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Nicholoson v. Nationstar Mortgage LLC of Delaware

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

July 6, 2018

RENA NICHOLSON, Plaintiff,
v.
NATIONSTAR MORTGAGE LLC OF DELAWARE, Defendant. JAMES K. TOLFORD, Plaintiff,
v.
NATIONSTAR MORTGAGE LLC d/b/a CHAMPION MORTGAGE COMPANY, Defendant. MICHAL M. STANKIEWICZ, Plaintiff,
v.
NATIONSTAR MORTGAGE LLC, Defendant.

          MEMORANDUM OPINION AND ORDER

          Robert M. Dow, Jr., United States District Judge

         Currently before the Court are motions to stay proceedings in favor of a first-filed case that have been filed by Defendant in each of three related cases: Nicholson v. Nationstar Mortgage LLC of Delaware, 17-cv-1373 (“Nicholson Action”) [24]; Tolford v. Nationstar Mortgage LLC, 17-cv-8737 (“Tolford Action”) [23]; and Stankiewicz v. Nationstar Mortgage LLC, 18-cv-3075 (“Stankiewicz Action”) [18].[1] For the reasons stated below, each of Defendant's motions to stay is granted. The Nicholson Action, the Tolford Action, and the Stankiewicz Action are stayed pending the outcome of the first-filed action currently pending in the District Court for the District of Columbia. The parties are directed to submit status reports to the Court on the D.C. Action every 90 days, beginning September 1, 2018.

         I. Background

         These related actions bring putative class action claims against Defendant Nationstar Mortgage LLC (“Defendant”) regarding Defendant's alleged practice, as a mortgage servicer, of charging mortgage borrowers unnecessary and unreasonable inspection fees in connection with mortgages that are purportedly in default.

         A. The Nicholson Action

         The Nicholson Action was filed in February 2017 by Plaintiff Rena Nicholson (“Nicholson”) against Defendant. [See Nicholson Action, 3.] Nicholson's complaint alleges as follows. Nicholson, a homeowner residing in Chicago, Illinois, has had a home equity conversion loan (“HECM”), also known as a reverse mortgage, on her home since 2007. [Id., ¶ 40.] A reverse mortgage is a type of home loan, typically made to older homeowners, that allows these individuals to borrow against the equity of their homes while keeping the title and continuing to live there. [Id., ¶ 6.] This type of loan requires no monthly mortgage payments: payment is deferred until the homeowner passes away, sells her home, or moves out of her home. [Id.] A reverse mortgage contract between a lender and borrower consists of a promissory note and a mortgage or deed of trust that sets out terms governing what the lender may do in the event of a purported default. [Id., ¶ 8.] One such term is that, in the event of a default, the mortgage servicer may inspect the home and ensure that it is occupied and in good condition. [Id., ¶ 9.] Fees for conducting this inspection are payable by the reverse mortgage borrower by becoming additional debt of the borrower that bears interest. [Id., ¶ 10.] However, the terms of reverse mortgage notes, as well as regulations promulgated by the Department of Housing and Urban Development (“HUD”), place limits on the number of inspections that can take place and the circumstances that must exist before these inspections can take place. Specifically, servicers may not assess inspection fees that are unnecessary or unreasonable; the shortest time period allowed between inspections is 25 days; multiple inspections are only allowed when the mortgaged property is verified as vacant; and importantly, no series of inspections may begin unless the mortgage is in default and the lender gives the borrower notice prior to the inspection. [Id., ¶¶ 11-15.]

