Judge Totenberg Denies Dismissal to Bank of America in Wrongful Foreclosure

In ways that seem difficult to reconcile with other opinions on the bench of the United States District Court for the Northern District of Georgia, Federal Judge Amy Totenberg, has declined to dismiss a “wrongful foreclosure,” at the initial Motion to Dismiss stage.   The reasoning is stated below in Delicia T. Williamson v. Bank Of America, N.A., In The United States District Court For The Northern District Of Georgia - Atlanta Division, Civil Action No., Case 1:11-CV-01161-AT.

It is difficult for this author to determine why some judges on the Northern District dismiss wrongful foreclosure cases (mostly removed from Superior Court in Georgia) shortly after they hit the docket in the Northern District.  My conjecture – and it is conjecture – is that Totenberg is attempting to force a number of similar cases through the Summary Judgment stage.  By forcing “some,” and read that some (most [Borrower]’s cases are defective based on raw patent default) cases through summary judgment for [Borrower] and forcing the lender to take the case to the 11^th Circuit for precedent determination.   Also, as this author has written before, it is possible Totenberg is attempting for force the Georgia Supreme Court’s hand on many wrongful foreclosure issues upon which it continues to remain silent.  

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Here are the relevant portions of the denial of the non-dismissal to Bank of America.

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[Bank of America] asserts that [Borrower] has failed to meet the standard for notice pleading set forth in Rule 8 of the Federal Rules of Civil Procedure because she has not identified the "original lender for the note, the amount of the loan, the date the note was signed," or other facts that would give [Bank of America] notice of the claims sufficiently to frame a responsive pleading (Def. Mot. to Dismiss and Incorporated Mem. of Law ("Mot. Dismiss") at 2.) However, the complaint identifies the [Borrower]'s name and the property address. (Compl. ¶ 5.) With this information, Bank of America has the ability to search its loan servicing database for the mortgage loan at issue, and would then have access to any information that [Borrower] has failed to provide regarding the loan. Therefore, the information provided in the complaint suffices at a basic level to give notice of the mortgage loan at issue. The Court proceeds, therefore, to address the question of whether [Borrower] has stated a claim on which relief can be granted.

1.    Wrongful Foreclosure

[Bank of America] makes a number of arguments for why the wrongful foreclosure claim should be dismissed. First, [Bank of America] argues that because the property was not sold at foreclosure, [Borrower] cannot state a claim for wrongful foreclosure. (Mot. Dismiss at 7.) Second, [Bank of America] argues that [Borrower] has not alleged that there is any defect in [Bank of America]'s security interest in the property or disputed the fact that she is in default on the loan. (Id. at 6.) Third, [Bank of America] argues that [Borrower]s failure to tender the full loan amount prevents [Borrower] from seeking injunctive relief. (Id. at 7.) Fourth, [Bank of America] asserts that the facts pled in the complaint show that [Bank of America] sent the required statutory pre-foreclosure notice. (Id. at 6.) Fifth, [Bank of America] argues that Georgia law does not support a claim for failure to "produce the note." (Id. at 8.) Sixth, [Bank of America] states that [Borrower] has not properly pled a claim for breach of contract. (Id. at 9.) Seventh, [Bank of America] asserts that there is no private right of action under the Home Affordable Modification Program ("HAMP"). (Id. at 10-12.)

a.    No foreclosure sale and valid security interest

[Bank of America]'s assertion there can be no cause of action for wrongful foreclosure where a foreclosure sale has not taken place is not supported by Georgia law. Though not always using the caption of wrongful foreclosure,' Georgia courts have recognized

The following terms are often used interchangeably by Georgia courts: wrongful foreclosure, fraudulent foreclosure, action to set aside a foreclosure, and

claims for (1) injunctive relief to set aside a past unlawful foreclosure, (2) damages arising out of a past unlawful foreclosure, (3) injunctive relief to prevent an unauthorized foreclosure, and (4) damages arising out of an attempted unauthorized foreclosure. See, e.g., Curl v. Fed. Say. & Loan, 244 S.E.2d 812, 812 (Ga. 1978); Calhoun First Nat'l Bank v. Dickens, 443 S.E.2d 837, 838 (Ga. 1994); West v. Koufman, 384 S.E.2d 664, 665 (Ga. 1989); Sale City Peanut & Milling Co. v. Planters & Citizens Bank, 130 S.E.2d 518, 520 (Ga. Ct. App. 1963).

In the situation at bar, where a foreclosure sale has not occurred, the Court assesses whether [Borrower] has pled the required elements to support a claim for damages arising out of an attempted wrongful foreclosure or for injunctive relief to prevent an unauthorized foreclosure.

