Cherney et al v. Federal National Mortgage Association et al

Filing 11

OPINION; signed by Judge Robert Holmes Bell (Judge Robert Holmes Bell, sdb)

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

MARY K.S. CHERNEY and
CHARLES R.R. CHERNEY, Individuals
Plaintiffs,
File No. 1:15-cv-711
v.
HON. ROBERT HOLMES BELL
FEDERAL NATIONAL MORTGAGE
ASSOCIATION, a Government-Sponsored
Enterprise and SETERUS, INC., a Foreign
Corporation
Defendants.
/
OPINION
This is a mortgage foreclosure case. The matter came before the Court on Defendants
Federal National Mortgage Association (“Fannie Mae”) and Seterus, Inc.’s (“Seterus”),
Motion to Dismiss Plaintiffs’ Complaint (ECF No. 7). Plaintiffs did not respond to the
motion within the required timeframe. On January 19, 2016, the Court issued an order
notifying the parties that Defendants’ motion to dismiss would be treated by the Court as a
motion for summary judgment under Rule 56 of the Federal Rules of Civil Procedure. The
Court allowed Plaintiffs an additional 30 days to respond. Plaintiffs again failed to file a
response. Accordingly, the Court will decide the merits of the motion for summary judgment
without waiting for further briefing.

I.
This matter involves the property located at 41 Lynwood Dr., Battle Creek, MI, 49015
(the “Property”). When refinancing the Property, Plaintiffs Mary and Charles Cherney
obtained a $93,000 loan from Gordon Lending Corporation (the “Lender”) on November 18,
2012. To evidence the Loan, Plaintiffs executed a promissory note payable to the Lender.
Plaintiffs secured the loan and note with a mortgage on the Property, which was recorded on
December 6, 2002. The mortgage was first assigned to CitiMortgage, Inc., on October 27,
2009, and later assigned to Defendant Fannie Mae on February 11, 2014. The second
assignment was recorded on February 20, 2014. Defendant Seterus is the current servicer of
the loan.
After Plaintiffs defaulted on their loan, the property was sold to Fannie Mae at a
foreclosure sale on December 4, 2014. On June 3, 2015, two days before the expiration of
the statutory redemption period, Plaintiffs filed a complaint in the 37th Circuit Court in
Calhoun County, Michigan. Defendants removed the case to this Court on July 8, 2015.
II.
Rule 56 of the Federal Rules of Civil Procedure requires the Court to grant summary
judgment “if the movant shows that there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). If the moving
party meets its burden, the non-moving party’s failure to make a showing that is “sufficient
to establish the existence of an element essential to that party’s case, and on which that party

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will bear the burden of proof at trial” requires the entry of summary judgment. Celotex Corp.
v. Catrett, 477 U.S. 317, 322 (1986). The rule requires the non-moving party to introduce
“evidence of evidentiary quality” demonstrating the existence of a material fact. Bailey v.
Floyd Cnty. Bd. of Educ., 106 F.3d 135, 145 (6th Cir. 1997).
In evaluating a motion for summary judgment the Court must look beyond the
pleadings and assess the proof to determine whether there is a genuine need for trial.
Matushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 575, 587 (1986). “[T]he district
court must construe the evidence and draw all reasonable inferences in favor of the
nonmoving party.” Martin v. Cincinnati Gas & Elec. Co., 561 F.3d 439, 443 (6th Cir. 2009)
(citing Jones v. Potter, 488 F.3d 397, 403 (6th Cir. 2007)). The proper inquiry is whether the
evidence is such that a reasonable jury could return a verdict for the non-moving party.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986); see generally Street v. J.C.
Bradford & Co., 886 F.2d 1472, 1476-80 (6th Cir. 1989).
III.
Plaintiffs’ complaint raises seven claims. Counts 1 through 4 allege wrongful
foreclosure, breach of contract, fraudulent misrepresentation, and slander of title. In Count
5, Plaintiffs seek declaratory relief arguing that the foreclosure was barred by the doctrine
of unclean hands. In Count 6, Plaintiffs seek a preliminary injunction to enjoin Defendants
from pursuing eviction proceedings. In Count 7, Plaintiffs request that this Court use its
equitable powers to impose an equitable mortgage.

