Stewart et al v. Federal National Mortgage Association et al

Filing 34

ORDER granting in part and denying in part 14 Motion to Dismiss; granting 17 Motion to Dismiss. Signed by District Judge Arthur J. Tarnow. (MLan)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
IAN STEWART, ET AL.,
Case No. 13-11316

Plaintiffs,

SENIOR UNITED STATES DISTRICT JUDGE
ARTHUR J. TARNOW

v.
FEDERAL NATIONAL MORTGAGE
ASSOCIATION, ET AL.

MAGISTRATE JUDGE LAURIE J. MICHELSON

Defendants.
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ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT
FEDERAL NATIONAL MORTGAGE ASSOCIATION AND DEFENDANTS
NATIONSTARS’ MOTION TO DISMISS [14] AND GRANTING
DEFENDANT FEDERAL HOUSING FINANCE AGENCY’S MOTION TO
DISMISS [17] IN ITS ENTIRETY
Before the Court are Defendants Federal National Mortgage Association
(Fannie Mae), Nationstar Mortgage LLC, REMIC Pass-Through Certificates Trust
2007-B1, and Nationstar Home Equity Loan Trust 2006-B’s Motion to Dismiss [14]
and Defendant Federal Housing Finance Agency’s (FHFA) Motion to Dismiss [17].
For the reasons that follow, Defendants’ Motion to Dismiss [14] is GRANTED in part
and DENIED in part and the Federal Housing Finance Agency’s Motion to Dismiss
[17] is GRANTED in its entirety.

FACTUAL BACKGROUND
This case concerns a $299,250.00 mortgage on a property commonly known as
30092 Mayfair Drive, Farmington Hills, Michigan 48331 (“the Property”).
On June 10, 2005, Plaintiffs granted a mortgage to MERS, secured by the
Property. The mortgage was recorded on August 9, 2005 in Oakland County. On
October 17, 2011, Plaintiffs sent Nationstar Mortgage a letter entitled “Qualified
Written Request.”

MERS subsequently assigned the mortgage to Defendant

Nationstar Mortgage on June 18, 2012; the assignment was recorded on July 12, 2012.
Plaintiffs defaulted and did not cure that default. As a result, Nationstar Mortgage
commenced foreclosure proceedings under MCL § 600.3201 et seq.
Plaintiffs’ October 2011 letter requested that they be considered for a loan
modification and demanded information regarding securitization and the true owner
of the loan. Nationstar Mortgage responded in November 2011, sending Plaintiffs
documentation regarding the origination and servicing of the loan.
On February 9, 2012 Plaintiffs faxed another letter to Nationstar Morgage. On
March 12, 2012, Nationstar Mortgage responded and enclosed documentation
regarding the originator, investor, and service of the loan and a detailed payment
history.
Plaintiffs subsequently defaulted on the loan.

