Beard v. HSBC Mortg. Servs., Inc.

CHARLES J. BEARD, MICHELLE L. BEARD, Plaintiffs, v. HSBC MORTGAGE SERVICES, INC., Defendant.

File No. 1:15-CV-1232

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

May 31, 2016

HON. ROBERT HOLMES BELL

OPINION

This is an action for: (1) wrongful foreclosure; (2) breach of contract; (3) fraudulent misrepresentation; (4) slander of title; (5) declaratory relief to bar a foreclosure under the doctrine of unclean hands; and (6) equitable conversion to a judicial foreclosure. (Compl., ECF No. 1.) This action was filed in state court on October 30, 2015, and removed to this Court on November 25, 2015. On December 14, 2015, the Court denied Plaintiffs' request for a preliminary injunction. Before the Court is Defendant's motion for judgment on the pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure (ECF No. 13).

I.

The standard of review for a Rule 12(c) motion is the same as for a Rule 12(b)(6) motion to dismiss for failure to state a claim. Fritz v. Charter Twp. of Comstock, 592 F.3d 718, 722 (6th Cir. 2010). In reviewing a motion under Rule 12(b)(6), the Court must "'construe the complaint in the light most favorable to the plaintiff, accept its allegations as true, and draw all reasonable inferences in favor of the plaintiff,'" but it "'need not accept as true legal conclusions or unwarranted factual inferences.'" Hunter v. Sec'y of U.S. Army, 565 F.3d 986, 992 (6th Cir. 2009) (quoting Jones v. City of Cincinnati, 521 F.3d 555, 559 (6th Cir. 2008)). A complaint must contain "a short and plain statement of the claim showing how the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). The purpose of this statement is to "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

The complaint need not contain detailed factual allegations, but it must include more than labels, conclusions, and formulaic recitations of the elements of a cause of action. Id. "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 555). A complaint must allege facts that "state a claim to relief that is plausible on its face," and that, if accepted as true, are sufficient to "raise a right to relief above the speculative level." Twombly, 550 U.S. at 555, 570.

"The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Iqbal, 556 U.S. 678. "A claim is plausible on its face if the 'plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'"Ctr. for Bio-Ethical Reform, Inc. v. Napolitano, 648 F.3d 365, 369 (6th Cir. 2011) (quoting Iqbal, 556 U.S. at 677), cert. denied, 132 S. Ct. 1583 (2012).

Generally, when reviewing a Rule 12(c) or Rule 12(b)(6) motion to dismiss, "a district court may not consider matters beyond the complaint." Winget v. JP Morgan Chase Bank, N.A., 537 F.3d 565, 575 (6th Cir. 2008) (citing Kostrzewa v. City of Troy, 247 F.3d 633, 643 (6th Cir. 2001)). "[I]t may consider the [c]omplaint and any exhibits attached thereto, public records, items appearing in the record of the case and exhibits attached to defendant's motion to dismiss so long as they are referred to in the [c]omplaint and are central to the claims contained therein." Bassett v. Nat'l Collegiate Athletic Ass'n, 528 F.3d 426, 430 (6th Cir. 2008).

II.

Plaintiffs Charles J. and Michelle L. Beard claim an interest in real property located in Three Rivers, Michigan, at 16622 Lovers Lane (the "Property"). Defendant HSBC Mortgage Services, Inc. ("HSBC") was the holder of the mortgage on the Property and purchased the Property at a sheriff's sale on April 16, 2015, after Plaintiffs defaulted on their mortgage obligations. This action was filed in St. Joseph County Circuit Court on October 30, 2015. On November 2, 2015 the state court granted an ex parte motion for a temporary restraining order staying the expiration of the redemption period and barring HSBC from evicting Plaintiffs from the Property until a hearing on the motion that was scheduled forDecember 1, 2015. HSBC removed the action to this Court on November 25, 2015. After a hearing in this Court, the Court denied the motion for a preliminary injunction.

A. Wrongful Foreclosure

In Count I of the complaint, Plaintiffs claim that Defendant wrongfully foreclosed on the property in violation of state law, Mich. Comp. Laws § 600.3201 et seq., and federal law, i.e., the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. § 2605 et seq., and the Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq. Among other things, Plaintiffs allege that Defendant (1) failed to provide notice of the default before accelerating the mortgage; (2) commenced foreclosure when Defendants were being considered for a loan modification; and (3) failed to notify Plaintiffs that the mortgage and servicing rights were transferred to a third party.

