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.”
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