Mayo et al v. Seterus, Inc et al

Filing 13

OPINION AND ORDER GRANTING DEFENDANTS MOTION TO DISMISS PLAINTIFFS COMPLAINT [#9] AND DISMISSING ACTION. Signed by District Judge Gershwin A. Drain. (Bankston, T)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
BRIAN MAYO and KATHRYN MAYO,
Plaintiffs,

Case No. 14-cv-10705
HON. GERSHWIN A. DRAIN

v.
SETERUS, INC. and FEDERAL NATIONAL
MORTGAGE ASSOCIATION,
Defendants.
_________________________________/
OPINION AND ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS
PLAINTIFFS’ COMPLAINT [#9] AND DISMISSING ACTION
I.

INTRODUCTION
On January 21, 2014, Plaintiffs, Brian and Kathryn Mayo, filed this action alleging

wrongful foreclosure, violation of then-current MICH. COMP. LAWS §§ 600.3205a, 3205c
(repealed 2013), and intentional infliction of emotional distress. Defendants Seterus, Inc. and
Federal National Mortgage Association (“Fannie Mae”) removed this matter from the Circuit
Court for the County of Washtenaw, State of Michigan, on February 13, 2014. Presently before
the Court is Defendants’ Motion to Dismiss all of Plaintiffs’ claims pursuant to Rule 12(b)(6) of
the Federal Rules of Civil Procedure. The parties have fully briefed their respective positions,
and the Court finds that oral arguments will not aid in the resolution of this matter pursuant to
E.D. Mich. L.R. 7.1(f)(2).
For the reasons that follow, the Court will GRANT Defendants’ Motion to Dismiss
Plaintiffs’ Complaint.

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II.

FACTUAL BACKGROUND
This matter involves real property located at 9315 Summerland Drive in Whitmore Lake,

Michigan. On November 22, 2004, the Plaintiffs entered into a mortgage loan transaction with
Quicken Loans. Plaintiffs executed a promissory note for $162,500.00. As security for the note,
Plaintiffs granted a mortgage on the Summerland Drive property. The Washtenaw County
Register of Deeds duly recorded the mortgage on November 22, 2004. Bank of America serviced
the loan until October 1, 2011, when it transferred servicing rights to Defendant Seterus, Inc.
Quicken Loans assigned the Mortgage to Defendant Fannie Mae on January 12, 2012 in Idaho.
Mortgage Electronic Registration Systems, Inc. processed the assignment and an Idaho notary
notarized the assignment. Plaintiffs have not contested the validity of the mortgage, the servicing
transfer, or the assignment.
Plaintiffs defaulted on their obligations under the promissory note in late 2011. Fannie
Mae commenced foreclosure proceedings on the Summerland Drive property in early 2013,
resulting in a Sheriff’s sale of the property on July 11, 2013. The statutory “redemption period”
expired on January 11, 2014, ten days before Plaintiffs filed this suit.
Plaintiffs contend that this Court should set aside the Sheriff’s sale. Plaintiffs allege that
Defendants denied them a loan modification in bad faith and failed to comply with the
requirements of then-current MICH. COMP. LAWS §§ 600.3205a, 3205c (repealed 2013). Plaintiffs
also allege that Defendants engaged in extreme and outrageous conduct that amounts to
intentional infliction of emotional distress.
Conversely, Defendants maintain that Plaintiffs lack standing because the Sheriff’s sale
was valid, leaving Plaintiffs with no interest in the property after the redemption period expired.
Defendants argue in the alternative that they complied with the requirements of MICH. COMP.

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LAWS §§ 3205a, 3205c (repealed 2013) and Plaintiffs’ have failed to show fraud or irregularity in
the foreclosure process sufficient to set aside the Sheriff’s sale.
III.

LAW & ANALYSIS
A. Standard of Review
Federal Rule of Civil Procedure 12(b)(6) allows the court to make an assessment as to

