PLS Investments, LLC v. Ocwen Loan Servicing, LLC, 2015 WL 1505663, No. 5:14CV139 (W.D.N.C. Apr. 1, 2015)
PLS alleged that Ocwen and the other defendants erroneously and falsely listed its property as a foreclosure property twice—the second time after being placed on notice that PLS was never a borrower from any of them and that its lot was not, in fact, subject to foreclosure. In 2008, it bought a three-acre parcel from a couple, the Jordans. The Jordans owned two smaller adjacent lots, with their own recorded deeds and ID numbers (lots A and B). They defaulted on the loan securing lots A and B, and the notice of foreclosure sale referenced their ID numbers. Foreclosure reports verified the ultimate sale.
After that foreclosure sale, “Defendants HSBC and Ocwen caused a Notice of Eviction to be posted by the Ashe County Sheriff’s Department upon the Plaintiff’s home located on the Plaintiff’s property.” They also “listed the Plaintiff’s property for sale as a foreclosure sale,” with an agent who advertised it “at a value substantially less than its actual fair market value on numerous foreclosure websites,” using pictures of the exterior and interior of the home.
Yet PLS never borrowed any money from the defendants or executed any deed of trust. PLS notified defendants of the problem, and they removed the ads from the internet. About ten months later, the at best incompetent defendants again advertised the lot for sale on numerous foreclosure websites, again with pictures of the home, allegedly falsely stating that it “was for sale and was a foreclosure” and “could be purchased for figures ranging from approximately $350,000 to $600,000,” well below its fair market value (over $1.2 million, allegedly). As a result, PLS received lowball offers, and the lot continued to be listed for sale at the time the complaint was filed, which allegedly reduced the fair market value of the property.
PLS alleged that the second foreclosure listing was “malicious, willful, wanton, and in reckless disregard of the rights and interests of the Plaintiff ....” PLS sued for negligence, gross negligence, and unfair and deceptive trade practices. PLS argued that defendants owed a duty to them “to use reasonable care in determining which property they held a valid security interest in” and breached that duty of care in multiple ways. Defendants removed the case from state court on diversity grounds, and moved to dismiss the gross negligence and unfair/deceptive trade practices claims.
Defendants argued that, at most, they were just negligent, because of a “scrivener’s error and mutual mistake of the Jordans and Freemont Investment and Loan,” because that “the parcel identification number and legal description for the [PLS Lot] were omitted from the Deed of Trust.” According to defendants, the defaulted-on note pledged all of the property originally owned by the Jordans (the PLS lot, and Jordan Lots A and B), but the Deed of Trust, which expressly referenced the street address for the PLS Lot, inadvertently omitted the parcel identification number and legal description for the PLS Lot. Ocwen was the servicer and defendant HSBC acquired the loan, unaware of the scrivener’s error and in the belief that the deed of trust secured the PLS lot. Thus, it believed that it purchased the PLS lot along with the two vacant lots.
In North Carolina, gross negligence is as “wanton conduct done with conscious or reckless disregard for the rights and safety of others.” Wantonness includes acts done “needlessly, manifesting a reckless indifference to the rights of others.” There’s a big difference between ordinary negligence and gross negligence—the latter requires intentional wrongdoing, though not maliciousness or willfulness. Wantonness requires “conscious disregard” of the interests of others. Defendants argued that there was no allegation that they intentionally or purposely sought to lower the PLS lot’s value. Certainly, there was no allegation of animus or an attempt to gain by the second ad. But the second ad allowed an inference of, at least, conscious or reckless disregard for PLS’s rights. “The fact remains that Defendants repeated the mistake after learning of the error within the Deed of Trust and after learning that the Jordans conveyed the PLS Lot prior to the initiation of the foreclosure proceeding.”
The court did comment that given the assignment to HSBC by the (now defunct) lender Fremont and the “role” of Ocwen as well as of a substitute trustee in the foreclosure, PLS might be “hard-pressed to establish ‘conscious or reckless disregard’ as opposed to a failure to exercise ordinary care by Defendants (or any specific Defendant).” So basically, the banks may have made the situation so incoherent that they couldn’t possibly be grossly negligent as to any particular mistake. This is why litigation can’t substitute for regulation, but if we’re not going to have regulation, punitive damages don’t seem unwarranted.
As for North Carolina’s Unfair and Deceptive Trade Practices Act, that requires (1) an unfair or deceptive act or practice; (2) in or affecting commerce; (3) injuring the plaintiff. On the complaint’s allegations, defendants’ notice of eviction, actual notice of the problem and continued advertising of a foreclosure sale could satisfy the statute. “While there appears to be no doubt that the Defendants’ original error was inadvertent, further development of the record through discovery should show (i) whether Defendants took appropriate cautionary steps, if any, to protect Plaintiff after curing the first ‘false’ foreclosure sale listing/eviction notice; (ii) what led Defendants to make the same mistake less than a year later.”