United States District Court, E.D. Virginia, Richmond Division
JORGE B. MENACHO, Plaintiff,
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.
A. GIBNEY JR. UNITED STATES DISTRICT JUDGE.
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
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.
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. Chase Bank serviced the loan and acted as
an agent to the bank.
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. 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.
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
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
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.
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). 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.
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.
fails to allege sufficient facts to state a claim for breach
of contract, and the Court grants the ...