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Delmar Financial Co. v. Ocwen Loan Servicing, LLC

United States District Court, E.D. Missouri, Eastern Division

April 25, 2018




         This matter is before the Court on Defendant's motion to dismiss Count II (Breach of the Implied Duty of Good Faith and Fair Dealing) and Count III (Negligence) of Plaintiff's complaint, pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth below, the motion will be granted.


         Plaintiff Delmar Financial Company (“Delmar”), a Missouri company, is a mortgage lender that originates loans and holds loan servicing rights. Defendant Ocwen Loan Servicing, LLC (“Ocwen”), a mortgage loan servicer, is incorporated in Delaware, with its principal place of business in Florida. On January 1, 2014, Delmar and Ocwen entered into a Subservicing Agreement (“Agreement”) under which Ocwen was to act as Delmar's subservicer, providing services such as collecting payments from borrowers and remitting those payments to secondary market investors. Under the Agreement, Ocwen was required to act “consistent with . . . Accepted Servicing Practices, Applicable Law and the Approval Matrix.” ECF No. 5-1 at 18.

         The Agreement also stated that Ocwen “shall comply in all material respects with Applicable Law and employ Accepted Servicing Practices except and to the extent that such practices conflict with the requirements of this Agreement.” Id. at 20. “Accepted Servicing Practices” is defined by the Agreement as:

With respect to any Portfolio Loan or REO Property, (i) the Fannie Mae Guides, (ii) any applicable mortgage insurer guides, (iii) the VA Regulations applicable for any VA Mortgage Loan and FHA regulation applicable for any FHA Mortgage Loans, and (iv) to the extent not inconsistent therewith, those mortgage servicing practices of mortgage lending institutions which service mortgage loans of the same type as Portfolio Loan or REO Property in the jurisdiction where the related Mortgaged Property is located, exercising a reasonable standard of care in performing those practices.

Id. at 5. The Agreement included an indemnification provision which stated:

[T]he Subservicer shall defend and indemnify [Delmar] . . . against any and all Liability sustained by [Delmar] . . . arising from the failure of the Subservicer to perform its duties under this Agreement or the Subservicer's breach of the terms of this Agreement, including taking any action or failing to take any action in accordance with the Approval Matrix.

Id. at 59. The indemnification provision also provided that Ocwen would indemnify Delmar for liability resulting from “the assertion of any claim or the commencement of any proceeding or investigation by any Person not a party hereto . . . subject to [certain] terms and conditions.” Id. The Agreement provided that it would be construed in accordance with New York law. Id. at 80.

         In its complaint, Delmar alleges that Ocwen “failed to perform in material respects obligations set forth in the [Agreement].” ECF No. 5 at 3. Delmar outlines a number of acts that, according to the complaint, constituted a breach of contract, a breach of the implied duty of good faith and fair dealing, and/or negligence, as follows. Ocwen used REALServicing as its loan servicing platform, and that platform lacked “the basic system architecture and design necessary to properly service loans, ” which caused “great disruption” and “impacted Delmar's loans.” Id. Ocwen's failure to initiate foreclosure or convey property in a timely manner led to interest curtailments, additional property damage, and additional preservation costs. Ocwen also performed unnecessary repair work, and it made mistakes with respect to various USDA Rural Development loans that have caused Delmar to sustain losses. And Ocwen “failed to follow the conventional and government loan claim process in a timely and accurate manner.” Id. at 4.

         The complaint further alleges that Ocwen failed to adhere to Governmental National Mortgage Association's (“Ginnie Mae”) program requirements by placing custodial funds into interest bearing accounts, which caused Ginnie Mae to send Delmar a Pre-Penalty Notice. As a result, Delmar will allegedly need to retain and pay an attorney to file a response or risk paying a penalty. The complaint states that Ocwen made assurances to Delmar that it would pay the fine, but has not done so. The complaint also states that, on several occasions, Delmar was charged for items that Ocwen admitted were caused by its fault, and although Ocwen agreed to indemnify Delmar, it has not done so.

         The complaint alleges that, in one instance, a borrower on a loan subserviced by Ocwen claimed that Ocwen erred in its duties by failing to properly apply reinstatement funds to cure a default. The borrower brought suit against Ocwen, and Ocwen sought to shift liability and payment of legal fees to Delmar, despite the indemnification provision in the Agreement requiring Ocwen to “defend and indemnify Delmar against any and all liability arising from Ocwen's failure to perform its duties.” Id. at 5.

         Delmar asserts that Delmar submitted two claims for indemnification to Ocwen in April 2017, which Ocwen accepted as “test claims” to be used as a template for future claims. Delmar states that it has yet to receive payment on these two claims. Delmar additionally filed 14 claims, none of which have been indemnified by Ocwen. The total of the unpaid claims to date is $274, 000. Delmar alleges a total of $950, 000 in losses as a result of Ocwen's conduct.

         In Count I of the three count complaint, Delmar claims that Ocwen breached the Agreement by, “among other things, failing to comply with Accepted Servicing Practices, failing to comply with Agency regulations and standards and being unable to even board new loans in certain states in which Delmar does business.” Id. at 7. In Count II, Delmar claims that Ocwen breached an implied duty of good faith and fair dealing by “its conduct herein.” Id. at 8. And in ...

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