Ross v. Federal National Mortgage Association et al

Filing 21

OPINION and ORDER Granting 13 MOTION to Dismiss - Signed by District Judge Laurie J. Michelson. (JJoh)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

TYESSIA ROSS,
Plaintiff,
Case No. 13-12656
Honorable Laurie J. Michelson
Magistrate Judge Mona K. Majzoub

v.
FEDERAL NATIONAL MORTGAGE ASSOCIATION
and SETERUS, INC.,
Defendants.
_____________________________________/

OPINION AND ORDER GRANTING
DEFENDANTS FEDERAL NATIONAL MORTGAGE ASSOCIATION AND
SETERUS, INC.’S MOTION FOR JUDGMENT ON THE PLEADINGS [13]
In this mortgage foreclosure case, Plaintiff Tyessia Ross seeks relief following the
sheriff’s sale of her Warren, Michigan home by Defendants Federal National Mortgage
Association (“Fannie Mae”) and Seterus, Inc. Plaintiff asserts fraudulent misrepresentation,
estoppel, negligence, violation of the Michigan Consumer Protection Act, and breach of contract,
all based on Defendants’ alleged loan modification offer and noncompliance with a lender
participation agreement for the Michigan’s Hardest Hit Program. (Dkt. 1-2.) This matter is
before the Court on Defendants’ joint motion for judgment on the pleadings on all counts. (Dkt.
13.) For reasons set forth below, Defendants’ motion is GRANTED.
I. FACTUAL BACKGROUND
Because this matter is before the court on a Rule 12(c) motion for judgment on the
pleadings, the Court accepts all of the non-conclusory allegations in the Complaint as fact and
considers the same documents it would on a Rule 12(b)(6) motion to dismiss. See Reilly v.
Vadlamudi, 680 F.3d 617, 622–23 (6th Cir. 2012). In addition to the complaint itself, the Court

may examine “orders, items appearing in the case record, exhibits attached to the complaint, and
documents referred to in the complaint and central to the plaintiff’s claim.” Johnson v. Trott &
Trott, P.C., 829 F. Supp. 2d 564, 568 (W.D. Mich. 2011). Also, the Court may consider materials
that are “public records or are otherwise appropriate for the taking of judicial notice.” New Eng.
Health Care Emples. Pension Fund v. Ernst & Young, LLP, 336 F.3d 495, 501 (6th Cir. 2003).
The disputed Macomb County property is located at 3656 Poplar Avenue in Warren,
Michigan (“the Property”). (Dkt. 1-2, Compl. at 1, ¶ 1.) Plaintiff executed a promissory note for
$108,000 secured by a mortgage of the Property on March 2, 2007. (Dkt. 13-2, Mortgage.)
Shelter Mortgage Company assigned the mortgage to Fannie Mae on May 24, 2011. (Dkt. 13-3,
Assignment of Mortgage.) Seterus, Inc. served as the loan servicer during the time period
relevant to this lawsuit. (See Dkt. 1-2, Compl., at 2, ¶ 16.)
After the reassignment of the mortgage, Plaintiff lost her job. (Dkt. 1-2, Compl., at 2, ¶
6–7.) She continued to make her mortgage payments using her unemployment benefits and tax
refund, and she communicated to the bank that she had no income and was experiencing
financial hardship. (Dkt. 1-2, Compl., at 2, ¶ 8–12.)
After Plaintiff explained her financial situation, “the Bank” offered her a loan
modification. (Dkt. 1-2, Compl., at 2, ¶ 10.) She asserts that she accepted, and began making
payments under what she believed to be a modified agreement. (Dkt. 1-2, Compl., at 4, ¶ 29.)
“The Bank” accepted two such payments but rejected a third attempt to make a modified
payment. (Dkt. 1-2, Compl., at 4, ¶ 35.) Plaintiff eventually fell behind on her payments and
Seterus initiated foreclosure proceedings. (Dkt. 1-2, Compl., at 4, ¶ 30.)
At some point in 2012, Plaintiff applied to the Michigan’s Hardest Hit Program, i.e. Step
Forward Michigan (“MHHP”), for assistance in reinstating her loan. (Dkt. 1-2, Compl., at 2, ¶

