Simon et al v. PNC Bank, National Association et al

Filing 12

MEMORANDUM OPINION AND ORDER entered 4/15/15 and filed 4/16/15: Before the Court is PNC Bank, National Association ("PNC"), and Federal Home LoanCorporation ("FMAC") (collectively "Defendants")'s Motion to Dismiss C ounts One and Two of Plaintiffs' Complaint ("Complaint") pursuant to Federal Rule of Civil Procedure 12(b)(6). ECF No. 5. As outlined in this Order, the Defendants' Motion to Dismiss is DENIED on Count One and is GRANTED on Count Two. (See Order and Foot Notes for Specifics) (Signed by District Judge Raymond A. Jackson on 4/15/15). Copies provided as directed 4/15/15. (ecav, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
Norfolk Division

EMETERIO H. SIMON,
AND DIANA C. SIMON,

Plaintiffs,

Civil Action: 2:14cv523

PNC BANK, NATIONAL ASSOCIATION,
AND FEDERAL HOME LOAN MORTGAGE
CORPORATION,
Defendants.

MEMORANDUM OPINION AND ORDER

Before the Court is PNC Bank, National Association ("PNC"), and Federal Home Loan

Corporation ("FMAC") (collectively "Defendants")'s Motion to Dismiss Counts One and Two
ofPlaintiffs' Complaint ("Complaint") pursuant to Federal Rule of Civil Procedure 12(b)(6).
ECF No. 5. Emeterio H. and Diana C. Simon ("Plaintiffs") filed the Complaint for alleged

breach of contract based on: (1) Breach ofParagraph 6(c) ofthe Note and Paragraph 22 ofthe
Deed ofTrust; and (2) Breach of"Applicable Law" Provision of the Deed of Trust. ECF No. 1.
The motion has been fully briefed and is ripe for judicial determination. For the reasons stated
herein, the Motion to Dismiss is GRANTED-IN-PART AND DENIED-IN-PART.
I. FACTUAL AND PROCEDURAL HISTORY1
On December 11, 2006, Plaintiffs entered into a mortgage loan ("Loan") with National

City Mortgage, a division ofNational City Bank ("National City") encumbering property known
as 2112 Southcross Drive, Virginia Beach, VA 23464 ("Property"). Compl. H1,7. The Loan
1Plaintiffs allege these facts in the Complaint, and they are taken as true for purposes ofthe Motion to
Dismiss.

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was evidenced by anote ("Note") and secured by adeed oftrust ("Deed"). Upon default,
Paragraph 6(c) of the Note provided in pertinent part:
If I am in default, the Note Holder may send me a written notice

telling me that if I do not pay the overdue amount by a certain
date, the Note Holder may require me to pay immediately the full
amount of principal that has not been paid and all the interest
that I owe on that amount. That date must be at least 30 days
after the date on which the notice is delivered or mailed to me.

Id. \ 8. Paragraph 22 ofthe Deed provided in pertinent part:
Lender shall give notice to Borrower prior to acceleration
following Borrower's breach of any covenant or agreement in
this Security Instrument

The notice shall specify (a) the default; (b) the action required
to cure the default; (c) a date, not less than 30 days from the
date of notice is given to the Borrower, 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 of the sums secured by this Security Instrument
and sale of the Property.
The notice shall... inform Borrower
of the right to bring
a court action to assert the non-existence of a default or any
other defense of Borrower to acceleration and sale.

Id. \ 9.

National City assigned the Note to PNC as holder of the Note and new servicer ofthe
Loan. On April 13, 2011, PNC entered into a Consent Order ("Order") with the U.S.

Department ofTreasury, Comptroller ofthe Currency ("OCC"). Id. K68. In pertinent part, the
Order provided:

Within sixtydays (60) days of this Order [PNC] shall submit to the

Deputy Comptroller and the Examiner-in-Charge an acceptable
plan, along with a timeline for ensuring effective coordination of
communication with borrowers, both oral and written, relating to

Loss Mitigation or loan modification and foreclosure activities:
... The plan shall include, at a minimum:

(g) procedures and controls to ensure that a final decision
regarding a borrower's loan modification request (whether as a
trial or permanent basis) is made and communicated to the
borrower in writing, including the reason(s) why the borrower did
not qualify for the trial or permanent modification (including the
net present value calculations utilized by the Bank, if applicable)
by the single point of contact within a reasonable period of time
before any foreclosure sale occurs;

Id., Exhibit H to Compl. The Order also barred any private cause of action by anyone not

party to the agreement. Id. In June 2012, Plaintiffs defaulted on theNote, and PNC mailed
the Notice of Default ("Notice") to Plaintiffs dated July 23, 2012. Compl. K12. The Notice

required Plaintiffs to pay $3,534.15 by August 22, 2012 to avoid acceleration of the Note and
foreclosure. Id. *\ 13. The amount required included the upcoming August 1,2012 payment.
Id. Plaintiffs failed to cure the default.

