Maddox v. Wells Fargo Bank, N.A.

Citation: 374 F. Supp. 3d 146Docket: Case No. 17-cv-2634 (CRC)

Court: Court of Appeals for the D.C. Circuit; March 6, 2019; Federal Appellate Court

Lead Opinion SummaryLead Opinion Original

EnglishEspañolSimplified EnglishEspañol Fácil

In 2017, Wells Fargo Bank foreclosed on Rhonda Maddox's home in Washington, D.C. Maddox, representing herself, filed a lawsuit against Wells Fargo and its associated trustees, claiming violations of the Dodd-Frank Act. She argued that Wells Fargo did not consider her loss mitigation application prior to the foreclosure and that they acted in bad faith by undervaluing her home during the sale. The defendants moved to dismiss the case, which the Court granted due to Maddox's failure to adequately plead a proper loss mitigation application and because her challenge to the foreclosure sale constituted an improper collateral attack under the Rooker-Feldman doctrine.

The background reveals that Maddox executed two notes and deeds of trust in March and April 2007. She defaulted on the earlier note in February 2013, prompting Wells Fargo to file a foreclosure action. After filing a Chapter 13 bankruptcy petition, which initiated an automatic stay on the foreclosure, Maddox proposed a plan to sell her property to satisfy her debts. However, she defaulted on post-bankruptcy payments from August 2016 to March 2017. The bankruptcy court granted Wells Fargo relief from the automatic stay, and Maddox eventually dismissed her bankruptcy case in April 2017.

Following the dismissal, Maddox attempted to reopen her bankruptcy case to contest the foreclosure, alleging misrepresentation of her property’s value, but her motion was denied. The foreclosure resumed, culminating in an auction sale on July 20, 2017. Maddox opposed the sale, claiming it was executed below fair-market value, but the Superior Court ratified the sale and subsequent financial distributions. She appealed this decision on October 16, 2017, but her motion to stay the foreclosure pending the appeal was denied. An emergency stay request related to her appeal was also denied in January 2018.

Maddox filed a lawsuit on November 20, 2017, asserting violations of the Dodd-Frank Act, alleging that Defendants improperly auctioned her house below market value and later repurchased it. She sought over $1 million in compensatory and punitive damages and initially requested injunctive relief, which she has since withdrawn. Her current allegation claims that Defendants failed to provide a loss mitigation plan and did not consider the plan she proposed in her Chapter 13 bankruptcy filing. 

Defendants moved to dismiss the complaint for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1) and for failure to state a claim under Rule 12(b)(6). The court, in its analysis, must accept well-pleaded factual allegations as true and draw reasonable inferences in Maddox's favor while not accepting her legal conclusions. To withstand a 12(b)(6) motion, the complaint must present sufficient factual content to suggest a plausible claim for relief.

Maddox's chief claim revolves around the Defendants’ alleged violation of the Dodd-Frank Act concerning loss mitigation applications, presumed to reference 12 C.F.R. 1024.41, which outlines loss mitigation procedures for mortgage loans. While Defendants argue that Dodd-Frank does not provide a private right of action, the court finds this position incorrect, noting that the loss mitigation processes are rooted in the Real Estate Settlement Procedures Act of 1974 (RESPA), which does confer such a right. However, Maddox has not demonstrated that she submitted an appropriate loss mitigation application under the relevant regulation.

Maddox asserts that her Second Amended Chapter 13 Plan should be recognized as a loss mitigation application. Nevertheless, the court clarifies that Chapter 13 plans and loss mitigation procedures are fundamentally different; Chapter 13 plans are required during bankruptcy proceedings and are subject to court approval, while loss mitigation measures are governed by a distinct regulatory framework.

Regulation X permits a debtor to submit a loss mitigation application to a loan servicer, requiring the servicer to assess the completeness of the application if submitted 45 days before a foreclosure sale. A complete application prompts the servicer to inform the borrower of available loss mitigation options, though there is no obligation to offer any options. Acceptance of an offered option depends on the borrower fulfilling agreed terms. Maddox did not provide sufficient evidence that she complied with the necessary requirements under 12 C.F.R. 1024.41 for loss mitigation. Furthermore, there is no legal support for the claim that a Chapter 13 bankruptcy plan can serve as a loss mitigation application under Regulation X, Dodd-Frank, or RESPA, as those frameworks do not reference Chapter 13 plans. The processes for submitting applications and the responsibilities of both debtors and creditors differ significantly between loss mitigation under Regulation X and bankruptcy proceedings. Maddox submitted her proposals to the Bankruptcy Court, which had no obligation to respond, unlike the servicer under Regulation X. Her Chapter 13 plan was deemed unsatisfactory by the court, leading to the lifting of the stay due to her failure to meet post-petition payment obligations. Despite having the chance to appeal this decision, Maddox voluntarily dismissed her appeal and cannot now seek relief through Dodd-Frank. Consequently, she has not adequately stated a claim for relief.

Maddox alleges that the Defendants sold her house at a foreclosure auction on July 20, 2017, to themselves at approximately 40% below market value, claiming this was unfair and lacked good faith, violating Dodd-Frank. She acknowledges having previously raised these claims in the Superior Court and D.C. Court of Appeals, where she appealed the foreclosure based on the same allegations. The courts ruled on these arguments, which the Rooker-Feldman doctrine bars from being revisited in federal court as it prevents a party from seeking appellate review of a state court judgment. This doctrine applies to Maddox's case, as she is attempting to reframe her claims federally after having been unsuccessful in D.C. courts. Consequently, the Court lacks jurisdiction to hear her claim and will grant the Defendants' Motion to Dismiss.

Furthermore, the Court notes that when evaluating a motion to dismiss, it may consider facts in the complaint, attached documents, and public records, including judicial proceedings. Maddox's assertion that Defendants were obligated to provide loss mitigation options is incorrect, as creditors have no duty to do so. Any claims regarding the Defendants' failure to offer a Home Affordable Mortgage Program (HAMP) loan modification during her Bankruptcy Case cannot proceed, as HAMP does not provide a private right of action to borrowers, supported by various case law.