The Estate of Martha Dawson et al v. Ditech et al

Filing 11

MEMORANDUM OPINION entered and filed 8/11/17: On August 4,2017, the parties in the instant case appeared before the Court for a hearing on Plaintiffs' Motion for Preliminary Injunction and/or Temporary Restraining Order ("Motion" or "Motion for Injunction"). ECF No. 4 . Plaintiffs' Motion sought to enjoin the foreclosure sale of property located at 13 Howe Road in Hampton, Virginia, which was scheduled to occur on August 4, 2017, at 4:15 p.m. After hear ing testimony and argument, the Court denied Plaintiffs' Motion. ECF No. 8 . This Opinion elaborates on the reasons for the Court's decision. As outlined in this Memorandum Opinion, the Court FOUND that the Plaintiffs did not h ave standing to bring their RESPA claim. Therefore, the Court lacked jurisdiction to grant the relief requested in Plaintiffs' Motion. Accordingly, Plaintiffs' Motion for Injunction was DENIED. ECF No. 4. (See Memorandum Opinion and Foot Note for Specifics). Signed by District Judge Robert G. Doumar on 8/11/17. (ecav, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
NEWPORT NEWS DIVISION

THE ESTATE OF MARTHA DAWSON,
et al.^
Plaintiffs,
V.

CIVIL NO. 4:17-cv-93

DITECH FINANCIAL, LLC,
etal.,
Defendants.

MEMORANDUM OPINION

On August 4,2017, the parties in the instant case appeared before the Court for a hearing
on Plaintiffs' Motion for Preliminary Injunction and/or Temporary Restraining Order ("Motion"
or "Motion for Injunction"). ECF No. 4. Plaintiffs' Motion sought to enjoin the foreclosure sale
of property located at 13 Howe Road in Hampton, Virginia, which was scheduled to occur on

August 4, 2017, at 4:15 p.m. After hearing testimony and argument, the Court denied Plaintiffs'
Motion.
I.

ECF No. 8. This Opinion elaborates on the reasons for the Court's decision.
PROCEDURAL AND FACTUAL BACKGROUND

On July 31, 2017, the Estate of Martha Dawson, Martina Dawson Ellis, and Howard Ellis
(collectively, "Plaintiffs") filed a complaint against Ditech Financial, LLC and Commonwealth

Trustees, LLC (collectively, "Defendants") in the Circuit Court for the City of Hampton seeking
injunctive relief and compensatory damages (hereinafter "Complaint" or "Compl."). ECF No. 1
at Ex. A. Plaintiffs' claims arise out of a mortgage loan secured by property located at 13 Howe

Road in Hampton, Virginia (the "Property") and serviced by Defendant Ditech Financial, LLC
("Ditech"). Mi 16. According to the Complaint, the mortgagor on the loan, Martha E. Dawson,
1

died in July of 2015, after which her daughter. Plaintiff Martina Dawson Ellis, and Ms. Ellis'
husband, Plaintiff Howard Ellis, moved into the Property and tried to assume the monthly

mortgage payments. Compl.

8, 12-13. Plaintiffs allege that between October, 2015, and July,

2017, Mr. and Ms. Ellis made numerous payments to Ditech but were unable to keep the loan
current. Id

14-15. Plaintiffs further allege that on July 7, 2017, Mr. and Ms. Ellis received

notice that a foreclosure sale of the Property would be conducted on August 4, 2017. Id ^ 20.
On July 31, 2017, Plaintiffs filed the instant lawsuit to enjoin the foreclosure sale and to recover

compensatory damages for Ditech's alleged breach of "the Promissory Note and the Deed of
Trust." Id 1145.

On August 3, 2017, Defendant Ditech removed Plaintiffs' action to this Court, citing 28

U.S.C. §§ 1331 and 1332.' Id at 1. On that same day, Plaintiffs filed the instant Motion to
enjoin the foreclosure sale of the Property that was scheduled to occur the next day at 4:15 p.m.
See Motion for Injunction, ECF No. 4; PI. Mem. in Support, ECF No. 5. Hours later. Defendants
filed a memorandum in opposition to Plaintiffs' Motion ("Def Resp."). ECF No. 7. On August
4, 2017, prior to the scheduled foreclosure sale, the Court conducted a hearing and ultimately
denied Plaintiffs' Motion. Sm ECF No. 8.
II.

APPLICABLE LAW

Rule 65 of the Federal Rules of Civil Procedure governs issuance of preliminary
injunctions and temporary restraining orders. Fed. R. Civ. P. 65. Where, like here, the adverse
party is on notice, the Court may enter a preliminary injunction when the movant demonstrates
that: (1) it is likely to succeed on the merits; (2) it is likely to suffer irreparable harm in the
absence of preliminary relief; (3) the balance of the equities tips in its favor; and (4) an

' In its Notice of Removal, Ditech argues that Defendant Commonwealth Trustees, LLC, the trustee ofthe
foreclosure sale, was fraudulently joined as a party and therefore did not need to consent to Ditech's
removal of the case. Jd

10 n.2, 23.

injunction is in the public interest. Winter v. Natural Res. Defense Council. Inc.. 555 U.S. 7, 20
(2008); Perry v. Judd. 471 Fed. App'x. 219, 223 (4th Cir. 2012). The Fourth Circuit has found
that a plaintiff must "clearly show" that it is likely to succeed on the merits. Dewhurst v.
Century Aluminum Co.. 649 F.3d 287, 290 (4th Cir. 2011) (quoting Winter. 555 U.S. at 22).

