Elzein v. Federal National Mortgage Association
Filing
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MEMORANDUM and ORDER granting Defendant's 7 Motion to Dismiss. Signed by District Judge Avern Cohn. (JOwe)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
MAHMOUD ELZEIN,
Plaintiff,
v.
Case No. 15-11457
HON. AVERN COHN
FEDERAL NATIONAL
MORTGAGE ASSOCIATION,
Defendant.
______________________________________/
MEMORANDUM AND ORDER
GRANTING DEFENDANT’S MOTION TO DISMISS (Doc. 7)
I. INTRODUCTION
This is a wrongful foreclosure and consumer protection case under the Fair Debt
Collection Practices Act (“FDCPA”), 12 U.S.C. § 1692 et seq. Plaintiff Mahmoud Elzein
is suing Defendant Federal National Mortgage Association (“FNMA”) relating to the
foreclosure by advertisement of real estate owned by Elzein located in Dearborn
Heights, Michigan. Plaintiff’s First Amended Complaint (Doc. 4) is three counts:
Count I:
Wrongful Foreclosure
Count II:
Quiet Title
Count III
Violation of the FDCPA
Now before the Court is FNMA’s Motion to Dismiss (Doc. 7). For the reasons
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that follow, FNMA’s motion will be granted. 1
II. BACKGROUND
A. Factual Basis
This matter involves real property located in Dearborn Heights, Michigan. On or
about June 9, 2006, Elzein entered into a loan transaction reflecting a note 2 payable to
Shore Mortgage as lender (See Note, Doc. 7 Ex. 1), and a mortgage securing the note
to Mortgage Electronic Registration Systems (MERS) as mortgagee (See Mortgage,
Doc. 7 Ex. 2) in the amount of $314,400.00.
On September 10, 2011, the mortgage was assigned by MERS to Bank of
America. (See Assignment of Mortgage, Doc. 7 Ex. 3).
Eventually, Elzein defaulted on his obligations under the note. On July 11, 2014,
Elzein was sent a letter by Trott & Trott, a debt collection agency, stating that Nationstar
Mortgage (“Nationstar”), its client, has initiated the foreclosure process.
The letter
further stated that FNMA is the owner of the debt, and that Nationstar is the servicer of
the debt. The letter allowed Elzein thirty days to dispute the validity of his outstanding
debt. (See Trott & Trott Letter, Doc. 5. Ex. 6)
On July 31, 2014, the mortgage was formally assigned to Nationstar.
(See
Assignment of Mortgage, Doc. 7 Ex. 4).
1
The Court originally scheduled this matter for hearing. Upon review of the
parties’ papers, however, the Court finds that oral argument is not necessary. See E.D.
Mich. LR 7.1(f)(2).
2
Although the record is unclear, the note was ultimately transferred to FNMA, who
is identified as the owner of the indebtedness at the time of the foreclosure. (See Trott
& Trott Letter, Doc. 5. Ex. 6) Elzein, in his response to FNMA’s motion to dismiss, does
not contest that FNMA was the note holder and the owner of the indebtedness at the
time of the foreclosure.
2
On August 21, 2014, Nationstar, acting though Trott & Trott, initiated a
foreclosure by advertisement, which was published in the Detroit Legal News on August
21, August 28, September 4, and September 11, 2014 (See Affidavit of Publication,
Doc. 7 Ex. 5 at 3), and was posted on the subject property on August 25, 2014. (See
Evidence of Sale, Doc. 7 Ex. 5 at 4) These notices contained the following statement:
“ATTN PURCHASERS: This sale may be rescinded by the foreclosing mortgagee. In
that event, your damages, if any, shall be limited solely to the return of the bid amount
tendered at sale, plus interest.” (Id.)
A Sheriff’s Sale was scheduled for September 18, 2014. (See Sheriff’s Deed,
Doc. 7 Ex. 5 at 1) That day, a sheriffs deed was issued to FNMA as the successful
bidder.
(See id.; Affidavit of Purchaser, Doc. 7 Ex. 5 at 6) FNMA purchased the
property in a “full credit bid” for the full amount of indebtedness. FNMA stated in the
Affidavit of Purchase that the redemption value was $457,763.93 and that the
redemption period expired on March 18, 2015.
Elzein did not redeem or obtain a court order extending the redemption period.
