United States District Court, E.D. Virginia, Norfolk Division
JAMES T. BUFORD, et al., Plaintiffs,
OCWEN LOAN SERVICING, LLC, et al., Defendants.
UNITED STATES MAGISTRATE JUDGE'S REPORT AND
J. Krask United States Magistrate Judge.
T. Buford ("Mr. Buford") and Babetta T. Buford
("Mrs. Buford") (collectively
"plaintiffs") brought this action in the Circuit
Court for the City of Chesapeake ("the circuit
court") alleging several claims arising from the
initiation of foreclosure proceedings on plaintiffs' home
by defendants Ocwen Loan Servicing, LLC ("Ocwen"),
and Surety Trustees, LLC ("Surety"). ECF No.
After removal of the action to this Court, Ocwen filed a
motion to dismiss for failure to state a claim. ECF Nos. 4,
order of reference assigned the motion to the
undersigned. ECF No. 19. Pursuant to the provisions of
28 U.S.C. § 636(b)(1)(B) and (C), Rule 72(b) of the
Federal Rules of Civil Procedure, and Local Civil Rule 72, it
is hereby RECOMMENDED that Ocwen's
motion to dismiss be GRANTED, that the
complaint be DISMISSED WITH PREJUDICE, and
the request for injunctive relief be DENIED AS
FACTUAL AND PROCEDURAL
complaint alleges that plaintiffs entered into a mortgage
loan contract ("loan"), evidenced by a note and a
deed of trust, to finance real property located in
Chesapeake, Virginia.ECF No. 1-1 at 5-6, Complaint
("Compl.") ¶¶ 5-6. The deed of trust
states: "This Security Instrument shall be governed by
federal law and the law of the jurisdiction in which the
Property is located. All rights and obligations contained in
this Security Instrument are subject to any requirements and
limitations of Applicable Law." Compl. ¶ 6; ECF No.
5-2 at 12, deed of trust ¶ 16. The deed of trust defines
"Applicable Law" 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." Compl. ¶ 7; ECF No. 5-2 at 4.
complaint asserts that Mr. Buford was laid off from his job
in December 2015, but continued to make payments on the loan
until September 2017, when the death of his mother caused
"an unexpected increase of expenses." Compl.
¶¶ 9-11. It alleges that, in "December 2017,
Mr. Buford attempted to make an online payment on his
mortgage to Ocwen. The online system did not allow Mr. Buford
to make a payment towards his loan." Id. at
¶ 12. Mr. Buford then "contacted Ocwen
directly," and the "representative he spoke with
informed him he could participate in a loan modification
review." Id. at ¶ 13. Mr. Buford
"sent over a full and complete loan modification package
in January of 2018," but he "never received any
correspondence from Ocwen regarding his documents, as
required by 12 C.F.R. [§] 1024.41(c)(2)," and he
"never received a denial letter for the loan
modification review, as required by 12 C.F.R. [§]
1024.41(d)."Id. at ¶¶ 14-16.
complaint alleges that "Mr. Buford called Ocwen to
inquire about the status of his loan modification
review" in the "beginning of February 2018,"
and "[a]t that time, he was asked to send another loan
modification package with no mention or update regarding the
original information sent." Compl. ¶ 17. "Mr.
Buford sent another loan modification package to Ocwen for
review," "[d]espite being given no update as to the
foreclosure status of his home." Id. at ¶
sending the second information package, "Mr. Buford
start[ed] receiving notices from attorney's offices with
notices that he had a pending foreclosure sale on his
property for February 27, 2018." Compl. ¶ 20. He
"immediately contacted Ocwen, but was told by Ocwen that
he had to completely reinstate the loan in order for the
foreclosure sale to be postponed." Id. at
¶ 21. As of the filing of the complaint on February 21,
2018, "Mr. Buford ha[d] not received any correspondence
from Ocwen regarding the loan modification review," and
the complaint asserts that Ocwen intended to sell the
property at auction on February 27, 2018, in spite of
Ocwen's alleged errors described in the complaint.
Id. at ¶¶ 19, 22-23.
complaint alleges four claims or counts against Ocwen, and
seeks compensatory and injunctive relief. The first claim is
for a breach of contract. Id. at ¶¶ 24-33.
Plaintiffs allege that the deed of trust "has a
provision that states that the contract is governed by
'federal law' in addition to state law. Furthermore,
the rights and obligations arising under the contract are
'subject to any requirements and limitations of
Applicable Law.'" Id. at ¶ 25. They
claim that "[u]nder Virginia law, federal regulations
governing the servicing of mortgage contracts are integrated
into the contract as a condition precedent to
foreclosure." Id. at ¶ 26 (citing
Mathews v. PHH Mortgage Corp., 724 S.E.2d 196 (Va.
2012)). They allege that Ocwen "violated 12 C.F.R.
