Gjokaj et al v. HSBC Mortgage Services Inc. et al
Filing
13
OPINION AND ORDER granting 3 Motion to Dismiss; granting 7 Motion to Dismiss. Signed by District Judge Patrick J. Duggan. (MOre)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
SHACE GJOKAJ and VATA GJOKAJ
Plaintiffs,
v.
Case No. 2:14-cv-11119
Honorable Patrick J. Duggan
HSBC MORTGAGE SERVICES, INC.,
and MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS, INC.
Defendants.
___________________________________/
OPINION AND ORDER GRANTING DEFENDANTS’ MOTION TO
DISMISS PLAINTIFFS’ AMENDED COMPLAINT
Plaintiffs Shace Gjokaj and Vata Gjokaj initiated this action against
Defendants HSBC Mortgage Services, Inc. (“HSBC”) and Mortgage Electronic
Registration Systems, Inc. (“MERS”) in state court to redress alleged improprieties
in the foreclosure of their home. Defendants timely removed the action to this
Court and eventually filed a motion to dismiss Plaintiffs’ Amended Complaint
pursuant to Federal Rule of Civil Procedure 12(b)(6). This motion, which in
addition to dismissal seeks the imposition of sanctions against Plaintiffs’ counsel,
is presently before the Court. Having determined that oral argument would not
significantly aid the decision process, the Court dispensed with oral argument
pursuant to Eastern District of Michigan Local Rule 7.1(f)(2). For the reasons
stated herein, the Court declines to impose sanctions but otherwise grants
Defendants’ Motion and dismisses the action with prejudice.
I.
A.
FACTUAL AND PROCEDURAL BACKGROUND
The Note, Mortgage, and Eventual Foreclosure
On May 2, 2006, Plaintiffs accepted a $255,000 loan from M&I Bank FSB,
and, in exchange, executed a promissory note secured by a mortgage on real
property commonly known as 3934 Lancaster Drive, Sterling Heights, Michigan
(hereinafter, the “Property”). (Mortgage, Def.’s Mot. Ex. 1.) The Mortgage,
executed in favor of MERS, “solely as [] nominee for Lender and Lender’s
succssors and assigns[,]” designates MERS as “the mortgagee under this Security
Instrument.” (Id.) The Mortgage was recorded with the Macomb County Register
of Deeds on June 12, 2006, at Liber 17917, page 202. (Id.)
MERS subsequently assigned the Mortgage to HSBC on December 18,
2012. An assignment reflecting this transfer was recorded with the Macomb
County Register of Deeds on January 15, 2013, at Liber 21842, page 669.
(Assignment, Defs.’ Mot. Ex. 2.)
Plaintiffs eventually defaulted on their loan obligations by failing to remit
timely payments. Plaintiffs’ pleading does not go so far as to admit the default
outright; however, Plaintiffs make several allegations regarding a request for a loan
modification, which implicitly suggests that Plaintiffs were unable to keep up with
2
their payment obligations pursuant to the original loan agreement. (See, e.g., Am.
Compl. ¶ 13 (“Plaintiff [sic] timely submitted a request for a loan modification
package[.]”).) Further, Plaintiffs do not refute Defendants’ statement that
“Plaintiffs defaulted on their payment obligation and have not made a payment
since March 2010.” (Defs.’ Br. 2.)
As a result of Plaintiffs’ default, HSBC initiated a foreclosure by
advertisement under Michigan’s statutory scheme.1 (Am. Compl. ¶ 12.) The first
of four notices of foreclosure appeared in the Macomb County Legal News on
February 8, 2013. (Aff. of Publication attach. Sheriff’s Deed, Def.’s Mot. Ex. 3.)
On July 12, 2013, the Property was sold at a sheriff’s sale; HSBC purchased the
Property for $127,500. (Id.) The deed issued at the sheriff’s sale was recorded
with the Macomb County Register of Deeds on July 19, 2013, at Liber 22278, page
527. (Id.) The statutory redemption period expired on January 12, 2014, without
Plaintiffs having redeemed. (Defs.’ Br. 3.)
B.
Court Proceedings
On January 13, 2014, a day after the close of the statutory redemption
period, Plaintiffs filed a complaint in the Circuit Court for Macomb County in
1
Plaintiffs’ Amended Complaint contends that Defendants caused the
institution of foreclosure proceedings. However, MERS assigned any interest it
held in the Mortgage on December 18, 2012, prior to the initiation of foreclosure
by advertisement proceedings.
3
Macomb County, Michigan.2 (Compl. attach. Notice of Removal as Ex. 1.)
Defendants received a copy of this complaint on February 14, 2014, and, on March
14, 2014, Defendants removed the action to this Court pursuant to 28 U.S.C. §§
1332, 1441(a), and 1446. On March 21, 2014, Defendants sought dismissal of
Plaintiffs’ Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). In lieu
of responding to Defendants’ Motion, Plaintiffs’ filed an amended complaint as of
right within the twenty-one day period set forth in Rule 15(a)(1)(B).
