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McCalmont v. Federal National Mortgage Association

United States District Court, D. Arizona

January 15, 2019

James McCalmont, et al., Plaintiffs,
v.
Federal National Mortgage Association, et al., Defendants.

          ORDER

          Honorable John J. Tuchi United States District Judge

         At issue is Defendant's Motion for Summary Judgment (Doc. 107), to which Plaintiffs filed a Response (Doc. 137) and Defendant filed a Reply (Doc. 147). Also at issue is Plaintiffs' Motion for Partial Summary Judgment (Doc. 118), to which Defendant filed a Response (Doc. 133) and Plaintiffs filed a Reply (Doc. 151).

         I. BACKGROUND

         Plaintiffs James and Katherine McCalmont filed a Complaint (Doc. 1, Compl.) on October 16, 2013, alleging that they were “subjected to the repeated violation of and intentional non-compliance with the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq.” (Compl. ¶ 1.) Defendant, Federal National Mortgage Association (“FNMA”), is a government-sponsored entity created by Congress to purchase mortgage loans from lenders and thereby help stabilize the market for residential mortgages. Defendant licenses an automated underwriting system known as Desktop Underwriter (“DU”). (Compl. ¶¶ 18- 19; Answ. ¶ 19.) DU informs lenders whether a prospective loan would be eligible for purchase by Defendant.

         Lenders who use DU input a consumer's “tri-merge” credit report, which consists of the consumer's credit reports from three of the top credit repositories in the United States. (Compl. at ¶ 21.) From there, DU generates a Findings Report that details the consumer's credit and concludes whether or not a loan made to that consumer would be eligible for purchase by Defendant. (Compl. ¶ 30.) A Findings Report that lists a “Refer with Caution” rating indicates that Defendant would not purchase the subject mortgage loan.

         The rating produced in a DU Findings Report is based on the consumer's credit history-most relevant here, the program considers whether a consumer has completed a short sale of a property or whether a consumer's property has been foreclosed upon. A loan to a consumer who made a short sale of a mortgaged property may still be eligible for purchase by Defendant, as long as the short sale occurred more than two years before the consumer's current loan application. But if the consumer previously had a property foreclosed upon, he must wait seven years before any loan made to him becomes eligible for purchase by Defendant. Any application before those seven years are up would come back with a “Refer with Caution” rating and “be ineligible for delivery to [Defendant] as a DU loan.” Plaintiffs allege that Defendant failed to distinguish between a foreclosure and a short sale in its DU algorithm. (Compl. ¶¶ 74-83.) Indeed, Defendant responded to widespread concern about this practice in 2013, when it released “Desktop Underwriter Clarification.” (Doc. 1-3, DU Clarification.) Defendant explained that DU reviews “manner of payment” (“MOP”) codes associated with important transactions in a consumer's credit history as a way to determine the rating in the DU Findings Report. (DU Clarification at 1.) A foreclosure is indicated by MOP code 8 (foreclosure). And at the time of Defendant's clarification, “no codes provided in the credit report data received by DU [] specifically identify a preforeclosure sale.”[1] (DU Clarification.) Thus, Plaintiffs allege that any consumer who engaged in a short sale had an MOP code 8 appear on his DU Findings Report, indicating a foreclosure that did not actually occur, and thereby rendering any loan within seven years of the short sale ineligible for purchase by Defendant. (Compl. ¶ 44.)

         Plaintiffs negotiated a short sale of their real estate in 2009. (Compl. ¶ 34.) After waiting the requisite two years to apply for a new mortgage loan for a separate property, Plaintiffs were denied conventional mortgage financing multiple times. (Compl. ¶¶ 36- 52.) Plaintiffs allege that “the ‘foreclosure' notation [] was preventing them from obtaining financing.” (Compl. ¶ 52.)

         Plaintiffs filed this action, seeking damages under 15 U.S.C. § 1681n and § 1681o, for both willful and negligent violations of the Fair Credit Reporting Act (“FCRA”). (Compl. ¶ 99.) In 2014, Defendant moved to dismiss the case on the grounds that it is not subject to the FCRA. (Doc. 23). District Judge Holland granted Defendant's Motion and dismissed the case. (Doc. 38.) The Ninth Circuit later reversed. (Doc. 48.) The case was remanded and assigned to District Judge Tuchi (Doc. 53.) On March 21, 2018, Defendant filed a Motion for Summary Judgment (Doc. 107). Plaintiffs subsequently filed their own Motion for Partial Summary Judgment (Doc. 118).

         LEGAL STANDARDS

         A. Motion for Summary Judgment

         Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is appropriate when: (1) the movant shows that there is no genuine dispute as to any material fact; and (2) after viewing the evidence most favorably to the non-moving party, the movant is entitled to prevail as a matter of law. Fed.R.Civ.P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Eisenberg v. Ins. Co. of N. Am., 815 F.2d 1285, 1288-89 (9th Cir. 1987). Under this standard, “[o]nly disputes over facts that might affect the outcome of the suit under governing [substantive] law will properly preclude the entry of summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A “genuine issue” of material fact arises only “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id.

         In considering a motion for summary judgment, the court must regard as true the non-moving party's evidence, if it is supported by affidavits or other evidentiary material. Celotex, 477 U.S. at 324; Eisenberg, 815 F.2d at 1289. However, the non-moving party may not merely rest on its pleadings; it must produce some significant probative evidence tending to contradict the moving party's allegations, thereby creating a material question of fact. Anderson, 477 U.S. at 256-57 (holding that the plaintiff must present affirmative evidence in order to defeat a properly supported motion for summary judgment); First Nat'l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 289 (1968).

         “A summary judgment motion cannot be defeated by relying solely on conclusory allegations unsupported by factual data.” Taylor v. List, 880 F.2d 1040, 1045 (9th Cir. 1989). “Summary judgment must be entered ‘against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.'” United States v. Carter, 906 F.2d 1375, 1376 (9th Cir. 1990) (quoting Celotex, 477 U.S. at 322).

         B. Fair ...


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