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Mushala v. U.S. Bank, N. A.

United States District Court, District of Columbia

March 29, 2019




         Christabelle Mushala brings various federal and state claims against U.S. Bank, National Association (“US Bank”), Specialized Loan Servicing LLC (“SLS”), and BWW Law Group, LLC (“BWW”) arising from their roles in judicially foreclosing on her District of Columbia home. Mushala alleges that because defendants had no rights in the loan secured by the property, assessed invalid fees that she did not owe, and reported misleading information about her default to credit agencies, she is entitled to damages under, inter alia, the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq., the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., and two District of Columbia statutes proscribing deceptive practices. Defendants argue that res judicata bars most of Mushala's claims, pointing to a D.C. Superior Court final judgment in their favor following a nearly three-year long foreclosure litigation involving the same parties, facts, and arguments.

         Currently pending before the Court are [4] and [5] defendants' motions to dismiss Mushala's original complaint, [8] and [9] defendants' motions to dismiss the amended complaint, and [12] Mushala's motion for summary judgment. For the reasons stated below, the Court will deny as moot [4] and [5] the motions to dismiss the original complaint, grant in part and deny in part [8] U.S. Bank and SLS's partial motion to dismiss, grant [9] BWW's motion to dismiss, and deny [12] Mushala's motion for summary judgment.


         I. Legal Background

         When an individual obtains a home loan from a lender, the debt, memorialized in a “promissory note, ” generally is secured with an interest in the underlying property. Restatement (Third) of Property: Mortgages § 1.1 (Am. Law Inst. 1997). The security interest may take the form of a “deed of trust” which, like a mortgage, “entitles the creditor to pursue foreclosure”- i.e., “the process in which property securing a mortgage is sold to pay off the loan balance due.” Obduskey v. McCarthy & Holthus LLP, No. 17-1307, 2019 WL 1264579, at *2 (U.S. Mar. 20, 2019) (quoting 2 Baxter Dunaway, L. of Distressed Real Est. § 15:1 (2018)). If “the foreclosure sale does not yield the full amount due, a creditor . . . may sometimes obtain a deficiency judgment, that is, a judgment against the homeowner for the unpaid balance of a debt.” Id.

         Promissory notes may either be held by the original lender, transferred to a specific new “holder, ” or “[e]ndorsed in blank”-that is, endorsed without reference “to a specific party, ” making the note “payable to the bearer.” Chase Plaza Condo. Ass'n, Inc. v. JPMorgan Chase Bank, N.A., 98 A.3d 166, 169-170 (D.C. 2014). In case of a default, the holder of the note “is normally entitled to enforce [it], including through foreclosure proceedings.” Id. at 169; see also D.C. Code § 28:3-301. Under District of Columbia law, this is true “even if [the note holder] is not a successor in interest under the deed of trust, because ‘the rights under the Deed of Trust follow the Note.'” Chase Plaza, 98 A.3d at 170 n.2 (citation omitted). Although the note holder ultimately has the right to enforce the terms of the note, a separate entity called a loan servicer often “handles the day-to-day tasks of managing [the] loan, ” including “process[ing] loan payments” and “initiat[ing] foreclosure.” Mohamed v. Select Portfolio Servicing, Inc., 215 F.Supp.3d 85, 89 (D.D.C. 2016) (citations omitted).

         II. Statutory Background

         Like other entities involved in extending credit or collecting debt, note holders that seek to enforce their interests are subject to statutory restrictions and duties designed to protect borrowers. Here, Mushala brings claims under, inter alia, the Fair Debt Collection Practices Act (“FDCPA”) and the Fair Credit Reporting Act (“FCRA”).

         A. The FDCPA

         Aimed at ending “abusive debt collection practices, ” the FDCPA prohibits “debt collector[s]” from, among other things, making “false . . . representations . . . in connection with the collection of any debt, ” and using “unfair or unconscionable means to collect or attempt to collect any debt.” 15 U.S.C. §§ 1692(e), 1692e, 1692f; see Sheriff v. Gillie, 136 S.Ct. 1594, 1598 (2016). Categories of violative conduct under sections 1692e and 1692f include, among other things, the misrepresentation of “the character, amount, or legal status of any debt, ” 15 U.S.C. § 1692e(2), and “[t]aking or threatening to take any nonjudicial action to effect dispossession or disablement of property if . . . there is no present right to possession of the property . . . through an enforceable security interest, ” id. § 1692f(6). The Act provides harmed debtors a private right of action to seek actual and statutory damages. Id. § 1692k.

         B. The FCRA

         Congress passed the FCRA to, among other things, “ensure fair and accurate credit reporting.” Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 52 (2007). To that end, the FCRA imposes a range of duties on agencies that evaluate consumer creditworthiness (consumer reporting agencies or “CRAs”), and on entities that “furnish” information about borrowers to CRAs (“furnishers”). See Armstrong v. Navient Sols., LLC, 292 F.Supp.3d 464, 468 (D.D.C. 2018). As relevant here, furnishers of credit information have two general sets of duties. To “provide accurate information to CRAs in the first instance, ” and, after receiving notice from a CRA that a consumer has disputed furnished credit information, to investigate the dispute and correct any errors. Mohamed, 215 F.Supp.3d at 92; see 15 U.S.C. §§ 1681s-2(a)(1), (b)(1). Borrowers only have a private right of action against furnishers for violating the latter set of duties, however. See Berlin v. Bank of Am., N.A., 101 F.Supp.3d 1, 23 (D.D.C. 2015).

