United States District Court, D. Alaska
ORDER ON DEFENDANTS' MOTION TO DISMISS (DKT.
4)
TIMOTHY M. BURGESS, UNITED STATES DISTRICT JUDGE.
I.
INTRODUCTION
The
matter comes before the Court on Defendants loanDepot.com,
LLC (“loanDepot”), Federal National Mortgage
Association's (“Fannie Mae”), and Clear Recon
Corp.'s (“Clear Recon”) Motion to Dismiss
Plaintiffs' Amended Complaint (the
“Motion”).[1] The Motion seeks to dismiss the First
Amended Complaint (“Amended
Complaint”)[2] filed by Plaintiffs Ethel and Lewis Kelly
(collectively, “the Kellys”) pursuant to
Fed.R.Civ.P. 12(b)(6) for failure to state a
claim.[3]The Motion was fully briefed by the
Parties.[4] The Parties have not requested oral
argument, and the Court finds it would not be helpful. For
the reasons stated below, Defendants' Motion is
GRANTED IN PART WITHOUT PREJUDICE and
DENIED IN PART.
II.
BACKGROUND
The
present dispute before the Court arises from a foreclosure
sale coordinated by loanDepot, Fannie Mae, and Clear Recon
(collectively, the “Defendants”).[5] The allegations
contained in the Complaint are summarized below.
In
2001, the Kellys acquired a home loan with Homestate Mortgage
Company, LLC.[6] The resulting Deed of Trust
(“DOT”) named Homestate Mortgage Company, LLC as
a beneficiary and Pacific Northwest Title as
trustee.[7] After executing several subsequent Deeds
of Trust, in 2013, the Kellys claim they executed the DOT
that named loanDepot as the beneficiary.[8] Sometime in the
period between 2016 and 2018, the Kellys fell behind on their
loan payments to loanDepot.[9]In response, loanDepot accelerated
the Kellys' loan.[10] On August 22, 2018, loanDepot
appointed Clear Recon as successor trustee.[11] On that same
day, Clear Recon recorded a Notice of Default, which stated
that a foreclosure sale by public auction would occur on
November 28, 2018.[12]
However,
on or about November 19, 2018, Ethel Kelly filed for
bankruptcy, which stayed the foreclosure
proceedings.[13] Clear Recon postponed the
auction.[14] Ethel Kelly's bankruptcy proceedings
were eventually dismissed.[15] After the dismissal, on
January 30, 2019, the Kellys claim that Clear Recon conducted
a foreclosure auction without notifying them of the time or
place of the rescheduled sale.[16] Following the sale, on
February 8, 2019, Clear Recon assigned the property to Fannie
Mae.[17] The Kellys claim to have been unaware
that the rescheduled sale had taken place until they were
informed by Alaska Legal Services Corporation.[18] Fannie Mae
scheduled a second sale of the property for April 8-10,
2019.[19] At some time during the foregoing, the
Kellys claim to have requested information from loanDepot
pursuant to the Real Estate Settlement Procedure Act
(“RESPA”)[20] to no avail.[21] Despite the foreclosure
sale, the Kellys remain in possession of the
property.[22]
On
March 29, 2019, the Kellys filed a Complaint in the Superior
Court for the State of Alaska.[23] On June 12, 2019, the Kellys
filed an Amended Complaint in state court.[24] The
Kellys' Amended Complaint raises four causes of
action.[25] First, the Kellys request that the Court
quiet title in their favor for the property at issue here, or
alternatively “remove the cloud from plaintiffs'
title.”[26] Second, the Kellys claim that their DOT
mandated that loanDepot give them notice before accelerating
their loan, which it failed to do.[27] Therefore, the Kellys
claim that loanDepot is in breach of contract and request
that the Court rescind the foreclosure sale and award damages
to the Kellys.[28] Third, the Kellys claim that their DOT
mandated loanDepot give them notice of the time and place of
a foreclosure sale before conducting the sale, which it
failed to do.[29] Therefore, the Kellys claim that
loanDepot is again in breach of contract and request that the
Court rescind the foreclosure sale and award
damages.[30] Fourth, by failing to respond to their
request for information, the Kellys claim loanDepot violated
RESPA, entitling them to actual damages, statutory damages,
costs, and attorney's fees.[31]
On July
2, 2019, loanDepot and Fannie Mae removed this action to
federal court invoking the Court's federal question
jurisdiction under 28 U.S.C. § 1331.[32] On July 9,
2019, loanDepot and Fannie Mae filed a Motion to Dismiss
pursuant to Fed.R.Civ.P. 12(b)(6), which Clear Recon
joined.[33] In their Motion, loanDepot, Fannie Mae,
and Clear Recon argue that the Kellys' claims fail as a
matter of law.[34] First, the Defendants argue that the
Kellys have failed to plead their breach of contract
claims.[35] Specifically, the Defendants assert that
the Kellys have not alleged that loanDepot was obligated to
provide them notice under the DOT, nor have they effectively
pleaded that they did not receive actual
notice.[36] Second, the Defendants argue that the
Kellys have not made out their RESPA claim because they have
not pleaded the necessary element of damages and have not
pleaded sufficient facts to put the Defendants on notice of
the claim.[37] Third, Defendants argue that the
Kellys' quiet title claim must fail because the
allegations do not establish that the Kellys have superior
title to Fannie Mae or loanDepot.[38] The Kellys argue that
they have adequately pleaded each of their
claims.[39]
III.
