Abraham Elsheick v. Select Portfolio Servicing

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 14a0385n.06
No. 13-2100 FILED
May 22, 2014
DEBORAH S. HUNT, Clerk
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
ABRAHAM ELSHEICK, )
)
Plaintiff-Appellant, )
)
v. )
ON APPEAL FROM THE UNITED
)
STATES DISTRICT COURT FOR THE
SELECT PORTFOLIO SERVICING, INC.; )
EASTERN DISTRICT OF MICHIGAN
PNC BANK, N.A., )
)
Defendants-Appellees. )
)
BEFORE: DAUGHTREY, SUTTON, and DONALD, Circuit Judges.
MARTHA CRAIG DAUGHTREY, Circuit Judge. Since the fall of 2008, millions of
Americans, and tens of thousands of Michiganders, have lost their homes in foreclosure
proceedings due, in large part, to years of questionable banking practices and inadequate
regulation of the banking industry. In yet another of the many cases spawned by the effects of
that home-foreclosure crisis in Michigan, plaintiff Abraham Elsheick seeks to overturn a
decision by the district court that dismissed Elsheick’s complaint against defendants Select
Portfolio Servicing, Inc., and PNC Bank, N.A. In his complaint, Elsheick sought to set aside a
foreclosure-by-advertisement sale of his property in Dearborn Heights, Michigan, that was
initiated by the defendants. On appeal, Elsheick raises a single issue: whether the district court
erred in determining that he “lacked standing to challenge defects in a foreclosure by
advertisement proceeding by holding over ‘after expiration of the redemption period.’” For the
reasons discussed, we conclude that the district court did in fact err by ruling that Elsheick
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lacked standing to bring his claims. However, because Elsheick failed to state a plausible claim
that he was prejudiced by fraud or irregularity in the foreclosure-by-advertisement proceedings,
we cannot excuse his failure to contest that foreclosure during the statutory redemption period.
We thus affirm the judgment of the district court dismissing Elsheick’s complaint.
FACTUAL AND PROCEDURAL BACKGROUND
In January 2006, Abraham Elsheick obtained a $262,400 mortgage from First Franklin
Bank.1 That mortgage was secured by transference to Mortgage Electronic Registration
Systems, Inc., a nominee for First Franklin and the bank’s successors and assigns, of an interest
in a $328,000 home purchased by Elsheick and located at 27130 Doxtator Street in Dearborn
Heights, Michigan. Eventually, the mortgage, serviced by defendant Select Portfolio Servicing,
was assigned directly to National City Bank.
Unfortunately, Elsheick was unable to make the required mortgage payments in a timely
manner and, “sometime in July 2010,” he contacted the defendants to arrange what Elsheick
hoped would be a “loan modification.” However, the resulting agreement with the bank’s loan
services department was never termed a “loan modification” but, rather, a “Repayment Plan.”
According to the provisions of that plan, Elsheick agreed to make increased monthly mortgage
payments “to bring [the] loan current.” In exchange for that promise, the bank agreed to “allow
[the] loan to remain delinquent during this plan and [to] forbear from starting or continuing a
foreclosure action.” But, if Elsheick then failed to remit payments required by the plan, “[a]ny
foreclosure action [the bank] may have previously initiated will resume.”
1
First Franklin Bank was, at the time of the mortgage transaction, a division of National City Bank. As a
result of a subsequent merger, National City Bank became part of PNC Bank, N.A., a wholly owned subsidiary of
defendant PNC Financial Services Group, Inc.
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By February 2012, Elsheick again had become delinquent in his mortgage payments, and
on February 22, 2012, the defendants initiated foreclosure-by-advertisement proceedings by
publishing notices of a foreclosure sale of the property and by placing a copy of the notice on the
front door of the Doxtator Street dwelling. The actual sale took place one month later, on March
22, 2012, at which time PNC Bank, N.A., purchased the mortgaged property for $305,342.05,
subject to the plaintiff’s right to redeem the property prior to September 22, 2012.
