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Nicole Kesten and Scott Kesten, On Behalf of Themselves and Others v. Ocwen Loan Servicing

February 9, 2012


The opinion of the court was delivered by: James F. Holderman, Chief Judge:


On October 4, 2011, Plaintiffs Nicole Kesten and Scott Kesten filed a class action complaint alleging that the Federal Home Loan Mortgage Corporation ("Freddie Mac"), Ocwen Loan Servicing, LLC, ("Ocwen"), and Mortgage Electronic Registration Systems, Inc. ("MERS"), violated the Truth in Lending Act, 15 U.S.C. §§1601-1667f ("TILA") (Count I), Illinois common law (Count III), and the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2 ("ICFA") (Count IV). The complaint also alleges that Ocwen violated the Cranston-Gonzalez amendments to the Real Estate Settlement Procedures Act, 12 U.S.C. § 2605 ("RESPA") (Count II).

Pending before the court is Ocwen's motion to dismiss Counts I, II, III, and IV (Dkt. No. 41.), and Freddie Mac's motion to dismiss Counts I, III, and IV (Dkt. No. 55).*fn1 For the reasons stated below, both motions are granted in part and denied in part.


The following facts are taken from the Kestens' First Amended Complaint (Dkt. No. 29 ("Am. Compl.")), filed November 17, 2011. In March 2007, the Kestens obtained two mortgage loans secured by their home in Skokie, Illinois. (Id. ¶ 3, 8.) One of the loans was for $92,000 and has a fixed interest rate of 8.5%. (Id. ¶ 8, 17.) The other loan was for $276,000 and was a hybrid adjustable rate mortgage; that is, it had an initial interest rate of 6.875% until May 1, 2010, after which the interest rate varied every six months based on the LIBOR index. (Id. ¶ 9, 18; see also id. Ex. A ¶ 4.) Legal title of the $276,000 loan has always been held by MERS, but Freddie Mac has been the beneficial owner of the $276,000 since April 1, 2010. (Id. ¶¶ 11-12.) Ocwen has been the servicer of the $276,000 loan since April 1, 2010. (Id. ¶ 14.)

On May 1, 2010, the interest rate on the $276,000 loan should have been reduced, by its terms, to 3.125%, and on November 1, 2010, it should have been adjusted to 3.25%. (Id. ¶ 18.) Ocwen failed to make the change. (Id. ¶ 20.) Consequently the Kestens were overcharged $10,113 on their mortgage payments. (Id. ¶ 22.) Nobody noticed the error until April 19, 2011, when Ocwen sent the Kestens a letter stating that it had performed a routine audit on the Kestens' account and had noticed the error. (Id. Ex. C.) That letter also informed the Kestens that the $10,113 overcharge would be "refunded to you separately." (Id.). On May 2, 2011, Scott Kesten sent Ocwen a letter acknowledging that a payment of $10,113 had been made to his account, but calling that payment "not authorized" because "Ocwen does not have the authority to withhold overcharged funds from me, the client." (Id. Ex. E.) Mr. Kesten instructed Ocwen that the $10,113 amount be returned to him immediately and "no later than May 23, 2011." (Id.)

Ocwen acknowledged receipt of Scott Kesten's letter on May 19, and responded on July 8, 2011. (Id. Exs. G, H.) In its response, Ocwen stated that "we will not be able to process your request in regard to refund the payment in question," but provided no other explanation of why it would not be able to process the request. (Id. Ex. H.) Despite additional phone calls from the Kestens and their attorney, Ocwen continued to refuse to refund the overpayment. (Id. ¶ 31.)


Under the Federal Rules of Civil Procedure, a complaint need contain only "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). The complaint must "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). While "detailed factual allegations" are not required, "labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555. The complaint must "include sufficient facts 'to state a claim for relief that is plausible on its face.'" Cole v. Milwaukee Area Tech. Coll. Dist., 634 F.3d 901, 903 (7th Cir. 2011) (quoting Justice v. Town of Cicero, 577 F.3d 768, 771 (7th Cir. 2009)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). In ruling on a Rule 12(b)(6) motion, the court "construe[s] the . . . [c]omplaint in the light most favorable to Plaintiff, accepting as true all well-pleaded facts and drawing all possible inferences in his favor." Cole, 634 F.3d at 903.



In Count I of their complaint, plaintiffs allege that Ocwen and Freddie Mac violated 12 C.F.R. § 226.20(c), a regulation promulgated under TILA, by failing to provide proper notice that the interest rate on their loan was going to change on May 1, 2010, and on November 1, 2010. Section 226.20(c) provides that:

At least once each year during which an interest rate adjustment is implemented without an accompanying payment change, and at least 25, but no more than 120, calendar days before a payment at a new level is due, the following disclosures, ...

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