Rau v. Calvert Invs.
| Decision Date | 27 November 2019 |
| Docket Number | Case No. 19-10822 |
| Parties | MATTHEW RAU, et al., Plaintiffs, v CALVERT INVESTMENTS, LLC, Defendant. |
| Court | U.S. District Court — Eastern District of Michigan |
MATTHEW RAU, et al., Plaintiffs,
v
CALVERT INVESTMENTS, LLC, Defendant.
Case No. 19-10822
UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION
November 27, 2019
HON. MARK A. GOLDSMITH
OPINION & ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS (Dkt. 11)
This matter is before the Court on Defendant Calvert Investments, LLC's ("Calvert") motion to dismiss Plaintiffs' First Amended Complaint (Dkt. 11). The motion has been fully briefed. Because oral argument will not assist in the decisional process, the motions will be decided based on the parties' briefing. See E.D. Mich. LR 7.1(f)(2); Fed. R. Civ. P. 78(b). This action arises from Calvert's initiation of foreclosure proceedings following Plaintiffs' alleged default on two separate mortgages. Plaintiffs assert a variety of claims alleging various defects, irregularities, and fraudulent representations underlying the mortgage transactions and foreclosure proceedings. For the reasons stated below, the Court grants in part and denies in part Calvert's motion to dismiss.
Since 2014, Plaintiff Matthew Rau has executed several mortgage loan transactions with Calvert as the lender. Am. Compl. ¶ 11 (Dkt. 9). Plaintiffs allege that in 2015, Calvert advised Rau to create a limited liability company to execute a mortgage agreement unrelated to the present action, explaining that doing so would enable Calvert to avoid certain state and federal regulations
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of consumer loans. Id. ¶ 14. Acting in accordance with Calvert's request, Rau created Plaintiff Mchrenzie Investments, LLC ("Mchrenzie"). Id. ¶ 15.
The present action stems from two mortgage loan transactions between the parties. With respect to the first mortgage loan, Calvert agreed to provide financing for the purchase of real property located at 427 Windmill Point Drive, Flushing, Michigan (the "Windmill Property"), which Plaintiffs allege Rau intended to use as his primary residence. Id. ¶ 22. Although Calvert allegedly knew that the Windmill Property was to be used as Rau's residence, Calvert required that the transaction be executed by Mchrenzie. Id. ¶ 23. On June 30, 2017, Mchrenzie and Calvert executed loan agreement under which Calvert loaned Mchrenzie $80,000, secured by a commercial real estate mortgage (the "Windmill Mortgage") on the Windmill Property. Windmill Promissory Note, Ex. 1 to Am. Compl.1
Under the terms of the Windmill Mortgage, Mchrenzie was required to pay any taxes assessed against the Windmill Property. Windmill Mortgage ¶ 5, Ex. 2 to Am. Compl. In the event of Mchrenzie's default on any of its obligations under the Windmill Mortgage, Calvert was authorized, "without demand or notice, [to] pay any taxes," and to add the amount paid to Mchrenzie's total indebtedness. Id. ¶ 13. Additionally, in the event of default, Calvert was authorized, "without notice, and at its option," to accelerate the entire indebtedness due and payable and, as permitted by law, to foreclose upon the Windmill Property. Id. ¶ 14. Mchrenzie separately executed an acknowledgement confirming that Mchrenzie would be responsible for paying taxes and that the property would not be owner-occupied as a primary residence. See Windmill Buyers Acceptance and Acknowledgement, Ex. A.3 to Def. Mot. (Dkt. 11-2). However,
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Plaintiffs allege that Rau lived at the Windmill Property for a period of time until November 2017. Am. Compl. ¶ 31.
In connection with the second mortgage loan, Calvert agreed to finance Rau's purchase of real property located at 604 Warren Avenue, Flushing, Michigan (the "Warren Property"). Id. ¶¶ 32-33. On November 16, 2019, Rau and Calvert executed a loan agreement under which Calvert loaned Rau $115,000, secured by a mortgage (the "Warren Mortgage") on the Warren Property. See Warren Promissory Note, Ex. 4 to Am. Compl. The Warren Mortgage also required Rau to make an additional one-time payment of $12,500 to Calvert. Id. Although the terms of the Warren Mortgage provided that Rau was required to pay Calvert a sum to be held in escrow for the payment of taxes assessed against the Warren Property, Warren Mortgage ¶ 2, Ex. 5 to Am. Compl., the parties executed a disclaimer of this provision, under which Calvert waived the escrow requirement, Limited Waiver, Ex. A.6 to Def. Mot. (Dkt. 11-2). Accordingly, the operative portion of the Warren Mortgage provided that Rau was to pay taxes "on time directly to the person owed payment." Warren Mortgage ¶ 4.
