Point of Contact 8

         E. Defendant M&T Bank 9

         F. The Current Proceedings 9

         III. Standard of Review 11

         IV. Discussion 12

         A. Motion to Dismiss for Lack of Jurisdiction under Rule 12(b)(1) 13

         1. The Rooker-Feldman Doctrine 13

         2. The Tanasis' Claims 14

         a. The Tanasis do not Invite Review and Rejection of the 16 Foreclosure Action

         b. The Tanasis do not Complain of an Injury Caused by a 18 State Court Judgment

         3. Res Judicata 21

         a. The Transaction Test and Foreclosure Actions 23

         b. The Tanasis' Claims 27

         B. Motion to Dismiss under Rule 12(b)(6) 30

         1. The Tanasis' RESPA Claims 31

         a. CitiMortgage's Liability under 12 U.S.C. § 2605(e) 32

         b. CitiMortgage's Liability under Regulation X 37

         i. Liability under 12 C.F.R. § 1024.36 for Failure to 37 Respond to RFIs

         ii. Liability under 12 C.F.R. § 1024.35 for Failure to 40 Respond to NOEs

         c. Damages under RESPA 42

         i. Emotional Distress Damages 43

         ii. Postage Costs 45

         iii. Miscellaneous Damages 46

         iv. Statutory Damages 47

         2. The Tanasis' Negligence Claims 48

         a. CitiMortgage's Duty of Care, Generally 48

         b. Negligent Infliction of Emotional Distress 49

         3. The Tanasis' CUTPA Claims 52

         a. Unfair Business Practice 52

         b. The Tanasis' Ascertainable Loss under CUTPA 53

         4. Statute of Limitations for Negligence and CUTPA claims 55

         5. Defendant M&T Bank 57

         V. Conclusion 60

         I. Introduction

         Richard and Athansula Tanasi (“the Tanasis”) bring this action against CitiMortgage, Inc. (“CitiMortgage”), which serviced a mortgage on their home, and M&T Bank Corporation (“M&T”), the successor by merger to Hudson City Savings Bank (“Hudson”), which owned the mortgage. The Tanasis allege that both Defendants violated the Real Estate Settlement Procedures Act of 1974 (“RESPA”), 12 U.S.C. 2601 et seq., and its implementing regulations, specifically Regulation X Mortgage Servicing Final Rule, 78 F.R. 10695 (February 14, 2013), 12 CFR § 1024 (“Regulation X”). They also allege that Defendants breached a duty of care owed to them under those regulations and a related consent decree. Finally, they allege that Defendants violated the Connecticut Unfair Trade Practices Act (“CUTPA”).

         Defendants move to dismiss all three causes of action. Defendants first argue that this Court lacks jurisdiction over the Tanasis' claims because of the Rooker-Feldman doctrine and res judicata. Defendants further argue that the Tanasis fail to state claims upon which relief can be granted.

         The Court concludes that jurisdiction is permissible under Rooker-Feldman, but agrees with Defendants that most of the Tanasis' claims are barred by res judicata and cannot be asserted here. For the remaining claims, it reviews Defendants' motion to dismiss under Rule 12(b)(6), and concludes that the Tanasis' remaining RESPA, CUTPA, and negligence claims cannot be dismissed. Accordingly, Defendants' motion to dismiss is GRANTED in part and DENIED in part.

         Specifically, regarding Claim One, the Court must dismiss under res judicata the claims that Defendants violated RESPA and Regulation X by failing to acknowledge or properly review loss mitigation applications (Compl., ¶¶ 71-81). This includes claims that arise under Regulation X's 12 C.F.R. § 1024.41. It also must dismiss under Rule 12(b)(6) the Tanasis' claims under Section 2605(e) of RESPA relating to qualified written requests that did not pertain to “servicing” and therefore were not actionable under the statute. While Count One is not dismissed, because the Tanasis' claims under Regulation X's 12 C.F.R. § 1024.36 and 1024.35 remain, the Court notes the limitations on their damages relating to these claims. The Court dismisses any of the Tanasis' claims for RESPA damages relating to “costs related to stripping the Property of equity, ” “unnecessary costs of maintaining the Property due to delayed foreclosure, ” and the creation of a “public record of foreclosure.” See Compl. ¶¶ 61-65. It also dismisses the Tanasis claims for compensatory damages for costs relating to the preparation of requests for information, because these costs would have been incurred regardless of CitiMortgage's alleged violations.