Plaintiffs’ Amended Complaint contains eight counts against both named
defendants: Count I – Fraudulent Misrepresentation; Count II – Breach of
Contract; Count III – Violations of the Real Estate Settlement Procedures Act
(“RESPA”), 12 U.S.C. § 2601 et seq. and of the Truth in Lending Act (“TILA”),
15 U.S.C. § 1061 et seq.;3 Count IV – Violation of 15 U.S.C. § 1639; Count V –
Quiet Title; Count VI – Violation of Michigan Compiled Laws § 600.3204 et seq.;
Count VII – Slander of Title; and Count VIII – Injunctive Relief. While far from a
model of clarity, it appears that Plaintiffs’ allegations of wrongdoing relate to
“Defendants[’] fail[ure] to provide proper disclosures” related to the terms of the
2
Plaintiff’s original complaint set forth two counts: Count I – Quiet Title
and Count II – Violation of Michigan Compiled Laws § 600.3205a.
3
The Court cautions Plaintiffs’ counsel against combining two distinct
claims in a single count.
4
loan at origination as well as to Defendants’ purported failure to comply with
Michigan’s loan modification statutes. (Am. Compl. ¶¶ 11, 13-14.)
After obtaining an extension of time to which to respond to Plaintiffs’
Amended Complaint, Defendants once again filed a Rule 12(b)(6) motion seeking
dismissal of the entire action. In addition to dismissal, Defendants seek attorney’s
fees pursuant to 28 U.S.C. § 1927 due to the alleged frivolity of the claims asserted
by Plaintiffs’ counsel. (Defs.’ Br. 17.) This motion has been fully briefed.
II.
GOVERNING LEGAL STANDARD
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) allows
the Court to assess whether a plaintiff’s pleadings state a claim upon which relief
may be granted. Fed. R. Civ. P. 12(b)(6). As articulated by the Supreme Court of
the United States, “[t]o survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible
on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 1949 (2009)
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 555, 570, 127 S. Ct. 1955, 1974
(2007)). This facial plausibility standard requires claimants to put forth “enough
fact[s] to raise a reasonable expectation that discovery will reveal evidence of” the
requisite elements of their claims. Twombly, 550 U.S. at 557, 127 S. Ct. at 1965.
Even though a complaint need not contain “detailed” factual allegations, its
“factual allegations must be enough to raise a right to relief above the speculative
5
level.” Ass’n of Cleveland Fire Fighters v. City of Cleveland, 502 F.3d 545, 548
(6th Cir. 2007) (citing Twombly, 550 U.S. at 555, 127 S. Ct. at 1965) (internal
citations omitted).
While courts are required to accept the factual allegations in a complaint as
true, Twombly, 550 U.S. at 556, 127 S. Ct. at 1965, the presumption of truth does
not apply to a claimant’s legal conclusions, Iqbal, 556 U.S. at 678, 129 S. Ct. at
1949. Therefore, to survive a motion to dismiss, a 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.” Ass’n of Cleveland Fire Fighters, 502
F.3d at 548 (quoting Twombly, 550 U.S. at 555, 127 S. Ct. at 1964-65) (internal
citations and quotations omitted).
In addition to evaluating the sufficiency of the factual allegations in the
complaint itself, courts may consider any exhibits attached to the complaint,
matters of public record, and exhibits attached to a defendant’s 12(b)(6) motion,
provided that the latter are referred to in the complaint and are central to the claims
therein. Bassett v. NCAA, 528 F.3d 426, 430 (6th Cir. 2008) (citing Amini v.
Oberlin Coll., 259 F.3d 493, 502 (6th Cir. 2001)).
In the present case, the Court has considered documents, all of which are
public, relating to the mortgage and foreclosure.
III.
ANALYSIS
6
A.
General Principles Pertaining to Michigan’s Foreclosure by
Advertisement Statute
Foreclosures by advertisement, such as the foreclosure at issue in this case,
as well as the rights of both the mortgagor and mortgagee after a foreclosure sale
has occurred, are governed by Michigan statutory law. See, e.g., Senters v. Ottawa
Sav. Bank, F.S.B., 443 Mich. 45, 50, 503 N.W.2d 639, 641 (Mich. 1993); Conlin v.
Mortgage Elec. Registration Sys., Inc., 714 F.3d 355, 359 (6th Cir. 2013) (applying
Michigan law) (citation omitted).
Pursuant to Michigan law, a mortgagor has six months from the date of the
sheriff’s sale to redeem foreclosed property. Mich. Comp. Laws § 600.3240(8).
Significant consequences flow from a mortgagor’s failure to redeem prior to the
expiration of the statutory redemption period: the mortgagor’s “right, title, and
interest in and to the property” are extinguished, Piotrowski v. State Land Office
Board, 302 Mich. 179, 4 N.W.2d 514, 517 (Mich. 1942), and the deed issued at the
sheriff’s sale “become[s] operative, and [] vest[s] in the grantee named therein . . .
all the right, title, and interest [] the mortgagor had[,]” Michigan Compiled Laws §
600.3236. This rule of law – holding that absolute title vests in the purchaser at the
foreclosure sale upon expiration of the redemption period – has been applied
consistently by state and federal courts alike to bar former owners from making
any claims with respect to a foreclosed property after the statutory redemption
period has lapsed.
