Douglas v. Ocwen Loan Servicing, LLC et al

Filing 11

OPINION AND ORDER granting in part and denying in part 3 Defendant Kondaur's Motion to Dismiss; denying 6 Plaintiff's Motion to Stay. Signed by District Judge Robert H. Cleland. (LWag)

UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

LADAWN DOUGLAS,
Plaintiff,
v.

Case No. 17-11814

OCWEN LOAN SERVICING, LLC and
KONDAUR CAPITAL CORPORATION,
Defendants.
/
OPINION AND ORDER DENYING PLAINTIFF’S MOTION TO STAY AND GRANTING
IN PART AND DENYING IN PART DEFENDANT’S MOTION TO DISMISS
Plaintiff Ladawn Douglas believes her home is not encumbered by a mortgage
executed by her then-husband, and brings this action to quiet title and asserting a
variety of statutory and common law claims stemming from Defendant Kondaur Capital
Corporation (“Kondaur”)’s efforts to collect on the note and foreclose on the property.
(Dkt. # 1-1.) Before the court are Plaintiff’s motion to stay eviction proceedings initiated
by Kondaur (Dkt. # 6) and Kondaur’s motion to dismiss the complaint pursuant to
Federal Rule of Civil Procedure 12(b)(6) (Dkt. # 3). The motion to dismiss is fully
briefed, Plaintiff has declined to file a reply brief in support of her motion to stay the
eviction proceedings, and the court finds a hearing unnecessary. See E.D. Mich. LR
7.1(f)(2). The court finds Plaintiff’s motion for stay utterly devoid of merit, and will deny
the stay accordingly. For the reasons that follow, the court will grant Defendant’s motion
to dismiss in part, deny it in part, and invite an early motion for summary judgment.
The parties agree as to all the following facts. (Dkt. # 8, Pg. ID 213.) Clifford
Douglas Jr. executed a purchase money mortgage of $49,232.00 for the purchase of

9567 Lenore, Redford, Michigan 48239 (“the Property”), on July 9, 2009. (Dkt. # 8, Pg.
ID 212.) The original mortgagee, MVB Mortgage Corporation, properly recorded its
security interest, including the power of sale, on May 11, 2009. Plaintiff was married to
Clifford at the time the mortgage was executed, and divorced him two years later, on
August 2, 2011. Plaintiff was awarded the Property in the divorce and Clifford Douglas
quitclaimed his interest in the Property to Plaintiff. Plaintiff recorded her interest on
September 4, 2012. (Dkt. # 9-5.) On or about September 1, 2012, MVB assigned the
mortgage and note to Kondaur, who recorded on September 17, 2012. (Dkt. # 3-4.)
Plaintiff made payments on the note for a few years until, following default, Kondaur
began foreclosure-by-advertisement proceedings and held a foreclosure sale on August
25, 2016. (Dkt. # 8, Pg. ID 214; Dkt. # 9-6.) Kondaur was the successful bidder at the
sale, and the redemption period expired February 27, 2017. (Id.) Plaintiff filed her
complaint in state court in March of 2017 and the action was properly removed to this
court in June. (Dkt. # 1.)
Any claim for relief must contain “a short and plain statement of the claim
showing that the pleader is entitled to relief.” Erickson v. Pardus, 551 U.S. 89, 93 (2007)
(quoting Fed. R. Civ. P. 8(a)(2)). “Specific facts are not necessary; the statement need
only ‘give the defendant fair notice of what the . . . claim is and the grounds upon which
it rests’” Id. (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)).
Federal Rule of Civil Procedure 12(b)(6) provides for dismissal for failure to state
a claim upon which relief may be granted. Under the Rule, the court construes the
complaint in the light most favorable to the plaintiff and accepts all well-pleaded factual
allegations as true. Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009). However, the court

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“does not apply this presumption of truth to conclusory or legal assertions.” Binno v.
American Bar Association, 826 F.3d 338, 345-46 (6th Cir. 2016) (citing Iqbal, 556 U.S.
at 678-79). To survive a motion to dismiss, a complaint must provide sufficient facts to
“state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570. “The
plausibility standard is not akin to a “probability requirement,’ but it asks for more than a
sheer possibility that defendant has acted unlawfully.” Iqbal, 556 U.S. at 678 (citing
Twombly, 550 U.S. at 556). Additionally, on a motion to dismiss, the court is usually
limited to the complaint and attached exhibits, but it may also consider “public records,
items appearing in the record of the case, and exhibits attached to the defendant’s
motion to dismiss so long as they are referred to in the complaint and are central to the
claims contained therein.” Erie County v. Morton Salt, Inc., 702 F.3d 860, 863 (6th Cir.
2012) (quoting Bassett v. Nat’l Coll. Athletic Ass’n., 528 F.3d 426, 430 (6th Cir. 2008)).
The mortgage, assignment contract, and various documents related to the foreclosure
sale relied upon by the court above are all referenced in the complaint and central to
Plaintiff’s claims, and so may be properly considered on a motion to dismiss. Id.
Plaintiff contends that she was not a party to the mortgage and that the divorce
decree awarded her the property. As a result, Plaintiff argues that Kondaur may not
foreclose on the mortgage by advertisement under Mich. Comp. Laws § 600.3201, but
is instead limited to the judicial foreclosure procedure codified at Mich. Comp. Laws §
600.3101. (Dkt. # 8, Pg. ID 217.) In support, Plaintiff relies entirely on out-of-context
quotations from Bank of America, N.A. v. First American Title Ins. Co., 499 Mich. 74
(2016), stating “[s]tatutory foreclosures are a matter of contract, authorized by the
mortgagor[,]” id. at 97 (citation omitted), and “[a]s a result, the proceedings are limited to