         In Claim Two, the Court dismisses under res judicata the Tanasis' claims concerning Defendants' negligent processing of their loss mitigation and mortgage modification applications. Because some of the negligence claim arises out of other acts, the Court does not dismiss Claim Two in its entirety.

         There are many components to Claim Three, in which the Tanasis allege violations of CUTPA. Of these, the claim that CitiMortgage violated CUTPA by unfairly applying its existing loss mitigation policies, see Compl. at ¶ 149(d), is dismissed under res judicata.

         II. Factual Allegations

         In 2007, Richard Tanasi and Athansula Tanasi (“the Tanasis”) bought a piece of property at 27 Briarwood Drive in Old Saybrook, Connecticut (the “Property”). First Amended Complaint (“Compl.”), ECF No. 18, ¶ 4. The Property was encumbered by a first-position mortgage loan in the principal amount of $656, 250, dated August 2, 2007, which was given as security for a promissory note of the same date and recorded on August 6, 2007. Id. at ¶ 12. The original underwriter sold or otherwise transferred the mortgage to Wachovia Savings Bank and CitiMortgage purchased the mortgage shortly afterwards. Id. CitiMortgage then sold the mortgage to Hudson on or about November 27, 2007, but continued to service the mortgage. Id. at ¶ 12. Hudson later merged with Defendant M&T Bank. Id. at ¶¶ 5. Both CitiMortgage and M&T Bank are corporations organized under the laws of New York. Id. at ¶¶ 2-3.

         In 2010, the Tanasis fell behind on their mortgage payments. CitiMortgage initiated a foreclosure action in 2011 and foreclosed on the Property on March 7, 2016. See CitiMortgage's Mot., Exhibit C, ECF No. 26-4, Docket (“Foreclosure Docket”). Before and during the foreclosure process, the Tanasis communicated with CitiMortgage about their mortgage. These communications-as well as the reach of consumer-protection statutes, the relative duties of state and federal courts, and the tension between the finality of judgments and the promise of full relief- are at the heart of this case.

         A. State Foreclosure Proceedings

         The Tanasis missed their first mortgage payment on or about July 1, 2010, and did not make any payments after that date. CitiMortgage's Mot., Exhibit D, ECF No. 26-5, CitiMortgage's Motion to Terminate Mediation Stay, MMX-cv-11-6005630-S (Middlesex Superior Court), 2.[1] They allege, however, that CitiMortgage solicited them for loss mitigation on their mortgage as early as June 2009. Compl. ¶ 14. The Tanasis applied for a mortgage modification in response to one of these solicitations, a letter they received from CitiMortgage on June 17, 2009. Id. CitiMortgage denied their application on November 27, 2009. Id. at ¶ 15. On December 1, 2009, CitiMortgage followed up with another letter, which stated that the Tanasis' income exceeded the allowable amount under the Home Affordable Modification Program (“HAMP”) and that the Tanasis had insufficient credit for modification. Id. The Tanasis applied for loss mitigation two more times before CitiMortgage commenced a foreclosure action, allegedly at “CitiMortgage's request.” Id. CitiMortgage denied these applications on October 6, 2010 and November 14, 2010. Id.

         CitiMortgage filed a foreclosure action in Connecticut Superior Court (the “Foreclosure Action”) on July 18, 2011. See Compl. ¶ 18; Foreclosure Docket, p. 1. Shortly thereafter, the Tanasis filed a request to participate in the court's foreclosure mediation program, which was granted on August 28, 2011. See Foreclosure Docket, 102.00. The parties met in “numerous mediation sessions” between October 26, 2011 and December 4, 2012. CitiMortgage's Motion to Terminate Mediation Stay, 4.

         On December 27, 2012, CitiMortgage moved to terminate the mediation efforts. Id. The Tanasis did not object to this motion and the Superior Court granted it on January 4, 2013. Id. On November 11, 2013, the Tanasis filed an answer and special defense to the Foreclosure Action, admitting that they had signed the Note and Mortgage, but denying the “authenticity of, and authority to make, each signature on the Note.” CitiMortgage's Mot., Ex. E, ECF No. 26-6, Mem. of Decision on Mot. for Summ. J., MMX-cv-11-6005630-S (Middlesex Superior Court).

