Wolf v. Federal National Mortgage Association et al

Filing 48

MEMORANDUM OPINION. Signed by Judge Norman K. Moon on 11/23/11. (jcj)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
CHARLOTTESVILLE DIVISION

ELAYNE WOLF,

CASE NO. 3:11-cv-00025
Plaintiff,
v.

MEMORANDUM OPINION

FEDERAL NATIONAL MORTGAGE ASSOCIATION,
ET AL.,
Defendants.

JUDGE NORMAN K. MOON

In this action, Plaintiff Elayne Wolf (“Wolf”) seeks rescission of her home mortgage loan
under the Truth in Lending Act (“TILA”), 15 U.S.C. § 1601, et seq. On August 30, 2011, I
denied Defendants’ motions to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6),
finding that they were moot in light of Wolf’s filing of an amended complaint on August 22,
2011. However, I gave Defendants leave to re-file their motions within fourteen days, which
they in turn did. This matter is now before the Court upon consideration of Defendants’ motions
to dismiss Wolf’s amended complaint. For the reasons that follow, I will grant Defendants’
motions.
I. BACKGROUND
As amended, the complaint alleges that Wolf owned a home in Charlottesville, Virginia,
and that on May 14, 2007, she refinanced her home mortgage loan through MetroCities
Mortgage, LLC (“MetroCities”). Her loan from MetroCities was evidenced by a note secured by
a deed of trust, and was secured by a lien on the home. One purpose of the home loan was to
enable Wolf to refinance debt she owed to Countrywide Home Loans (“Countrywide”). The
deed of trust named Mortgage Electronic Systems, Inc. (“MERS”) as the lender’s nominee, and

MERS held legal title as to rights conveyed by the deed of trust and could take certain actions on
behalf of the lender, including foreclosure.
Ultimately, Wolf defaulted under the terms of her mortgage loan, and, on or about March
12, 2010, she received a letter from the Law Offices of Shapiro & Burson, LLP informing her of
her rights and alternatives to foreclosure. On March 30, 2010, MERS assigned the deed of trust
to BAC Home Loans Servicing LP (“BAC”), a former subsidiary of Defendant Bank of America,
N.A. (“Bank of America”). 1 On that same date BAC appointed Defendant Professional
Foreclosure Corporation of Virginia (“PFC”) as substitute trustee in place of the original trustee
under the deed of trust, Michael J. Barrett (“Barrett”). BAC instructed PFC to foreclose, and
PFC advertised a foreclosure sale for May 5, 2010. On May 2, 2010, just a few days before the
date of the scheduled foreclosure sale, Wolf attempted to rescind her mortgage loan pursuant to
TILA by mailing a notice of rescission to BAC. As a result, BAC temporarily cancelled the
foreclosure sale; however, PFC did later conduct the foreclosure sale in July 2010. Defendant
Federal National Mortgage Association (“Fannie Mae”) purchased the property at the foreclosure
sale, and the property was transferred by trustee’s deed to Fannie Mae on or about October 7,
2010.
Thereafter, Fannie Mae instituted an unlawful detainer action against Wolf in the General
District Court of Albemarle County. On March 18, 2011, the general district court entered an
order awarding possession of the home to Fannie Mae. Subsequently, Wolf timely perfected an
appeal to the Circuit Court of Albemarle County for a trial de novo. 2 Wolf filed her initial

1

Effective July 1, 2011, BAC Home Loans Servicing LP merged with and into Bank of America, N.A., and lost any
separate identity.

2

That case is currently set for a jury trial on March 7, 2012.

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complaint in this action on February 24, 2011 in the same court. PFC removed the action to this
Court on March 21, 2011.
In her amended complaint, Wolf submits that she is entitled to have the home loan on
which she defaulted rescinded pursuant to TILA. First, she alleges that the original lender,
MetroCities, materially under-disclosed the applicable finance charge that was assessed as part
of obtaining the loan. Second, Wolf alleges that her right to rescind the loan itself was not
properly disclosed. In addition, Wolf asserts that both the assignment of the note from MERS to
BAC and BAC’s appointment of PFC as substitute trustee were invalid. The amended complaint
also arguably makes out claims for fraud (against Bank of America and PFC), defamation
(against PFC), and breach of the implied covenant of good faith and fair dealing (against Bank of
America). 3 With respect to relief, Wolf requests the entry of a declaratory judgment that her
notice of rescission is valid and an order returning the home’s title to her. Additionally, Wolf
seeks statutory damages under TILA, compensatory and punitive damages, and attorney’s fees.
II. STANDARD OF REVIEW
A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the legal
sufficiency of a complaint to determine whether the plaintiff has properly stated a claim; “it does
not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.”
Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992). In considering a Rule
12(b)(6) motion, a court must accept all factual allegations in the complaint as true and must
draw all reasonable inferences in favor of the plaintiff. Erickson v. Pardus, 551 U.S. 89, 94
(2007). Legal conclusions in the guise of factual allegations, however, are not entitled to a
presumption of truth. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950–51 (2009). Although a complaint
3

The claims are not separated into counts in the complaint. Federal Rule of Civil Procedure 10(b) provides that if
doing so “would promote clarity, each claim founded on a separate transaction or occurrence . . . must be stated in a
separate count or defense.”