LEGAL STANDARD
Defendants
move under Fed.R.Civ.P. 12(b)(6) to dismiss all claims for
failure to state a claim upon which relief can be
granted.[40] In order to survive a motion to dismiss,
a complaint must set forth “a short and plain statement
of the claim showing that the pleader is entitled to relief,
”[41]and “contain sufficient factual
matter, accepted as true, to ‘state a claim to relief
that is plausible on its face.'”[42] In ruling on
a 12(b)(6) motion, the Court must “accept all factual
allegations of the complaint as true and draw all reasonable
inferences in favor of the nonmoving
party.”[43]
In
determining whether a complaint pleads sufficient facts to
cross “the line between possibility and plausibility,
” courts may disregard “[t]hreadbare” legal
conclusions.[44] However, a plaintiff need not plead
“all facts necessary to carry” his or her
burden.[45] “Determining whether a complaint
states a plausible claim for relief . . . [is] a
context-specific task that requires the reviewing court to
draw on its judicial experience and common
sense.”[46] So long as plaintiffs meet this standard
of plausibility, their claim survives a 12(b)(6) motion even
if defendants present a similarly plausible description of
the disputed events.[47] “A dismissal for failure to state
a claim is proper only if it appears beyond doubt that the
plaintiff can prove no set of facts in support of his claim
which would entitle him to relief.”[48]
Generally,
the court should not consider materials outside of the
pleadings when ruling on a motion to dismiss for failure to
state a claim.[49] Courts may consider materials submitted
with or relied on by the pleading at issue where the
Complaint “necessarily relies” on those documents
and their authenticity is not disputed.[50]
IV.
DISCUSSION
The
Kellys have raised four claims, albeit in a different order
than listed here: (1) a breach of contract claim for
loanDepot's alleged failure to notify the Kellys that
their loan was to be accelerated, (2) a breach of contract
claim for loanDepot's alleged failure to notify the
Kellys of the time and place of the foreclosure sale, (3) a
claim under RESPA for loanDepot's alleged failure to
respond to the Kellys' information requests, and (4) a
claim for quiet title as to the property in
question.[51] Defendants have moved for dismissal of
all claims. The Court addresses whether dismissal is proper
for each claim in turn.
A.
Whether the Kellys Have Adequately Pleaded Their First Breach
of Contract Claim- Failure to Give Notice of
Acceleration
The
Court first looks to the Kellys' breach of contract claim
against loanDepot, which alleges that the loanDepot was
contractually required to provide the Kellys notice before
accelerating their loan.[52] Under Alaska law, a breach of
contract claim has three elements: (1) there was a contract
between the parties, (2) the defendant breached the contract,
and (3) the plaintiff suffered damages.[53]
The
Kellys have sufficiently plead that they had a contract with
loanDepot and they suffered damages. The Kellys claim that
their breach of contract claim arises from the DOT they
executed with loanDepot.[54] Thus, the Kellys have effectively
pleaded a contract exists between the parties.[55] The Kellys
also claim that because of loanDepot's alleged breach,
their property was wrongfully foreclosed.[56] This
represents a sufficient allegation of damages.[57] Therefore,
the Kellys have effectively pleaded two of the three elements
of a breach of contract claim-i.e. the existence of a
contract and that they suffered damages.
The
Defendants argue, however, that because the Kellys first
breached the contract by failing to keep up loan payments,
loanDepot was excused from performance.[58] The
Defendants do not supply any authority for this proposition.
Furthermore, Alaska case law suggests that notice obligations
contained in deeds of trust are still enforceable even if the
borrower is in default. For instance, in Farmer v.
