Christenson v. Citimortgage, Inc.

Filing 34

ORDER Adopting and Affirming in Part and Rejecting in Part 30 Report and Recommendations by Judge Christine M. Arguello on 9/18/13.(dkals, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Christine M. Arguello
Civil Action No. 12-cv-02600-CMA-KLM
EUGENE CHRISTENSON, and
SHARON CHRISTENSON,
Plaintiffs,
v.
CITIMORTGAGE, INC.,
Defendant.

ORDER ADOPTING AND AFFIRMING IN PART AND REJECTING IN PART
JUNE 17, 2013 RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

This case was referred to United States Magistrate Judge Kristen L. Mix pursuant
to 28 U.S.C. § 636 and Fed. R. Civ. P. 72. (Doc. # 6.) On June 17, 2013, Judge Mix
issued a Recommendation, advising the Court to grant in part and deny in part the
Motion to Dismiss filed by Defendant Citimortgage, Inc. (Doc. # 23). (Doc. # 30.)
Specifically, she recommended that: Claims One and Two alleged by Plaintiffs
Eugene and Sharon Christenson be retained; Claims Three, Four, and Six be
dismissed without prejudice; and Claim Five be dismissed with prejudice. (Id. at 39.)
The Recommendation stated that “the parties shall have fourteen (14) days after service
of this Recommendation to serve and file any written objections in order to obtain
reconsideration by the District Judge to whom this case is assigned.” (Id.) It further
informed the parties that “failure to serve and file specific, written objections waives
de novo review of the Recommendation by the District Judge.” (Id.) Although Plaintiffs

did not file any objections, Defendant did – but only as to Claims One and Two. (Doc.
# 31.) 1 In reviewing Judge Mix’s recommended disposition as to Claims Three through
Six, the Court discerns no clear error on the face of the record and finds that Judge
Mix’s reasoning is sound. Accordingly, the Court will dismiss those claims without
further analysis. Regarding Claims One and Two, for the reasons that follow the Court
disagrees with the Recommendation as to those claims.
I. BACKGROUND 2
On April 20, 2009, Plaintiffs executed a promissory note (the “Note”) with Ascent
Home Loans, Inc. (Doc. # 23-1.) To secure the Note, Plaintiffs executed an April 20,
2009 deed of trust (“Deed of Trust”), which encumbers their real property located in
Grand Junction, Colorado. (Doc. # 23-2.) The note and deed of trust are held by
Defendant, which is a mortgage servicer. (Doc. # 20 at 2.) The Note discusses a
borrower’s failure to pay by stating:
If borrower defaults by failing to pay in full any monthly payment, then
Lender may, except as limited by regulations of the Secretary in case of
payment defaults, require immediate payment of the full principal balance
remaining due and all accrued interest. Lender may choose to exercise
this option without waiving its rights in the event of any subsequent
default. In many circumstances, regulations issued by the Secretary will
limit Lender’s rights to require immediate payment in full in the case of
payment defaults. This Note does not authorize acceleration when not
permitted by HUD regulations. As used in this Note, “Secretary” means
the Secretary of Housing and Urban Development or his or her designee.
(Doc. # 23-1 at 3 (emphasis added).) The Deed of Trust states, in pertinent part:

1

2

Plaintiffs responded to Defendant’s objections on July 17, 2013. (Doc. # 32.)

The facts underlying Judge Mix’s analysis are fully set forth in her Recommendation. (Doc.
# 30.) Here, the Court will recite only those facts relevant to the instant Order.
2

9. (a) Default. Lender may, except as limited by regulation issued by the
Secretary in the case of payment defaults, require immediate payment in
full of all sums secured by this Security Instrument . . . .
(d) Regulations of HUD Secretary. In many circumstances regulations
issued by the Secretary will limit Lender’s rights, in the case of payment
defaults, to require immediate payment in full and foreclosure if not paid.
This Security Instrument does not authorize acceleration or
foreclosure if not permitted by regulations of the Secretary.
(Doc. # 23-2 at 4 (emphasis added).)
At all times relevant to this case, the Department of Housing and Urban
Development (“HUD”) had in place regulations in the Code of Federal Regulations
which, as Judge Mix pointed out, “have the effect of law.” (Doc. # 30 at 3 (citing
Chrysler Corp. v. Brown, 441 U.S. 281, 295 (1979)).) Those regulations are as follows:
•

24 CFR § 203.500 which, among other things, provides that “it is the intent of the
Department that no mortgagee shall commence foreclosure or acquire title to a
property until the requirements of this subpart have been followed.”

