We have a good one for our lender and servicer friends out there.
In Bauer v. Roundpoint Mortg. Servicing Corp., No. 18 C 3634, 2018 U.S. Dist. LEXIS 184328 (N.D. Ill. Oct. 29, 2018), the Court held that despite a court order dismissing the mortgage foreclosure with prejudice, plaintiff’s mortgage servicer could report the plaintiff’s default to the credit reporting agencies.
The plaintiff, Bauer, defaulted on his mortgage. Then-mortgagee, JP Morgan Chase (“Chase”), filed a judicial foreclosure (“First Foreclosure”) against Bauer which was voluntarily dismissed in 2013. Chase then filed a second judicial foreclosure action (“Second Foreclosure”) against Bauer. The Second Foreclosure was voluntarily dismissed in 2015. In March 2016, then-mortgagee, U.S. Bank, filed a third foreclosure action (“Third Foreclosure”) against Bauer.
Bauer moved to dismiss the Third Foreclosure based on Illinois’s “single filing rule.” Under the rule, after a voluntary dismissal, a plaintiff may only commence a new action on the same cause of action within one year or within the remaining period of limitation, whichever greater. The court agreed that the rule applied and dismissed the Third Foreclosure with prejudice. In relevant part, the dismissal order (“Order”) said, “… Plaintiff’s complaint is dismissed with prejudice based on the single re-filing rule.”
The issue here arose when Roundpoint Mortgage Servicing Corporation (“Roundpoint”), the present servicer of the loan, allegedly reported Bauer’s delinquent payments for each month since dismissal of the Second Foreclosure to the credit reporting agencies (“CRAs”).
Bauer filed an action against Roundpoint alleging six causes of action, including a violation of the Fair Credit Reporting Act for Roundpoint’s alleged negligent and willful reporting of inaccurate and incomplete information to CRAs. Bauer alleged that the dismissal of the Third Foreclosure relieved him of his mortgage debt. He claimed that “final adjudication” of the Third Foreclosure “proves that the loan balance … is $0.” Not what the Order said.
Roundpoint argued that the Order merely procedurally barred another foreclosure action based on the same theory of default, but that the debt remained intact.
Citing Midland Funding, LLC v. Johnson, 137 S. Ct. 1407, 1411-12 (2017) and Pantoja v. Portfolio Recovery Assocs., LLC, 852 F.3d 679, 684 (7th Cir. 2017), cert. denied, 138 S. Ct. 736 (2018), the Court held that although the legal remedy of foreclosure was precluded, the single filing rule did not extinguish the right to the underlying debt, which remained. In Pantoja, the court explained that in Illinois “[t]he creditor retains the legal right to appeal to the debtor to honor the debt out of a sense of moral obligation even if the legal obligation can no longer be enforced in court”). Id. The Court also noted that there are circumstances, i.e. a loan modification or partial payment, in which a once-unenforceable debt may become enforceable again.
The Court observed that the only false statements Roundpoint was alleged to have made to the CRAs pertained to the delinquent debt. The Court held that because the debt itself was not discharged, and Bauer had not made the payments Roundpoint reported as delinquent, the information was complete and accurate. Roundpoint’s motion to dismiss was granted.