Nationstar sent notice to

Plaintiffs pursuant to MCL § 600.3205a (Foreclosure of Mortgages by Advertisement,
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Notice to Buyer). Plaintiffs requested a meeting pursuant to MCL § 600.3205a.
Nationstar sent Plaintiffs a package to complete in order to schedule a meeting.
Plaintiffs never returned the package or provided the required documentation. After
60 days passed, Nationstar published a Notice of Foreclosure for four consecutive
weeks in the Oakland County Legal News beginning February 28, 2013. Nationstar
posted a Notice of Foreclosure on the Property on March 2, 2013.
Plaintiffs’ Complaint [1] was filed on March 25, 2013. The mortgage was
foreclosed and the Sheriff’s sale was held on April 9, 2013. Nationstar Mortgage
purchased the Property for $202,243.71. The six-month statutory redemption period
expired October 9, 2013.
LEGAL STANDARD
Defendants move to dismiss Plaintiffs’ Complaint [1] under Federal Rule of
Civil Procedure 12(b)(6). To survive a motion to dismiss under Rule 12(b)(6) for
failure to state a claim, the complaint must contain, “a short and plain statement of the
claim showing that the pleader is entitled to relief” in order to provide fair notice to
the defendant of what the claim is and the grounds upon which it rests. The Court
must construe the complaint in the light most favorable to plaintiff and draw all
reasonable inferences in plaintiff’s favor. Ohio Police & Fire Pension Fund v.
Standard & Poor’s Fin. Servs. LLC, 700 F.3d 829, 835 (6th Cir. 2012). The complaint
must plead factual content that allows the court to draw a reasonable inference that the
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defendant is liable for the misconduct alleged. Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009).
ANALYSIS
I. Defendants Fannie Mae and Nationstar’s Motion to Dismiss [14]
Defendant Nationstar Mortgage is the servicer of Plaintiffs’ loan and mortgagee
of record. Nationstar Mortgage foreclosed the Property by advertisement.
Count I Lack of Standing to Foreclose and Count II Quiet Title
Defendants argue that Count I and Count II should be dismissed because
Michigan does not recognize claims for securitization and Nationstar Mortgage had
standing to foreclose Plaintiff’s loan because it was the mortgagee of record.
Defendants also argue that Plaintiffs cannot state a claim for quiet title because they
are barred due to their own unclean hands.
In their Response [24], Plaintiffs’ argue that Michigan does recognize a claim
for improper securitization and as a result of the failed securitization in this case,
Defendants did not have standing to foreclose on the Property.
Securitization-based challenges to foreclosure have been consistently rejected
by the Courts. See e.g. Smith v. Litton Loan Servicing, L.P., No. 12-1684, 2013 WL
888452 (6th Cir. March 13, 2013); Stafford v. MERS, No. 12-10987, 2012 WL
1564701 at *4 (E.D. Mich. May 2, 2012) (Cohn, J.) (“To the extent that plaintiff is

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attempting to assert a claim based upon the alleged securitization of the loan, such a
claim fails.”).
Additionally, there is no legal support for Plaintiffs’ argument that the note
holder must be the foreclosing party under Michigan law. See Residential Funding
v. Saurman, 805 N.W.2d 183 (Mich. 2011). Under Michigan law, a party may
foreclose if it is the owner of the indebtedness, an owner of interest in the
indebtedness (including the mortgagee of record), or the servicer of the mortgage.
MCL § 600.3204(1)(d).
In order to prevail on a quiet title claim, Plaintiffs must prove their title is
superior to the title claims of all other persons with an interest in the property. Beulah
Hoagland Appleton Qualified Pers. Residence Trust v. Emmet Cnty. Rd. Comm’r, 600
N.W.2d 698, 700 (Mich Ct. App. 1999). The documentary evidence in this case
refutes any assertion that Plaintiffs have a superior claim to title of the Property over
Defendants.
Consequently, Defendants’ Motion to Dismiss [14] is GRANTED as to Counts
I and II.
Count III Breach of Covenant of Good Faith and Fair Dealing
Defendants argue that Count III should be dismissed because Michigan does not
recognize claims for the breach of a covenant of good faith and fair dealing. Plaintiff
attempts to argue that Michigan recognizes this covenant when the contract leaves the
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manner of performance to a party’s discretion citing Bero Motors, Inc. v. General
Motors Corp., No. 257675 (Mich. Ct. App. 2006) 2006 WL 2312182. In fact,
Michigan does not recognize a common law cause of action for breach of the implied
covenant of good faith and fair dealing. Fondale v. Waste Management of Michigan,
Inc., 718 N.W.2d 827, 841 (Mich. Ct. App. 2006). Bero Motors is not on-point in this
case because Plaintiffs had no discretion to not repay their loan as part of performance
of the contract. Consequently, Defendants’ Motion to Dismiss [14] is GRANTED as
to Count III.
Violations of RESPA: Count IV § 2605(e) and Count VIII § 2605(e)
Defendants argue that Count IV and Count VIII Plaintiffs cannot state a claim
under the Real Estate Settlement Procedures Act (RESPA). Defendants argue that the
correspondence Plaintiffs sent does not constitute a qualified written request under
RESPA, additionally Nationstar properly responded, and Plaintiffs failed to allege
damages resulting from any violation of RESPA. Plaintiffs dispute each of these three
assertions.
Plaintiff’s letter constituted a qualified written request under RESPA. The
statute states:
(B) Qualified written request
For purposes of this subsection, a qualified written request shall be a written
correspondence, other than notice on a payment coupon or other payment
medium supplied by the servicer, that-(i) includes, or otherwise enables the servicer to identify, the name and
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account of the borrower; and
(ii) includes a statement of the reasons for the belief of the borrower, to the
extent applicable, that the account is in error or provides sufficient detail to
the servicer regarding other information sought by the borrower.
12 U.S.C.A. § 2605(e)(1)(B).