         Nicholson's reverse mortgage was assigned to Defendant, doing business as Champion Mortgage Company, for servicing in 2012. [Id., ¶ 42.] Nicholson alleges that Defendant, rather than adhering to these contractual requirements for conducting inspections on mortgages in default, has developed and used an automated process that systematically side-steps these inspection requirements in order to maximize the fees imposed on borrowers. [Id., ¶ 17.] Specifically, Nicholson alleges that Defendant uses this automated process to target elderly homeowners who have purportedly defaulted on their reverse mortgages and charges them repeated and unreasonable inspection fees in order to increase its own profits. [Id., ¶¶ 18-19.] These inspections for which borrowers are charged may not have actually occurred, according to Nicholson, and if they do occur they only last for a few seconds. [Id.] Nicholson alleges that Defendant ordered and allegedly conducted five inspections of her property in November 2016 without any prior notice, and then charged Nicholson for these inspections, thus adding to her indebtedness. [Id., ¶¶ 43-51.] Nicholson brings claims against Defendant for breach of contract (Count I); unjust enrichment (Count II); and negligence in the alternative (Count III). [Id., ¶¶ 65-86.] Nicholson brings this action on behalf of herself as well as a nationwide class and Illinois sub-class. The nationwide class is defined as “[a]ll residents of the United States of America who had a reverse mortgage serviced by Champion and whose accounts were assessed fees for property inspections for which the resident received no prior notice continuing through the date of final disposition of this action.” [Id., ¶ 55.]

         B. The Tolford Action

         The Tolford Action was originally filed in Illinois state court before being removed to federal court in December 2017. [See Tolford Action, 1.] Plaintiff James Tolford (“Tolford”), an Illinois resident, also brings class action claims against Defendant relating to Defendant's practice of assessing and collecting allegedly unreasonable inspection fees in connection with defaulted reverse mortgages. [See id., 34.] Specifically, Tolford alleges that he entered into a reverse mortgage in 2002 that is serviced by Defendant (doing business as Champion Mortgage Company). [Id., ¶¶ 17-20.] After Tolford allegedly defaulted on the reverse mortgage by failing to pay taxes and insurance on the mortgaged property, Defendant charged Tolford for numerous inspections of the property. [Id., ¶¶ 21, 24.] According to Tolford, these property inspection charges violate the terms of his mortgage and HUD regulations because he was still occupying the property at the time. [Id., ¶¶ 25-32.] These charged fees were added to Tolford's loan balance as items due and owing. [Id., ¶ 33.] Tolford brings claims against Defendant on behalf of himself and others similarly situated for breach of contract (Count I); unjust enrichment in the alternative (Count II); and violation of the Illinois Consumer Fraud Act, 815 ILCS 505/2 (Count III). [Id., ¶¶ 41-73.]

         Tolford has defined two national classes and an Illinois sub-class for purposes of his class claims. For Count I, Tolford defines the putative national class as: “All persons who (1) within ten years prior to the filing of this foreclosure action, (2) had an FHA and/or HECM loan with Champion that was in default, (3) occupied the subject property during default, and (4) were charged inspection fees by Champion while still occupying the property.” [Id., ¶ 35(A).] For Count II, Tolford defines the putative national class as: “All persons who (1) within five years prior to the filing of this foreclosure action, (2) had an FHA and/or HECM loan with Champion that was in default, (3) occupied the subject property during default, and (4) were charged inspection fees by Champion while still occupying the property.” [Id., ¶ 35(B).]

         C. The Stankiewicz Action

         The Stankiewicz Action was also originally filed in Illinois state court before being removed to federal court in April 2018. [See Stankiewicz Action, 1.] Plaintiff Michal Stankiewicz (“Stankiewicz”), an Illinois resident, alleges that he entered into an FHA-insured mortgage (not a reverse mortgage) in 2009 that was assigned to Defendant in 2016. [See Stankiewicz Action, 1-1, ¶¶ 16-18.] A complaint for foreclosure was filed on this mortgage in 2014. [Id., ¶ 21.] Stankiewicz has continually occupied the property since the mortgage was executed; however, according to Stankiewicz, Defendant has continually charged him for property inspections during the foreclosure process even though Defendant knew, or should have known, that he was occupying the property. [Id., ¶¶ 23-26.] Stankiewicz alleges that this imposition of fees despite his occupancy violates both the documents governing his mortgage and HUD regulations, and increases his indebtedness. [Id., ¶¶ 26-28, 44.] Stankiewicz brings claims against Defendant on behalf of himself and others similarly situated for breach of contract (Count I); unjust enrichment in the alternative (Count II); and violation of the Illinois Consumer Fraud Act, 815 ILCS 505/2 (Count III). [Id., ¶¶ 34-64.]