•

24 CFR § 203.501 which states: “Mortgagees must consider the comparative
effects of their elective servicing actions, and must take those appropriate actions
which can reasonably be expected to generate the smallest financial loss to the
Department. Such actions include, but are not limited to, deeds in lieu of
foreclosure under § 203.357, pre-foreclosure sales under § 203.370, partial
claims under § 203.414, assumptions under § 203.512, special forbearance
under §§ 203.471 and 203.614, and recasting of mortgages under § 203.616.
HUD may prescribe conditions and requirements for the appropriate use of these
loss mitigation actions, concerning such matters as owner-occupancy, extent of
previous defaults, prior use of loss mitigation, and evaluation of the mortgagor's
income, credit and property.”

•

24 CFR § 203.600 which says: “Subject to the requirements of this subpart,
mortgagees shall take prompt action to collect amounts due from mortgagors to
minimize the number of accounts in a delinquent or default status. Collection
techniques must be adapted to individual differences in mortgagors and take
account of the circumstances peculiar to each mortgagor.”

•

24 CFR § 203.605 which, in subsection (a), provides: “Duty to mitigate. Before
four full monthly installments due on the mortgage have become unpaid, the
mortgagee shall evaluate on a monthly basis all of the loss mitigation techniques
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provided at § 203.501 to determine which is appropriate. Based upon such
evaluations, the mortgagee shall take the appropriate loss mitigation action.
Documentation must be maintained for the initial and all subsequent evaluations
and resulting loss mitigation actions. Should a claim for mortgage insurance
benefits later be filed, the mortgagee shall maintain this documentation in the
claim review file under the requirements of § 203.365(c).”
•

24 CFR § 203.606 which, also in subsection (a), states: “Before initiating
foreclosure, the mortgagee must ensure that all servicing requirements of this
subpart have been met. The mortgagee may not commence foreclosure for a
monetary default unless at least three full monthly installments due under the
mortgage are unpaid after application of any partial payments that may have
been accepted but not yet applied to the mortgage account. In addition, prior to
initiating any action required by law to foreclose the mortgage, the mortgagee
shall notify the mortgagor in a format prescribed by the Secretary that the
mortgagor is in default and the mortgagee intends to foreclose unless the
mortgagor cures the default.”

(Doc. # 20 at 4-5.) Plaintiffs assert that these regulations (cumulatively, the “HUD
Regulations”) were incorporated into the contract between them and Defendant by
the above-cited contract language of the Deed of Trust. (Id. at 3.)
Plaintiffs admit that they are in default under the Note and Deed of Trust by
failing to make timely monthly payments. (Id.) However, Plaintiffs allege that when they
became unable to make their payments, they contacted Defendant and its legal counsel
numerous times, attempting to have Defendant engage in loss mitigation as
contemplated in the Deed of Trust. (Id. at 5.) All to no avail, according to Plaintiffs.
They allege that Defendant refused to cooperate and then “accelerated the balance
and instituted foreclosure and hired attorneys to effectuate a trustee sale under the
[D]eed of [T]rust under Colorado’s expedited non-judicial foreclosure process.” (Id.)
On March 31, 2011, Plaintiffs sent Defendant a letter (Doc. # 23-3), which will be
discussed more fully below. Defendant failed to reply. (Doc. # 20 at 9.) On June