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14.) MHHP approved her application, contingent on Defendants’ acceptance of her participation
in the program. (Id. at 17.) Seterus denied the program funds. (Dkt. 1-2, Compl., at 2, ¶ 16.)
The Michigan State Housing Development Authority’s policy regarding lender approval
of state loan programs, including MHHP, is attached as an exhibit to the Complaint:
Upon notification by MHA that a borrower has been conditionally approved for
H4HH, Servicer agrees to promptly accept or deny each borrower’s participation
in the H4HH Program. Servicer agrees that denial shall be only for good cause
such as pending litigation, potential fraud, poor payment history, bankruptcy
restrictions, and foreclosure status or if denied by investor or mortgage insurer for
good cause. Once a borrower is accepted to the H4HH Program, Servicer shall not
initiate foreclosure nor, if the borrower is already in the foreclosure process,
conduct a foreclosure sale during the term of assistance. If a participating
borrower is brought current through rescue assistance or other means, the Servicer
will terminate the foreclosure action.
(Dkt. 1-2, Compl. Ex. C, E-mail of Mar. 11, 2013 from Cassel to Ross, at 1 (emphasis added).)
Thus, the policy dictated that when Defendants rejected the funds, MHHP had to deny Plaintiff’s
eligibility, which MHHP did on October 22, 2012. (Dkt. 1-2 Ex. A to Compl., MHHP Letter.)
Defendants initiated foreclosure proceedings by at least September 17, 2012 and a
sheriff’s sale was held on or around October 17, 2012. (Dkt. 1-2, Compl., at 3 ¶ 19.) Fannie Mae
purchased the property and executed a sheriff’s deed on October 17, 2012. (Dkt. 13-4, Sheriff’s
Deed.) The deed provided that Plaintiff had until April 19, 2013 to redeem the property for
$122,742.80, plus interest and expenses. (Id. at 4.)
Plaintiff eventually contacted her Congressman, Sander Levin, regarding Defendants’
denial of the MHHP funds. (Dkt. 1-2, Compl., at 3, ¶ 20.) On February 13, 2013, Congressman
Levin wrote a letter to Defendants requesting a “detailed explanation for turning down the
Hardest Hit funds” and that Defendants “reconsider accepting the offer from the Hardest Hit
program.” (Dkt. 1-2 Ex. D to Compl., Levin Letter.) Fannie Mae eventually responded to Levin’s
request, explaining that the home “was in active foreclosure when [Plaintiff] received conditional
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approval” and that Defendants required funding to be approved before the scheduled foreclosure
date for the Property. (Dkt. 1-2, E-mail from Dale Dorr, at 3.) Notwithstanding this
correspondence, Defendants did not work with Plaintiff to “straighten[] out her confusion as it
relates to her approval in the Program.” (Dkt. 1-2, Compl., at 3. ¶ 18, 21.)
To date, Plaintiff has been unable to modify her loan and the time to redeem has lapsed.
(Dkt. 1-2, Compl., at 3, ¶ 22; Dkt. 13-4, Sheriff’s Deed, at 4.)
II. PROCEDURAL HISTORY
Plaintiff filed suit in Macomb County Circuit Court on April 16, 2013. (Dkt. 1-2, Compl.)
Defendants removed the case to this Court on June 17, 2013. (Dkt. 1.) Defendants filed a motion
for judgment on the pleadings pursuant to Federal Rule of Civil Procedure Rule 12(c) on
February 12, 2014. (Dkt. 13.) It is that motion that is now before the Court for disposition.
III. STANDARD OF REVIEW
The Federal Rules of Civil Procedure require that pleadings contain “a short and plain
statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). A
Rule 12(c) motion for judgment on the pleadings is analyzed under the same standard as a Rule
12(b)(6) motion to dismiss. Sensations, Inc. v. City of Grand Rapids, 526 F.3d 291 (6th Cir.
2008). Thus, to survive Defendants’ motion for judgment on the pleadings, Plaintiff “must allege
‘enough facts to state a claim of relief that is plausible on its face.’” Traverse Bay Area Int. Sch.
Dist. v. Mich. Dep’t of Educ., 615 F.3d 622, 627 (6th Cir. 2010) (quoting Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 570 (2007)).
Facial plausibility means that “the complaint has to ‘plead[] factual content that allows
the court to draw the reasonable inference that the defendant[s are] liable for the misconduct
alleged.’” Ohio Police & Fire Pension Fund v. Std. & Poor’s Fin. Servs., LLC, 700 F.3d 829,

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835 (6th Cir. 2012) (alteration in original) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
“This standard does not require detailed factual allegations, but a complaint containing a
statement of facts that merely creates a suspicion of a legally cognizable right of action is
insufficient.” HDC, LLC v. City of Ann Arbor, 675 F.3d 608, 614 (6th Cir. 2012) (citation and
internal quotation marks omitted).
The court must “accept all well-pleaded factual allegations as true and construe the
complaint in the light most favorable to plaintiffs.” Bennet v. MIS Corp., 607 F.3d 1076, 1091
(6th Cir. 2010). The court “need not, however, accept unwarranted factual inferences.” Id. (citing
Twombly, 550 U.S. at 570). Nor will the court entitle “[t]hreadbare recitals of the elements of a
cause of action, supported by mere conclusory statements” to an assumption of truth. Iqbal, 556
U.S. at 678. “[W]here the well-pleaded facts do not permit the court to infer more than the mere
possibility of misconduct, the complaint has alleged – but it has not ‘show[n]’ – ‘that the pleader
is entitled to relief.’” Iqbal, 556 U.S. at 679 (quoting Fed. Rule Civ. Proc. 8(a)(2)).
IV. ANALYSIS
Plaintiff has attempted to plead five counts: (1) fraudulent misrepresentation (Count I);
(2) estoppel (Count II); (3) negligence (Count III); (4) violation of the Michigan Consumer
Protection Act (Count IV); (5) breach of contract (Count V). (Id.) Defendants say that these
claims fail as a matter of law or lack factual matter to cross Iqbal’s plausibility threshold. The
Court begins by addressing Defendants’ argument that Plaintiff lacks standing because the
statutory redemption period has expired. Because that argument does not carry the day under
recent case law, the Court analyzes each of Plaintiff’s claims and Defendants’ corresponding
arguments for dismissal individually.

