Eaton v. Dep't of Veterans Affairs, CIVIL ACTION 20-0354-WS-M
| Decision Date | 14 September 2020 |
| Docket Number | CIVIL ACTION 20-0354-WS-M |
| Parties | FRANK H. EATON, etc., Plaintiff, v. DEPARTMENT OF VETERANS AFFAIRS, et al., Defendants. |
| Court | U.S. District Court — Southern District of Alabama |
This matter is before the Court on the motion of defendant Wells Fargo Bank ("Wells Fargo") to dismiss. (Doc. 6). The parties have filed briefs in support of their respective positions, (Docs.6, 12, 16), and the motion is ripe for resolution. After careful consideration, the Court concludes the motion is due to be granted, with leave to amend.
According to the complaint, (Doc. 1-2 at 3-10), the plaintiff is the personal representative of a decedent who, with her now-deceased husband, obtained a mortgage loan from Wells Fargo. Defendant Department of Veterans Affairs ("VA") guaranteed the loan. After the decedent's husband died, the loan fell into default. Wells Fargo conducted a foreclosure sale as agent for VA but failed to provide the decedent with necessary pre-foreclosure notices. Wells Fargo purchased the property for over $100,000 and obtained a foreclosure deed. Wells Fargo then deeded the property to VA for $500. VA then sold the property to third parties ("the Colliers") for over $123,000, generating a surplus over the amount owing on the underlying note, which VA and Wells Fargo have refused to remit to the plaintiff.
The complaint in seven counts asserts claims against both defendants for: (1) void foreclosure; (2) breach of contract; (3) breach of fiduciary duty; (4) money had and received; (5) negligence; (6) wantonness; and (7) fraudulent concealment of a cause of action. (Doc. 1-2 at 5-10).
Wells Fargo first argues that void foreclosure can only be asserted as a defense to an ejectment action and not as an affirmative cause of action. (Doc. 6 at 6). This is incorrect, as reflected by the very case on which Wells Fargo relies. "'In ... an action to set aside the sale after it has occurred, ... any circumstance in the foreclosure process that would render the foreclosure void ... may be asserted.'" Pittman v. Regions Bank, 226 So. 3d 193, 196-97 (Ala. Civ. App. 2016) (quoting Campbell v. Bank of America, 141 So. 3d 492, 494 (Ala. Civ. App. 2012)).
Wells Fargo next argues that a claim for void foreclosure is subject to a two-year "statute of limitations" that is "codified" in Section 6-9-147 of the Alabama Code. Since the foreclosure sale occurred in April 2015 and suit was not brought until June 2020, Wells Fargo concludes the claim is automatically time-barred. (Doc. 6 at 6).
"Courts have full power over their officers making execution or judicial sales, and whenever satisfied that a sale made under any legal process is infected with fraud, oppression, irregularity, or error to the injury of either party, the sale will be set aside." Ala. Code § 6-9-147. No limitations period is expressed in this provision. Instead, Alabama courts have indulged a presumption of a mortgagor's ratification of a foreclosure sale when he fails to challenge it within the redemption period. Browning v. Palmer, 4 So. 3d 524, 527-28 (Ala. Civ. App. 2008) (discussing Garris v. Federal Land Bank, 584 So. 2d 791 (Ala. 1991)). "'But where there are peculiar features that seem to refute the presumption of ratification after the lapse of two years that rule is relaxed and the presumption of ratification is not given effect.'" Id. at 528 (quoting Cloud v. Gamble, 86 So. 2d 836, 838 (Ala. 1956)). Thus, neither "the presumption discussed in Garris [nor] the one-year statutory right of redemption ... create[s] an implied limitations period that finally severs the time within which a debtor may petition the courts to set aside a foreclosure sale under § 6-9-147 ...." Id. at 528. Instead, when a plaintiff's time forbringing an action under Section 6-9-147 expires depends on the "peculiar features" or "special circumstances" of the particular case. Id. In Cloud, the plaintiff's suit was timely even though brought almost seven years after the foreclosure sale. Id.1
Because Wells Fargo has neither addressed the timeliness of the plaintiff's void foreclosure claim under the above standard nor shown that this standard is not the correct one, it is not entitled to dismissal on grounds of untimeliness.
The complaint asserts that the foreclosure is void because the defendants did not provide the decedent with "pre-foreclosure notices in strict conformity with the mortgage." (Doc. 1-2 at 5). Wells Fargo argues the pleading fails to satisfy Rule 8(a)(2), as construed in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), because it "fails to specify what exact pre-foreclosure notices" are at issue. (Doc. 6 at 6). The Court agrees.
