Stansbury v. Federal Home Loan Mortgage Corporation et al

Filing 45

MEMORANDUM OPINION. Signed by District Judge Elizabeth K. Dillon on 8/31/2017. (ck)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
ROANOKE DIVISION
HOLLIE L. STANSBURY,
Plaintiff,
v.
FEDERAL HOME LOAN MORTGAGE
CORPORATION, et al,
Defendants.

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Civil Action No. 7:16-cv-00516
By: Elizabeth K. Dillon
United States District Judge

MEMORANDUM OPINION
Plaintiff Hollie Stansbury’s home was foreclosed upon after she defaulted on a mortgage
loan that she obtained from Wells Fargo’s predecessor-in-interest. In this action against Wells
Fargo, ALG, Federal Home Loan Mortgage Corporation (Freddie Mac), and Willow Way—four
entities involved in the foreclosure and sale of her home—Stansbury asserts that the defendants
breached the note and deed of trust and seeks to rescind the sale of her property to Willow Way.
Before the court are: (1) a motion to dismiss Stansbury’s first amended complaint, in which all
defendants join (Dkt. No. 17); (2) an additional motion to dismiss the first amended complaint
filed by Willow Way, the ultimate purchaser of the foreclosed property (Dkt. No. 13); (3)
Stansbury’s motion for leave to file a second amended complaint (Dkt. No. 30), which
defendants resist on futility grounds; and (4) Stansbury’s motion to amend her motion for leave
to file a second amended complaint, which defendants oppose because it is futile and prejudicial
to Willow Way. (Dkt. No 35.) All of these motions have been briefed and are ripe for
disposition. For the reasons stated below, the court will grant defendants’ motions to dismiss
and deny Stansbury’s requests for leave to amend.

I. BACKGROUND
In 2006, Hollie Stansbury’s late husband Richard Stansbury obtained a mortgage loan
from Franklin Community Bank. The loan was evidenced by a note that Richard Stansbury
signed and secured by a deed of trust that Richard Stansbury and Hollie Stansbury signed.
Franklin Community Bank immediately transferred the loan to Sidus Financial, LLC, which in
turn transferred it to Wells Fargo.
Richard Stansbury died in 2007, and Hollie Stansbury served as administrator of his
estate. At some point, she contacted Wells Fargo to inform the company of his death and to have
herself, as administrator, substituted for him on the loan. After Richard Stansbury’s death, the
loan fell into arrears. On August 19, 2014, Wells Fargo mailed an acceleration notice addressed
to Richard Stansbury at the property address, where Hollie Stansbury lived, but Stansbury never
received that letter. Stansbury’s breach of contract claim rests, in substantial part, on allegations
that this letter did not comply with the cure notice requirements of the deed of trust. The court
will discuss the letter further in section II.B., below.
In 2015, Wells Fargo approved Richard Stansbury’s estate for a trial loan modification
plan (the trial period plan or TPP) under the federal government’s Home Affordable
Modification Program (HAMP). Hollie Stansbury accepted the trial period plan and made three
timely payments. However, after her third payment, Wells Fargo notified Stansbury that her
application for a permanent loan modification had been denied1 and directed ALG, its substitute
trustee, to foreclose on Stansbury’s property. ALG conducted a foreclosure sale on January 4,
2016, and Wells Fargo made the high bid and purchased the property for significantly less than
its actual value. Wells Fargo conveyed the home to Federal Home Loan Mortgage Corporation

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Stansbury’s first amended complaint asserted that Wells Fargo told her that it denied her application
because it did not receive necessary paperwork from Stansbury. (Am. Compl. ¶ 34.) The proposed amendments
change that allegation, but that change does not affect the court’s analysis.

