Caldwell v. Freedom Mortgage Corporation
3:19-cv-02193
N.D. Tex.Aug 14, 2020Background
- Five borrowers (Plaintiffs) hold FHA-insured mortgages serviced by Freedom Mortgage and paid convenience or "pay-to-pay" fees when using online/phone payment methods operated via Speedpay/Western Union.
- Plaintiffs’ deeds of trust state the lender "may collect fees and charges authorized by the Secretary [of HUD]." Plaintiffs contend that this language incorporates HUD regulations (and HUD Handbook 4000.1), which prohibit such convenience fees.
- Plaintiffs sued for breach of contract (based on alleged violation of HUD rules) and for violation of the Texas Debt Collection Act (TDCA), Tex. Fin. Code § 392.303(a)(2), alleging unauthorized collection of incidental fees.
- Freedom Mortgage moved to dismiss both claims, arguing the deed does not expressly incorporate HUD regulations, the fees are authorized or reasonable under HUD guidance, and other defenses (e.g., voluntary payment doctrine).
- The Court applied Rule 12(b)(6) standards and accepted Plaintiffs’ factual allegations as true but rejected conclusory legal claims.
- Ruling: the breach of contract claim was dismissed (deed does not expressly incorporate HUD regulations); the TDCA claim survived as plausibly pleaded and raising factual disputes unsuited to dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether HUD regulations/Handbook are expressly incorporated into the deed (breach of contract) | Deed phrase "may collect fees and charges authorized by the Secretary" incorporates HUD rules, so charging convenience fees breaches contract | Phrase is permissive, not mandatory; deed does not reference HUD Handbook or specific HUD regs, so no express incorporation | Not incorporated — breach of contract claim dismissed |
| Whether collection of optional convenience fees is "incidental to the obligation" under TDCA §392.303(a)(2) | Convenience fees are incidental because they are collected only when borrowers make payments on their debt | Fees are optional and avoidable, so not incidental to the debt | Fees plausibly incidental; TDCA claim survives |
| Whether the convenience fees are "expressly authorized by the agreement or legally chargeable" (TDCA defense) | Fees are not authorized by deed or law; HUD Handbook limits permissible fees and does not clearly authorize these convenience fees | Fees are reasonable/customary under HUD guidance and thus authorized | Not resolved at dismissal; Freedom failed to show authorization as a matter of law; factual inquiry remains |
| Applicability of the voluntary payment doctrine (bar to recovery) | Plaintiffs argue payments may not have been voluntary or made with full knowledge; factual issue | Fees were voluntarily paid with knowledge, so claim barred | Voluntariness is a factual issue inappropriate for 12(b)(6); court declines to resolve now |
Key Cases Cited
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (establishes pleading plausibility standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (requires factual allegations supporting reasonable inference of liability)
- Johnson v. World Alliance Fin. Corp., 830 F.3d 192 (5th Cir.) (HUD regulations do not create private cause of action absent express contractual incorporation)
- Bates v. JPMorgan Chase Bank, N.A., 768 F.3d 1126 (11th Cir.) (contract language can make compliance with HUD regulations a contractual condition when phrased mandatorily)
- Quinteros v. MBI Assocs., Inc., 999 F. Supp. 2d 434 (E.D.N.Y.) (convenience/transaction fees can be incidental to the debt under FDCPA)
- Weast v. Rockport Fin., 115 F. Supp. 3d 1018 (E.D. Mo.) (similar holding on incidental fees)
- BMG Direct Mktg. v. Peake, 178 S.W.3d 763 (Tex.) (Texas voluntary-payment doctrine)