7
There is one caveat to the general rule described above: after the redemption
period has run, a court may allow “an equitable extension of the period to redeem”
if a plaintiff-mortgagor makes “a clear showing of fraud, or irregularity[.]”
Schulthies v. Barron, 16 Mich. App. 246, 247-48, 167 N.W.2d 784, 785 (Mich. Ct.
App. 1969); Freeman v. Wozniak, 241 Mich. App. 633, 637, 617 N.W.2d 46, 49
(Mich. Ct. App. 2000) (“[I]n the absence of fraud, accident or mistake, the
possibility of injustice is not enough to tamper with the strict statutory
requirements.”) (citing Senters, 443 Mich. at 55, 503 N.W.2d at 643). In order to
satisfy this standard, a plaintiff-mortgagor’s pleading must allege misconduct
related to the foreclosure procedure itself. Conlin, 714 F.3d at 360; Reid v.
Rylander, 270 Mich. 263, 267, 258 N.W. 630, 631 (Mich. 1935) (holding that only
the foreclosure procedure may be challenged after a sale); Freeman, 241 Mich.
App. at 636-38, 617 N.W.2d at 49 (reversal of sheriff’s sale improper without
fraud, accident, or mistake in foreclosure procedure).
If fraud or irregularity is shown in connection to the foreclosure procedure,
the result is “a foreclosure that is voidable, not void ab initio.” Kim v. JPMorgan
Chase Bank, N.A., 493 Mich. 98, 115, 825 N.W.2d 329, 337 (Mich. 2012). In
order “to set aside the foreclosure sale, plaintiffs must show that they were
prejudiced by defendant’s failure to comply” with Michigan’s foreclosure by
advertisement statute. Id.; Conlin, 714 F.3d at 361. “To demonstrate such
8
prejudice, [plaintiffs] must show that they would have been in a better position to
preserve their interest in the property absent defendant’s noncompliance with the
statute.” Kim, 493 Mich. at 115-16, 825 N.W.2d at 337 (footnote omitted).
B.
Setting Aside the Foreclosure Sale
Because the redemption period in the present case has expired, the Court
must analyze Plaintiffs’ claims within the fraud or irregularity framework outlined
above. Thus, the Court must decide whether, under Michigan law, the foreclosure
sale can be set aside, or is voidable, on the facts alleged. See Savedoff v. Access
Group, Inc., 524 F.3d 754, 762 (6th Cir. 2008) (observing that the Erie doctrine
requires federal courts hearing state law claims to apply the decisions of the state’s
highest court).
Upon review, not a single count in Plaintiffs’ eight-count Amended
Complaint even arguably constitutes fraud or irregularity in connection with the
foreclosure procedure. Counts I though IV indisputably do not relate to the
foreclosure procedure; rather the allegations contained in these counts pertain to
the origination of the loan. Count I, entitled fraudulent misrepresentation, alleges
fraud in the origination of the loan. In Count II, Plaintiffs indicate that
“Defendants breached the Loan Agreement by failing to disclose material facts, by
making false and misleading statements and by engaging in deficient mortgage
servicing and foreclosure processes.” (Am. Compl. ¶ 28.) Count III alleges that
9
Defendants failed to provide “required notices and disclosures under the” RESPA
“and/or the” TILA. (Id. ¶ 31.) In Count IV, Plaintiffs claim that Defendants
extended credit to Plaintiffs without verifying their ability to repay the debt.” (Id.
¶¶ 36-37.)
Unfortunately for Plaintiffs, Counts V through VIII fare no better. Count V
seeks to quiet title in Plaintiffs and Count VIII seeks injunctive relief. Both of
these counts ask for certain types of relief and are not independent causes of action.
Count VII seeks to state a claim for the tort of slander of title, which is distinct
from a fraud or irregularity involving the foreclosure procedure. This leaves Count
VI, which is premised upon Defendants’ alleged failure to comply with Michigan’s
loan modification statute, as the only possible avenue for Plaintiffs to demonstrate
either fraud or irregularity. However, any alleged lack of compliance with the loan
modification statutes does not constitute a showing of fraud or irregularity in the
foreclosure procedure. See, e.g., Williams v. Pledged Property II, L.L.C., 508 F.
App’x 465, 468 (6th Cir. 2012) (“Despite the fact that [loan] negotiations may
have taken place during the foreclosure process, these negotiations remained
separate from the foreclosure process itself.”).
Although Plaintiffs have failed to set forth allegations that accepted as true
entitle them to the relief they seek, the Court addresses each count in Plaintiffs’
Amended Complaint before turning to Defendants’ request for attorney’s fees.