Elsheick did not redeem the property. Instead, on September 21, 2012, the day prior to
the end of the redemption period, he filed the present lawsuit in Wayne County (Michigan)
Circuit Court. In his complaint, he alleged that: (1) the defendants engaged in fraud and
misrepresentation by stating to him that the repayment plan actually was a loan modification as
envisioned by Michigan statutory provisions; (2) the defendants failed to comply with the
statutory requirements for conducting a foreclosure-by-advertisement; and (3) he was the rightful
owner of the Doxtator property such that the sheriff’s deed issued to National City Bank was
void and should be set aside.
The defendants removed the action to federal court on diversity grounds and then filed a
motion to dismiss the action because Elsheick no longer had legal title to, or an interest in, the
property that was the subject of the litigation. The district court agreed with the defendants and
dismissed the complaint on standing grounds, leading Elsheick to file this appeal.
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DISCUSSION
Standard of Review
We review de novo a district court’s grant of a motion to dismiss. Phila. Indem. Ins. Co.
v. Youth Alive, Inc., 732 F.3d 645, 649 (6th Cir. 2013). In doing so, we “‘accept all well-pleaded
factual allegations of the complaint as true and construe the complaint in the light most favorable
to the plaintiff.’” Reilly v. Vadlamudi, 680 F.3d 617, 622 (6th Cir. 2012) (quoting Dubay v.
Wells, 506 F.3d 422, 426 (6th Cir. 2007)). However, the complaint must consist of more than
mere “labels and conclusions” or “a formulaic recitation of the elements of a cause of action,”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007), and will survive a motion to dismiss only
if it “contain[s] sufficient factual matter, accepted as true, to ‘state a claim to relief that is
plausible on its face,’” that is, “that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(quoting Twombly, 550 U.S. at 556, 570).
Michigan Foreclosure Procedures
Foreclosures on Michigan properties may be initiated either through the filing of a
complaint in state circuit court (judicial foreclosures), see M.C.L.A. §§ 600.3101–600.3185; or
by advertisement in accordance with the procedures set forth in M.C.L.A. §§ 600.3201–600.3285
(foreclosures by advertisement). Michigan statutes mandate that foreclosures of mortgages by
advertisement comply with certain prerequisites, most notably that the mortgagor be sent a notice
informing her or him of the right to request a meeting with a housing counselor who can assist
the mortgagor in efforts to obtain a mortgage loan modification. See M.C.L.A.
§§ 600.3205a(1)(a)–(k). Should the mortgagor be unsuccessful in securing such a modification,
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however, the mortgage holder or the mortgage servicer “shall work with the borrower” and
“shall use a loan modification program or process” that includes, among other provisions, a
targeted “ratio of the borrower’s housing-related debt to the borrower’s gross income of 38% or
less, on an aggregate basis.” M.C.L.A. § 600.3205c(1)(a). Significantly, if the borrower and the
mortgage holder or mortgage servicer “reach an agreement to modify the mortgage loan, the
mortgage will not be foreclosed if the borrower abides by the terms of the agreement.”
M.C.L.A. § 600.3205a(1)(f).
Even if a foreclosure sale occurs, the mortgagor is not without recourse. Within the
applicable time limit prescribed by statute—here, six months, see M.C.L.A. § 600.3240(8)—the
mortgagor may cause the purchaser’s deed to become void by remitting “the sum that was bid for
the entire premises sold, with interest from the date of the sale at the interest rate provided for by
the mortgage, together with the amount of the sheriff’s fee paid by the purchaser . . . .”
M.C.L.A. § 600.3240(2). Absent such redemption, however, the sheriff’s deed provided to the
successful purchaser at the foreclosure sale generally “shall thereupon become operative, and
shall vest in the grantee therein named, his heirs or assigns, all the right, title, and interest which
the mortgagor had at the time of the execution of the mortgage, or at any time thereafter . . . .”