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A. Wrongful Foreclosure
Plaintiffs have alleged that wrongful foreclosure occurred under a variety of state and
federal statutes and regulations. Specifically, Plaintiffs argue that Defendants violated
Michigan’s foreclosure by advertisement statute, Mich. Comp. Laws § 600.3201 (Compl.
¶¶ 59-60, ECF No. 1-2), federal regulations issued pursuant to the Real Estate Settlement
Procedures Act (“RESPA”), 12 U.S.C. § 2605 (Compl. ¶¶ 59, 68-83), and federal regulations
issued pursuant to the Truth in Lending Act (“TILA”), 15 U.S.C. § 1601.
1. Mich. Comp. Laws § 600.3201
Plaintiffs argue that Defendants failed to follow the requirements of the foreclosure
process set forth in Mich. Comp. Laws § 600.3201. Plaintiffs’ complaint appears to allege
two deficiencies in Defendants’ compliance with the foreclosure process: (1) failure to
provide adequate notice; and (2) failure to properly calculate the amount claimed to be due
on the notice of foreclosure. Defendants have presented evidence establishing compliance
with Michigan law, and Plaintiffs have not disputed this evidence.
Mich. Comp. Laws § 600.3208 requires that notice of foreclosure “shall be given by
publishing the same [notice] for 4 successive weeks at least once in each week, in a
newspaper published in the county where the premises included in the mortgage and intended
to be sold, or some part of them, are situated.” Id. Within 15 days of publishing the notice,
a copy of such notice “shall be posted in a conspicuous place upon any part of the premises
described in the notice.” Id. Defendants have provided an affidavit proving that notice of

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foreclosure was posted in the Battle Creek Enquirer on October 29, November 5, November
12, and November 19, 2014. (Aff. of Publication, ECF No. 7-6, PageID.177.) The affidavit
also states that on November 6, 2014, notice of foreclosure was posted on the front door of
the property. (Id. at PageID.178.) Accordingly, Defendants complied with the notice
requirements in Mich. Comp. Laws § 600.3208.
Michigan law also provides that the notice must include “[t]he amount claimed to be
due on the mortgage on the date of the notice.” Mich. Comp. Laws § 600.3212(c). Plaintiffs
allege that this amount listed on the foreclosure notice was $90,392.49, when the balance on
the mortgage in 2013 was in fact “approximately $84,000.” (Compl. ¶¶ 24, 26.) Defendants
state that, while the balance on the mortgage was approximately $84,000 in 2013, interest
and fees accrued on the balance between 2013 and the date the foreclosure notice was posted
and, therefore, the $90,392.49 amount is accurate. (Defs.’ Mot. to Dismiss 6, ECF No. 7.)
Plaintiffs do not dispute this. And regardless, “‘[a] mortgage sale is not necessarily invalid
because more is claimed than is in fact due, provided the claim is in good faith.’” Sweet Air
Inv., Inc. v. Kenney, 739 N.W.2d 656, 663 (Mich. Ct. App. 2007) (quoting Flax v. Mut. Bldg.
& Loan Ass’n of Bay Cnty., 165 N.W. 835, 839 (Mich. 1917)). “[A]n excessive claim for the
amount due warrants setting aside a foreclosure sale only if it is significantly excessive or
in bad faith and an attempt was made to redeem the property.” Id. Plaintiffs have not alleged
that an attempt was made to redeem the property, nor have they shown that the $6,000
discrepancy is “significantly excessive.”

