ZONG LAU HUI LAU v. SPECIALIZED LOAN SERVICING LLC (2025)

REPORT AND RECOMMENDATION

Plaintiffs Zong Lau and Hui Lau have sued a number of defendants for claims arising out of a state court foreclosure action that was brought with respect to an apartment belonging to Jsang Kei Lau, the plaintiffs’ deceased father. See Second Amended Complaint, filed August 12, 2024 (Docket # 98) (“SAC”). The only claim remaining in this case proceeds under the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. §§ 2601-2617, and its implementing procedures, known as Regulation X, 12 C.F.R. §§ 1024.1-1024.4. See SAC ¶¶ 59-67; Order, dated August 15, 2024 (Docket # 102) (dismissing “Counts One, Three, Four, Five and Six of the Second Amended Complaint”). Defendants Fay Servicing, LLC (“Fay”) and Caliber Home Loans, Inc. (“Caliber”) (collectively, “moving defendants”) have moved to dismiss the SAC or, in the alternative, for summary judgment.¹ For the reasons that follow, the action should be dismissed.

I. BACKGROUND

The SAC differs little from the First Amended Complaint, filed March 17, 2023 (Docket # 22) (“FAC”), which was the subject of a prior motion to dismiss. We incorporate herein by reference our description of the FAC and of the factual background in this case. See Lau v. Specialized Loan Servicing, LLC, 2023 WL 6135553, at *1-*3 (S.D.N.Y. Sept. 20, 2023), adopted as modified, 2024 WL 3219810 (S.D.N.Y. June 28, 2024). In brief, this case arose from a state court action brought by HSBC alleging that Jsang Kei Lau had failed to comply with the terms of a mortgage and seeking foreclosure on the property encumbered by that mortgage. Id.

Plaintiffs allege that on November 21, 2020, Jsang Kei Lau died intestate and that they have “surviving rights as Heirs-at-Law and Successors-in-Interest.” SAC ¶¶ 1, 29; SAC at 1. The FAC asserted claims under numerous laws and legal theories, including under RESPA and its implementing procedures under Regulation X, 12 C.F.R. §§ 1024.1-1024.4. See Lau, 2023 WL 6135553, at *3. Defendants Specialized Loan Servicing, LLC and Computershare Loan Services (collectively, “Specialized”), and U.S. Bank Trust, N.A., Fay, Caliber, and Newrez, LLC moved to dismiss the FAC. Id. at *1. On September 20, 2023, the undersigned recommended that defendants’ motions to dismiss be granted and plaintiffs’ cross-motion for declaratory judgment should be denied. See id. at *14. Judge Cronan subsequently adopted the Report and Recommendation as modified. See Lau, 2024 WL 3219810, at *12. Except for plaintiffs’ RESPA claim, Judge Cronan dismissed every claim without leave to amend. Id. Leave to amend was granted on the RESPA claim “only as to Plaintiffs’ failure-to-notify claim as against Caliber and Fay.” Id. With regards to that claim, the Court concluded “that Plaintiffs had failed to allege any non-conclusory factual allegations specifying ‘actual damages’ proximately caused by the absence of such notice” as required by section 2605. Id. at *8 (citation omitted). Plaintiffs were granted leave to amend only to “address those pleading deficiencies.” Id. at *12.

On August 12, 2024, plaintiffs filed the SAC, which is largely a duplication of the FAC and includes, almost verbatim, the claims previously dismissed. Compare FAC ¶¶ 56-58, 65-80 with SAC ¶¶ 56-58, 64-78. Because the Court had dismissed all but the RESPA claim without leave to amend, see Lau, 2024 WL 3219810, at *12, the Court deems the SAC amended to exclude these claims.

With regards to the RESPA claim, plaintiffs allege that “Defendants Caliber and Fay failed to notify [plaintiffs] of a mortgage servicing transfer from Caliber to Fay,” which caused plaintiffs “emotional distress and pain and suffering.” SAC ¶¶ 60, 62. Plaintiffs allege that they “wasted [their] time and effort by contacting the wrong servicer.” Id. ¶ 61.

Defendants now move to dismiss the SAC “pursuant to the Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), or, in the alternative, for an order granting Defendants summary judgment pursuant to Fed. R. Civ. P. 56(a) and dismissing with prejudice all of the claims asserted in the SAC.” Mem. at 1. Specifically, defendants argue that (1) “Plaintiffs do not have standing to assert claims on behalf of Borrower's estate”; (2) the factual allegations underpinning the amended RESPA claim are demonstrably false and contrary to incontrovertible documentary evidence, which proves that Defendants provided notice of the servicing transfer”; and (3) “Plaintiffs also have not adequately alleged that they suffered any compensable damages caused by the purported RESPA violation as the Court instructed.” Id.

