Stepp v. U.S. Bank Nat'Lass'N

JACQUELINE DAWN STEPP, Plaintiff, v. U.S. BANK NATIONAL ASSOCIATIONandALG TRUSTEE, LLC, Defendants.

Civil Action No.: 5:18-cv-00052

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF VIRGINIA HARRISONBURG DIVISION

December 18, 2018

By: Elizabeth K. Dillon United States District Judge

MEMORANDUM OPINION

In her lawsuit, plaintiff Jacqueline Dawn Stepp asserts that defendant U.S. Bank National Association (the Bank)¹ improperly foreclosed on her home. The gist of Stepp's complaint is that the Bank failed to comply with regulations applicable to her loan, promulgated by the Department of Housing and Urban Development (HUD) and incorporated into her deed of trust. Specifically, she contends that the Bank failed to offer, attempt, or conduct a face-to-face meeting with her before foreclosing on her property. Both defendants have moved to dismiss, with defendant ALG Trustee, LLC simply joining in the motion filed by the Bank.² (Dkt. Nos. 5, 7.)

The Bank asserts two arguments in support of dismissal. First, it contends that Stepp lacks standing to assert this claim because, during her bankruptcy proceedings, she did notidentify the claim and it was never abandoned by the estate. Thus, according to the Bank, the claim remains the property of the estate. Second, the Bank contends that the face-to-face requirement cannot support a cause of action here because it applies only where a lender has a "branch office" within 200 miles of the mortgaged property, and the Bank's only office within 200 miles of Stepp's home is not open to the public, does not perform any mortgage-related functions, and is therefore not a qualifying "branch office."

For the reasons set forth below, the court concludes that Stepp has standing to pursue her claims. Nonetheless, her claim is subject to dismissal because the "Bank" had no branch office within 200 miles of her home and so was exempt from the face-to-face meeting requirement. It will therefore grant defendants' motions to dismiss. The court further concludes that Stepp's proposed second amended complaint, which she offered as an alternative to possible dismissal but which contains new allegations that are relevant only to standing, is unnecessary in light of the court's ruling. So, her motion for leave to file that document (Dkt. No. 32) will be denied as moot.

I. BACKGROUND

A. Facts Concerning the Mortgage Loan and Subsequent Foreclosure³

Stepp obtained a mortgage loan in October 2010 to purchase a home in Page County, Virginia. The loan was a Fair Housing Act (FHA) loan governed by FHA regulations of HUD. The loan was evidenced by a note and secured by a deed of trust, both signed by Stepp. The original lender later assigned the note to the Bank, which has remained the note holder. (Am. Compl. ¶¶ 3, 7-8, Dkt. No. 3.)

The note itself prohibited an acceleration of the note and prohibited foreclosure unless there was compliance with the FHA regulations. (Id. ¶ 6.)⁴ The regulations require that certain conditions be met prior to the initiation of foreclosure proceedings. 24 C.F.R. § 203.606(a). One of the conditions is that a mortgagee have a "face-to-face interview with the mortgagor, or make a reasonable effort to arrange such a meeting, before three full monthly installments due on the mortgage are unpaid." Id. § 203.604. The requirement of an offer of a face-to-face interview requires a lender, "at a minimum," to "(a) send a letter offering such a meeting; and (b) go to the door of the borrower's home for the purpose of offering such a meeting." Id. § 203.604(d). Additionally, Stepp cites to 24 C.F.R. § 203.605(a), which requires the mortgagee, "[b]efore four full monthly installments due on the mortgage have become unpaid," to "evaluate on a monthly basis all of the loss mitigation techniques" provided at § 203.501 and take appropriate loss mitigation actions. (Am. Compl. ¶¶ 11-14.)⁵

Stepp alleges that the Bank never offered or conducted a face-to-face meeting. She acknowledges that the regulations exempt lenders from the face-to-face requirements where neither the holder of the note nor the servicer of the loan has a branch office within 200 miles of the residence which is collateral for the loan, but she alleges that the exemption is inapplicable here because the Bank has a branch office within 200 miles of her home. (Id. ¶¶ 15-18.)

Stepp fell behind on her mortgage payments and was more than three months in arrears on the note. The Bank subsequently instructed defendant ALG Trustee to foreclose on the home. After a purported foreclosure of the home, at which the Bank was the high bidder, the Bank thenconducted a purported internet auction of the home. After an investor claimed to have made the high bid and demanded that Stepp leave the home, Stepp refused. Then, the Bank stated it would have a second internet auction. It also made negative reports about Stepp's credit to credit reporting agencies. (Id. ¶¶ 16, 19-51.)⁶

The amended complaint asserts that, because of the Bank's failure to satisfy the face-to-face regulatory requirement, the purported foreclosure was void or, alternatively, was voidable. Stepp asks the court to rescind the foreclosure and to award other damages she has incurred as a result of the Bank's actions. (Id. ¶¶ 53-57.)

