United States District Court, N.D. Illinois, Eastern Division
JOSE L. PARRA, individually and on behalf of all others similarly situated, Plaintiff,
OCWEN LOAN SERVICING, LLC, Defendant.
MEMORANDUM OPINION AND ORDER
Honorable Edmond E. Chang United States District Judge
Parra initially filed this class-action complaint against
Ocwen Loan Servicing, LLC in the Circuit Court of Cook
County, advancing a number of state law claims based on
Ocwen’s alleged failure to apply $773.05 in unapplied
funds to the outstanding principal balance on Parra’s
mortgage prior to filing for foreclosure. See
generally R.1-1,  Notice of Removal at Exh. A, Compl.
Invoking diversity jurisdiction, Ocwen removed the case to
federal court. See generally R.1, Notice of
Removal. Now, Ocwen moves to dismiss the case, primarily
because the complaint fails to adequately state a claim.
Fed.R.Civ.P. 12(b)(6). R. 15, Mot. to Dismiss. For the
following reasons, Ocwen’s motion to dismiss is
purposes of this motion, the Court accepts as true the
factual allegations in the complaint. Erickson v.
Pardus, 551 U.S. 89, 94 (2007). Documents attached to a
complaint are considered part of the complaint for all
purposes. Fed.R.Civ.P. 10(c).
2006, Parra obtained a $420, 000 home mortgage through
Guaranteed Rate. Compl. ¶ 6; id. at Exh. D. As
part of that transaction, Parra executed a Mortgage
(consisting of Uniform and Non-Uniform Covenants), an
Adjustable Rate Note, an Adjustable Rate Rider, and an
Endorsement Allonge of the Note (all together, “the
Mortgage Contract”). Compl. ¶ 6; id. at
Exhs. A-D. In 2012, Ocwen was designated as the loan
servicer, and became responsible for the collection,
allocation, and entry of Ocwen’s mortgage payments,
principal, interest, unapplied funds, and suspension of
account funds. Id. ¶ 8. In 2014, the mortgage
was assigned to Deutsche Bank National Trust Company with
Ocwen still as the loan servicer. Id. ¶¶
7-8. At some point after that, Parra made a partial mortgage
payment of $773.05, which Ocwen held in an unapplied funds or
suspense account. Id. ¶ 26.
2016, Deutsche filed for foreclosure against Parra in state
court. R.15-1, Mot. to Dismiss, Exh. 1 at 2. In his
affirmative defenses to Deutsche’s foreclosure
complaint, Parra asserted that he does not owe Deutsche the
money claimed because it “failed to properly reduce the
outstanding loan principal by the amount of the
‘unapplied funds’ prior to its filing …
and in so doing increased the interest calculated due and
penalties assessed during the term of the loan.”
R.15-2, Mot. to Dismiss, Exh. 2 at ¶¶ 47-48.
Specifically, Parra cited to Section 1 of the Uniform
Covenants in the Mortgage Contract, id. at ¶
39, which says, “Lender may hold such unapplied funds
until Borrower makes payment to bring the Loan current. If
Borrower does not do so within a reasonable period of time,
Lender shall either apply such funds or return them to
Borrower. If not applied earlier, such funds will be applied
to the outstanding principal balance under the Note
immediately prior to foreclosure[, ]” Compl., Exh. A at
after, in mid-April 2017, Parra filed a motion to pursue a
class action representing homeowners against whom Deutsche
had instituted foreclosure proceedings without applying
“unapplied funds” to the outstanding principal
balance. See generally Compl., Exh. 3. After hearing
oral argument, the state court denied the motion in September
2017, holding that “filing a foreclosure complaint is
not a foreclosure under the contract; a foreclosure occurs at
the time of judgment.” Id. at Exh. 6. Parra
then filed a motion to reconsider. Id. at Exh. 7. He
also sought leave to amend his affirmative defenses, to
include the argument that the failure to apply the
“unapplied funds” violated an Illinois
mortgage-foreclosure statute, 735 ILCS 5/15-1504(J).
Id. at Exh. 10.
April 2018, the state court denied Parra’s motion to
reconsider (but granted the motion to amend). Id. at
Exhs. 9 (p. 3), 10. In doing so, the state court examined the
case law cited by Parra and Deutsche and found “little
support for the position that the commencement of ‘the
process of foreclosure’ in fact creates a
foreclosure.” Id. at Exh. 9 (p. 2). Thus, it
held that Parra’s “Motion for Reconsideration
fail[ed] to meet its burden of showing an error of
law.” Id. at 3.
months later, in July 2018, Parra filed this case in state
court against Ocwen, the loan servicer. See
generally Compl. Ocwen initially attempted to
consolidate this suit with the underlying foreclosure action,
but local Cook County Circuit Court rules require that
proposed class actions be heard by a separate judge. Mot. to
Dismiss at 8. Ocwen then removed the case to this Court based
on diversity jurisdiction. Id.
Federal Rule of Civil Procedure 8(a)(2), a complaint
generally need only include “a short and plain
statement of the claim showing that the pleader is entitled
to relief.” Fed.R.Civ.P. 8(a)(2). This short and plain
statement 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) (cleaned up). The Seventh Circuit has explained
that this rule “reflects a liberal notice pleading
regime, which is intended to ‘focus litigation on the
merits of a claim’ rather than on technicalities that
might keep plaintiffs out of court.” Brooks v.
Ross, 578 F.3d 574, 580 (7th Cir. 2009) (quoting
Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514
motion under Rule 12(b)(6) challenges the sufficiency of the
complaint to state a claim upon which relief may be
granted.” Hallinan v. Fraternal Order of Police of
Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009).
“[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) (cleaned up). These allegations
“must be enough to raise a right to relief above the
speculative level.” Twombly, 550 U.S. at 555.
The allegations that are entitled to the assumption of truth
are those that are factual, rather than mere legal
conclusions. Iqbal, 556 U.S. at 678-79.
first count of Parra’s complaint, he alleges that Ocwen
breached the Mortgage Contract “by not complying with
the servicing requirement … which requires that
unapplied funds be applied to the outstanding principal
balance under the Mortgage immediately prior to foreclosure,
or that the unapplied funds be returned to the
borrower.” Compl. ¶ 19. Under the choice of law
provision in the Contract, the governing law is
“federal law and the law of the jurisdiction in which
the Property is located[, ]” which in this case is
Illinois. Compl., Exh. A at 10. Under Illinois law, a
plaintiff must establish four elements to make out a breach
of contract claim: (1) the existence of a valid and
enforceable contract; (2) performance by the plaintiff; (3)
breach by the ...