Wells Fargo Home Mortgage, Inc. v. Neal, No. 58, September Term, 2006 (Md. App. 3/13/2007)

• Decision Date: 13 March 2007
• Docket Number: No. 58, September Term, 2006.,58, September Term, 2006.
• Parties: WELLS FARGO HOME MORTGAGE, INC. v. ALAN NEAL.
• Court: Court of Special Appeals of Maryland

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WELLS FARGO HOME MORTGAGE, INC. v. ALAN NEAL.

No. 58, September Term, 2006.

Court of Appeals of Maryland.

Filed: March 13, 2007.

Circuit Court for Frederick County Case # 10-C-03-002061.

Bell, C.J., Raker,^* Wilner, Cathell, Harrell, Battaglia, Greene, JJ.

Opinion by HARRELL, J.

We issued a writ of certiorari in this matter, 394 Md. 479, 906 A.2d 942 (2006), to review a judgment of the Court of Special Appeals that was grounded on a holding that a mortgagor under a Fair Housing Administration (FHA) insured loan may be able to maintain a breach of contract claim under State law against a mortgagee for an alleged breach of certain federal regulations alluded to in the parties' FHA-prescribed form deed of trust. Wells Fargo Home Mortgage, Inc. (Wells Fargo), the mortgagee by assignment, argues here that the Court of Special Appeals erred in vacating the summary judgment granted it by the Circuit Court for Frederick County. The Circuit Court concluded that no private cause of action may be asserted by a mortgagor under the mortgage servicing regulations promulgated by the U.S. Department of Housing and Urban Development (HUD) pursuant to the National Housing Act of 1934 (NHA).¹ We hold that Alan Neal, the mortgagor and plaintiff in the Circuit Court, may not advance, as an affirmative cause of action, a State law contract claim based on an asserted breach of the HUD regulations alluded to in his FHA form deed of trust, but may raise a violation of the regulations in pursuit of an injunction blocking foreclosure. Accordingly, we shall reverse the judgment of the Court of Special Appeals.

I. FACTS AND PROCEDURAL HISTORY

On 20 June 1991, Alan and Sheri Neal² executed a "Maryland FHA Deed of Trust" with Margaretten & Company, Inc., to secure the purchase money loan for a dwelling located in Walkersville, Maryland. The mortgage was insured by the FHA pursuant to the provisions of § 203(b) of the NHA.³ The deed of trust was assigned by Margaretten for servicing to Wells Fargo. Sometime in 2002 or 2003, Neal fell behind in making the monthly mortgage payments when due. Wells Fargo initiated foreclosure proceedings in the Circuit Court, which proceedings were stayed when Neal filed a Complaint on 27 August 2003 that commenced the action that is the subject of this case.

Neal posited in his Complaint, and maintains in this Court, that Wells Fargo breached the terms of paragraph 9(d) of the deed of trust by failing to observe the various pre-foreclosure loss mitigation procedures set out in the HUD mortgage servicing regulations. Paragraph 9(d) of the deed of trust provides:

9. Grounds for Acceleration of the Debt

* * *

(d) Regulations of HUD Secretary. In many circumstances regulations issued by the Secretary will limit Lender's rights in the case of payment defaults to require immediate payment in full and foreclose if not paid. This Security Instrument does not authorize acceleration or foreclosure if not permitted by regulations of the Secretary.

Based on Wells Fargo's purported failure to follow the HUD regulations before accelerating the mortgage debt and instituting foreclosure, Neal advanced two causes of action. First Neal claimed that the regulatory violations constituted a breach of contract, entitling him to monetary damages. Second, he petitioned for declaratory relief⁴ to prevent Wells Fargo from pursuing foreclosure under the deed of trust. Wells Fargo responded with a motion for summary judgment, arguing that the HUD regulations relied on by Neal do not afford a borrower a private cause of action such as the one pleaded in Neal's Complaint. Neal opposed Wells Fargo's motion and filed a cross-motion for summary judgment advancing the same contentions asserted in his Complaint. After a motions hearing, the court entered summary judgment in favor of Wells Fargo based on the premise that the HUD regulations were intended for the benefit of HUD enforcement of the FHA mortgage insurance program and did not grant a private cause of action for a borrower such as Neal.

Neal appealed to the Court of Special Appeals, which vacated the summary judgment granted by the Circuit Court and remanded the matter for further proceedings on the contract claim asserted by Neal. Neal v. Wells Fargo Home Mortgage, Inc., 168 Md. App. 747, 750-51, 899 A.2d 208, 210 (2006). Although the intermediate appellate court acquiesced in the notion that the HUD regulations did not afford a private right of action for their violation, it found fault with the Circuit Court's grant of summary judgment for its failure to consider whether Neal could rely on the regulations referred to in the deed of trust to support a State law breach of con tract action. Neal, 168 Md. App. at 752-53, 899 A.2d at 211-12. The Court of Special Appeals found support for its holding in Wells v. Chevy Chase Ban k, F.S.B., 377 Md. 197, 832 A.2d 812 (2003), cert. denied, 541 U.S. 983, 124 S. Ct. 1875, 158 L. Ed. 2d 485 (2004), and College Loan Corp. v. SLM Corp., 396 F.3d 588 (4th Cir. 2005). The appellate court panel construed those cases to stand for the general proposition that private parties are bound by and may be liable, each to the other, under state and federal statutory or regulatory standards specifically incorporated into contracts executed between them. Therefore, the Court of Special Appeals remanded the case to the Circuit Court to determine whether Neal and Wells Fargo bargained for the provision referring to the HUD loss mitigation regulations.