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A. Plaintiff has standing to challenge the foreclosure.
In Michigan, non-judicial foreclosures are governed by statute. See Mich. Comp. Laws §
600.3204. “While the statutory scheme provides certain steps that the mortgagee must go
through in order to validly foreclose . . . it also controls the rights of both the mortgagee and the
mortgagor once the sale is completed.” Conlin v. Mortgage Elec. Registration Sys., 714 F.3d
355, 359 (6th Cir. 2013) (citation omitted). Following a Sheriff’s sale, the statute provides the
mortgagor six months in which to redeem the property. Mich. Comp. Laws 600.3204(8); Mitan
v. Fed. Home Loan Mortg. Corp., 703 F.3d 949, 951 (6th Cir. 2012). After the redemption period
expires, “the mortgagor’s right, title, and interest in and to the property are extinguished.”
Conlin, 714 F.3d at 359; see also Mich. Comp. Laws § 600.3236.
The Michigan courts have “drastically circumscribed” judicial review of foreclosures in
the interest of “impos[ing] order on the foreclosure process while still giving security and finality
to purchasers of foreclosed properties.” Conlin, 714 F.3d at 359. The filing of a lawsuit
challenging the foreclosure does not toll the redemption period. See Awad v. GMAC, 2012 Mich.
App. LEXIS 804, at *12 (Mich. Ct. App. Apr. 24, 2012). “The Michigan Supreme Court has held
that it would require a strong case of fraud or irregularity, or some peculiar exigency, to warrant
setting a foreclosure sale aside” after the redemption period expires. Sweet Air Inv., Inc. v.
Kenney, 739 N.W.2d 656, 659 (Mich. Ct. App. 2007) (quoting United States v. Garno, 974 F.
Supp. 628, 633 (E.D. Mich. 1997)). This standard is a high one. Conlin, 714 F.3d at 360. In
addition, “[t]he misconduct must relate to the foreclosure procedure itself.” Conlin, 714 F.3d at
360.
Defendants urge the Court to dismiss the Complaint in its entirety based on the expiration
of the statutory redemption period, arguing that Plaintiff now “lacks standing to invalidate the

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foreclosure.” (Dkt. 13, Def.’s Br., at 8.) Recent Sixth Circuit case law clarifies that the lapse of
the statutory redemption period does not implicate standing issues. Elsheick v. Select Portfolio
Servicing, Inc., No. 13-2100, 2014 U.S. App. LEXIS 9675, at *11 (6th Cir. May 22, 2014); see
also Langley v. Chase Home Finance, LLC, No. 10-604, 2011 U.S. Dist. LEXIS 32845, at *2 n.2
(W.D. Mich. Mar. 28, 2011) (“Plaintiffs in such cases are the last lawful owner and possessor of
the property. . . . they often remain in continuing possession of the property . . . . [and] claim a
continuing right to lawful ownership and possession based on defects in the process used by
Defendants to divest them of those rights. This certainly seems to satisfy the basic Article III
requirement of “injury in fact,” as well as any prudential considerations tied to a “zone of
interests” analysis.”) (cited with approval in Elsheick, 2014 U.S. App. LEXIS at *11–12).
“Of course, having standing to bring a claim does not mean [Plaintiff has] a valid claim
on the merits. That is a different question.” Elsheick, 2014 U.S. App. LEXIS at *12 (citing
Langley, 2011 U.S. Dist. LEXIS 32845 at *2 n.2). The Court thus turns to Plaintiff’s individual
claims for relief.
B. Plaintiff’s alleged loan modification does not relate to the foreclosure process itself.
The majority of Plaintiff’s claims stem from her alleged acceptance of a loan
modification. (E.g. Dkt. 1-2, Compl., at 3–6 (asserting Count I, fraudulent misrepresentation of a
loan modification; Count II, estoppel of Defendant’s denial of a loan modification agreement,
Count III, breach of duty to accept modified payments, and Count IV, false advertisement of loan
modifications in violation of the Michigan Consumer Protection Act).) It appears that such
claims do not assert “fraud or irregularity in ‘the legal measures’ of the foreclosure process.” See
Williams v. Pledged Prop. II, LLC, 508 F. App’x 465, 468 (6th Cir. 2012) (“[Plaintiff’s] claim of
fraud relies on oral assurances during a negotiation to change the terms of the contract. . . . these

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negotiations remained separate from the foreclosure process itself. As such . . . they are not fraud
or irregularity in ‘the legal measures’ of the foreclosure process.”); see also Wargelin v. Bank of
Am., No. 12-15003, 2013 U.S. Dist. LEXIS 146326, at *17 (E.D. Mich. Oct. 10, 2013)
(collecting cases); Pientack v. JP Morgan Chase Bank, N.A., No. 12-12435, 2013 U.S. Dist.
LEXIS 137263, at *12 (E.D. Mich. Sept. 25, 2013) (“[Plaintiffs] have claimed that Defendant
made fraudulent statements in the loan servicing process relating to the amounts due on the
mortgage loan. . . . Plaintiffs’ failure to claim fraud or irregularity in the sale process itself
defeats their attempt to challenge the foreclosure sale.”).
Indeed, the loan modification process is governed under a statutory section separate from
that governing foreclosure proceedings. Mich. Comp. Laws § 600.3205c. Arguably then,
Defendants’ failure to finalize a loan modification or accept modified payments, is not the type
of “fraud or irregularity” contemplated by Sweet Air, 739 N.W.2d at 659.
Moreover, if Defendants violated the loan modification statute, Plaintiff’s only remedy
was to halt the foreclosure by advertisement proceedings and force Defendants to proceed via a
judicial foreclosure. Wargelin, 2013 U.S. Dist. LEXIS 146326, at *17 (“[a] violation of
[Michigan Compiled Laws] § 600.3205c only provides a borrower with an opportunity to enjoin
the sale and force the foreclosure to be conducted under the judicial foreclosure process.”
(emphasis in original)); see also Smith v. Bank of Am. Corp., 485 F. App’x 749, 756 (6th Cir.
2012) (“[Plaintiffs] appear to have missed the boat regarding the applicability of the [loan
modification statute] . . . they brought this action after the foreclosure sale occurred, and so there
is no foreclosure to enjoin or convert.”). Plaintiff did not avail herself of that relief.