Plaintiffs’ letter included the statutorily required

information to constitute a Qualified Written Request.
Plaintiffs claim that Nationstar violated RESPA because Nationstar reported to
consumer reporting agencies that Plaintiffs were overdue on mortgage payments after
Plaintiffs had sent qualified written requests to Nationstar. Title 12 U.S.C. §
2605(e)(3) states:
(3) Protection of credit rating
During the 60-day period beginning on the date of the servicer's
receipt from any borrower of a qualified written request relating
to a dispute regarding the borrower's payments, a servicer may not
provide information regarding any overdue payment, owed by
such borrower and relating to such period or qualified written
request, to any consumer reporting agency
Plaintiffs have pleaded sufficient facts to allege Nationstar violated 12 U.S.C. §
2605(e)(3). Therefore, Defendants’ Motion to Dismiss [14] is DENIED as to Count
IV.
Plaintiffs allege that in response to their qualified written request, Defendants
only sent copies of the mortgage, note, and an incomplete loan transaction history and
failed to address the material concerns of their qualified written request. Title 12
U.S.C.A. § 2605(e)(2) states:
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(2) Action with respect to inquiry
Not later than 30 days (excluding legal public holidays, Saturdays, and
Sundays) after the receipt from any borrower of any qualified written
request under paragraph (1) and, if applicable, before taking any action with
respect to the inquiry of the borrower, the servicer shall-(A) make appropriate corrections in the account of the borrower,
including the crediting of any late charges or penalties, and transmit to
the borrower a written notification of such correction (which shall
include the name and telephone number of a representative of the
servicer who can provide assistance to the borrower);
(B) after conducting an investigation, provide the borrower with a
written explanation or clarification that includes-(i) to the extent applicable, a statement of the reasons for which the
servicer believes the account of the borrower is correct as determined
by the servicer; and
(ii) the name and telephone number of an individual employed by, or
the office or department of, the servicer who can provide assistance
to the borrower; or
(C) after conducting an investigation, provide the borrower with a
written explanation or clarification that includes(i) information requested by the borrower or an explanation of why
the information requested is unavailable or cannot be obtained by the
servicer; and
(ii) the name and telephone number of an individual employed by, or
the office or department of, the servicer who can provide assistance
to the borrower.
Plaintiffs have pleaded sufficient facts to allege Nationstar violated 12 U.S.C. §
2605(e)(2). Therefore, Defendants’ Motion to Dismiss [14] is DENIED as to Count
VIII.

