Jordan v. Nationstar Mortg., LLC, : 2:14–CV–0175–TOR

• Decision Date: 09 March 2017
• Docket Number: NO: 2:14–CV–0175–TOR,: 2:14–CV–0175–TOR
• Citation: 240 F.Supp.3d 1114
• Parties: Laura Zamora JORDAN, as her separate estate, and on behalf of others similarly situated, Plaintiff, v. NATIONSTAR MORTGAGE, LLC, a Delaware limited liability company, Defendant.
• Court: U.S. District Court — District of Washington

240 F.Supp.3d 1114

Laura Zamora JORDAN, as her separate estate, and on behalf of others similarly situated, Plaintiff,

v.NATIONSTAR MORTGAGE, LLC, a Delaware limited liability company, Defendant.

NO: 2:14–CV–0175–TOR

United States District Court, E.D. Washington.

Signed March 9, 2017

Beth E. Terrell, Blythe H. Chandler, Terrell Marshall Law Group PLLC, Michael D. Daudt, Daudt Law PLLC, Seattle, WA, Clay M. Gatens, Michelle A. Green, Jeffers Danielson Sonn & Aylward PS, Wenatchee, WA, for Plaintiff.

John Alan Knox, Williams Kastner & Gibbs, Seattle, WA, Andrew Weiss Noble, Jan T. Chilton, Mary Kate Sullivan, Severson & Werson APC, San Francisco, CA, for Defendant.

ORDER DENYING FEDERAL HOUSING FINANCE AGENCY'S MOTION FOR PARTIAL SUMMARY JUDGMENT

THOMAS O. RICE, Chief United States District Judge

BEFORE THE COURT is the Federal Housing Finance Agency's Motion for Partial Summary Judgment (ECF No. 118). This matter was submitted for consideration without oral argument. The Court has reviewed the briefing and the record and files herein, and is fully informed.

BACKGROUND

This certified class action is comprised of more than 5,000 Washington homeowners challenging Defendant Nationstar Mortgage, LLC's ("Nationstar") policy of taking possession of homes in default by entering and changing locks prior to foreclosure. See ECF No. 1–2. On July 7, 2016, the Washington Supreme Court determined, among other things, that RCW 7.28.230 prohibits pre-foreclosure residential entry. See Jordan v. Nationstar Mortgage, LLC , 185 Wash.2d 876, 374 P.3d 1195 (2016) ; see also ECF No. 89.

Thereafter, the Court granted the Federal Housing Finance Agency ("FHFA") permission to intervene in this action as conservator for the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac") (collectively, the "Enterprises"). See ECF Nos. 92; 113. The FHFA then moved for partial summary judgment on the ground that the Housing and Economic Recovery Act of 2008 ("HERA") preempts RCW 7.28.230. See Pub. L. 110–289, 122 Stat. 2654 (codified at 12 U.S.C. § 4501 et seq. ); ECF No. 118. Plaintiff and the State of Washington, as Plaintiff's amici, oppose the FHFA's motion. ECF Nos. 137; 145.

DISCUSSION

The FHFA argues that HERA preempts RCW 7.28.230 and, therefore, the Enterprises' mortgage loan documents and loan servicing policies authorizing pre-foreclosure interior inspections are enforceable. See ECF No. 118 at 1. The FHFA explains that HERA expressly preempts application of state law, occupies the field with respect to its operation of the Enterprises in conservatorship, and application of RCW 7.28.230 is barred by the doctrine of obstacle preemption. Id. at 5.

Plaintiff Laura Zamora Jordan, representing thousands of similarly situated Washington class members, and her amici, the State of Washington, argue that there is a strong presumption against preemption when the government intrudes in mortgage foreclosure law and that each of the FHFA's preemption theories fail. See ECF Nos. 137 at 13; 145 at 3. Plaintiff observes that the FHFA failed to support its motion with evidence showing that RCW 7.28.230 actually conflicts with FHFA requirements. See ECF No. 137 at 7. Plaintiff alternatively contends the structure of the FHFA is unconstitutional and seeks leave to challenge the same if FHFA's motion is granted. Id. at 27.

In turn, the FHFA argues there is no presumption against preemption because HERA focuses on regulating the safety and soundness of the Enterprises, not mortgage foreclosure law. See ECF No. 146 at 3–5.

A. Standard of Review

Summary judgment may be granted to a moving party who demonstrates "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The moving party bears the initial burden of demonstrating the absence of any genuine issues of material fact. Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The burden then shifts to the non-moving party to identify specific facts showing there is a genuine issue of material fact. See Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A fact is "material" if it might affect the outcome of the suit under the governing law. Anderson , 477 U.S. at 248, 106 S.Ct. 2505. A dispute concerning any such fact is "genuine" only where the evidence is such that the trier-of-fact could find in favor of the non-moving party. Id. In ruling upon a summary judgment motion, a court must construe the facts, as well as all rational inferences therefrom, in the light most favorable to the non-moving party. Scott v. Harris , 550 U.S. 372, 378, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007).

Questions of preemption are purely legal and may be resolved on summary judgment. See Bank of Am. v. City & Cty. of San Francisco , 309 F.3d 551, 566 (9th Cir. 2002). A party who asserts preemption bears the heavy burden to show that was the "clear and manifest purpose of Congress." See Wyeth v. Levine , 555 U.S. 555, 565–569, 129 S.Ct. 1187, 173 L.Ed.2d 51 (2009).