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(Freddie Mac) by trustee’s deed, and Freddie Mac then sold the home, for less than market value
and sight unseen, to Willow Way.
Stansbury sued Wells Fargo, Freddie Mac, ALG, and Willow Way. Her first amended
complaint asserts three counts. Count One alleges that the defendants failed to comply with
provisions of the note and deed of trust requiring that they provide a cure notice to the borrowers,
because: (1) the August 19, 2014 letter was incorrectly addressed to Richard Stansbury; (2) the
letter did not adequately inform Stansbury of her right to cure; and (3) Stansbury was brought
current on her loan by entering into the trial loan modification, and Wells Fargo never sent her
another cure notice before the foreclosure sale. Count One also seeks to rescind the sale of the
property to Willow Way. Count Two asserts that Wells Fargo violated a consent order between
Wells Fargo and the Office of the Comptroller of Currency that, in Stansbury’s estimation,
regulates Wells Fargo’s foreclosure procedures and was incorporated into the deed of trust by the
document’s “applicable law” provision. Finally, Count Three asserts a stand-alone claim for
breach of implied covenants of good faith and fair dealing. Defendants have moved to dismiss
all of these counts for failure to state a claim, and Willow Way has filed an additional motion to
dismiss asserting that its purchase of the property cannot be rescinded because Willow Way was
a good faith purchaser for value. After defendants filed their motions to dismiss, Stansbury filed
two motions to amend her complaint. The court will analyze the motions to dismiss and then
decide how, if at all, the proposed amendments would affect its analysis.
II. DISCUSSION
A. Rule 12(b)(6) Standard
A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of a complaint to
determine whether the plaintiff has properly stated a claim. Edwards v. City of Goldsboro, 178

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F.3d 231, 243 (4th Cir. 1999). To survive a motion to dismiss under Rule 12(b)(6), “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 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly,
550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged,” Iqbal, 556 U.S. at 678, and establishes “more than a sheer possibility that a
defendant has acted unlawfully.” Id. Unadorned allegations of wrongdoing, “formulaic
recitation[s]” of the elements of a claim, and “‘naked assertions’ devoid of ‘further factual
enhancement’” are insufficient to state viable claims. Id. (quoting Twombly, 550 U.S. at 555–
57).
B. Breach of Note and Deed of Trust
In Count One, Stansbury claims that Wells Fargo breached the note and deed of trust by
failing to provide her with the cure notice those documents required. The note and deed of trust
were attached as exhibits to Stansbury’s amended complaint, and the relevant sections of those
documents provide as follows:
Note ¶ 6. BORROWER’S FAILURE TO PAY AS
REQUIRED
....
(B) Default. If I do not pay the full amount of each monthly
payment on the date it is due, I will be in default.
(C) Notice of Default. 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 the Principal which has not been
paid and all the interest that I owe on the that amount. That date
must be at least 30 days after the date on which the notice is mailed
to me or delivered by other means.

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(D) No Waiver By Note Holder. Even if, at a time when I am in
default, the Note Holder does not require me to pay immediately in
full as described above, the Note Holder will still have the right to
do so if I am in default at a later time.
(Am. Compl. Ex. A (Note) ¶ 6, Dkt. No. 10-1.)
Deed of Trust ¶ 22. Acceleration: Remedies. Lender shall give
notice to the Borrower prior to acceleration following the
Borrower’s breach of any covenant or agreement in this Security
Instrument (but not prior to acceleration under Section 18 unless
Applicable Law provides otherwise). 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 the notice is given to 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 further inform Borrower of
the right to reinstate after acceleration and 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. If the default is not cured on
or before the date specified in the notice, Lender at its option may
require immediate payment in full of all sums secured by this
Security Instrument without further demand and may invoke the
power of sale and any other remedies permitted by Applicable
Law. Lender shall be entitled to collect all expenses incurred in
pursuing the remedies provided in this Section 22, including, but
not limited to, reasonable attorneys’ fees and costs of title
evidence.
(Am. Compl. Ex. B (Deed of Trust) ¶ 22, Dkt. No. 10-2.)
Stansbury claims that Wells Fargo violated these provisions in three ways. The first two
stem from the August 19, 2014 acceleration notice. First, Stansbury asserts that the letter did not
give “notice to the Borrower” as required by the deed of trust because it was addressed to
Richard Stansbury, rather than Hollie Stansbury or Richard Stansbury’s estate, and because
Richard Stansbury was no longer alive when the letter was sent. Second, Stansbury claims that

