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Lavis v. Reverse Mortgage Solutions, LLC

United States District Court, S.D. West Virginia, Beckley Division

June 9, 2017

TERESA LAVIS, Plaintiff,



         The Court has reviewed the Plaintiff's Complaint (Document 1-1), the Defendant's Motion to Dismiss (Document 6), Defendant Reverse Mortgage Solutions Inc.'s Memorandum in Support of Rule 12(b)(6) Motion to Dismiss (Document 7), the Plaintiff's Memorandum in Opposition to Defendant's Motion to Dismiss (Document 8), and the Defendant's Reply Memorandum in Support of Motion to Dismiss (Document 10).[1] In addition, the Court has reviewed all attached exhibits. For the reasons stated herein, the Court finds that the motion should be granted in part and denied in part.


         The Plaintiff, Teresa Lavis, sought a reverse mortgage in 2013 to obtain money to financially assist her mother. A realtor told Ms. Lavis that her home was worth approximately $160, 000, and she owed less than $14, 000 on her existing mortgage. She called Defendant Reverse Mortgage Solutions (RMS) after finding its phone number online, and was directed to Scott Shindle, who then acted as her loan officer. Mr. Shindle told Ms. Lavis that she “would never have to make a house payment again, ” would not have to pay any interest, and described an RMS reverse mortgage as a “government loan.” (Compl. at ¶¶ 44-46.)

         Mr. Shindle arranged for an appraisal, which was conducted by Lori Noble. Ms. Noble viewed the exterior of the home, and Ms. Lavis paid her $150 for the appraisal. Mr. Shindle informed Ms. Lavis that he had received the appraisal, but claimed he could not legally disclose the amount to her. Mr. Shindle also helped arrange Ms. Lavis' legally mandated loan counseling. He arranged for her to speak with an out-of-state counselor over the telephone. Ms. Lavis alleges that the “counselor had undisclosed, prior business dealings with RMS, ” and “was not independent, free of conflicts, and dedicated solely to helping Ms. Lavis understand her best interests and the best financial options available.” (Id. at ¶¶ 57-58.) The counseling session lasted less than five minutes. Ms. Lavis asked about alternatives to reverse mortgages and about RMS's reputation, but the counselor said he could not answer those questions. He further replied that “I am supposed to tell you that this is a great loan.” (Id. at ¶ 63.)

         The loan closing took place at Ms. Lavis' home on November 22, 2013. She signed a Settlement Statement that detailed $9, 389.47 in settlement charges, a $13, 577.57 payoff of her previous mortgage, and $22, 967.04 in loan proceeds provided to Ms. Lavis. The total principal loan amount was $66, 976.00. (Document 7-1).[2] The Settlement Statement includes a checked box stating “You do not have a monthly escrow payment for items, such as property taxes and homeowner's insurance. You may pay these items directly yourself, ” although the form lists $2, 113.57 for homeowner's insurance as an “item required by lender to be paid in advance.” (Settlement Statement.) Ms. Lavis also signed a Home Equity Conversion Loan Agreement. (Document 7-2.) That document includes a provision permitting RMS to withhold funds for property charges, including property taxes and hazard insurance, unless the borrower elects to pay such charges directly, in which case any withheld amounts must be returned. In addition, an Adjustable Rate Note, signed November 22, 2013, provides that the lender may require immediate repayment of the full amount of the principal loan plus accrued interest if the borrower(s) die, move, or fail to perform “[a]n obligation of the Borrower under the Security Instrument.” (Document 7-3 at 3.) The property may be sold to enforce the demanded repayment. A Deed of Trust contains similar provisions, and specifies that the Secretary [of Housing and Urban Development] must approve acceleration of the loan for reasons other than the death of the borrower, including failure to meet obligations.

         Ms. Lavis asserts that she did not understand the terms of the documents she signed at closing. In May, 2016, she learned that RMS “contracted for, imposed, received, and/or collected illegal and/or excessive fees, charges, and costs, including undisclosed fees and/or settlement costs up-charged or subject to hidden division, in violation of West Virginia law.” (Id. at ¶ 66.) Specifically, she alleges that her loan principal totaled $66, 978.00, and closing costs were $9, 389.47, including an origination charge of $2, 625.00. RMS charged a document preparation fee of $125 as well as fees for a credit report, flood certification, and recording. RMS also applied allegedly excessive title insurance charges, including a $718.10 agent commission to a company not licensed in West Virginia. RMS charged an additional $700 “settlement or closing fee, ” a $200 “Notary Fee, ” and a $375 appraisal fee, for the same appraisal Ms. Lavis paid for directly at the time.

