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Weiner v. Ocwen Financial Corp.

United States District Court, E.D. California

June 27, 2017

DAVID WEINER, individually, and on behalf of other members of the public similarly situated, Plaintiff,
v.
OCWEN FINANCIAL CORPORATION, a Florida corporation, and OCWEN LOAN SERVICING, LLC, a Delaware limited liability company, Defendants.

          MEMORANDUM AND ORDER

          MORRISON C. ENGLAND, UNITED STATES DISTRICT JUDGE

         Through the present action, Plaintiff David Weiner (“Plaintiff”) alleges that his mortgage servicer, Ocwen Loan Servicing, LLC and OLS' parent company, Ocwen Financial Corporation (collectively referred to as “Ocwen” or “Defendants” unless otherwise indicated), improperly assessed default-related service fees that contained substantial, undisclosed mark-ups which violated the terms of his mortgage contract. Plaintiff further alleges that Defendants misapplied his payments in violation of the terms of the applicable deed of trust. Plaintiff also purports to represent a class of borrowers who have been similarly damaged by Defendants' allegedly improper actions in this regard.

         On July 25, 2015, this Court issued a Memorandum and Order denying Defendants' Motion to Dismiss brought pursuant to Federal Rule of Civil Procedure 12(b)(6).[1] Ocwen now asks that that denial be certified for interlocutory appeal under 28 U.S.C. § 1292(b) on grounds that it purportedly is at odds with the Northern District's decision granting a motion to dismiss in Giotta v. Ocwen Financial Corp., No. 15-cv-00620-BLF, 2016 WL 4447150 (N.D. Cal. Aug. 25, 2016) (“Giotta”). According to Ocwen, the alleged divergence between the two rulings creates an intra-circuit split of authority on a controlling question of law, the resolution of which will materially advance the ultimate termination of this litigation. As set forth below, Defendants' Motion is DENIED.[2]

         BACKGROUND[3]

         Ocwen assumed the servicing of Plaintiff's home mortgage in late 2012 or 2013. According to the Complaint, the previous servicer on the loan, GMAC, had paid Plaintiff's property taxes in 2010 and accordingly had established an escrow account for Plaintiff's pre-payment of those expenses in the future. Plaintiff nonetheless claims that after fully reimbursing GMAC for the taxes it paid in early 2011, and paying a $400.00 escrow fee, Plaintiff arranged with GMAC that he would pay his own property taxes going forward and would provide timely proof of his payments. Despite meeting his commitment in that regard, Plaintiff asserts that after Ocwen became his loan servicer it began charging a $600.00 annual escrow account fee, and further began diverting funds to that escrow account such that the account carried a positive balance of more than $10, 000.00. Plaintiff further claims he was denied any access to those funds. Plaintiff maintains that this diversion resulted in Ocwen failing to properly apply his interest and principal payments, which he alleges are supposed to be credited before any escrow amounts are withheld.[4] This misallocation ultimately resulted in Ocwen's refusal to accept Plaintiff's interest and principal payments altogether on grounds that they are insufficient to satisfy the defaulted amount on the loan. Plaintiff states that Ocwen's improper diversion of escrow funds has made him unable to claim interest deduction on his federal and state tax returns, has subjected him to harassing phone calls, has precluded him from refinancing his loan, and has placed Plaintiff in constant fear of imminent foreclosure on his home.

         In addition to misallocation of loan payments and being denied access to surplus funds diverted to his escrow account, Plaintiff also claims that once Ocwen succeeded in forcing him into default by misapplying his loan payments, it proceeded to improperly assess marked-up fees for default-related services on his mortgage accounts, including the so-called Broker Price Option (“BPO”) fees, title report fees, and title search fees. By way of example, Plaintiff asserts that Ocwen assessed BPO fees of $109.00 and $110.00 on September 4, 2013, and February 24, 2014, respectively, despite knowing that the actual cost of a BPO is only approximately $50.00. Additionally, with respect to fees for services related to the examination of title, Plaintiff claims he was assessed a title search fee on June 9, 2014, in the amount of $829.00, despite the fact that such a fee typically ranges between $150.00 and $450.00. In both instances, according to Plaintiff, the markup on fees by Ocwen was double.

         Plaintiff asserts that Ocwen profited from this arrangement, and was able to avoid detection, because the computer management programs designed to assess fees were provided by Altisource, which spun off of Ocwen on August 10, 2009. The Chairman of the Board for both Altisource and Ocwen was the same individual, William C. Erbey, and according to the Complaint, Erbey owns some 27 percent of the common source of Altisource. Because of the interconnection between the two companies, Plaintiff alleges that both entities benefit from inflated fees. As the Complaint states:

Ocwen directs Altisource to order and coordinate default-related services, and, in turn, Altisource places orders for such services with third-party vendors. The third-party vendors charge Altisource for the performance of the default-related services, [and] Altisource then marks up the price of the vendors' services, in numerous instances by 100% or more, before “charging” the services to Ocwen, In turn, Ocwen bills the marked-up fees to homeowners.

Compl., ¶ 52.

         Plaintiff points out that the applicable Deed of Trust[5] provides, in the event of default, that the loan servicer is authorized to:

pay for whatever is reasonable or appropriate to protect the note holder's interest in the property and rights under the security instrument, including protecting and/or assessing the value of the property, and securing and/or repairing the property.

Id. at ¶ 55; see also Deed of Trust, ¶ 9.

         The Deed of Trust further discloses that any such “amounts disbursed” by the servicer to a third party shall become additional debt of the homeowner secured by the Deed of Trust and shall bear interest at the Note rate from the date of “disbursement.” Compl., ¶ 56. Moreover, according to Plaintiff, the Promissory Note discloses that with respect to “Payment of the Note Holder's Costs and Expenses, ” if there is a default, the homeowner will have to “pay back” costs and expenses incurred in enforcing the Note to the extent not prohibited by applicable law. Compl., ¶ 57. Plaintiff therefore asserts that the mortgage instruments provide that the servicer will pay for default-related services when reasonably necessary, and will be reimbursed or “paid back” by the homeowner for amounts “disbursed.” Compl., ¶ 58. Plaintiff maintains that nowhere is it disclosed to borrowers that Ocwen may engage, as it purportedly does, in self-dealing to mark up the actual cost of those services to make a profit. Id.

         Plaintiff's Class Action Complaint alleges violations of (1) California's Unfair Competition Law, Cal. Bus. & Prof. Code § 17200, et seq.; (2) The Racketeer Influenced and Corrupt Organizations Act, 182 U.S.C. § 1962(c) and (d) (“RICO”); and (3) the Rosenthal Fair Debt Collection Practices Act, Cal. Civ. Code § 1788, et seq. Plaintiff also includes state law claims for unjust enrichment, fraud, and breach of contract, and further ...


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