On May 29,2013, PNC soldthe Property at a foreclosure sale through its substitute
trustee, Samuel I. White ("White") for $253,623 which was less than the alleged fair market

value of $292,100. Id. \ 28. PNC later assigned its rights to FMAC. On June 25, 2013, PNC
and White executed a Trustee's Deed conveying ownership to FMAC. Id. \ 39. On July 9,

2013, FMAC filed an unlawful detainer summons in General District Court of Virginia Beach

("GDC"). Id. U44. The GDC entered an orderawarding the Property to FMAC on August

29, 2013. Id.1i 45-46. Plaintiffs perfected an appeal to the Virginia Beach Circuit Court
("CircuitCourt). Id. FMAC filed a motion for summary judgment, and the Circuit Court
awarded FMAC possession on March 7,2014. Id. 150. Plaintiffs appealed to the Supreme

Court of Virginia but later withdrew because of an inability to pay the appeal bond. Id. f 52.

On August 27,2014, White requested a Writ ofPossessions from the Virginia Beach Circuit
Court. Id. 1)53.

On September 2,2014, Plaintiffs filed the Complaint against Defendants in Virginia
Beach Circuit Court. ECF No. 1. Count One alleges Defendants breached the notice

requirements ofthe Note and the Deed by overstating the amount in arrears. Compl. H14.
Plaintiffs allege the failure to comply with the notice requirements was a material breach of
the Note and Deed, and PNC had no right to foreclose on the Property. Id. at U23, 24.

Therefore, Plaintiffs allege the subsequent sale of the Property at the foreclosure auction for
$253,623 was void or voidable. Id. at f 31, 32. Plaintiffs further allege negative reports
made to credit agencies about the foreclosure damaged their credit rating and economic
status. Id. at 142,43.

Count Two alleges Defendants breached the "Applicable Law" Provision of the Deed

by failing to comply with the notice requirement ofthe Order. Plaintiffs allege the Order was
"applicable law" under the Deed and prevented Defendants from foreclosing on a borrower
who had a loan modification application pending. Id. at 67, 69. Plaintiffs allege Defendants
failed to render a written decision on their loan modification application prior to the May 29,

2013 foreclosure auction. Id. at H73, 74. Therefore, Plaintiffs allege the foreclosure on the

Property constituted a material breach of the "applicable law" provision of the Deed. The
Complaint seeks to rescind the May 29,2013 foreclosure, enjoin Plaintiffs eviction from the

Property, and recover compensatory damages of$150,000. Compl. \ 78. On October 10,
2014, Defendants filed a Notice ofRemoval to this Court.2 ECF No. 1.

2FMAC isa United States corporation chartered by an Act ofCongress, 12 U.S.C. § 1451. 12 U.S.C. § 1452(f)
provides that FMAC "shall be deemed to be an agency included in §§ 1345 and 1442 ofTitle 28."
§ 1452(f) also provides that any civil action in a state court to which FMAC isa party may, atany time before trial,
be removed to the United States District Court embracing the place where action is pending.

II. LEGAL STANDARD

Federal Rule of Civil Procedure 8(a)(2) requires that a complaintcontains "a short and

plain statement of the claim showing the pleader is entitled to relief." Federal Rule of Civil
Procedure 12(b)(6) allows dismissal of actions that fail to state a claim upon which reliefcan

begranted. A motion to dismiss should begranted if the complaint does not allege "enough
facts to state a claim of relief that is plausible." BellAtl. Corp. v. Twombly, 550 U.S. 544,

570 (2007). A claim has "factual plausibility when the plaintiff pleads factual contentthat
allows the Court to draw the reasonable inference that the defendant is liable for the

misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The Court takes all factual
allegations in the complaint as true and construes them in the lightmost favorable to the
plaintiff. Erickson v. Pardus, 551 U.S. 89, 94 (2007). However, "threadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not suffice."

