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Mortgage Modification Lawsuit Headed Back to State Court

Dollar signs coming from chimney.jpgA lawsuit alleging that two nationwide lenders violated Maryland law during a families' attempt to obtain a loan modification is headed back to state court. Brett Kelly and Patricia Borden Kelly were successful in fighting off Bank of America (BOA) and Wells Fargo's attempt to put the case in a federal forum.

The Kellys purchased their home in New Market, Maryland in March 2005 for $450,000. They took out two mortgage loans - one for $360,000 and a second for $90,000 - with NFM, Inc. (dba National Fidelity Mortgage Corporation), which funded the mortgages on behalf of WMC Mortgage Corporation (WMC), a mortgage banking company in California. BOA acquired servicing rights on July 1, 2011 and currently services the first mortgage on behalf of WMC.

The Kellys contacted BOA in September 2011 for a loan modification so as to prevent a default. They submitted an application on December 12, 2011, but BOA did not acknowledge receiving it. But, on Feb. 2, 2012, the Kellys received an offer from BOA inviting them to apply for a loan modification and they took advantage of that offer. A BOA employee requested additional documents as part of the application, which the Kellys sent on March 3, 2012. On March 12, 2012, BOA sent the Kellys and the Maryland Department of Labor, Licensing, and Regulation a Notice of Intent (NOI) to foreclose identifying Wells Fargo as the secured party of the Kellys' first mortgage. The NOI indicated BOA believed the Kellys were in default on the first mortgage loan. BOA sent the Kellys a second NOI on April 2, 2012, indicating that the Kellys had defaulted on their first mortgage loan. For the next several months, the Kellys submitted requests and paperwork for a loan modification that BOA claimed not to have received. In May, the Kellys received three letters from BOA saying they were not eligible for a loan modification because they had not provided the requested documents.

The Kellys filed a lawsuit against BOA and Wells Fargo in the Circuit Court for Baltimore City in August 2012, alleging violations of the Maryland Consumer Debt Collection Act, Maryland Consumer Protection Act and the Maryland Mortgage Fraud Protection Act. They sought compensatory damages "not to exceed $50,000 for all claims and causes of action combined," as well as attorneys' fees and costs. The defendants had the action moved to federal court based on diversity jurisdiction.

Lawsuits can be moved from state to federal court when federal law is involved. Absent a federal question, removal requires complete diversity of citizenship and an amount in controversy in excess of $75,000, exclusive of interest and costs. Generally, the amount requested in the complaint determines the amount in controversy.

The Kellys argued that the case did not meet the $75,000 requirement. They said their complaint specifically capped the damages sought at $50,000 for all claims and causes of action combined. In response, the defendants argued that (1) the Kellys' MCPA claim for "a sum against each Defendant" could be aggregated to exceed the jurisdictional threshold; (2) the Kellys' three causes of action could be aggregated to establish the amount-in-controversy requirement; (3) the amount in controversy exceeds $75,000 when accounting for attorneys' fees and additional relief; and (4) the Kellys are not limited to the amounts stated in their complaint.

The United States District Court for the District of Maryland sent the case back to state court. The MCPA claim, which demanded "a sum against each Defendant not to exceed $50,000," could not be aggregated to satisfy the amount-in-controversy requirement for federal jurisdiction, the court said. Here, the Kellys sought to hold BOA and Wells jointly liable under the MCPA for a sum "not to exceed $50,000." The most the Kellys can obtain for this violation, then, is $50,000, not $100,000, as the defendants maintain, the court pointed out.

The court also said the Kellys' three causes of action could not be aggregated to meet the amount-in-controversy requirement. Under Maryland law, "multiple counts based upon the same facts or circumstances but asserting different legal theories upon which the plaintiff may recover the same damages, constitute one claim." The Kellys presented several legal theories based on the same set of facts. Because the aggregate of the counts constituted only one claim upon which relief can be granted, the defendants could not show that the amount in controversy exceeds $75,000, the court said.

The defendants' argument that the amount in controversy surpassed $75,000 after accounting for attorneys' fees did not sway the court. Where a plaintiff claims a specific amount in damages that is less than $75,000, removal is proper only if the defendant can prove to a "legal certainty" that the plaintiff would actually recover more than that if she prevailed, the court said. If, on the other hand, a plaintiff's complaint does not allege a specific amount in damages, a defendant need only prove by a preponderance of the evidence that the amount in controversy exceeds the jurisdictional minimum. The court observed that, in this instance, federal jurisdiction turned on whether an award of attorneys' fees would exceed $25,000 -- the difference between the $75,000 jurisdictional threshold and the $50,000 in actual damages claimed. The defendants contended that "taking this matter through trial, including discovery and depositions, would reasonably require at least 83.4 hours" of the Kellys' counsel's time, which, at $300 per hour, would place their attorneys' fees above $25,000." "Purely speculative," the court said.

As a result, the court granted the motion to remand.

It is worth noting that in a Chapter 7 or Chapter 13 bankruptcy, creditor collection efforts must stop upon the filing of the bankruptcy paperwork with the court.

Baltimore, Maryland-based Belsky, Weinberg & Horowitz has represented consumers in mortgage, bankruptcy and debt collection cases for many years. Although foreclosures are difficult to stop once they are started, our attorneys have represented individuals facing foreclosure for more than 20 years and have achieved a very high success rate in stopping foreclosure sales, reorganizing client finances and helping with unpaid income tax problems through the use of a Chapter 13 bankruptcy.

Call our bankruptcy attorneys at 410-234-0100 or email us for a free consultation and let us help you to resolve your credit and debt problems through prompt and professional action that will make what otherwise would appear to be an impossible situation a very manageable one for you and your family!

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