"The grant of preliminary injunctions [is] ... an extraordinary remedy inyolying the exercise of
a very far-reaching power, which is to be applied 'only in the limited circumstances' which
clearly demand it." Direx Israel. Ltd. v. Breakthrough Med. Corp.. 952 F.2d 802, 811 (4th Cir.
1992) (quoting Instant Air Freight Co. v. C.F. Air Freight. Inc.. 882 F.2d 797, 800 (3d Cir.
1989)).

In this case, Ditech argues that Plaintiffs have not "clearly shown" that they are likely to
succeed on the merits because they do not have standing to bring their claims. Def. Resp., ECF
No. 7, at 3. Standing is a threshold issue in federal litigation because it determines "the propriet>'
of judicial intervention." Warth v. Seldin. 422 U.S. 490, 518 (1975). The existence of federal

jurisdiction, including standing, "ordinarily depends on the facts as they exist when the
complaint is filed." Luian v. Defs. of Wildlife, 504 U.S. 555, 571 (1992) (quoting Newman-

Green. Inc. v. Alfonzo-Larrain. 490 U.S. 826, 830 (1989) (emphasis added)).
The standing doctrine is comprised of two distinct components: constitutional standing
and prudential standing. Bishop v. Bartlett. 575 F.3d 419, 423 (4th Cir. 2009) (citing Allen v.
Wright. 468 U.S. 737, 751 (1984)). Constitutional standing is derived fi-om Article III of the
United States Constitution. Id, In order to meet the Article III requirements for standing, a

plaintiff must prove: (1) that he or she suffered an "injury-in-fact;" (2) a causal relationship

between the injury and the challenged conduct; and (3) that the injury will likely be redressed by
a favorable decision. Friends of the Earth. Inc. v. Laidlaw Envtl. Services. 528 U.S. 167, 180-81

(2000); Luian. 504 U.S. at 560-61. Prudential standing, on the other hand, is the product of selfimposed nonconstitutional limitations on the federal courts' adjudicative authority. Bishop, 575
F.3d at 423. One such limitation is that "the plaintiff generally must assert his own legal rights
and interests, and cannot rest his claim to relief on the legal rights or interests of third parties."
Warth. 422 U.S. at 499.
in.

DISCUSSION

Plaintiffs' Complaint asserts two primary claims against Defendants. First, it alleges that
Ditech violated "Regulation X" of the Real Estate Settlement Procedures Act ("RESPA"),
specifically, the regulatory provisions found in 12 C.F.R. §§ 1024.39(a) and 1024.41(c), (g).

Compl. Tlf 36-42. Second, the Complaint alleges that the Defendants breached the "Promissory
Note" and/or "Deed of Trust" securing the Property. Id

32, 46. While Plaintiffs' Complaint

does not attach any documents purporting to be the contract(s) at issue, Defendant Ditech
attached to its opposition brief the Note between Martha E. Dawson, Borrower, and SunTrust

Mortgage, Inc., Lender, for a loan on the subject Property, dated June 15, 2007, (Exhibit A), as
well as the Deed of Trust given by Martha E. Dawson, as Borrower/Trustor, securing the Note
(Exhibit B). ECF Nos. 7-1, 7-2. Plaintiffs do not contest the authenticity of these documents.
The instant Motion for Injunction is based solely on Plaintiffs' RESPA claim. ECF No.
4. In their supporting memorandum. Plaintiffs argue that they are likely to succeed on the merits

of this claim because (1) Ditech failed to "cease foreclosure activity on [the Property]" after
receiving Plaintiffs' "full and complete loss mitigation package" as required under 12 C.F.R.

§ 1024.41(g); (2) Ditech failed to provide notice to Plaintiffs of the loss mitigation options
available as required under 12 C.F.R. § 1024.41(c); and (3) Ditech failed to "initiate live contact

with the borrower once the loan bec[ame] thirty-six days delinquent" as required under 12 C.F.R.
§ 1024.39(a). ECF No. 5 at 2-3. In addition, Plaintiffs argue that the three other requirements

for injunctive relief are satisfied because (1) Mr. and Ms. Ellis currently reside in the Property
and thus will be irreparably harmed by foreclosure; (2) the equities weight in favor of the
Plaintiffs in this case who stand to lose their family home while Defendants stand "to lose

nothing"; and (3) the public interest weighs in favor of enjoining foreclosures by loan servicers,
like Ditech, "who run roughshod over borrowers." Id at 3-4.

Ditech's key argument in opposition to Plaintiffs' Motion is jurisdictional: It argues that
Plaintiffs cannot succeed on the merits of their RESPA claim because Plaintiffs lack standing.