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the letter did not clearly communicate that she had the right to cure her default. Third,
notwithstanding the terms of the letter, Stansbury claims that her membership in the trial loan
modification program brought her current on her mortgage obligations, so the loan documents
required Wells Fargo to send her another cure notice before foreclosing on her home, which
Wells Fargo never did.
A deed of trust is a contract, which, like any other contract, is construed according to
ordinary contract interpretation principles. Johnson v. Fed. Home Loan Mortg. Corp., No. 7:12cv-507, 2013 U.S. Dist. LEXIS 97713, at *8–9 (W.D. Va. July 11, 2013); Matthews v. PHH
Mortg. Corp., 724 S.E.2d 196, at *200–01 (Va. 2012). “Under Virginia law, a viable breach of
contract claim has three elements: ‘(1) a legally enforceable obligation of a defendant to a
plaintiff; (2) the defendant’s violation or breach of that obligation; and (3) injury or damage to
the plaintiff caused by the breach of obligation.’” Mayo v. Wells Fargo Bank, N.A., No. 4:13-cv163, 2015 U.S. Dist. LEXIS 26383, at *12 (E.D. Va. Mar. 4, 2015) (quoting Filak v. George,
594 S.E.2d 610, 614 (Va. 2004)); Squire v. Va. Hous. Dev. Auth., 758 S.E.2d 55, 60 (Va. 2014).
The Supreme Court of Virginia has defined a “material breach of contract” as “a failure
to do something that is so fundamental to the contract that the failure to perform the obligation
defeats an essential purpose of the contract.” Countryside Orthopaedics v. Peyton, 541 S.E.2d
279, 285 (2001). The essential purposes of a deed of trust are two-fold: “to secure the lenderbeneficiary’s interest in the parcel it conveys and to protect the borrower from acceleration of the
debts and foreclosure on the securing property prior to the fulfillment of the conditions precedent
it imposes.” Matthews, 724 S.E.2d at 200. In Virginia, “adherence to a Deed of Trust is
measured by the standard of substantial compliance.” Mayo, No. 4:13-cv-163, 2015 U.S. Dist.
LEXIS at *15 (citing Va. Hous. Dev. Auth. v. Fox Run Ltd. P’ship, 497 S.E.2d 747 (Va. 1998)).

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Before deciding whether Wells Fargo failed to comply substantially with the deed of
trust, the court must address Stansbury’s challenge to the applicable standard. Citing two recent
opinions from the Supreme Court of Virginia—Squire v. Virginia Housing Development
Authority, 758 S.E.2d 55 (Va. 2014), and Newport News Shipbuilding Employees Credit Union
v. Busch, No. 150678, 2016 Va. Unpub. LEXIS 18 (Va. June 16, 2016) (unpublished)—
Stansbury argues that Virginia law now requires strict compliance,2 rather than mere substantial
compliance, with the terms of a deed of trust. However, the cases that Stansbury cites do not
stand for that proposition.
In Squire, the Supreme Court of Virginia reversed the circuit court’s grant of a demurrer
on claims that a lender had not complied with a deed of trust. The deed of trust in that case
incorporated the United States Department of Housing and Urban Development (HUD)
regulations that required lenders to conduct, or at least arrange, a face-to-face meeting with
borrowers before initiating foreclosure. 758 S.E.2d at 60. Since the plaintiff alleged that the
lender had failed to have a face-to-face meeting with her or to make reasonable efforts to
schedule such a meeting, the court found her complaint sufficient to survive demurrer. Id. at 61.
The court did not discuss material breach or the substantial compliance standard in its opinion.
In Busch, the lender (Bayport) sent the borrower a pre-acceleration notice that gave the
borrower less than the 30-day period required by the deed of trust to cure his default. Bayport
then sold the property and filed a summons against the plaintiff for unlawful detainer in Virginia
general district court. The general district court awarded Bayport possession, and the plaintiff
appealed to the circuit court. The circuit court held that Bayport had not substantially complied
with the pre-acceleration notice requirement and instructed Bayport to begin the foreclosure

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Stansbury uses the term “strict liability” throughout her opposition brief. (Dkt. No. 20.) Of course, this is
not a tort case. Although “strict liability” is not an accurate way of stating that Wells Fargo must adhere strictly to
the language of the loan documents, the court understands that to be Stansbury’s argument.

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proceedings anew. Bayport appealed, arguing that the general district court lacked jurisdiction to
try title in an unlawful detainer proceeding. No. 150678, 2016 Va. Unpub. LEXIS 18, at *1–3.
The Supreme Court of Virginia agreed. Id. at *5. Since Busch alleged facts that brought the
validity of the trustee’s deed into doubt, the court found that the case raised a bona fide question
of title—a question the general district court lacked jurisdiction to answer. Id. at *6–7.
In order to decide whether the general district court lacked jurisdiction, the court applied
the rule from Parrish v. Fannie Mae, 787 S.E.2d 116 (2016), a companion case decided the same
day.3 There, as in Busch, a defendant in an unlawful detainer proceeding challenged the validity
of a trustee’s deed, and the court addressed the same question: when does a former homeowner’s
challenge to the validity of a trustee’s deed divest the general district court of jurisdiction over an
unlawful detainer action. Id. at 119. In Virginia, general district courts have jurisdiction to try
actions for unlawful detainer but not to try title. Id. at 120. The Parrish court held that whether
the challenge to the trustee’s deed removed an unlawful detainer action from the general district
court’s jurisdiction turned on whether the homeowner’s allegations were “sufficient to state a
bona fide claim that the foreclosure sale and trustee’s deed could be set aside in equity”—that is,
whether the allegations would be “sufficient to survive demurrer” if filed as a complaint in the
circuit court. Id. at 122. Since the Busch court applied that rule and found that the general
district court lacked jurisdiction, the case implies that Busch could survive demurrer on
allegations that the lender did not give the required 30 days to cure.
The court finds no reason in Busch or Squire to depart from the substantial compliance
standard. Whether the lender substantially complied with the terms of the loan agreement was
not before the court in Busch. No. 150678, 2016 Va. Unpub. LEXIS 18, at *6 n.1. And neither