B. Housing and Economic Recovery Act of 2008

Fannie Mae and Freddie Mac are congressionally-chartered corporations created to provide stability and liquidity to the national secondary mortgage market. See 12 U.S.C. §§ 1716(1), (4) (Fannie Mae); City of Spokane v. Fed. Nat'l Mortg. Ass'n , 775 F.3d 1113, 1114 (9th Cir. 2014) ; ECF Nos. 120 at ¶ 3; 139 at ¶ 3 (undisputed). The Enterprises contract with various loan servicers, including Nationstar, to facilitate management of their loans with homeowners. In this action, Nationstar contracted with Fannie Mae to service Plaintiff's home loan pursuant to Fannie Mae's Single Family Servicing Guide ("Fannie Mae Guide"). ECF Nos. 120 at ¶ 8; 120–6, Ex. F. Freddie Mac utilizes a similar guide with its servicers, including Nationstar, referred to as Freddie Mac's Single–Family Seller/Servicer Guide ("Freddie Mac Guide"). ECF Nos. 120 at ¶ 9; 120–7, Ex. G. The Enterprises regularly utilize a uniform Deed of Trust for residential mortgages in contracting with Washington homeowners ("Deed of Trust"). See ECF No. 120 at ¶ 5; 120–2, Ex. B; 139 at ¶ 5 (undisputed). The Deed of Trust contains a provision, which permits the lender to enter, maintain, and secure the encumbered property after the borrower's default or abandonment. See ECF No. 120–2, Ex B at ¶ 9. The Washington Supreme Court held that this entry provision is in direct conflict with Washington law RCW 7.28.230 and, therefore, unenforceable. See Jordan v. Nationstar Mortgage, LLC , 185 Wash.2d at 886–89, 374 P.3d 1195.

In 2008, in response to the severe economic downturn and nationwide housing and foreclosure crisis, Congress passed HERA to address the then-burgeoning need "to reform regulatory oversight" of the Enterprises¹ to protect the "public interest."² Congress enacted HERA not only to prevent the Enterprises' past "irresponsible behavior,"³ but also to aid homeowners by "mak[ing] the American dream of homeownership for all a reality instead of a nightmare."⁴ Indeed, Congress members voiced pervasive concern over the need to aid "families fearing they may lose the most important and valuable asset they will ever have, the family home."⁵ Congressional testimony confirms the "desperate[ ] need to have a strong regulator because [the Enterprises] play such a huge role ... in [the] housing industry" in order to "give some hope and opportunity" to homeowners facing foreclosure.⁶

Notably, HERA's legislative history does not reflect the need to protect the Enterprises' pre-foreclosure assets, displace state foreclosure law, or sanctify pre-foreclosure lender possession. Rather, Congress articulated the converse: the desire to help homeowners on the brink of foreclosure retain their homes to stabilize the housing market by providing a watchdog over the Enterprises in conservatorship.

On September 6, 2008, the FHFA became conservator of the Enterprises under HERA "for the purpose of reorganizing, rehabilitating, or winding up the [Enterprises'] affairs." 12 U.S.C. § 4617(a)(1)–(2) ; Cty. of Sonoma v. Fed. Hous. Fin. Agency , 710 F.3d 987, 989 (9th Cir. 2013) ; ECF Nos. 120 at ¶ 4; 139 at ¶ 4 (undisputed). HERA provides that the FHFA, as conservator, "shall ... immediately succeed to ... all rights, titles, powers, and privileges of the [Enterprises], and of any stockholder, officer, or director of [the Enterprises] with respect to the [Enterprises] and the assets of the [Enterprises]." 12 U.S.C. § 4617(b)(2)(A)(i). Further, the FHFA "may ... take over the assets of and operate the [Enterprises]," and "may ... preserve and conserve the assets and property of the [Enterprises]." Id. at § 4617(b)(2)(B)(i), (iv).

HERA broadly authorizes the FHFA to utilize "[g]eneral powers," explaining that FHFA "may," among other things, "take such action as may be ... necessary to put the [Enterprises] in a sound and solvent condition" and "appropriate to carry on the business of the [Enterprises] and preserve and conserve [its] assets and property[.]" Id. at § 4617(b)(2)(D). Reflecting Congress's purpose to safeguard public interest, the FHFA may take any necessary "incidental powers" in the manner that it "determines is in the best interests of the [Enterprises] or the [FHFA]." Id. at § 4617(b)(2)(J)(ii).

While in conservatorship, the Enterprises proposed, and the FHFA adopted, an aligned set of home loan servicing policies memorialized in a Servicing Alignment Initiative ("SAI"). See ECF No. 138–4, Ex. D at 160; see also ECF Nos. 120 at ¶¶ 8–9 120–6, Ex. F (Fannie Mae Guide); 120–7, Ex. G (Freddie Mac Guide). Generally, the policies instruct the Enterprises' home loan servicers to comply with state law. See id.

Against this backdrop and in consideration of HERA's overarching purpose, the Court now analyzes whether HERA preempts state law.

C. Federal Preemption Law

Congress's ability to preempt state law...