         On July 10, 2014, CitiMortgage moved for summary judgment in the foreclosure case. See Foreclosure Docket, 138.00. The Superior Court granted this motion on October 10, 2014. See CitiMortgage's Mot., Ex. E, Mem. of Decision on Mot. for Summ. J. On July 23, 2015, the Tanasis moved to dismiss the foreclosure action, contesting CitiMortgage's standing to commence the foreclosure action and arguing that it “fraudulently invoked the rebuttable presumption of ownership.” Foreclosure Docket, 149.00. This motion was denied. Id. at 149.10. On March 7, 2016, the Superior Court granted CitiMortgage a judgment of strict foreclosure and found that the outstanding debt under the Note and Mortgage was $960, 871.75. See CitiMortgage's Mot., Ex. H, ECF No. 26-9, Notice of Judgment of Strict Foreclosure. In March of 2016, before the extinguishment of their right of redemption, the Tanasis filed an appeal with the Connecticut Appellate Court. Foreclosure Docket, 171.00. On May 11, 2016, the Tanasis filed a motion for articulation of the Superior Court's decision on their motion to dismiss. Id. at 172.00. After their motion was granted, the Superior Court published an articulation of its factual and legal basis for denying the Tanasis' motion to dismiss the Foreclosure Action. Id. at 175.00.

         B. Mortgage Modification Requests

         The Tanasis allege that they have been “engaged in loss mitigation efforts with CitiMortgage continuously since 2009, ” Compl. ¶ 14, and many of their claims concern CitiMortgage's improper solicitation and dispensation of thier loss mitigation and mortgage modification applications. The Tanasis also allege that CitiMortgage moved for summary judgment on the Foreclosure Action when several of their mortgage modification and loss mitigation applications were pending. Id. at ¶ 26.

         On February 10, 2012, Beckett Law, LLC submitted a mortgage modification application on behalf of the Tanasis. Compl. ¶ 18. CitiMortgage acknowledged the request on March 7, 2012, when it requested additional documents, which the Tanasis later submitted. Id. On May 10, 2012, CitiMortgage denied the mortgage modification application. Id. Less than one month later, the Tanasis allege, CitiMortgage solicited them to submit a new mortgage modification application. Id. at ¶ 19. The Tanasis completed this application on November 2, 2012. Id. CitiMortgage allegedly did not respond to the Tanasis' November 2, 2012 modification application.

         Instead of responding to their pending applications, CitiMortgage solicited the Tanasis to modify their mortgage again. CitiMortgage allegedly sent letters to the Tanasis on January 7, 2014 and December 17, 2015, asking them to submit new mortgage modification applications. Compl. at ¶¶ 18-20. On January 28, 2016, as well as on several dates in February and March of that year, CitiMortgage allegedly communicated by mail and e-mail with the Tanasis, requesting loss mitigation applications and stating that “[w]hether you want to remain in your home or want to consider other alternatives, we are here to work with you to find the best option for your current situation.” Id. at ¶ 39.

         While it continued to solicit mortgage modification applications from the Tanasis, CitiMortgage allegedly failed to respond to the many applications that the Tanasis did submit. The Tanasis allege that CitiMortgage generally had a policy of “automatically closing mortgage modification applications internally after they were open for sixty days.” Compl. ¶ 24. The Tanasis allegedly applied to modify their mortgage three times after Regulation X became effective on January 10, 2014: On February 21, 2014, July 3, 2014, and August 17, 2015. Id. at ¶¶ 20, 23, 26. CitiMortgage never responded to these applications. Id.

         The Tanasis also allege that CitiMortgage “had a policy of automatically requesting duplicative information for loss mitigation applications every 30 days in order to avoid exercising reasonable diligence in completing an application.” Compl. at ¶ 25. CitiMortgage allegedly responded to loss mitigation applications with requests for bank statements, pension and pay stubs, property tax forms, and affidavits of hardship. See id at ¶¶ 23, 27-28. The Tanasis allege that CitiMortgage requested additional documents on eleven occasions in 2014 and twice in 2015. Id.

         C. Other Correspondence between the Tanasis and CitiMortgage

         The Tanasis also allege that CitiMortgage failed to respond to many of their requests for information, some of which, they allege, were qualified written requests, requests for information, or notices of error under RESPA. They allege that this “persistent and ongoing failure to provide adequate responses … deprived [them] of information to which they are legally entitled about their mortgage and … prevented them from making accurate and informed choices about the best avenue to save their home.” Compl. ¶ 87.