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C. The Michigan Statute of Frauds bars claims to enforce the alleged loan modification
agreement.
Plaintiff’s claims for fraudulent misrepresentation (Count I), estoppel (Count II), and
negligence (Count III) are all anchored, at least in part, in her alleged approval for a loan
modification. But Plaintiff has not alleged that the approval was in writing.
Under Michigan law, “certain types of agreements must be in writing before they can be
enforced. . . . [and] [t]he burden of proving an enforceable agreement is even heavier when
claiming against a financial institution.” Dingman v. OneWest Bank, FSB, 859 F. Supp. 2d 912,
920 (E.D. Mich. 2012). Michigan Compiled Laws § 566.132(2) provides in relevant part:
An action shall not be brought against a financial institution to enforce any of the
following promises or commitments of the financial institution unless the promise
or commitment is in writing and signed with an authorized signature by the
financial institution: . . . . A promise or commitment to renew, extend, modify, or
permit a delay in repayment or performance of a loan, extension of credit, or
other financial accommodation.
(emphasis added). This statutory language “plainly states that a party is precluded from bringing
a claim—no matter its label—against a financial institution to enforce the terms of an oral
promise to waive a loan provision.” Crown Tech. Park v. D&N Bank, F.S.B., 619 N.W.2d 66, 71
(Mich. 2000). And because the statute by its language prohibits “an action” without specifying
what kind of action, Michigan courts read it as an “unqualified and broad ban.” Id. at 72.
Plaintiff has neither referred to nor presented the Court with a written, signed instrument
outlining her loan modification. Nonetheless, she asks the Court to issue an order “granting
reformation/modification of the Note and Mortgage” and, by her claims, asks the Court to find
that Defendants breached their duties under the alleged loan modification. Such claims would
force the Court to “acknowledge the existence and breach of an oral promise” made by

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Defendants. Kheder v. Seterus, Inc., No. 308227, 2013 Mich. App. LEXIS 586, at *36 (Mich.
Ct. App. Mar. 28, 2013). Therefore, she cannot bring an action to enforce it.
Plaintiff’s argument that her fraudulent misrepresentation claim (Count I) is not based on
the loan modification itself, but rather, on Defendant’s refusal to accept her modified payments is
unavailing. (See Dkt. 19, Pl.’s Resp. Br., at 11.) The fraud claim is still “at its core, an action to
enforce an oral promise” to accept payments under a modified agreement. See Crown Tech., 619
N.W.2d at 74; see also Kheder, 2013 Mich. App. LEXIS at *36; Meyer v. CitiMortgage, Inc.,
No. 11-13432, 2012 U.S. Dist. LEXIS 19548, at *29 (E.D. Mich. Feb. 16, 2012) (“M.C.L.
566.132(2) bars plaintiffs’ fraud claims because plaintiffs have not alleged the existence of any
documentary evidence signed by an authorized representative of [defendant] indicating that they
would receive a financial accommodation in the form of a loan modification.”) Plaintiff fails to
cite any case law to the contrary. Plaintiff’s argument that the Defendants’ refusal to accept a
third modified payment is an “issue of witness credibility” because it was based on a bank
employee’s “interpretations of bank policy” fails for the same reason: whatever the bank
employee’s interpretation, Plaintiff has not shown that it was in writing. (Dkt. 19, Pl.’s Resp. Br.,
at 11.)
Plaintiff has withdrawn her estoppel claim (Count II), and Defendants indicate that they
consent to the dismissal of this claim. (Dkt. 19, Pl.’s Resp. Br., at 16 (“Plaintiff’s estoppel claim
appears to have been made in error. As such, Plaintiff withdraws this claim.”); Dkt. 20, Def.’s
Reply Br., at 1 n.1 (“Plaintiff did not seek consent in this instance, however, Defendants agrees
[sic] to dismissal of Count II for estoppel.”).
As for Plaintiff’s claim of negligence (Count III), to the extent that it is “intimately
related” to her fraudulent misrepresentation and estoppel arguments, it is also barred by the

