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Harris v. Matrix Financial Services Corp.

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

November 16, 2018




         This matter comes before the Court on Plaintiff Hermenia Harris's Motion to Remand. (ECF No. 5.) Defendant Matrix Financial Services Corporation ("Matrix") responded, and Harris replied. (ECF Nos. 14, 21.) Accordingly, the matter is ripe for disposition. The Court dispenses with oral argument because the materials before it adequately present the facts and legal contentions, and argument would not aid the decisional process. For the reasons that follow, the Court will grant Harris's Motion to Remand.

         I. Factual and Procedural Background

         A. Summary of Allegations in the Complaint

         This action against Matrix and Samuel I. White, P.C. ("White," and, together with Matrix, "Defendants") arises from Defendants' allegedly wrongful foreclosure of Harris's home (the "Property"). Harris entered into a mortgage loan with Nations Lending Corporation of Ohio, evidenced by a note (the "Note"), and secured by a deed of trust (the "Deed of Trust"). (Compl. ¶ 6, ECF No. 1-1.) The Deed of Trust identified Harris as the "Borrower" and appointed Deborah Darrah as trustee. (Id. ¶¶ 6, 8.)

         According to Harris, at some point, Nations Lending Corporation of Ohio assigned the Note to Flagstar Bank, FSB ("Flagstar"), which "asserted rights as holder of the [N]ote." (Id. ¶ 10.) In April 2018, Flagstar "advised Ms. Harris by letter that [Matrix] asserted rights as holder of the [N]ote based on a purported transfer of the [N]ote." (Id. ¶ 11.) According to Harris, at all relevant times, Flagstar acted as servicer of the loan and "acted on its own and as agent for" Matrix. (Id. ¶ 13.) Matrix eventually "executed a document which recited that it removed [Darrah as original trustee]... and appointed White as substitute trustee on the [D]eed of [T]rust." (Id. ¶ 17.)

         At an unspecified time, Harris fell into arrears as to the Note. Harris "applied for and obtained a loan modification from [Flagstar] ¶ 2016." (Id. ¶ 15.) Harris again fell into arrears as to the Note.

         According to Harris, Flagstar ultimately "instructed" White to foreclose on the Property. (Id. ¶ 31.) "In response to instruction from [Flagstar], White scheduled the home for foreclosure on May 4, 2018 and advertised the same in a newspaper with general circulation in Nottoway County, Virginia." (Id. ¶ 32.) On May 4, 2018, "White conducted a purported foreclosure" of the Property. (Id. ¶ 33.) According to Harris, "White had no authority to foreclose on the home on May 4, 2018 and [Flagstar] and [Matrix] were not entitled to a foreclosure on that date and, therefore, the purported foreclosure was void, alternatively, voidable." (Id. ¶ 33.)

         Harris contends that Defendants improperly foreclosed on the Property in violation of Federal Housing Authority ("FHA") regulations incorporated into the Note and Deed of Trust.[1] First, "[u]nder the terms of the [N]ote, the holder of the [N]ote could not and cannot accelerate the [N]ote unless permitted to do so by FHA regulations." (Compl. ¶ 19 (quoting the alleged Note).) Similarly, "[u]nder the terms of the [D]eed of [T]rust, the holder of the [N]ote secured by the [D]eed of [T]rust cannot foreclose on the home unless permitted to do so by FHA regulations." (Id. ¶ 20.) Harris alleges that Defendants violated several FHA regulations, and consequently the terms of the Note and the Deed of Trust, when they foreclosed on the Property.

         Most relevant here, 24 C.F.R. § 203.604 states, in part: "The mortgagee must have a face-to-face interview with the mortgagor, or make a reasonable effort to arrange such a meeting, before three full monthly installments due on the mortgage are unpaid." 24 C.F.R. § 203.604. Additionally, "a lender, in order to offer a borrower a face-to-face meeting must, at a minimum, do the following: (a) send a letter offering such a meeting; and (b) go to the door of the borrower's home for the purpose of offering a face-to-face meeting." (Compl. ¶ 22 (citing 24 C.F.R. § 203.604(d)).) According to Harris, who cites to FHA regulations, "[b]efore initiating foreclosure, the mortgagee must ensure that all servicing requirements ... are met." (Compl. ¶ 22 (citing 24 C.F.R. § 203.606(a)).)

         Harris claims that "no creditor as to the loan has ever conducted a face-to-face meeting with Ms. Harris nor has any creditor ever attempted or offered a face-to-face meeting with Ms. Harris under the [N]ote and [D]eed of [T]rust according to the minimum requirement of FHA regulations." (Compl. ¶ 28.) Harris contends that, because Matrix failed to arrange or attempt to arrange a face-to-face meeting in accordance with the requirements of 24 C.F.R. § 203.604, Matrix "was prohibited from foreclosing on the home." (Id.)

         Count One alleges that Matrix breached the provisions of the Note and Deed of Trust incorporating the FHA regulations when it acted "through White to effect the purported foreclosure." (Compl. ¶ 37.) Count Two avers that Defendants "failed to effect removal of Darrah as trustee ... and failed to appoint White as substitute trustee on the [D]eed of [T]rust."[2](Compl. ¶ 54.) Count Three alleges breach of the implied covenant of good faith and fair dealing. (Compl. ¶ 66.)

         Count Four, most relevant to the Motion to Remand, contends that White breached its fiduciary duty to Harris. "White was obligated to refrain from foreclosing on the [Property] until [Matrix] established compliance with all pre-conditions to foreclosure, including the [FHA regulations] incorporated into the [N]ote and [D]eed of [T]rust and proper appointment of White as substitute trustee on the [D]eed of [T]rust." (Compl. ¶ 75.) According to Harris, White "breached its fiduciary duty to Ms. Harris by foreclosing o[n] the [Property] with actual knowledge of [Matrix's] failure to comply with the preconditions for foreclosure required by the [N]ote and [D]eed of [T]rust." (Compl. ¶ 80.)

         Harris posits that as a result of Defendants' actions, she suffered damages, including: the loss of record title to her home, damage to her credit record, deprivation of the quiet enjoyment of the home, inconvenience, and time and money spent litigating this matter. Harris seeks rescission of the foreclosure sale of the Property, which was sold for $107, 892, and $65, 000 in compensatory damages.

         B. Procedural History

         Harris filed her Complaint in the Nottoway County Circuit Court (the "Nottoway Circuit Court") in Virginia. Matrix states that it was served on August 24, 2018. On September 11, 2018, Matrix, an Arizona corporation, [3] removed the action to this Court pursuant to 28 U.S.C. § 1441[4] on the basis of diversity jurisdiction. Although both Plaintiff Harris and Defendant White are citizens of Virginia, Matrix argues that the Court should disregard White's citizenship under either the doctrine of fraudulent joinder or the doctrine of nominal parties. Harris moved to remand the action based on a lack of diversity between the parties.[5] Matrix responded, and Harris replied.

         II. Applicable ...

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