M.C.L.A. § 600.3236.
Article III Standing
In this case, Elsheick failed to redeem the property subject to the foreclosure. Even
though he filed suit in state court seeking to set aside the foreclosure-by-advertisement
proceedings one day short of six months after the sheriff’s sale, such invocation of the
jurisdiction of the state courts did not serve to toll the statutory redemption period. See, e.g.,
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Overton v. Mortg. Elec. Registration Sys., Inc., No. 284950, 2009 WL 1507342, at *1 (Mich. Ct.
App. May 28, 2009) (“Plaintiff’s suit did not toll the redemption period.”). Thus, the defendants
argue, on September 22, 2012, six months from the date of the foreclosure sale, “the mortgagor’s
‘right, title, and interest in and to the property’ [were] extinguished.” Conlin v. Mortg. Elec.
Registration Sys., Inc., 714 F.3d 355, 359 (6th Cir. 2013) (quoting Piotrowski v. State Land
Office Bd., 4 N.W.2d 514, 517 (Mich. 1942)) (citing M.C.L.A. § 600.3236).
Accepting that argument, the district court concluded that Elsheick’s complaint must be
dismissed because, absent a legal interest in the Doxtator property, Elsheick had no standing to
challenge the foreclosure sale of that property. The decision by the district court relied in large
part upon the wording of M.C.L.A. § 600.3236 and upon the rationale expressed in a number of
Michigan state-court decisions purporting to interpret that statutory provision. See Awad v. Gen.
Motors Acceptance Corp., No. 302692, 2012 WL 1415166, at *4 (Mich. Ct. App. Apr. 24,
2012); Overton, 2009 WL 1507342, at *1; Mission of Love v. Evangelist Hutchinson Ministries,
No. 266219, 2007 WL 1094424, at *5 (Mich. Ct. App. Apr. 12, 2007). However, as recognized
both by other United States district courts in Michigan and by this court, Awad, Overton, and
Mission of Love should not be read as Article III standing cases.
It is true that the Awad, Overton, and Mission of Love decisions all discuss the plaintiffs’
“standing.” Nevertheless, the rulings in each of those cases ultimately rest upon the fact that the
plaintiffs in those matters were unable to satisfy evidentiary burdens that would allow them to
challenge the foreclosure sales despite the expiration of the statutory redemption period and the
vesting of title in the purchaser of the property. For example, the Awad court recognized that
Michigan law “does not allow an equitable extension of the period to redeem from a statutory
foreclosure sale in connection with a mortgage foreclosed by advertisement and posting of notice
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in the absence of a clear showing of fraud, or irregularity.” 2012 WL 1415166, at *2, (emphasis
added (quoting Schulthies v Barron, 167 N.W.2d 784, 785 (Mich. Ct. App. 1969)) (internal
quotation marks omitted); see also Overton, 2009 WL 1507342, at *1 (same). Likewise, in
Mission of Love, 2007 WL 1094424, at *5, the Michigan Court of Appeals again intimated that
plaintiffs who failed to redeem property in a timely manner still could set aside a foreclosure
sale, but stated that such a claim must contain an assertion of fraud.2
We also have noted that such cases do not necessarily implicate issues of standing. In El-
Seblani v. IndyMac Mortgage Services, 510 F. App’x 425, 428 (6th Cir. 2013), a case in which
Abdullah El-Seblani sought to challenge a foreclosure sale despite failing to redeem the property
within the applicable six-month period, we stated that “[t]here is no serious dispute that El-
Seblani has Article III standing to contest the foreclosure sale, Friends of the Earth, Inc. v.
Laidlaw Envt’l Servs. (TOC), Inc., 528 U.S. 167, 180–81 . . . (2000) (standing is established
when there is a ‘concrete,’ ‘particularized,’ and ‘actual’ injury that ‘is fairly traceable to the
challenged action of’ the defendants and capable of being ‘redressed by a favorable decision’).”