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28, 2011, Plaintiffs filed for Chapter 13 bankruptcy, which stopped the foreclosure
proceedings by virtue of the automatic bankruptcy stay. (Id. at 6.) On October 1, 2012,
this suit followed. (Doc. # 1.) As relevant here, Plaintiffs seek: money damages
“together with attorneys fees” and “costs herein expended” pursuant to the Real Estate
Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2605 (e) and (f); and an injunction
and money damages regarding Plaintiffs’ claim for breach of contract. (Doc. # 20 at
8-13.)
II. STANDARD OF REVIEW
When a magistrate judge issues a recommendation on a dispositive matter, Fed.
R. Civ. P. 72(b)(3) requires that the district judge “determine de novo any part of the
magistrate judge’s [recommended] disposition that has been properly objected to.”
In conducting its review, “[t]he district judge may accept, reject, or modify the
recommended disposition; receive further evidence; or return the matter to the
magistrate judge with instructions.” Id. Accordingly, the Court has conducted a
de novo review of this matter, including carefully reviewing all relevant pleadings, the
Recommendation, Defendant’s objections, and Plaintiffs’ response thereto. In doing
so, the Court has applied the same Fed. R. Civ. P. 12(b)(6) standard as did Judge Mix.
(See Doc. # 30 at 6-7.)
The purpose of a motion to dismiss for failure to state a claim under Rule
12(b)(6) is to test “the sufficiency of the allegations within the four corners of the
complaint.” Mobley v. McCormick, 40 F.3d 337, 340 (10th Cir. 1994). A complaint will
survive such a motion only if it contains “enough facts to state a claim to relief that is

5

plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). For a
motion to dismiss, “[t]he question is whether, if the allegations are true, it is plausible
and not merely possible that the plaintiff is entitled to relief under the relevant law.”
Christy Sports, LLC v. Deer Valley Resort Co., 555 F.3d 1188, 1192 (10th Cir. 2009).
“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.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (quotation marks and citation omitted).
In reviewing a Rule 12(b)(6) motion, a court “must accept all the well-pleaded
allegations of the complaint as true and must construe them in the light most favorable
to the plaintiff.” Williams v. Meese, 926 F.2d 994, 997 (10th Cir. 1991). Nevertheless,
a complaint does not “suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual
enhancement.’” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557). “The
court’s function on a Rule 12(b)(6) motion is not to weigh potential evidence that the
parties might present at trial, but to assess whether the plaintiff=s complaint alone is
legally sufficient to state a claim for which relief may be granted.” Miller v. Glanz,
948 F.2d 1562, 1565 (10th Cir. 1991).
III. DISCUSSION
A.

CLAIM ONE: RESPA
In their first claim, Plaintiffs assert that Defendant violated RESPA by failing to

respond to their March 31, 2011 letter, which they contend was a Qualified Written
Request (“QWR”) under RESPA. On this issue Judge Mix determined that Plaintiffs had
validly stated a claim. (See Doc. # 30 at 16.) In its objections, Defendant argues that

6

the Magistrate Judge interpreted too broadly the term “servicing” and, therefore,
Plaintiffs’ RESPA claim should be dismissed. The Court agrees with Defendant’s
objection.
Congress enacted RESPA, 12 U.S.C. §§ 2601-2617, as a consumer protection
statute “to regulate real estate settlement processes.” Berneike v. CitiMortgage, Inc.,
708 F.3d 1141, 1145 (10th Cir. 2013). The purpose of RESPA is to “make sure that
consumers receive information regarding the nature, settlement costs, and servicing
of home loans.” Henson v. Bank of Am., --- F. Supp. 2d ----, 2013 WL 1222095, at *12
(D. Colo. Mar. 25, 2013) (citing 12 U.S.C. § 2601(a)). Under RESPA, a servicer of a
“federally related mortgage loan,” as Defendant is here, “may be liable for damages to
a borrower if it fails to adequately respond” to a QWR. Berneike, 708 F.3d at 1145
(citing 12 U.S.C. § 2605(e)–(f)). When a loan servicer receives a QWR, it must provide
a written response within five days of the borrower’s inquiry acknowledging receipt of
the QWR. 12 U.S.C. § 2605(e)(1)(A). Within thirty days of receiving the QWR, the
servicer “generally must investigate and make appropriate corrections to the borrower’s
account, provide a written notification of any correction or an explanation why no
correction was necessary, and provide a contact number for a representative”
Berneike, 708 F.3d at 1145 (citing 12 U.S.C. § 2605(e)(2)). 3 If the servicer fails to
respond appropriately, the borrower may recover actual damages resulting from
such failure and “any additional damages . . . in the case of a pattern or practice of
noncompliance with the requirements of this section, in an amount not to exceed
$2,000.” 12 U.S.C. § 2605(f).
3