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“does not need detailed factual allegations, a plaintiff’s obligation to provide the grounds of his
entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of a
cause of action’s elements will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)
(citations and quotations omitted). Thus, “[f]actual allegations must be enough to raise a right to
relief above the speculative level.” Id.
In sum, Rule 12(b)(6) does “not require heightened fact pleading of specifics, but only
enough facts to state a claim to relief that is plausible on its face.” Id. at 570. Consequently,
“only a complaint that states a plausible claim for relief survives a motion to dismiss.” Iqbal,
129 S. Ct. at 1950. 4 If, after accepting all well-pleaded allegations in the plaintiff’s favor, it
appears that the plaintiff cannot prove any set of facts in support of his claim entitling him to
relief, a motion to dismiss under Rule 12(b)(6) should be granted. Edwards v. City of Goldsboro,
178 F.3d 231, 244 (4th Cir. 1999).
III. DISCUSSION
A. TILA
In enacting TILA, Congress found “that economic stabilization would be enhanced . . . by
the informed use of credit.” 15 U.S.C. § 1601(a). Accordingly, TILA’s principal goal is the
“meaningful disclosure of credit terms.” Id. TILA’s rescission provisions support this goal.
Generally, when a borrower enters into a consumer credit transaction secured by his principal
residence, TILA’s “buyer’s remorse” provision grants a right of rescission, which the creditor
must “clearly and conspicuously disclose” to the borrower. 15 U.S.C. § 1635(a). The right of
4

Federal Rule of Civil Procedure 10(c) provides that a copy of a written instrument that is an exhibit to a pleading,
including a complaint, is deemed a part of that pleading. See Thompson v. Greene, 427 F.3d 263, 268 (4th Cir.
2005); Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47 (2d Cir. 1991). In evaluating a motion to dismiss,
the court may consider documents extrinsic to the complaint if they are “integral to and explicitly relied on in the
complaint.” Robinson v. Am. Honda Motor Co., 551 F.3d 218, 222–23 (4th Cir. 2009) (citing Phillips v. LCI Int’l
Inc., 190 F.3d 609, 618 (4th Cir. 1999)). Here, Wolf explicitly references in her amended complaint several exhibits
that were attached to it. It is appropriate to consider those documents for the purpose of deciding these motions.

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rescission may be exercised within three days of either closing, delivery of a notice of right to
rescind, or delivery of all “material disclosures,” whichever occurs last.

Id.; 12 C.F.R.

§§ 226.23(a)(1)–(3). 5 However, if the required notice or material disclosures are not provided,
or are deficient in certain ways, the deadline for rescission is extended to three years. See 15
U.S.C. § 1635(f); 12 C.F.R. § 226.23(a)(3). The material disclosures provided to a borrower
must “reflect the terms of the legal obligation between the parties.” 12 C.F.R. § 226.17(c)(1).
TILA requires that the mortgage lender disclose the applicable finance charge for a
mortgage, which is defined as “the sum of all charges, payable directly or indirectly by the
person to whom the credit is extended, and imposed directly or indirectly by the creditor as an
incident to the extension of credit.” 15 U.S.C. § 1605(a). Thus, the finance charge is the cost to
the borrower of obtaining the loan, and includes such payments as interest, service charges, loan
fees, and mortgage-broker fees. Id.; see also Hudson v. Bank of Am., N.A., No. 3:09-cv-462,
2010 WL 2365588, at *3 (E.D. Va. June 11, 2010) (defining “finance charge” under TILA). In
her amended complaint, Wolf alleges that MetroCities, the original lender, assessed three underdisclosed finance charges. First, she claims that MetroCities imposed “a bogus $10 charge
which was claimed to have been included in a charge disclosed to her as for recordation costs at
the clerk’s office but in fact not paid to the office of the clerk.” Am. Compl. ¶ 11(A)(i). Second,
Wolf states that MetroCities required a payment to Countrywide that was $1,195.44 in excess of
what was owed to Countrywide. Countrywide refunded the entire sum to Wolf after two months,
but did not compensate Wolf for the interest on the excess sum, which Wolf calculates as $15.00
based on the note’s interest rate. Am. Compl. ¶ 11(A)(ii). And third, Wolf maintains that
MetroCities imposed an “excess” charge for casualty insurance that Wolf asserts “was at least
$50 more than reasonable.” Am. Compl. ¶ 11(A)(iii).
5

The regulations implementing TILA, which are codified at 12 C.F.R. § 226, are known as “Regulation Z.”

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In addition to disclosure of the finance charge, TILA also mandates that the lender
accurately disclose the borrower’s right to rescind the loan. As previously mentioned, creditors
must provide a notice that “clearly and conspicuously disclose[s]” the borrower’s rescission
rights. 15 U.S.C. § 1635(a); 12 C.F.R. § 226.15(a)–(b). Clear and conspicuous disclosure is not,
however, synonymous with perfect disclosure. See Santos-Rodriguez v. Doral Mortg. Corp., 485
F.3d 12, 16 (1st Cir. 2007); Veale v. Citibank, 85 F.3d 577, 581 (11th Cir. 1996).
In this case, MetroCities required Wolf to enter into an arbitration agreement as a
condition of the loan. Thereafter, Wolf was informed about her right to rescind that arbitration
agreement as well as her right to rescind the loan itself. Wolf’s allegation is that the information
provided for rescinding the arbitration agreement and for rescinding the credit transaction were
“drastically” inconsistent, thus undermining the otherwise accurate information provided to Wolf
about her right to rescind the loan. Specifically, Wolf alleges that rescinding the arbitration
agreement would have required her to send a cancellation notice to a different address with
different information than that required for rescission of the loan as evidenced by the Notice of
Right to Cancel. Am. Compl. ¶ 11(B). The effect, according to Wolf, was that the Notice of
Right to Cancel was rendered “insufficiently clear to comply with the requirements of TILA.”
Pl.’s Mem. Opp’n to Mots. Dismiss at 22. 6
Ultimately, I find it unnecessary to delve into the two aforementioned grounds on which
Wolf has staked her claim to a right of rescission because that claim is time-barred and must be
dismissed as a matter of law.

6

It is undisputed that the Notice of Right to Cancel, taken alone, was in proper form.

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1. Rescission and the Limitations Period
Under TILA, the borrower ordinarily has three days from the date of closing in which it
may rescind the transaction in its entirety. 15 U.S.C. § 1635(a) (“[T]he obligor shall have the
right to rescind the transaction until midnight of the third business day following the
consummation of the transaction or the delivery of the information and rescission forms required
under this section . . . .”). However, “[i]f the required notice or material disclosures are not
delivered, the right to rescind shall expire 3 years after consummation, upon transfer of all of the
consumer’s interest in the property, or upon sale of the property, whichever occurs first.” 12
C.F.R. § 226.23(a)(3); see also 15 U.S.C. § 1635(f) (“An obligor’s right of rescission shall expire
three years after the date of consummation of the transaction or upon sale of the property,
whichever comes first.”).
Wolf maintains that the three-year limitations period should apply because, as previously
outlined, she alleges that the financing charges were under-disclosed and that she was not
properly informed of her right to rescind (because cancellation of the arbitration agreement could
be achieved by sending a notice to an address different from the one listed in the Notice of Right
to Cancel).