Iqbal, 556 U.S. at 678. The Court "need not accept the legal conclusions drawn from the
facts." E. Shore Mkts., Inc. v. J.D. Assocs. Ltd. P'ship, 213 F.3d 175, 180 (4th Cir. 2000).

The complaint does not need to show a likelihood of success at trial; instead, the complaint
needs only to allege each element of a viable legal theory. Twombly, 550 U.S. at 562.

Generally, the Court does not contemplate extrinsic material when evaluating a
complaint under a motion to dismiss. The Court may consider documents incorporated into

the complaint. Tellabs, Inc. v. Makor Issues &Rights, Ltd., 551 U.S. 308, 322 (2007). The
Court may also consider any documents attached to the motion to dismiss if those documents
are essential to the plaintiffs claim or are "sufficiently referred to in the complaint" as long
as there is no challenge of their authenticity. Witthohn v. Fed. Ins. Co., 164 F. App'x 395,
396-97 (4th Cir. 2006).

III. ANALYSIS

A. Breach of Paragraph 6(c) of the Note and Paragraph 22 of the Deed

Count One alleges that Defendants failed to comply with the Notice requirements ofthe

Note and Deed thereby giving rise to a breach ofcontract claim. Under Virginia law, a breach of
contract claim must allege facts of: (1) a legally enforceable obligation of a defendant to the

plaintiff; (2) defendant's violation orbreach of that obligation; and (3) resulting injury or harm to
the plaintiff. Filak v. George, 267 S.E. 2d610,614 (Va. 2004). The notice requirements ofthe
Note and Deed created a legally enforceable obligation by Defendants. According to paragraph
15 of the Deed:

Any notice to Borrower consistent with this Security Instrument
shall be deemed to have been given to borrower when mailed by
first class mail or when actually delivered to Borrower's notice

address if sent by other means. Notice to any one Borrower shall
constitute notice to all Borrowers unless Applicable Law expressly
requires otherwise.

Deed of Trust, Exhibit A. Plaintiffs attached to the Complaint the allegedly defective Notice,

which was dated July 23,2012 and mailed to Diana C. Simon. Although they do not remember
receiving the Notice, Plaintiffs concede Defendants complied with requirements to send it.
Compl. H18. However, Plaintiffs challenge its validity.

Plaintiffs allege the Notice did not comply with the requirements because it overstated
the amount due by including the past due payments as well the next month's payment not yet

due. Paragraph 6(c) of the Note uses the language "overdue amount," and paragraph 22 of the
Deed requires the notice to "specifiy the default

". First, Plaintiffs allege that including the

next month's payment inflated the amount due and failed to adhere to the strict language of the
Note and Deed. Second, Plaintiffs allege that they would have cured the default if the Notice
correctly stated the overdue amount.

Some federal courts completely reject Plaintiffs' first argument. For instance, in Matanic
v. Wells Fargo, N.A., the Court stated that "requiring submission of the next regular monthly
payment in order to cure default does not breach the agreement between the parties." 2012 U.S.
Dist. LEXIS 134154 at *12 (E.D. Va. September 18,2012). The Court further stated that the

clause requiring the next month's payment was "only a reminder to the borrower that paying the
amount required to cure the default does not relieve him of paying the regularly scheduled
payment due before the cure period ends." Id. at *13. Consequently, the Court held that the
inclusion of the next month's payment did not violate the terms of the Note or Deed of Trust. Id.

In Whala v. PNC Bank, N.A., the Court followed Matanic and held again that the requirement to
make regularly scheduled payments in order to cure the default did not violate the terms of the

Note or Deed of Trust. No. 1:14-cv-894 (E.D. Va. September 30,2014). See also Townsend v.
Fed. Nat'I Morg. Ass'n, 923 F. Supp. 2d 828, 834 (W.D. Va. 2013) (holding that "the
acceleration letter's requirement that Plaintiffs make their regularly scheduled payment in order
to cure their default did not violate the terms of the Note or the Deed of Trust"). More
importantly, the Court dismissed those claims relating to breach of notice requirements.
Other federal courts have found sufficient facts to allow claims to move forward based on

