GENID et al v. FANNIE MAE et al
Filing
49
MEMORANDUM AND ORDER granting 38 Defendants Motion to Dismiss Plaintiffs Second Amended Complaint with prejudice ***CIVIL CASE TERMINATED. Signed by Judge Peter G. Sheridan on 8/2/2016. (eaj)
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
YOUSEFF GENID and LINDA GENID,
Plaintffs,
Civil Action No.: I 5-cv.-06787
(PGS)(LHG)
V.
FEDERAL NATIONAL MORTGAGE
ASSOCIATION and SETERUS, INC.,
Defendants.
MEMORANDUM
AND
ORDER
SHERIDAN, District Judge.
Plaintiffs Youseff Genid and Linda Genid (“Plaintiffs” or “Genids”) bring this action
against the Federal National Mortgage Association (“Fannie Mae” or “FNMA”) and Seterus Inc.
(“Seterus”).
The Second Amended Complaint (SAC) alleges (1) violation of the federal Real Estate
Settlement Procedures Act, 12 U.S.C. §2601, et seq. (“RESPA”) and its regulations, 12 C.F.R.
§
1024.1, et seq. (“Regulation X”); (2) violation of the federal Fair Debt Collection Practices Act,
15, U.S.C. § 1692, et seq. (“FDCPA”); (3) violation of the New Jersey Consumer Fraud Act,
(“NJCFA”); and (4) breach of the covenant of good faith and fair dealing.
Facts and Procedural History
The SAC states the following. The Genids owned real property located at 212 Edison
Road, Barnegat, County of Ocean, in New Jersey (the “Property”). (SAC.,
¶ 2).
On February 4,
2014. JP Morgan Chase Bank, N.A. (“JP Morgan”) obtained a judgment in foreclosure against
the Genids through its attorneys Phelan Hallinan & Diamond, PC (“Phelan”). (Id. at ¶ 7). On or
about March 19, 2014, the loan was assigned from JP Morgan to Fannie Mae, and servicing was
transferred to Seterus. (Id. at ¶ 9). Essentially, Plaintiffs argue that after the foreclosure occurred,
Defendants violated statutes and regulations that affected the rights of the parties. However, as
detailed further below, the rights of the parties changes after foreclosure.
The SAC alleges FNMA offers a program where homeowners who have lost their homes
through foreclosure and sale can repurchase the home by paying the full amount owed on the
mortgage (“make whole” or “payoff amount”). (Id. at ¶ 12). In November 2014, the Federal
Housing Finance Agency (“FHFA”) allegedly directed FNMA to change its requirements for
post-sale properties, which included the expansion of the repurchase program to allow
homeowners to repurchase foreclosed property at around its fair-market value. (Id. at ¶13).
The Property was sold at a sheriffs sale on April 7, 2015. (Id. at
¶
15). On April 8, the
Plaintiffs, through their attorney Joseph A. Chang & Associates LLC (“Chang”), submitted to
Seterus a Notice of Error (“NOE”) pursuant to 12 CFR § 1024.35 of Regulation X of the
Mortgage Servicing Act under RESPA, which became effective on January 10, 2014
(“Regulation X”). (Id. at ¶ 16). Also, Chang submitted the NOE to Phelan, the firm that
represented both Seterus and FNMA. (Id.).
On or about the same date, a letter requesting information (“RFI”) was submitted to
Seterus and Phelan under 12 CFR
§
1024.36(d)(2)(i)(B), where Chang notified Seterus and
Phelan that Seterus was in violation of 1024.4 1(g) because the sheriffs sale occurred before the
regulations time period. (Id. at ¶ 17). The NOE and RFI were allegedly not acknowledged by
Defendants or Phelan. (Id. at ¶ 18). On April 27, 2015, Chang contacted Phelan to see if
Seterus/FNMA would consider a post-sale modification (Id. at ¶ 19). On May 12, 2015, Chang
emailed Phelan saying that Plaintiffs sought to submit a fresh modification application, and
wanted information about the FNMA Repurchase Program. (Id. at ¶ 21).
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On May 13, 2015, Phelan responded by saying that usually modification is not possible
post-sale, but, “A repurchase is different. If your client is able to provide proof of funds and
cover the total judgment amount and attorney fees our client would definitely review the offer. I
will return contact once our client submits an inquiry.” (Id. at ¶ 22). On May 27, 2015, Plaintiffs
received correspondence, stating, “Even if we are able to approve a foreclosure alternative prior
to a sale, a court with jurisdiction over the foreclosure proceeding, or the public official charged
without carrying out the sale, may not halt the scheduled sale.” (Id. at
¶ 23).