Indeed, as expressed in Langley v. Chase Home Finance, LLC, No. 1:10-cv-604, 2011 WL
1130926 (W.D. Mich. Mar. 28, 2011):
Many Defendants suggest the basis for the ruling in Overton is a lack of
Plaintiff’s standing once the redemption period expires, but the Court of Appeals
does not actually say this. Nor would it seem like Article III standing could
possibly be in doubt. After all, the Plaintiffs in such cases are the last lawful
owner and possessor of the property. Moreover, they often remain in continuing
possession of the property notwithstanding any Sheriff’s sale and expiration of a
redemption period. Moreover, Plaintiffs in such cases claim a continuing right to
lawful ownership and possession based on defects in the process used by
Defendants to divest them of those rights. This certainly seems to satisfy the
basic Article III requirement of “injury in fact,” as well as any prudential
2
Such fraud, however, must relate to the foreclosure proceedings themselves. “Any fraud in the
inducement of the warranty deed was no longer relevant.” Id.
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considerations tied to a “zone of interests” analysis. Indeed, it is hard to imagine
a person with a better claim to standing to challenge the process at issue.
Id. at *2 n.2; see also Lamie v. Fed. Home Loan Mortg. Corp., No. 1:11-cv-156, 2012 WL
1835243, at *3 (W.D. Mich. May 21, 2012).
Not only did Elsheick establish Article III standing in this case, he also established his
standing under Michigan law, which requires only that a litigant identify “a legal cause of
action.” Lansing Schs. Educ. Ass’n v. Lansing Bd. of Educ., 792 N.W.2d 686, 699 (Mich. 2010).
Because “Michigan courts have long held that a mortgagor may challenge the validity of a
statutory foreclosure either through ‘summary proceedings’ in the Michigan courts pursuant to
Mich. Comp. Laws § 600.5714, or by filing a separate lawsuit,” El-Seblani, 510 F. App’x at 428
(citing Mfrs. Hanover Mortg. Corp. v. Snell, 370 N.W.2d 401, 404 (Mich. Ct. App. 1985)),
Elsheick has state-law, as well as Article III, standing.
Merits of Plaintiff’s Claims
“Of course, having standing to bring a claim does not mean you have a valid claim on the
merits. That is a different question.” Langley, 2011 WL 1130926, at *2 n.2. In his complaint,
Elsheick advances three causes of action that he asserts should lead to a restoration of his title to
the Doxtator property: (1) a claim of fraud and misrepresentation; (2) a claim of violations of
Michigan’s foreclosure-by-advertisement statutes; and (3) a claim to quiet title and set aside the
sheriff’s sale of his property. However, despite having standing to raise these allegations,
Elsheick has failed to allege sufficient facts to state a claim to relief that would allow a court to
draw a reasonable inference that the defendants are liable for the alleged misconduct.
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1. Claim of Fraud and Misrepresentation
“Michigan’s foreclosure-by-advertisement scheme was meant to, at once, impose order
on the foreclosure process while still giving security and finality to purchasers of foreclosed
properties.” Conlin, 714 F.3d at 359 (citations omitted). Thus, after the statutory redemption
period has expired, courts may examine a plaintiff’s effort to set aside the foreclosure sale only
where such a plaintiff has made “a clear showing of fraud, or irregularity” that relates to “the
foreclosure procedure itself.” Id. at 359-60 (quoting Schulthies, 167 N.W.2d at 785; El-Seblani,
510 F. App’x at 429 (citing Freeman v. Wozniak, 617 N.W.2d 46, 49 (Mich. Ct. App. 2000))).
But even the establishment of such fraud or irregularity is not sufficient, in and of itself, to
justify a plaintiff’s rescission of a foreclosure sale:
[P]roving a defect or irregularity in a foreclosure proceeding “[will] result in a
foreclosure that is voidable, not void ab initio.” Kim v. JPMorgan Chase Bank,
N.A., . . . 825 N.W.2d 329, 337 (Mich. 2012) (initial emphasis added).
