Muncy et al v. Centex Home Equity Company, L.L.C. et al
Filing
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OPINION. Signed by Judge James P. Jones on 10/20/14. (ejs)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
ABINGDON DIVISION
RALPH MUNCY AND
RITA D. MUNCY,
Plaintiffs,
v.
CENTEX HOME EQUITY COMPANY,
L.L.C., ET AL.,
Defendants.
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Case No. 1:14CV00016
OPINION
By: James P. Jones
United States District Judge
Ralph Muncy and Rita D. Muncy, Pro Se Plaintiffs; Brian E. Hanna,
McGuireWoods LLP, Richmond, Virginia, for Defendants.
The plaintiffs seek relief against a mortgage lender as a result of alleged
fraud and misrepresentation.
The defendant has filed a Motion to Dismiss
Plaintiffs’ First Amended Complaint under Federal Rule of Civil Procedure
12(b)(6), contending that the plaintiffs have failed to state a claim upon which
relief can be granted. For the following reasons, I will grant the motion.
I.
In considering a motion under Rule 12(b)(6), I must accept as true the
factual allegations made by the plaintiffs. Those allegations are as follows.
Ralph and Rita D. Muncy were the owners of real property located in this
judicial district (“the Property”), and had owned it without encumbrance since
1997.
In December 2002, “due to unexpected pressing financial needs,” the
Muncys obtained a $25,000 mortgage loan from defendant Nationstar Mortgage,
LLC, (“Nationstar”) secured by the Property. 1 (First Am. Compl. ¶ 16, ECF No.
20.) This mortgage had an interest rate of 10.3 percent and was payable over 15
years at $273.26 per month. The Muncys allege that their “income was not high
enough to meet the debt to income ratio standards utilized by mortgage lenders
when determining whether or not to approve potential borrowers for such loans.”
(Id.)
In April 2005, for home improvements, the Muncys obtained a second
mortgage loan in the principal amount of $53,500 from Nationstar at an adjustable
interest rate. The Nationstar loan officer David Slayton forgot to include the
“Notification for Virginia Mortgage Loan Applicants” and “various other
documents” in the previously executed closing documents for this loan, and when
Mr. Muncy was not available, “Slayton then coaxed Plaintiff Rita D. Muncy to
commit fraud and sign [and backdate] the remaining closing documents in Plaintiff
Ralph Muncy’s absence.” (Id. ¶ 21.) Again, the plaintiffs allege that they had
insufficient income to justify the loan “according to the standard debt to income
1
Although the plaintiffs also named Centex Home Equity Company, LLC,
(“Centex”) as a defendant, Centex changed its name to Nationstar Mortage, LLC, in July
of 2006 so that they are one and the same and will be referred to in this Opinion as
Nationstar.
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ratio analysis conducted by mortgage lenders when examining applications for
such loans.” (Id. ¶ 19.)
Subsequently, the Muncys “faced hardships that caused them to experience
financial difficulty and fall behind in their loan payment.” (Id. ¶ 23.) In August
2005, Nationstar contacted the Muncys and “advised they apply for another
refinance to bring the loan current,” and threatened to foreclose if they failed to
satisfy all late payments. (Id.) That same month, the Muncys obtained a third
mortgage loan from Nationstar in the principal amount of $71,550 with an
“adjustable interest rate of 10.85%.”
(Id. ¶ 27.)
They again aver they had
insufficient income to justify this obligation. Despite the refinancing, the Muncys
fell further behind on the mortgage payments.
On December 1, 2010, Nationstar offered to modify the third loan, reducing
the interest rate, in exchange for a payment of $2,690. The modification reduced
the interest of the third loan from its adjustable rate to a rate of 2.25 percent for a
fixed two year period, “before abruptly resetting to 10.85% at the close of the two
(2) year period, causing [the plaintiffs] to be unable to afford the mortgage
payments.” (Id. ¶ 31.) The loan fell into default.