         III. Facts and Procedural History[1]

         A. The Note

         In July 2008, Mushala took out a home loan against her Washington, D.C., residence (the “Property”). Am. Compl. [ECF No. 7] ¶ 8. The lender memorialized the loan in a promissory note and secured it with a deed of trust in the Property. Id. ¶¶ 7-8. In December of the same year, a different lender, Wells Fargo Bank, issued a second home loan against the Property for a similar amount, also memorialized in a promissory note (the “Note”) and secured with a deed of trust in the Property. Id. ¶ 9. At a date not specified in the complaint, Wells Fargo declared the December 2008 loan in default, alleging that Mushala had failed to make payments for three months or more. Id. ¶¶ 14, 30.

         In 2014, Wells Fargo endorsed the Note to a third party, and the Note later was endorsed in blank. See id. ¶¶ 17-19. In March the same year, U.S. Bank sent Mushala a letter informing her that it had acquired the Note and that SLS would serve as the loan servicer. Id. ¶ 16.[2]

         B. The Foreclosure Proceedings

         In December 2015, U.S. Bank filed a foreclosure action in D.C. Superior Court to enforce the terms of the Note. Id. ¶ 24; see Foreclosure Compl. at 1.[3] BWW, a law firm that collects mortgage debts on behalf of loan servicers, represented U.S. Bank in the foreclosure action. Am. Compl. ¶ 5; Foreclosure Compl. at 1, 9.

         After Mushala failed to appear, the Superior Court entered default judgment and a decree for sale in favor of U.S. Bank. See Order Granting [US Bank's] Mot. for Default J. & Decree for Sale of Real Prop. (“Order Granting Default J.”), Ex. B to BWW's Consolidated Reply in Supp. of Its Mot. to Strike or, in the Alt., to Dismiss [ECF No. 20-2] at 1-2. Shortly thereafter, Mushala appeared pro se and moved to vacate the default judgment. See Mot. to Vacate Default, U.S. ROF III Legal Title Trust v. Mushala, 2015 CA 009830 R(RP) (D.C. Sup. Ct. Nov. 18, 2016) [hereinafter “Mushala”]. The Superior Court denied Mushala's motion and, after the Property was sold to a third party in July 2017, granted U.S. Bank's motion to ratify the sale. See Min. Entries of Sept. 29, 2017 & June 30, 2017, Mushala, 2015 CA 009830 R(RP); Order Granting Mot. to Ratify Sale of Real Prop. (“Order Ratifying Sale”), Ex. 2 to Partial Mot. to Dismiss Pl.'s Compl. [ECF No. 4-3].

         In an attempt to unwind the foreclosure, Mushala-by then represented by counsel- moved to dismiss on the grounds that the Superior Court never had jurisdiction to effect the sale. See Mem. in Supp. of [Mushala's] Mot. to Dismiss, Ex. 3 to Partial Mot. to Dismiss Pl.'s Compl. [ECF No. 4-4], at 3-4. No. jurisdiction existed, Mushala argued, because U.S. Bank never legally possessed the Note, and thus had no standing to foreclose. Id. Mushala eventually withdrew the motion, however, and entered a settlement with the third-party buyer. Am. Compl. ¶ 68; Min. Entry of June 20, 2018, Mushala, 2015 CA 009830 R(RP).

         US Bank, meanwhile, moved to confirm a deficiency judgment and the propriety of certain costs and fees assessed on the loan. See Mot. to Ratify Accounting, Release Bond, and Close Case (“Mot. to Ratify Accounting”), Mushala, 2015 CA 009830 R(RP) (D.C. Sup. Ct. Feb. 16, 2018). Mushala challenged the deficiency amount and requested a “breakdown or calculation” of the assessed fees. See [Mushala's] Opp'n to Mot. to Ratify Accounting, Mushala, 2015 CA 009830 R(RP) (D.C. Sup. Ct. Mar. 3, 2018) at 1, 4. After U.S. Bank responded with supplementary evidence, however, the Superior Court granted U.S. Bank's motion and closed the case. Order Granting Mot. to Ratify Accounting, Release Bond, and Close Case (“Order Granting Mot. to Ratify Accounting”), Mushala, 2015 CA 009830 R(RP) (D.C. Sup. Ct. Oct. 9, 2018) at 1-2. Mushala did not appeal.

         C. The Instant Lawsuit

         In May 2018, Mushala filed suit in D.C. Superior Court, and defendants subsequently removed the case to this Court. See Notice of Removal [ECF No. 1]; Compl. & Jury Demand, Ex. 1 to Notice of Removal [ECF No. 1-2]. Mushala brings claims under the FDCPA, the FCRA, the District of Columbia Mortgage Lender and Broker Act of 1996 (“MLBA”), D.C. Code § 26-1101 et seq., and the District of Columbia Consumer Protection Procedures Act (“CPPA”), D.C. Code § 28-3901 et seq.[4]

         As relevant to her FDCPA, MLBA, and CPPA claims, Mushala alleges that, although she took out a home loan in July 2008, she never took out a December 2008 loan, and the Note memorializing that loan was fraudulent. Am. Compl. ¶¶ 10, 29. Defendants therefore misled her throughout the foreclosure proceedings, Mushala claims, by falsely representing that the Note was legitimate, that U.S. Bank had standing to foreclose, and that U.S. Bank had satisfied the necessary conditions precedent for lawful foreclosure. Id. ¶¶ 27, 29, 31, 33, 44, 71-73, 95, 100. Even if the Note was legitimate, Mushala charges, defendants misrepresented that the Note was validly endorsed to U.S. Bank. Id. ΒΆΒΆ 18-19, 22-23, 28, 73, 95, 101. Additionally, defendants ...

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