ECF No. 7 at 3-4. In support, Ditech argues that only the borrower can sue under RESPA, and
here, Martha E. Dawson is the sole borrower identified in the Note and the Deed of Trust. Id at

4 (citing Ex. A, ECF No. 7-1, at 4; Ex. B, ECFNo. 7-2, at 1). Ditechadds that Mr. and Ms. Ellis
are not parties to or the intended beneficiaries of either the Note or the Deed of Trust for the
subject Property. Id And despite Ms. Ellis' claim that she inherited the subject Property upon
her mother's death, neither she nor Mr. Ellis is the executor or qualified administrator of Ms.

Dawson's estate, nor did they assume Ms. Dawson's rights and obligations under the Note or

Deed of Trust. Id at 3-4. Without such privity of contract, Ditech argues that Plaintiffs lack
standing to sue Ditech with respect to Ms. Dawson's mortgage or her rights thereunder. Id
At the hearing on the instant Motion, Plaintiffs did not dispute the factual bases for
Ditech's argument. Instead, Plaintiffs argued that, at all relevant times, Ditech treated Ms. Ellis

as if she assumed Ms. Dawson's rights and obligations under the mortgage loan and therefore
cannot now contest her standing to sue as a non-party to the Note or Deed of Trust. In support,

Ms. Ellis testified to the following facts: (1) that in October of 2015, she notified Ditech of her
mother's death, after which Ditech requested a copy of Ms. Dawson's death certificate and
accepted same; (2) that between October, 2015, and July, 2017, Mr. and Ms. Ellis made multiple

loan payments to Ditech totaling at least $9,900; and (3) that Ditech accepted and cashed all of
these payments. In addition, Plaintiffs produced to the Court a copy of Ms. Dawson's will

showing that Ms. Dawson bequeathed the subject Property to Ms. Ellis.

Court's Exhibit 1,

ECF No. 8. Plaintiffs' counsel also provided proof that this will was probated during the Court's
recess on August 4,2017.

Ultimately, Plaintiffs' evidence and testimony was unavailing. RESPA expressly limits
potential claims to the "borrower," and courts have declined to expand the meaning of that term.
See 12 U.S.C. § 2605(f) ("Whoever fails to comply with any provision of this section shall be
liable to the borrower for each such failure . . .") (emphasis added); Johnson v. Ocwen Loan

Servicing. 374 F. App'x 868, 874 (11th Cir. 2010) (unpublished) (dismissing non-borrower's
RESPA claim due to lack of standing); Leblow v. BAC Home Loans Servicing. L.P.. No.
I:12cv246, 2013 WL 2317726, at *1 (W.D.N.C. May 28, 2013) (same, collecting cases).
Furthermore, in Virginia, "the borrower is the only party with standing to bring an action,
whether for damages after the fact of the improper [foreclosure] sale or to bar the improper
[foreclosure] sale in equity before it occurs." Mathews v. PHH Mortg. Co.. 283 Va. 723724
S.E.2d 196 (Va. 2012); see also Morrison v. Wells Fargo Bank. N.A.. 30 F. Supp. 3d 449, 454

(E.D. Va. 2014) (under Virginia law, to sue on a contract one must be a party to or beneficiary of
the contract). At the time the instant lawsuit was filed. Plaintiffs were neither the borrower on

the loan nor the qualified administrator of Ms. Dawson's estate, and Ms. Dawson's will names
Samia Wilson Byrd as executor of the estate. ECF No. 8, Court's Ex. 1. Therefore, Plaintiffs do
not have standing to bring their RESPA claim.
In addition, while the Court finds much of Ditech's conduct in this case objectionable,

particularly its lack of transparency with Mr. and Ms. Ellis as unsophisticated parties, such

conduct does not constitute waiver or otherwise confer standing on the Plaintiffs to stand in the
shoes of Ms. Dawson as the borrower. Indeed, the express terms of the Deed of Trust preclude
this argument:
Any forbearance by Lender in exercising any right or remedy, including, without
limitation, Lender's acceptance of payments from third persons, entities or
Successors in Interest of Borrower or in amounts less than the amount then due,

shall not be a waiver of or preclude the exercise of any right or remedy.
Deed of Trust, ECF No. 7-2, ^ 12 (emphasis added). Unfortunately, Ms. Dawson's will does not
qualify Ms. Ellis as executor of Ms. Dawson's estate. Moreover, the will was not probated until

after the suit was filed and during a recess at the August 4, 2017 hearing. Standing must exist at
the time the Complaint was filed, Luian. 504 U.S. at 571, and none existed at that time.
IV.

CONCLUSION

For these reasons, the Court FOUND that the Plaintiffs did not have standing to bring

their RESPA claim. Therefore, the Court lacked jurisdiction to grant the relief requested in
Plaintiffs' Motion. Accordingly, Plaintiffs' Motion for Injunction was DENIED. ECF No. 4.
The Clerk is DIRECTED to forward a copy of this Order to all Counsel of Record.
IT IS SO ORDERED.

Norfolk, VA
August

. 2017