Michael Letvin, et al v. Jack Lew, et al

Filing

OPINION filed : AFFIRMED, decision not for publication. Ralph B. Guy , Jr. (AUTHORING), Karen Nelson Moore and Raymond M. Kethledge, Circuit Judges.

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NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 15a0631n.06
No. 14-2147
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

FILED
MICHAEL LETVIN; KEITH PHILLIPS,
Plaintiffs-Appellants,
v.
JACK LEW, Secretary of Treasury;
SHAUN DONOVAN, Secretary of HUD;
FLAGSTAR BANK, FSB; BANK OF
AMERICA, N.A., Successor to BAC
Home Loans Servicing, L.P., fka
Countrywide Home Loans Servicing, L.P.,

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Sep 09, 2015
DEBORAH S. HUNT, Clerk

On Appeal from the United States
District Court for the Eastern
District of Michigan

Defendants-Appellees.
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Before: GUY, MOORE, and KETHLEDGE, Circuit Judges.
RALPH B. GUY, JR. Circuit Judge.

Plaintiffs, Michael Letvin and Keith

Phillips, sued defendant banks, Flagstar Bank and Bank of America, alleging foreclosure
of their homes in violation of Michigan’s foreclosure statute, federal housing statutes, and
HUD guidelines. The District Court dismissed plaintiffs’ complaint under FED. R. CIV.
P. 12(b)(6) for failure to state a claim. We affirm.

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I.
Plaintiffs each received mortgage loans from defendant banks or defendant banks’
successors in interest. Each plaintiff defaulted on his mortgage, and defendant banks
commenced foreclosure by advertisement, each ultimately purchasing the homes at
sheriff’s sales for full credit bids.1 Neither plaintiff redeemed his home during the sixmonth redemption period.
Plaintiffs instead filed the instant complaint alleging violation of various HUD
servicing guidelines, attempting to form a class of persons whose homes were foreclosed
upon by lenders’ full credit bids, asserting a 42 U.S.C. § 1983 claim, and respectively
seeking declaratory and equitable relief against government defendants and defendant
banks.

Defendant banks moved to dismiss, arguing that they fully complied with

Michigan’s foreclosure requirements and were not the proper defendants for a § 1983
claim. The District Court granted defendant banks’ motion, denied plaintiffs’ request to
amend their pleadings, dismissed plaintiffs’ case as to the government defendants for lack
of prosecution, and denied plaintiffs’ motion for reconsideration.
II.
We review de novo the District Court’s dismissal of plaintiffs’ complaint for
failure to state a claim, and “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.” Handy-Clay v. City of Memphis, Tenn., 695 F.3d 531, 538 (6th Cir. 2012).

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A “full credit bid” refers to a bid for the full outstanding balance on a mortgagor’s loan. Love v. Lew, No. 13-cv14946, 2015 WL 93374, at *1 (E.D. Mich. Jan. 7, 2015).

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However, we “need not accept as true legal conclusions or unwarranted factual
inferences.” Gregory v. Shelby Cnty., Tenn., 220 F.3d 433, 446 (6th Cir. 2000).
MICH. COMP. LAWS § 600.3228 allows mortgagees to “fairly and in good faith”
purchase foreclosed properties at a sheriff’s sale. Failure to redeem property within six
months of a sheriff’s sale extinguishes a mortgagor’s rights to the property. See MICH.
COMP. LAWS § 600.3240(8); Conlin v. Mortg. Registration Sys., 714 F.3d 355, 359
(2013).

Filing suit does not toll the redemption period.

Overton v. Mortg. Elec.

Registration Sys., No. 284950, 2009 WL 1507342, at *1 (Mich. Ct. App. May 28, 2009).
To void a sheriff’s sale after the redemption period, plaintiffs must show fraud or
irregularity in the foreclosure process, without which “they would have been in a better
position to preserve their interest in the property.” Kim v. JPMorgan Chase Bank, N.A.,
825 N.W.2d 329, 337 (Mich. 2012).
To state a § 1983 claim, plaintiffs must allege that defendants, while acting under
color of state law, deprived them of a right guaranteed by the Constitution or federal law.
Brock v. McWherter, 94 F.3d 242, 244 (6th Cir. 1996). State action exists where there is
such a “close nexus between the State and the challenged action . . . that the action . . .
may be fairly treated as that of the State itself.” Jackson v. Metro. Edison Co., 419 U.S.
345, 351 (1974). Private conduct is not actionable under § 1983. Am. Mfrs. Mut. Ins. Co.
v. Sullivan, 526 U.S. 40, 50 (1999).
We review de novo a District Court’s denial of a motion to amend a pleading
where such denial “is based on it being futile, or solely on the legal conclusion that the

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amended pleading would not withstand a motion to dismiss . . . .” V Cars, LLC v. Chery
Auto. Co., Ltd., 603 F. App’x 453, 455 (6th Cir. 2015).
III.
A. Sheriff’s Sales
Plaintiffs first seek to set aside their respective sheriff’s sales, citing MICH. COMP.
LAWS § 600.5801(1) for the proposition that they have five years from the date of sale to
do so.