10
C.
Plaintiffs’ Individual Counts
1.
Count I – Fraudulent Misrepresentation
In Count I, Plaintiffs seek to state a claim for fraudulent misrepresentation
based on allegations that they were misled regarding the terms of their loan at the
time they entered the transaction. According to Plaintiffs, Defendants’ failure “to
give notices and disclosures that were required by law” prevented Plaintiffs from
being “advised of the true details of the Loan transaction.” (Am. Compl. ¶ 21(a).)
To prevail on a fraud claim in Michigan, a plaintiff is first required to prove
that the defendant made a material representation. Hi-Way Motor Co. v. Int'l
Harvester Co., 398 Mich. 330, 336, 247 N.W.2d 813, 816 (1976) (internal
quotations omitted) (setting forth the six elements of common law fraud).
Although required to adhere to federal pleading standards to survive a motion to
dismiss, specifically Federal Rule of Civil Procedure 9(b),4 Plaintiffs do not allege
who specifically made the statements; rather, they contend that Defendants made
“representations” to Plaintiffs that they qualified for the loan and “all terms,
conditions, and circumstances contained in the underwriting materials and closing
package (including the Mortgage and the Note)” were “adequately and fully
disclosed as required by law.” (Am. Compl. ¶ 20.) Because a cursory review of
4
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.”
11
the Mortgage reveals that neither HSBC nor MERS was involved with the
origination of Plaintiffs’ loan,5 the Court infers that the alleged misrepresentations
or omissions must have been the result of the conduct of an agent of the originating
lender, M&I Bank, which is not a party to this action. (Mortgage, Def.’s Mot. Ex.
1.) Even if Plaintiffs had adequately pled fraud, which they have not, to the extent
the original lender committed misconduct during the loan origination, such conduct
cannot be imputed to Defendants as successors or assignees. Stacey v. Vista
Mortgage Corp., No. 10-13769, 2011 U.S. Dist. LEXIS 146726, at *8 (E.D. Mich.
Dec. 21, 2011) (Steeh, J.) (citing Swarich v. OneWest Bank, FSB, No. 09-13346,
2009 U.S. Dist. LEXIS 108644 , at *19 (E.D. Mich. Nov. 20, 2009) (Edmunds, J.)
(granting defendant’s motion to dismiss because the alleged misrepresentations
were made by an employee of the original lender, and not by any employee of
defendant company, the current holder of the mortgage)). Thus, even assuming the
verity of Plaintiffs’ allegations, any misconduct at the origination stage could not
logically have been the product of either named defendants’ agents. It necessarily
follows that Count I fails to state a claim upon which relief can be granted.6
5
Plaintiffs obtained their loan from non-party M&I Bank. MERS merely
served as nominee holding the mortgage, which it assigned to HSBC in December
2012, over six years after Plaintiffs accepted their loan.
6
The Court also notes that Michigan’s statute of limitations for claims
sounding in fraud is six years. Mich. Comp. Laws § 600.5813. Plaintiffs’ claims
12
Coyers v. HSBC Mortgage Servs., 701 F.3d 1104, 1108 (6th Cir. 2012) (affirming
dismissal of borrowers’ fraud claims against defendant loan servicer where
plaintiffs asserted claims based on misrepresentations at the time of origination and
loan servicer “had no involvement with the inception” of the loan at issue).
2.
Count II – Breach of Contract
In Count II, Plaintiffs seek to state a claim for breach of contract. Defendants
argue this claim is subject to dismissal for several reasons but the Court only
addresses the contention that Plaintiffs have failed to state a claim upon which
relief can be granted, as this argument is dispositive.
To establish a breach of contract in Michigan, Plaintiffs must allege: (1) the
existence of a valid contract, (2) establish the contract’s terms, (3) evidence of a
breach to those terms, and (4) show an injury causally related to that breach.
Webster v. Edward D. Jones & Co., 197 F.3d 815, 819 (6th Cir. 1999).
Although Plaintiffs did not supply this Court with a copy of the Mortgage or
otherwise endeavor to establish the contractual terms, Defendants furnished a copy
of the Mortgage. Accordingly, the first two elements are arguably satisfied.
Plaintiffs allege breach of original mortgage agreement but neither Defendant was
a party to that mortgage. Further, the sole allegation in Count II relating to any
purported breach is Plaintiffs’ generalized assertion that “Defendants breached the
necessarily accrued on or before May 2, 2006, when the loan documents were
executed. The instant action was filed in January 2014, well over six years later.
13
Loan Agreement by failing to disclose material facts, by making false and
misleading statements and by engaging in deficient mortgage servicing and
foreclosure processes.” (Am. Compl. ¶ 28.) This allegation, entirely lacking in
factual support or enhancement, is wholly insufficient to withstand a motion to
dismiss. Iqbal, 556 U.S. at 678, 129 S. Ct. at 1949 (“Threadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not
suffice.”) (citation omitted).
Accordingly, the Court dismisses Count II with prejudice.
3.