Although I decline to decide whether Wolf is even entitled to the three-year

limitations period in this case, assuming, arguendo, that she is, her TILA rescission claim is still
time-barred. Wolf obtained her mortgage loan on May 14, 2007, and she mailed to BAC a notice
of rescission on May 2, 2010. However, Wolf did not file her initial complaint in the Circuit
Court of Albemarle County until February 24, 2011. Plainly, while the notice of rescission was
sent within the three-year limitations period (again, assuming it actually applies), Wolf’s suit
seeking rescission was not filed within that period. Thus, the question is whether the timeliness

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of Wolf’s action is measured by the date of her notice of rescission or of her filing of this
lawsuit.
Quite recently, I confronted essentially the same facts, and I concluded that the three-year
limitations period is absolute and “extinguishes the borrower’s rescission right regardless of
whether any notice of rescission was filed within three years of closing.” Yowell v. Residential
Mortgage Solution, LLC, No. 3:10-cv-00063, 2011 WL 3654388, at *9 (W.D. Va. Aug. 17,
2011), appeal docketed, No. 11-1994 (4th Cir. Sept. 20, 2011) (quoting Bradford v. HSBC
Mortgage Corp., No. 1:09cv1226, 2011 WL 3047490, at *6 (E.D. Va. July 22, 2011)). 7 Despite
Wolf’s suggestion to the contrary, I decline to overrule my decision in Yowell at this time.
Consequently, Wolf’s claim for rescission under TILA is time-barred even if the three-year
limitations period were found to apply.
2. Damages and the Limitations Period
In addition to her claim seeking to enforce her rescission request, I find that Wolf’s claim
for damages under TILA is also barred by the applicable limitations period. Under 15 U.S.C.
§ 1640(e), claims for damages pursuant to TILA expire one year after the occurrence of the
violation. Defendants assert that because the violations alleged by Wolf occurred, if at all, when
the initial material disclosures were made for the loan on or about May 14, 2007 (the date the
loan was obtained), they are clearly time-barred. In response, Wolf specifies that her claim for
damages is for failure to honor her notice of rescission, which occurred twenty days from BAC’s
receipt of it in May 2010. See 15 U.S.C. § 1635(b) (“Within 20 days after receipt of a notice of
rescission, the creditor shall return to the obligor any money or property given as earnest money,
downpayment, or otherwise . . . .”). In essence, then, Wolf argues that BAC’s failure to proceed
7

As noted, Yowell is on appeal to the United States Court of Appeals for the Fourth Circuit. Wolf concedes that
Yowell is “on all fours with this case on this issue, but asks the Court to reverse in this case the decision in that case
on the issue of the limitations period for a TILA rescission claim.” Pl.’s Mem. Opp’n to Mots. Dismiss at 29.

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according to § 1635(b) constitutes a separate TILA violation subject to the general one-year
limitations period provided in § 1640(e).
In Bradford, the district court for the Eastern District of Virginia addressed this precise
argument on the part of the plaintiff in that case, and concluded that it was flawed. 2011 WL
3047490 at *6. The court observed that there was no reason to believe that “Congress would
draft TILA so as to provide a borrower with two rescission claims, each with a different
limitations period, but both for the purpose of achieving the same remedy under the same statute
based on the same underlying statutory rescission right.” Id. at *7. The appropriate construction
of TILA “is that § 1635’s statute of repose for rescission claims specifically carves out an
exception to § 1640’s one-year statute of limitations period for TILA claims generally. Thus, the
catch-all, one-year statute of limitations for TILA claims does not apply to rescission claims.”
Id. Indeed, it would be anomalous to give a plaintiff only three years to file a claim seeking to
enforce a rescission request, but up to four years to seek damages based on such a request.
Accordingly, Wolf’s claim for damages under TILA is also time-barred and must be dismissed.
B. Validity of MERS’s Assignment
In addition to her TILA-based claims, Wolf challenges the propriety of the assignment
from MERS to BAC. In Wolf’s view, the assignment was invalid for two reasons. First, she
contends that the deed of trust did not provide MERS with the right to assign the note. Second,
Wolf alleges that neither MERS nor BAC possessed the note when it was purportedly assigned
because the note was, in fact, lost at that time. Ultimately, I find both allegations lacking, and I
address them in turn.

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1. Authority of MERS to Assign Its Rights
At the outset, I note that Wolf is not a party to the assignment from MERS to BAC. Am.
Compl. Ex. B. Similarly, Wolf is not an intended beneficiary of the assignment which is, to be
sure, a contract. Id. Indeed, Wolf does not allege that she is either a party to the assignment or
an intended beneficiary. As such, she lacks standing to challenge the assignment’s validity. See,
e.g., Velasco v. Security Nat’l Mortgage Co., CV. No. 10-00238, 2011 WL 4899935, at *4 (D.
Haw. Oct. 14, 2011) (concluding that plaintiffs could not challenge an assignment from MERS
to BAC because “[a]bsent an enforceable contract right, a party lacks standing to challenge the
validity of the contract”); see also 6A C.J.S. Assignments § 132 (2011) (stating that a debtor may
“assert against an assignee . . . any matters rendering the assignment absolutely invalid or
ineffective . . . but, if the assignment is effective to pass title, the debtor cannot interpose defects
or objections which merely render the assignment voidable at the election of the assignor or
those standing in his or her shoes”). 8
In Bridge v. Aames Capital Corp., No. 1:09 CV 2947, 2010 WL 3834059, at *4 (N.D.
Ohio Sept. 29, 2010), the court held that a borrower could not attack the assignment of a
mortgage note between the original lender and an assignee because the borrower was not a party
to the assignment. As in the instant case, there was no dispute in Bridge between the assignor
and assignee with respect to the assignment’s validity; rather, it was only the borrower who
objected.