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statute of frauds. See Crown Technology, 619 N.W. 2d at 74. Plaintiff claims in part that
Defendants owed her “a duty to accept her monthly payments under the modified agreement”
and “communicate honestly” regarding the modification, and that Defendants breached their duty
“by not communicating with Plaintiff honestly regarding her loan modification” and “by not
accepting Plaintiff’s third modified payment, when it had accepted the first two.” (Dkt. 1-2,
Compl., at 5 ¶ 39–43.) Accepting this argument would again force the Court to acknowledge an
oral promise as the source of Defendants’ alleged duty to accept her payments and therefore is
barred under the statute of frauds.
D. Plaintiff has not pled fraudulent misrepresentation with sufficient particularity.
In addition to being barred by the statute of frauds, Plaintiff’s fraudulent
misrepresentation claim fails to meet the heightened pleading standard for fraud claims. Federal
Rule of Civil Procedure 9(b) provides that “[i]n alleging fraud or mistake, a party must state with
particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and
other conditions of a person’s mind may be alleged generally.” The Sixth Circuit “interpret[s]
Rule 9(b) as requiring plaintiffs to allege the time, place, and content of the alleged
misrepresentation on which he or she relied; the fraudulent scheme; the fraudulent intent of the
defendants; and the injury resulting from the fraud.” Bennett v. MIS Corp., 607 F.3d 1076, 1100
(6th Cir. 2010).
“The elements constituting actionable fraud or misrepresentation are well-settled in
Michigan.” Hi-Way Motor Co. v. International Harvester Co., 247 N.W.2d 813, 815 (Mich.
1976).
The general rule is that to constitute actionable fraud it must appear: (1) That
defendant made a material representation; (2) that it was false; (3) that when he
made it he knew that it was false, or made it recklessly, without any knowledge of
its truth and as a positive assertion; (4) that he made it with the intention that it
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should be acted upon by plaintiff; (5) that plaintiff acted in reliance upon it; and
(6) that he thereby suffered injury.
Id.; accord Cummins v. Robinson Twp., 770 N.W.2d 421, 435 (Mich. Ct. App. 2009). “[A]n
action for fraudulent misrepresentation must be predicated upon a statement relating to a past or
an existing fact.” Id.; see also Hi-Way Motor Co., 247 N.W. 2d at 815.
Plaintiff asserts that Defendant made “false representation[s]” that led her to believe she
had been approved for a loan modification and that because she acted on that belief, she fell
behind on her mortgage payments, triggering the foreclosure. (Dkt. 1-2, Compl., at 3–4, ¶ 23–
31.) In support of this claim, Plaintiff states:


Defendants represented to her that she was approved for a loan modification;



Defendants stopped accepting her payments despite her compliance with the
requirements for the loan modification;



Defendants accepted two modified payments before telling her it would not
accept her third payment;



Plaintiff, in complying with Defendants’ instructions, fell behind on her monthly
payments; and



Plaintiff “has suffered damages as a result.”

(Dkt. 1-2, Compl. at 3–4.)1

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Plaintiff appears to change her version of the facts in her response brief, saying that
instead of accepting her two modified payments, the bank told her that “she could make all of her
payments or none of her payments.” (Dkt 19, Pl.’s Resp. Br., at 7.) Nonetheless, the Court will
consider the version of the facts in the Complaint because Plaintiff has not moved to amend her
Complaint and “[i]t is a basic principle that the complaint may not be amended by the briefs in
opposition to a motion to dismiss.” Roulhac v. Southwest Reg'l Transit Auth., No. 07-408, 2008
U.S. Dist. LEXIS 119260, at *9 (S.D. Ohio Feb. 1, 2008) (citing Thomason v. Nachtrieb, 888
F.2d 1202, 1205 (7th Cir. 1989)); see also Kallick v. U.S. Bank, N.A., No. 12-106, 2012 U.S.
Dist. LEXIS 149975, at 19–20 (E.D. Tenn. Oct. 28, 2012) (declining to consider “new factual
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These allegations fail to meet the heightened pleading standard for fraud claims. Plaintiff
fails to allege, for example, the content of Defendants’ alleged offer of a loan modification, the
person who communicated the offer, how she received the offer, when the communication
occurred, or even how she accepted the offer. Thus, Plaintiff has not “alleged any facts that put
[Defendants] on notice as to who made the statements or when the statements were made.”
Dingman, 859 F. Supp. 2d at 920. Further, Plaintiff asserts one conclusory statement as to
Defendants’ intent: “The false representation was made with the intention that Plaintiff would act
on it.” (Dkt. 1-2, Compl., at 4 ¶ 28.)
Plaintiff urges the Court to excuse her deficient pleading because “it is too early” to make
a determination as to her compliance with Rule 9(b). (Dkt. 19, Pl.’s Resp. Br., at 12.) If granted
discovery, Plaintiff argues, she will be able to “determine the parties who made statements
constituting fraud or irregularity.” (Id.) This argument is not persuasive. See New Albany
Tractor, Inc. v. Louisville Tractor, Inc., 650 F.3d 1046, 1051 (6th Cir. 2011) (explaining that
after Twombly and Iqbal, plaintiffs “may not use the discovery process to obtain” facts necessary
to state a plausible claim for relief “after filing suit”).
E. Plaintiff’s negligence claim is not sufficiently pled.
In support of her negligence claim, Plaintiff asserts that Defendants had a duty to
“communicate with her honestly regarding her approval for a loan modification,” “accept her
monthly payments under the modified agreement,” and “comply with the lender participation
agreement as it relates to the [MHHP].” (Dkt. 1-2, Compl., at 5 ¶ 39–41.) She alleges that
Defendants breached these duties by “not communicating . . . honestly” with her, “not accepting
Plaintiff’s third modified payment,” and “not honoring the [MHHP] lender participation
allegations in both [Plaintiff’s] response brief and his answers at oral argument” on a motion to
dismiss).
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agreement.” (Dkt. 1-2, Compl., at 5–6 ¶ 42–44.) According to Plaintiff, these breaches caused
her to “fall behind on her monthly payments,” leading to the foreclosure and the loss of her
home. (Dkt. 1-2, Compl., at 6 ¶ 45–46.)
As explained in detail above, a negligence claim that is intimately related to an oral
promise by a financial institution is barred by the statute of frauds. To the extent that the
Plaintiff’s negligence claim does not have this relationship with Defendants’ alleged oral
promise, it still fails to state a claim for relief.
To state a negligence claim, Plaintiff must plead, with sufficient factual support, “(1) that
the defendant owed a duty to [her], (2) that the defendant breached the duty, (3) that the
defendant’s breach of the duty caused [her] injuries, and (4) that [she] suffered damages.” Lelito
v. Monroe, 273 Mich. App. 416, 418–419 (Mich. Ct. App. 2006).
The Court agrees with Defendants that Plaintiff has not adequately pled that Defendants
owed her any duty of care during the loan-modification process. Generally speaking, a “lender
does not owe a duty of care to a loan applicant.” Yaldu v. Bank of America Corp., 700 F. Supp.
2d 832, 845 (E.D. Mich. 2010) (applying Michigan law). And courts have expanded this rule to
deny a duty of reasonable care in the loan modification context. See, e.g., Dingman v. OneWest
Bank, FSB, 859 F. Supp. 2d 912, 921 (E.D. Mich. 2012).; Dorr v. Wells Fargo Bank, N.A., No.
13-14526, 2014 U.S. Dist. LEXIS 42040, at *22 (E.D. Mich. Mar. 3, 2014) (citations and
internal quotation marks omitted), report and recommendation adopted by 2014 U.S. Dist.
LEXIS 41588 (E.D. Mich. Mar. 28, 2014). Plaintiff cites no case law to the contrary.
Plaintiff’s negligence claim also fails to the extent it alleges a breach of duty arising from
the MHHP lender participation agreement because she did not plead facts that support a plausible
claim. Plaintiff claims that “Defendant owed her a duty to comply with the lender participation