whether a plaintiff has stated a claim upon which relief may be granted. See Fed. R. Civ. P.
12(b)(6). “Federal Rule of Civil Procedure 8(a)(2) requires only ‘a short and plain statement of
the claim showing that the pleader is entitled to relief,’ in order to ‘give the defendant fair notice
of what the … claim is and the grounds upon which it rests.’” Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 555 (2007) (citing Conley v. Givson, 355 U.S. 41, 47 (1957). Even though the
complaint need not contain “detailed” factual allegations, its “factual allegations must be enough
to raise a right to relief above the speculative level on the assumption that all of the allegations in
the complaint are true.” Ass’n of Cleveland Fire Fighters v. City of Cleveland, 502 F.3d 545, 548
(6th Cir. 2007) (quoting Bell Atlantic, 500 U.S. at 555).
The court must construe the complaint in favor of the plaintiff, accept the allegations of
the complaint as true, and determine whether plaintiff’s factual allegations present plausible
claims. To survive a Rule 12(b)(6) motion to dismiss, plaintiff’s pleading for relief must provide
“more than labels and conclusions, and a formulaic recitation of the elements of a cause of action
will not do.” Id. (citations and quotations omitted). “[T]he tenet that a court must accept as true
all of the allegations contained in a complaint is inapplicable to legal conclusions.” Ashcroft v.
Iqbal, 556 U.S. 662, 668 (2009). “Nor does a complaint suffice if it tenders ‘naked assertion[s]’
devoid of ‘further factual enhancement.’” Id. “[A] complaint must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Id. The
plausibility standard requires “more than a sheer possibility that a defendant has acted
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unlawfully.” Id. “[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.’” Id.
The district court generally reviews only the allegations set forth in the complaint when
determining whether to grant a Rule 12(b)(6) motion to dismiss, however the court may also
consider “matters of public record, orders, items appearing in the record of the case, and exhibits
attached to the complaint.” Amini v. Oberlin College, 259 F.3d 493, 502 (6th Cir. 2001).
Documents attached to a defendant’s “motion to dismiss are considered part of the pleadings if
they are referred to in the plaintiff’s complaint and are central to her claim.” Id.
B. Defendant’s Motion to Dismiss
1.

Redemption Period Expired

Defendants first contend that Plaintiffs lack standing because the Sheriff’s sale was valid,
leaving Plaintiffs with no interest in the property after the redemption period expired. After a
foreclosure and Sheriff’s sale, Michigan law provides the mortgagor six months in which to
redeem the property. MICH. COMP. LAWS § 600.3240(8). The Sixth Circuit has held that, once the
six-month redemption period lapses, “the mortgagor’s ‘right, title, and interest in and to the
property’ are extinguished” under Michigan law. Conlin v. MERS, 714 F.3d 355, 359 (6th Cir.
2013).
Plaintiffs do not dispute that the six-month statutory redemption period has expired.
However, expiration of the redemption period does not strip Plaintiffs’ standing to assert their
claim of wrongful foreclosure. While “the ability for a court to set aside a sheriff’s sale has been
drastically circumscribed,” courts may “entertain the setting aside of a foreclosure sale when the
mortgagor has made a ‘clear showing of fraud, or irregularity.’” Id. In this case, Plaintiffs allege
that the foreclosure was irregular because Defendants violated the modification and disclosure
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requirements of MICH. COMP. LAWS §§ 600.3205a, 3205c (repealed 2013). Thus, under Conlin,
Defendants are not entitled to dismissal solely based on lack of standing. See id.
2.