II. ANALYSIS

A. Standard of Review for the Grant of Summary Judgment

"In reviewing a grant of summary judgment under Md. Rule 2-501, we independently review the record to determine whether the parties properly generated a dispute of material fact and, if not, whether the moving party is entitled to judgment as a matter of law." Livesay v. Baltimore, 384 Md. 1, 9-10, 862 A.2d 33, 38 (2004). Because we perceive no genuine dispute of material fact in the instant controversy,⁵ we review the Circuit Court's grant of summary judgment de novo to determine if the court's decision was legally correct. Myers v. Kayhoe, 391 Md. 188, 203, 892 A.2d 520, 529 (2006) (citing Livesay, 384 Md. at 9, 862 A.2d at 38); Dual Inc. v. Lockheed Martin Corp., 383 Md. 151, 162, 857 A.2d 1095, 1101 (2004).

B. A Private Right of Action?

At the outset, we note a distinction between Neal's theory of this case and the more ubiquitous argument that violation of the NHA or the companion HUD regulations may support a private cause of action for individuals harmed by those violations. The parties agree that the weight of authority around the country roundly rejects the notion that either the NHA or associated HUD regulations support either direct or implied private causes of action for their violation. See, e.g., Krell v. Nat'l Mortgage Corp., 448 S.E.2d 248, 249 (Ga. Ct. App. 1994) (holding that a defaulting FHA mortgagor had no private right of action to pursue under the NH A); Prudential Ins. Co. of Am. v. Jackson, 637 A.2d 573, 576 (N.J. Super. Ct. App. Div. 1994) (reiterating that no private cause of action is derived from the provisions of the HUD regulations concerning foreclosure avoidance); Perry v. Hous. Auth., 664 F.2d 1210, 1215-17 (4th Cir. 1981) (rejecting the argument that a private right of action can be implied from the NHA); Shivers v. Landrieu, 674 F.2d 906, 910-12 (D.C. Cir. 1981) (finding that the NHA does not provide for an implied private right of action under its accompanying HUD regulations); Falzarano v. United States, 607 F.2d 506, 509-11 (1st Cir. 1979) (stating that the NHA does not provide expressly for a private cause of action and concluding that no implied private right of action exists based on the factors set forth in Cort v. Ash, 422 U.S. 66, 95 S. Ct. 2080, 45 L. Ed. 2d 26 (1975), and the presence of a regulatory enforcement scheme controlled by the Secretary of HUD); Cedar-Riverside Assocs., Inc. v. City of Minneapolis, 606 F.2d 254, 258-59 (8th Cir. 1979) (holding that no private cause of action is created in the NHA for a violation of its competitive bidding provisions); City of Rohnert Park v. Harris, 601 F.2d 1040, 1045-47 (9th Cir. 1979) (holding that the "Housing Act does not expressly provide that private persons may sue to enforce its terms," and reasoning that "[a]ll four criteria [of Cort v. Ash] militate against implying a cause of action"), cert. denied, 445 U.S. 961, 100 S. Ct. 1647, 64 L. Ed. 2d 236 (1980); Roberts v. Cameron-Brown Co., 556 F.2d 356, 360 (5th Cir. 1977) (concluding that because the NHA and its accompanying regulations do not provide for a private right of action, the HUD Handbook distributed by the Department to mortgagees as a reference guide similarly could not support a private right of action); M.B. Guran Co. v. City of Akron, 546 F.2d 201, 204 (6th Cir. 1976); see also In re Miller, 124 Fed. App'x. 152, 154-56 (4th Cir. 2005) (unpublished) (determining that no private right of action arises from violation of NHA loss mitigation provisions); see generally Burroughs v. Hills, 741 F.2d 1525, 1531-32 (7th Cir. 1984) ("Efforts to enforce implied causes of action under the National Housing Legislation or the HUD Handbook, have frequently come under consideration of appellate courts, and have always failed."), cert. denied, 471 U.S. 1099, 105 S. Ct. 2321, 85 L. Ed. 2d 840 (1985).

In the instant case, Neal does not plead a private action derived directly or impliedly from the NHA or its implementing regulations. At issue here, rather, is whether a paragraph in an FHA-approved form deed of trust alluding to a particular sub-set of HUD regulations is a bargained-for term between the mortgagor and mortgagee such that an alleged violation of the regulations may give rise to a private action maintainable by the mortgagor against the mortgagee for breach of contract under Maryland law. As principal support for this theory, Neal and the Court of Special Appeals rely...