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Wortman v. Rushmore Loan Management Services LLC

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

October 16, 2019

NICOLE T. WORTMAN and SHANE W. WORTMAN, individually, and on behalf of all others similarly situated, Plaintiffs,
v.
RUSHMORE LOAN MANAGEMENT SERVICES LLC, Defendant.

          MEMORANDUM OPINION AND ORDER

          Virginia M. Kendall United States District Judge

         Plaintiffs Nicole and Shane Wortman, individually, and on behalf of others similarly situated, filed this Complaint against Defendant, Rushmore Loan Management Services, LLC, for alleged violations of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, (“FDCPA”), and the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505.1 (“Consumer Fraud Act”). Defendant filed the instant Motion to Dismiss for failure to state a claim, (Dkt. 20), arguing that because Plaintiffs did not comply with the terms of the mortgage, specifically the notice and cure provision, Plaintiffs are unable to state a claim. For the reasons stated within, Defendant's Motion to Dismiss is granted.

         BACKGROUND

         On March 3, 2006, Plaintiffs executed a mortgage which secured the purchase of their residence. (Dkt. 19, ¶¶ 16-17). The mortgage contained a notice and cure provision which provided:

Neither Borrower nor Lender may commence, join or be joined to any judicial action (as either an individual litigant or the member of a class) that arises from the other party's actions pursuant to this Security Instrument or that alleges that the other party has breached any provision of, or any duty owed by reason of, this Security Instrument, until such Borrower or Lender has notified the other party … of such alleged breach and afforded the other party hereto a reasonable period after the giving of such notice to take corrective action.

(Dkt. 20-2, pg. 10). Following the execution of the mortgage, Plaintiffs defaulted on their mortgage and commenced Chapter 13 bankruptcy proceedings in this District. (Id. at ¶¶ 21-22). On September 11, 2017, the Bankruptcy Court issued a discharge order under 11 U.S.C. § 1328(a). The discharge order stated:

If the trustee has filed and served a notice pursuant to Bankruptcy Rule 3002.1(f), and no statement is timely filed by the mortgagee in response, the mortgage addressed by the notice is deemed to be fully current as of the date of the notice.

(N.D. Ill. Bk. No. 16-37931, Dkt. 32). Upon this discharge, on April 16, 2018, Defendant obtained servicing rights to the loan and sent Plaintiffs a foreclosure notice. (Dkt. 19, ¶¶ 34-35). Additionally, Defendant accelerated payments and demanded payment on the full balance of the loan. Id. at ¶ 36. On June 20, 2018, Defendant began foreclosure proceedings against Plaintiffs and on three separate occasions sent Plaintiffs mortgage statements. Id. at ¶¶ 38-45. Plaintiffs never sought to reinstate the loan. Id. at ¶ 36. Plaintiffs have filed claims under the FDCPA and Consumer Fraud Act. In response, Defendant moved to dismiss pursuant to Fed.R.Civ.P. 12(b)(6).

         LEGAL STANDARD

         To survive a motion to dismiss pursuant to Rule 12(b)(6), the complaint must “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A Rule 12(b)(6) motion is meant to challenge the legal sufficiency of the complaint. Christiansen v. Cnty. of Boone, Ill., 483 F.3d 454, 457 (7th Cir. 2007). The Court accepts all well-pleaded allegations as true and views them in a light most favorable to plaintiff. Appert v. Morgan Stanley Dean Witter, Inc., 673 F.3d 609, 622 (7th Cir. 2012). Though, the Court need not accept as true statements of law or statements that are merely conclusory and unsupported factual allegations. McCauley v. City of Chicago, 671 F.3d 611, 616 (7th Cir. 2011). Plaintiff's complaint must allege facts that establish its right to relief is more than speculative. Cochran v. Ill. State Toll Highway Auth., 828 F.3d 597, 599 (7th Cir. 2016). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

         DISCUSSION

         Defendant argues that because Plaintiffs failed to comply with the notice and cure provisions of the mortgage the Motion to Dismiss should be granted for failure to state a claim. Indeed, Plaintiffs concede they did not comply with any notice and cure provision, but instead insist that the provision was inapplicable in this context. Plaintiffs argue compliance with the notice and cure provisions would render the bankruptcy discharge meaningless, and therefore, they did not need to abide by it. Contrary to Plaintiffs' contention, they were in fact required to comply with the notice and cure provision. Therefore, their concession of non-compliance is unavoidably fatal to their claims.

         Before addressing the determinative nature of the notice and cure provision, the Court must first address the threshold question of whether the Plaintiffs' mortgage survived the bankruptcy discharge. It is well established that certain rights and obligations indeed survive a bankruptcy discharge order. For example, the “defendant's right to foreclose on the mortgage, however, survives the bankruptcy.” Jernstad v. Green Tree Servicing, Inc., 2012 WL 8169889, at *1 (N.D. Ill. Aug. 2, 2012) (citing Johnson v. Home State Bank, 501 U.S. 78, 83 (1991)). Further, the Supreme Court unanimously held that “discharge in bankruptcy extinguishes only the creditor's right to proceed in personam against the defaulting debtor and not the right to proceed in rem in a mortgage foreclosure action.” First Federal Sav. Bank v. Drovers Nat'l Bank, 606 N.E.2d 1253, 1258 (Ill. Ct. App. 1992) (citing Home State Bank, 501 U.S. 78). Additionally, “bankruptcy law permits a lien to pass through bankruptcy unaffected provided that it's a valid lien and secures a valid claim.” Palomar v. First American Bank, 722 F.3d 992, 993 (7th Cir. 2013). Thus, a discharge in bankruptcy does not terminate a valid lien. In re Turner, 558 B.R. 269, 278 (Bankr. N.D.Ill. 2016) (citing Long v. Bullard, 117 U.S. 617, 621 (1886)). Ultimately, what is discharged by bankruptcy is a claim to payment. Bethea v. Robert J. Adams & Associates, 352 F.3d 1125, 1128 (7th Cir. 2003).

         Here, the discharge disposed of Plaintiffs' obligation to make personal payments, but the mortgage itself survived. Even a passing review of the Order of Discharge reveals that, contrary to Plaintiffs' suggestion, the discharge does not completely erase the existence of the mortgage. Rather, the Order itself only discharged Plaintiffs' payment obligations, while explicitly recognizing that ...


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