Because the Court “dismiss[es]” plaintiffs’ amended RESPA claim “solely on the pleadings, ․ [the Court] need not address Defendant's alternative argument for summary judgment.” Alijaj v. Wells Fargo, 2022 WL 392864, at *3 n.8 (S.D.N.Y. Feb. 9, 2022).

II. LEGAL STANDARD

A party may move to dismiss a complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) where the opposing party's pleading “fail[s] to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). While a court must accept as true all of the factual allegations contained in a complaint, that principle does not apply to legal conclusions. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (“[A] plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.”) (internal quotation marks, citation, and alterations omitted). In other words, “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice,” Iqbal, 556 U.S. at 678 (citation omitted), and a court's first task is to disregard any conclusory statements in a complaint, id. at 679.

Next, a court must determine if the complaint contains “sufficient factual matter” which, when accepted as true, states a claim that is “plausible on its face.” Id. at 678 (citation and internal quotation marks omitted); accord Port Dock & Stone Corp. v. Oldcastle Ne., Inc., 507 F.3d 117, 121 (2d Cir. 2007) (“[A] complaint must allege facts that are not merely consistent with the conclusion that the defendant violated the law, but which actively and plausibly suggest that conclusion.”) (citation omitted). “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. The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678 (citations and internal quotation marks omitted). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct,” a complaint is insufficient under Fed. R. Civ. P. 8(a) because it has merely “alleged” but not “ ‘show[n]’—‘that the pleader is entitled to relief.’ ” Id. at 679 (quoting Fed. R. Civ. P. 8(a)(2)).

In the case of pro se plaintiffs, “[a] document filed pro se is to be liberally construed, and a pro se complaint, however inartfully pleaded, must be held to less stringent standards than formal pleadings drafted by lawyers.” Erickson v. Pardus, 551 U.S. 89, 94 (2007) (citation and internal quotation marks omitted); accord McPherson v. Coombe, 174 F.3d 276, 280 (2d Cir. 1999) (a pro se party's pleadings should be construed liberally and interpreted “to raise the strongest arguments that they suggest”) (quoting Burgos v. Hopkins, 14 F.3d 787, 790 (2d Cir. 1994)). However, even pro se pleadings must contain factual allegations that “raise a right to relief above the speculative level.” Dawkins v. Gonyea, 646 F. Supp. 2d 594, 603 (S.D.N.Y. 2009) (quoting Twombly, 550 U.S. at 555).

III. DISCUSSION

A. “Borrowers” under RESPA

Defendants move to dismiss the SAC for lack of “standing,” arguing that plaintiffs “are not considered ‘borrowers’ on the Loan” as required by RESPA. Mem. at 7. In effect, defendants argue that plaintiffs lack what was once called “statutory standing” under RESPA. The moving defendants did not previously raise this argument.

As the Second Circuit has explained,

[A] plaintiff must have a cause of action under the applicable statute. This was formerly called “statutory standing.” ․ The Supreme Court has recently clarified, however, that what has been called “statutory standing” in fact is not a standing issue, but simply a question of whether the particular plaintiff “has a cause of action under the statute.”

Am. Psychiatric Ass'n v. Anthem Health Plans, Inc., 821 F.3d 352, 359 (2d Cir. 2016) (quoting Lexmark Int'l, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377, 1387 (2014)). Because this inquiry does not “implicate subject-matter jurisdiction,” see Lexmark Int'l, Inc., 134 S. Ct. at 1387 n.4 (quoting Verizon Md. Inc. v. Public Serv. Comm'n of Md., 535 U.S. 635, 642-43 (2002)), we view it as being raised under Fed. R. Civ. P. 12(b)(6).

The inquiry into whether a particular plaintiff has a cause of action under a statute “requires [the Court] to determine, using traditional tools of statutory interpretation, whether a legislatively conferred cause of action encompasses a particular plaintiff's claim.” Bank of Am. Corp. v. City of Miami, Fla., 581 U.S. 189, 197 (2017). The purpose of the inquiry is to determine whether plaintiffs “fall[ ] within the class of plaintiffs whom Congress has authorized to sue under” the relevant statute, Lexmark Int'l, Inc., 134 S. Ct. at 1387 — here, RESPA.

RESPA authorizes only “borrower[s]” to sue. 12 U.S.C. § 2605(f) (“Whoever fails to comply with any provision of this section shall be liable to the borrower for each such failure.”); Keen v. Helson, 930 F.3d 799, 802 (6th Cir. 2019) (“RESPA only authorizes ‘borrower[s]’ to sue.”) (alterations in original) (citation omitted); Garrasi v. Selene Fin., LP, 407 F. Supp. 3d 110, 116 (N.D.N.Y. 2019) (“a defendant's liability in a civil action under RESPA is limited to borrowers”) (citation omitted). Thus, plaintiffs only have a cause of action under RESPA if they are “borrowers” within the meaning of the statute.