Count III – Violations of the RESPA and the TILA
In Count III, Plaintiffs allege that “[w]hen Defendants entered Loan
negotiations, no attempt was made by Defendants to give required notices and
disclosures under the [RESPA] and/or the [TILA].” (Am. Compl. ¶ 31.) Further,
“Defendants imposed charges, fees and costs as stated above in violation of law.”7
(Id. ¶ 32.) “[B]y reason of its unethical and illegal activity,” “Defendant . . . added
to and inflated the principal balance owed on the Home, thereby depriving Plaintiff
of his property rights.”8 (Id. ¶ 33.) The Amended Complaint contains no further
7
Despite a thorough review of the allegations in Plaintiffs’ Amended
Complaint, the Court has not been able to locate any other reference to the
“charges, fees and costs” referred to in this paragraph. (Am. Compl. ¶ 32.)
8
The allegations in this paragraph, which rather explicitly denote the
existence of a singular defendant and singular plaintiff, concern this Court. Adding
weight to this concern is the fact that Plaintiffs’ Amended Complaint repeatedly
14
elaboration on Defendants’ allegedly unlawful conduct and, frankly, it is entirely
unclear from these threadbare allegations which specific provisions of the RESPA
or the TILA Defendants allegedly violated.
Once again, the Court finds it necessary to note that neither HSBC nor
MERS “entered Loan negotiations” with Plaintiffs, as M&I Bank was the lender.
Further, even if they had, both the RESPA and the TILA contain statutes of
limitations that expired no less than five years ago, a fact which Plaintiffs concede
in responding to Defendants’ Motion. (Pls.’ Resp. 15 n.1.) Despite this
concession, Plaintiffs contend that “[t]he statutes of limitation in this matter are
subject to equitable tolling because the Loan intentionally violates state and federal
laws[,]” (Am. Compl. ¶ 15), and are subject to equitable tolling by virtue of
“Plaintiffs [sic] inability to discover the fraud until much later[,]” (Pls.’ Resp. 15
n.1). The Court is left to guess which state and federal laws were intentionally
violated and what fraudulent conduct Plaintiff claims forms the basis of the alleged
fraudulent concealment.
references either a singular plaintiff or defendant. (See, e.g., Am. Compl. 1
(“NOW COME, Plaintiff by and through her attorneys . . . .”); id. ¶¶ 5, 7, 8, 11, 1314, 19-21, 24-26, 29-30, 33-35, 40, 43, 45, 48, 52, 54-57, p. 7.) Taken in tandem
with the previous footnote, the Court finds it prudent to caution Plaintiffs’ counsel
that the filing of “cookie cutter” pleadings is potentially sanctionable conduct. See
Landis v. Fannie Mae, 922 F. Supp. 2d 646 (E.D. Mich. 2013) (sanctioning
counsel for repeatedly filing virtually identical complaints in mortgage cases
wholly lacking in merit).
15
To properly plead a basis for a court’s application of equitable tolling for
fraudulent concealment, plaintiffs must allege that (1) defendants concealed the
conduct that constitute the cause of action, (2) defendants’ concealment prevented
plaintiffs from discovering the cause of action within the limitations period, and (3)
until discovery, plaintiffs exercised due diligence in trying to find out about the
cause of action. Egerer v. Woodland Realty, Inc., 556 F.3d 415, 422 (6th Cir.
2009) (citations omitted). Plaintiffs have provided no such allegations and their
conclusory allegations regarding equitable tolling are insufficient to warrant that
relief. Thielen v. GMAC Mortg. Corp., 671 F. Supp. 2d 947, 954 (E.D. Mich.
2009) (dismissing claimed entitlement to equitable tolling of TILA’s limitations
period where plaintiffs failed to present any allegations in support of such relief).
Because a mere claim of entitlement to an equitable remedy falls far short of
showing an entitlement to relief, the Court dismisses Count III with prejudice due
to the expiration of both limitations periods.
4.
Count IV – Violation of 15 U.S.C. § 1639(h)
In Count IV, Plaintiffs contend that Defendants violated the Home
Ownership and Equity Protection Act (“HOEPA”), which amended the TILA and
is codified at 15 U.S.C. § 1639(h), by extending credit to Plaintiffs without regard
to their ability to repay debt. (Am. Compl. ¶ 37.) As Defendants suggest, this
claim is subject to dismissal because neither HSBC nor MERS extended credit to
16
Plaintiffs (rather, as this Court has stated repeatedly, M&I Bank extended the
credit) and because the one-year statute of limitations set forth at 15 U.S.C. §
1640(e) has long since expired. (Defs.’ Br. 12-13.)
Because Count IV fails to state a claim upon which relief can be granted, the
Court dismisses IV with prejudice.
5.
Count VI – Violation of Michigan Compiled Laws § 600.3204 et seq.
In Count VI, Plaintiffs seek relief on the basis that Defendants violated
Michigan’s loan modification and foreclosure by advertisement statutes.