B. Stepp's Bankruptcy⁷

Because Stepp's bankruptcy case is relevant to the motion to dismiss, the court discusses it briefly. In October 2016, Stepp filed a voluntary Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Western District of Virginia. In re Dawn Jacqueline Stepp, Case No. 16-50960 (Bankr. W.D. Va.). After the Bank sought relief from the automatic stay, Stepp filed an amended schedule in which she listed a "[p]otential interest in civil suit against" the Bank. (Dkt. No. 8-2.) In a letter to the bankruptcy judge, which was docketed as an "answer" to the request for relief from the stay, Stepp alleged that she had found instances of fraud in her mortgage documents, she mentioned pyramiding late fees, dual tracking and robo-signing, and she also alluded to "violation of HUD regulations among many other issues." (Dkt. No. 8-3.) She did not specifically reference the regulation requiring a face-to-face offer or meeting.

The trustee later docketed a "Report of No Distribution," in which he stated that there was no property available for distribution from the estate and that the estate had been fully administered. (Dkt. No. 8-4.) That entry includes a notation stating "Claims Asserted: Not Applicable." (Id.) From this, Wells Fargo contends that the trustee believed Stepp had not identified any claims. The bankruptcy was discharged on January 23, 2018.

II. DISCUSSION

A. Standards of Review

Defendants seek dismissal under Federal Rule of Civil Procedure 12(b)(1) and Rule 12(b)(6). The standards for each are similar. To survive a Rule 12(b)(6) motion to dismiss, a plaintiff's allegations must "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). This standard "requires the plaintiff to articulate facts, when accepted as true, that 'show' that the plaintiff has stated a claim entitling him to relief, i.e., the 'plausibility of entitlement to relief.'" Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009) (quoting Iqbal, 556 U.S. at 678). The plausibility standard requires more than "a sheer possibility that a defendant has acted unlawfully." Iqbal, 556 U.S. at 678.

In determining whether Stepp has met this plausibility standard, the court must accept as true all well-pleaded facts in the complaint and any documents incorporated into or attached to it. Sec'y of State for Defence v. Trimble Navigation Ltd., 484 F.3d 700, 705 (4th Cir. 2007). Further, it must "draw[] all reasonable factual inferences from those facts in the plaintiff'sfavor," Edwards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999), but it "need not accept legal conclusions couched as facts or 'unwarranted inferences, unreasonable conclusions, or arguments,'" Wag More Dogs, LLC v. Cozart, 680 F.3d 359, 365 (4th Cir. 2012) (quoting Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008)).

The other portion of the Bank's motion challenges standing, which courts often treat as a defect in subject matter jurisdiction and thus address under Rule 12(b)(1). Richardson v. Mayor & City Council of Baltimore, No. 13-cv-1924, 2014 WL 60211, at *1-2 (D. Md. Jan. 7, 2014) (collecting authority). The plaintiff bears the burden of establishing that subject-matter jurisdiction exists. Evans v. B.F. Perkins Co., 166 F.3d 642, 647 (4th Cir. 1999). In deciding a Rule 12(b)(1) motion that is a factual challenge, rather than a facial challenge based only on the allegations in the complaint, "the district court is to regard the pleadings as mere evidence on the issue, and may consider evidence outside the pleadings without converting the proceeding to one for summary judgment." Id. (quoting Richmond, Fredericksburg & Potomac R.R. Co. v. United States, 945 F.2d 765, 768 (4th Cir. 1991)). It must, however, "view[ ] the alleged facts in the light most favorable to the plaintiff, similar to an evaluation pursuant to Rule 12(b)(6)." Lovern v. Edwards, 190 F.3d 648, 654 (4th Cir. 1999). Dismissal under Rule 12(b)(1) is proper "only if the material jurisdictional facts are not in dispute and the moving party is entitled to prevail as a matter of law." Evans, 166 F.3d at 647 (quoting Richmond, Fredericksburg & Potomac R.R., 945 F.2d at 768).

B. Stepp Has Standing

The Bank's first argument is that Stepp lacks standing to bring the claim against it because the claim is the property of her bankruptcy estate and was not abandoned by the estate.(Mem. Supp. Mot. Dismiss 6-8, Dkt. No. 8.) Thus, the Bank contends that the claim is still property of the estate and Stepp has no standing to assert it.

"A trustee in bankruptcy succeeds to all rights of the debtor,...