By correspondence dated August 22, 2013, Nationstar gave notice of a
foreclosure sale. On September 10, 2013, as scheduled, the property was sold at
auction. The present action was filed on April 3, 2014. Jurisdiction of this court
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is based upon diversity of citizenship and amount in controversy. See 28 U.S.C. §
1332(a). Virginia substantive law applies. See Erie R.R. v. Tomkins, 304 U.S. 64,
78 (1938).
In their initial Complaint, the plaintiffs asserted ten separate causes of
action. On a motion of Nationstar, I dismissed all of them, but allowed the
plaintiffs to replead their fraud and misrepresentation causes of action. Muncy v.
Centrex Home Equity Co., No. 1:14CV00016, 2014 WL 3359335, at *7 (W.D. Va.
July 9, 2014).
The plaintiffs timely filed a First Amended Complaint as to their fraud and
misrepresentation counts, to which Nationstar again has moved to dismiss. The
motion has been fully briefed and is ripe for decision.2
II.
A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of a
complaint to determine whether the pleader has properly stated a cognizable claim.
See Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999). “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. Iqbal, 556
2
I will dispense with oral argument because the facts and legal contentions are
adequately presented in the materials before the court and argument would not
significantly aid the decisional process.
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U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)).3
The defendant has also moved to dismiss on the basis that the Virginia
statute of limitations ran before the filing of this action. A Rule 12(b)(6) motion to
dismiss on the statute of limitations is available “in the relatively rare
circumstances where facts sufficient to rule on an affirmative defense are alleged
in the complaint.” Goodman v. Praxair, Inc., 494 F.3d 458, 464 (4th Cir. 2007).
As such, all facts necessary to the defense must “clearly appear[ ] on the face of the
complaint.” Richmond, Fredericksburg & Potomac R.R. v. Forst, 4 F.3d 244, 250
(4th Cir. 1993).
A.
“In alleging fraud or mistake, a party must state with particularity the
circumstances constituting fraud or mistake.”
Fed. R. Civ. P. 9(b).
Under
Virginia law, a claim of fraud and misrepresentation requires reasonable reliance
on the false and material statements. See, e.g., Anthony v. Verizon Va., Inc., 758
S.E.2d 527, 534 (Va. 2014) (recounting “the elements of common law fraud: [A]
false representation of a material fact; made intentionally, in the case of actual
3
The plaintiffs are proceeding pro se, but the pleadings here appear to have been
prepared by an attorney and under such circumstances, no special deference is
appropriate, particularly since the court has allowed a second chance to plead a proper
case.
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fraud, or negligently, in the case of constructive fraud; reliance on that false
representation to [plaintiff’s] detriment; and resulting damage.”) (internal quotation
marks and citation omitted).
While set forth in separate courts, the allegations of fraud and
misrepresentation are the same in each count. The specific allegations are as
follows:
a.
By [loan officer Derrick] Nunn (on or about December 9, 2002
near Glade Spring, Virginia), falsely asserting that Plaintiffs’ income
qualified them for FIRST LOAN when Plaintiffs’ income was
insufficient to support FIRST LOAN, CENTEX made an affirmative
misrepresentation. At the time of application, Plaintiffs’ income was
not high enough to meet the debt to income ratio standards utilized by
mortgage lenders when determining whether or not to approve
potential borrowers for such loans.
b.
By [loan officer David] Slayton (on or about April 25, 2005
near Glade Spring, Virginia) and [loan officer Mike] Newswanger (on
or about August 30, 2005 near Glade Spring, Virginia) falsely
asserting that refinancing was in Plaintiffs’ best interests to avoid
foreclosure proceedings on when Plaintiffs’ income was insufficient
to support a refinance option, CENTEX made an affirmative
misrepresentation. At the time of application, Plaintiffs’ income was
not high enough to meet the debt to income ratio standards utilized by
mortgage lenders when determining whether or not to approve
potential borrowers for such loans.
c.