Plaintiffs second argument. For instance, in Vazzana v. CitiMorgtgage Inc., the Court denied a
motion to dismiss because the plaintiff pled she had not received a proper thirty (30) day cure
notice, and if she had, she would have brought the loan current. 2013 U.S. Dist. LEXIS 78541

(W.D. Va. June 4, 2013). The Court ruled she had pled sufficient facts because: (1) she was
contractually entitled to notice of amount in arrears; (2) she alleged the notice overstated the
amount in arrears and she would have paid the correct amount; and (3) she was harmed by the

alleged breach through foreclosure. Id. See also Harris v. USA, Civil Action No. 4:14-cv-56

(E.D. Va. Oct. 16, 2014) (denying motion to dismiss because Plaintiff pled she would have made
the correct amount to avoid acceleration and foreclosure).

The Court here distinguishes the complaints in Matanic and Whala from the Complaint.
Unlike the Notice in the Complaint, the Matanic notice correctly specified the overdue amount

and did not explicitly add the next month's payment to that amount even though it was due by
the end of the cure period. Consequently, the Matanic notice did not contain an inflated amount

due. Also, the Whala borrowers did not plead that they would have cured the default ifthey had
received a correct amount for arrearages. Plaintiffs here specifically pled that they would have
been able to bring the loan current within 30 days of theNotice with the correct overdue amount.
As a result, the Complaint is factually analogous to those cases in which the court has found
sufficient pleadings to overcome a motion to dismiss.

Plaintiffs here have alleged a breach ofcontract by the Defendants for failure to comply
with the notice requirements ofthe Note and Deed. Plaintiffs have alleged sufficient facts for a

plausible claim for breach. First, Plaintiffs entered into a mortgage loan with National City for
the Property on December 11, 2006 that was later assigned to Defendants. Both paragraph 6(c)

ofthe Note and paragraph 22 ofthe Deed ofTrust entitled Plaintiffs to notice ofdefault thereby
creating a legally enforceable obligation ofDefendants. Second, Plaintiffs allege the Notice

violated the above obligation by overstating the amount overdue. Plaintiffs allege they would
have cured the default if the Notice correctly stated the overdue amount. As stated above,
varying case law establishes that Plaintiffs' allegation that they would have corrected the default

ifthe overdue amount was correctly stated is sufficient evidence ofa violation or breach by the
defendants. Finally, Plaintiffs allege PNC foreclosed the Property and sold it at an auction on
May 29, 2013 for $253,623 which was less than the alleged fair market value. Plaintiffs further

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allege damage to their credit rating because ofthe alleged foreclosure. Plaintiffs' allegations of
foreclosure and other losses such as equity, credit rating, and litigation expenses are sufficient to
demonstrate harm caused by the alleged breach. Therefore, Defendants' Motion to Dismiss
Count One is DENIED.

B. Breach of "Applicable Law" Provision of Deed of Trust

Count Two ofthe Complaint alleges Defendants breached the "Applicable Law"

Provision ofthe Deed. Specifically, Plaintiffs allege: (1) Applicable Law includes the Order; (2)
the Order prevents foreclosure without written notice; (3) and the purported foreclosure and

trustee's deed were void or voidable. The Deed defines "Applicable Law" as "all controlling
applicable federal, state, and local statutes, regulations, ordinances, and administration rules and

orders (that have effect ofLaw) as well as all applicable final, non-judicial opinions." Compl. f
67. Plaintiffs allege the Order, which granted no private cause of action, was a federal

administrative order that should be "Applicable Law" to the Deed. Id. at1f 71.
Virginia law construes a deed of trust as a contract and examines the words within the

four corners ofthe document. Mathews v. PHHMortg. Corp., 724 S.E.2d 196, 201 (Va. 2012).
The Court construes the deed "as written, without adding terms that were not included by the
parties." Id. "Most courts construe applicable law clauses within the deed oftrust very
narrowly." Condel v. Bank ofAmerica, N.A., No. 3:12-cv-212, 2012 U.S. Dist. LEXIS 93206 at