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Stansbury relies heavily on Parrish in support of her “breach of applicable law” claim, and the court will
discuss the case more fully in that section.

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case stated or implied that deeds of trust were held to a strict compliance standard. In both cases,
the lender clearly failed to do something that the deed of trust required as a precondition to
foreclosure—in Squire, to provide a face-to-face meeting, and in Busch, to provide a 30-day
notice period. These failures would amount to breaches of the deeds of trust under the
substantial compliance standard. So, the court finds no support in those cases for abandoning the
substantial compliance standard, and the court will apply that standard here.
Having determined the applicable standard, the court now turns to Stansbury’s specific
arguments. First, Stansbury argues that Wells Fargo’s August 19, 2014 acceleration notice
breached the deed of trust because it was not addressed to her, either in her personal capacity or
in her capacity as administrator of Richard Stansbury’s estate—it was addressed to Richard
Stansbury.4 Although the letter was in fact addressed to Richard Stansbury, that does not amount
to a breach of the deed of trust. On its face, the deed of trust required Wells Fargo to send notice
to either borrower, at the property address unless otherwise notified. (Deed of Trust ¶ 15.)
Richard Stansbury was listed as a borrower on the deed of trust, and the notice was sent to the
property address. Sending the acceleration notice to Richard Stansbury clearly accomplished the
essential purpose of the acceleration notice provision of the deed of trust, and Stansbury’s
argument that Wells Fargo had to distinguish between Richard Stansbury and his estate or his
administrator would elevate form over substance. After all, it is reasonable to assume that an
individual charged with the administration of a borrower’s estate would read mail addressed to
him, see Bender v. Rochester, 765 F.2d 7, 12 (2d Cir. 1985), and requiring this distinction by the

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To the extent that Stansbury suggests that the acceleration notice was insufficient because she never
received it, the court disagrees. Although the court accepts Stansbury’s contention as true, the deed of trust makes
notice effective when sent by first class mail. (Deed of Trust ¶ 15.) Stansbury does not allege that the notice was
never sent, and the fact that she did not receive it does not amount to a breach of the deed of trust. See Matanic v.
Wells Fargo Bank, N.A., No. 3:12cv472, 2012 WL 4321634, at *5 (E.D. Va. Sept. 19, 2012) (concluding notice was
proper because relevant action under plain meaning of terms of deed of trust was mailing); See also Estrella v. Wells
Fargo Bank, N.A., No. 2:11cv414, 2011 WL 6825619, at *3 (E.D. Va. Dec. 28, 2011) (concluding notice was proper
because date of mailing satisfied terms of deed of trust).

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lender would defeat the purpose of having an administrator. Accordingly, the court finds that
Wells Fargo substantially complied with the note and deed of trust by sending the cure notice to
Richard Stansbury at the property address.
Next, Stansbury argues that, even if the acceleration notice had been addressed properly
and even if she had received that notice, the notice was defective because it did not communicate
that Stansbury had the right to cure as required by the deed of trust. In support of this position,
Stansbury cites the following language from the letter:
You have the right to reinstate your Mortgage Note and Mortgage
or Deed of Trust after acceleration, and to have enforcement of the
Mortgage discontinued and to have the Mortgage Note and
Mortgage remain fully effective as if acceleration had never been
required. However, any future negotiations attempting to reinstate
your loan or any payment of less than the full amount due shall not
require Wells Fargo Bank, N.A.’s waiver of the acceleration unless
otherwise agreed to, in writing, by Wells Fargo Bank, N.A.
(Compl. Ex. C (emphasis added).) In Stansbury’s estimation, the emphasized language suggests
that, even if a borrower tried to cure, Wells Fargo could still foreclose. Stansbury claims that
this language was part of Wells Fargo’s plan to prevent borrowers from curing. Of course,
homeowners who believed that Wells Fargo could foreclose on their home even if they tried to
cure would be less likely to put money toward curing their default. So, Stansbury argues, by
using language that made borrowers think that they did not have an absolute right to cure, Wells
Fargo sought to give itself more opportunities to foreclose on homes.
It is well established that “[a] deficient acceleration notice may constitute a material
breach.” Johnson, No. 7:12-cv-507, 2013 U.S. Dist. LEXIS 97713, at *9 (citing Bayview Loan
Serv., LLC v. Simmons, 654 S.E.2d 898, 901 (Va. 2008)). But language in an acceleration notice
need not be identical to the language of the deed of trust in order to comply with it. Townsend v.