         The Tanasis allege that they mailed two qualified written requests to CitiMortgage, seeking “information about the payoff of their loan and the holder of their note, ” on January 13, 2014 (¶ 21) and March 5, 2015 (¶ 34). CitiMortgage responded to both requests in a letter dated April 2, 2015, “arguing that it was not required to provide a response because the Plaintiffs were in an active bankruptcy case.” Id. at 35. The Tanasis had filed for bankruptcy on February 10, 2011, but the case was closed on July 6, 2011. Id. at n.2. They therefore allege that CitiMortgage was required under RESPA to respond to their requests.

         The Tanasis also allege that they requested information from CitiMortgage on or about October 27, 2014 (¶ 83), March 16, 2016 (¶ 40), March 30, 2016 (¶ 41), and May 11, 2016 (¶ 42). The March 16, 2016 request sought information about “(1) alleged investor restrictions, (2) evidence that CitiMortgage submitted waiver requests, and (3) evidence of CitiMortgage's efforts to obtain a waiver of investor restrictions.” Id. at ¶ 40. CitiMortgage allegedly responded to the March 16, 2016 request with a statement that the information was “privileged.” Id.

         In the March 30, 2016 request, the Tanasis sought information about “(1) the owner/assignee of the loan, (2) the servicer's participation in HAMP and the national mortgage settlement, and (3) the parameters of loan modification programs.” Id. at ¶ 41. CitiMortgage allegedly responded to the March 30, 2016 request on April 14, 2016, with information about the owner/assignee of the loan but not about loan modification programs. Id.

         In the May 11, 2016 request, the Tanasis sought information about “broker prices opinions and appraisals … to see if CitiMortgage was engaging in any meaningful loss mitigation review.” Id. at ¶ 42. The Complaint does not allege whether CitiMortgage responded to the May 11 request. The Tanasis contend that CitiMortgage failed to respond to another request, dated October 27, 2014, but the Complaint does not include any allegations about the content of that request. Id. at ¶ 83.

         The Tanasis also allege that CitiMortgage received two notices of error on their behalf, on July 6, 2015 (¶ 45) and May 13, 2016 (¶ 43). In the first, the “errors asserted included 1) not answering as to if the Investor participates in the HAMP program …, 2) not responding as to if the investor participates in the FHA-HAMP program or in the National Mortgage Settlement Modification; 3) not replying as to what proprietary modification programs are available, and 4) not providing the surplus or deficit of income requirements for proprietary modifications.” Id. at ¶ 45. CitiMortgage, they allege, did not respond. Id.

         The second alleged notice of error stated that CitiMortgage “failed to 1) provide evidence of its efforts at waiving investor restrictions, 2) provide any information about its servicer participation agreement for HAMP or its compliance with the National Mortgage Settlement, 3) acknowledge the three previous requests for information, and 4) provide information about the loss mitigation options the Plaintiffs were eligible for.” Compl. ¶ 43. CitiMortgage allegedly responded to this notice in a letter dated June 6, 2016, in which it “1) claimed that it was not required to give Plaintiffs BPOs or appraisals, 2) it argued that it had exercised all efforts to qualify the Plaintiffs for all Home Owners Assistance Programs … 3) did not provide any information about its compliance with [HAMP or the National Mortgage Settlement], 4) stated it was providing copies of the acknowledgements for the prior requests but did not actually attach them, and 5) declined to provide any information about the availability of loss mitigation programs, other than to state that it was reviewing the Plaintiffs for a modification.” Id. at ¶ 44.

         D. Single Point of Contact

         The Tanasis allege that, in a letter that they received on November 11, 2014, CitiMortgage identified a single point of contact with whom the Tanasis could communicate about their mortgage. Compl. ¶ 120. On November 23, 2014, CitiMortgage allegedly sent a letter changing the point of contact to “Na Na, with telephone number (999) 999-9999, ext. 0000000* and email N/A.” Id. at ¶ 121. On February 17, 2016, CitiMortgage allegedly identified a new single point of contact, Claudia Martinez, and provided her phone number, but not an extension for her direct line. Id. at ¶ 122. When Mr. Tanasi called Ms. Martinez's phone number, he was able to reach an employee named “Jose” and another named “Schiad, ” who told him that the Tanasis would need to schedule a “call back appointment” with Ms. Martinez. Id. at ¶ 124. Ms. Martinez did not return the Tanasis' call at the scheduled callback time. Id. at ¶ 125 When the Tanasis called her office, they were allegedly informed that she would not be able to speak with them because her PC “was down.” Id. The Tanasis made another appointment for a “call back” with Ms. Martinez, but she did not call them at that time. Id. at ¶ 126. CitiMortgage then assigned a new single point of contact to the Tanasis on March 29, 2016. Id. The new single point of contact allegedly told the Tanasis that they “would not have any access to a [single point of contact] because of the pending appeal of the foreclosure judgment.” Id.