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Accordingly, Plaintiffs’ claim for violation of Mich. Comp. Laws § 600.3201 will be
dismissed.
2. RESPA
Next, Plaintiffs allege that Defendants violated 12 C.F.R. § 1024.41, et seq., otherwise
known as “Regulation X” of RESPA. Plaintiffs argue that the following actions resulted in
RESPA violations: Plaintiffs were not informed of their mitigation options nor given any
information on how to obtain other loss mitigation assistance; Defendants failed to provide
Plaintiffs with direct and ongoing access to servicing personnel; Defendants failed to fairly
and adequately review all of the foreclosure alternatives that may have been available to
Plaintiffs by which they could retain their home; Defendants continued foreclosure
proceedings on Plaintiffs’ home despite the fact that a loan modification agreement had been
reached between the parties and Plaintiffs were in good standing under the loan modification
agreement; Defendants initiated foreclosure proceedings on Plaintiffs’ home less than 120
days from Plaintiffs’ alleged delinquency on the mortgage; and Plaintiffs were never notified
that the servicing of the loan was sold or transferred. (Compl. ¶¶ 78-82, 92.)
Defendants have provided evidence to the contrary. First, Defendants did notify
Plaintiffs that they were denied for a loan modification. (ECF No. 7-7, PageID.183) (stating
the reason for denial of “Fannie Mae Modification”). Second, Defendants did not continue
foreclosure proceedings on Plaintiffs’ home despite the fact that a loan modification
agreement had been reached. By Plaintiffs’ own admission, “Defendants never permanently

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modified Plaintiffs’ loan.” (Compl. ¶ 53.) Third, Defendants did not initiate foreclosure
proceedings on Plaintiffs’ home less than 120 days from Plaintiffs’ alleged delinquency on
the mortgage. (ECF No. 7-8, PageID.188) (informing Plaintiffs that they “are currently 192
days past due under the terms of [their] loan” but stating “it is not too late to work together
to find a solution”). Fourth, Plaintiffs were notified that the servicing of their loan was sold
or transferred. (ECF No. 7-5, PageID.168.) Fifth, the evidence shows that Defendants
provided Plaintiffs with access to service personnel. (ECF No. 7-5, PageID.166) (describing
“24-hour account access” and a “toll-free customer service line with automated account
information”). And outside of Plaintiffs’ conclusory allegation set forth in their complaint,
there is no indication that Defendants did not adequately review all of the foreclosure
alternatives that may have been available to Plaintiffs. In fact, Defendants advised Plaintiffs
that they “may have other options to avoid foreclosure. If any of the following
[circumstances] applies to you, call us today at 866.570.5277 to see how we can help.” (ECF
No. 7-7, PageID.183.) Put simply, Defendant Seterus has met its burden of proving
compliance with RESPA, and Plaintiffs have failed to provide the Court with an affidavit or
any “evidence of an evidentiary quality” to rebut this. Bailey, 106 F.3d at 145.
Moreover, to the extent Plaintiffs seek any form of injunctive relief (Compl. ¶¶ 93(AF)), RESPA does not provide for such relief. See 12 C.F.R. § 1024.41 (“A borrower may
enforce the provisions of this section pursuant to section 6(f) of RESPA (12 U.S.C.

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2605(f).”); 12 U.S.C. § 2605(f) (providing that monetary damages are the exclusive remedy
for RESPA violations).
3. Truth in Lending Act
Third, Plaintiffs contend that Defendants violated the Truth in Lending Act (TILA),
which requires that “not later than 30 days after the date on which a mortgage loan is sold
or otherwise transferred or assigned to a third party, the creditor that is the new owner or
assignee of the debt shall notify the borrower in writing of such transfer[.]” 15 U.S.C. §
1641(g)(1). A claim under 15 U.S.C. § 1641(g)(1) must be brought “within one year from
the date of the occurrence of the violation.” 15 U.S.C. § 1640(e). Here, the mortgage was
assigned from CitiMortgage, Inc. to Defendant Fannie Mae on February 11, 2014. (ECF No.
7-4, PageID.160.) Plaintiffs do not dispute the date of assignment. Even assuming a Section
1641(g)(1) violation occurred, it would have occurred 30 days from February 11, 2014. Thus,
Plaintiffs’ TILA claim, raised on June 2, 2015, is time barred.
B. Breach of Contract
Count II of Plaintiffs’ complaint alleges that Defendants breached the terms of the
Note and Mortgage. (Compl. ¶ 95.) The mortgage provided that, prior to accelerating
payment terms, Plaintiffs must be given notice which details: “(a) the default, (b) the action
required to cure the default, (c) a date, not less than 30 days from the date the notice is given,
by which the default must be cured, and (d) that failure to cure the default on or before the
date specified in the notice may result in acceleration . . . .” (Mortgage ¶ 22, ECF No. 7-3,