         RMS also deducted $2, 113.57 from the amount Ms. Lavis was to receive to pay a hazard insurance premium a year in advance. Although the insurance company returned the money to RMS, RMS sought an additional $1, 946.71 from Ms. Lavis to pay for a different force-placed hazard insurance policy. RMS threatened to foreclose if Ms. Lavis failed to pay. She disputed the charge. RMS sent her a letter dated August 21, 2015, stating that “RMS would accelerate her loan immediately if she did not pay $1, 310.33” in “taxes and insurance, ” although Ms. Lavis had paid the real estate taxes. (Id. at ¶ 73.) Ms. Lavis was charged for taxes paid on an unrelated property in Gwinnet County, Georgia. She again contacted RMS, contested the tax charge, and expressed willingness to set up a monthly payment plan for any amounts she owed. RMS instead demanded that she pay the full sum immediately. “On September 18, 2015, RMS sent Ms. Lavis a letter stating her loan was in default for failure to pay ‘Property Taxes and Hazard Insurance, ' and had been accelerated so that the entire principal balance (represented to be $72, 929.82) was immediately due and payable.” (Id. at ¶ 87.) The letter also indicated attorney's fees and expenses could be added, and offered Ms. Lavis the options of “paying the full loan balance, walking away, selling the home, or giving RMS a deed in lieu of foreclosure.” (Id. at ¶ 88.) Alternatively, Ms. Lavis could pay the $1, 310.33, representing “the Servicer's payment of the property charges.” (Id. at ¶ 89.) RMS added fees to Ms. Lavis' account for several property inspections and two appraisals.

         On March 8, 2016, an agent of RMS engaged in debt collection sent Ms. Lavis a letter asserting that she was in default in the amount of $1, 946.71, and that her loan could be accelerated if she did not pay that amount within ten (10) days. The same debt collector sent Ms. Lavis a second letter the same day, asserting that she was required to pay $74, 313.06, but could dispute the claim within thirty (30) days. Several days prior to mailing those letters, another debt collection agent published notice that Ms. Lavis' home would be sold in a trustee's sale on April 6, 2016, but subsequent direct communications with Ms. Lavis did not inform her of the impending sale of her home. Ms. Lavis obtained counsel when she learned of the trustee sale about a week before it was scheduled, and the sale was cancelled temporarily. As of the filing of the complaint, RMS was continuing to bill Ms. Lavis for tax and insurance fees, and continuing to threaten her with foreclosure.

         Ms. Lavis asserts that her experiences with RMS are typical of its business practices within West Virginia. In Count One of her complaint, she asserts class claims for illegal and excessive fees, charges, and costs, in violation of the West Virginia Residential Mortgage Lender, Broker and Servicer Act, the West Virginia Reverse Mortgage Enabling Act, and the implementing regulations. She also asserts seven individual claims. Count Two alleges unconscionable inducement. Count Three asserts misrepresentation. Count Four alleges unfair debt collection. Count Five asserts refusal of payment, in violations of W.VA. Code § 46A-2-115. Count Six asserts breach of contract. Count Seven asserts that Ms. Lavis properly rescinded the loan. Count Eight asserts failure to honor rescission.


         A motion to dismiss filed pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of a complaint. Francis v. Giacomelli, 588 F.3d 186, 192 (4th Cir. 2009); Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008). “[T]he legal sufficiency of a complaint is measured by whether it meets the standard stated in Rule 8 [of the Federal Rules of Civil Procedure] (providing general rules of pleading) . . . and Rule 12(b)(6) (requiring that a complaint state a claim upon which relief can be granted.)” Id. Federal Rule of Civil Procedure 8(a)(2) requires that a pleading must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2).

         In reviewing a motion to dismiss under Rule 12(b)(6) for failure to state a claim, the Court must “accept as true all of the factual allegations contained in the complaint.” Erikson v. Pardus, 551 U.S. 89, 93 (2007). The Court must also “draw[ ] all reasonable factual inferences from those facts in the plaintiff's favor.” Edwards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999). However, statements of bare legal conclusions “are not entitled to the assumption of truth” and are insufficient to state a claim. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). Furthermore, the Court need not “accept as true unwarranted inferences, unreasonable conclusions, or arguments.” E. Shore Mkts., v. J.D. Assocs. Ltd. P'ship, 213 F.3d 175, 180 (4th Cir. 2000). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice… [because courts] ‘are not bound to accept as true a legal conclusion couched as a factual allegation.'” Iqbal, 556 U.S. at 678 (quoting Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

         To survive a motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, ‘to state a claim to relief that is plausible on its face.'” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570.) In other words, this “plausibility standard requires a plaintiff to demonstrate more than ‘a sheer possibility that a defendant has acted unlawfully.'” Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009) (quoting Twombly, 550 U.S. at 570.) In the complaint, a plaintiff must “articulate facts, when accepted as true, that ‘show' that the plaintiff has stated a claim entitling him to relief.” Francis, 588 F.3d at 193 (quoting Twombly, 550 U.S. at 557.) ‚ÄúDetermining whether a complaint states [on its face] a ...

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