Instead, Elzein filed suit in Wayne County Circuit Court on March 17, 2015. After the
case was removed to this Court, Elzein filed a First Amended Complaint on May 20,
2015.
B. Elzein’s Claims
First, under his wrongful foreclosure claim, he says that FNMA bid on the
property at the Sheriff’s Sale, even though it did not have proper title. He also says that
the Sheriff’s Sale to FNMA is void because of irregularities and/or fraud. He says that
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the language quoted above, stating that the sale may be rescinded by the mortgagee,
was not authorized by the Michigan statute governing the contents of mortgage
foreclosure notices. He says that FNMA was neither the “mortgagee, his assigns or
legal representatives” and was therefore not authorized to buy the property through a
full credit bid. He says that FNMA was not a proper foreclosing party as required by
Michigan law. Finally, he says that FNMA and Charter One (an unnamed party in this
action) created “unnecessary delays” which prevented him from redeeming the
property.
Second, Elzein’s quiet title action says that the sale to FNMA was invalid for the
failures stated above, and that he is therefore the rightful owner of the property.
Third, Elzein says that FNMA, a “debt collector” under the FDCPA, violated the
statute by proceeding with the foreclosure, even though it was not authorized as a
foreclosing party.
III. STANDARD OF REVIEW
A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) tests
the sufficiency of a complaint.
To survive a Rule 12(b)(6) motion to dismiss, the
complaint’s “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.”
Bell Atlantic Corp. v. Twombley, 550 U.S.544, 545 (2007). See also Ass’n of Cleveland
Fire Fighters v. City of Cleveland, Ohio, 502 F.3d 545, 548 (6th Cir.2007). The court is
“not bound to accept as true a legal conclusion couched as a factual allegation.”
Aschcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks and citation
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omitted). Moreover, “[o]nly a complaint that states a plausible claim for relief survives a
motion to dismiss.” Id. at 679. In sum, “[t]o survive a motion to dismiss, a complaint
must contain sufficient factual matter, accepted as true, to state a claim for relief that is
plausible on its face.” Id. at 678 (internal quotation marks and citation omitted).
IV. DISCUSSION
A. Wrongful Foreclosure Claim
For several reasons, FNMA says that Elzein fails to state a claim for wrongful
foreclosure. Each is addressed below.
1.
Elzein says that FNMA was not a proper foreclosing party as required by
Michigan law. Elzein further says that FNMA’s bid was invalid because there was no
proper chain of title. These arguments lack merit.
First, FNMA clarifies that, contrary to Elzein’s allegations, it was not FNMA that
foreclosed upon the property, but Nationstar. At the time of the foreclosure, Nationstar
was the servicer of the debt as well as the assignee of the mortgage, which passed
from Bank of America on July 31, 2014. Indeed, the published and posted notices
expressly stated that Nationstar was rightful assignee of the mortgage. (See Affidavit of
Publication, Doc. 7 Ex. 5 at 3; Evidence of Sale, Doc. 7 Ex. 5 at 4) The record shows
that Nationstar, rather than FNMA was the foreclosing party.
FNMA, by contrast, was the holder of the indebtedness and the successful bidder
at the Sheriff’s Sale. Further, FNMA did not take title to the property until the Sheriff’s
Sale on September 18, 2014—well after Nationstar initiated foreclosure proceedings.
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Under Michigan law, proper foreclosing parties include (1) “the owner of the
indebtedness,” (2) the owner “of an interest in the indebtedness secured by the
mortgage,” or (3) “the servicing agent of the mortgage.” M.C.L. § 600.3204(1)(d). In
addition, “[i]f the party foreclosing a mortgage by advertisement is not the original
mortgagee, a record chain of title must exist before the date of sale.” Id. § (3). Here the
proper foreclosing party was not FNMA, but Nationstar, who was assignee and
servicing agent of the mortgage, and who is in the chain of title as transferee from Bank
of America, as transferee from MERS.
2.