Id.

The Bridge court stated that “regardless of the outcome of this litigation,

[borrower] is still in default on her mortgage and subject to foreclosure. As a consequence,
[borrower] has not suffered any injury as a result of the assignment . . . nor is there any
likelihood that [borrower’s] requested relief will prevent her alleged injury.”
8

Id. at *5.

Indeed, “[o]bligors of a claim may not defend on any ground which renders the assignment voidable only, because
the only interest or right which an obligor of a claim has in the instrument of assignment is to insure him or herself
that he or she will not have to pay the same claim twice.” Id.

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Similarly, Wolf does not have standing to challenge the validity of the assignment in this case:
she was not a party to the assignment, and the assignment did not affect her underlying
obligation to make timely payments.
Moreover, aside from her lack of standing, Wolf is simply mistaken with respect to the
validity of the assignment. The deed of trust securing the note, which Wolf executed, states in
pertinent part:
The beneficiary of this [deed of trust] is MERS (solely as nominee for Lender and
Lender’s successors and assigns) and the successors and assigns of MERS. . . .
Borrower understands and agrees that MERS holds only legal title to the interests
granted by Borrower in this Security Instrument, but, if necessary to comply with
law or custom, MERS (as nominee for Lender and Lender’s successors and
assigns) has the right to execute any and all of those interests, including, but not
limited to, the right to foreclose and sell the Property; and to take any action
required of Lender including, but not limited to, releasing and cancelling this
Security Instrument.
Am. Compl. Ex. A at 3. Wolf contends that when MERS assigned its rights to BAC on March
30, 2010, it was impermissibly attempting to assign the debt itself. Now, it is true that the note
that Wolf signed evidencing the debt owed to MetroCities did not confer any rights on MERS or
name MERS as a party to it. However, MERS assigned its interests in the deed of trust—not the
underlying note—to BAC. Am. Compl. Ex. B (“FOR VALUE RECEIVED, [MERS] hereby
assigned and transferred to [BAC] all right, title, and interest in and unto a certain Deed of Trust,
dated May 14, 2007 and executed by [Wolf] . . . .”). Thus, MERS did not transfer to BAC the
underlying debt owed to MetroCities, but rather its own limited rights (including the right to
foreclose) as set forth in the debt of trust. Such an agreement is not unlawful and was explicitly
permitted by the terms of the deed of trust, which Wolf signed. Recently, several different courts
tasked with assessing the validity of similar assignments have concluded that MERS has the right
to assign its rights under these mortgages or deeds of trust. See, e.g., Cervantes v. Countrywide

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Home Loans, Inc., 656 F.3d 1034, 1042 (9th Cir. 2011); Zinni v. Mortgage Elec. Registration
Sys., Inc., No. 2:11-CV-1539, 2011 WL 5827197, at *2 (D. Nev. Nov. 18, 2011); Velasco, 2011
WL 4899935 at *5; White v. BAC Home Loans Servicing, L.P., No. 4:10-CV-2094, 2011WL
1483901, at *6 (E.D. Mo. Apr. 19, 2011); Larota-Florez v. Goldman Sachs Mortgage Co., 719
F. Supp. 2d. 636, 639–40 (E.D. Va. 2010), aff’d, No. 10-1523, 2011 WL 3203047 (4th Cir. Jul.
28, 2011).
Additionally, Wolf maintains that a deed of trust cannot be assigned as it was in this case
because the rights under a deed of trust must “follow the note.” Am. Compl. at ¶ 16. In support
of this contention, Wolf cites generally, without particular reference, to Horvath v. Bank of New
York, N.A., 641 F.3d 617 (4th Cir. 2011). However, when the court in that case used the phrase
“follows the note,” it was merely reinforcing its ruling that a note and deed of trust do not
receive different legal treatment and that the transfer of one does not split it from the other. Id. at
623–24. Indeed, as the Horvath court recognized, it is well-established that “in Virginia, as to
common law securities, the law is that both deeds of trust and mortgages are regarded in equity
as mere securities for the debt and whenever the debt is assigned the deed of trust or mortgage is
assigned or transferred with it.” Williams v. Gifford, 139 Va. 779, 784, 124 S.E.2d 403, 404
(1924) (citing McClintic v. Wise’s Adm’rs, 66 Va. (25 Gratt.) 448, 1874 WL 5664 (1874)).
Neither this long-settled aspect of the law in Virginia, nor anything in Horvath, stands for the
proposition, argued for by Wolf, that rights under a deed of trust cannot ever be assigned.
2. The Unavailability of the Note
Wolf also contends that the assignment was invalid because on March 12, 2010—
eighteen days before the formal assignment—Wolf received a letter from BAC’s legal counsel
informing her that the note was “unavailable at this time.” Amend Compl. Ex. C. Wolf alleges

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that this letter is evidence that the note was lost, 9 and she further asserts that neither MERS nor
BAC had possession of the note on March 30 when the assignment was actually executed. Am.
Compl. ¶ 24. 10 Wolf is correct that the issue of the note’s possession is an important one because
mere transfer of the deed of trust without possession of the note is a nullity. See, e.g., In re
Lippold, No. 11-12300, 2011 WL 3890540, at *3 (Bankr. S.D.N.Y. Sept. 6, 2011). Nonetheless,
she has failed to allege sufficient facts to demonstrate that the note was lost or not ultimately
within BAC’s possession.
First, in the letter from Shapiro & Burson to Wolf, BAC is identified as the “Holder.”
Am. Compl. Ex. C. Second, BAC is listed in the document appointing PFC as substitute trustee
as the “present holder or authorized agent of the holder of the Note secured by the below
described Deed of Trust (hereinafter referred to as ‘Noteholder’).” Am. Compl. Ex. D. Third,
and most importantly, PFC has stated both in its reply memorandum and at a hearing on its
motion that it is currently in possession of the original note on behalf of Bank of America.
Indeed, a copy of the note, which PFC attaches to its brief, 11 bears the endorsement of the
original lender, MetroCities, to Countrywide Bank, N.A., then from Countrywide Bank, N.A. to