Specifically, “Defendants initiated foreclosure of the Home without giving the
required notices under MCL 600.3205a.” (Am. Compl. ¶ 46.) Defendants also
violated the foreclosure by advertisement statute by failing to send Plaintiffs any
“loan modification calculations” as required by Michigan Compiled Laws §
600.3204(4) and by failing to approve a modification despite the fact that
“Plaintiff[s] qualified and continue[] to qualify for modification[.]” (Id. ¶¶ 48, 50.)
Plaintiffs also allege that they “could not petition the court for judicial foreclosure
because Defendants continued to promise modification[.]”9 (Id. ¶ 49.)
9
Elsewhere in the Amended Complaint, Plaintiffs allege that “Defendant . . .
initiated foreclosure proceedings without regard to the modification agreement
entered into[.]” (Am. Compl. ¶ 16.) It is entirely unclear whether this alleged
agreement was oral or reduced to a writing, but a copy of this alleged modification
agreement has not been supplied to the Court.
17
Plaintiffs’ claims fail for a number of reasons. First, Plaintiffs’ suggestion
that the allegedly defective notice under Michigan Compiled Laws § 600.3205a
constitutes an irregularity sufficient to set aside the sheriff’s sale is mistaken. See,
e.g., Galati v. Wells Fargo Bank, N.A., No. 11-11487, 2011 U.S. Dist. LEXIS
126124, at *10-11 (E.D. Mich. Nov. 1, 2011) (Cohn, J.) (holding that failure to
provide “notice of [the] right to request a modification meeting under Michigan
Compiled Laws § 600.3205a(1)(b)” does not constitute a “sufficient irregularit[y]
to void the foreclosure sale”); Brezzell v. Bank of Am., N.A., No. 11-11476, 2011
U.S. Dist. LEXIS 74291, at *15 (E.D. Mich. July 11, 2011) (Edmunds, J.) (“Even
if Defendants violated [Michigan Compiled Laws § 600.3205a], that is not enough
to set aside the foreclosure sale.”).
Second, to the extent Plaintiffs seek relief for Defendants’ purported
noncompliance with Michigan’s loan modification procedures on the basis that
such noncompliance constitutes a structural defect rendering the foreclosure void
ab initio, the Court notes that such a theory was explicitly rejected by the Michigan
Supreme Court in Kim. 493 Mich. at 115, 825 N.W.2d at 337. Plaintiffs’ reliance
on Mitan v. Federal Home Loan Mortgage Corp., 703 F.3d 949 (6th Cir. 2012), a
case pre-dating Kim, for this position is entirely problematic as Mitan is no longer
18
good law.10 Mourad v. Homeward Residential, Inc., 517 F. App’x 360, 367 (6th
Cir. 2013) (recognizing that the Michigan Supreme Court’s decision in Kim
abrogated Mitan’s holding).
Third, under Michigan’s statute of frauds, any alleged promise by a
financial institution to renew, extend, modify, or permit a delay in repayment or
performance of loan must be reduced to a writing and signed by the financial
institution to be enforceable. Mich. Comp. Laws § 566.132(2)(b). As the
Michigan Court of Appeals has explained, this statute precludes a party “from
bringing a claim--no matter its label--against a financial institution to enforce the
terms of an oral promise[.]” Crown Tech. Park v. D&N Bank, F.S.B., 242 Mich.
App. 538, 550, 619 N.W.2d 66, 72 (Mich. Ct. App. 2000). Assuming Plaintiffs’
Amended Complaint contains sufficient factual allegations to establish the
10
“The Michigan Supreme Court’s decision in Kim reviewed and abrogated
Davenport v. HSBC Bank USA, 275 Mich. App. 344, 739 N.W.2d 383 (Mich. Ct.
App. 2007)[,] which was the decision the Sixth Circuit relied upon in the contrary
holding of Mitan v. Fed. Home Loan Mortg. Corp., 703 F.3d 949 (6th Cir. 2012).
Mitan held that failure to comply with the Michigan foreclosure by advertisement
statute rendered the foreclosure void.” Burrell v. Citimortgage, Inc., No. 1214081, 2014 U.S. Dist. LEXIS, at *10-11 n.2 (E.D. Mich. April 15, 2014)
(Borman, J.).
The Court quotes the above language as Plaintiffs’ counsel, who represented
the plaintiffs in Burrell, relies on Mitan as “binding and controlling authority”
which this Court must follow. (Pls.’ Resp. 7.) Plaintiffs’ counsel should consider
himself on formal notice that any further reliance on Mitan, a decision which has
been thoroughly discredited by the Sixth Circuit itself, may result in the imposition
of sanctions. See, e.g., Mourad v. Homeward Residential, Inc., 517 F. App’x 360,
367 (6th Cir. 2013) (recognizing that Kim abrogated Mitan).
