Williams v. Wells Fargo Home Mortgage, Inc. et al

Filing 34

ORDER denying 18 Motion to Dismiss; denying 20 Motion to Dismiss. Signed by Chief Judge William H. Steele on 7/30/2015. (tgw)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
CHERYL WILLIAMS,
Plaintiff,
v.
WELLS FARGO HOME
MORTGAGE, INC., et al.,
Defendants.

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) CIVIL ACTION 15-0164-WS-N
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ORDER

This matter is before the Court on the defendants’ motions to dismiss.
(Docs. 18, 20). The parties have filed briefs and evidentiary materials in support
of their respective positions, (Docs. 18, 29, 32, 33), and the motions are ripe for
resolution. After careful consideration, the Court concludes the motions to
dismiss are due to be denied.
BACKGROUND
According to the amended complaint, (Doc. 17), defendant Federal
National Mortgage Association (“Fannie Mae”) owned the mortgage loan on the
plaintiff’s residence. Defendant Wells Fargo Home Mortgage, Inc. (“Wells
Fargo”) acted as loan servicer. When the loan fell into default, the mortgage was
assigned to Wells Fargo, for the sole purpose of enabling Wells Fargo as servicer
to conduct a foreclosure sale on Fannie Mae’s behalf. Possession of the note was
also transferred to Wells Fargo, for the same sole purpose. Fannie Mae purchased
the property at foreclosure, in an amount that just satisfied the indebtedness, and
received from Wells Fargo (acting on Fannie Mae’s behalf) a foreclosure deed.
Pursuant to the prior agreement of Fannie Mae and Wells Fargo, possession of the

note automatically reverted to Fannie Mae after the sale; despite temporarily
parting with possession, Fannie Mae at all times remained owner of the note.
The plaintiff timely vacated the property and at all relevant times retained
her statutory right of redemption. Within the redemption period, Fannie Mae sold
the property to a third party for approximately $122,000 more than the plaintiff’s
indebtedness. The plaintiff brings this action to recover that excess, asserting five
causes of action: (1) breach of the note; (2) breach of quasi-fiduciary duty; (3)
money had and received; (4) unjust enrichment; and (5) constructive trust. (Doc.
17 at 6-9). The defendants1 raise a single, global argument: lack of duty. (Doc.
18 at 6, 7, 8, 9, 11, 13, 14, 15, 17, 19; Doc. 32 at 2, 3, 4, 5).2
DISCUSSION
In Springer v. Baldwin County Federal Savings Bank, 562 So. 2d 138 (Ala.
1989), the Alabama Supreme Court held that “a mortgagee who purchases the
mortgaged property at a foreclosure sale and then resells it to a third party during
the statutory redemption period is required to apply the profit (the sum realized by
the mortgagee in excess of the amount it paid at foreclosure) to the reduction of
the mortgagor’s debt.” Id. at 139. The defendants acknowledge Springer but
argue it does not apply here for two reasons: (1) when Fannie Mae purchased the
plaintiff’s property, it was not the mortgagee; and (2) the plaintiff is not seeking a
reduction of her debt but an affirmative recovery. (Doc. 18 at 12). The Court
considers these arguments in reverse order.
“[A] mortgagee is, in a sense, a trustee for the mortgagor, and is charged
with the ‘duty of fairness and good faith in its execution to the end that the
1

Wells Fargo has submitted no independent briefing but simply “joins in and
adopts” Fannie Mae’s briefing. (Doc. 20 at 1; Doc. 33 at 1).
2

As to the first of these theories, the defendants argue there can be no breach of
the note because “there is not one single provision within the Note relating to post-sale
proceeds.” (Doc. 17 at 9). Since the defendants have not submitted the note for
inspection, they cannot obtain dismissal on this basis.
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mortgagor’s property may be disposed of to his pecuniary advantage in the
satisfaction of his debt.’” Springer, 562 So. 2d at 139 (quoting J.H. Morris, Inc. v.
Indian Hills, Inc., 212 So. 2d 831, 843 (Ala. 1968) (emphasis added)). Thus,
“[t]he mortgagee, as trustee for the mortgagor, is obligated to apply that profit
realized after foreclosure and during the redemption period to the reduction of the
mortgagor’s debt ….” Id. at 140. The defendants conclude from this language
that when, as here, the debt has been satisfied, the mortgagee can have no further
duty to the mortgagor. (Doc. 18 at 14-15). But Springer did not so cabin its rule,
and other authorities on which it relied indicate the Alabama Supreme Court
would extend Springer to require a mortgagee, upon a profitable sale within the
redemption period, to remit to the mortgagor amounts in excess of the mortgage
debt.
First, Springer did not itself limit a mortgagee’s duty as the defendants
wish, because Springer did not involve the mortgagee’s resale of the mortgaged
property for an amount in excess of the mortgage debt.3 Thus, “[t]he issue” before
the Springer Court was naturally framed as whether the mortgagee had a duty to
apply its profit on resale “to the reduction of the mortgagor’s debt.” 562 So. 2d at
139. Since no more expansive issue was involved, the absence of a more
expansive holding (extending to the present situation) is not significant; Springer
leaves that question open.
Second, Springer recognized the existing rule that, “when mortgaged
property is sold at a foreclosure sale ‘[t]he mortgagee becomes a trustee for the
mortgagor as to the surplus received.’” 562 So. 2d at 140 (quoting Bartlett v.
Jenkins, 105 So. 654, 655 (Ala. 1925)). Pursuant to that rule, “[w]hen property is
sold at a foreclosure sale, conducted under the power of sale contained in a
mortgage, at an amount greater than the indebtedness secured by the mortgage, the
3

