M&T Bank v. Brown

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
M&T BANK, et al.,
Plaintiffs, Civil Action No. 19-578 (JMC)
v.
DELPHINIA N. BROWN, et al.,
Defendants.
MEMORANDUM OPINION
After Defendant Delphinia Brown defaulted on her condominium fees, Defendant
Ridgecrest Condominium Owners Association (RCOA) foreclosed on the unit. 1 The property was
purchased at auction by Defendant Marcus Little. Several months later, Plaintiff M&T Bank—the
beneficiary of a deed of trust owned by Plaintiff Federal Home Loan Mortgage Corporation
(Freddie Mac)—filed a second foreclosure action against the same property. Defendants argue that
the second action cannot lie. They point to District law, which they contend extinguished Freddie
Mac’s interest in the property at the first foreclosure sale. Plaintiffs counter that the relevant
District laws are preempted by federal statute and that Little, therefore, unwittingly purchased the
property subject to Freddie Mac’s lien. Plaintiffs moved for partial summary judgment, seeking
declaratory judgment that Freddie Mac retains a valid and enforceable lien against the property.
The Court GRANTS Plaintiffs’ motion.
1
Unless otherwise indicated, the formatting of quoted materials has been modified throughout this opinion, for
example, by omitting internal quotation marks and citations, and by incorporating emphases, changes to capitalization,
and other bracketed alterations therein. All pincites to documents filed on the docket are to the automatically generated
ECF Page ID number that appears at the top of each page.
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I. BACKGROUND
The following facts are uncontested. In 2006, Delphinia Brown took out a loan to finance
the purchase of a condominium unit located at 512 Ridge Road SE #206, Washington, D.C. ECF
12-3 at 3 ¶ 5(a). Brown executed a deed of trust granting the original lender a security interest in
the property, which was duly recorded. ECF 12-5. In 2007, Freddie Mac 2 purchased the loan from
the original lender and became the new owner of the deed of trust, ECF 12-3 at 3 ¶ 5(c), although
the deed of trust still bore the original lender’s name and the original lender agreed to continue
servicing the loan on Freddie Mac’s behalf. Id. at 4 ¶ 5(g).
In 2011, M&T Bank succeeded the original lender as servicer of the loan, which was still
owned by Freddie Mac. Id. The deed of trust was amended to list M&T as the sole beneficiary.
ECF 12-6. Under the agreement that governed their relationship, Freddie Mac was the owner of
the loan, and had the right to demand that M&T sign over the deed of trust at any time. ECF 12-3
at 30. Nevertheless, the fact that Freddie Mac owned the loan was not explicit on the face of the
recorded instrument. ECF 12-6.
In October 2016, the RCOA executed and recorded a “Notice of Foreclosure Sale of
Condominium Unit for Assessments Due.” ECF 12-7. The RCOA foreclosed on its lien and sold
the property via public sale to Little for $20,000.00. ECF 12-8. Little recorded the deed to the
property. Id. At the time of the RCOA sale, Freddie Mac was the owner of the deed of trust. ECF
12-3 at 3 ¶ 5(c), 4 ¶ 5(g). M&T was servicing the loan on Freddie Mac’s behalf and was the sole
2
“Congress created Freddie Mac in 1970 to ‘increase the availability of mortgage credit for the financing of urgently
needed housing.’” Perry Cap. LLC v. Mnuchin, 864 F.3d 591, 599 (D.C. Cir. 2017) (quoting Federal Home Loan
Mortgage Corporation Act, Pub. L. No. 91-351, preamble, 84 Stat. 450, 450 (1970)). Freddie Mac’s core business is
buying mortgage loans from lenders, bundling them into securities, then selling them to investors. Id.2
beneficiary named in the deed of trust. Id.; ECF 12-6. Neither Freddie Mac nor the Federal Housing
Finance Agency (FHFA) consented to the sale. 3
M&T filed a “Complaint for Judicial Foreclosure” in the Superior Court of the District of
Columbia in May 2017. ECF 1-1 at 2. In January 2019, the Superior Court granted M&T
permission to amend its complaint, adding Freddie Mac as a co-plaintiff. Id. at 97, 159. Plaintiffs
then removed the case to this Court. ECF 1. Now, they ask the Court to grant their Motion for
Partial Summary Judgment and to issue a declaratory judgment that the first foreclosure did not
extinguish Freddie Mac’s interest and thus the deed of trust continues to encumber the Property.