         Stankiewicz has defined two national classes and an Illinois sub-class for purposes of his class action claims. For Count I, Stankiewicz defines the putative national class as: “All persons who (1) within ten years prior to the filing of this foreclosure action, (2) had an FHA loan with Nationstar that was in default, (3) occupied the subject property during default, and (4) were charged inspection fees by Nationstar while still occupying the property.” [Id., ¶ 29(A).] For Count II, Stankiewicz defines the putative national class as: “All persons who (1) within five years prior to the filing of this foreclosure action, (2) had an FHA loan with Nationstar that was in default, (3) occupied the subject property during default, and (4) were charged inspection fees by Nationstar while still occupying the property.” [Id., ¶ 29(B).]

         D. The D.C. Action

         In December 2016, before the Nicholson, Tolford, and Stankiewicz Actions were filed, two other plaintiffs brought an analogous class action lawsuit against Defendant in the Superior Court of the District of Columbia. This case was removed to the United States District Court for the District of Columbia in January 2017. See Hoggard v. Nationstar Mortgage LLC, 17-cv-99 (D.D.C.) (the “D.C. Action”). This lawsuit relates to inspection fees charged in connection with reverse mortgages serviced by Defendant. Specifically, the D.C. Action plaintiffs allege that Defendant (doing business as Champion Mortgage Company) declared them in default on their reverse mortgage loans specifically for failing to return an Annual Occupancy Certification form. See D.C. Action Compl., ¶¶ 53, 66. According to these plaintiffs, this action violated the terms of their loan agreements. Id., ¶¶ 2-3. Moreover, after declaring them in default on their mortgages, Defendant started assessing occupancy inspection fees to the balance of their loans each month, despite their obvious occupancy of the subject properties. Id., ¶¶ 55, 69. The D.C. Action plaintiffs allege that Defendant has a practice of doing this and profiting off of the reverse mortgage loan balances that have been inflated by the excessive home inspection fees. Id., ¶¶ 5- 9. These plaintiffs bring claims against Defendant on behalf of themselves and others similarly situated for breach of contract; breach of the covenant of good faith and fair dealing; violation of the D.C. Mortgage Lender and Broker Act; violation of D.C. Consumer Protection Procedures Act; violation of Florida Mortgage Lending Law; violation of the Florida Deceptive and Unfair Trade Practices Act; and unjust enrichment. Id., ¶¶ 89-140. The D.C. Action plaintiffs also define both a nationwide class and state-specific sub-classes for their class claims. They define their nationwide class as follows: “All residents of the United States of America who had a HECM loan serviced by Champion Mortgage and whose loans were declared in default for failure to return an Annual Occupancy Certification form and whose accounts were assessed occupancy inspection fees on a monthly basis.” Id., ¶ 79. Since the D.C. Action was filed, the parties have engaged in discovery and contested discovery motion practice. [See Stankiewicz Action, 21, at 3.]

         Currently before the Court are motions to stay filed by Defendant in the Nicholson Action [24], the Tolford Action [23], and the Stankiewicz Action [18] in favor of the D.C. Action as the first-filed case.

         II. Legal Standard

         A. The First-to-File Rule

         Courts in this district have recognized that when two related cases are pending in separate federal courts, either of those courts may exercise its inherent power to stay the proceedings before it in deference to the related action. See GE Bus. Fin. Servs. Inc. v. Spratt, 2009 WL 1064608, at *1 (N.D. Ill. Apr. 20, 2009); Whirlpool Fin. Corp. v. Metropolis Capital Grp., 1991 WL 212112, at *3 (N.D. Ill. Oct. 7, 1991). Indeed, this Court has a “duty * * * to avoid duplicative litigation in more than one federal court.” Whirlpool Fin. Corp., 1991 WL 212112, at *3 (citing Colorado River Water Conservation District v. United States,424 U.S. 800, 817 (1976)). Therefore, the Seventh Circuit not surprisingly has advised that “[a] district court has ‘an ample degree of ...


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