9

Although Wolf alleges that the document stated that the note had been lost, the document was attached to the
amended complaint as Exhibit C, and it states only that the note “is unavailable at this time.” Where a conflict exists
between “the bare allegations of the complaint and any attached exhibit, the exhibit prevails.” United States ex rel.
Constructors, Inc. v. Gulf Ins. Co., 313 F. Supp. 2d 593, 596 (E.D. Va. 2004) (citing Fayetteville Investors v.
Commercial Builders, Inc., 936 F.2d 1462, 1465 (4th Cir. 1991)); see also Anheuser-Busch, Inc. v. Schmoke, 63
F.3d 1305, 1312 (4th Cir. 1995), vacated and remanded on other grounds, 517 U.S. 1206 (1996).

10

Bank of America also urges that the statement that the note was unavailable as of March 12, 2010 is subject to the
more benign interpretation that the note was not yet available to BAC, or that the note was not yet available to
counsel for BAC, who authored the letter. However, at this stage, I consider the facts as alleged by Wolf to be true,
and they need only plausibly support a claim in order to survive a motion to dismiss.

11

This document may be considered at this stage for the purposes of the motions to dismiss and without having to
convert those motions into ones for summary judgment because Wolf referred to the note in her amended complaint
and it is central to her claims. See Witthohn v. Fed. Ins. Co., 164 F. App’x 395, 396 (4th Cir. 2006) (per curium)
(“[A] court may consider official public records, documents central to plaintiff’s claim, and documents sufficiently
referred to in the complaint so long as the authenticity of these documents is not disputed.”).

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Countrywide Home Loans, Inc. (which, significantly, became BAC), and then endorsed in blank
by Countrywide Home Loans, Inc. PFC’s Reply Mem. Ex. A. 12 In light of these facts, I find
that BAC was the holder of the note and the assignee of MERS’s rights under the deed of trust.
Further, because PFC eventually came into possession of the note, it had authority to foreclose
under Virginia law. 13 Ultimately, Wolf has failed to allege sufficient facts to demonstrate that
MERS’s assignment to BAC of its rights under the deed of trust was invalid.
C. Validity of the Appointment of the Substitute Trustee
In her amended complaint, Wolf alleges that PFC “had no authority to proceed as
substitute trustee and acted ultra vires in purporting to sell the home at foreclosure.” Am.
Compl. ¶ 32(B). As I just discussed, PFC has possession of the note on behalf of BAC, and
BAC received from MERS, via the assignment, the right to foreclose. Therefore, BAC could,
once Wolf fell into arrears, direct PFC to conduct the foreclosure sale. See, e.g., Larota-Florez,
719 F. Supp. 2d at 640–41 (finding that MERS’s assignee had authority to appoint PFC as trustee
to sell the property at a foreclosure sale). However, Wolf bases her allegation regarding the
appointment’s invalidity on different grounds.

Wolf contends that the notarized document

effectuating the appointment was “bogus” because the second page was not attached to the first
page when it was signed. Because the pages were not attached, Wolf maintains, the second,

12

In addition to the foregoing arguments, PFC argues that, at bottom, Wolf’s amended complaint is nothing more
than a “show me the note” claim, which is contrary to Virginia’s non-judicial foreclosure laws. PFC points out that
Virginia law provides that a trustee may sell a property subject to a note secured by a deed of trust even where the
note is lost or cannot be produced, as long as the person required to pay the instrument is given notice. Va. Code
§ 55-59.1(B). This provision does not address, however, the issue of whether a deed of trust may be assigned where
the note is missing. The fact that an inability to locate the deed of trust is not fatal to proceeding with foreclosure
may suggest that an inability to locate the deed of trust is also not fatal to its assignment, but it does not provide a
definitive answer.
13

Under Virginia law, “[w]hen endorsed in blank, an instrument becomes payable to bearer and may be negotiated
by transfer of possession alone until specially endorsed.” Va. Code at § 8.3A-205(b). “An instrument is transferred
when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the
right to enforce the instrument.” Id. at § 8.3A-203(a). Once in possession of the instrument, its holder is entitled to
enforce it. Id. at § 8.3A-301.

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signed page “did not remove Barrett as trustee on the deed of trust and did not appoint PFC as
substitute trustee.” Am. Compl. ¶ 26(B).
In support of this allegation, Wolf cites Virginia Code § 55-59(9), which states that
“[w]hen the instrument of appointment has been executed, the substitute trustee or trustees
named therein shall be vested with all of the powers, rights, authority, and duties vested in the
trustee or trustees.” In light of § 55-59(9), Wolf argues that the second, signed page could not
have served as an appointment of a substitute trustee because it contained no language to that
effect; rather, all it contained was BAC’s signature. See Am. Compl. Ex. D. As such, Wolf
contends that there never was an executed document appointing PFC as substitute trustee, and
“Virginia statutory law does not allow a purported substitute trustee to be appointed merely by
intention of the lender.” Pl.’s Mem. Opp’n to Mots. Dismiss at 16. However, Wolf does not
allege any additional facts to support her claim that the appointment document is invalid. For
example, Wolf does not allege that the signature on the second page was forged or that the
document taken as a whole misrepresented the intentions of either BAC or PFC. Indeed, Wolf
does even allege a factual basis for her otherwise unsubstantiated assertion that when the second
page was signed, “it was a one page document, not associated with anything else (except it was
stapled to something else that had nothing to do with the note, the deed of trust, or the loan).”
Am. Compl. ¶ 26(B).
Moreover, Wolf does not cite any case law for the notion that Virginia Code § 55-59(9)
requires the instrument of appointment to be completely intact when it is executed. In other
words, Wolf has not supplied any authority for her position that all of the individual pages need
to be stapled or clipped together when the page containing the signatory line is actually signed.
In fact, the only authority Wolf points to in this regard is Stanley Dale Williams v. HSBC