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agreement as it relates to [MHHP]. . . . Defendant breached its duty by not honoring the
Program’s lender participation agreement.” (Dkt. 1-2, Compl., at 5 ¶ 41, 44.) Elsewhere in her
Complaint, Plaintiff adds that Defendants did not honor the lender participation agreement
because they declined program funds even though she “was not yet in foreclosure at the time her
application was submitted.” (Dkt. 1-2, Compl., at 7 ¶ 58 (emphasis added).) As for the timing of
her conditional approval, Plaintiff imprecisely says, “[i]n 2012.” (Compl. ¶¶ 14, 17.) Finally,
attached to the Complaint is an e-mail from Fannie Mae’s Government and Industry Relations
Office that explains Defendants’ denial of MHHP funds:
This email is in response to Congressman Levin’s inquiry on behalf of his
constituent Tyeissia [sic] Ross. Ms. Ross is questioning why a foreclosure of her
property located at 3656 Poplar Avenue in Warren, MI occurred when she was
attempting to acquire assistance from the Michigan’s Hardest Hit program. Ms.
Ross’ loan was in active foreclosure when she received conditional approval for
hardest hit funds. Unfortunately without final hardest hit funds approval prior to
the scheduled foreclosure date 10/23/2012, the foreclosure did [move] forward as
scheduled.2
(Dkt. 1-2, E-mail from Dale Dorr, at 3 (emphasis added).)
The lender participation agreement explicitly states that “foreclosure status” constitutes
“good cause” to deny MHHP funds. (Dkt. 1-2, Compl. Ex. C, E-mail of Mar. 11, 2013 from
Cassel to Ross.) And the lender decides whether to accept funds when the borrower receives
conditional approval, not when the borrower submits her initial application to MHHP. Therefore,
if the Property was in active foreclosure at the time of Plaintiff’s conditional approval for MHHP
funds, Defendants would not have breached their duties stemming from the lender participation
agreement, if any, by rejecting program funds. And the exhibit attached to the complaint states
that Plaintiff was in fact in active foreclosure when she received conditional approval. See
2

This is consistent with Plaintiff’s admission in her response brief that her home was in
foreclosure status, albeit for a “very brief” time, when she was denied MHHP funds. (Dkt. 19,
Pl.’s Resp. Br., at 19.)
15