On June 4. Chang sent a request (NOE #2) to Seterus and Phelan, requesting information
about the repurchase program for fair market value since details about the program are not
readily available. (Id. at ¶ 24). On June 12, Seterus, through Phelan, sent a letter that they were in
receipt of the inquiry and were reviewing it, with no completion date, but a written explanation
would be forthcoming. (Id. at ¶J 25).
On July 21, 2015, correspondence was received by Plaintiffs from Phelan on behalf of
Seterus saying that the inquiry was still under review with no stated completion time. (Id at ¶
26). Phelan said that Seterus no longer services the loan and all questions should be directed to
FNMA (even though Phelan represented FNMA and Seterus). (Id.). As of this date, FNMA had
already begun the eviction process with the sheriffs office, though Seterus allegedly never
informed Plaintiffs of this fact. (Id. at ¶ 27).
On July 27, 2015, Seterus told Plaintiffs that the inquiry was still being reviewed. On July
29, 2015, the Ocean County Sheriffs Dept. posted an eviction notice with an August 18, 2015
eviction date. (Id. at
¶J 28, 29).
On August 12, 2015, Chang again sent a NOE through Certified
mail to Seterus and FNMA and to Phelan, and on August 27, 2015, Chang sent another NOE to
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those parties saying that no response had been received from the August 12 letter. (Id at ¶J 30,
31).
On August 28, 2015, Seterus sent a letter acknowledging receipt of the inquiry, stating
that Seterus was still in the review process, and on September 1, 2015, Seterus sent another letter
stating the same. (Id. at ¶J 32,33).
On October 15, 2015, the parties appeared before Judge Troncone of the Superior Court
of New Jersey, Ocean County, the day the eviction was set. (SAC at ¶ 34). The court rescheduled
the eviction to October 22, 2015 due to “irregularities and confusion.” (Id.) The judge also
ordered that the lender’s payoff figure be given to Plaintiffs, but no figure was ever provided.
(Id.
¶ 35).
On October 22, the parties appeared again before Judge Troncone, and at that hearing,
the attorney for Phelan informed the court that the buyback was not doable and that Phelan was
going to proceed with the eviction. (id.
¶ 37).
The SAC claims that Phelan’s attorney “falsely
represented to Judge Troncone that the premises were destroyed by the Plaintiffs, and that three
municipal hearings took place on this alleged conduct.” (Id.
Genids were evicted. (Id.
¶ 39).
On November 9, 2015, the
¶ 43).
On March 15, 2016, Chang served a Request to Access Records upon the Township of
Barnegat, to determine whether the Township took any municipal action against Defendants for
failure to maintain their property. (Id.
¶ 41). The Township responded that no municipal action or
records indicated such a failure to maintain or care for their property. (Id.
¶ 42).
The original Complaint in this action was filed on September 10, 2015 against FNMA,
Seterus and FHFA. An Amended Complaint was filed on November 24, 2015 adding Kyanite
and IBM as Defendants. On March 7, 2016, the Court granted Defendants’ Motion to Dismiss
the Amended Complaint, allowing Plaintiffs’ 14 days to amend. The Second Amended
4
Complaint (incorrectly entitled “Third Amended Complaint”) in this action was filed on March
21, 2016, dropping all claims against FHFA, IBM and Kyanite, and leaving the claims against
FNMA and Seterus. Although dismissed as a defendant, FHFA requested and was granted
permission to file an amicus brief
Legal Standard:
Pursuant to FED. R. Civ. P. 12(b)(6), a court may dismiss a complaint for failure to state a
claim upon which relief can be granted. When analyzing a 1 2(b)(6) motion, a court must accept
the allegations in the Complaint as true and draw all reasonable inferences in the light most
favorable to the non-moving party. See Morse v. Lower Merion Sch. Dist., 132 F.3d 902 (3d Cir.
1997). “To 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. Jqbal, 556
U.s. 662, 678 (2009). As such, “factual allegations must be enough to raise a right to relief above
the speculative level.” Bell Atlantic Corp.
V.
Twombly, 550 U.S. 544, 555 (2007). A court is not
required to accept as true mere “unsupported conclusions and unwarranted inferences.” Doug
Grant, Inc. v. Greate Bay Casino, Corp., 232 F.3d 173, 184 (3d Cir. 2000).
Analysis:
I.