Under Michigan law, a mortgagor may redeem a property within six months of the foreclosure sale by paying the requisite amount. Mich. Comp. Laws § 600.3240. "If a mortgagor fails to avail him or herself of the right of redemption, all of the mortgagor's rights in and to the property are extinguished." Bryan v. JPMorgan Chase Bank, 848 N.W.2d 482, 485 (Mich. Ct. App. 2014) (citing Piotrowski v. State Land Office Bd., 4 N.W.2d 514 (Mich. 1942)); see Mich. Comp. Laws § 600.3236 (providing that, unless a property is redeemed within the redemption period, "all the right, title, and interest" of the mortgagor is vested in the deed of sale).

In this case, the redemption period expired on October 16, 2016, six months after the foreclosure sale. Because the redemption period has expired, Plaintiffs' ability to challenge the foreclosure is limited. See Bryan, 848 N.W.2d at 485; see also Conlin v. Mortgage Elec. Registration Sys., Inc., 714 F.3d 355, 359-60 (6th Cir. 2013); El-Seblani v. IndyMac Mortg. Servs., 510 F. App'x 425, 428 (6th Cir. 2013) ("A strict reading of the statute suggests that once the redemption period expires, the homeowner has no legal interest in the property that litigation might vindicate."). To challenge the foreclosure, Plaintiffs must make a "clear showing of fraud or irregularity." Hamood v. Comerica Bank, No. 322833, 2016 WL 155756, at *2 (Mich. Ct. App. Jan. 12, 2016) (citing Bryan, 848 N.W.2d at 485). This is a "high standard" for Plaintiffs to meet. Conlin, 714 F.3d at 360. "[N]ot just any type of fraud [or irregularity] will suffice." Id. Rather, it must relate to the foreclosure proceeding itself. Id. In addition, Plaintiffs must show that they were prejudiced. In other words, "they must show that they would have been in a better position to preserve their interest in the property absent defendant's noncompliance with the statute." Kim v. JPMorgan Chase Bank, NA, 825 N.W.2d 329, 337 (Mich. 2012).

1. Irregularity

As to "irregularity" or non-compliance with the foreclosure statute, Plaintiffs allege that Defendant failed to notify them of their default. Plaintiffs assert that they were not aware of the foreclosure sale because they never saw a notice of sale posted on the Property. Michigan law does not require the holder of the mortgage to notify the mortgagor of default.It requires the mortgagee to provide notice that the mortgage will be foreclosed by a sale of the property. Mich. Comp. Laws § 600.3208. To satisfy the notice requirement, a notice must be published in the local newspaper once a week for four weeks prior to the sale. Id. In addition, a copy of the notice must be posted in a "conspicuous place" upon the premises. Id. Exhibits to Plaintiffs' complaint indicate that Defendant complied with this requirement. Those exhibits include a sheriff's deed which attests that notice of foreclosure for the Property was posted in the county newspaper and in a conspicuous place on the Property. (Sheriff's Deed, ECF No. 1, PageID.58.) Another exhibit indicates that the notice was affixed to the door frame of Plaintiffs' home. (Affidavit of Posting, ECF No. 1, PageID.60.) Under Michigan law, such documentation is "presumptive evidence of the facts therein contained." Mich. Comp. Laws § 600.3264. Plaintiffs do not allege that Defendant failed to provide the notice required by the statute. The fact that Plaintiffs did not see these notices does not mean that the foreclosure was invalid. The statute does not require "actual notice." See Whitfield v. OCWEN Berkeley Federal Bank & Trust, No. 221248, 2001 WL 1699782, at *2 (Mich. Ct. App. Dec. 28, 2001) (rejecting claim that foreclosure was invalid where plaintiff did not have actual notice of the sale).

Plaintiffs also contend that Defendant did not properly calculate the amount due on the date of the notice of foreclosure. (Compl. ¶ 73.) Under Michigan law, the notice of foreclosure must contain the "amount claimed to be due on the mortgage on the date of thenotice." Mich. Comp. Laws § 600.3212(c). Plaintiffs do not allege any prejudice as a result of this error, however.

Plaintiffs further contend that Defendant did not comply with federal law. 12 C.F.R. § 1024.41, known as "Regulation X," provides that the servicer of a loan may not refer a mortgage for foreclosure proceedings in certain circumstances. For instance, before reviewing a loss mitigation application, the servicer may not begin foreclosure proceedings unless a loan obligation is more than 120 days delinquent. 12 C.F.R. § 1024.41(f)(1). If a borrower submits a complete application for a loss mitigation application, the servicer may not refer the mortgage for foreclosure until notifying the borrower that the borrower is not eligible for a loss mitigation option. 12 C.F.R. § 1024.41(f)(2). In addition, if a...