Garcia v. Fed. Nat'l Mortg. Ass'n

• Citation: 782 F.3d 736
• Decision Date: 07 April 2015
• Docket Number: No. 14–1687.,14–1687.
• Parties: Angel GARCIA ; Estela Garcia, Plaintiffs–Appellants, v. FEDERAL NATIONAL MORTGAGE ASSOCIATION; Mortgage Electronic Registration Systems, Inc.; BAC Home Loans Servicing, LP; Bank of America, N.A., Defendants–Appellees, Federal Housing Finance Agency, Intervenor–Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

782 F.3d 736

Angel GARCIA ; Estela Garcia, Plaintiffs–Appellants

v. FEDERAL NATIONAL MORTGAGE ASSOCIATION; Mortgage Electronic Registration Systems, Inc.; BAC Home Loans Servicing, LP; Bank of America, N.A., Defendants–AppelleesFederal Housing Finance Agency, Intervenor–Appellee.

No. 14–1687.

United States Court of Appeals, Sixth Circuit.

April 7, 2015.

ON BRIEF:Jason D. Jenkinson, Traverse City, Michigan, for Appellants. Steven R. Smith, Jena M. Valdetero, Bryan Cave, LLP, Chicago, Illinois, for Defendants–Appellees. Howard N. Cayne, Asim Varma, Michael A. Johnson, Arnold & Porter LLP, Washington, D.C., for Intervenor–Appellee.

Before: MERRITT, STRANCH, and DONALD, Circuit Judges.

MERRITT, J., delivered the opinion of the court, in which STRANCH, J., joined. DONALD, J. (p. 744), concurred in the judgment only.

OPINION

MERRITT, Circuit Judge.

This case presents another appeal from a home foreclosure in Michigan. Plaintiffs raise one issue on appeal: Whether the district court erred in dismissing plaintiffs' due process claim because it found that the Federal National Mortgage Association,¹ commonly referred to as Fannie Mae, was not a state actor for constitutional purposes when it foreclosed upon their home? We affirm the district court's judgment dismissing the due process claim as without merit, but on the ground that the Michigan foreclosure procedure does not violate due process.

I.

Plaintiffs Angel and Estela Garcia obtained a home loan in 2003 from First Guaranty Mortgage Corporation and granted a mortgage to Mortgage Electronic Registration Systems, Inc., sometimes referred to as “MERS,”² as mortgagee and nominee for lender First Guaranty and its successors and assigns. The mortgage was duly recorded with the Leelanau Register of Deeds. In January 2011, Mortgage Electronic Registration Systems assigned the mortgage to BAC Home Loans Servicing, LP, and the assignment was recorded. BAC Home Loans merged into Bank of America on July 1, 2011, and Bank of America became the mortgage holder. As successor by merger, Bank of America was not required to record the assignment.

Plaintiffs do not dispute that in 2007 they fell behind on their mortgage payments and defaulted on the loan. In January 2011, plaintiffs received a letter regarding the default and containing information explaining their rights, including the right to seek a loan modification. Plaintiffs sought foreclosure-related assistance from the Northern Michigan Community Action Agency, and Mr. Garcia and his son attended a workshop offered by the agency on how to prevent foreclosure. Plaintiffs also attended a meeting with Bank of America's legal counsel in April 2011, providing counsel with financial information and forms prepared with help from the Northern Michigan Community Action Agency.³

Plaintiffs were offered a loan modification by Bank of America allowing for reduced payments for a three-month trial period. The letter offering the loan modification directed plaintiffs to make the lowered payments on time for three months and stated that if all the trial period payments were timely made, the loan would be permanently modified. Plaintiffs allege that they made the three payments in accordance with the letter, but that they did not receive any further information regarding a new payment amount after the three modified payments were made. They also allege that Bank of America returned two payments they attempted to make in March 2012. Despite the returned payments, Bank of America offered plaintiffs a permanent loan modification in May 2012 and instructed them to execute and return the loan modification agreement sent to them. Plaintiffs do not allege that they ever executed or returned the loan modification agreement to Bank of America, and Bank of America confirms that it never received any of the required loan modification documents.

