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Michael v. CitiMortgage, Inc.

United States District Court, N.D. Illinois, Eastern Division

April 3, 2017

Susan Michael, on behalf of herself and on behalf of all other similarly situated, Plaintiff,
CitiMortgage, Inc. and Safeguard Properties Management, LLC, Defendants.



         On August 10, 2016, Plaintiff Susan Michael brought the present Complaint against Defendants CitiMortgage, Inc. ("CitiMortgage") and Safeguard Properties Management, LLC ("Safeguard"), collectively, "Defendants, " alleging violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961(c)-(d), violations of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692, et seq., and violations of Illinois law, including breach of contract, fraud, and violations of the Illinois Consumer Fraud and Deceptive Practices Act ("ICFA"), 815 ILCS §505/2 et seq. Both CitiMortgage and Safeguard moved to dismiss Plaintiffs Complaint for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). CitiMortgage, alternatively, moved to strike the class allegations. For the following reasons, the Court grants Defendants' motions to dismiss.


         Plaintiff is a homeowner residing in the Village of Lake Bluff in the Northern District of Illinois. (R. 10, Second Am. Compl. ¶ 13.) Defendant CitiMortgage, the mortgage lending group of Citigroup, Inc., is a corporation organized under the laws of the State of New York with its principal place of business in O'Fallon, Missouri. (Id. ¶ 14.) Defendant Safeguard is a mortgage field services vendor headquartered in Valley View, Ohio and organized under the laws of the State of Ohio. (Id. ¶ 15.) Defendants administered and serviced Plaintiff's mortgage. (Id. ¶ 1.)

         Plaintiff alleges that CitiMortgage delegates default-related services, primarily property inspections, to its vendor Safeguard. (Id. ¶ 16.) Safeguard conducts default-related property inspections on the majority of CitiMortgage's loan portfolio, including on Plaintiff's home. (Id. ¶ 16.) Plaintiff alleges that CitiMortgage uses computer software programs to administer and manage its mortgage loans, including to order default-related inspections of Plaintiff's home and the homes of others in the proposed class. (Id. ¶ 17.) Safeguard uses a compatible computer program to generate default-related work order updates and invoices, which Plaintiff alleges are not made available to borrowers. (Id. ¶ 18.) Plaintiff claims that CitiMortgage's loans are automatically managed by its computer program in accordance with predetermined guidelines. (Id. ¶ 19.) If a loan in the system is past due, for example, the computer program will automatically schedule a “drive-by” property inspection. (Id.) After the program receives a work order update that the inspector has completed the property inspection, the program automatically charges a fee to the borrower, which is reflected in the monthly mortgage statement mailed to the borrower. (Id. ¶ 20.) Plaintiff alleges that CitiMortgage's system is programmed to order default-related property inspections at predetermined intervals. (Id. ¶ 21.)

         In addition, Plaintiff claims that her deed of trust (“Security Instrument”) and promissory note (“Note”) govern the actions CitiMortgage may take pursuant to her mortgage contract. (Id. ¶ 22-23.) Plaintiff's Security Instrument provides as follows:

If Borrower fails to perform the covenants and agreements contained in this Security Instrument, Lender may do and pay for whatever is reasonable or appropriate to protect Lender's interest in the Propery[.] . . Lender may charge Borrower for services performed in connection with Borrower's default, including, but not limited to, attorneys' fees, property inspections and valuation fees.

(Id. ¶ 24.) The Security Instrument provides that any service fees assessed by the lender shall become additional debt and shall bear interest at the Note rate from the date of disbursement. (Id. ¶ 26.) Plaintiff alleges that paragraph 9 of the mortgage contract does not permit inspection fees to be charged to borrowers' accounts for unnecessary[1] or unreasonable inspections. (Id. ¶ 27.)