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Finance Corporation, No. CL 10-877 (Va. Cir. Ct. Mar. 30, 2011). In that case, the court did
overrule the defendant’s demurrer and found that the plaintiff had stated a claim upon which
relief could be granted. Id at 2. However, the allegation in that case was that the two pages of a
notarized document were not executed in the same place at the same time, calling into question
whether the document had been executed personally in front of the notary. Id. Wolf does not
allege, nor does she argue in her brief, that the two pages of the appointment were executed in
different places or at different times (indeed, the first page does not contain any signatures); it is
only asserted that the pages were not attached when the second page was signed. Taken as true,
this allegation, in itself, is inadequate to support Wolf’s claim that the appointment of PFC as
substitute trustee was invalid.
However, Wolf also argues that the appointment was invalid because she alleges that
BAC was not a holder of the note at the time it appointed PFC. In a letter dated August 23,
2010, Bank of America (which was still, at that point, a separate entity from BAC) identifies
itself as “servicer” of Wolf’s loan and names Fannie Mae as the “lender.” Am. Compl. Ex. F.
According to Wolf, the letter indicates that Fannie Mae, not BAC, was the noteholder.
Consequently, Wolf argues, BAC was also not the holder of the note when it appointed PFC as
substitute trustee on March 30, 2010.
Again, though, Wolf has failed to allege sufficient facts. Nothing in the August 23, 2010
letter indicates when Fannie Mae became the “lender” or, more importantly, whether Fannie Mae
was the “lender” at the time of the appointment, nearly five months earlier. In addition, as Bank
of America observes, “lender” is undefined in the August 23, 2010 letter, and could have simply
meant investor. Indeed, Fannie Mae purchased the property at the foreclosure sale in July 2010
prior to the issuance of the letter in August. Finally, as has been mentioned previously, in the

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document effectuating the appointment of PFC, BAC is defined as “Noteholder.” Am. Compl.
Ex. D. Therefore, Wolf has not met her burden; a vague statement in the August 23, 2010 letter,
by itself, cannot undermine the fact that BAC is described in the appointment document as the
noteholder. 14
D. Fraud
In her loosely-articulated cause of action for fraud, Wolf alleges that the creation of the
document appointing PFC as substitute trustee was an act of fraud committed by BAC and PFC.
Wolf further alleges that due to her reliance on the validity of the appointment, she failed to take
action to prevent foreclosure prior to the foreclosure sale, and that the foreclosure sale
advertisement itself was a fraudulent representation because PFC did not have authority to act as
substitute trustee.
Under Virginia law, a claim of actual fraud consists of: (1) a false representation, (2) of a
material fact, (3) made intentionally and knowingly, (4) with intent to mislead, (5) reliance by
the party misled, and (6) resulting damage to the party misled. State Farm Mut. Auto. Ins. Co. v.
Remley, 270 Va. 209, 218, 618 S.E.2d 316, 321 (2005). In federal court, fraud claims are subject
to a heightened pleading standard. Federal Rule of Civil Procedure 9(b) requires a party alleging
fraud to “state with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ.
P. 9(b). The “circumstances” required to be pled with particularity under Rule 9(b) are “‘the
time, place, and contents of the false representations, as well as the identity of the person making
the misrepresentation and what he obtained thereby.’” United States ex rel. Wilson v. Kellogg
Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir. 2008) (internal citations omitted). “[L]ack of
compliance with Rule 9(b)’s pleading requirements is treated as a failure to state a claim under

14

See also supra Subsection III.B.2.

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Rule 12(b)(6).” Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 783 n.5 (4th Cir.
1999).
Ultimately, the facts pled by Wolf are insufficient to make out a claim for fraud against
Bank of America (formerly known as BAC) and PFC because they do not allege a false
representation of a material fact. The document appointing PFC as substitute trustee, regardless
of whether its pages were attached when it was executed, captured the intent of both BAC and
PFC to be bound by it. In other words, both BAC and PFC wanted PFC to take Barrett’s place as
trustee. And, as previously articulated, BAC had authority to appoint PFC. Therefore, neither
entity falsely represented a material fact.
In addition, at no point does Wolf allege one of the requisite elements of a fraud claim:
that Defendants had the intent to mislead her. Indeed, Defendants convincingly argue that they
could not have done so given the fact that the document appointing PFC was recorded and a
copy of it was mailed to Wolf. That the appointment of PFC as substitute trustee may have
suffered from procedural irregularities—a contention that Defendants unequivocally deny—does
not make it a false representation as required by Virginia law, nor one intended to mislead Wolf.
Further, Wolf did take action to prevent the foreclosure sale, albeit belatedly, by requesting
rescission of the note pursuant to TILA. Indeed, by the time PFC entered the scene, Wolf had
already fallen into arrears on the note. Therefore, Wolf simply cannot argue that she relied on
any misrepresentations to her detriment. Similarly, Wolf has failed under the requirements of
Rule 9(Bb) to plead adequate facts to demonstrate that the advertisement of the foreclosure sale
represented fraud. Wolf does not allege precisely what within that advertisement was false or
misrepresented, nor does she sufficiently allege that either BAC or PFC had the intention of