A prior version of § 2605 allowed twenty days for the servicer to respond and sixty days for it
to make corrections. See Pub. L. 111-203, 2010 HR 4173.
7

To trigger the duty of a servicer to respond, a QWR must “include[], or otherwise
enable[] the servicer to identify, the name and account of the borrower” and “include[ ] a
statement of the reasons for the belief of the borrower, to the extent applicable, that the
account is in error or provide[] sufficient detail to the servicer regarding other information
sought by the borrower.” Id. at § 2605(e)(1)(B). Further, “a letter cannot be ‘qualified’
under the statute if it does not relate to the servicing of the account.” Harris v. Am. Gen.
Fin., Inc., No. Civ.A. 02-1395, 2005 WL 1593673, at *3 (D. Kan. July 6, 2005)
(unpublished). The statute defines “servicing” as “receiving any scheduled periodic
payments from a borrower pursuant to the terms of any loan . . . and making the
payments of principal and interest and such other payments with respect to the amounts
received from the borrower as may be required pursuant to the terms of the loan.”
12 U.S.C. § 2605(i)(3). “Queries that essentially call for, or dispute, an interpretation of
the underlying loan agreement do not constitute a qualified written request.” Henson,
2013 WL 1222095 at *12. Nor do inquiries regarding loss mitigation or loan
modification. See Beacham v. Bank of Am., N.A., No. 3:12-CV-00801-G, 2012 WL
2358299, at *3 (N.D. Tex. May 25, 2012) (unpublished) (“Requesting information
regarding loss mitigation review does not relate to ‘servicing’ of a loan as provided in
2605(i)(3).”); Yakowicz v. BAC Home Loans Servicing, LP, No. 12-1180, 2013 WL
593902, at *5 (D. Minn. Feb. 15, 2013) (unpublished) (letters seeking loan modification
“do not constitute QWRs”); Van Egmond v. Wells Fargo Home Mortg., No. SACV 120112, 2012 WL 1033281, at *4 (C.D. Cal. Mar. 21, 2012) (unpublished) (similar); In re
Salvador, 456 B.R. 610, 623 (Bankr. M.D. Ga. 2011) (similar); Williams v. Wells Fargo

8

Bank, N.A., Inc., No. C 10-00399, 2010 WL 1463521, at *3 (N.D. Cal. April 13, 2010)
(unpublished) (similar).
As previously mentioned, Plaintiffs sent Defendant a letter on March 31, 2011.
(Doc. # 23-3.) The body of the letter states, in full:
Please consider this a formal written inquiry under 12 U.S.C.
§ 2605(e). The loan may be identified by the information provided above.
I believe my account is in error for the following reasons.
We love our home and desperately want to keep it. We called right
away after we couldn’t make the payments asking for help. We called
you a lot after that asking for help. Despite our pleas you have just
accelerated our note and deed of trust and placed us in foreclosure.
As this is an FHA loan with standard FHA loan documents, our loan
documents clearly indicate that this may not occur until you engaged in
substantial loss mitigation activities. Gene was laid off from the railroad
but we always anticipated he would be called back. We have been
receiving unemployment and have a lawsuit that might settle from
which we could potentially catch up. Gene is now being called back to
work and we could make some decent payments if you would work with
us as required by FHA. All along nobody even asked our circumstances.
Please correct our account by removing us from foreclosure, cancelling
the purported acceleration and begin discussing options with us in good
faith that would save our home.
Along these lines we have a series of questions related to the
servicing of our account:
1.
What loss mitigation activities such as recasting (24 CFR
§ 203.616) or special forbearance (24 CFR §§ 203.471 and 203.614) do
you claim you have done since we first started falling behind in 2010?
When did you do these?
2.
Pursuant to 24 C.F.R. § 203.605 or otherwise what have you
done on a monthly basis to evaluate “all of the loss mitigation techniques
provided” by the regulations[?]
3.
What evaluation of your loss mitigation did you do as
required by 24 C.F.R. § 203.606 before accelerating our loan and putting
us in foreclosure[?]
4.
With all of our calls why did we never have a consultation
interview to discuss our options to save our home per 24 CFR § 203.508?
9