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PageID.156.) Defendants have provided evidence that such notice was given to Plaintiffs on
May 20, 2014. The notice stated the default, the action required to cure the default, included
a date, more than 30 days from the date the notice was given, by which the default must be
cured, and stated that failure to cure the default on or before the date specified may result in
acceleration. (ECF No. 7-9, PageID.207.) Plaintiffs do not dispute this evidence, and thus
have failed to state a claim for breach of contract.
Moreover, because Plaintiffs have failed to establish that any underlying terms of the
contract were breached, Plaintiffs’ allegations that “Defendants breached . . . the implied
covenant of good faith and fair dealing in the contract” is also meritless. See Gay v. Fannie
Mae, Docket No. 315868, 2014 WL 4215093, at *2 (Mich. Ct. App. Aug. 26, 2014) (“[T]o
invoke the implied covenant of good faith and fair dealing, a litigant must show that a party
breached the underlying contract itself”).
C. Fraudulent Misrepresentation
In Count III, Plaintiffs allege that Defendants made false statements of fact “intended
to induce Plaintiffs to refrain from defending the foreclosure of their home in reliance on the
representations made by Defendants.” (Compl. ¶ 105.) Defendants argue that Plaintiffs have
failed to plead this claim with sufficient particularity under Rule 9 of the Federal Rules of
Civil Procedure. (Defs.’ Mot to Dismiss 16, ECF No. 7.) The Court agrees.
Federal Rule of Civil Procedure 9(b) provides that when alleging fraud, “a party must
state with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b).

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“This rule requires a plaintiff: (1) to specify the allegedly fraudulent statements; (2) to
identify the speaker; (3) to plead when and where the statements were made; and (4) to
explain what made the statements fraudulent.” Republic Bank & Trust Co. v. Bear Stearns
& Co., Inc., 683 F.3d 239, 247 (6th Cir. 2012). Under Michigan law, the elements of
fraudulent misrepresentation are:
(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 should be acted upon by plaintiff; (5) that plaintiff acted in
reliance upon it; and (6) that he thereby suffered injury.
Hi-Way Motor Co. v. Int’l Harvester Co., 247 N.W.2d 813, 816 (Mich. 1976) (quoting
Candler v. Heigho, 175 N.W. 141, 143 (Mich. 1919)).
Plaintiffs do not identify the specific speaker who made the allegedly fraudulent
statements, nor do they state where and when the statements were made. The complaint states
that Defendants falsely represented that they “would not begin foreclosure proceedings while
the parties were actively pursuing loan modification or other financial assistance options.”
(Compl. ¶ 102.) Michigan courts have held similar statements lack sufficient particularity to
establish a claim of fraud. Kheder v. Seterus, Inc., Docket No. 308227, 2013 WL 1286020,
at *11 (Mich. Ct. App. Mar. 28, 2013) (finding allegation that the defendant made a
misrepresentation “regarding . . . its commitment not to foreclose as long as plaintiffs were
in compliance with the terms of the loan modification agreement” lacks particularity).
Accordingly, this claim will be dismissed.