RESPA
In Count I, Plaintiffs bring claims under RESPA, 12 U.S.C. 2601 et seq. According to 12
C.F.R. 1024.5(a), RESPA applies to “federally related mortgage loans.” 12 CFR
§ 1024.35(d)
requires a servicer who receives a NOE to acknowledge receipt of the NOE within 5 days, and
§l024.35(e)(l)(B) states that servicers must respond by “Providing the borrower with the
requested information and contact information, including a telephone number, for further
assistance in writing” or by [cjonducting a reasonable search for the requested information and
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providing the borrower with a written notification that states that the servicer has determined that
the requested information is not available to the servicer, provides the basis for the servicer’s
determination, and provides contact information, including a telephone number, for further
assistance.” There are similar, though slightly different, requirements for RFIs. Plaintiffs state
that by failing to properly respond to the NOEs and RFIs, Defendants violated 12 CFR
§
1024.35(d) and (e), and 1024.36(c), (d)(1) and (d)(2). A private right of action is provided by 12
U.S.C.
§ 2605(f).
Defendants claim the repurchase program does not apply to the subject loan. They cite
FHFA’s announcement on November 25, 2014 (“the Announcement”), which said that the
“policy change is limited to Fannie Mae and Freddie Mac REO [real estate owned] inventory of
single-family homes as of November 25, 2014.” See Announcement, Ex. A to brief of Federal
Housing Finance Agency, ECF No. 42. The sheriff’s sale occurred on April 7, 2015. SAC.,
¶
18.
As a result, Defendants argue that FNMA’s REO inventory did not include the Subject Property
as of November 25, 2014, as Plaintiffs were the owners of the property up until April 7, 2015.
In response, Plaintiffs contend that the Announcement concerned the “Fair Market
Value” program, and they are not only seeking relief under that, but under the “Make Whole”
FNMA repurchase program as well. See SAC.
¶J
15, 54, 63. Plaintiffs have not cited to this
“review process” that FNMA allegedly violated. Plaintiffs have only provided the November 25
Announcement, which both parties agree is inapplicable here. If there is a separate “Make
Whole” provision, and if there is a review process for implementing this provision, then
Plaintiffs have not provided that.
An issue is whether FNMA or Seterus can even be liable under these regulations.
FNMA is not subject to Regulation X because it is not a “servicer” of the loan.
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Regulation X defines “servicer” as “a person responsible for servicing of a federally
related mortgage loan (including the person who makes or holds such loan if such person
also services the loan).” Id.,
§ 1024.2. Additionally, Seterus was no longer servicing the
Property after the judgment of foreclosure. Under New Jersey law, once a judgment of
foreclosure is entered, the mortgage loan is extinguished and merges into the final
judgment of foreclosure. See Virginia Beach Fed. v. Bank ofNew York, 299 N.J. Super.
181, 188 (App. Div. 1998). Any repurchase would therefore involve the creation of a new
mortgage loan or new purchase agreement. Following the final judgment of foreclosure,
Plaintiffs no longer owned the Property and Seterus could not be their servicer. All the
communications in question among Plaintiffs, Phelan and Seterus occurred after
foreclosure, post-sheriffs sale; it does not appear that RESPA would apply to Seterus
here. Count I is dismissed.
II. New Jersey Consumer Fraud Act
Plaintiffs bring a claim under the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1, et
seq. (SAC,
¶J 5 1-77.) The CFA “provides a private cause of action to consumers who are
victimized by fraudulent practices in the marketplace.” Gonzales v. Wilshire Credit Corp., 207
N.J. 557, 576 (2011). To state a NJCFA claim, a consumer must plead (1) an unlawful practice;
(2) an ascertainable loss; and (3) a causal relationship between the two. Id. at 577. The Act
prohibits affirmative acts and knowing omissions that rise to deceptive trade practices, as well as
violations of regulations adopted by the Division of Consumer Affairs made “in connection with
the sale or advertisement of any merchandise or real estate, or with the subsequent
performance....” N.J.S.A 56:8-2.
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CFA violations can occur under three different categories: (1) “[a]n affirmative
misrepresentation, even if unaccompanied by knowledge of its falsity or an intention to deceive”;
(2) “{a]n omission or failure to disclose a material fact, if accompanied by knowledge and
intent”; and (3)
“
‘violations of specific regulations promulgated under the [CFA],’ “which are
reviewed under strict liability. Monogram Credit Card Bank of Ga. v, Tennesen, 390 NJ Super.