ECF 12 at 4. Defendants oppose. ECF 13.
II. LEGAL STANDARD
Summary judgment shall be granted “if the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a). Material facts are those that may affect the outcome of the case. See Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). The moving party bears the burden to demonstrate the
“absence of a genuine issue of material fact” in dispute, Grimes v. District of Columbia, 794 F.3d
83, 93–94 (D.C. Cir. 2015), while the nonmoving party must present specific facts supported by
materials in the record that would be admissible at trial and that could enable a reasonable jury to
find in its favor, see Anderson, 477 U.S. at 248.
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Defendants do not dispute this. Nonetheless, the Court takes judicial notice of a publicly available statement by the
FHFA that, as a matter of policy, “FHFA confirms that it has not consented, and will not consent in the future, to the
foreclosure or other extinguishment of any Fannie Mae or Freddie Mac lien or other property interest in connection
with HOA foreclosures of super-priority liens.” ECF 12-4 at 2 (also available at
https://www.fhfa.gov/Media/PublicAffairs/Pages/Statement-on-HOA-Super-Priority-Lien-Foreclosures.aspx (last
visited Sept. 29, 2022)); see also Seifert v. Winter, 555 F. Supp. 2d 3, 11 n.5 (D.D.C. 2008) (taking judicial notice of
information on a government website and collecting cases that have done the same).
3
“[S]tate laws are preempted when they conflict with federal law.” Arizona v. United States,
567 U.S. 387, 399 (2012). State and federal law conflict when “compliance with both federal and
state regulations is a physical impossibility,” or when “the challenged state law stands as an
obstacle to the accomplishment and execution of the full purposes and objectives of Congress.”
Id. Although there is a “presumption against finding preemption of state law in areas traditionally
regulated by the States,” California v. ARC Am. Corp., 490 U.S. 93, 101 (1989), that presumption
may be overcome where Congress makes its intent to displace state law “clear and manifest.”
Arizona, 567 U.S. at 400. Foreclosure of real estate is an area of law traditionally regulated by the
states. BFP v. Resol. Tr. Corp., 511 U.S. 531, 544 (1994) (The power to ensure “the security of
the titles to real estate . . . inheres in the very nature of state government.”).
III. ANALYSIS
This case involves the interplay between three statutes: one federal and two from the
District of Columbia. The federal statute is the “Federal Foreclosure Bar,” which Congress enacted
as part of the Housing and Economic Recovery Act of 2008 (HERA) and which provides that “[n]o
property of [an FHFA conservatorship] shall be subject to levy, attachment, garnishment,
foreclosure, or sale without the consent of the Agency.” 12 U.S.C. § 4617(j)(3). 4 Because HERA
also “authorized the Director of FHFA to appoint FHFA as either conservator or receiver for
Fannie Mae and Freddie Mac,” Perry Cap. LLC v. Mnuchin, 864 F.3d 591, 599–600 (D.C. Cir.
2017) (citing 12 U.S.C. § 4617(a)(2))—an authority that the Director exercised as to both entities
4
The Parties in this case consistently refer to this provision as “the Federal Foreclosure Bar,” a shorthand that this
Opinion adopts. See also, e.g., Fed. Home Loan Mortg. Corp. v. SFR Invs. Pool 1, LLC, 893 F.3d 1136, 1143 (9th Cir.