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Count V Violation of the Freedom of Information Act (FOIA)
In Counts V of their Complaint [1], Plaintiffs state a claim under FOIA against
Fannie Mae. Defendants argue that Count V should be dismissed because Fannie Mae
is not an agency subject to the FOIA. In their Response [24], Plaintiffs’ argue that
Defendant Fannie Mae under conservatorship by the Federal Housing Finance
Authority is subject to the FOIA.
Fannie Mae is not subject to the FOIA. Judicial Watch, Inc. v. Fed. Housing
Fin. Agency, 646 F.3d 924 , 926 (D.C. Cir. 2011); see also Herron v. Fannie Mae, 857
F.Supp.2d 87, 95 (D.D.C. 2012) (“Fannie Mae was not converted into a government
entity when it was placed into conservatorship; instead, FHFA stepped into the shoes
of Fannie Mae. FHFA as conservator for Fannie Mae is not a government actor.”).
Therefore, Defendants’ Motion to Dismiss [14] is GRANTED as to Count V.
Violations of TILA: Count VI § 1641(f)(2) and Count VII § 1641(g)
In Counts VI and VII of their Complaint [1], Plaintiffs state claims under TILA
against Fannie Mae. Defendants argue that Counts VI and VII are too vague and must
be dismissed.
Title 15 U.S.C. § 1641(f)(2) states:
(2) Servicer not treated as owner on basis of assignment for administrative
convenience
A servicer of a consumer obligation arising from a consumer credit
transaction shall not be treated as the owner of the obligation for purposes
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of this section on the basis of an assignment of the obligation from the
creditor or another assignee to the servicer solely for the administrative
convenience of the servicer in servicing the obligation. Upon written request
by the obligor, the servicer shall provide the obligor, to the best knowledge
of the servicer, with the name, address, and telephone number of the owner
of the obligation or the master servicer of the obligation.
Plaintiff has asserted that Defendants ignored their written requests regarding the
owner of their debt. Therefore, Plaintiff has pleaded sufficient facts to survive a
motion to dismiss that Count VI.
Title 15 U.S.C. § 1641(g) states:
(g) Notice of new creditor
(1) In general
In addition to other disclosures required by this subchapter, not later
than 30 days after the date on which a mortgage loan is sold or
otherwise transferred or assigned to a third party, the creditor that is
the new owner or assignee of the debt shall notify the borrower in
writing of such transfer, including-(A) the identity, address, telephone number of the new creditor;
(B) the date of transfer;
(C) how to reach an agent or party having authority to act on behalf
of the new creditor;
(D) the location of the place where transfer of ownership of the debt
is recorded; and
(E) any other relevant information regarding the new creditor.
(2) Definition
As used in this subsection, the term “mortgage loan” means any
consumer credit transaction that is secured by the principal dwelling of
a consumer.
Discovering the exact location of a securitized mortgage is an expensive and arduous
task that Plaintiffs could not reasonably complete before filing a complaint. If need

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be, once Plaintiffs have the necessary information after discovery, they can amend the
Complaint [1] to successfully plead TILA violations.

Plaintiffs have pleaded

sufficient facts for their TILA claims survive Defendants’ Motion to Dismiss [14].
Therefore, Defendants’ Motion to Dismiss [14] is DENIED as to Counts VI and VII.
II. Defendant Federal Housing Finance Agency’s Motion to Dismiss [17]
Defendant Federal Housing Finance Agency (FHFA) moves pursuant to Federal
Rule of Civil Procedure 12(b)(6) to dismiss Counts III and V.
Count III Breach of Covenant of Good Faith and Fair Dealing
Michigan does not recognize a common law cause of action for breach of the
implied covenant of good faith and fair dealing. See supra, Fondale v. Waste
Management of Michigan, Inc., 271 Mich. App. 11, 35 (Mich. Ct. App. 2006).
Consequently, FHFA’s Motion to Dismiss [17] is GRANTED as to Count III.
Count V Violation of FOIA
FHFA argues that Plaintiffs’ FOIA claim against them must be dismissed
because Plaintiffs have failed to exhaust their administrative remedies. Plaintiffs do
not allege any specific facts to support their allegation that they exhausted their
administrative remedies.

Consequently, FHFA’s Motion to Dismiss [17] is

GRANTED as to Count V.

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CONCLUSION
Accordingly,
IT IS ORDERED that Defendants’ Motion to Dismiss [14] is GRANTED as
to Counts I–III, and V.
IT IS FURTHER ORDERED that Defendants’ Motion to Dismiss [14] is
DENIED as to Counts IV, VI, VII, and VIII.
IT IS FURTHER ORDERED that Defendant Federal Housing Finance
Agency’s Motion to Dismiss [17] is GRANTED in its entirety.
IT IS FURTHER ORDERED that Defendant Federal Housing Finance
Agency is DISMISSED from this case.
SO ORDERED.

Dated: March 25, 2014

s/Arthur J. Tarnow
Arthur J. Tarnow
Senior United States District Judge

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