"It is a basic tenet of contract law that a party can only advance a claim of breach of written contract by identifying and presenting the actual terms of the contract allegedly breached." Herssein Law Group v. Reed Elsevier, Inc., 594 Fed. Appx. 606, 608 (11th Cir. 2015) (internal quotes omitted). Failure to do so "doom[s] the claim pursuant to the standards of Twombly and Iqbal. Id.; accord Burgess v. Religious Technology Center, Inc., 600 Fed. Appx. 657, 664 (11th Cir. 2015) (). The plaintiff's failure to identify the provisions at issue exposes his void foreclosure claim to dismissal.
Finally, Wells Fargo argues that the plaintiff is "unlikely" to state a claim for "wrongful foreclosure," because such claims "'cannot [be] based only on allegations that a mortgagee did not comply with contractual or statutory requirements during the foreclosure process.'" (Doc. 6 at 7 n.1 (quoting Caldwell v. Nationstar Mortgage, LLC,2019 WL 6311496 at *3 (N.D. Ala. 2019)). That is all well and good, but the plaintiff alleges void foreclosure, not wrongful foreclosure, and at least some notice violations will support a claim for void foreclosure. "Among the circumstances that may render a foreclosure sale void [are] when the foreclosing entity failed to give notice of the time and place of the foreclosure sale ...." Pittman, 226 So. 3d at 197 (internal quotes omitted). As the plaintiff notes, (Doc. 12 at 10-11), recent Alabama decisions indicate that a failure to strictly comply with notice requirements set forth in a mortgage (as asserted in this case) can render a foreclosure sale void.
Counts II through VI seek recovery of the surplus proceeds and other damages incident thereto. (Doc. 1-2 at 6-8).2 Wells Fargo asks a very reasonable question: since the complaint alleges that the surplus was generated by sale of the property to the Colliers, and since it also alleges that the sale to the Colliers was by VA and that VA alone received the sale proceeds (Wells Fargo having several months previously sold the property to VA and delivered a deed thereto), how can Wells Fargo be liable for VA's failure to turn over the surplus to the plaintiff? (Doc. 6 at 5-6).
The plaintiff, (Doc. 12 at 9-10), responds that his claims against Wells Fargo are based on Williams v. Wells Fargo Home Mortgage, Inc., 2016 WL 2993196 (S.D. Ala. 2016) ("Williams II"). This Court in Williams II predicted that the Alabama Supreme Court "would hold that a mortgagee purchasing mortgaged property at a foreclosure sale for the amount of the mortgage debt and then reselling the property to a third party during the statutory redemption period for an amount exceeding the mortgage debt must remit the excess to the mortgagor." Id. at *3. The plaintiff does not explain, and the Court does not perceive, how Williams II supports his claims.
Williams II relied on Williams v. Wells Fargo Home Mortgage, Inc., 2015 WL 4602949 (S.D. Ala. 2015) ("Williams I"), which provided the supporting analysis. InSpringer v. Baldwin County Federal Savings Bank, 562 So. 2d 138 (Ala. 1989), the Court held that "a mortgagee who purchases the mortgaged property at a foreclosure sale and then resells it to a third party during the statutory redemption period is required to apply the profit (the sum realized by the mortgagee in excess of the amount it paid at foreclosure) to the reduction of the mortgagor's debt." Id. at 139. In Davis v. Huntsville Production Credit Association, 481 So. 2d 1103 (Ala. 1985), the Court held that, "[w]hen property is sold at a foreclosure sale, ... at an amount greater than the indebtedness secured by the mortgage, the mortgagee is liable to the mortgagor for the surplus." Id. at 1106. The Court in Williams I twinned these propositions (both arising from the mortgagee's status as trustee as to surplus proceeds) to require a mortgagee purchasing the property in foreclosure and then reselling it (during the redemption period) for an amount exceeding the mortgage debt to remit the excess to the mortgagor. 2015 WL 4602949 at *1-2.
Williams I and II, and the cases on which they rely, address only the duties of a mortgagee with respect to surplus proceeds the mortgagee obtains, either when it conducts a foreclosure sale or when it resells the foreclosed property to a third party. The complaint alleges that Wells Fargo was the original mortgagee in 1996, (Doc. 1-2 at 4, 6), but it also suggests that VA was the mortgagee as of the 2015 foreclosure. (Id. at 3, 4). In brief, the plaintiff asserts that Wells Fargo was not the mortgagee but was a mere servicer. (Doc. 12 at 9, 12). Similarly, the complaint confirms that Wells Fargo did not receive any surplus proceeds, either at the foreclosure sale or upon resale to VA. (Doc. 1-2 at 5). The only surplus proceeds were generated by VA's sale to the Colliers, (id.), and the complaint admits that these proceeds were paid to VA, not to Wells Fargo. (Id. at 7). If Wells Fargo was not the mortgagee at the relevant time, and if Wells Fargo did not receive any surplus...
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