2018); Sec. & Exch. Comm'n v. Equitybuild, Inc., No. 18-5587, 2022 WL 2257121, at *4 (N.D. Ill. June 22, 2022);
Britton v. Marcus, Errico, Emmer & Brooks, P.C., No. 18-11288, 2020 WL 7024545, at *4 (D. Mass. Nov. 30, 2020).
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in September 2008, id. at 600—the Federal Foreclosure Bar expressly bars the involuntary
extinguishment of Freddie Mac’s property interests via foreclosure.
The first District statute is D.C. Code § 42-1903.13(a)(2) (the D.C. Condominium Act),
which grants certain condominium liens super-priority status, allowing the holder of such a lien to
foreclose on a property and extinguish all other outstanding liens in the process. Chase Plaza
Condo. Ass’n, Inc. v. JPMorgan Chase Bank, N.A., 98 A.3d 166, 173 (D.C. 2014). Plaintiffs do
not dispute that, in the absence of the Federal Foreclosure Bar, the D.C. Condominium Act would
require the extinguishment of Freddie Mac’s lien. Rather, Plaintiffs argue that the D.C.
Condominium Act is preempted by the Federal Foreclosure Bar and thus cannot apply to this case.
The second District statute is D.C. Code § 42-401 (the D.C. Recording Statute), which
allows a bona fide purchaser to take a property free and clear of a preexisting encumbrance if that
encumbrance is unrecorded and the buyer lacks notice. See Clay Props., Inc. v. Washington Post
Co., 604 A.2d 890, 894 (D.C. 1992) (en banc) (unrecorded lease ineffective against a bona fide
purchaser who acquired the property in a foreclosure sale). Defendants urge the Court to interpret
D.C. Code § 42-401 to require not only that a deed of trust be recorded prior to the sale, but that
(at least in this situation) the deed be recorded under the name of its owner.
The Court agrees with Plaintiffs that the D.C. Condominium Act is preempted, and rejects
Defendants’ argument that the D.C. Recording Statute rendered Freddie Mac’s lien ineffective.
A. The D.C. Condominium Act is preempted by the Federal Foreclosure Bar.
Plaintiffs argue that, under these circumstances, the Federal Foreclosure Bar preempts the
D.C. Condominium Act. Defendants do not appear to contest that assertion. See generally ECF 13.
In any event, the Court agrees with Plaintiffs. The text of 12 U.S.C. § 4617(j)(3) states clearly that
“[n]o property of [an FHFA conservatorship] shall be subject to . . . foreclosure . . . without the
consent of the Agency.” It is impossible to reconcile that command with a state law that authorizes
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the foreclosure of FHFA property without its consent. Thus, it is “clear and manifest,” from the
text of the provision alone, that Congress intended 12 U.S.C. § 4617(j)(3) to displace any state law
with that effect. Arizona, 567 U.S. at 400.
That conclusion is bolstered by consideration of the “purposes and objectives” of the
legislation as a whole. Id. at 399. HERA was enacted in the wake of the 2008 mortgage crisis,
when both Fannie Mae and Freddie Mac were teetering on the edge of default. Perry Cap., 864
F.3d at 599. Concerned that such a default could threaten the entire national economy, Congress
chose to “authorize[] . . . extraordinary economic measures to resuscitate” the entities, including
granting the FHFA the authority to appoint itself as their conservator. Id. at 599–600. Congress
was explicit that a primary reason it granted the FHFA the power it did was so it could “preserve
and conserve the assets and property” of the entities. Id. at 600 (citing 12 U.S.C.
§ 4617(b)(2)(B)(iv)). Because the D.C. Condominium Act would accomplish precisely the
opposite, it is a clear “obstacle to the accomplishment and execution of the full purposes and
objectives of Congress,” and therefore preempted. 5 Arizona, 567 U.S. at 399. Accordingly, the
Court concludes that the D.C. Condominium Act did not extinguish Freddie Mac’s lien.
