The United States District Court for the Eastern District of Michigan recently dismissed plaintiff debtor’s complaint seeking to have the foreclosure and sheriff’s sale set aside, on the grounds that plaintiff failed to state a wrongful foreclosure claim based on only allegations of 12 C.F.R. 1024.41(g) (“Regulation X”) violations, and holding that “to find that Plaintiff has made out a state-law wrongful foreclosure case using only allegations of Regulation X violations would amount to the creation of a hybrid remedy where neither state law nor federal law has provided for one.” Wilson v. Deutsche Bank Nat’l Tr. Co., 2017 WL 1054491 (E.D. Mich. March 20, 2017). In the case, defendant bank was the assignee of a mortgage and note executed by plaintiff which secured plaintiff’s home. Plaintiff alleged that over the course of 2014 and 2015, he made numerous inquiries with defendant loan servicer in an attempt to modify the mortgage loan, and that he sent two applications for a modification of the mortgage loan but received no formal decision from either defendant loan servicer or defendant bank. Subsequently, in January 2016, after plaintiff defaulted on the loan, foreclosure by advertisement proceedings were commenced and plaintiff’s home was sold at a sheriff’s sale to defendant bank. Plaintiff then filed this action, asserting a sole count of wrongful foreclosure and alleging that defendants’ actions violated Regulation X and seeking, among other things, to enjoin any eviction or transfer of the property pending a trial on the merits and a judgment setting aside the sheriff’s sale. Defendant bank filed a motion to dismiss.
The court first addressed defendant’s argument that plaintiff lacks standing to challenge the foreclosure because he failed to redeem the property within the statutorily prescribed period following the sale. The court held that where a borrower has failed to redeem the property within the redemption period, he must show fraud or irregularity to have the foreclosure set aside. In this case, however, the court determined that if the complaint does allege any irregularities, they were in the loan modification process and not the foreclosure process. Therefore, plaintiff failed to allege the fraud or irregularity necessary to justify setting aside the foreclosure sale after the expiration of the statutory redemption period. The court then addressed defendant’s argument that plaintiff’s reliance on Regulation X as a basis for his claim is legally unsupported and that he has otherwise failed to state a claim under Regulation X. The court noted ambiguity in whether plaintiff is making a wrongful foreclosure claim under state law or a claim for damages under Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. 2605. Despite this ambiguity, the court held that even if construed as alleging RESPA violations only, the complaint is deficient because plaintiff has not alleged actual damages. The court acknowledged that RESPA grants plaintiffs a cause of action for money damages in some circumstances, while the Michigan statutory framework governing wrongful foreclosure claims provides an equitable remedy in others; however, “[i]f every violation of Regulation X were per se sufficient to set aside a Michigan foreclosure, many of the state-created restrictions on plaintiffs seeking that form of equitable relief would be rendered superfluous.” Therefore, plaintiff failed to plead any cause of action.