19
existence of an oral promise to modify the loan, (Am. Compl. ¶ 49), Plaintiffs have
not alleged the existence of a writing signed by either Defendant confirming any
loan modification. As such, any claim arising from a purportedly wrongful refusal
to modify Plaintiffs’ loan must be dismissed as barred by Michigan’s statute of
frauds. Rydzewski v. Bank of N.Y. Mellon, No. 12-12047, 2012 U.S. Dist. LEXIS
129955, at *13 (E.D. Mich. Sept. 12, 2012) (Cohn, J.)
Fourth, and lastly, the loan modification statute “does not permit the Court
to set aside a completed foreclosure sale.” Benford v. CitiMortgage, Inc., No. 1112200, 2011 U.S. Dist. LEXIS 130935, at *5 (E.D. Mich. Nov. 14, 2011) (Duggan,
J.) Rather, the statute provides for a specific remedy in cases where a foreclosure
by advertisement is commenced in violation of the loan modification statute: “the
borrower may file an action in the circuit court for the county where the mortgaged
property is situated to convert the foreclosure proceeding to a judicial foreclosure.”
Mich. Comp. Laws § 600.3205c(8); see also Block v. BAC Home Loans Serv.,
L.P., 520 F. App’x 339, 340-41 (6th Cir. 2013) (“Even if the Blocks’ [loan
modification] claim had merit, they could not receive what their complaint asks
for: ‘all legal title to’ the foreclosed home. . . . Instead, the remedy for a breach of
the loan-modification statute is to ‘convert the foreclosure proceeding to a judicial
foreclosure.’”) (citations omitted); Smith v. Bank of Am. Corp., 485 F. App’x 749,
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756 (6th Cir. 2012). Here, the foreclosure is complete and the redemption period
has expired; there is, therefore, nothing to convert.
Accordingly, the Court dismisses Count VI with prejudice.
6.
Count VII – Slander of Title
Count VII of Plaintiffs’ Amended Complaint seeks to state a claim for
slander of title. (Am. Compl. ¶¶ 52-56.) Plaintiffs contend that Defendants
slandered their title because Defendants did not have a valid security interest in the
home by reason of “illegal conduct,” yet Defendants caused the sheriff’s sale. (Id.)
Slander of title claims have both a common law and statutory basis in
Michigan. B&B Inv. Group v. Gitler, 279 Mich. 1, 8, 581 N.W.2d 17, 20 (Mich.
Ct. App. 1998); Mich. Comp. Laws § 565.109. Irrespective of which basis a
plaintiff seeks to invoke, that plaintiff must plead “falsity, malice and special
damages, i.e., that the defendant maliciously published false statements that
disparaged a plaintiff’s right in property, causing special damages.” Id.
Count VII fails to even contain a “[t]hreadbare recital of the elements of” a
slander of title action, Iqbal, 556 U.S. at 678, 129 S. Ct. at 1949, and therefore
necessarily fails to state a claim upon which relief can be granted. As such, the
Court dismisses Plaintiffs’ slander of title claim with prejudice.
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7.
Count V – “Quiet Title”
Count V purports to state a claim for quiet title. However, quiet title actions
are remedies, not independent causes of action. Goryoka v. Quicken Loan, Inc.,
519 F. App’x 926, 928-29 (6th Cir. 2013) (per curiam) (affirming district court’s
dismissal of plaintiff’s quiet title count on this basis). Michigan law does,
however, provide a statutory mechanism for quieting title, which the Court
addresses in the interest of completeness.
Michigan Compiled Laws § 600.2932(1) provides, in pertinent part: “Any
person . . . who claims any right in, title to, equitable title to, interest in, or right to
possession of land, may bring an action . . . against any other person who claims .
. . [an inconsistent interest].” This statutory language requires a plaintiff seeking to
quiet title to establish a substantive right in the property superior to others claiming
an inconsistent interest. Beach v. Twp. of Lima, 489 Mich. 99, 110, 802 N.W.2d 1,
8 (Mich. 2011). Plaintiffs bear the initial burden of proof and must establish a
prima facie case of title. Stinebaugh v. Bristol, 132 Mich. App. 311, 316, 347
N.W.2d 219, 221 (Mich. Ct. App. 1984) (citation omitted). “Establishing a prima
facie case of title requires a description of the chain of title through which
ownership is claimed.” Sembly v. U.S. Bank, N.A., No. 11-12322, 2012 U.S. Dist.
LEXIS 1440, at *9 (E.D. Mich. Jan. 6, 2012) (Rosen, C.J.).
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Plaintiffs have not alleged facts establishing a prima facie case of title.
Nowhere in their Amended Complaint do Plaintiffs mention anything even closely
resembling the chain of title through which ownership is claimed. (Am. Compl. ¶¶
40-44.) Rather, Plaintiffs make wholly conclusory allegations such as “Defendants
do not have a valid security interest in the Home because Plaintiffs signed the
mortgage and note by reason of Defendants’ failure to disclose material facts and
by making false and misleading representations.” (Id. ¶ 42.)
