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Menacho v. U.S. Bank National Association

United States District Court, E.D. Virginia, Richmond Division

December 19, 2017

JORGE B. MENACHO, Plaintiff,
v.
U.S. BANK NATIONAL ASSOCIATION AS TRUSTEE, SUCCESSOR IN INTEREST TO BANK OF AMERICA, NA AS TRUSTEE AS SUCCESSOR BY MERGER TO LA SALLE BANK NA AS TRUSTEE FOR WAMU MORTGAGE PASS-THROUGH CERTIFICATES SERIES 2006-AR12 TRUST, Defendant.

          OPINION

          JOHN A. GIBNEY JR. UNITED STATES DISTRICT JUDGE.

         In 2012, Jorge Menacho defaulted on his mortgage, and the defendant, U.S. Bank, foreclosed on his home. Menacho claims U.S. Bank breached the "Applicable Law" provision in his mortgage by foreclosing upon his home in violation of the Home Affordability Modification Program ("HAMP") Supplemental Directive No. 09-01 ("Supplemental Directive 09-01"). U.S. Bank filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6).

         Menacho fails to state a plausible claim for relief because Supplemental Directive 09-01 does not create an independent cause of action or qualify as "Applicable Law" as defined in the deed of trust. The Court therefore grants the defendant's motion to dismiss.

         I. BACKGROUND

         In August of 2006, Menacho entered into a mortgage with Washington Mutual Bank by signing a note secured by a deed of trust. Washington Mutual Bank later transferred the note to U.S. Bank. The deed of trust contained a provision stating the right to foreclosure was "subject to any requirements and limitations of Applicable Law" which, as defined in the deed, included federal administrative orders and rules.[1] Chase Bank serviced the loan and acted as an agent to the bank.

         In February 2009, Congress passed the Making Home Affordable Program, which included HAMP, the program at issue here. HAMP incentivizes servicers to enter into agreements with borrowers like Menacho in order to make monthly mortgage payments more affordable. Also in 2009, the Secretary of the Treasury set out certain guidelines, including Supplemental Directive 09-01. This directive prohibits loan servicers from proceeding with a foreclosure sale for any loan potentially eligible for a HAMP loan modification until the applicant has been deemed ineligible. Menacho alleges that "Applicable Law" under the deed of trust includes this directive.[2] On May 11, 2012, Menacho applied for a HAMP loan modification. On June 7, 2012, U.S. Bank, through a substitute trustee, conducted a foreclosure auction. At the time of the auction Menacho had not received any response to his HAMP application. U.S. Bank had the high bid and received ownership of Menacho's property. U.S. Bank also reported the foreclosure to credit bureaus and initiated eviction litigation against Menacho in state court.

         Menacho now claims U.S. Bank breached the "Applicable Law" provision when it foreclosed on his home without first ensuring his application for loan modification had been evaluated.

         II. DISCUSSION[3]

         Menacho has not identified any legally-enforceable obligation or duty that U.S. Bank has violated. Menacho's alleged source for a cause of action-Supplemental Directive 09-01-is not enforceable for two reasons. First, HAMP directives do not create a private cause of action on their own. Second, Supplemental Directive 09-01 does not create an enforceable right through the "Applicable Law" provision of the contract.

         HAMP regulations do not create private causes of action on their own. Simon v. PNC Bank, National Association, et al, 2017 WL 3726059 at *9 (E.D. Va. August 29, 2017). An applicable law provision in a deed of trust may, however, incorporate government regulations in certain circumstances. See Mathews v. PHH Mortgage Corp., 724 S.E.2d 196, 202 (Va. 2012). Such circumstances do not exist here.

         First, it remains unsettled whether applicable law provisions incorporate laws enacted after the execution of a contract. See Simon, 2017 WL 3726059 at *6-7 (deciding not to rule on the question due to "lingering uncertainty" created by conflicting federal and state holdings on the issue); Combs v. U.S. Bank National Association, 2017 WL 2805494 at *5-6 (E.D. Va. June 28, 2017) (ruling that later enacted laws are not incorporated into an applicable law provision based on the interpretation of the Supreme Court of Virginia on the issue).[4] The Court need not address this unsettled issue because, even assuming that a later-passed law could retroactively apply to the "Applicable Law" provision, the directive here does not constitute a rule with the effect of law.[5]

         Federal law determines whether a federal regulation has the effect of law. Mathews, 724 S.E.2d at 204-05. In order for an agency to create a rule with the effect of law, the agency must act pursuant to the notice and comment procedures in the Administrative Procedure Act. Simon, 2017 WL 3726059 at *9 (citing Chen Zhou Chai v. Carroll, 48 F.3d 1331, 1340 (4th Cir. 1995)). Supplemental Directive 09-01 was not subject to the notice or comment requirements, and simply provides guidance to servicers on the obligations under HAMP. Simon, 2017 WL 3726059 at *10 (citing Supp. Directive No. 09-01, at 1-2). Supplemental Directive 09-01 is therefore only an "interpretive rule" applicable as guidance from the agency, and not with the effect of law. Simon, 2017 WL 3726059 at *10. Supplemental Directive 09-01 does not fall within the "Applicable Law" provision of the deed of trust, and does not provide an enforceable right.

         IV. CONCLUSION

         Menacho fails to allege sufficient facts to state a claim for breach of contract, and the Court grants the ...


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