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Stansbury v. Federal Home Loan Mortgage Corp.

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

August 31, 2017



          Elizabeth K. Dillon United States District Judge.

         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 denied[1] 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 (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.


         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 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:


(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.

(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 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. 7:12-cv-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-cv-163, 2015 ...

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