         According to Plaintiff, Defendants unlawfully assessed service fees for unreasonable default-triggered inspections, [2] which consisted of inspectors quickly driving past the property or up an adjoining driveway. (Id. ¶¶ 28-29.) Plaintiff further alleges that these unnecessary inspections were intended to charge default-related service fees as often as possible to as many accounts as possible. (Id. ¶ 29.) Plaintiff claims that Defendants concealed and “camouflaged” the property inspection fees by failing to provide sufficient information on borrowers' mortgage statements to determine whether the inspections were reasonable and necessary. (Id. ¶ 30.) Plaintiff further claims that Defendants “implicitly represent[ed] that the inspection fees were reasonable and necessary” and were consistent with the mortgage contract, which was false and misleading. (Id. ¶ 71.)

         Plaintiff also asserts that Defendants' policy of conducting unnecessary inspections is contrary to the guidelines in the U.S. Department of Housing and Urban Development (“HUD”) Handbook, [3] which require that a lender attempt to contact the borrower when a mortgage becomes delinquent to determine if the property is vacant or abandoned. (Id. ¶¶ 31-32.) The HUD guidelines state that when a property is occupied, a lender can conduct inspections if within the past 30 days: (1) there have been no mortgage payments; (2) the lender has been unable to contact the borrower to determine occupancy status; and (3) there is an increased risk of abandonment of the property. (Id. ¶ 33.) Defendants conducted inspections regardless of whether there had been mortgage payments in the preceding 30 days and irrespective of the occupancy status of the home. (Id. ¶ 34.)

         Plaintiff alleges that Defendants conducted more than sixty drive-by inspections of her residence over a period of five years, all while Plaintiff and her family occupied the home. (Id. ¶ 35.) Defendants' work order updates provide no indication that inspectors ever observed any indication that the home was abandoned. (Id.) Nevertheless, Defendants charged Plaintiff an inspection fee for every inspection. (Id. ¶ 36.) Plaintiff alleges that Defendants' default-related inspections are designed to maximize the service fees generated as long as the borrowers' mortgage remained delinquent and regardless of whether the inspections are necessary. (Id. ¶¶ 37-38.) Plaintiff claims that fees for default-related services could add thousands of dollars to borrowers' mortgages, all with interest accruing, making it increasingly difficult for borrowers to pay off their loans because part of any mortgage payment is applied to any default-related service fees. (Id. ¶¶ 41-42.) These unnecessary fees force borrowers deeper into default, damage their credit scores, and reduce the equity they have in their properties. (Id. ¶¶ 43-45.) Plaintiff alleges that the thousands of borrowers that were assessed default-related service fees form a class of similarly situated individuals, sharing common questions of law or fact in the adjudication of culpability and the assessment of damages. (Id. ¶¶ 47, 53.)


         “A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) challenges the viability of a complaint by arguing that it fails to state a claim upon which relief may be granted.” Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736 (7th Cir. 2014). Under the federal pleading standards, a plaintiff's “factual allegations must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. Put differently, a “complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). In determining the sufficiency of a complaint under the plausibility standard, courts must “accept all well-pleaded facts as true and draw reasonable inferences in the plaintiffs' favor.” Roberts v. City of Chicago, 817 F.3d 561, 564 (7th Cir. 2016). In ruling on a Rule 12(b)(6) motion, district courts may also consider documents attached to or referenced in the pleadings without converting the motion into a motion for summary judgment, as long as the documents are referred to in the complaint and central to the claims. Citadel Grp. Ltd. v. Washington Reg'l Med. Ctr., 692 F.3d 580, 591 (7th Cir. 2012).

         Beyond the requirements of Rule 12(b)(6), Rule 9(b) requires all allegations of fraud or mistake to be “stated with particularity.” Borsellino v. Goldman Sachs Gro., Inc., 477 F.3d 502, 507 (7th Cir. 2007) (citing Fed.R.Civ.P. 9(b)). This requires a party to describe the “who, what, when, where, and how of the fraud.” Cincinnati Life Ins. Co. v. Beyrer, 722 F.3d 939, 948 (7th Cir. 2013) (citation omitted). Applying this standard to a RICO claim, the plaintiff must, at a minimum, “describe the two predicate acts of fraud with some specificity and state the time, place, and content of the alleged false representations, the method by which the misrepresentations were communicated, and the identities of the parties to those misrepresentations.” Bible v. United Student Aid Funds, Inc., 799 F.3d 633, 658 (7th Cir. ...

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