Plaintiffs are mistaken.

MICH. COMP. LAWS § 600.5801(1) governs a

“defendant[’s]” claim of title “by or through some deed made upon sale of the premises .
. . by a sheriff upon a mortgage foreclosure sale . . . .” Plaintiffs do not claim title by way
of the sheriff’s sale, and § 600.5801(1) is thus inapplicable. Rather, plaintiffs must meet
the Kim standard. As discussed infra, defendant banks’ supposed “overbidding” at the
sheriff’s sales does not constitute fraud or irregularity.

Nor was there fraud or

irregularity in their alleged failure to follow HUD bidding guidelines, as these guidelines
postdate the sheriff’s sales and apply only to foreclosure sales “scheduled on or after
February 1, 2015.” U.S. DEP’T OF HOUSING AND URBAN DEVELOPMENT, MORTGAGEE
LETTER 2014-24, INCREASING USE OF FHA’S CLAIMS WITHOUT CONVEYANCE OF TITLE
PROCEDURES, at 1 (2014). Plaintiffs also failed to plead sufficient facts to support their
claim that defendant banks violated then-effective HUD servicing guidelines, asserting
only “a legal conclusion couched as a factual allegation.” Alshaibani v. Litton Loan
Serv., LP, 528 F. App’x 462, 465 (6th Cir. 2013). Nor can plaintiffs show prejudice, as
they “admitted default, received notice of default, failed to show they had the funds to

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outbid the highest bidder at the sale, let alone pay the entire unpaid balance owing on the
loan, and showed no attempt to redeem the property . . . .” Colyer v. Fed. Home Loan
Mortg. Corp., No. 13-10425, 2014 WL 1048009, at *5 (E.D. Mich. March 18, 2014)
(collecting cases). Dismissal for failure to state a claim was appropriate.
B. Overbidding
Defendant banks’ full credit bids were above the fair market value of plaintiffs’
homes. Plaintiffs argue such “overbidding” violates § 600.3228. This Court has declined
to address such claims, stating that it is “not persuaded that making an other-than-marketvalue bid at a sheriff’s sale constitutes fraud sufficient to set aside [a] foreclosure.”
Rubin v. Fannie Mae, 587 F. App’x 273, 276 (6th Cir. 2014). Contrary to plaintiffs’
assertion that good faith requires mortgagees to make fair market value bids in order to
promote homeownership, § 600.3228 makes no such demand. See Bank of N.Y. Mellon
Trust Co., N.A. v. Robinson, No. 311724, 2013 WL 6690678, at *3 (Mich. Ct. App. Dec.
19, 2013) (“[I]t was not an ‘injustice’ for [mortgagee] to purchase the property for an
amount equal to what the [mortgagors] owed on the property, and [mortgagee] did not
violate MCL 600.3228.”). The District Court properly dismissed this claim.
C. 42 U.S.C. § 1983
Plaintiffs contend that defendant banks’ full credit bids violated the Equal
Protection Clause of the Fourteenth Amendment because defendant banks bid fair market
value on other foreclosed homes, thus providing similarly situated mortgagors with
different opportunities for redemption. Plaintiffs argue that defendant banks acted under

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color of state law because they are regulated by federal banking law. We first note that
federal banking law is not state law, and thus is not within the purview of the Fourteenth
Amendment. Moreover, although Michigan law regulates the process, the foreclosure
remedy is created by the contract between mortgagor and mortgagee. See Northrip v.
Fed. Nat’l Mortg. Ass’n, 527 F.2d 23, 26-27 (6th Cir. 1975). “Despite the existence of a
statute to regulate foreclosure by advertisement in Michigan . . . no state action exist[s]
for Fourteenth Amendment purposes . . . [and] creditors that pursue[] foreclosure [a]re
not subject to constitutional restraints.” Ray v. Oakland Cnty. Drain Comm’n, 115 F.
App’x 775, 777 (6th Cir. 2004). Plaintiffs’ Equal Protection claim is thus not cognizable
under § 1983 for lack of state action, and the District Court rightly dismissed it.
D. Pleading Amendment
Plaintiffs lastly fault the District Court for denying leave to again amend their
complaint to cure any deficiencies. Though courts “should freely give leave [to amend]
when justice so requires,” FED. R. CIV. P. 15(a)(2), leave should be denied if it is sought
in bad faith, would result in undue delay, or would be futile. See Murphy v. Grenier, 406
F. App’x 972, 977 (6th Cir. 2011). Here, plaintiffs’ counsel did not understand the
deficiencies of his complaint, requesting that “somebody tell[] me what it is that we
didn’t say.” Plaintiffs did not state what amendments they would make or how the
amendments would satisfy pleading requirements, and many of their claims could not
benefit from any amount of factual development or legal argument. The District Court
properly denied leave to amend on grounds that it would be futile.

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AFFIRMED.

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