Bassett v. NCAA, 528 F.3d 426, 430 (6th Cir. 2008) (“When a court is presented with a 12(b)(6)
motion, it may consider the Complaint and any exhibits attached thereto . . . .”) (emphasis
added).
As such, the Complaint and exhibits attached thereto do not provide “factual context that
would render [the MHHP-based negligence claim] plausible.” Ctr. for Bio-Ethical Reform, Inc.
v. Napolitano, 648 F.3d 365, 374 (6th Cir. 2011) (citations omitted). Given that the exhibits
attached to the complaint establish the Defendants denied the MHHP funds for good cause and
Plaintiff makes no other claims regarding the alleged breach, the Complaint merely pleads an
“unadorned, the-defendant-unlawfully-harmed-me accusation” rather than a plausible claim for
relief. Iqbal, 556 U.S. at 678.
Therefore, the Court will grant the motion to dismiss as to the negligence claim.
F. Claims regarding mortgage transactions cannot support a cause of action under the
Michigan Consumer Protection Act.
Plaintiff also claims that Defendants violated the Michigan Consumer Protection Act. She
alleges that, because “mistrust of financial institutions was at an all time high,” Defendant
offered her a loan modification only “as a public relations tactic.”(Dkt. 1-2, Compl., at 6 ¶ 48–
49.) As such, alleges Plaintiff, Defendant “did not disclose that there was a limitation of quantity
in immediate conjunction with the advertised loan modification,” and “caused a probability of
confusion or of misunderstanding with respect to the authority of its salespersons and
representatives, to negotiate the final terms of a loan modification,” and as to her “legal rights,
obligations, and remedies with regard to a loan modification.” (Dkt. 1-2, Compl., at 6 ¶ 50–51.)
Finally, Plaintiff alleges that Defendant “implied that a loan modification would be provided
promptly, or within a reasonable time” when it knew that would not happen. (Dkt. 1-2, Compl.,
at 7 ¶ 53.)
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The Michigan Consumer Protection Act does not apply to“[a] transaction or conduct
specifically authorized under laws administered by a regulatory board or officer acting under
statutory authority of this state or the United States.” Mich. Comp. Laws § 445.904(1)(a).
Defendants assert that because they were subject to state regulation under the Mortgage Brokers,
Lenders and Servicers Act, Mich. Comp. Laws § 445.1651, and the authority of the
Commissioner of the Office of Financial Services and Insurance, they are exempt from the
MCPA. (Dkt. 13, Def.’s Br., at 22.) The Court agrees. See Mills v. Equicredit Corp., 294 F.
Supp. 2d 903, 910 (E.D. Mich. 2003) (“Because [the] loan transactions [at issue] were generally
authorized under laws administered by Commissioner of the Office of Financial Services and
Insurance, the Court holds that the subject transactions were exempt from the Michigan
Consumer Protection Act.”) Moreover, with regard to Fannie Mae, a national bank subject to the
authority of the Federal Housing Agency, “[i]t is well established that [Michigan Compiled Laws
§ 445.904(1)(a)] exempts the lending activities of banks regulated by either the State of
Michigan or the federal government.” Chungag v. Wells Fargo Bank. N.A., No. 10-14648, 2011
U.S. Dist. LEXIS 15986, at *11 (E.D. Mich. Feb. 17, 2011). Defendants’ actions are therefore
not subject to the MCPA.
Plaintiff seeks to escape this authority by arguing that Defendants were “not in the act of
lending” when the alleged violations occurred. (Dkt. 19, Pl.’s Resp. Br, at 18.) Rather, says
Plaintiff, the term “lending” is limited to “service” under Michigan Compiled Laws §
445.1651(aa)–a statutory provision that does not contemplate her loss mitigation efforts. (Id. at
18 (“[S]ervicing . . . does not include efforts to save a home from foreclosure by way of partial
payments or reinstatement through a government program.”).) According to Plaintiff, the
distinction between servicing and loss mitigation is analogous to the distinction between

17

construction and home cleaning drawn by the Michigan Court of Appeals in Brownlow v.
McCall Enterprise, Inc., No. 306190, 307883, 2013 WL 514598 (Mich. App. 2013). There, a
homeowner brought a MCPA claim against a residential builder for property damage resulting
from the builder’s use of an ozone generator to cleanse the air in the house after a microwave
fire. Id. at *2–3. The trial court held that the general transaction of “cleaning a home” was not
contemplated by Michigan’s licensure requirements for residential builders. Id. at *2. The
Michigan Court of Appeals similarly concluded that the licensure requirements did not bar an
action pursuant to the Michigan Consumer Protection Act. Id. at *3.
The Court disagrees with Plaintiff’s comparison. The court in Brownlow declined to
bring janitorial services within the scope of a licensing scheme that only contemplated
“construction . . . [involving] changes to the physical structure of a building.” 2013 WL 514598
at *2. By contrast, in the mortgage licensing context, both Michigan courts and federal courts
applying Michigan law have consistently held, without qualification, that “[r]esidential mortgage
transactions by banks . . . are exempt from the MCPA.” Morris v. Homeq. Servicing Corp., 2010
Mich. App. LEXIS 321, at *12 (Mich. Ct. App. Feb. 16, 2010).
A modification to the terms of an existing mortgage is appropriately deemed a residential
mortgage transaction between a bank and a mortgagee. Such transactions are regulated under
state and federal law. Therefore, Plaintiff cannot sustain her claim under the MCPA.
G. Plaintiff cannot sustain her breach of contract claim.
Plaintiff bases her breach of contract claim on MHHP’s lender participation agreement.
She claims that Defendant breached the agreement by “denying Plaintiff without good cause
shown,” because there was no “pending litigation, potential fraud, poor payment history,
bankruptcy restrictions, [or] foreclosure” pending when she applied. (Dkt. 1-2, Compl., at 7 ¶

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57–58.) As a result, says Plaintiff, she was “denied an opportunity to reinstate her loan and save
her Home.” (Dkt. 1-2, Compl., at 8 ¶ 60.)
The problem with Plaintiff’s breach-of-contract theory is that she has not pled facts
sufficient to establish that she is a party to the lender participation agreement. “Under Michigan
law, a breach-of-contract claim requires that the plaintiff establish that he or she was a party to
the contract at issue.” Creelgroup, Inc. v. NGS Am., Inc., 518 F. App’x 343, 346 (6th Cir. 2013)
(citations omitted); see also L Loyer Constr. Co. v. Novi, 446 N.W.2d 364, 370 (Mich. Ct. App.
1989). Based on the materials before the Court, it appears that the only parties to the agreement
are the Michigan State Housing Development Authority and Seterus, Inc. The Complaint directs
the Court to an e-mail from a Michigan Homeowner Assistance Nonprofit Housing Corporation
(“MHA”) for an “expla[nation] of the Program approval process.” (Dkt. 1-2, Compl., at 3 ¶ 17.)
This e-mail explicitly notes that the lender participation agreement “explains our [MHA’s]
process with the servicer.” (Dkt. 1-2, Compl. Ex. C, E-mail of Mar. 11, 2013 from Cassel to
Ross.) The excerpted portion of the agreement refers to “the borrower” merely as an incident to
describing the responsibilities of MHA and the loan servicer. And the Servicer Participation
Agreement itself, a document central to the complaint and available at a web link that was
included in the e-mail from MHA, notes that the agreement is “by and between the Michigan
Homeowner