123, 133, 914 A.2d 847 (App.Div.2007) (internal citations omitted). Unlawful conduct under the
CFA is defined as: “use or employment by any person of any unconscionable commercial
practice, deception, fraud, false pretenses, false promise, misrepresentation, or the knowing,
concealment, suppression, or omission of any material fact with intent that others rely upon such
concealment, suppression or omission, in connection with the sale or advertisement of any
merchandise or real estate, or with the subsequent performance of such person as aforesaid,
whether or not any person has in fact been misled, deceived or damaged thereby.” N.J.S.A. 56:82. An unconscionable commercial practice “[n]ecessarily entails a lack of good faith, fair
dealing, and honesty,” and “[t]he capacity to mislead is the prime ingredient of all types of
consumer fraud.” Furthermore, “[m]ere consumer dissatisfaction does not constitute consumer
fraud.” In re Van Holt, 163 F.3d 161, 168 (3d Cir. 1998). In addition, “[tihe misrepresentation
has to be one which is material to the transaction
...
made to induce the buyer to make the
purchase.” Gennari v. Weichert Co. Realtors, 148 NJ 582, 607, 691 A.2d 350 (1997).
Plaintiffs assert that Defendants did not provide information about the FNMA repurchase
program, and deceived, concealed and made misrepresentations about it. For example, Phelan
never answered Plaintiffs as to why they were not eligible to repurchase the home at market
value or what the guidelines were. Defendants allegedly did not engage in the “review” and
“investigation” that they said they would. Defendants obtained possession of the property while
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telling Plaintiffs that they were still reviewing and investigating. Plaintiffs relied on these
representations to their detriment, according to the SAC.
Defendants argue that the SAC did not cite to any unlawful practices by FNMA or
Seterus or make allegations as to how Plaintiffs detrimentally relied on any misrepresentation.
Also, according to Defendants, Plaintiffs lacked any right to repurchase the Subject Property
because Plaintiffs lost their redemption rights once the sheriff delivered the foreclosure deed to
the purchaser and they did not object. See R. 4:65-5; Hardyston Nat’! Bank v. Tartame!!a, 56
N.J. 508 (1970); Sovereign Bank, FSB v. Kuelzow, 297 N.J. Super. 187, 196 (App. Div. 1997).
The mortgagee must file a deficiency action and then obtain a judgment in order to have a
statutory right of redemption under New Jersey law. See N.J.S.A. 2A:5-4; Borough of
Merchantville v. Ma!ik & Son, LLC’, 218 N.J. 556 (2014). There is no allegation that Plaintiffs
timely-filed an objection to the sale, or that any deficiency action was filed, or that any judgment
in a deficiency action was entered. According to Defendants, Plaintiffs could only redeem the
Subject Property by paying the full amount due on the mortgage with foreclosure costs. See
Brookshire Equities, LLC v. Montaquiza, 346 N.J. Super. 310, 315 (App. Div. 2002).
Defendants also claim that that there is no reason that Plaintiffs can base their NJCFA
claims on the RESPA claims, and therefore, there are no” ‘violations of specific regulations
promulgated under the [CFA].” The NJCFA Act provides for the Attorney General of New
Jersey to promulgate rules and regulations under the NJCFA. N.J.S.A. 5 6:8-4. In Stoecker v.
Echevarria, 408 N.J. Super. 597, 623-24 (App. Div. 2009). the court refused to apply a violation
of another statute to the NJCFA because it was not adopted by the Attorney General. RESPA, as
a federal statute, was not adopted by the Attorney General.
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Furthermore, Defendants claim that there are no indications of ascertainable loss or any
causal relationship between such loss and unlawful conduct. The NJCFA does not define
“ascertainable loss,” but the Supreme Court of New Jersey has said that such loss must be
“quantifiable or measured,” even if not necessarily paid out of pocket. An “estimate of damages,
calculated with a reasonable degree of certainty,” will suffice. Thiedermann v. Mercedes-Benz
USA, LLC, 183 N.J. 234, 249 (2005). The loss may not be “hypothetical or illusory.” Id. at 248.
According to Defendants, there is no ascertainable loss, and any loss of the Subject Property was
due to Plaintiffs’ failure to comply with the redemption procedures.
Plaintiffs state that ascertainable loss can be viewed through the benefit of the bargain
standard. Thiedemann, 183 N.J. at 234 (2005). They assert that the benefit of the bargain here is
the lost opportunity to repurchase their home, and the fees and costs associated with that loss. To
satisfy the causal relationship element, “only proof of a causal nexus between the [unlawful
conduct] and the loss” is required. Jubelt v. United N. Bankers, Ltd. 2015 WL 3970227, at *6
(D.N.J. June 30, 2015).