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Fannie May, 923 F. Supp. 2d 828, 836 (W.D. Va. 2013). Language that is functionally
equivalent and communicates the borrower’s rights to the borrower does not defeat the essential
purpose of the deed of trust. Id.; Mayo, No. 4:13-cv-163, 2015 U.S. Dist. LEXIS 26383, at *8;
Matanic v. Wells Fargo Bank, N.A., No. 3:12-cv-472, 2012 U.S. Dist. LEXIS 134154, at *15
(E.D. Va. Sept. 19, 2012); see Johnson, No. 7:12-cv-507, 2013 U.S. Dist. LEXIS 97713, at *10
(noting that “immaterial differences in language will not nullify a substantially conforming
notice of acceleration”).
Reading the acceleration notice as a whole, the court cannot agree that the quoted
language casts doubt on Stansbury’s right to cure. The acceleration notice clearly describes the
acceleration process and tells Stansbury of her right “to reinstate [her] Mortgage Note and
Mortgage or Deed of Trust after acceleration, and to have enforcement of the Mortgage
discontinued and to have the Mortgage Note and Mortgage remain fully effective as if
acceleration had never been required.” (Compl. Ex. C.) The language on which Stansbury relies
merely establishes that, if she wants to reinstate her loan without paying the balance in full,
Wells Fargo must agree to the arrangement in writing. That requirement does not contradict her
right to cure by repaying the balance of the loan in full. Thus Stansbury’s breach of contract
claim cannot proceed on this theory. 5
Finally, Stansbury argues that, once she entered the HAMP program, her loan was
brought out of accelerated status and Wells Fargo was required to send her another acceleration
notice before foreclosing on her property. At the very least, Stansbury claims, the language of
the TPP documents was ambiguous as to whether the program brought Stansbury out of
accelerated status such that a new acceleration notice should be required. Again, the court

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Two Virginia circuit courts have considered identical language and reached the same conclusion.
McGraw v. Wells Fargo Bank, N.A., No. CL16-237 (Spotsylvania Cty. Oct. 17, 2016); Nester v. Fed. Nat’l
Mortgage Assoc., No. CL 15-36 (Amelia Cty. May 2, 2016).

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cannot agree. Nothing in the referenced documents suggests that Stansbury’s participation in the
HAMP program brought her underlying loan current; in fact, the documents repeatedly state that
Stansbury’s loan and loan requirements would remain in effect during the trial payment period
and would be modified only upon her completion of the program. (E.g., Am. Compl. Ex. D
(“The trial period is temporary, and your existing loan and loan requirements remain in effect
and unchanged during the trial period.”).) Thus, the court cannot find that Wells Fargo was
required to send Stansbury an additional cure notice.
Accordingly, Count One of Stansbury’s amended complaint fails to state a viable claim
and must be dismissed pursuant to Rule 12(b)(6).
C. Breach of Applicable Law Provision
In Count Two of her complaint, Stansbury asserts that her deed of trust incorporated an
April 13, 2011 consent order between Wells Fargo and the Office of the Comptroller of Currency
and that Wells Fargo breached the deed of trust by violating that consent order. Article IX of the
consent order required Wells Fargo to submit a plan that included, among other things,
procedures to ensure timely and effective communication between Wells Fargo and borrowers
during the loan modification and foreclosure process and to ensure that Wells Fargo engaged in
good faith efforts at loss mitigation and foreclosure prevention. (Am. Compl. Ex. H (Consent
Order) Article IX.) Stansbury asserts that this consent order was incorporated into her loan
documents by language in the deed of trust providing that “[a]ll rights and obligations contained
in this Security Instrument are subject to any requirements and limitations of Applicable Law.”
(Deed of Trust ¶ 16.) “Applicable Law” is defined elsewhere as “all controlling applicable
federal, state and local statutes, regulations, ordinances and administrative rules and orders (that
have the effect of law) as well as all applicable final, non-appealable judicial opinions.” (Deed