Assistance

Nonprofit

Housing

Corporation

(MHA)

and

_________

(Lender/Servicer),” and does not mention borrowers. Michigan State Housing Development
Authority, Help for Hardest Hit Program Servicer Participation Agreement, available at
http://www.michigan.gov/documents/mshda/Servicer_Participation_Agreement_610_325630_7.pdf.

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Instead of drawing the Court’s attention to well-pleaded facts showing that she is a party
to the agreement, Plaintiff comments that “[t]he only question that exists is whether Plaintiff was
a party to the Lender Participation Agreement.” (Dkt. 19, Pl.’s Resp. Br., at 18.) The Court
cannot answer this question in the affirmative based on the well-pleaded facts in the Complaint
and documents central to it.
Moreover, Plaintiff has not pled facts to show that she is a third-party beneficiary of the
contract with the ability to pursue a breach of contract claim despite not being a party to the
agreement. In Michigan, “[a] third party beneficiary of a promise stands in the shoes of the
promisee and is afforded the right under the common law and Mich. Comp. Laws Ann. §
600.1405 . . . to enforce the promise against the promisor.” Koppers Co. v. Garling & Langlois,
594 F.2d 1094, 1098 (6th Cir. 1979). “[O]nly intended third-party beneficiaries, not incidental
beneficiaries, may enforce a contract under § 1405.” Willis v. New World Van Lines, Inc., 123 F.
Supp. 2d 380, 391 (E.D. Mich. 2000) (citing Koenig v. City of South Haven, 597 N.W.2d 99, 105
(Mich. 1996)).
To enjoy third party beneficiary status, therefore, Plaintiff would have to plead facts to
show that “the promisor of said promise had undertaken to give or to do or refrain from doing
something directly to or for” her. Mich. Comp. Laws Ann. § 600.1405(1). The Michigan
Supreme Court has explained that
[i]n describing the conditions under which a contractual promise is to be
construed as for the benefit of a third party to the contract in [section] 1405, the
Legislature utilized the modifier “directly.” Simply stated, section 1405 does not
empower just any person who benefits from a contract to enforce it. Rather, it
states that a person is a third-party beneficiary of a contract only when the
promisor undertakes an obligation “directly” to or for the person. This language
indicates the Legislature's intent to assure that contracting parties are clearly
aware that the scope of their contractual undertakings encompasses a third party,
directly referred to in the contract, before the third party is able to enforce the
contract.
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Shay v. Aldrich, 790 N.W.2d 629, 638 (Mich. 2010) (quoting Koenig v South Haven, 597
N.W.2d 99, 104 (Mich. 1999)). “[W]hen read in context,” this language is “clear that contracting
parties’ ‘intent’ with regard to third-party beneficiaries is to be determined solely from the form
and meaning of the contract,” that is, an “objective interpretation of the language.” Id. at 639.
Here, Plaintiff has not pled or identified any contract provisions from the lender
participation agreement demonstrating that the contractual relationship between MHA and
Defendants is meant to benefit her directly. Nor has she pled facts to show that by standing in the
shoes of the promisee, she would be able to enforce the contract. Id. at 640 (explaining that a
third party beneficiary “stands in the shoes of the original promisee and only gains the same right
that the original promisee would have had. Accordingly, a third-party beneficiary is not
automatically entitled to the sought-after benefit merely by qualifying as a third-party
beneficiary.”)
The Court also draws support for its conclusion that Plaintiff is not a third-party
beneficiary of the lender participation agreement from how courts have considered a borrower’s
status in the context of an analogous government program. Under the Home Affordable
Modification Program (“HAMP”), like the program at issue here, loan servicers can enter into
agreements with the government that may require them to perform certain loan modification and
foreclosure prevention services. Most federal courts have declined to recognize a private right of
action or that borrowers are third-party beneficiaries under HAMP agreements. Ahmad v. Wells
Fargo Bank, NA, 861 F. Supp. 2d 818, 828–29 (collecting cases), report and recommendation
adopted by 861 F. Supp. 2d 818, 820 (E.D. Mich. 2012).

21

In short, the Complaint and the documents central to it do not establish that Plaintiff was
a party to or a third-party beneficiary of the lender participation agreement. Therefore, Defendant
is entitled to judgment on the pleadings on the breach of contract claim.
V. CONCLUSION
Plaintiffs’ claims are either barred under the Michigan Statute of Frauds and the
Michigan Consumer Protection Act, or have not been pled with sufficient particularity to state a
plausible claim for relief.
Accordingly, the Court GRANTS Defendants’ motion for judgment on the pleadings.
s/Laurie J. Michelson
LAURIE J. MICHELSON
UNITED STATES DISTRICT JUDGE
Dated: July 22, 2014

CERTIFICATE OF SERVICE
The undersigned certifies that a copy of the foregoing document was served on the attorneys
and/or parties of record by electronic means or U.S. Mail on July 22, 2014.
s/Jane Johnson
Case Manager to
Honorable Laurie J. Michelson

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