“Neither the statute nor Regulation X define a ‘borrower.’ ” In re Ditech Holding Corp., 2024 WL 61598, at *10 (Bankr. S.D.N.Y. Jan. 4, 2024); Keen, 930 F.3d at 802 (“RESPA does not define ‘borrower.’ ”). However, “[c]ourts have consistently held that the term ‘borrower’ under RESPA is someone who is personally obligated under a federally related mortgage loan.” Garrasi, 407 F. Supp. 3d at 118 (citations and quotation marks omitted); see Keen, 930 F.3d at 804. This definition is borne out by both dictionaries and the statutory context. See Keen, 930 F.3d at 802-04. As Keen notes, dictionaries from the time period of the enactment of the statute “all show that a ‘borrower’ is someone personally obligated under a loan.” Id. at 803.

A person is personally obligated under a loan when they have “signed or assumed” the loan, Keen, 930 F.3d at 802, or when they are “bound by the promissory note,” see Garrasi, 407 F. Supp. 3d at 117; Singh v. Wells Fargo Bank N.A., 2011 WL 2118889, at *4 (E.D. Cal. May 27, 2011), adopted, 2011 WL 2784592 (E.D. Cal. July 11, 2011) (plaintiff was not a borrower because they “did not sign the Promissory Note”).

Notably, courts have rejected the notion that individuals that have signed or acquired the mortgage or own a home subject to a mortgage, without being personally obligated on the loan, are “borrowers” under RESPA. Keen, 930 F.3d at 802 (“signing a mortgage, or owning a home subject to one, does not make you a ‘borrower’ ”); Garrasi, 407 F. Supp. 3d at 117 (finding that a plaintiff who was assigned the rights and interests of a mortgage-related promissory note was not a borrower under RESPA); Sharp v. Deutsche Bank Nat. Tr. Co., 2015 WL 4771291, at *6 (D.N.H. Aug. 11, 2015) (“while [the plaintiff] points out that he was named as a borrower in the mortgage, he does not allege that he was a borrower on the loan and, indeed, the promissory note does not bear his signature,” thus, plaintiff is not a “borrower” under RESPA); Johnson v. Ocwen Loan Servicing, 374 Fed. Appx. 868, 873-74 (11th Cir. 2010) (a plaintiff who acquired her mother's property was not a “borrower” under RESPA).

Here, plaintiffs do not allege that they ever signed the loan or in some other way made themselves bound by the promissory note. See SAC. Indeed, plaintiffs concede that they have not even assumed the mortgage. See SAC ¶¶ 2, 55 (alleging that they “want” to assume the mortgage). Plaintiffs also implicitly concede that they did not execute the promissory note. See SAC ¶ 17 (“The Decedent executed [the] note.”). Thus, there are no allegations showing that plaintiffs are “borrowers” under RESPA and, accordingly, they cannot sue under RESPA.

The Consumer Financial Protection Bureau (“CFPB”) states that it “believes that the term borrower as used in the mortgage servicing provisions of RESPA should be understood to encompass confirmed successors in interest.” Amendments to the 2013 Mortgage Rules Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z), 81 Fed. Reg. 72,160, 72,184 (Oct. 19, 2016) (codified at 12 C.F.R. pts. 1024, 1026). And it has enacted a regulation that states, “[a] confirmed successor in interest shall be considered a borrower for purposes of § 1024.17 and this subpart.” 12 C.F.R. § 1024.30(d). The regulations further provide that a successor in interest becomes “confirmed” when “a servicer has confirmed the successor in interest's identity and ownership interest in a property that secures a mortgage loan.” 12 C.F.R. § 1024.31 (emphasis added). While plaintiffs argue that they are asserting their “RESPA claim as Heirs-at-Law, Successors-in-Interest, Homeowners, and Tenants in Common [and] have standing even in these capacities,” Opp. at 2, the SAC does not allege that a servicer has confirmed them as successors in interest. In fact, plaintiffs affirmatively state that defendants have not confirmed them as successors in interest. See Opp. at 3-4 (arguing that while “the state court Plaintiff has ․ acknowledged” them as “successors-in-interest,” “Defendants refuse to confirm” them). Accordingly, plaintiffs do not fall under this category.

Plaintiffs point to the fact that the moving defendants did not raise the “lack of standing” argument in response to the FAC. Opp. at 1. But plaintiffs point to no rule that prevents a party from making an argument in support of a motion to dismiss for failure to state a claim when it is otherwise filed properly pursuant to Fed. R. Civ. P. 12(b). On the contrary, case law suggests that the defendants may assert any argument they wish on a motion to dismiss for failure to state a claim notwithstanding the fact that they have already moved to dismiss a now-superseded complaint on a different theory. See Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1994) (“It is well established that an amended complaint ordinarily supersedes the original, and renders it of no legal effect․ [T]he [only] defenses and objections that are irrevocably waived by answering an original complaint are those that ‘involve the core issue of a party's willingness to submit a dispute to judicial resolution.’ ”) (citations and alteration marks omitted); Fasano v. Li, 47 F.4th 91, 105 (2d Cir. 2022) (“[T]he Rule 12 defenses that are waived by a failure to assert them early are only those ‘listed in Rule 12(b)(2)–(5).’ ”) (citation omitted).