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resolving the rights and remedies of the parties to the contract-i.e., the mortgagee and
the mortgagor.” Id.
In Bank of America, the Michigan Supreme Court was considering whether a
mortgagee who acquired the property at the foreclosure sale through credit-bidding the
full value of its debt could pursue deficiency claims against non-borrower, non-lender
third parties for fraud. Id. The court found that the full credit bid rule, which barred
deficiency claims against the borrower when the mortgagee credit bid the full value of
the loan, did not bar claims against non-borrower third parties, because the foreclosure
sale fixed the value of the property as between the parties to the mortgage contract. Id.
at 96-97. Placed in its proper context, Plaintiff’s quotation does not stand for the
proposition that statutory foreclosures are reserved only for when the original
mortgagee forecloses on property owned by the original mortgagor—the “proceeding”
referred to is the sale, and the “rights and remedies” being resolved refer to whether the
lender may collect on an alleged deficiency from the borrower, not whether the lender
may foreclose on the property if the borrower has quitclaimed it to someone else. Id. at
Pg. ID 97.
Whether a mortgage is subject to a statutory foreclosure is a matter of contract—
indeed, the relevant statute provides that “[e]very mortgage of real estate, which
contains a power of sale, upon default being made in any condition of such mortgage,
may be foreclosed by advertisement[.]” Mich. Comp. Laws § 600.3201. The contract
creates the property interest. The underlying contract indisputably contained the power
of sale. (Dkt. # 8-2, Pg. ID 236.) Thus, Clifford Douglas Jr. owned property encumbered
by a mortgage that included the power of sale, and this is what he quitclaimed to

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Plaintiff. It is axiomatic that one cannot give more than one has—Clifford Douglas Jr.
cannot convey a deed free and clear of encumbrances when what he owns is a home
encumbered by a mortgage that includes the power of sale. As a result, Plaintiff’s
property was subject to a mortgage with a power of sale that was in default, and so
foreclosure by advertisement is appropriate under Michigan statute. Accordingly, the
court finds that neither the foreclosure nor the eviction were improper, and Plaintiff’s
request for a stay of the eviction proceedings (Dkt. # 6) and her claims stemming from
her belief that the foreclosure was wrongful must all be rejected.
The court is then left with Plaintiff’s contentions surrounding the purported
“surplus” proceeds from the sheriff’s sale. Plaintiff alleges that Kondaur’s credit bid of
$51,984.59 was greater than the total indebtedness, and therefore was “in excess of a
full credit bid” such that the difference amounts to surplus proceeds to which Plaintiff is
entitled. (Dkt. # 1-1, Pg. ID 18-19.) Defendant’s brief explains that the amount due and
owing at the time of the notice of sale was $48,390.58, and this is the amount listed on
the notice. (Dkt. # 3, Pg. ID 77; Dkt. # 3-5, Pg. ID 98.) The $3,594.01 difference,
Defendant’s brief states, reflects the additional interest accrued between the posting of
the notice and the date of the sale, together with attorney fees and costs from the
foreclosure and sale. (Dkt. # 3, Pg. ID 77.) Michigan statute excludes “costs and
expenses of the foreclosure and sale” from the “surplus” sale proceeds recoverable by
the property owner or other interested party. Mich. Comp. Laws § 600.3252. As a result,
Defendant contends, there were no surplus proceeds and Defendant’s bid was a full
credit bid. (Id.) Plaintiff does not respond to Kondaur’s explanation.

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The court would find it wholly unsurprising if the additional interest on an
approximately $50,000 loan and the costs and attorney fees associated with a
foreclosure process and sale amounted to $3,594.01. However, Plaintiff’s complaint
includes a factual allegation that the sale amount was greater than the total
indebtedness (Dkt. # 1-1, Pg. ID 18-19), and the court is compelled to take the factual
allegations in the complaint as true on a motion to dismiss. Iqbal, 556 U.S. at 678-79.
Federal Rule of Civil Procedure 12(d) contemplates treating motions to dismiss as
motions for summary judgment, but Kondaur offers no evidence to support its
contention that these accumulated costs did, in fact, amount to $3,594.01. If Kondaur
has such evidence, and decided to bring a motion for summary judgment prior to
beginning discovery, the court would consider it.
IT IS ORDERED that Plaintiff’s motion for stay (Dkt. # 6) is DENIED.
IT IS FURTHER ORDERED that Kondaur’s motion to dismiss (Dkt. # 3) is
GRANTED IN PART and DENIED IN PART. The motion is DENIED with respect to
Count 4 (statutory claim for surplus proceeds) and Count 5 (unjust enrichment for
surplus proceeds). The motion is GRANTED in all other respects.
s/Robert H. Cleland__________________________/
ROBERT H. CLELAND
UNITED STATES DISTRICT JUDGE
Dated: August 24, 2017
I hereby certify that a copy of the foregoing document was mailed to counsel of record
on this date, August 24, 2017, by electronic and/or ordinary mail.
s/Lisa Wagner_______________________________/
Case Manager and Deputy Clerk
[phone]

S:\Cleland\JUDGE'S DESK\C1 ORDERS\17-11814.DOUGLAS.deny.stay.dismiss.TLH.docx

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