Alaska, the Supreme Court of Alaska noted that, although
Alaska law did not require a lender to renotify a borrower of
the time and place for a rescheduled foreclosure sale, the
borrower “could have contracted for more
notice.”[59] Additionally, other courts have astutely
noted that it would be “absurd” to allow lenders
to ignore post-default provisions of mortgage contracts where
“the contract specifically contemplates the Plaintiff
falling into arrears by imposing obligations on the Defendant
to do certain things in the event of arrearage prior to
commencing foreclosure.”[60] Therefore, the Court finds
that even though the Kellys fell into arrears, loanDepot was
still required to fulfill its obligations relating to
foreclosure procedures under the DOT.
The
Defendants also argue the Kellys have failed to plead the
second element of a breach of contract claim: that loanDepot
breached the contract.[61] To allege the “breach”
element of their claim, the Kellys assert that the DOT
“mandated Loan Depot [sic] to provide a notice before
accelerating [the] loan.”[62] This assertion relies on
the interpretation of the terms of the DOT. Therefore, for
the purpose of the Motion, the Court is not required to take
them as factually true.[63]
Instead,
the Court looks to the DOT itself to determine whether the
Kellys' claims for breach align with the DOT's
provisions.[64] This is appropriate under Federal Rule
of Evidence 201, which allows the Court to take judicial
notice of certain items without converting a motion to
dismiss into one for summary judgment.[65] Courts may
take judicial notice of facts “not subject to
reasonable dispute” because they are either: “(1)
generally known within the territorial jurisdiction of the
trial court or (2) capable of accurate and ready
determination by resort to sources whose accuracy cannot
reasonably be questioned.”[66] Courts may disregard
allegations in a complaint that are contradicted by matters
properly subject to judicial notice.[67] Here, the DOT at issue is
publicly recorded with the State of Alaska.[68] Therefore,
the Court takes judicial notice of the DOT and its terms.
Under
the “NON-UNIFORM COVENANTS” contained in the DOT,
Section 22 provides, in relevant part:
22. Acceleration; Remedies. Lender shall give notice to
Borrower prior to acceleration following Borrower's
breach of any covenant or agreement in this Security
Instrument (but not prior to acceleration under Section 18
unless Applicable Law provides otherwise). The notice shall
specify: (a) the default; (b) the action required to cure the
default; (c) a date, not less than 30 days from the date the
notice is given to Borrower, by which the default must be
cured; and (d) that failure to cure the default on or before
the date specified in the notice may result in acceleration
of the sums secured by this Security Instrument and sale of
the Property.[69]
Section
22 requires loanDepot give the Kellys notice of acceleration
and a chance to cure defects prior to accelerating the
loan.[70] This notice is distinct from the
later-mentioned Notice of Default that Clear Recon, as
trustee, must issue after the power of sale is
invoked.[71] Therefore, the Kellys have effectively
pleaded that loanDepot had a contractual duty to give them
notice before accelerating their loan.
The
Kellys also claim loanDepot “did not provide plaintiffs
notice that it was accelerating their loan, but did so
anyways.”[72] Defendants characterize this as a
“bald conclusory pleading” and argue that
“Plaintiffs make no effort to plead any facts
whatsoever to support their allegation that an acceleration
notice was not provided.”[73] Defendants'
characterization is incorrect. The Kellys have pleaded that
under the DOT's terms that loanDepot had a duty to
provide notice of acceleration, and that loanDepot failed to
provide such notice.[74] It would be untenable to require the
Kellys to articulate all the ways that they did not receive
notice. The Kellys' pleadings are wholly sufficient to
put loanDepot on notice of the factual assertions underlying
the claim by asserting that notice was not given. Therefore,
the Kellys have stated a claim for breach of contract as to
notice of acceleration.
Accordingly,
Defendant's Motion to Dismiss is DENIED
as to Count II of the Amended Complaint.
B.
Whether the Kellys Have Adequately Pleaded Their Second
Breach of Contract Claim-Failure to Give Notice of
Rescheduled Sale
The
Court next considers the Kellys' breach of contract claim
alleging that the Defendants were contractually required to
provide the Kellys with notice of the time and the place of
the rescheduled sale and failed to do so.[75] As above, to
make out a contract claim, the Kellys must allege (1) there
was a contract between the parties, (2) the defendant
breached the contract, and (3) the plaintiff suffered
damages.[76] Again, the Kellys have sufficiently
pleaded the existence of a contract-the DOT-and that they
suffered damages due to the wrongful sale of their home.