Georgia courts have recognized a claim for damages based on wrongful attempted foreclosure when a foreclosure action was commenced, but not completed, where [Borrower]s have shown that the [Bank of America] "knowingly published an untrue and derogatory statement concerning the [Borrower]s' financial conditions' and that damages were sustained as a direct result of this publication." Sale City Peanut, 130 S.E.2d at

failure to exercise in good faith a power of sale as required by O.C.G.A. § 23-2-114.

A wrongful publication that [Borrower] has defaulted on a loan may constitute an untrue and derogatory statement concerning the [Borrower]'s financial condition. See Hauf v. HomEq Servicing Corp., No. 4:05-CV-109, 2007 WL 486699, at *6 (N.D. Ga. Feb. 9, 2007).

520. In the case at bar, [Borrower] asserts that she "has not defaulted on [her] mortgage" and [Bank of America] has "repeatedly refused to properly credit payments in an effort to manufacture a default in order to fraudulently foreclose on [Borrower]'s home." (Compl. Tri 42, 32.) [Borrower] has pled damages, including that [Bank of America] has improperly added fees to her loan balance because of its failure to properly apply her payments and that her property value has plummeted because of the commencement of the foreclosure. (Compl. 4111 10, 44.) Taken as true, these allegations state a claim for wrongful attempted foreclosure. See Hauf v. HomEq Servicing Corp., No. 4:05-CV-109, 2007 WL 486699, at *6-7 (N.D. Ga. Feb. 9, 2007) (denying summary judgment on wrongful attempted foreclosure where HomEq started foreclosure because of erroneous charges assessed during [Borrower]'s compliance with a forbearance agreement, and ignored [Borrower]'s correspondence explaining that the loan was current per the agreement).

Furthermore, [Borrower] is clearly seeking injunctive relief barring Bank of America from foreclosing wrongfully because it allegedly is not the holder of the note. (Compl. TT 51-60.) A court may enjoin a nonjudicial foreclosure sale where the authority to foreclose is in question. See Atlanta Dwellings, Inc. v. Wright, 527 S.E.2d 854, 856 (Ga. 2000); West v. Koufman, 384 S.E.2d at 666; Cotton v. First Nat'l Bank of Gwinnett Co., 220 S.E.2d 132 (Ga. 1975).

[Borrower]'s allegations that Bank of America is not the holder of the promissory note with the right to foreclose would support injunctive relief if proved. [Borrower] alleges that "the Note and Security Deed were bifurcated" when the security deed alone was allegedly assigned "to [Bank of America] Creditor designated, as Bank of America, N.A. and BAC Home Loans Servicing, L.P." (Compl. II 33.) [Borrower] further states that "it is unknown who presently owns and holds the actual Original Promissory Note" and that it is "highly unlikely that Bank of America, N.A. has the present ability to provide a record chain of title evidencing ownership of the mortgage." (Compl. TT 33, 41.) Based on [Borrower]'s allegations of previously communicating with Countrywide about a loan modification, it is plausible that Bank of America was not the original lender. (See Compl. it 8.)

Georgia law authorizes the secured creditor, the holder of the promissory note, to exercise a power of sale. See O.C.G.A. §§ 44-14-162 et seq.;5 Weems v. Coker, 70 Ga. 746, 749 (1883) ("Could there be a more conclusive defense to the foreclosure than that the party prosecuting it was not the holder of the debt or demand secured by the

"The security instrument or assignment thereof vesting the secured creditor with title to the security instrument shall be filed prior to the time of sale in the office of the clerk of the superior court in the county in which the real property is located." O.C.G.A. § 44-14-162(b) (emphasis added). "Notice of the initiation of proceedings to exercise a power of sale in a mortgage, security deed, or other lien contract shall be given to the debtor by the secured creditor no later than 30 days before the date of the proposed foreclosure." 0.C.G.A. § 44-14-162.2(a) (emphasis added).

