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Buford v. Ocwen Loan Servicing, LLC

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

November 2, 2018

JAMES T. BUFORD, et al., Plaintiffs,
OCWEN LOAN SERVICING, LLC, et al., Defendants.[1]


          Robert J. Krask United States Magistrate Judge.

         James 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. l-l.[2] After removal of the action to this Court, Ocwen filed a motion to dismiss for failure to state a claim. ECF Nos. 4, 8.

         An order of reference assigned the motion to the undersigned.[3] 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 MOOT.


         The 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.[5]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."[6] Compl. ¶ 7; ECF No. 5-2 at 4.

         The 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.[7] 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)."[8]Id. at ¶¶ 14-16.

         The 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 ¶ 18.

         After 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.

         The 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 ¶ 30.

         The 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.

         Plaintiffs' 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 ¶¶ 43-44.

         The 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)."[9]Compl.¶¶ 45-46.

         Plaintiffs 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.

         Following 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 at 2.

         Ocwen 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.

         II. ANALYSIS

         A. The general standard for motions to dismiss under Rule 12(b)(6)

         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 unlawfully." Id.

         Under 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.").

         When 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., 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).

         B. Ocwen's motion to dismiss for failure to state a claim should be granted.

         1. 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 trust.

         Ocwen 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.

         Plaintiffs 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 follows:

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.

         As a 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 omitted).

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 omitted).

         Whether 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 regulations").

         For 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 acceleration ...

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