Elzein also says that FNMA was not entitled to purchase the property through a
full credit bid. This argument is without merit. He cites M.C.L. § 600.3228 for the
proposition that only the mortgagee, his assigns, or legal representatives can purchase
the property by a full credit bid. This, however, misstates the language of the section,
which provides, “The mortgagee, his assigns, or his or their legal representatives, may,
fairly and in good faith, purchase the premises so advertised, or any part thereof, at
such sale.” M.C.L. § 600.3228. There is no language in the statute which prevents the
owner of the indebtedness from making a purchase through a full credit bid. To the
contrary, Michigan courts have explained:
When a lender bids at a foreclosure sale, it is not required to pay cash, but
rather is permitted to make a credit bid because any cash tendered would
be returned to it. If this credit bid is equal to the unpaid principal and
interest on the mortgage plus the costs of foreclosure, this is known as a
“full credit bid.” When a mortgagee makes a full credit bid, the mortgage
debt is satisfied, and the mortgage is extinguished.
New Freedom Mtg. Corp. v. Globe Mtg. Corp., 281 Mich. App. 63, 68 (2008) (citations
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omitted). Other courts have recognized FNMA’s right to purchases a foreclosed-upon
property in a full credit sale. In Rubin v. Fannie Mae, No. 12-CV-12832, 2012 WL
6000572 (E.D. Mich. Nov. 30, 2012), the court said the following regarding FNMA, the
lender in the case: “
[FNMA or the loan servicer] may bid the full amount due at the Sheriff’s
Sale which is applied as a credit against the amount owed. [The servicer]
cannot then go after [the mortgagor] for any of the remaining collateral
due. This actually helps [the mortgagor] who is no longer liable for the
debt. This is the law in Michigan and many other jurisdictions.
Id. at *2. FNMA therefore was entitled to purchase the property in a full credit bid at the
Sheriff’s Sale.
3.
Next, Elzein says there was a “procedural irregularity” not permitted by Michigan
law. Specifically, he says that that the language quoted above, stating that the sale
may be rescinded by the mortgagee, was not authorized by the applicable statute,
M.C.L. § 600.3212. This argument is without merit. Section 600.3212, rather than
prohibiting any language in particular, states the minimum requirements for a notice of
foreclosure by advertisement. There is no basis for Elzein’s argument under the plain
language of the statute he cites, nor does he cite any case law in support.
Elzein also says that FNMA and Charter One (an unnamed party in this action)
created “unnecessary delays” that prevented him from redeeming the property. There
is no substance to this argument, however, put forth in the amended complaint or
otherwise.
Neither does Elzein assert fraud beyond mere allegations, and states no details
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as to how and when FNMA allegedly perpetrated a fraudulent act related to the
foreclosure process or otherwise. “A plaintiff alleging fraud must meet Fed. R. Civ. P
9(b)’s heightened pleading standard by ‘stat[ing] with particularity the circumstances
constituting fraud or mistake.’ ” Woodland Harvesting, Inc. v. Georgia Pac. Corp., 693
F. Supp. 2d 732, 739 (E.D. Mich. 2010) (quoting Fed. R. Civ. P 9(b)). Here, Elzein fails
to do so.
4.
Elzein is further unable to assert any prejudice resulting from the deficiencies he
alleges.
“For the alleged foreclosure defects to be actionable to set aside the
foreclosure sale, [the mortgagor] must allege prejudice resulting from the defects.
Washington v. BAC Home Loans Servicing, L.P., No. CIV. 12-12940, 2013 WL
5476023, at *5 (E.D. Mich. Oct. 2, 2013) (citing Conlin v. Mortgage Elec. Registration
Sys., Inc., 714 F.3d 355, 361 (6th Cir. 2013)). Here, Elzein has not shown prejudice
beyond threadbare allegations and mere speculation.
5.
Finally, even if Elzein can assert a cognizable error in the foreclosure process, he
lacks standing to assert it.
After a Sheriff’s Sale and the statutory period of time within which to redeem the
property expires, the mortgagor no longer has any right, title, or interest in the property.
See M.C.L. § 600.3236. The Sixth Circuit has explained this aspect of Michigan law:
Under Michigan law, once the statutory redemption period expired, “all of
plaintiff’s rights in and title to the property were extinguished.” Bryan v.
JPMorgan Chase Bank, 304 Mich. App. 708, 848 N.W.2d 482, 485 (2014)
(citation omitted). Therefore, once the redemption period lapses, a former
property owner may not assert any claims with respect to the property.