5.
We were taken to Court in Mesa County for a Rule 120
Motion. We filed briefs in a state Court matter where you asked the judge
to authorize the sale of our home. When your lawyer had full knowledge
of our claim that you just avoided loss mitigation, instead of fixing the
problem she told our lawyer and argued to the judge that the Court could
not consider this in a “Rule 120” matter and that we would need to file yet
a separate lawsuit to consider for loss mitigation. Why didn’t you just try
to correct this problem by considering our circumstances instead?
6.
Why do we have to go to court to get you to see we were
never considered for loss mitigation such as recasting or special
forbearance?

10

We ask pursuant to 12 U.S.C. § 2605(e)(2) that [you] correct this
account by setting aside the acceleration, removing us from foreclosure
and considering all loss mitigation options with us. Also, provide all
explanations required by the statute.
(Doc. # 23-3.)
The Court agrees with Defendant that Plaintiffs’ letter did not request information
relating to the servicing of their loan. (Doc. # 31 at 4.) Instead, as Judge Mix noted,
“the majority of Plaintiffs’ Letter plainly concerns loss mitigation.” (Doc. # 30 at 13.)
Although Plaintiffs’ couched their letter as a “formal written inquiry under 12 U.S.C.
§ 2605(e),” nearly every paragraph of the letter concerns loss mitigation which, as the
aforementioned authorities indicate, precludes the letter from being a qualified written
request. Additionally, those parts of the letter that do not directly raise loss mitigation
issues likewise fail to relate to the servicing of Plaintiffs’ account. For example, Plaintiffs
ask: “why did we never have a consultation interview to discuss our options to save our
home per 24 CFR § 203.508?” (Doc. # 23-3.) Such an interview does not relate to
receiving scheduled periodic payments from a borrower or making principal and interest
payments on the borrower’s behalf.
Similarly, the closing paragraph in the letter, in which Plaintiffs request Defendant
to correct their account, set aside the acceleration, and remove Plaintiffs from
foreclosure (id.), is insufficient to convert the letter into a QWR. Generally requesting
an account correction, without explaining how the account is in error, does not suffice
under the statute. See 12 U.S.C. § 2605(e)(1)(B); In re Brewster, No. 5:13-cv-505,
2013 WL 4833707, at *4 (C.D. Cal. Sept. 9, 2013) (unpublished) (noting that documents
which “generally seek information on the validity of the loan . . . do not fall within the