Of greater import, “Plaintiff[s] do[] not contest that [they] failed to pay and
defaulted on the loan. [They] provide[] no allegations to indicate that [they] ha[ve]
a plausible claim of ownership superior to the Bank’s.” Rydzewski, No. 12-12047,
2012 U.S. Dist. LEXIS 129955, at *10. Ironically, Plaintiffs’ Amended Complaint
supports a finding that HSBC has superior title to the Property based on the
sheriff’s sale and expiration of the redemption period.11 Piotrowski, 302 Mich. at
186, 4 N.W.2d at 516 (explaining that mortgagors lose “all their right, title, and
interest in and to the property at the expiration of their right of redemption”).
Because Plaintiffs have not demonstrated any interest in the Property, the
Court dismisses Count V with prejudice.
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Plaintiffs make no effort to explain why an action to quiet title has been
brought against MERS as MERS does not have title to, or claim an ownership
interest in, the Property. Rather, as the purchaser of the Property at the sheriff’s
sale and the entity named in the sheriff’s deed, HSBC is the only defendant at all
relevant to a quiet title action.
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8.
Count VIII – Injunctive Relief
Plaintiffs request injunctive relief in Count VIII. Plaintiffs have alleged
neither facts nor a legal basis supporting application of this remedy. Because
Plaintiffs have not shown an entitlement to any form of relief on the cognizable
causes of action contained in their Amended Complaint, Count VIII is dismissed
with prejudice.
D.
Defendants’ Request for Attorney’s Fees
Defendants request attorney’s fees under 28 U.S.C. § 1927, which provides:
“Any attorney or other person admitted to conduct cases in any court
of the United States or any Territory thereof who so multiplies the
proceedings in any case unreasonably and vexatiously may be
required by the court to satisfy personally the excess costs, expenses,
and attorneys’ fees reasonably incurred because of such conduct.”
In assessing the propriety of sanctions, courts should consider whether “an attorney
knows or reasonably should know that a claim pursued is frivolous[.]” Rentz v.
Dynasty Apparel Indus., Inc., 556 F.3d 389, 396 (6th Cir. 2009) (quoting Ridder v.
City of Springfield, 109 F.3d 288, 298 (6th Cir. 1997)). “Under this objective
standard, Ԥ 1927 sanctions require a showing of something less than subjective
bad faith, but something more than negligence or incompetence.’” Id. (quoting
Red Carpet Studios Div. of Source Advantage, Ltd. v. Sater, 465 F.3d 642, 646 (6th
Cir. 2006)).
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In Plaintiffs’ Response, counsel explains that the law regarding residential
foreclosures has been in a constant state of evolution and that his previously
dismissed cases have applied different law. (Pls.’ Resp. 16.) The Court credits
this explanation but wishes to put Plaintiffs’ counsel on notice that because he has
previously filed numerous actions with similar claims that have resulted in
dismissal, he should know at this juncture that the allegations he is including in his
complaints and the claims he is asserting on behalf of his clients are insufficient to
withstand a motion to dismiss. Further, the rather non-responsive Response Brief
cites case law which at least one other judge in this district has explained is no
longer good law. Burrell v. Citimortgage, Inc., No. 12-14081, 2014 U.S. Dist.
LEXIS, at *10-11 n.2 (E.D. Mich. April 15, 2014) (Borman, J.) (explaining that
Mitan is bad law). Plaintiffs’ counsel and his firm are now on notice that should
such frivolous claims appear before the undersigned again, attorney’s fees and
sanctions will likely result.
Plaintiffs’ counsel has other residential foreclosure complaints pending
before other judges in this district. The Court is not expressing any opinion on the
merits of these complaints but is merely cautioning counsel that the repeated filing
of cookie cutter complaints may constitute professional misconduct. Landis v.
Fannie Mae, 922 F. Supp. 2d 646 (E.D. Mich. 2013). Prudence suggests that
Plaintiffs’ counsel should reevaluate any other actions currently pending before
25
any member of this bench to determine whether each claim asserted in those
actions has an arguable basis in fact and in the law as it stands at this time.
Accordingly, Defendants’ request for sanctions is denied.
V.
CONCLUSION AND ORDER
For the reasons set forth above, the Court concludes that all eight counts
contained in Plaintiffs’ Amended Complaint fail to state a claim upon which relief
can be granted.
Accordingly,
IT IS ORDERED that Defendants’ Motion to Dismiss is GRANTED and
Plaintiffs’ Amended Complaint is DISMISSED WITH PREJUDICE;
IT IS FURTHER ORDERED that Defendants’ request for sanctions
pursuant to 28 U.S.C. § 1927 is DENIED;
IT IS FURTHER ORDERED that Plaintiffs’ counsel, Mr. David Chasnick,
is directed to re-evaluate any other actions that he currently has pending before any
member of this bench, to determine whether each claim asserted in those actions
has an arguable basis in fact and law.
Date: July 1, 2014
s/PATRICK J. DUGGAN
UNITED STATES DISTRICT JUDGE
Copies to:
David A. Chasnick, Esq.
Jennifer L. Newby, Esq.
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