In August 2012, Bank of America's legal counsel sent plaintiffs a letter informing them that because they were in default and had not accepted the loan modification agreement, a non-judicial foreclosure would proceed. Notice of the foreclosure was published in accordance with Michigan law and the property was sold at a sheriff's sale on October 12, 2012. Bank of America was the high bidder and purchased the property. It then executed a quitclaim deed to Fannie Mae that was recorded on November 29, 2012. The six-month statutory redemption period under Michigan law expired on April 12, 2013. In June 2013, Fannie Mae filed a possession action in the local court. On October 15, 2013, more than six months after the statutory redemption period had expired, plaintiffs filed this action in Michigan state court against defendants Fannie Mae, Mortgage Electronic Registration Systems, BAC Home Loans Servicing, LP, and Bank of America, N.A. Defendants removed the case to federal court pursuant to both diversity and federal-question jurisdiction. The Federal Housing Finance Agency, the federal “conservator” for winding up the affairs of Fannie Mae, was permitted to intervene.⁴

Plaintiffs brought four claims in their complaint: (1) Quiet Title pursuant to Mich. Comp. Laws § 600.2932 ; (2) violations of Fifth and Fourteenth Amendment Due Process Rights; (3) illegal/improper foreclosure and sheriff's sale pursuant to Mich. Comp. Laws § 600.3204 ; and (4) violation of Mich. Comp. Laws § 600.3205 et seq. Defendants Fannie Mae, Mortgage Electronic Registration Systems, BAC Home Loans Servicing and Bank of America filed a motion to dismiss, as did the intervenor, Federal Housing Finance Agency. The district court granted the motions to dismiss on all claims. Plaintiffs appeal only the dismissal of Count II, which claims violation of their Fifth and Fourteenth Amendment Due Process Rights.

II.

We review a ruling on a Federal Rule of Civil Procedure 12(b)(6) motion to dismiss de novo. Casias v. Wal–Mart Stores, Inc., 695 F.3d 428, 435 (6th Cir.2012). A complaint must contain sufficient factual matter, accepted as true, to “state a claim [for] relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A claim is plausible on its face if the “plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

III.

The Fifth and Fourteenth Amendments prohibit the deprivation of property by a state actor without due process of law. Our previous decisions concerning the Due Process Clause as it relates to foreclosures by Freddie Mac and Fannie Mae have focused on whether Freddie Mac and Fannie Mae have been transformed into state actors in light of the conservatorship of the Federal Housing Finance Agency.⁵ We have not addressed the questions of whether the Federal Housing Finance Agency is a state actor and what restrictions the Due Process Clause may impose on the Agency in its direction of Fannie Mae. We find it unnecessary to wade into that discussion in this case. Even if the Due Process Clause constrains the Federal Housing Finance Agency in its direction of Fannie Mae, its compliance with Michigan's foreclosure-by-advertisement procedures satisfied the requirements of the Due Process Clause.

We begin with a brief look at the historical development of foreclosure and redemption at common law. At early common law, the mortgagee had the right to confiscate the mortgaged property at the time of the first missed payment. If the mortgagor had made a number of payments, the mortgagee received a windfall because it kept all payments made up to the time of default and then also received full title to the property as well. Accordingly, the Court of Chancery in the sixteenth century sought to mitigate this harsh result by granting the mortgagor an equitable period of time to redeem the property by coming current with the payments. The mortgagor's equity of redemption demonstrates the equity courts' reluctance to permit unfair or inequitable loss of a person's property. However, the ambiguity surrounding the equitable redemption process, particularly the uncertainty of the amount of time to redeem the property, prompted states to regularize the process with statutory redemption periods starting in the early 1800s. See Theodore F.T. Plucknett, A Concise History of the Common Law 603–08 (1956); Thomas W. Bigley, Comment, Property Law—The Equity of Redemption: Who Decides When It Ends?, 21 Wm. Mitchell L.Rev. 315, 319–22 (1995) ; Grant Nelson & Dale Whitman, Real Estate Finance Law §§ 7:1–7:5 (3d ed.1994).

As a result, two types, or phases, of the right to redemption now generally exist in the United States. The first is an “equitable” redemption period that occurs before the foreclosure and sale of the property. It allows the mortgagor to pay the outstanding debt and have his rights to the property restored. This opportunity may not be waived by contract and is a creation of the Court of Chancery four centuries ago. The right to redeem after the foreclosure and sale is a “statutory right of redemption.” Statutory redemption provides that even after the equitable right of redemption has been foreclosed, the borrower has one more opportunity to regain the property by paying the purchaser at the foreclosure sale the price paid at the sale. The statutory redemption period is in fact an additional period granted to the property owner after the equitable redemption period ends at the time of sale.

The requirement for “due process of law” functions somewhat like equity to require procedural fairness and to prohibit the state from conducting unfair or arbitrary proceedings. “Procedural due process” at its core requires notice and an opportunity to be heard “at a meaningful time and in a meaningful manner.” Armstrong v. Manzo, 380 U.S. 545, 552, 85 S.Ct. 1187, 14 L.Ed.2d 62 (1965) ; see also Mathews v. Eldridge, 424 U.S. 319, 333, 96 S.Ct. 893,...