Consequently, the [plaintiff] also must establish that prejudice resulted from any
alleged irregularity to reclaim [his] property. See id. “To demonstrate such
prejudice, [he] must show that [he] would have been in a better position to
preserve [his] interest in the property absent [defendants’] noncompliance with
the statute.” Id.
Rishoi v. Deutsche Bank Nat’l Trust Co., No. 13-1119, 2013 WL 6641237, at *4 (6th Cir. Dec.
17, 2013).
Elsheick runs into both procedural and substantive stumbling blocks in his effort to set
aside the sale of his property based upon allegations of the defendants’ fraud in misrepresenting
to him that he had entered into a loan modification agreement that would protect his possessory
interest in his home. First, pursuant to the provisions of Federal Rule of Civil Procedure 9(b),
“[i]n alleging fraud or mistake, a party must state with particularity the circumstances
constituting fraud or mistake.” “We have . . . interpreted Rule 9(b) to require that a plaintiff
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‘allege the time, place, and content of the alleged misrepresentations on which he or she relied;
the fraudulent scheme; the fraudulent intent of the defendants; and the injury resulting from the
fraud.’” Sanderson v. HCA–The Healthcare Co., 447 F.3d 873, 877 (6th Cir. 2006) (emphasis
added) (citations omitted). Stated differently, “[a]t a minimum, Rule 9(b) requires that a plaintiff
set forth the ‘who, what, when, where, and how’ of the alleged fraud.” United States ex rel.
Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir. 1997) (citation
omitted).
Elsheick has failed to satisfy this heightened pleading requirement. Instead, his
complaint stated broadly “[t]hat the Defendants intentionally or unintentionally[,] without regard
for the truth of the matter[,] misrepresent[ed] to the Plaintiff that he had been approved for a loan
modification as that term is defined in MCL 600.3205c.” Such an allegation does not identify
the exact speaker, the precise statement made, or the date when and the place where the
statement was uttered. Thus, Elsheick’s allegations of fraudulent misrepresentation fall far short
of the specificity required by Rule 9(b).
Even if Elsheick’s allegations of fraud had been detailed sufficiently in his complaint,
however, he could not have prevailed on the merits of his cause of action because his filing failed
to raise a plausible claim for relief. Under established Michigan law, fraudulent
misrepresentation requires proof of the following:
(1) That defendant made a material representation; (2) that it was false; (3) that
when he made it he knew that it was false, or made it recklessly, without any
knowledge of its truth and as a positive assertion; (4) that he made it with the
intention that it should be acted upon by plaintiff; (5) that plaintiff acted in
reliance upon it; and (6) that he thereby suffered injury. Each of these facts must
be proved with a reasonable degree of certainty, and all of them must be found to
exist; the absence of any one of them is fatal to a recovery.
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Titan Ins. Co. v. Hyten, 817 N.W.2d 562, 567-68 (Mich. 2012) (citations and footnote omitted).
In his complaint, Elsheick contends that the defendants misrepresented to him that he had
been approved for a loan modification. In fact, however, the “agreements” between the parties
called merely for forbearance of delinquent mortgage payments. It is inconceivable that a
reasonable plaintiff could have been misled by the documents offered by the defendants. First,
those “agreements” clearly were labeled “Repayment Plan for Loan Number 1044628134” and
“Repayment Plan for Loan Number 1044628135” and never mentioned the term “loan
modification.” Second, the repayment plans specified the amount of each of the monthly
payments (ranging from $2,105.24 to $2,944.57) that were required to bring the mortgage back
into non-delinquent status. Even Elsheick himself recognized in his complaint that the
agreements with the defendants thus called for monthly payments in excess of his prior monthly
obligation of $2,076.00 under his original mortgage—hardly evidence of the type of “loan
modification” envisioned by the Michigan statutes enacted to provide relief to struggling
homeowners. Under such circumstances, Elsheick failed to advance a plausible claim that he
had been led to believe the repayment plan was actually a loan-modification agreement that
would allow him to remit lower monthly mortgage payments.