Fraud or Irregularity due to Violation of §§ 600.3205a, 3205c

In Conlin, the Sixth Circuit clearly defined the type of fraud or irregularity required under
Michigan law to set aside the Sheriff’s sale after the expiration of the redemption period. See 714
F.3d at 362. Specifically, the defect must harm the mortgagor’s position with respect to his
interest in the property. See id. If “‘the mortgagor would have been in no better position had
notice been fully proper and the mortgagor lost no potential opportunity to preserve some or any
portion of his interest in the property,’ courts uphold a completed foreclosure sale.” Id. In this
case, Plaintiffs make two arguments in an attempt to establish fraud or irregularity sufficient to
set aside the Sheriff’s sale.
First, Plaintiffs contend in their Response that Defendants failed to provide them with the
required notice of foreclosure and right to contact a housing counselor pursuant to MICH. COMP.
LAWS § 600.3205a (repealed 2013). Both Plaintiffs presented signed affidavits attesting to the
fact that they did not receive the required notice of foreclosure. However, Plaintiffs’ affidavits
directly contradict the allegations in the Complaint, wherein Plaintiffs alleged that they “received
notice that their mortgage was now in foreclosure and set for sale . . . .” (Compl. ¶ 12.)
Moreover, the Statement of Compliance attached to the Sheriff’s deed is presumptive evidence
that the foreclosure sale was proper and valid, and that it included the required statutory
disclosures. Plaintiffs’ own allegations and the record evidence before this Court belie Plaintiffs
self-serving affidavits. Plaintiffs cannot rely on affidavits that clearly contradict their factual
allegations.
In any event, assuming, arguendo, that Defendants did fail to send the requisite
disclosures, such a failure would not amount to fraud or irregularity sufficient for this Court to
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set aside the Sheriff’s sale. The Sixth Circuit has held that Michigan law imposes a high standard
for fraud or irregularity. See El-Seblani v. Indymac Mortg. Servs., 510 Fed. App’x 425, 429 (6th
Cir. 2013). In order for this Court to set aside the Sheriff’s sale, the Plaintiffs must demonstrate
prejudice such that “they would have been in a better position to preserve their interest in the
property absent defendant’s noncompliance.” Kim v. JPMorgan Chase Bank, 825 N.W.2d 329,
337 (Mich. 2012); see also Conlin, 714 F.3d at 362. Thus, setting aside Plaintiffs’ pleading
deficiencies, Plaintiffs must still state a plausible claim that Defendants’ alleged failure to
provide the requisite disclosures caused them prejudice of the type contemplated in Kim, Conlin
and El-Seblani.
To support their argument, Plaintiffs rely solely on an inference from Young v. BAC
Home Loans Servicing, No. 11-12613, 2012 WL 72299 (E.D. Mich. Jan. 10, 2012). In Young,
the court granted defendant’s motion to dismiss where plaintiff challenged a foreclosure under
MICH. COMP. LAWS § 600.3205. Id. at *10. The court granted the motion to dismiss because it
found that the plaintiff received proper notice of foreclosure and failed to request a meeting for a
loan modification within the required statutory period. Id. at *6-7. Plaintiffs ask this Court to
infer that the plaintiffs in Young would have prevailed had the defendant in that case failed to
send the required disclosures and to apply that reasoning here to deny Defendants’ motion.
However, the reasoning Plaintiffs ask this Court to apply does not necessarily follow from the
Young court’s decision; Plaintiffs’ argument extrapolates far beyond the reasoning in that case.
The Young court’s decision may have turned on the finding that the defendant provided notice,
but it did not speak to what action a court should take under Kim and Conlin if a defendant fails
to provide notice.
Plaintiffs contend that this Court should nevertheless find a plausible claim for prejudice
on the facts of this case. Plaintiffs argue that, had they received proper notice, they would have
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filed suit to convert the foreclosure proceeding to a judicial foreclosure. However, Plaintiffs have
presented no facts to explain how the prospect of a judicial foreclosure would have put them in
“a better position to preserve their interest in the property” as is required to show prejudice under
Kim. 825 N.W.2d at 337. Plaintiffs do not dispute that they defaulted on the note, nor do they
contest the validity of the mortgage. Thus, it is likely that a judicial foreclosure proceeding
would have resulted in the same outcome for Plaintiffs: a Sheriff’s sale.
Second, Plaintiffs contend that Defendants violated then-current MICH. COMP. LAWS §
600.3205c by failing to provide Plaintiffs with a loan modification in bad faith. The Complaint
states no specific factual allegations to support the contention that Defendants acted in bad faith.
Furthermore, MICH. COMP. LAWS § 600.3205c does not create an unconditional duty for
Defendants to grant a loan modification. Instead, the statute requires that lenders designate a
representative to work with the borrower and determine whether the borrower qualifies for a loan
modification. The relevant portion of the statute states that “the person designated … shall work
with the borrower to determine whether the borrower qualifies for a loan modification.” MICH.
COMP. LAWS § 600.3205c (repealed 2013).
In any event, a violation of MICH. COMP. LAWS § 600.3205c would not justify setting
aside the Sheriff’s sale. The sole remedy is to convert the foreclosure by advertisement into a
judicial foreclosure. MICH. COMP. LAWS § 600.3205c (repealed 2013). Thus, even assuming
Plaintiffs’ allegations are true, Plaintiffs have not stated a claim sufficient to demonstrate
prejudice for the reasons discussed above.
3.

Intentional Infliction of Emotional Distress

Plaintiffs additionally allege that Defendants acted recklessly and engaged in extreme,
outrageous conduct that caused Plaintiffs severe emotional distress. Under the pleading standard
set forth in Twombly and Iqbal, Plaintiffs must do more than recite formulaic legal conclusions.
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To state a claim for which relief can be granted, Plaintiffs must state factual allegations that
make the claim plausible. See Twombly, 500 U.S. at 555; Iqbal, 556 U.S. at 668. Here, Plaintiffs
have not alleged specific actions of the Defendants that give rise to a plausible emotional distress
claim. The sole fact that Plaintiffs’ mortgage loan was not modified is insufficient. Plaintiffs’
response to Defendants’ motion offers no further facts or argument in support of the emotional
distress claim beyond the formulaic recitations in the Complaint.
IV.

CONCLUSION
Based on the pleadings before this Court, Plaintiffs have not stated a plausible claim of

fraud or irregularity sufficient to set aside the Sheriff’s sale. MICH. COMP. LAWS §§ 600.3205a,
3205c (repealed 2013) does not require that Defendants grant Plaintiffs a loan modification. The
Plaintiffs’ factual allegations that they did not receive Defendants’ foreclosure notice, even if
true, do not state a plausible claim entitling them to the relief requested. Even if Defendants did
fail to send Plaintiffs the requisite disclosures, Plaintiffs provide no factual allegations explaining
how the opportunity to pursue a judicial foreclosure would have put them in a better position to
keep their home. Lastly, Plaintiffs have failed to state sufficient factual allegations in support of
the intentional infliction of emotional distress claim.
For the reasons stated above, the Court will GRANT Defendants’ Motion to Dismiss
Plaintiffs’ Complaint.
SO ORDERED.

Dated: June 20, 2014
/s/Gershwin A Drain
GERSHWIN A. DRAIN
UNITED STATES DISTRICT JUDGE

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