[§] 1024.41(d), which requires loan servicers to provide
notice to homeowners of the results of their loss mitigation
applications," because Ocwen "provided no such
notice." Compl. ¶¶ 27-29. Plaintiffs further
contend: "Even if the application was somehow incomplete
in some fashion, loan servicers are required under 12 C.F.R.
[§] 1024.41(c)(2) to continue to request documentation
and evaluate the homeowner for loss mitigation options. Ocwen
cannot simply refer the Plaintiffs' file to foreclosure,
as has clearly been done here." Id. at ¶
second claim is for "breach of contract for good faith
and fair dealing," because "[e]very contract
imposes an obligation of good faith in its performance and
enforcement," and the note and deed of trust
"constitute an enforceable contract . . . which contains
the implied covenant obligating Defendant Ocwen to treat the
Plaintiffs with good faith and deal fairly." Compl.
¶¶ 34-3 5. Plaintiffs assert that Ocwen breached
this covenant "by (i) failing to properly notify the
Plaintiffs of the results of [their] loss mitigation
application, and (ii) persisting with a foreclosure auction
on the property while the loan modification review, solicited
by Ocwen, is ongoing and no final decision has been
made." Id. at ¶ 36.
third claim is that the substitute trustee did not have the
authority to foreclose, because the "conditions
precedent to foreclosure," including "applicable
federal regulations governing the servicing of mortgage
contracts," had not been met. Id. at
¶¶ 38-39. Specifically, "[t]wo such applicable
provisions are 12 [C.F.R. §] 1024.41(d) and 12 C.F.R.
[§] 1024.41(c)(2)," which require a loan servicer
to "provide a borrower with written notice of the
results of the borrower's loss mitigation
application" and to "timely request any additional
documentation required from the borrower to fully review the
loan application." Id. at ¶¶ 40-42.
Plaintiffs allege that "Ocwen has dispatched no such
notice" to them, so the substitute trustee had no power
to conduct a foreclosure sale because the conditions
precedent to foreclosure were not satisfied. Id. at
fourth and final claim in the complaint is that Ocwen
violated the Virginia Consumer Protection Act, Va. Code Ann.
§§ 59.1-196-207 ("VCPA"), because it is a
"loan servicing company" subject to the VCPA and
"Cenlar has used deception, fraud, false pretense or
misrepresentation in connection with the Plaintiffs'
consumer transaction which has damaged the Plaintiffs. These
practices are specifically prohibited by [Va. Code Ann.]
§ 59.1-200(A)(14)."Compl.¶¶ 45-46.
requested an injunction to prevent foreclosure of the
property "until such time as the loan modification [has]
been reviewed and the required preconditions to foreclosure
have been met," and sought $70, 000.00 in compensatory
damages against Ocwen. Id. at ¶¶ 49-58.
a hearing on February 26, 2018, the circuit court granted
plaintiffs' request for a temporary injunction by an
order of the same date, conditioned "upon the posting of
bond in the amount of $14, 000 with surety." ECF No. 1-1
at 16. Plaintiffs did not post the bond, and the property was
sold at auction to a third party. ECF No. 5 at 4; ECF No. 30
removed the case from the circuit court to this Court on
March 21, 2018. ECF No. 1. On March 28, 2018, Ocwen filed the
motion to dismiss and supporting memorandum at issue here.
ECF Nos. 4, 5. The Court granted plaintiffs' motion to
hold the motion to dismiss in abeyance pending resolution of
plaintiffs' motion to remand. ECF Nos. 13, 18. The Court
denied the motion to remand on August 29, 2018. ECF No. 24.
Plaintiffs then filed their opposition to the motion to
dismiss, and Ocwen filed its reply. ECF Nos. 30, 32.
The general standard for motions to dismiss under Rule
8(a)(2) requires that a complaint "must contain ... a
short and plain statement of the claim showing that the
pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2).
Rule 12(b)(6) provides for the dismissal of a complaint for
"failure to state a claim upon which relief can be
granted." Fed.R.Civ.P. 12(b)(6). "To survive a
motion to dismiss, 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
Atlantic 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." Id. Plausibility "is
not akin to a 'probability requirement,' but it asks
for more than a sheer possibility that a defendant has acted
Rule 12(b)(6), dismissal with prejudice is proper when the
alleged facts do not state a claim for a recognized cause of
action. See Anderson v. Sara Lee Corp., 508 F.3d
181, 190 (4th Cir. 2007) (affirming dismissal of certain
claims with prejudice, and noting: "This is not a
circumstance in which the claims could have survived a Rule
12(b)(6) challenge but for the plaintiffs failure to plead
sufficient facts to satisfy the requirements of Rule 8(a)(2)
or Rule 9(b). Rather, the facts alleged-despite the arguably
thorough manner in which they were pleaded- simply do not
give rise to ... claims under [governing] law.").