The
Kellys allege that the DOT “mandated Loan Depot [sic]
and Clear Recon to provide notice of the time and place of
the foreclosure sale.”[77] The Defendants argue that,
despite the Kellys' assertions, the DOT does not obligate
loanDepot or Clear Recon to give the Kellys additional
specific notice of the postponed sale.[78] Section 22 of
the DOT provides:
If the power of sale is invoked, Trustee shall execute a
written notice of the occurrence of an event of default and
of the election to cause the Property to be sold and shall
record such notice in each Recording District in which any
part of the Property is located. Lender or Trustee shall mail
copies of the notice to the persons and in the manner
prescribed by Applicable Law. Trustee shall give public
notice of sale to the persons and in the manner prescribed by
Applicable Law. After the time required by Applicable Law,
Trustee, without demand on Borrower, shall sell the Property
at public auction to the highest bidder at the time and place
and under the terms designated in the notice of sale in one
or more parcels and in any order Trustee determines. Trustee
may postpose sale of all or any parcel of the Property by
public announcement at the time and place of the previously
scheduled sale.[79]
The DOT
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.”[80] Thus, the DOT
incorporates requirements to trustee foreclosure sales as
they exist under Alaska state law.
Alaska
Statute §34.20.070(c) provides “[w]ithin 10 days
after recording a notice of default [which includes the date,
time, and place of the sale], the trustee shall mail a copy
of the notice by certified mail to . . . any other person
actually in physical possession of the property.” If
the sale is postponed, AS § 34.20.080(e) requires that
the trustee “publicly announce the postponement to the
stated date and hour at the time and place originally fixed
for the sale.” If the postponement is for more than 12
months, the trustee must issue a new public notice of the
sale.[81]
Here,
the Kellys do not allege that Clear Recon failed to notify
them of the original sale which was to take place on November
28, 2018.[82] Rather, the Kellys claim that, after
that sale was postponed, they were not notified of the date,
time, or place of the rescheduled sale.[83] However, no
terms on the face of the DOT or under Alaska law appear to
impose a duty on Clear Recon or loanDepot to specifically
renotify the Kellys if the sale is postponed.[84] The DOT and
Alaska law only require that the trustee announce the new
time and date for the sale at the time and place originally
fixed for the sale by public notice.[85] In fact, the Kellys
concede that AS § 34.20.080(e) did not require
additional notice to be given in this case.[86] The Kellys
have not pleaded that the DOT afforded them a right to be
specifically notified of the January 30, 2019, sale, nor have
they specifically alleged that Clear Recon did not publicly
announce the January 30, 2019, sale at the November 28, 2018,
sale. Therefore, the Kellys have failed to allege that
loanDepot or Clear Recon breached the DOT and, thus, have
failed to state a claim.
Accordingly,
the Defendant's Motion to Dismiss is
GRANTED as to Count III. However, the Court
will allow the Kellys leave to amend to cure defects related
to this claim.[87]
C.
Whether the Kellys Have Adequately Pleaded Their RESPA
Claim
Count
IV of the Amended Complaint alleges that loanDepot failed to
respond to the Kellys' requests for information in
violation of 12 C.F.R. § 1024.36.[88] RESPA
requires the servicer of a federally-related mortgage loan to
provide a timely written response to inquiries from borrowers
regarding the servicing of their loans.[89] Title 12
C.F.R. § 1024.36(a) states that a loan servicer must
comply with the regulatory requirements under RESPA for any
request for information that (1) is written, (2) includes the
name of the borrower, (3) includes “information that
enables the servicer to identify the borrower's mortgage
loan account, ” and (4) “states the information
the borrower is requesting with respect to the borrower's
mortgage loan.”
Within
five days of receiving a compliant request, the servicer must
provide the borrower a written acknowledgment of the
information request.[90] Within 30 days of the request, the
servicer must also provide the borrower with the requested
information or notification that the servicer has determined
the information is not available.[91] If the servicer fails to
respond to a proper request, RESPA entitles the borrower to
recover actual damages and, if there is a “pattern or
practice of noncompliance, ” statutory damages of up to
$2, 000.[92]
In
order to survive a motion to dismiss, a plaintiff must
sufficiently allege: (1) defendant is a loan servicer bound
by RESPA; (2) defendant received a compliant request under 12
U.S.C. 2605(e) from plaintiff; (3) defendant failed to
respond adequately; and (4) “plaintiffs must also
allege actual, cognizable damages resulting from the
Defendants' failure to respond.”[93] A plaintiff
must provide sufficient information about the nature of their
request for information as to put the defendant on
notice.[94] For example, where a plaintiff fails to
attach letters to the servicer or otherwise describe their
contents, dismissal is proper.[95]
Here,
the Kellys have sufficiently pleaded that loanDepot was their
loan servicer bound by RESPA.[96] However, the Defendants argue
that the Kellys have failed to sufficiently allege that a
request for information was sent.[97] Further, the Defendants
argue that the Kellys do not plead that they are entitled to
damages under RESPA.[98]
The
Kellys allege that they, “through their agent, sent
Loan Depot a request for information” and that
loanDepot received the request on March 19,
2019.[99] However, the Kellys have not attached a
copy of their request for information to their Amended
Complaint, they have not provided the date on which the
request was sent, and they have not otherwise described the
contents of the request to allege that it complied with
RESPA. Thus, the Kellys' Amended Complaint does not
properly put the Defendants on notice of a RESPA violation.