2. Claim of Violation of Michigan’s Foreclosure-by-Advertisement Statutes
Elsheick next asserts that the defendants failed to provide him with the notice of
foreclosure mandated by the provisions of M.C.L.A. § 600.3205a and, consequently, that they
improperly initiated the foreclosure-by-advertisement proceedings without exploring the
feasibility of entering into a M.C.L.A. § 600.3205c loan modification agreement. To remedy the
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alleged error, Elsheick requests that we set aside the completed foreclosure-by-advertisement
proceedings and order the defendants to start anew with an offer of a loan modification.
However, the relief Elsheick seeks is not available to remedy the violation he alleged.
Subsection (8) of M.C.L.A. § 600.3205c identifies the exclusive remedy for a defendant’s failure
to comply with the loan-modification process outlined in the Michigan statutes. That subsection
provides, “If a mortgage holder or mortgage servicer begins foreclosure proceedings under this
chapter in violation of this section, the borrower may file an action in the circuit court for the
county where the mortgaged property is situated to convert the foreclosure proceeding to a
judicial foreclosure.” M.C.L.A. § 600.3205c(8) (emphasis added). Elsheick did not utilize that
exclusive remedy available to him. Thus, any prejudice he suffered was attributable to his own
failure to seek the relief once available to him, not to the defendants’ actions or inactions. See,
e.g., Smith v. Bank of Am. Corp., 485 F. App’x 749, 756 (6th Cir. 2012) (M.C.L.A. § 600.3205c
“allows plaintiffs to enjoin a foreclosure by advertisement and convert it to a judicial
foreclosure[;] they brought this action after the foreclosure sale occurred, and so there is no
foreclosure to enjoin or convert”); see also Kim, 825 N.W.2d at 337 (showing of prejudice
required to set aside foreclosure sale).
As a holdover mortgagor, Elsheick possessed the standing necessary to challenge the
alleged failure of the defendants to comply with the requirements of Michigan’s foreclosure-by-
advertisement statutes. His failure to avail himself of the exclusive avenue for doing so,
however, means that he cannot state a plausible claim to relief on this issue. The district court
thus properly dismissed this second cause of action as well.
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3. Claim to Quiet Title
Finally, Elsheick also failed to advance a plausible quiet-title claim. In Michigan,
plaintiffs in quiet-title actions “have the burden of proof and must make out a prima facie case of
title.” Boekeloo v. Kuschinski, 324 N.W.2d 104, 108 (Mich. Ct. App. 1982) (emphasis added)
(citations omitted). Elsheick cannot do so in this matter. Once the statutory redemption period
lapsed without Elsheick redeeming the Doxtator property, all title to that realty vested in the
foreclosure-sale purchaser. See M.C.L.A. § 600.3236. Moreover, to the extent that Elsheick’s
effort to quiet title is intertwined with his allegation that the defendants fraudulently
misrepresented the nature of the forbearance agreements he signed, he remains without hope of
recovery on this claim. Because he failed to make “a clear showing of fraud, or irregularity” in
the foreclosure proceedings, or even to plead fraud with sufficient particularity, see Fed. R. Civ.
P. 9(b), no equitable extension of the redemption period was possible, and Elsheick was left
without any legal claim to the property on which to base his quiet-title cause of action. See
Smith, 485 F. App’x at 754.
CONCLUSION
Although the district court erred in analyzing this matter as a standing case, Elsheick
failed to state a claim for relief that is plausible on its face ‒ by failing to satisfy the relevant
pleading requirements, by not availing himself of the exclusive remedy provided by statute, and
by failing to point to prejudice suffered as a result of any action or inaction on the part of the
defendants. We thus AFFIRM the judgment of the district court, although on grounds different
from those expressed in the district court’s opinion and order.
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