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of Trust ¶ (J).) Wells Fargo argues, among other things, that the consent order is not applicable
law for purposes of the deed of trust.6 The court agrees with Wells Fargo.
Whether the deed of trust at issue here incorporates the April 13, 2011 consent order is a
question of contract interpretation. Wilkins v. United States, No. 2:15-cv-566, 2016 U.S. Dist.
LEXIS 61466, at *9 (E.D. Va. May 9, 2016); see Townsend v. Fannie Mae, 923 F. Supp. 2d 828,
841 (W.D. Va. 2013); see also Matthews, 724 S.E.2d at 200–01. Courts usually construe phrases
like “all applicable law” to exclude laws that are not already applicable at the time the contract
was formed, even if those laws would otherwise be relevant to the parties or their agreement.
Townsend, 923 F. Supp. 2d at 841; Wilkins, No. 2:15-cv-566, 2016 U.S. Dist. LEXIS 61466, at
*9–10 (collecting cases). Relying on this principle, the United States District Court for the
Eastern District of Virginia has declined to read the April 13, 2011 consent order into “applicable
law” provisions of deeds of trust executed before that order. Wilkins, No. 2:15-cv-566, 2016
U.S. Dist. LEXIS 61466, at *10–11; Simon v. PNC Bank, N.A., No. 2:14-cv-523, 2015 U.S. Dist.
LEXIS 50930, at *17–18 (E.D. Va. Apr. 15, 2015).
Stansbury recognizes these cases but asserts that the Supreme Court of Virginia overruled
them in Parrish, 787 S.E.2d 116 (2016), albeit without analysis. As discussed above, the
Parrish court addressed the general district court’s jurisdiction to hear unlawful detainer cases
that raise questions of title and described the situations in which a homeowner seeking to
challenge title can divest the general district court of jurisdiction. In that case, the homeowners
(the Parrishes) conveyed their property by deed of trust to secure a loan. Eventually, their
property was foreclosed upon and transferred by trustee’s deed to Fannie Mae, which filed an
unlawful detainer action against the Parrishes in general district court. In response to the

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Defendants also argue that Stansbury lacks standing to enforce the consent order, that the consent order
provides no private cause of action, and that the consent order expired in May 2016. The court need not reach these
issues.

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unlawful detainer action, the Parrishes asserted that their deed of trust incorporated 12 C.F.R.
§ 1024.41(g), a regulation that prevented lenders from foreclosing if the borrower had submitted
a loss mitigation application more than 37 days before the foreclosure sale. Since the Parrishes
had submitted such an application, they claimed that Fannie Mae could not foreclose. The
general district court granted Fannie Mae possession, as did the circuit court on a de novo appeal.
Id. at 119–20.
On appeal from the circuit court, the Supreme Court of Virginia held that general district
courts lack jurisdiction over unlawful detainer actions where the homeowner could raise a
legitimate question of title—i.e., where he or she could allege facts sufficient to place the validity
of the trustee’s deed in doubt. Id. at 123. Applying that rule to the facts before it, the court
found that the Parrishes’ allegations that their deed of trust incorporated 12 C.F.R. § 1204.41(g)
and that Fannie Mae violated that regulation by foreclosing on their home despite their loss
mitigation application were sufficient to raise a bona fide question of title and divest the general
district court of subject matter jurisdiction. In so finding, the court suggested that those
allegations would be sufficient to survive demurrer if filed in the circuit court. Id.
Stansbury asserts that, because the deed of trust in Parrish incorporated regulations that
did not exist yet, that case overruled the line of cases finding that applicable law provisions
similar to the one at issue in this case did not incorporate the consent order. But Parrish did not
consider whether the language of the deed of trust properly incorporated the regulations at issue.7
Instead, the court’s holding was based on the Parrishes’ allegations that their deed of trust

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Stansbury’s brief includes a block quotation, apparently attributed to the Parrish court, which recites an
applicable law provision identical to the one at issue here. (Pl.’s Br. Opp’n 23–24, Dkt. No. 20.) That block
quotation is included without citation in Stansbury’s brief and does not appear in the Parrish opinion. The court is
aware that plaintiff’s counsel in this case was the attorney for the homeowners in Parrish and is presumably privy to
information about the case that the court does not have. But the facts recited in that block quotation were not part of
the Parrish court’s analysis, and plaintiff’s representation to the contrary is, at best, misleading.