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D. Slander of Title
“Slander of title claims in Michigan ‘have both a common-law and statutory basis.’
A plaintiff must prove the same three elements for both a common-law slander of title claim
and a claim under Michigan Compiled Laws § 565.109: ‘falsity, malice and special
damages.’” Keyes v. Deutsche Bank Nat’l Trust Co., 921 F. Supp. 2d 749, 762 (E.D. Mich.
2013) (quotation marks and citations omitted). Plaintiffs request damages simply “[a]s a
result of Defendants’ slander of title.” (Compl. ¶¶ 111, 112.) As Defendants correctly note,
“Plaintiffs fail to allege any facts whatsoever indicating in what manner or by what action
Defendants have slandered title.” (Defs.’ Mot. Summ. J. 19, ECF No. 7.) Accordingly, this
claim will be dismissed. See Goodman v. Citimortgage, Inc., No. 15-124456, 2015 WL
6387451, at *5 (E.D. Mich. Oct. 22, 2015) (dismissing “woefully inadequate” slander of title
claim).
E. Unclean Hands
Count V of Plaintiffs’ complaint seeks declaratory relief, arguing that “[a]s a result
of Defendants’ acts of bad faith, Defendants are not entitled to the equitable relief of
foreclosure.” (Compl. ¶ 117.) Plaintiffs argue that “foreclosure is both a contractual and
equitable form of relief, and is therefore not a valid course of action for any foreclosing
entity which commences foreclosure proceedings in bad faith or with unclean hands.” (Id.
¶ 114.) Setting aside the fact that Plaintiffs have failed to allege facts establishing bad faith,
this statement is legally incorrect. Durr v. Bank of Am., N.A., No. 12-11840, 2013 WL

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6050140, at *7 (E.D. Mich. Nov. 15, 2013) (“[T]he doctrine of unclean hands cannot be
applied against Defendants because foreclosure by advertisement is not an equitable
action.”); Mission of Love v. Evangelist Hutchinson Ministries, Docket No. 266219, 2007
WL 1094424, at *4 (Mich. Ct. App. Apr. 12, 2007) (unclean hands doctrine held inapplicable
because “defendants were not seeking relief in equity. Their title obtained through the
mortgage foreclosure was based in law.”). Accordingly, Count V will be dismissed.
F. Preliminary Injunction
Count VI of Plaintiffs’ complaint is for a preliminary injunction. Rule 8(a)(2) of the
Federal Rules of Civil Procedure, however, mandates that in stating a claim for relief, a
plaintiff must provide “a short and plain statement of the claim showing that the pleader is
entitled to relief.” Fed. R. Civ. P. 8(a)(2). This count does not state a claim for relief, but
rather states the specific relief sought, and therefore will be dismissed. See Terlecki v.
Stewart, 754 N.W.2d 644, 664 (Mich. Ct. App. 2008) (“It is well settled that an injunction
is an equitable remedy, not an independent cause of action.”). Regardless, for the reasons
stated above, the Court finds that Plaintiffs have not established a likelihood of success on
the merits of their claim. Such a finding “is usually fatal” to a party’s request for injunctive
relief. Gonzales v. Nat’l Bd. of Med. Exam’rs, 225 F.3d 620, 625 (6th Cir. 2000). The Court
will not grant Plaintiffs’ request for a preliminary injunction.

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G. Equitable Mortgage
Lastly, Plaintiffs request that this Court “exercise its equitable powers to impose an
equitable mortgage.” (Compl. ¶ 135.) “An equitable mortgage is appropriate where the
underlying mortgage is void, such as ‘when one party intended to grant a secured interest but
the instrument actually transferred the property in total to the other party.’” Upshaw v. Green
Tree Servicing, LLC, No. 15-cv-13866, 2015 WL 9259136, at *6 (E.D. Mich. Dec. 21, 2015)
(quoting In re Sutter, 665 F.3d 722, 728 (6th Cir. 2012)). Here, as in Upshaw, “the parties’
relationship is governed by a valid written agreement: the Mortgage. Thus, there is no basis
for the Court to intervene and impose an equitable mortgage.” See id.; see also Goodman,
2015 WL 6387451, at *5 (“[T]here is no basis for the Court to impose an equitable mortgage
because the Parties’ relationship is governed by a written agreement.”).
IV.
For the reasons stated above, Defendants’ motion to dismiss, which the Court has
treated as a motion for summary judgment under Rule 56, will be granted. A separate order
and judgment will enter consistent

Dated: February 26, 2016

/s/ Robert Holmes Bell
ROBERT HOLMES BELL
UNITED STATES DISTRICT JUDGE

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