*22 (E.D. Va. 2012) (internal quotations omitted). In Condel, the Court held that "applicable
law" refers to "then-existing body oflaw that applies directly to the contract in question, or to
which the parties are otherwise subject in the performance of theircontractual duties and

obligations." Id. at *23. The Deed of Trust does not incorporate laws orregulations issued after

the parties execute it. Id. The Court concluded by stating: "because the plain meaning ofthe

controlling applicable law provision ofthe Deed of Trust does not reveal an intent by the parties
to be bound by future laws, this Court will not infer one." Id. at *25 (internal quotations

omitted). See also Townsendv. Fed. Nat'lMorg. Ass'n, 923 F. Supp. 2d 828, 834 (W.D. Va.
2013) (holding that there was no mention of the Fair Debt Collection Practices Act in the Deed

ofTrust and aviolation of the Act could not support aclaim for breach ofthat agreement).
Notwithstanding the holding in Condel, Plaintiffs contend that the "applicable law"

provision should be construed as "applicable law" at the time of foreclosure. Plaintiffs allege no
facts in support ofthis proposition. Instead, they contend that they are entitled to the contract
provisions ofthe Deed because those provisions required compliance with pre-conditions in the
Order. Compl. U69. In Squire v. Va. Hous. Dev. Auth., the Court helda lender liable for

damages for foreclosure after failure to comply with FHA regulations even though there is no
private cause ofaction for breaching those regulations. 758 S.E.2d 55 (Va. 2014). See also

Mathews v. PHHMortg. Corp., 724 S.E.2d 196,201 (Va. 2012) (holding that language in a FHA
deed oftrust incorporated the face-to-face requirements ofFHA regulations even though there is
no private right ofaction under the regulations themselves). However, those regulations were in
place when the deed of trust was entered unlike the Order here that was entered afterthe Deed's

execution. Further, the Court previously ruled that plaintiffs cannot compel defendants to

perform obligations not expressed in the Deed ofTrust or Note. See De Vera v. Bank ofAm.,
N.A., 2012 WL 2400627, at *8 (holding that an implied covenant ofgood faith and fair dealing

does not apply to a deed oftrust that creates valid and binding rights and does not compel aparty
to adhere to requirements ofthe implied covenant not expressly included in the deed oftrust).
By alleging the Order is "applicable law," Plaintiffs assert the Order prevents PNC from

foreclosing on any borrower/homeowner while a loan modification application is pending unless

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PNC provides a statement ofdenial ofsuch application and grounds for such denial within a

reasonable time prior to foreclosure. Compl. 172. Plaintiffs allege they submitted aloan

modification application on May 13,2013 and received no written response prior to the May 29,
2013 foreclosure sale. Compl. U73, 74. Plaintiffs now allege this purported foreclosure is void

or voidable. However, Defendants contend the Order does not prevent PNC from taking action
to foreclose. Instead, the Order required Defendants to submit aproposal for "procedures and

controls" relating to pre-foreclosure decisions. ECF No. 1, Exhibit Hto Compl. The Order only
requires submission ofa process that the OCC will later approve. As a result, there would be no
obligation on PNC's behalf until such time.

Plaintiffs have not pled sufficient facts that Defendants breached the "Applicable Law"
provision of the Deed. First, Plaintiffs merely conclude the Order is a federal administrative

order without alleging any facts. The Court ruled in Iqbal that mere conclusory statements will
not suffice to establish a plausible claim. Second, the Court previously established that it is
reluctant to incorporate laws and regulations not in place at the time of the Deed's execution.

Plaintiffs here executed the Deed in 2006; however, Defendants entered the Order on April 13,
2011. Therefore, the Order's provisions are outside the language ofthe Deed. Plaintiffs actually
admit the Order gives them no private cause ofaction while contending that they should benefit
from pre-conditions allegedly included in the Order. However, the Court ruled in Squire that it
will not compel a party to perform obligations not expressed in the Deed ofTrust. Third,
Plaintiffs pled no facts of an actual obligation on Defendant's behalfunder the Order. The Order

simply requires the Defendants to submit a proposal for handling pre-foreclosure activities.

Plaintiffs allege no facts ofaspecific plan agreed upon by Defendants. Nor do they allege any

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facts pertaining to the effective date ofsuch plan or how it affects their Deed. Therefore,
Defendants' Motion to Dismiss Count Two is GRANTED.
IV. CONCLUSION

For the foregoing reasons, the Defendants' Motion to Dismiss is DENIED on Count One
and is GRANTED on Count Two.

The Clerk is DIRECTED to mail a copy of this order to the parties and counsel of
record.

IT IS SO ORDERED.

&^
Raymond A. Jackson

United states District Judge
Norfolk, Virginia

April ^,2015

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