Additionally,
the Kellys have not adequately pleaded damages. The Kellys
recite that “Loan Depot's [sic] failure to respond
to requests for information is furthermore part of a pattern
and practices of behavior that entail a conscious disregard
for the rights for the Kellys” and that loanDepot is
liable for actual damages, statutory damages, and
costs.[100] However, the Kellys allege that
loanDepot received their request for information after the
foreclosure sale occurred.[101] The request would not have
stopped a foreclosure sale that had already taken place.
Therefore, they do not allege a basis for actual
damages.[102] Additionally, RESPA only permits
statutory damages where a servicer has a pattern and practice
of being in noncompliance with § 2605 of
RESPA.[103]Here, the Kellys have only alleged a
single instance of noncompliance with RESPA.[104]
Therefore, they have failed to allege a pattern or practice
which would entitle them to statutory damages.
Because
the Kellys have failed to adequately allege that loanDepot
received a request for information which complied with RESPA
and have also failed to plead a basis for actual or statutory
damages, they have failed to state a claim under RESPA.
Accordingly,
loanDepot and Fannie Mae's Motion to Dismiss is
GRANTED as to Count IV of the Amended
Complaint. However, the Court will allow the Kellys leave to
amend to cure the defects related to this
claim.[105]
D.
Whether the Kellys Have Adequately Pleaded Their Quiet Title
Claim
The
Kellys allege in Count I of their Amended Complaint that they
are in possession of the property and have equitable title to
it.[106] Furthermore, they argue that Fannie
Mae's claim to the property is illegitimate based on the
circumstances described in the Amended
Complaint.[107]Therefore, the Kellys request that the
Court quiet title in their favor.[108] The Defendants argue
that the Kellys claim must fail because they do not have a
superior title to the property.[109]
To
state a claim for quiet title under Alaska law, a plaintiff
must allege that they have “a substantial interest in
the property and that [their] title is better than that of
the defendants.”[110] In Alaska, borrowers retain title
to their property if a foreclosure sale was
void.[111] “Only substantial defects such
as the lack of a substantive basis to foreclose in the first
place will make a sale void.”[112] However,
“[w]here a defect in a foreclosure sale makes it merely
voidable . . . sale to a [bona fide purchaser] cuts off the
trustor's ability to set aside the
sale.”[113] A defect is “substantial”
when goes to the trustee's right to proceed with the
foreclosure rather than to “the mechanics of exercising
the power.”[114]
Here,
the Kellys claim that, under the DOT, prior to accelerating
the loan or invoking the power of sale, loanDepot was
obligated to give the Kellys notice.[115] Further,
they allege that loanDepot failed to provide them with such
notice.[116] Because the Kellys allege that a
notice of acceleration following a default is a condition
precedent to foreclosure, Clear Recon, as trustee, did not
have a right to sell the property since proper notice had not
been given.[117] Therefore, the defect alleged by the
Kellys would be a “substantial defect” and may
render the sale of their property void. In such case, their
original title to the property would be retained and
sufficient to support a quiet title action. Therefore, given
the allegations contained in Count II of the Amended
Complaint the Kellys have stated a claim for quiet title.
Accordingly,
loanDepot and Fannie Mae's Motion to Dismiss is
DENIED as to Count II of the Amended
Complaint.
V.
CONCLUSION
Having
carefully reviewed the allegations in the Amended Complaint,
the Court finds that the Kellys have adequately pleaded their
claims for quiet title and breach of contract as to failure
to provide notice of acceleration-Count I and Count II of the
Amended Complaint respectively. Therefore, the Court
DENIES the Defendants' Motion to Dismiss
as to these claims. However, the Kellys have failed to state
a claim for breach of contract as to providing notice of the
rescheduled sale and for violations of RESPA-Count III and
Count IV of the Amended Complaint respectively. Therefore,
the Court GRANTS the Defendants' Motion
as to these claims and gives the Kellys leave to file a
Second Amended ...