In Springer, the mortgagee purchased the property at foreclosure for $88,200,
leaving a $20,885.76 deficiency. It then sold the property for $99,000, and the question
presented was whether this $10,800 profit should have been offset against the deficiency.
562 So. 2d at 139.
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mortgagee is liable to the mortgagor for the surplus.” Davis v. Huntsville
Production Credit Association, 481 So. 2d 1103, 1106 (Ala. 1985). The
defendants concede that “Alabama law is replete with cases permitting the
borrower to insist on receiving the ‘surplus’ realized by the mortgagee at a
foreclosure sale.” (Doc. 18 at 11).
These cases establish the following propositions: (1) when the mortgagee
sells the property to a third party at a foreclosure sale, the mortgagor is entitled to
the excess of the sales price over the debt; (2) when the mortgagee buys the
property at a foreclosure sale and then sells the property to a third party at a higher
price (within the redemption period), the mortgagor is entitled to a corresponding
reduction in the deficiency; and (3) both these results derive from the mortgagee’s
status as trustee for the mortgagor.
As Springer illustrates, a mortgagee can purchase property at a foreclosure
sale and resell it almost immediately. See 562 So. 2d at 139 (sale to third party
occurred three days after foreclosure). The defendants struggle to explain why
Alabama law would require the mortgagee/trustee to remit excess funds to the
mortgagor when the excess arises at the foreclosure sale but not require the
mortgagee/trustee to remit excess funds to the mortgagor when the excess arises at
a resale immediately thereafter. All they can manage is a citation to Johnny Ray
Sports, Inc. v. Wachovia Bank, 982 So. 2d 1067 (Ala. 2007), which held only that
“a mortgagee that has purchased mortgaged property at a foreclosure sale has no
duty to resell the property within the one-year statutory redemption period, even if
the opportunity for such a sale is presented and even if the sale would extinguish
the mortgagor’s debt.” Id. at 1076. The absence of a duty to sell, however, is a far
cry from the absence of a duty (once the mortgagee elects to sell) to account for
sale proceeds in excess of the debt – especially when the Springer Court has
already imposed a duty to account for sale proceeds to reduce a deficiency.
The rules in Springer, Davis and Barnett address the duties of a
“mortgagee.” The defendants argue that, since Fannie Mae assigned the mortgage
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to Wells Fargo, it was not a mortgagee but a “third-party purchaser” and therefore
had no duty to the plaintiff mortgagor. (Doc. 18 at 7-9). Their implicit but
unsupported assumption is that the Alabama rules discussed above hinge on labels
rather than practical realities. The practical reality here is that Fannie Mae, by its
own admission, has been “at all times the owner of the mortgage note,” (Doc. 17
at 3), and thus the actual and intended beneficiary of the mortgage and underlying
debt. The mortgage was not assigned to Wells Fargo in order to impart these
benefits to Wells Fargo but so that Wells Fargo, for a fee, could foreclose for the
benefit of Fannie Mae. Whether Fannie Mae employed this roundabout procedure
in an effort to evade its duties under Alabama law is immaterial; what matters is
that the defendants have failed to show that the Alabama Supreme Court would
permit a mortgagee to shed its duties towards the mortgagor by the simple
expedient of assigning its mortgage to another for the limited purpose of
foreclosing, while retaining for itself all the accruing benefits.4 The very fact that
the mortgagee’s duties are those of a “trustee” reflects a substantial judicial
solicitude for the mortgagor’s position, making it even less likely the state courts
would approve of avoiding those duties so easily.5

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The defendants’ sole authority is a lower court decision from Massachusetts,
(Doc. 18 at 10), which would be irrelevant even if it were from Alabama, since it
addressed only an attempt to require a defendant that had never been a mortgagee to
satisfy the duties of a mortgagee.
The defendants appeal generally to public policy (encouraging property sales,
keeping a “clear balance” of rights and duties), (Doc. 18 at 16-19), but they have not
shown that the Alabama Supreme Court would deem these considerations more weighty
than those it has expressed in the cases discussed in text.
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Springer was decided in 1989 and Davis in 1985, a simpler time when, it seems,
mortgagees conducted their own foreclosure sales. There was thus no reason for those
decisions to anticipate the procedural developments on display here.
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CONCLUSION
For the reasons set forth above, the defendants’ motions to dismiss are
denied.
DONE and ORDERED this 30th day of July, 2015.
s/ WILLIAM H. STEELE
CHIEF UNITED STATES DISTRICT JUDGE

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