Plaintiffs argue that they “can be considered borrowers notwithstanding not being the original borrower(s)” because “[a]n estate is unnecessary to prosecute a RESPA claim given that the Decedent died intestate vesting homeownership rights upon” them. Opp. at 7. However, whether and how plaintiffs obtained legal ownership of the property or the mortgage is irrelevant to whether they are “borrowers” on the loan. See Garrasi, 407 F. Supp. 3d at 117.

Plaintiffs argue that “even as non-borrowers, [they] still have standing, because the New York Court of Appeals has held that a third party has the ‘right to enforce a contract in’ ” certain situations. Opp. at 6 (citation omitted). However, whether plaintiffs have the right to enforce a contract is immaterial to whether they have a cause of action under RESPA.

Thus, defendants’ motion to dismiss plaintiffs’ RESPA claim should be granted. Because the RESPA claim is the only surviving claim in plaintiffs’ complaint, see Lau, 2024 WL 3219810, at *12, the entire action should be dismissed.

B. Leave to Amend

Plaintiffs should not be granted leave to amend because plaintiffs admit that they have not been confirmed as successors in interest. Opp. at 3-4 (“Defendants refuse to confirm us” as successors in interest). Thus, further amendment should not be allowed. See Gallop v. Cheney, 642 F.3d 364, 369 (2d Cir. 2011) (it is proper to dismiss a claim with prejudice “in the absence of any indication that [plaintiff] could—or would—provide additional allegations that might lead to a different result”). Additionally, plaintiffs have already amended the complaint twice. Under such circumstances, courts have found that “three bites at the apple is enough” and have denied leave to amend for a third time. Off. Comm. of Unsecured Creditors of Color Tile, Inc. v. Coopers & Lybrand, LLP, 322 F.3d 147, 168 (2d Cir. 2003) (citation omitted) (collecting cases).

IV. CONCLUSION

For the foregoing reasons, defendants’ motion to dismiss (Docket # 106) should be granted, and plaintiffs’ SAC should be dismissed with prejudice and without leave to amend.

PROCEDURE FOR FILING OBJECTIONS TO THIS REPORT AND RECOMMENDATION

Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties have fourteen (14) days (including weekends and holidays) from service of this Report and Recommendation to file any objections. See also Fed. R. Civ. P. 6(a), (b), (d). A party may respond to any objections within 14 days after being served. Any objections and responses shall be filed with the Clerk of the Court. Any request for an extension of time to file objections or responses must be directed to Judge Cronan. If a party fails to file timely objections, that party will not be permitted to raise any objections to this Report and Recommendation on appeal. See 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72; Fed. R. Civ. P. 6(a), 6(b), 6(d); Thomas v. Arn, 474 U.S. 140 (1985); Wagner & Wagner, LLP v. Atkinson, Haskins, Nellis, Brittingham, Gladd & Carwile, P.C., 596 F.3d 84, 92 (2d Cir. 2010).

FOOTNOTES

1.   See Notice of Motion, filed September 24, 2024 (Docket # 106); Declaration of Michael J. Fitzpatrick in Support of Defendants’ Motion to Dismiss Plaintiffs’ Second Amended Complaint, or, in the Alternative, for Summary Judgment, filed September 24, 2024 (Docket # 106-1); Memorandum of Law of Defendants Fay Servicing, LLC and Caliber Home Loans, Inc. in Support of their Motion to Dismiss Plaintiffs’ Second Amended Complaint pursuant to Fed. R. Civ. P. 12(b)(1) and 12(b)(6), or in the Alternative, for Summary Judgment, filed September 24, 2024 (Docket # 106-16) (“Mem.”); Memorandum of Law of the Plaintiffs’ Opposition to the Motion to Dismiss the Second Amended Complaint or, Alternatively, for Summary Judgement [sic], filed October 22, 2024 (Docket # 108) (“Opp.”); Reply Memorandum of Law of Defendants Fay Servicing, LLC and Caliber Home Loans, Inc. in Further Support of Their Motion to Dismiss Plaintiffs’ Second Amended Complaint Pursuant to Fed. R. Civ. P. 12(b)(1) and 12(b)(6), or in the Alternative, for Summary Judgment, filed November 5, 2024 (Docket # 109).

GABRIEL W. GORENSTEIN United States Magistrate Judge