[Cite as CitiMortgage, Inc. v. Carpenter , 2012-Ohio-1428.]
IN THE COURT OF APPEALS OF OHIO SECOND APPELLATE DISTRICT MONTGOMERY COUNTY
CITIMORTGAGE, INC. : : Appellate Case No. 24741 Plaintiff-Appellee : : Trial Court Case No. 10-CV-6549 v. : : SHIRLEY J. CARPENTER : (Civil Appeal from : (Common Pleas Court) Defendant-Appellant : : ...........
OPINION th Rendered on the 30 day of March, 2012.
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THOMAS L. HENDERSON, Atty. Reg. #0039789, Lerner, Sampson & Rothfuss, LPA, Post Office Box 5480, Cincinnati, Ohio 45201-5480 Attorney for Plaintiff-Appellee, CitiMortgage, Inc.
GEORGE PATRICOFF, 301 West Third Street, 5th Floor, Dayton, Ohio 45422 Attorney for Defendant-Appellee, Montgomery County Treasurer
ANDREW D. NEUHAUSER, Atty. Reg. #0082799, Advocates for Basic Legal Equality, Inc., 525 Jefferson Avenue, Toledo, Ohio 43604 and LAUREN E. DRESHMAN, Atty. Reg. #0085028, Advocates for Basic Legal Equality, Inc., 333 West First Street, Suite 400-B, Dayton, Ohio 45402 Attorneys for Defendant-Appellant, Shirley J. Carpenter
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FAIN, J. 2
{¶ 1} Defendant-appellant Shirley J. Carpenter appeals from a judgment of
foreclosure rendered in favor of plaintiff-appellee CitiMortgage, Inc. Carpenter first
contends that a genuine issue of material fact exists regarding whether CitiMortgage
provided a proper non-approval notice under the federal Home Affordable
Modification Program (HAMP) before filing its foreclosure action. Carpenter argues
that CitiMortgage’s failure to follow Freddie Mac Bulletin 2009-28 and the Department
of the Treasury’s Supplemental Directive 09-08 is an affirmative defense to
foreclosure.
{¶ 2} We conclude that Carpenter has failed to establish that an affirmative
defense existed under HAMP. Specifically, she failed to present evidence that she
was an intended third-party beneficiary to the servicing contract between
CitiMortgage and Freddie Mac. She also failed to present evidence that the contract
terms between CitiMortgage and Freddie Mac were expressly incorporated into her
mortgage and note. Finally, although the terms of Freddie Mac Bulletin 2009-28 and
the Treasury’s Supplemental Directive 09-08 are mandatory in nature, these terms do
not carry the force and effect of law. Therefore, Carpenter had no affirmative
defense to foreclosure, rendering the validity of CitiMortgage’s non-approval notice
immaterial. Accordingly, the judgment of the trial court is Affirmed.
I. Course of Proceedings
{¶ 3} CitiMortgage is the holder of a note and mortgage executed by
Carpenter in 2005, when she refinanced her mortgage in order to pay some bills. In
December 2009, Carpenter contacted CitiMortgage to look into whether she could 3
modify the terms of her loan. A CitiMortgage employee told Carpenter that she was
approved for a non-HAMP
loan modification, but Carpenter never received any loan modification paperwork
from CitiMortgage.
{¶ 4} Carpenter continued to make her monthly mortgage payments between
January, 2010 and March 2010. She did not make her April 2010 or May 2010
installments, but did make her June 2010 payment. In a letter dated June 30, 2010,
Carpenter was notified by CitiMortgage that she had defaulted under the terms of the
Note and Mortgage. The parties were asked at oral argument whether Carpenter
had been evaluated under HAMP; neither party appeared to dispute that she was
evaluated. Furthermore, a letter from CitiMortgage dated July 8, 2010, sent to
Carpenter informing her that a loan modification under HAMP was denied, implies
that an evaluation under HAMP was completed. The letter states that the reason for
denial is, “because you
are current on your mortgage loan and * * * you are not at risk of default because:
You have not documented a financial hardship that has reduced your income or
increased your expenses, thereby impacting your ability to pay your mortgage as
agreed.” Exhibit 3, p. 1.
{¶ 5} Upon Carpenter’s failure to cure the default, CitiMortgage accelerated
the loan and commenced a foreclosure action against Carpenter. The trial court
rendered summary judgment in favor of CitiMortgage in the amount of $37,690.12,
plus interest from April 1, 2010. 4
{¶ 6} Carpenter appeals from the summary judgment rendered against her.
II. Carpenter Has No Affirmative Defense to Foreclosure
on Her Mortgage Loan Based on CitiMortgage’s Alleged Failure
to Have Complied with HAMP Requirements
{¶ 7} Carpenter’s sole assignment of error is as follows:
“THE TRIAL COURT ERRED IN GRANTING CITIMORTGAGE’S MOTION
FOR SUMMARY JUDGMENT.”
{¶ 8} Carpenter contends that CitiMortgage’s failure to follow the Department
of the Treasury’s (Treasury) HAMP Supplemental Directives and Freddie Mac
HAMP-related Bulletins constitutes an affirmative defense. She contends that there
is a genuine issue of material fact regarding whether CitiMortgage failed to follow
notice procedures outlined in the Treasury’s Supplemental Directive 09-08 and
Freddie Mac Bulletin 2009-28.
{¶ 9} A trial court may grant a moving party summary judgment pursuant to
Civ. R. 56 if there are no genuine issues of material fact remaining to be litigated, the
moving party is entitled to judgment as a matter of law, and reasonable minds can
come to only one conclusion, and that conclusion is adverse to the nonmoving party,
who is entitled to have the evidence construed most strongly in his favor. Smith v.