The Court agrees with Defendants that there is no NJCFA violation. Plaintiffs allege that
Defendants allowed the eviction process to proceed while indicating that repurchase at a “Make
Whole” price was a possibility. However, Plaintiffs were seeking information. Plaintiffs’ theory
makes little sense because they had the right to redeem throughout the foreclosure process, and
failed to do so. It is illogical to think that some repurchase right springs up after foreclosure
without some form of agreement. It is also not clear that an alleged RESPA violation can provide
a foundation for a NJCFA violation. Therefore, any ascertainable loss here is “hypothetical or
illusory,” and Count 111—the CFA claim—will be dismissed.
III. Covenant of Good Faith and Fair Dealing
The SAC also brings claims for violation of the covenant of good faith and fair dealing.
Under this principle, parties to a contract may not engage in actions that would have the effect of
depriving the right of the other party to receive the benefits of the contract. See e.g., Brunswick
Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs.. 182 N.J. 210, 224-25 (2005). Courts
hold that “bad motive or intention is vital to an action for breach of the covenant.” Id. at 396.
Here, there was no contract and the final judgment of foreclosure extinguished Plaintiffs’
ownership in the mortgage loan, according to Defendants. See e.g. Washington Mutual, FA v.
Wroblewski, 396 N.J. Super. 144, 149 (2007) (“Under New Jersey law, the mortgage is merged
into the final judgment of foreclosure and the mortgage contract is extinguished... As a result,
upon entry of a foreclosure judgment, all contractual rights under the mortgage are merged into
the foreclosure judgment.”). Moreover, Defendants claim that nothing in the mortgage allows for
repurchase of the Subject Property after foreclosure sale. (See Mortgage, Ex. C.) The Court
agrees that the allegations in the SAC do not indicate that there was an agreement here or that
there is any evidence that Defendants had any bad motive or intention. Plaintiffs do not address
this claim in their opposition brief. Count IV is therefore dismissed.
IV. Fair Debt Collection Practices Act
Plaintiffs bring a Fair Debt Collection Practices Act claim only against Seterus relating to
the communications between Plaintiffs and Seterus. The Act provides: “a debt collector may not
use any false, deceptive, or misleading representation or means in connection with the collection
of any debt.” 15 U.S.C.
§
l6923e. The Act also states: “A debt collector may not use unfair or
unconscionable means to collect or attempt to collect any debt. 15 U.S.C.
§
I 6923(f).
“A threshold requirement for application of the FDCPA is that the prohibited practices
are used in an attempt to collect a ‘debt.” Zimmerman v. HBO Affiliate Grp., 834 F.2d 1163,
11
1167 (3d Cir. 1987). In this Circuit, a Plaintiff must establish that the debt falls within the
meaning of § 1 692a(5) and that the ‘debt is one that arises out of a consumer transaction in which
the money, property, insurance or services which are the subject of the transaction are primarily
for personal, family or household purposes, whether or not such obligation has been reduced to
judgment.” Peterson v. Portfolio Recovery Assocs., 430 Fed. Appx. 112, 115 (3d Cir. 2011).
However, Seterus was not attempting to collect a “debt.” As the SAC indicates, Plaintiffs
were only requesting that Defendants provide them with a “make whole” number. “{F]or a
communication to be in connection with the collection of a debt, an animating purpose of the
communication must be to induce payment by the debtor.” Simon v. FIA Curd Servs., NA,, 732
F.3d 259, 266 (3d Cir. 2013). Here, the property was already foreclosed, and Plaintiffs were the
ones seeking the information. Since Seterus indicated that Plaintiffs’ request for repurchase
information was under review, Plaintiffs cannot interpret that to mean Seterus was agreeing to a
repurchase or waiving any of its foreclosure rights. Count II of the SAC is dismissed.
ORDER
THIS MATTER having been presented to the Court upon Defendants’ Motion to Dismiss
Plaintiffs’ Second Amended Complaint [ECF No. 38]; and after considering the submissions of
the parties, for the reasons stated on the record on June 6, 2016, for the reasons stated herein, and
for good cause shown:
IT IS on this
day of
hereby
ORDERED that Defendant’s Motion to Dismiss the Second Amended Complaint [ECF
No. 38] is GRANTED and Plaintiffs’ Second Amended Complaint is dismissed with prejudice.
PL kL
PETER G. SHERIDAN, U.S.D.J.
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