In the event that the Warren Property became subject to a lien arising from the nonpayment of taxes, Calvert was authorized to provide Rau notice of the lien and ten days in which to cure. Id. If Rau defaulted on any obligations under the Warren Mortgage, Calvert was authorized to take any action necessary to protect its interest, including paying any sums secured by a lien and to add the amount paid to Rau's indebtedness. Id. ¶ 7. In the event of default, Calvert was required to provide notice of the default to Rau and to permit him thirty days from the date of the notice in which to cure the default. Id. ¶ 21. If Rau failed to cure the default, Calvert was authorized to accelerate the entire indebtedness due and payable and to foreclose upon the Warren Property. Id.
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Calvert alleges that Plaintiffs defaulted on their respective loans by failing timely to pay the 2018 summer property taxes on the Windmill and Warren Properties. Def. Mot. at 4. Calvert also asserts that Rau was delinquent in remitting the one-time payment of $12,500 owed under the Warren Mortgage. Id. On October 11, 2018, Calvert mailed to Rau a notice that Calvert had paid overdue property taxes on both the Windmill and Warren Properties and that the amounts paid would be added to the principal balances on the respective properties. 10/11/18 Letter, Ex. 6 to Am. Compl. Plaintiffs allege that they received this letter on October 15, 2018, after Rau attempted to pay the property taxes on both properties and discovered that they had already been paid. Am. Compl. ¶¶ 50-51. As conceded in the Amended Complaint, Calvert paid the 2018 summer property taxes on both properties within two weeks of the original due date; however, Plaintiffs allege that this payment was made before the taxes became "delinquent." Id. ¶¶ 107-108. Plaintiffs also allege that despite their offers to pay Calvert the full amount of property taxes owed, Calvert refused to accept payment. Id. ¶ 60.
On October 31, 2018, Calvert mailed to Plaintiffs a notice of mortgage sale stating that a foreclosure sale on the Windmill Property was to occur on December 5, 2018. Windmill Notice of Mortgage Sale, Ex. 7 to Am. Compl. After receiving the notice, Plaintiffs again offered to pay the property taxes; however, Calvert allegedly continued to refuse the payments. Am. Compl. ¶¶ 57-58. A sheriff's sale of the Windmill Property took place on January 9, 2019, see Sheriff's Deed on Mortgage Sale, Ex. B to Def. Mot. (Dkt. 11-3), but Mchrenzie redeemed the property on June 19, 2019, Redemption Receipt, Ex. C to Def. Mot. (Dkt. 11-4).
On January 4, 2019, Calvert mailed to Rau a notice of default with respect to the Warren Property. Warren Default Letter, Ex. 8 to Am. Compl. The notice specified that Rau had defaulted by failing to remit payment for $12,500 and by failing to pay the property taxes. Id. Therefore,
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Calvert provided Rau thirty days, until February 11, 2019, to cure the default by submitting these payments. Id. Rau's counsel responded by letter dated January 24, 2019, noting an error in the amount Calvert stated was owed in property taxes and requesting the payment receipts. 1/24/19 Letter, Ex. 9 to Am. Compl. In a letter dated January 29, 2019, Calvert acknowledged that the amount of taxes owed was misstated in the notice of default and enclosed copies of the paid tax receipts. 1/29/19 Letter, Ex. 10 to Am. Compl. (Dkt. 10). However, Calvert concluded that the mistake did not invalidate the notice or extend the thirty-day cure period. Id. Though Plaintiffs allege that a sheriff's sale on the Warren Property was scheduled to take place on March 20, 2019, there is no indication in the record regarding whether this sale actually occurred. See Am. Compl. ¶ 66.
In the present action, Plaintiffs assert claims alleging: (1) various violations of the Real Estate Settlement Procedures Act ("RESPA"), 12 C.F.R. § 1024.1 et seq., and the Truth in Lending Act ("TILA"), 12 C.F.R. § 1026.1, et seq. (Counts I, II, and III); (2) breach of contract (Count IV); (3) breach of the covenant of good faith and fair dealing (Count VI); (3) fraud (Count VII); (4) violations of the Michigan Consumer Protection Act ("MCPA"), Mich. Comp. Laws § 339.601 et seq. (Count VIII); (5) promissory estoppel (Count IX); and (6) wrongful foreclosure (Count X).2 Relevant to many of Plaintiffs' claims is the allegation that although Calvert knew Rau intended to reside at the Windmill Property, it wrongfully disguised the Windmill Mortgage as a commercial mortgage in order to circumvent certain state and federal regulations of consumer mortgages. See, e.g., Am. Compl. ¶¶ 117-120.
Defendant has filed a motion to dismiss, which will be granted in part and denied in part.
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On a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), "[t]he defendant has the burden of showing that the plaintiff has failed to state a claim for relief." Directv, Inc. v. Treesh, 487 F.3d 471, 476 (6th Cir. 2007) (citing Carver v. Bunch, 946 F.2d 451, 454-455 (6th Cir. 1991)), cert. denied, 552 U.S. 1311 (2008). To survive a Rule 12(b)(6) motion, the plaintiff must allege sufficient facts to state a claim to relief above the speculative level, such that it is "plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The plausibility standard requires courts to accept the alleged facts as true, even when their truth is doubtful, and to make all reasonable...
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