New York Federal Court Holds Borrowers’ Action Against Lender Is Barred by Res Judicata

The United States District Court for the Eastern District of New York recently granted a lender’s motion to dismiss an action in which the borrowers alleged numerous violations of consumer laws, finding that the state court final judgment of foreclosure precluded any further claims relating to the borrowers’ loan.  See Bell v. Deutsche Bank, 2019 WL 4917901 (E.D.N.Y. Sept. 30, 2019).  In the case, plaintiffs defaulted on their mortgage and the lender brought a foreclosure action in state court in 2015.  The state court granted defendant’s motion for summary judgment and the property eventually was sold at a foreclosure sale.  In 2018, plaintiffs brought this complaint against the lender alleging, among other claims, negligent infliction of emotional distress and violations of the Real Estate Settlement Procedures Act (“RESPA”) and Dodd-Frank Act.  The lender filed a motion to dismiss arguing, among other things, that plaintiffs’ claims were barred because they should have been litigated in the state court foreclosure action. 

The Court granted the motion to dismiss.  In addition to finding that plaintiffs failed to properly serve the lender, the Court agreed with the lender that the allegations should have been raised in the state court action and, therefore, are precluded under the doctrine of res judicata.  “Courts in this Circuit have found that a plaintiff’s federal-court claim is precluded by a state-court judgment in a foreclosure action when the plaintiff has alleged, in federal court, that the defendants acted improperly in connection with the making, validity or enforcement of the underlying mortgage.”  Further, the Court dismissed the negligent infliction of emotional distress claim because “Deutsche Bank, as a mortgage servicer, owes no duty of care to plaintiffs, the borrowers.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Michael Crowley at mcrowley@riker.com, or Anthony Lombardo at alombardo@riker.com