By Slayton (on or about April 25, 2005 near Glade Spring,
Virginia) and Newswanger (on or about August 30, 2005 near Glade
Spring, Virginia) falsely asserting that Plaintiffs’ income could
support its refinance options, when Plaintiffs’ income was insufficient
to support refinance options, CENTEX made an affirmative
misrepresentation. At the time of application, Plaintiffs’ income was
not high enough to meet the debt to income ratio standards utilized by
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mortgage lenders when determining whether or not to approve
potential borrowers for such loans.
d.
By Slayton (on or about April 25, 2005 near Glade Spring,
Virginia) and Newswanger (on or about August 30, 2005 near Glade
Spring, Virginia) falsely asserting that Plaintiffs qualified for
SECOND LOAN and THIRD LOAN respectively, when Plaintiffs’
income was insufficient to support SECOND LOAN and THIRD
LOAN, CENTEX made an affirmative misrepresentation. At the time
of application, Plaintiffs’ income was not high enough to meet the
debt to income ratio standards utilized by mortgage lenders when
determining whether or not to approve potential borrowers for such
loans.
e.
By Slayton (on or about April 25, 2005 near Glade Spring,
Virginia) falsely asserting that RITA D. MUNCY’s forgery and backdating of the documents pertaining to SECOND LOAN were
necessary for the processing of SECOND LOAN when Slayton could
simply have waited for RALPH MUNCY to properly sign the loan
documents, CENTEX made an affirmative misrepresentation.
f.
By Nunn failing to explain the terms of FIRST LOAN,
CENTEX made a fraudulent omission.
g.
By Slayton failing to explain the terms of SECOND LOAN,
CENTEX made a fraudulent omission.
h.
By Newswanger failing to explain the terms of THIRD LOAN,
CENTEX made a fraudulent omission.
(First Am. Compl. ¶ 42.)
Although the plaintiffs have pleaded the claims set forth in subparagraphs a,
b, c, and d with greater specificity in the First Amended Complaint, naming times,
places, and names of agents who allegedly made fraudulent statements, they have
not specifically alleged perhaps the most important part of Rule 9(b)’s heightened
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pleading requirements — the content of the fraudulent statements themselves.
Rather, the plaintiffs’ allegations consist of conclusory statements that the agents
told them that they could afford the loans even though they couldn’t, without
explaining specifics like what their income was, what the debt-income ratio
standards were, and what exactly the agents told them.
Without more, the
plaintiffs’ allegations essentially amount to an assertion that the lender convinced
them to take out a loan they couldn’t afford.
Courts have held that there is no duty on a lender to ensure that a loan is
suitable for a borrower. Flores v. EMC Mortg. Co., 997 F. Supp. 2d 1088, 1114
(E.D. Cal. 2014); McCarty v. GCP Mgmt., LLC, No. 10-00133 JMS/KSC, 2010
WL 4812763, at *4 (D. Haw. Nov. 17, 2010) (noting that mortgage lenders do not
act on behalf of borrowers; instead, “it is well-established that a lender acts on its
own behalf in an arms-length loan transaction); Sheets v. DHI Mortg. Co., No. CV
F 09-1030 LJO DLB, 2009 WL 2171085, at *3 (E.D. Cal. July 20, 2009); Renteria
v. United States, 452 F. Supp. 2d 910, 922-23 (D. Ariz. 2006) (noting that lenders
have no duty to determine borrower’s ability to repay loan, and that borrowers
have “to rely on their own judgment and risk assessment to determine whether or
not to accept the loan”).
As to subparagraph e, the plaintiffs have not alleged what, if any, harm
resulted from the alleged misrepresentation, a necessary element of any fraud
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claim. Finally, subparagraphs f, g, and h simply state conclusions, which do not
meet the requirements of Rule 9(b).
For these reasons, I find that the repleaded claims are insufficient.
B.
Moreover, this is one of those cases where the two-year statute of limitations
for causes of action based on fraud, Va. Code Ann. § 8.01-243(A), plainly bars the
claims asserted. Virginia law embraces the discovery rule for accrual of such a
cause of action, meaning that the statute of limitations period begins when the
fraud “is discovered or by the exercise of due diligence reasonably should have
been discovered.”