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defrauding her simply because they sought to foreclose on her home after she had defaulted, a
step that she knew or should have known they would likely take.
Additionally, Bank of America (formerly BAC) argues that Wolf’s common law fraud
claims are barred by Virginia’s economic loss rule. According to Bank of America, Wolf’s
claims arise from alleged fraud related to conduct governed by contracts—that is, the deed of
trust and the note upon which Wolf is suing. Where alleged fraudulent conduct relates to
contracts as such, a tort claim for fraud cannot lie. See Sensenbrenner v. Rust, Orling & Neale,
Architects, Inc., 236 Va. 419, 425, 374 S.E.2d 55, 58 (1988) (“Tort law is not designed . . . to
compensate parties for losses suffered as a result of a breach of duties assumed only by
agreement.”) (citation omitted); see also Augusta Mut. Ins. Co. v. Mason, 274 Va. 199, 205–06,
645 S.E.2d 290, 294 (2007) (stating that fraudulent representations made during the performance
of a contract do not give rise to a fraud claim); Richmond Metro. Auth. v. McDevitt Street Bovis,
Inc., 256 Va. 553, 559, 507 S.E.2d 344, 347 (1998) (holding that fraudulent performance of a
contract does not give rise to a fraud claim because the source of any duty breached arises from
the underlying contract). Under Virginia law, “losses suffered as a result of the breach of a duty
assumed only by agreement, rather than a duty imposed by law, remain the sole province of the
law of contract.” Filak v. George, 267 Va. 612, 618, 594 S.E.2d 610, 613 (2004).
Thus, whether the economic loss doctrine applies requires a court to determine first
“whether a cause of action sounds in contract or tort” by ascertaining “the source of the duty
violated.”

Richmond Metro. Auth., 256 Va. at 558, 507 S.E.2d at 347.

Despite the

aforementioned limitations on certain tort actions imposed by the economic loss rule, it is
nonetheless true that “a single act or occurrence can, in certain circumstances, support causes of
action both for breach of contract and for breach of a duty arising in tort.” Dunn Construction

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Co. v. Cloney, 278 Va. 260, 266, 682 S.E.2d 943, 946 (2009) (citation omitted). In this vein,
Wolf argues that the economic loss rule does not bar her fraud claims because the right to
foreclose on a home is governed by “both the terms of a deed of trust and by Virginia statutory
law.” Pl.’s Mem. Opp’n to Mots. Dismiss at 17. In other words, the duty breached, according to
Wolf, did not arise solely from underlying contracts with Defendants.

Therefore, Wolf

maintains, her fraud claims can be pursued.
I, however, disagree. Wolf’s argument that the right to foreclose on a home is governed
to a certain extent by Virginia statutory law is a red herring. While it is true that the Virginia
Code does, for example, provide a mechanism for the appointment of a substitute trustee, Wolf
has failed to articulate precisely how her claims here do not sound in contract law. Indeed, the
note evidencing the loan, the deed of trust securing it, the assignment to BAC, and the
appointment of PFC all represent contracts. Moreover, any duty owed to Wolf by Defendants in
this case does not exist absent an agreement between them. The economic loss rule “is intended
to preserve the bedrock principle that contract damages be limited to those within the
contemplation and control of the parties in framing their agreement.” Richmond v. Madison
Mgmt. Group, Inc., 918 F.2d 438, 446 (4th Cir. 1990) (quotations omitted). When, as here, a
plaintiff alleges economic losses, she cannot recover in tort “simply by recasting a contract claim
as a tort claim.” Waytec Elec. Corp. v. Rohm and Haas Elec. Materials, LLC, 459 F. Supp. 2d
480, 491 (W.D. Va. 2006). Accordingly, Wolf’s fraud claim must be dismissed.

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E. Defamation
Wolf’s entire allegation of defamation is as follows: “The actions of PFC in advertising
the home for foreclosure sale, which it did for a planned foreclosure in May 2010 and for the
purported foreclosure in July 2010 defamed Wolf, causing her public shame and embarrassment
and considerable emotional harm.” Am. Compl. ¶ 37. The relevant advertisement stated:
In execution of a Deed of Trust . . . from ELAYNE WOLF dated May 14, 2007
. . . the undersigned appointed Substitute Trustee will offer for sale at public
auction at the front of the Circuit Court building for the County of Albemarle
located at 501 E. Jefferson Street, Charlottesville, Virginia on July 21, 2010 . . . .
Id. In Virginia, the elements of common law defamation are: the (1) publication of (2) an
actionable statement with (3) the requisite intent. Chapin v. Knight-Ridder, Inc., 993 F.2d 1087,
1092 (4th Cir. 1993) (applying Virginia law). A statement is actionable if it contains a false
assertion of fact that “tends so to harm the reputation of another as to lower him in the estimation
of the community or to deter third persons from associating or dealing with him.” Id. “[M]erely
offensive or unpleasant statements” are not defamatory; rather, defamatory statements “are those
that make the plaintiff appear odious, infamous, or ridiculous.”

Id. (citation omitted).

Furthermore, “speech which does not contain a provably false factual connotation, or statements
which cannot reasonably be interpreted as stating actual facts about a person cannot form the
basis of a common law defamation action.” Yeagle v. Collegiate Times, 255 Va. 293, 295, 497
S.E.2d 136 (1998). Under Virginia law, defamation must not only be particularly pled, but the
pleading must set out the exact allegedly defamatory words spoken or written. Fuste v. Riverside
Healthcare Ass’n, 265 Va. 127, 134, 575 S.E.2d 858, 862 (2003).
In the instant case, Wolf alleges that the advertisement of the foreclosure sale was false
because her home was not subject to foreclosure by her reading of the terms of the deed of trust.
Even accepting this contention as true for the purposes of argument, Wolf has not pled sufficient
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facts to make out a claim for defamation. At bottom, the statement contained within the
advertisement that a foreclosure sale would be conducted was patently true, regardless of the
legitimacy of the sale. Moreover, Wolf was, by her own admission, unquestionably in default.
Thus, publication of a foreclosure sale notice was justified by Wolf’s failure to make payments
on the loan. Absent a false statement about her, the notice cannot support a defamation claim.
Further, even if Wolf had sufficiently alleged that the publication of the foreclosure sale
contained a false statement, her defamation claim must be dismissed because she has asserted
that the foreclosure sale notice caused her embarrassment, public shame, and emotional harm
without any supporting facts or contentions. In Blagogee v. Equity Trs., LLC, No. 1:10-cv-13,
2010 U.S. Dist. LEXIS 114233, at *16–19 (E.D. Va. July 26, 2010), the court dismissed a
similar claim that the publication of a foreclosure sale notice constituted defamation. In that
case, the plaintiffs alleged, with more detail than Wolf offers here, that the publication of the
notice “made them feel odious and appear ridiculous around their friends and colleagues, and at
social events.” Id. at *18. Nevertheless, the court held that this allegation did not satisfy the
requirement that the allegedly defamatory statement tend to harm the plaintiffs’ reputations so as
to lower them in the estimation of the community or to deter third persons from associating or
dealing with them. Id. The same can be said about Wolf’s allegation in the case at hand.
Finally, in order to make out a claim for defamation, a plaintiff must allege that the
defendant had the “requisite intent.” Chapin, 993 F.2d at 1092. However, in the instant case,
Wolf has alleged no facts to support the notion that PFC had the requisite intent to defame her.
Accordingly, Wolf’s defamation claim must also be dismissed. 15