reviewing a motion to dismiss, the Court "assume[s] all
[well-pled facts] to be true" and "draw[s] all
reasonable inferences in favor of the plaintiff," but it
"need not accept the legal conclusions drawn from the
facts, and  need not accept as true unwarranted inferences,
unreasonable conclusions or arguments." Nemet
Chevrolet, Ltd. v. Consumeraffairs.com, Inc., 591 F.3d
250, 253 (4th Cir. 2009) (citations and internal quotation
marks omitted). The Court also considers, without converting
the motion to dismiss into one for summary judgment,
"official public records, documents central to
plaintiffs claim, and documents sufficiently referred to in
the complaint so long as the authenticity of these documents
is not disputed." Witthohn v. Fed. Ins. Co.,
164 Fed.Appx. 395, 396 (4th Cir. 2006).
Ocwen's motion to dismiss for failure to state a
claim should be granted.
Plaintiffs failed to state a claim for breach of contract and
lack of authority for the substitute trustee based on the
incorporation of RESPA and Regulation X into the deed of
argues that plaintiffs' breach of contract claim should
be dismissed, because plaintiffs incorrectly assert that 12
C.F.R. § 1024.41 ("Regulation X") was
incorporated into the deed of trust, and that Ocwen violated
Regulation X by referring the loan to foreclosure without
notices regarding loss mitigation. ECF No. 5 at 5-8. It
contends that the deed of trust's "reference to
applicable law is not sufficiently specific to incorporate
Regulation X." Id. at 6.
respond that the "plain language in the [deed of trust]
expresses the intent that RESPA, Regulation X, and its
successor legislation is to be incorporated into the [deed of
trust]." ECF No. 30 at 4. Although the complaint does
not expressly assert that 12 C.F.R. § 1024.41
(Regulation X) was incorporated into the deed of trust, and
does not cite any part of the deed of trust other than the
"applicable law" provision, plaintiffs now argue
that RESPA was explicitly incorporated into the deed of trust
based on the applicable law provision quoted above and
paragraph P of the deed of trust, which defines RESPA as
RESPA means the Real Estate Settlement Procedures Act (12
U.S.C. Section 2601 et seq.) and its implementing regulation,
Regulation X (24 C.F.R. Part 3500), as they might be amended
from time to time, or any additional or successor legislation
or regulation that governs the same subject matter. As used
in this Security Instrument, "RESPA" refers to all
requirements and restrictions that are imposed in regard to a
"federally related mortgage loan" even if the Loan
does not qualify as a "federally related mortgage
loan" under RESPA.
Id. at 2, 4; see also ECF No. 5-2 at 4.
general matter, a "deed of trust is construed as a
contract under Virginia law," and a court
"consider[s] the words of [a] contract within the four
corners of the instrument itself." Mathews, 724
S.E.2d at 200-01 (citation and internal quotation marks
When the terms in a contract are clear and unambiguous, the
contract is construed according to its plain meaning. Words
that the parties used are normally given their usual,
ordinary, and popular meaning. No word or clause in the
contract will be treated as meaningless if a reasonable
meaning can be given to it, and there is a presumption that
the parties have not used words needlessly.
Id. at 201 (citation and internal quotation marks
a regulation is incorporated into a deed of trust depends on
the plain meaning of the terms in the deed of trust.
Id. ("These words 'are clear and
unambiguous' and we will construe them according to their
plain meaning. They express the intent of the parties that
the rights of acceleration and foreclosure do not accrue
under the Deed of Trust unless permitted by HUD's
regulations.") (citation omitted); see also Squire
v. Virginia Hous. Dev. Auth., 758 S.E.2d 55, 60 (Va.
2014) (noting that "the deed of trust incorporated
certain regulations of the United States Department of
Housing and Urban Development (*HUD'), and mandated that
foreclosure was not permitted where it violated such HUD
example, in Mathews, the Supreme Court of Virginia
concluded that "[a]s a matter of Virginia law, when a
deed of trust expressly states on its face that it 'does
not authorize acceleration or foreclosure if not permitted
by' some external set of conditions identified within the
deed of trust, those conditions are fully incorporated as
conditions precedent to acceleration and foreclosure."
Mathews, 724 S.E.2d at 202. The court first noted
that the deed of trust in that case provided that
"acceleration of repayment is a condition precedent to
foreclosure," and then quoted the deed's
acceleration provision, which stated: "Lender may,
except as limited by regulations issued by the
Secretary, in the case of payment defaults, require
immediate payment in full of all sums secured by this
Security Instrument if' the borrower defaulted as
specified. Id. at 201 (emphasis added by the court).
The same acceleration paragraph further stated:
Regulations of HUD Secretary. In many circumstances
regulations issued by the Secretary will limit [the
l]ender 's rights, in the case of payment defaults,
to require immediate payment in full and foreclose if not
paid. This Security Instrument does not authorize