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Herbaugh v. Bank of America, N.A.

United States District Court, W.D. Virginia, Harrisonburg Division

July 15, 2016

WILLIAM T. HERBAUGH, et al., Plaintiffs,
BANK OF AMERICA, N.A., et al., Defendants.


          Michael F. Urbanski, United States District Judge

         In this contract action, Plaintiffs William T. Herbaugh and Karen L. Herbaugh (collectively the "Herbaughs") allege Defendants Bank of America, NA. ("BANA") and Federal National Mortgage Association ("Fannie Mae") repeatedly violated the terms of a deed of trust and promissory note as a result of their failure to provide proper cure notice and requiring the Herbaughs to make their next month's payment prior to accelerating the Herbaughs' mortgage loan. Count I alleges Defendants' actions breached the explicit terms of the deed of trust and promissory note.[1] Count II alleges the same conduct amounts to breaches of the duty of good faith and fair dealing.

         Pursuant to Fed.R.Civ.P. 12(b)(6), Defendants move to dismiss Counts I and II, arguing the Herbaughs' claims are (1) time-barred, (2) barred by res judicata, and (3) fail to allege facts sufficient to state a claim on either count.

         The Court held a hearing on April 20, 2016. For the reasons set forth below, both Counts I and II are time-barred. Accordingly, Defendants' motion to dismiss, ECF No. 25, is GRANTED and this case DISMISSED with prejudice.


         On November 7, 2005, the Herbaughs purchased a home at 58 Woodhaven Way, Linden, Virginia 22642, in Warren County (the "Property"). ECF No. 16, ¶¶ 5-6. On the same day, the Herbaughs entered a mortgage loan agreement (the "Loan") with Cerdent Mortgage Corporation ("Cerdent") and agreed to a promissory note (the "Note") secured by a deed of trust (the "Deed of Trust"). Id. at ¶ 6. The Deed of Trust was recorded in Warren County Circuit Court and appointed John P. Kromer ("Kromer") trustee. Id. Cerdent assigned the note to BANA. Id. at ¶ 7. Fannie Mae backed and controlled servicing of die Loan. Id. at ¶ 8. Plaintiffs explain that at die time of die alleged breach, either BANA or Fannie Mae held the note. Id. at ¶ 9.

         Paragraph 6(C) of the Note contained the following provision related to notice prior to acceleration:

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

Id. at ¶ 10, ECF No. 26-1, ¶ 6.[2]

         Paragraph 22 of the Deed of Trust contained a similar requirement:

22. Acceleration; Remedies. Lender shall give notice to Borrower prior to acceleration following Borrower's breach of any covenant or agreement in this Security Instrument.
The notice shall specify (a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date of notice given to the Borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by this Security Instrument and sale of the Property. The notice shall 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 attorney's fees and costs of title evidence.

ECF Nos. 16, ¶ 11, 26-2, ¶ 22. In sum, paragraph 6(C) of the Note and paragraph 22 of the Deed of Trust (hereinafter the "Acceleration Clauses") require that notice be provided to the Herbaughs 30 days or more prior to the Defendants' acceleration of the Loan and sale of the Property.

         The Herbaughs received documents from BANA that purported to comply with the notice provisions in the Acceleration Clauses. Id. at Id. 13. The Herbaughs allege that because these documents were backdated and required payment of the next month's rent to prevent acceleration and foreclosure, the notices are faulty. Id. at ¶ 13.[3]

         BANA substituted Samuel I. White P.C. ("White") for Kromer as trustee of the Deed of Trust and instructed White to foreclose on the Herbaughs' home. Id. at ¶ 15. White advertised in a Warren County newspaper that a foreclosure sale of the Property was to occur on February 16, 2010. Id. at ¶ 18. The Herbaughs learned of the pending foreclosure of their home through this advertisement. ECF No. 16-3. At the February 16, 2010 foreclosure sale, BANA offered the highest bid. ECF No. 16, ¶ 20. On February 16, 2010, White and BANA executed a trustee's deed conveying the Property to Fannie Mae. Id. at ¶ 23. On September 17, 2010, White recorded the trustee's deed in Warren County Circuit Court. Id. at ¶ 26. BANA made multiple reports to credit agencies indicating that the Property had been lawfully foreclosed upon. Id. at ¶ 27.

         In October 2010, a Fannie Mae representative explained to the Herbaughs that the Property had been purchased by Fannie Mae from BANA at a courthouse auction. ECF No. 16-3. Thereafter, the Herbaughs allege that they contacted BANA and Fannie Mae separately to determine which entity owned the Property. Id. Fannie Mae advised that BANA owned the Property, but BANA indicated the Property was sold to Fannie Mae. Id. In spring of 2011, Jeanette Campbell ("Campbell"), with Fannie Mae Cash for Keys, issued an eviction notice to the Herbaughs. Id. Campbell advised the Herbaughs that Fannie Mae's sale of the Property was stayed as Fannie Mae had agreed to "work with [the] mortgage." Id. Campbell instructed the Herbaughs to contact White. Id. Stephanie Gates, an employee of White, advised that White had not handled any documents regarding the Property since 2010. Id. ...

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