11

confines of RESPA”). Nor does servicing under 12 U.S.C. § 2605(i)(3) encompass
acceleration or foreclosure issues. On this point, Judge Mix relied on McVay v. Western
Plains Service Corp., 823 F.2d 1395, 1398 (10th Cir. 1987) to determine that “servicing
may include the right to ‘make decisions concerning acceleration, foreclosure,
redemption and deficiencies.’” (Doc. # 30 at 13 (quoting McVay).) However, the Court
agrees with Defendant that McVay is inapplicable in this case. The McVay court was
describing what a holder of a note and a loan servicer may include in a participation
agreement they enter. See 823 F.2d at 1398. The court did not address RESPA and,
thus, its commentary was not aimed at defining, or for that matter expanding, the term
“servicing” under 12 U.S.C. § 2605(i)(3). Id. Moreover, if the Court were to have to look
beyond non-RESPA cases to define “servicing,” it would note the Supreme Court has
explained that “servicing” merely comprises “the administrative tasks associated with
collecting mortgage payments.” Morrison v. National Australia Bank Ltd., 130 S. Ct.
2869, 2875 (2010). By contrast, acceleration is “[t]he advancing of a loan agreement’s
maturity date so that payment of the entire debt is due immediately[,]” while foreclosure
is a “legal proceeding to terminate a mortgagor’s interest in property, instituted by the
lender (the mortgagee) either to gain title or to force a sale in order to satisfy the unpaid
debt secured by the property.” Black’s Law Dictionary (9th ed. 2009). As such,
“‘servicing’ is not an umbrella term” that includes acceleration or foreclosure. Higley
v. Flagstar Bank, FSB, 910 F. Supp. 2d 1249, 1259 (D. Or. 2012) (citing cases
addressing RESPA).
Accordingly, the Court determines that Plaintiffs’ March 31, 2011 letter was not
a QWR and, therefore, Plaintiffs’ RESPA claim will be dismissed.
12

B.

CLAIM TWO: BREACH OF CONTRACT
In their second claim, Plaintiffs’ contend that Defendant breached the Deed of

Trust by foreclosing on the Property without complying with certain HUD regulations. 4
On this issue, Judge Mix determined that: (1) the claim was not mooted by virtue of the
bankruptcy-imposed stay on the foreclosure; (2) “the language of the Deed of Trust
incorporates the duties outlined in the HUD Regulations,” thereby allowing Plaintiffs to
“pursue a claim for breach of contract” stemming from an alleged violation of these
Regulations; and (3) Plaintiffs sufficiently pled the elements of their breach of contract
claim. (Doc. # 30 at 16-25.) Defendant, in its objections, argues only that “the HUD
regulations are a condition to acceleration and foreclosure and do not provide an
affirmative action for damages.”5 (Doc. # 31 at 7 (emphasis and capitalization deleted).)
The Court agrees with Defendant’s analysis of this issue.
To begin with, the HUD Regulations do not, on their own, establish a private
cause of action. Anderson v. U.S. Dept. of Housing and Urban Dev., 701 F.2d 112, 114
(10th Cir. 1983). Additionally, although some courts have determined that the HUD
Regulations become enforceable by a private cause of action if they are incorporated

4

Specifically, Plaintiffs assert that the Deed of Trust incorporated the HUD Regulations. For
instance, paragraph 9(d) of the Deed of Trust states, in part, that “regulations issued by the
Secretary will limit Lender’s rights, in the case of payment defaults, to require immediate
payment in full and foreclosure if not paid. This Security Instrument does not authorize
acceleration or foreclosure if not permitted by regulations of the Secretary.” (Doc. # 23-2
at 4.) Plaintiffs point to 24 CFR § 203.501, which is set forth in the text above, as one of
the regulations incorporated into the Deed of Trust.

5

Defendant objects to neither Judge Mix’s mootness analysis nor to her determination that
Plaintiffs’ breach of contract claim was well-pled. (See Doc. # 31 at 7-12.) In reviewing the
Recommendation as to the former issue, the Court discerns no clear error on the face of the
record and, in fact, agrees with Judge’s Mix’s reasoning. The Court declines to address the
latter issue, which would arise only if violation of the HUD Regulations were to create a private
cause of action.
13