         E. Defendant M&T Bank

         The Tanasis allege that CitiMortgage was the mortgage servicing agent for Hudson City Savings Bank, M&T's predecessor, and that CitiMortgage was under Hudson's “direct supervision, employ, and control when it committed the wrongful and negligent acts described in the Complaint.” Compl. at ¶¶ 5, 46. The Tanasis also allege that “CitiMortgage's servicing of the Mortgage is governed by a Master Mortgage Loan Purchasing and Servicing Agreement between CitiMortgage and Hudson, ” under which CitiMortgage had the authority to “waive, modify or vary any term of any Mortgage Loan or consent to the postponement of compliance with any [term], ” but could not “permit any modification that could change the Mortgage Interest Rate, defer or forgive they payment of any principal or interest, change the outstanding principal amount, [or] extend the maturity date.” Id. at ¶ 58. CitiMortgage was also allegedly permitted to “take such action as it shall deem to be in the best interest of [Hudson].” Id. at ¶ 59. The Tanasis also allege that Hudson “held itself out to the public as offering mortgage modifications, ” id. at ¶ 54, and indicated that it had a “Loan Modification Policy” in 10-K filings with the Securities and Exchange Commission. Id. at ¶¶ 56-57.

         F. The Current Proceedings

         On May 16, 2016, the Tanasis filed a Complaint against both Defendants, alleging violations of RESPA, CUTPA, and common law negligence. Both Defendants moved to dismiss on July 29, 2016. On August 19, 2016, the Tanasis filed their First Amended Complaint, alleging the same three causes of action. Both Defendants moved to dismiss on September 16, 2016. See CitiMortgage's Mot., ECF No. 26-1; M&T's Mot., ECF No. 25-1. After oral argument on this motion in November, the parties submitted supplemental briefs to the Court concerning the availability of damages for emotional distress under CUTPA. See ECF Nos. 34-35.

         In their First Amended Complaint, the Tanasis assert three causes of action, all of which Defendants seek to dismiss. The Tanasis first claim that CitiMortgage violated RESPA and Regulation X by failing to provide acknowledgement notices in response to loss mitigation applications and for improperly responding to the applications when it did reply, and by failing to respond to the Tanasis' various requests for information and notices of error. See Compl. ¶¶ 66-95. The Tanasis also allege that CitiMortgage “engaged in a pattern and practice of noncompliance with RESPA and Regulation X.” Id. at ¶ 96.

         In the second cause of action, the Tanasis claim that CitiMortgage negligently and consistently failed to provide accurate information about the loss mitigation options available to the Tanasis, failed to provide an accessible single point of contract, and misrepresented loan modification options to the Tanasis “through a combination of duplicative, exhaustive, and ever-changing requests.” Compl. ¶¶ 98-136. These actions, the Tanasis allege, violated a duty that CitiMortgage owed to them under Regulation X as well as the National Mortgage Settlement, a consent decree between CitiMortgage, the federal government, and 49 states' attorneys general. Id. at ¶ 99. In the National Mortgage Settlement, CitiMortgage allegedly agreed to engage in loss mitigation programs and disclose accurate information to borrowers. Id. at ¶¶ 100-108. The Tanasis' Complaint also lays out the elements of a negligent infliction of emotional distress claim. Id. at ¶¶ 137-38. In their motions to dismiss, Defendants seek to dismiss this claim as well. See CitiMortgage's Mot., 25.

         In their third cause of action, the Tanasis allege that Defendants violated the Connecticut Unfair Trade Practices Act (“CUTPA”) by “a) soliciting the Tanasis to apply for a loan modification for which they were not eligible; b) repeatedly requesting duplicative, unnecessary, or updates to documentation during the application process without reasonable justification or excuse; c) making material misrepresentations or omissions likely to mislead a consumer acting reasonably under the circumstances, including misrepresenting to the Tanasis their eligibility, continued evaluation, and expectancy of receiving a modification of their loan; d) failing to apply existing loss mitigation ...

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