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incorporated those regulations. See id. at 119. The cases Stansbury claims Parrish overruled are
consistent with this conclusion. Those cases do not stand for the proposition that a deed of trust
cannot incorporate applicable law that does not exist yet—they simply establish that clear
language is necessary to do so. See Wilkins, No. 2:15-cv-566, 2016 U.S. Dist. LEXIS 61466, at
*10 (“General precepts of contract law direct that, absent clear language to the contrary, courts
should not interpret contracts to incorporate future changes to the law.”) (first emphasis added)
(quoting Condel v. Bank of Am., N.A., No. 3:12-cv-212, 2012 U.S. Dist. LEXIS 93206, at *24
(E.D. Va. 2012)). The court therefore disagrees with Stansbury’s interpretation of Parrish.
This case is indistinguishable from Wilkins and Simon, and this court reaches the same
result. The deed of trust was signed in 2006, over five years before the consent order. The
definition of “applicable law” in Stansbury’s deed of trust—like the deeds of trust in those
cases—does not include language incorporating future changes in the law. Accordingly, the
court finds that the deed of trust, on its face, did not incorporate the consent order and that Wells
Fargo’s purported violations of that order did not amount to a breach of the deed of trust.8
D. Breach of Implied Covenant of Good Faith and Fair Dealing
Count Three of Stansbury’s amended complaint asserts that defendants breached implied
covenants of good faith and fair dealing contained in the note and deed of trust through their
communications during the TPP and ultimately by foreclosing on her property. “In Virginia,
every contract contains an implied covenant of good faith and fair dealing.” Wolf v. Fannie Mae,
512 F. App’x 336, 345 (4th Cir. 2013) (quoting Enomoto v Space Adventures, Ltd., 624 F. Supp.
2d 443, 450 (E.D. Va. 2009)); see Virginia Vermiculite, Ltd. V. W.R. Grace & Co., 156 F.3d 535,

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Notably, even if the consent order were incorporated into the deed of trust, it merely required Wells Fargo
to submit proposals for handling pre-foreclosure activities—not to take any action vis-a-vis Stansbury. (Am.
Compl. Ex. H); Simon v. PNC Bank, N.A., 2015 U.S. Dist. LEXIS 50930, at *17–18 (E.D. Va. April 16, 2015). So
Stansbury’s claims would fail even if the consent order was part of the deed of trust. 

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541–42 (4th Cir. 1998). “However, ‘no implied duty arises with respect to activity governed by
express contractual terms.’” Baird v. Fed. Hom Mortg. Corp., No. 3:15-cv-41, 2016 U.S. Dist.
LEXIS 41938, at *22 (W.D. Va. Mar. 29, 2016) (quoting Skillstorm, Inc. v. Elec. Data Sys.,
LLC, 666 F. Supp. 2d 610, 620 (E.D. Va. 2009)). “Thus, the covenant of good faith and fair
dealing does not preclude a party from exercising valid contractual rights, ‘as long as that party
does not exercise those rights in bad faith.’” Id. (quoting Wolf, 512 F. App’x at 345).
Although it is not entirely clear from the first amended complaint, it appears that
Stansbury’s claim for breach of implied covenant of good faith and fair dealing relies on the
same factual allegations as her breach of contract claims. Because defendants could not breach
their implied covenants of good faith and fair dealing by exercising their contractual rights, and
because Stansbury’s complaint includes no allegations that defendants exercised contractual
discretion in bad faith, dishonestly, or unfairly, see Wolf, 512 F. App’x at 345, the court must
dismiss this claim. Baird, No. 3:15-cv-41, 2016 U.S. Dist. LEXIS 41938, at *22 (dismissing an
identical claim in analogous circumstances); accord Morrison v. Wells Fargo Bank, N.A., 30 F.
Supp. 3d 449, 456 (E.D. Va. 2014); Vazzana v. Citimortgage, Inc., No. 7:12-cv-497, 2013 U.S.
Dist. LEXIS 78541, at *12–13 (W.D. Va. June 4, 2013).
E. Rescission
In addition to joining the other defendants’ motion to dismiss, Willow Way filed a
separate motion asserting that its purchase of the property could not be rescinded because
Willow Way was a good faith purchaser for value. The court need not reach this issue. Because
the court has determined that each of Stansbury’s claims fails as a matter of law, she has no
viable claim for rescission against Willow Way.

