District Court (Cal.) Finds that Mortgage Company Had Permissible Purpose to Access Mortgagee’s Consumer Report Despite Mortgagee’s Receipt of Bankruptcy Discharge

Plaintiffs allege that Wells Fargo lacked a permissible purpose for accessing their credit reports after their bankruptcy discharge. FAC ¶ 31. According to Plaintiffs, the discharge eliminated their mortgage debt and consequently severed any ongoing credit relationship with Wells Fargo. Id. ¶¶ 24, 32.  Plaintiffs’ argument disregards the limited scope of bankruptcy discharges under Chapter 13. Mortgage-related debts are generally non-dischargeable under Chapter 13 because Chapter 13 bankruptcy plans cannot modify any claims secured by a debtor’s principal residence. See 11 U.S.C. § 1322(b)(2); In re Zimmer, 313 F.3d 1220, 1222 (9th Cir. 2002); In re Rodriguez, 421 B.R. 356, 364 (Bankr. S.D. Tex. 2009) (“[C]laims held by home mortgage lenders are not discharged at the conclusion of a successful chapter 13 bankruptcy case.”). Although § 1322(b)(5) provides an exception for the “curing of any default” and “maint[aning] of payments” on claims due after the Chapter 13 proceeding, the scope of § 1322(b)(5) is still narrow. See In re Rodriguez, 421 B.R. at 365. Section 1328(a)(1) explicitly states that modifications under § 1322(b)(5) do not discharge the underlying debt. See id.; see also In re Dukes, No. 9:09-bk-02778-FMD, 2015 WL 3856335, at *4 (Bankr. M.D. Fla. 2015). In light of this statutory framework, numerous courts have concluded that debts secured by a principal residence survive a Chapter 13 discharge. See, e.g., In re Rodriguez, 421 B.R. at 366 (finding that “no statutory basis exists for discharging home mortgage debt”); In re Hunt, No. 14-02212-5-DMW, 2015 WL 128048, at *4 (Bankr. E.D. N.C. 2015) (holding that discharging home mortgage debt would be an impermissible loan modification under § 1322(b)(2)); In re Wagner, No. 06-30919, 2011 WL 2636841, at *3 (Bankr. S.D. Tex. 2011) (“[T]he rights of a secured home mortgage lender are generally unaffected by the discharge.”). None of Plaintiffs’ authorities address these limitations under Chapter 13. See, e.g., Freedom v. Citifinancial, LLC, No. 15 C 10135, 2016 WL 4060510, at *8 (N.D. Ill. 2016); Souvigny v. Wells Fargo Home Mortg., Inc., No., 15 C 07465, 2016 U.S. Dist. LEXIS 99875, at *23 (N.D. Ill. 2016). Instead, they rely on Chapter 7 bankruptcy cases without acknowledging a key distinction: under Chapter 7, debts secured by a principal residence may be discharged. See 11 U.S.C. § 727(a); see also Johnson v. Home State Bank, 501 U.S. 78 (1991) (“A defaulting debtor can protect himself from personal liability [for mortgage debt] by obtaining a discharge in a Chapter 7 liquidation.”). And Godby v. Wells Fargo Bank, N.A., 599 F. Supp. 2d 934, 942 (S.D. Ohio 2008), is itself a Chapter 7 case.  Plaintiffs contend that their intended “surrender” nevertheless “effectively vested Plaintiffs’ interests in the property with [Wells Fargo].” See Dkt. No. 30 at 4–5. Even if the Court could construe Plaintiffs’ vague allegation of “intent to surrender” as actual surrender, a debtor’s surrender of real property does not, in and of itself, terminate the debtor’s ownership or personal liability for the property. See In re Batali, BAP No. WW-14-1557-KiFJu, 2015 WL 7758330, at *9 (BAP 9th Cir. 2015). In In re Batali, the plaintiffs argued that surrendering their condominium through a confirmed Chapter 13 plan and bankruptcy discharge extinguished their liability for ongoing HOA fees. See id. at *3. The court rejected this argument and instead found that the plaintiffs “had not divested themselves of their legal and equitable ownership interests in [the condominium]” because they retained title to the property. Id. at *9. The court reasoned that a confirmed Chapter 13 plan “[did] not substitute for a deed” as a means of conveying real property. Id. Accordingly, the court held that plaintiffs would remain personally liable for the HOA fees until either foreclosure or a transfer of deed. Id. at *8–*9; see also In re Rosa, 495 B.R. 522, 523 (Bankr. D. Haw. 2013) (“[S]urrender does not transfer ownership of the surrendered property. Rather, ‘surrender’ means only that the debtor will make the collateral available so the secured creditor can, if it chooses to do so, exercise its state law rights in the collateral.”); Goudelock v. Sixty-01 Ass’n of Apartment Owners, No. C15-1413-MJP, 2016 WL 1365942, at *3 (W.D. Wash. 2016) (affirming that the plaintiff retained her legal interest in surrendered real property until foreclosure).  Here, Plaintiffs do not allege that Wells Fargo foreclosed on the property, that Plaintiffs transferred title, or even that they vacated the property prior to Wells Fargo obtaining their credit reports. See FAC ¶¶ 21–26. To the contrary: Plaintiffs reserved the right to enroll in the Nevada Foreclosure Mediation Program, indicating their continued interest in the property. See id. ¶ 22. Because Plaintiffs’ mortgage debt is non-dischargeable and would remain unaffected by mere surrender, the Court finds that Plaintiffs have not sufficiently alleged that Wells Fargo accessed Plaintiffs’ consumer credit reports without a permissible purpose.