into a mortgagor’s loan documents, those courts represent the minority position.
Compare In re Shelton, 481 B.R. 22, 28-30 (Bankr. W.D. Mo. 2012), Sinclair
v. Donovan, Nos. 11-CV-00010, 11-CV-00079, 2011 WL 5326093 (S.D. Ohio Nov. 4,
2011) (unpublished), Mullins v. GMAC Mortg., LLC, No. 09-cv-00704, 2011 WL 1298777
(S.D.W.Va. Mar. 31, 2011) (unpublished), and Kersey v. PHH Mortg. Corp., 682 F. Supp.
2d 588, 596-97 (E.D. Va. 2010), opinion vacated (Aug. 13, 2010), with Urenia v. Public
Storage, No. CV 13-01934, 2013 WL 4536562 (C.D. Cal. Aug. 27, 2013) (unpublished),
Pfeifer v. Countrywide Home Loans, Inc., 211 Cal. App. 4th 1250 (2012), Dixon v. Wells
Fargo Bank, N.A., No. 12-10174, 2012 WL 4450502 (E.D. Mich. Sept. 25, 2012)
(unpublished), Lacy-McKinney v. Taylor, Bean & Whitaker Mortg. Corp., 937 N.E.2d
853, 864 (Ind. Ct. App. 2010), McHatten v. Chase Home Fin., LLC, No. CV 03-1094,
2010 WL 3882587, at *6-7 (D. Ariz. Sept. 29, 2010) (unpublished); Mitchell v. Chase
Home Fin. LLC, No. 3:06-cv-2099, 2008 WL 623395 (N.D. Tex. Mar. 4, 2008)
(unpublished), Wells Fargo Home Mortg., Indc. v. Neal, 922 A.2d 538, 543-44 (Md.
2007), Washington Mut. Bank v. Mahaffey, 796 N.E.2d 39, 42-44 (Ohio Ct. App. 2003),
Fed. Land Bank of St. Paul v. Overboe, 404 N.W.2d 445, 449 (N.D. 1987), Fleet Real
Estate Funding Corp. v. Smith, 530 A.2d 919, 922-23 (Pa. Super. Ct. 1987), Bankers
Life Co. v. Denton, 458 N.E.2d 203, 205 (Ill. App. Ct. 1983).
The Court agrees with the majority view that compliance with the HUD
regulations is a condition which must occur prior to the lender being able to accelerate
and foreclose the debt and that the borrower may use any failure to comply with the
regulations “as a shield in the subsequent foreclosure case.” BAC Home Loans
Servicing, LP v. Taylor, 986 N.E.2d 1028, 1035 (Ohio Ct. App. 2013). As Defendant
14

points out in its objections, a condition “may be an event or action that must happen
before a contractual right accrues.” (Doc. # 31 at 11 (citing M West, Inc. v. Oak Park
Mall, L.L.C., 234 P.3d 833, 842 (Kan. App. 2010) (“[c]onditions precedent to
performance under an existing contract . . . define an event that must occur before
a right or obligation matures under the contract”)).) “Nonoccurrence of a condition
prevents the promisee from acquiring a right, or deprives it of one, but subjects it to
no liability.” 13 Williston on Contracts § 38:5 (4th ed. 2000). Here, the language of the
Deed of Trust states that the HUD Regulations “will limit Lender’s rights” and, therefore,
Defendant’s failure to abide by such limitation precludes its ability to accelerate and
foreclose upon the debt. Accordingly, construing the Deed of Trust’s reference to the
HUD Regulations as a condition to Defendant commencing foreclosure, the Court
determines that Plaintiffs may use the failure of such condition as an affirmative defense
but may not use it as the basis for an affirmative breach of contract claim. As such, the
Court will dismiss Plaintiffs’ Second Claim.
IV. CONCLUSION
For the foregoing reasons, it is ORDERED that the June 17, 2013
Recommendation of United States Magistrate Judge Kristen L. Mix (Doc. # 30) is
ADOPTED AND AFFIRMED in part as to Claims Three through Six and REJECTED
in part as to Claims One and Two. Pursuant to the Recommendation, it is
ORDERED THAT Claims Three, Four, and Six are DISMISSED WITHOUT
PREJUDICE, and Claim Five is DISMISSED WITH PREJUDICE. It is

15

FURTHER ORDERED that Claims One and Two are DISMISSED WITH
PREJUDICE. It is
FURTHER ORDERED that, should Plaintiff wish to file an Amended Complaint
with respect to Claims Three, Four, and Six, an Amended Complaint shall be filed no
later than Friday, October, 18, 2013. If an Amended Complaint is not filed by October
18, 2013, this case shall be closed in its entirety.
DATED: September

18

, 2013
BY THE COURT:

________________________________
CHRISTINE M. ARGUELLO
United States District Judge

16