15

It should be noted that because Wolf does not break down her claims into counts, her amended complaint could be
construed as alleging defamation by Bank of America (formerly BAC) and Fannie Mae as well. To the extent Wolf
does so, any such claims are dismissed as she does not allege that either BAC or Fannie Mae ever published any
statements about her.

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F. Breach of the Implied Covenant of Good Faith and Fair Dealing
According to Wolf, the note and accompanying deed of trust contained an implied
covenant obligating the holder of the note (and any entity acting as creditor) to “treat Wolf with
good faith and fair dealing.” Am. Compl. ¶ 17. Wolf alleges, without any specification or
elaboration, that the actions of BAC generally, as outlined in her amended complaint, resulted in
a breach of this obligation. Am. Compl. ¶ 38.
Wolf bases the existence of this implied covenant on Virginia Code § 8.1A-304, which
states that every contract, like the note here, that is governed by the Uniform Commercial Code
(“U.C.C.”) “imposes an obligation of good faith in its performance and enforcement.” See also
Enomoto v. Space Adventures, Ltd., 624 F. Supp. 2d 443, 450 (E.D. Va. 2009) (“In Virginia,
every contract contains an implied covenant of good faith and fair dealing.”). Under Virginia
law, the U.C.C. term “good faith” is defined as “honesty in fact in the conduct or transaction
concerned.” Va. Code § 8.1A-201(20). The duty of good faith in the context of secured
transactions requires the exercise of “honesty in fact and the observance of reasonable
commercial standards of fair dealing.” Va. Code § 8.9A-102(a)(43).
However, when parties to a contract “create valid and binding rights, one party does not
breach the U.C.C.’s obligation of good faith by exercising such rights.” Charles E. Brauer Co.
v. NationsBank of Va., N.A., 251 Va. 28, 35, 466 S.E.2d 382, 386 (1996). In fact, “an implied
covenant of good faith and fair dealing is inapplicable to those rights.” Ward’s Equip., Inc. v.
New Holland N. Am., Inc., 254 Va. 379, 385, 493 S.E.2d 516, 520 (1997). Further, an implied
covenant of good faith and fair dealing “cannot be the vehicle for rewriting an unambiguous
contract in order to create duties that otherwise do not exist.” Skillstorm, Inc. v. Elec. Data Sys.,
LLC, 666 F. Supp. 2d 610, 620 (E.D. Va. 2009). That being said, “in Virginia, as elsewhere, []

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although the duty of good faith does not prevent a party from exercising its explicit contractual
rights, a party may not exercise contractual discretion in bad faith, even when such discretion is
vested solely in that party.” Va. Vermiculite, Ltd. v. W.R. Grace & Co., 156 F.3d 535, 542 (4th
Cir. 1998) (interpreting Virginia contract law).
In Ward’s, in which the court found that the implied covenant was inapplicable, the only
conduct on the defendant’s part that the court addressed was explicitly authorized by the
underlying contract in that case. 254 Va. at 385, 493 S.E.2d at 520. And in Charles E. Brauer
Co., the court similarly did not allow a claim for breach of the implied covenant because the
plaintiff argued that the defendant’s exercise of its contractually-afforded rights was arbitrary,
but not dishonest per se. 251 Va. at 35, 466 S.E.2d at 386. In the case at hand, Wolf is
presumably alleging more than the mere exercise of contractual rights by BAC (and indeed she
must in order to state a claim successfully). Rather, Wolf appears to be claiming that BAC acted
outside of the scope of the rights conferred upon it by the note and deed of trust. As such, Wolf
maintains, a claim for breach of the implied covenant of good faith and fair dealing has been
adequately pled.
However, as I previously explained, MERS had authority to assign the note to BAC, and
BAC had authority to appoint PFC as substitute trustee. In other words, it was within BAC’s
contractual rights under the note and deed of trust to act as it did, including its decision to
appoint PFC and its request thereafter that PFC begin taking steps towards foreclosure.
Moreover, aside from possibly her allegation that two pages of the document appointing PFC
may not have been attached at the moment the second page was signed, Wolf has failed to plead
facts sufficient to demonstrate how BAC exercised its contractual discretion in bad faith, acted
dishonestly, or dealt with Wolf unfairly.

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Although it is, concededly, an ambiguous term, “good faith” at least includes
“faithfulness to an agreed common purpose and consistency with the justified expectations of the
other party [to a contract].” Restatement (Second) of Contracts § 205 cmt. a (1981). Surely a
“justified expectation” of a party, like Wolf, who contracts for the receipt of a mortgage loan by
putting her home up as collateral is that the lender (or its nominee or assignee) may initiate
foreclosure proceedings through a trustee upon default.

Even if I were to accept Wolf’s

contention that there were procedural irregularities associated with the transactions over which
BAC presided, that, in itself, is not enough to make out a claim for breach of this implied
covenant. Therefore, this claim too must be dismissed.
IV. Conclusion
For the reasons stated herein, Defendants’ motions to dismiss (docket nos. 34, 36) shall
be granted.
The Clerk of the Court is hereby directed to send a certified copy of this Memorandum
Opinion and the accompanying Order to all counsel of record.

23rd
Entered this ________ day of November, 2011.

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