Va. Code Ann. § 8.01-249(1); STB Marketing Corp. v.
Zolfaghari, 393 S.E.2d 394, 397 (Va. 1990) (holding that cause of action for fraud
does not accrue until plaintiff “knew or reasonably should have known of the
fraud”).
Due diligence means “‘[s]uch a measure of prudence, activity, or
assiduity, as is properly to be expected from, and ordinarily exercised by, a
reasonable and prudent man under the particular circumstances.’” Id. (quoting
Black’s Law Dictionary 411 (rev. 5th ed. 1979)). Whether a party has exercised
due diligence depends on the unique facts and circumstances of the case. STB
Marketing Corp., 393 S.E.2d at 397.
The party asserting the defense initially bears the burden of showing that the
statute of limitations has run.
Lo v. Burke, 455 S.E.2d 9, 12 (Va. 1995).
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However, where it is apparent from the face of the pleadings that the limitations
period has run, the burden shifts to the other party to show that, “despite the
exercise of due diligence, he could not have discovered the alleged fraud within the
two-year [statute of limitations] period.” Schmidt v. Household Fin. Corp. II, 661
S.E.2d 834, 839 (Va. 2008).
Here, the plaintiffs took out the mortgages that they could not afford in
2005. They do not allege that they lacked access at any point to the pertinent
information for deciding whether they could afford the mortgages they took out —
they claim simply that the lenders misled them by saying that they could afford
these loans despite this information. The plaintiffs had all of the information they
needed to conclude through due diligence that they could not afford the loans at the
time the documents were executed. In any event, they should have realized that
they could not afford the loans long before the September 2013 foreclosure and
certainly by 2010, when they were already seriously delinquent on payments. See
id. at 839-49 (holding that, where reasonable person should have suspected that
something was amiss with mortgage loan at the time of refinancing, action accrued
from the date of refinancing rather than from date of foreclosure).
The plaintiffs claim that the statute was tolled because they had a
“continuing relationship” with the lender, a doctrine normally applied in fiduciary
or other similar relationships, such as those of physician-patient or lawyer-client.
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However, the plaintiffs have not cited any cases that apply this doctrine to a lenderborrower relationship; rather, Virginia courts apply the discovery rule discussed
above.
See id. (barring mortgage fraud claim based on the discovery rule);
Calderon v. Aurora Loan Servs., Inc., No. 1:10cv129 (JCC), 2010 WL 2306343, at
**4-5 (E.D. Va. June 3, 2010) (applying discovery rule to bar claim where
plaintiffs should have known that their income was overstated on loan documents
at the time mortgage was secured); accord Porter v. GreenPoint Mortg. Funding,
Inc., No. DKC 11-1251, 2011 WL 6837703, at *4 (D. Md. Dec. 28, 2011) (barring
fraud claim under Maryland’s discovery rule, since plaintiffs who alleged they
were misled into believing they could afford mortgage should have realized their
inability to pay at time loan documents were executed, because “the information in
the documents they signed would have led a reasonable person to investigate
further the terms of the loan”). Moreover, the plaintiffs have not justified applying
the continuing relationship rule to borrowers and lenders, who, contrary to lawyers
and physicians and their clients and patients, “constitute a paradigm instance of
parties whose interests are adverse.” Davidson v. Cook, 567 F. Supp. 225, 237
(E.D. Va. 1983); see Sheets v. DHI Mortg. Co., No. CV F 09-1030 LJO DLB,
2009 WL 2171085, at *3 (E.D. Cal. July 20, 2009) (noting that absent special
circumstances, there is no fiduciary duty between mortgage lender and borrower).
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For these reasons, I find that the plaintiffs’ fraud and misrepresentation
claims are barred by the Virginia statute of limitations.
III.
The Complaint fails to state a claim upon which relief can be granted.
Accordingly, it is ORDERED that the Motion to Dismiss (ECF No. 21) is
GRANTED.
A separate judgment will be entered forthwith.
ENTER: October 20, 2014
/s/ James P. Jones
United States District Judge
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