B. The D.C. Recording Statute does not render Freddie Mac’s loan ineffective.
Defendants do not contest that Plaintiffs’ deed was properly recorded, or that Little had
notice of M&T’s interest in the property. Rather, Defendants contend that because, under the
Federal Foreclosure Bar, an interest owned by Freddie Mac would survive the RCOA sale, whereas
an interest owned by a private bank would not, the material information in this case was not the
existence of the deed itself, but the identity of its owner. Therefore, in Defendants’ view, the D.C.
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The Court observes that the Ninth Circuit, which has faced repeated litigation involving the relationship between the
Federal Foreclosure Bar and an analogous Nevada statute, has also found the state law preempted. See, e.g., Berezovsky
v. Moniz, 869 F.3d 923, 931 (9th Cir. 2017).
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Recording Statute required Little to be on notice not just of the deed of trust, but that Freddie Mac,
not M&T, was its owner. In other words, because Freddie Mac failed to record its interest under
its own name, its lien is ineffective as to Little, who therefore owns the property free and clear
even if Freddie Mac’s lien was senior to the RCOA’s at the time of the first foreclosure.
The Court disagrees for two reasons. First, the District’s law does not require the owner of
a loan to serve as record beneficiary on the deed of trust. See Bartel v. Bank of Am. Corp., 193
A.3d 767, 771 (D.C. 2018) (stating that the District’s law draws “a distinction between the right
to enforce an instrument and the ownership of an instrument”); see also Diaby v. Bierman, 795 F.
Supp. 2d 108, 113 (D.D.C. 2011) (“[W]hether or not defendants are holders of the note is not
dispositive as to whether they have standing to foreclose on the property.”). The D.C. Recording
Statute, D.C. Code § 42-401, requires only that the purchaser have “notice of [the] deed”; it says
nothing about the identity of its owner. And Defendants point to no District law or precedent that
even suggests that a loan owner’s rights are in any way diminished by contracting with another
party to serve as the beneficiary-of-record.
Second, the Court agrees with Plaintiffs that the deed that was recorded here, ECF 12-5,
was sufficient to put Little on notice of Freddie Mac’s potential interest. The document is
conspicuously labeled, on the very first page, as a “Fannie Mae/Freddie Mac UNIFORM
INSTRUMENT.” Id. at 2. And Freddie Mac—even in conservatorship—remains a massive player
in the world of residential mortgages. Perry Cap., 864 F.3d at 602 (between 2012 and 2015,
“Fannie and Freddie . . . collectively purchased at least 11 million mortgages on single-family
owner-occupied properties”). Based on that information alone, Little reasonably should have
inquired whether Freddie Mac owned the deed of trust. See Clay Props., 604 A.2d at 895 (“A
purchaser is held to be on inquiry notice where he or she is aware of circumstances which generate
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enough uncertainty about the state of title that a person of ordinary prudence would inquire further
about those circumstances.”). Therefore, the Court finds that the D.C. Recording Statute did not
render Freddie Mac’s lien ineffective as to Little. 6
IV. CONCLUSION
The Court GRANTS Plaintiffs’ Motion for Partial Summary Judgment and issues a
declaratory judgment that Freddie Mac’s deed of trust against the property located at 512 Ridge
Road SE #206 remains in effect.
SO ORDERED.
DATE: October 12, 2022
Jia M. Cobb
U.S. District Court Judge
6
Plaintiffs also argue that, even if we were to construe D.C. Code § 42-401 as Defendants argue, the resulting statute
would be preempted by the Federal Foreclosure Bar. See supra Part III.A. That argument tees up a more difficult
question about the relationship between the Federal Foreclosure Bar and the general requirement that a lien against
real property be recorded to have effect. The Court need not address the issue here because it finds that the D.C.
Recording Statute, taken on its own terms, does not render Freddie Mac’s lien ineffective.
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