mortgage, which he failed to produce when called on, and offered nothing to show that he controlled it, or to explain why it was not forthcoming at the trial?"), cited by Truitt v. Moister, 11 B.R. 15 (Bankr. N.D. Ga. 1981); Bowen v. Tucker Fed. Say. & Loan Assoc., 438 S.E.2d 121, 122 (Ga. Ct. App. 1993) ("It is established law in Georgia that although the holder of a note who is also the grantee of a security deed has the right to exercise the power of sale in the security deed upon default, he is not required to do so. He may sue on the note . . . ."); Boaz v. Latson, 580 S.E.2d 572, 578 (Ga. Ct. App. 2003) ("[T]he security deed arose from the indebtedness allegedly established by the promissory note, and the deed's power of sale depended on default under the note."), rev 'd on other grounds, 598 S.E.2d 485, 487 (Ga. 2004); Cummings v. Anderson, 173 B.R. 959, 963 (Bankr. N.D. Ga. 1994) ("assignee of a note and security deed cannot foreclose upon the security until there has been an actual assignment"), aff'd, 112 F.3d 1172 (11th Cir. 1997); Weston v. Towson, No. 5:04-CV-416, 2006 WL 2246206, at *6 (M.D. Ga. Aug. 4, 2006) ("the holder of the note continues to retain remedies under the security deed so long as the debt evidenced by the note has not been satisfied"). Therefore, [Borrower]'s allegations that the party attempting to foreclose is not the holder of the note would support a claim for injunctive relief, if proven. [Bank of America]'s argument that [Borrower] does not question the validity of the security deed is irrelevant, as she does call into question Bank of America's authority to enforce it.

Moreover, [Borrower]s factual allegations of improper servicing of her loan would also, if proven, support a claim for injunctive relief barring the foreclosure based on failure to exercise in good faith the power of sale. See O.C.G.A. § 23-2-114; West v. Koufman, 384 S.E.2d at 666. [Borrower] alleges that after Countrywide Home Loans ("Countrywide") approved her for a loan modification in March 2009, she timely returned the papers to accept this loan modification, and was advised that Countrywide had received the papers and entered the modification into its computer system. (Compl. r[f 8-10.) [Borrower] alleges that Bank of America has "improperly credited and/or misapplied payments" and "repeatedly refused to properly credit payments in an effort to manufacture a default."6 32.) If true, these allegations would support a claim for wrongful attempted foreclosure or a claim for injunctive relief barring foreclosure. See Clark v. West, 395 S.E.2d 884, 885 (Ga. Ct. App. 1990) (foreclosure was wrongful where the creditor knew the note was not in default and it had no right to foreclose); First Nat'l Bank v. Loggins, 429 S.E.2d 278, 278 (Ga. Ct. App. 1993) (summary judgment overturned where issue of fact existed as to whether homeowner was actually in default at the time the property was foreclosed upon).

6 [Bank of America] argues that [Borrower] does not dispute that she is in default on the loan. (Mot. Dismiss at 6.) Even if this were an accurate description of the facts pled in the complaint, "[a] claim for wrongful exercise of a power of sale can be asserted even though a debt is in default." Brown v. Freedman, 474 S.E.2d 73, 76 (Ga. Ct. App. 1996). However, [Borrower] alleges that she is current on the loan as modified, but [Bank of America] has failed to honor the modification and properly credit her payments.

b.    Tender obligation

[Bank of America] further argues that [Borrower]'s failure to tender the amount owed under the loan is a bar to any action "seek[ing] relief regarding a pending or past foreclosure sale." (Mot. Dismiss at 7.) The requirement to tender the amount of indebtedness admittedly due is based on the maxim that "he who would have equity must do equity, and give effect to all equitable rights in the other party respecting the subject-matter of the suit." Wright v. Intercounty Props., Ltd., 233 S.E.2d 160, 161 (Ga. 1977).

In this case, [Borrower] is alleging that Bank of America does not hold her note. (Compl. TIT 33, 34, 42.) If [Borrower] succeeds in proving that Bank of America is not the holder of the note, in addition to the other elements required for injunctive relief, then no tender would be required because no sum would be due to Bank of America under the note. See Everson v. Franklin Discount Co., 285 S.E.2d 530, 533 (Ga. 1982); Sapp

v. ABC Credit & Inv. Co., 253 S.E.2d 82, 87 (Ga. 1979); Davis v. Atlanta Fin. Co., 129 S.E. 51, 52 (Ga. 1925). Therefore, the Court finds that dismissal on grounds of failure to tender would be premature at this time, because [Borrower] has alleged facts in the complaint that suggest she owes no duty in equity to Bank of America (because, she alleges, she is not indebted to Bank of America), and those allegations are to be taken as true on a motion to dismiss.

c.    Notice of foreclosure sale

[Bank of America] has moved to dismiss any claims arising out of an alleged failure to send required pre-foreclosure notices on the grounds that "[Borrower]'s own factual allegations establish that [Bank of America]'s notice of default was sufficient to meet all applicable statutory requirements." (Mot. Dismiss at 12-13.) [Borrower] alleges that Bank of America has commenced foreclosure without properly sending her the notice of default and right to cure referenced in 12 C.F.R. § 590.4(h)(2). (Compl.  35-37.)