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See id. The filing of a lawsuit—even one filed before the expiration of the
redemption period—will not toll the redemption period. Id. Indeed,
“Michigan courts have held that once the statutory redemption period
lapses, they can only entertain the setting aside of a foreclosure sale
where the mortgagor has made ‘a clear showing of fraud, or irregularity.’ ”
Conlin v. Mortg. Elec. Registration Sys., Inc., 714 F.3d 355, 359 (6th
Cir.2013) (quoting Schulthies v. Barron, 16 Mich. App. 246, 167 N.W.2d
784, 785 (1969)). Moreover, “not just any type of fraud will suffice. Rather,
the misconduct must relate to the foreclosure proceeding itself.” Id. at 360
(citation, quotation marks, and alterations omitted). In short, a plaintiff
challenging a foreclosure action under Michigan law must meet a “high
standard in order to have a foreclosure sale set aside after the lapse of the
statutory redemption period.” Id. (quotation marks omitted).
Rubin v. Fannie Mae, 587 F. App’x 273, 275-76 (6th Cir. 2014).
Therefore, because the statutory redemption period is over, Elzein’s rights \the
property is extinguished.
6.
For the above reasons, Elzein’s wrongful foreclosure claim is DISMISSED.
B. Quiet Title Claim
Elzein also seeks relief under M.C.L. § 600.2932, which provides that
Any person, whether he is in possession of the land in question or not,
who claims any right in, title to, equitable title to, interest in, or right to
possession of land, may bring an action in the circuit courts against any
other person who claims or might claim any interest inconsistent with the
interest claimed by the plaintiff, whether the defendant is in possession of
the land or not.
Actions to quiet title are equitable in nature. Michigan Nat. Bank & Trust Co. v. Morren,
194 Mich. App. 407, 410 (1992). FNMA argues that because Elzein defaulted on his
mortgage, he is barred from seeking equitable relief of quiet title under the doctrine of
unclean hands.
Michigan law states that “a person seeking equity should be barred from
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receiving equitable relief if there is any indication of overreaching or unfairness on this
person’s part.”
Royce v. Duthler, 209 Mich. App. 682, 688-89 (1995).
Under the
unclean-hands doctrine, the Sixth Circuit has held that a mortgagor who defaults on a
loan cannot “[seek] judicial assistance in avoiding his contractual obligations.” Yuille v.
Am. Home Mortgage Servs., Inc., 483 F. App’x 132, 135 (6th Cir. 2012).
In defense, Elzein states that “nowhere in the [complaint] is there an admission
by [Elzein] that he defaulted on his mortgage loan.” There is no question, however, that
he defaulted on the loan; indeed this is the very circumstance that initiated the
foreclosure proceedings. Further, in defense he states that the unclean hands doctrine
is an insufficient basis for dismissal of a claim on the pleadings. This assertion is
unsupported and contradicted by Michigan law. See, e.g., McFerren v. B & B Inv. Grp.,
253 Mich. App. 517, 518 (2002) (affirming a lower court judgment dismissing a quiet title
action based on the unclean-hands doctrine).
Elzein’s quiet title claim is therefore DISMISSED.
C. FDCPA Claim
Under the FDCPA, Elzein claims that FNMA is a “debt collector” who violated the
Act by “proceeding with the foreclosure . . . even though [FNMA] did not hold any
interest in the mortgage and was not authorized to be a foreclosing party . . .”
This claim fails for two reasons.
First, FDCPA defines “debt collector” as a
person who conducts “any business[,] the principal purpose of which is the collection of
any debts, or who regularly collects or attempts to collect, directly or indirectly, debts
owed or due or asserted to be owed or due another.” 15 U.S.C. § 1692a(6). Here, there
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is no indication that FNMA ever attempted to collect the debt; at most, it was Trott &
Trott—a self-proclaimed “debt collector attempting to collect a debt”—who attempted to
collect on the loan.
Moreover, the very substance of Elzein’s FDCPA claim fails.
above, FNMA was not the foreclosing party.
As discussed
Therefore, Elzein’s claim that FNMA
improperly foreclosed on the property is without merit.
Thus, Elzein’s FDCPA claim is DISMISSED.
V. CONCLUSION
For the above reasons, FNMA’s motion to dismiss is GRANTED. This case is
DISMISSED.
SO ORDERED.
s/Avern Cohn
Avern Cohn
United States District Judge
Dated: August 3, 2015
I hereby certify that a copy of the foregoing document was served upon counsel of
record on August 3, 2015, by electronic and/or ordinary mail.
s/Julie Owens
Case Manager
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