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F. Leave to Amend
Having resolved defendants’ motions to dismiss, the court must now address Stansbury’s
requests for leave to amend. At the hearing on defendants’ motion, Stansbury’s counsel told the
court that he had received additional documents from Stansbury that could change some of her
factual allegations. On March 1, 2017, Stansbury filed a motion for leave to file a second
amended complaint. Based on a letter from Wells Fargo discovered after the amended complaint
was filed, the proposed second amended complaint removed an allegation that Wells Fargo
denied Stansbury’s application because it had not received documents that it had in fact received
(Am. Compl. ¶ 72) and added allegations that the newfound communications violated the April
13, 2011 consent order incorporated into the deed of trust by the applicable law provision.
(Prop. 2d Am. Compl. ¶¶ 72–76, 79–80.)
Before the court ruled on Stansbury’s request for leave to amend, Stansbury filed a
motion to further amend the proposed second amended complaint so that she could incorporate a
letter she recently received from Wells Fargo. In that letter, a Wells Fargo representative stated
that the company had “determined that [it] didn’t process [Stansbury’s] application submitted
5/6/2014 with the level of service that [it] would like” and offered her a $300 credit toward reapplying for financing. (Pl.’s 2d Mot. Am. Ex. 1.) Stansbury characterizes this letter as a
“candid admission” by a Wells Fargo representative that Stansbury’s application for a loan
modification was “not properly handled by Wells Fargo.” (Prop. 2d Am. Compl. (Revised) ¶
47.)
Federal Rule of Civil Procedure 15 instructs courts to grant leave to amend “freely . . .
when justice so requires.” Fed. R. Civ. P. 15(a)(2). This is a “liberal” standard that “gives effect
to the federal policy in favor of resolving cases on their merits instead of disposing of them on

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technicalities.” Laber v. Harvey, 438 F.3d 404, 426 (4th Cir. 2006) (en banc). The Fourth
Circuit has recognized that leave to amend “should only be denied if one of three facts is present:
‘the amendment would be prejudicial to the opposing party, there has been bad faith on the part
of the moving party, or amendment would be futile.’” Mayfield v. NASCAR, 674 F.3d 369, 379
(4th Cir. 2012) (quoting Matrix Capital Mgmt. Fund, L.P. v. BearingPoint, Inc., 576 F.3d 172,
193 (4th Cir. 2009)). An amendment is futile “if the proposed amended complaint fails to satisfy
the requirements of the federal rules,” Katyle v. Penn Nat’l Gaming, Inc., 637 F.3d 462, 471 (4th
Cir. 2011) (quoting United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370,
376 (4th Cir. 2008)); for example, if the proposed amended complaint would itself be subject to
dismissal under Rule 12(b)(6). See Wilson, 525 F.3d at 376.
Because Stansbury’s complaint could not survive a motion to dismiss even with the
proposed amendments, the court will deny her motions for leave to amend as futile. Although
the first set of proposed amendments provides new theories of how Wells Fargo violated the
consent order—i.e., by failing to give Stansbury a legitimate reason for denying her loan
modification application and by not communicating with Stansbury through a single point of
contact (Prop. 2d Am. Compl. ¶¶ 72–76)—the court has already determined that the consent
order was not applicable law under the deed of trust. So, new purported violations of the consent
order cannot save Stansbury’s claims.
Nor would the May 26, 2017 letter affect the viability of Stansbury’s claims. That letter
indicates that Wells Fargo did not process a May 6, 2014 “application for home financing”
properly—not an application for a loan modification. (Prop. 2d Am. Compl. (Revised) Ex. E.)
Stansbury’s revised second amended complaint includes a new allegation that she submitted
documents associated with her loan modification application on May 6, 2014. (Id. ¶ 38.) But

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even if the court assumes that the May 26, 2017 letter meant to refer to a loan modification
application, the court has already examined Wells Fargo’s alleged conduct and determined that it
did not violate the terms of the deed of trust. A letter suggesting that Wells Fargo believed that it
handled unspecified elements of the loan modification process unprofessionally is insufficient,
by itself, to establish that it breached Stansbury’s note or deed of trust. Thus Stansbury’s
proposed amendments are futile, and the court will deny her request for leave to amend.
III.

CONCLUSION

For the foregoing reasons, the court will grant defendants’ motion to dismiss and deny
Stansbury’s motions for leave to amend.
Entered: August 31, 2017.

/s/ Elizabeth K. Dillon
Elizabeth K. Dillon
United States District Judge

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