However, this regulation applies only to loans for manufactured housing. [Borrower] has not alleged that her mortgage loan is secured by a residential manufactured home as defined in 42 U.S.C. 5402(6). Rather, she seems to assume that the provisions of 12 C.F.R. § 590.4(h)(2) apply to all federally related mortgage loans. Nothing pled in the complaint shows a failure to send the notices required by the applicable statutes.' Therefore, any claims arising out of an alleged failure to comply with 12 C.F.R. § 590.4(h)(2) are dismissed.

d.    "Produce the note"

[Bank of America] points out that to the extent [Borrower] is attempting to fashion a claim out of Bank of America's failure to produce the original note for inspection, Georgia

7 Indeed, the complaint indicates that [Borrower] received other forms of notice, and there has been no factual showing that these notices were inadequate under applicable statutes. (Compl. at 'rr 13.)

courts have not held that the failure to produce the note gives rise to a cause of action. (Mot. Dismiss at 8.) [Borrower] does not allege in the complaint that [Bank of America] failed to produce the note, so it does not appear that [Borrower] is attempting to make any such claim. Rather, [Borrower] asserts that [Bank of America] is not the holder of the note, as discussed supra in section (1)(a). If in fact [Borrower] intended to fashion a claim based on [Bank of America]'s failure to show her the original note, such claim is dismissed.

e.    Breach of contract

[Bank of America] asserts that [Borrower] has failed to properly plead a claim for breach of contract, in that she has not pointed to any provision of the note or security deed that Bank of America has breached. Indeed, [Borrower] has not set forth facts that would support a claim for breach of contract.' If in fact [Borrower] intended to assert a claim for breach of contract, such claim is dismissed.

f. HAMP

[Bank of America] asserts that there is no private right of action for a failure to comply with HAMP guidelines. However, [Borrower] has not alleged anything about HAMP in

[Borrower] does allege that [Bank of America] failed to honor an agreed-upon loan modification, "improperly credited and/or misapplied payments," and "repeatedly refused to properly credit payments in an effort to manufacture a default." (Compl. 8-10, 32.) However, because [Borrower] has not shown that there was any consideration for the loan modification, these facts support a claim for failure to exercise in good faith the power of sale, as discussed supra in section (1)(a), but not a breach of contract claim.

her complaint or her response to the motion to dismiss. Rather, [Borrower] alleges that [Bank of America] has failed to honor an agreed-upon loan modification and properly credit her payments pursuant to that modification, as discussed in supra in section (1)(a). It is clear that [Borrower] is not attempting to assert a private right of action under HAMP, and therefore the Court need not address the question of what remedies might be available for a [Borrower] claiming that his or her servicer has failed to comply with HAMP.

2.    Tortious Interference with Contract

[Bank of America] has moved to dismiss [Borrower]'s claim for tortious interference with contract on the basis that [Borrower] has failed to alleged any facts that would form a basis for such a claim. (Mot. Dismiss at 16.) The Court agrees. To state a claim for tortious interference with a contract, a [Borrower] must allege that one who is a "stranger to the contract" has "acted intentionally, without privilege or legal justification, to induce another not to enter into or continue a business relationship with the [Borrower], thereby causing the [Borrower] financial injury." Atlanta Mkt. Ctr. Mgmt. Co. v. McLane, 503 S.E.2d 278, 282 (Ga. 1998). [Borrower] has not presented any facts to support a claim for tortious interference with contract against Bank of America, so the Court dismisses this claim.

3.    Intentional Trespass

[Bank of America] moves to dismiss [Borrower]'s claim for intentional trespass based on [Borrower]'s failure to allege facts supporting such a claim. In Georgia, a physical invasion that damages another's health, reputation, or property is required to state a cause of action for trespass. See Jordan v. Ga. Power Co., 466 S.E.2d 601, 605 (Ga. Ct. App. 1995); O.C.G.A. § 1-3-3(20). [Borrower] has not pled any facts to support a claim for trespass, so this claim should be dismissed.

4.    Abuse of Process

[Bank of America] has moved to dismiss [Borrower]'s claim for abuse of process. Georgia recognizes a claim for abuse of process against "[a]ny person who takes an active part in the initiation, continuation, or procurement of civil proceedings against another" if such person acts "(1) With malice, and (2) Without substantial justification." 0. C. G .A. § 51-7-84. [Borrower] has alleged that Bank of America commenced a nonjudicial foreclosure action against her property, which, by definition, does not involve litigation. [Borrower] has not alleged that Bank of America initiated, continued, or procured any civil proceeding against her. Her claim for abuse of process is therefore dismissed.

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Time will reveal how this matter plays out in the 11^th Circuit.

Hugh Wood, Esq.

Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084

www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
Phone: 404-633-4100
Fax: 404-633-0068

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