Shellpoint, BNY Mellon Ask Court To Dismiss 'Zombie Second Mortgage' Class Action

In a high-profile case closely watched by mortgage servicers and consumer advocates alike, NewRez LLC (DBA Shellpoint Mortgage Servicing) and The Bank of New York Mellon (BNYM) have asked the U.S. District Court for Massachusetts to dismiss a class action lawsuit alleging they inflated balances on second mortgages that had been long dormant following bankruptcy discharges.

The case, Hodges v. NewRez LLC et al., centers on Eva Hodges, a Massachusetts homeowner who filed for bankruptcy in 2008 and stopped receiving monthly statements on her home equity line of credit (HELOC). More than 15 years later, she was notified that she owed over $150,000 — largely accrued interest and fees — on a mortgage she believed was no longer enforceable.

In an amended complaint filed in April, Hodges accused Shellpoint and BNYM of violating the Fair Debt Collection Practices Act (FDCPA), Massachusetts state consumer protection laws, and federal Truth in Lending Act (TILA) disclosure rules by failing to provide periodic billing statements for years, then seeking to collect interest and fees retroactively. The suit seeks class certification on behalf of borrowers in similar situations whose HELOCs were discharged in bankruptcy but remained subject to lien enforcement and interest accruals without regular statements.

The defendants’ May 20 motion to dismiss argues that all of Hodges’ claims collapse without a valid TILA violation. Shellpoint and BNYM assert that as a mortgage servicer and loan assignee, respectively, they are not liable under TILA. Further, because TILA only applies to creditors or qualifying assignees — and the plaintiff had already voluntarily dropped her original TILA claim — they contend the FDCPA and state law claims can't be used to repackage a non-existent TILA violation.

"Plaintiff attempts to shoehorn the non-existent TILA violation into claims by other names," the motion states, labeling the amended complaint as an effort to “backdoor” an unenforceable claim through other legal theories.

Among the five counts in the amended complaint are class-wide and individual claims under the FDCPA, claims under Massachusetts General Laws Chapter 93A and the state’s debt collection regulations, and a request for declaratory judgment that Shellpoint and BNYM are not entitled to the disputed fees and interest.

The defense argues that:

• No federal or state law independently mandates sending monthly mortgage statements after a debt is discharged in bankruptcy;
   
• The FDCPA cannot be used to enforce TILA obligations, a strategy courts have widely rejected;
   
• There is no “actual controversy” required for declaratory relief because no enforceable legal duty exists absent a TILA claim;
   
• The class claims should be dismissed because the named plaintiff lacks a viable personal claim.
   

The case underscores the increasing scrutiny on “zombie second mortgages” — long-dormant liens that resurface years after bankruptcy discharges, often surprising borrowers with large balances and foreclosure threats. Regulators including the CFPB have warned about these practices, citing borrower confusion and potential abuses by servicers and debt buyers.

The court has not yet ruled on the motion to dismiss. A decision could set precedent for how mortgage servicers handle discharged second liens — and whether servicers must send statements even when borrowers no longer have personal liability.