Five Rivers MetroParks, 134 Ohio App.3d 754, 760, 732 N.E.2d 422 (2d Dist. 1999).
“We review summary judgment decisions de novo, which means that we apply the
same standard as the trial court.” GNFH, Inc. v. W. Am. Ins. Co., 172 Ohio App.3d 5
127, 2007-Ohio-2722, 873 N.E.2d 345, ¶ 16 (2d Dist.). In other words, “we review
the judgment independently and without deference to the trial court’s determination.”
Brown v. Scioto Cty. Bd. Of Commrs., 87 Ohio App.3d 704, 711, 622 N.E.2d 1153
(4th Dist. 1993).
{¶ 10} Congress passed the Emergency Economic Stabilization Act (EESA),
12 U.S.C. 5201, et seq., in response to the downward turn of the financial market and
credit crisis in 2008. A major component of the statute, the Trouble Asset Relief
Program (TARP), authorized the Secretary of the Department of Treasury (Treasury)
to undertake foreclosure mitigation initiatives and preserve home ownership. 12
U.S.C. 5211-5241. Specifically, TARP required the Secretary to “implement a plan
that seeks to maximize assistance for homeowners and * * * encourage[s] the
servicers of the underlying mortgages * * * to take advantage of * * * other available
programs to minimize foreclosures.” 12 U.S.C. 5219(a)(1). Additionally, “the
Secretary may use loan guarantees and credit enhancements to facilitate loan
modifications to prevent avoidable foreclosures.” Id.
{¶ 11} The authority granted to the Treasury under EESA to implement
foreclosure mitigation efforts is broad. “Notably, Congress did not require that the
Treasury’s plan benefit any identified category of borrowers of loans, or that the plan
utilize any specific form of assistance.” Nguyen v. BAC Home Loan Servs., LP, N.D.
Cal No. C-10-01712, 2010 WL 3894986, *1 (Oct. 1, 2010). The Treasury has “full
discretion to structure foreclosure mitigation initiatives, including their size, duration,
and scope.” Id. 6
{¶ 12} Pursuant to its broad discretionary authority, the Treasury introduced
the Making Homes Affordable Program, which included the Home Affordable
Modification Program (HAMP). “HAMP was aimed at helping homeowners who were
in or were at immediate risk of being in default on their home loans by reducing
monthly payments to sustainable levels.” Costigan v. Citimortgage, Inc. S.D. NY No.
10 Civ 8776, 2011 WL 3370397, *1 (Aug. 2, 2011). “ * * * HAMP works by providing
financial incentives to participating mortgage servicers to modify terms of eligible
loans.” Marks v. Bank of America, N.A. D. Ariz. No. 03:10-cv-08039-PHX-JAT,
2010 WL 2572988, *5 (June 22, 2010).
{¶ 13} Participants in HAMP include servicers with loans guaranteed by
Government Sponsored Enterprises (GSE), such as Fannie Mae and Freddie Mac,
as well as loans that are not guaranteed, known as non-GSE loans. See Markle v.
HSBC Mortgage Corp. (USA), F.Supp.2d , D. Mass No. 10-40189, 2011 WL
6944911, *1 (July 12, 2011). “The Department of the Treasury and Fannie Mae
have issued a series of directives that provide guidance to mortgage servicers
implementing HAMP.” Id. at *2. Servicers who enter into a contract with Fannie
Mae and have their loans guaranteed by Fannie Mae are required to participate in
HAMP and to abide by Fannie Mae servicing guides and bulletins, which are
expressly incorporated into the contact. Id. at *1. We see no reason why the same
principle would not apply to servicers who enter into similar GSE servicing
agreements with Freddie Mac. See Freddie Mac, Bulletin Number: 2009-6,
http://www.freddiemac.com/sell/guide/bulletins/pdf/bll096.pdf, 1 (accessed Feb 16, 7
2012). Non-GSE servicers who opt into participating in HAMP by signing a Servicer
Participation Agreement (SPA) are also required to evaluate borrowers for HAMP
eligibility and must abide by Treasury’s handbooks and directives. Markle at *1;
Edwards v. Aurora Loan Serv.’s, LLC, 791 F.Supp.2d 144, 147 (D.D.C. 2011).
Although these guidelines from both the Treasury and Freddie Mac require servicers
to evaluate borrowers prior to initiating a foreclosure proceeding, that does not
necessarily mean that a loan modification will result. See BAC Home Loans
Servicing v. Bates, Butler C.P. No. CV 2009062801, 5-7 (Mar. 8, 2010); U.S. Bank,
N.A. v. Bleckinger, Seneca C.P. No. 10-CV-0095, 6 (Oct. 13, 2010); U.S. Dept. of the
Treasury, Supplemental Directive 09-01, https://www.hmpadmin.com/
portal/programs/docs/hamp_servicer/sd0901.pdf (accessed Feb. 16, 2012)(governing
non-GSE loan servicers); Freddie Mac, Chapter C65: Home Affordable Modification
Program, http://www.freddiemac.com/sell/guide/ bulletins/pdf/bll096xA.pdf, (accessed
Feb 16, 2012)(governing Freddie Mac guaranteed loans).
A. Carpenter Is Not a Third-Party Beneficiary To The Contract;
No Affirmative Defense Exists.
{¶ 14} Regardless of whether a servicer is the holder of a GSE loan or a
non-GSE loan, most courts have found that borrowers do not have standing to
enforce the terms of HAMP as third-party beneficiaries. See, e.g., Edwards at
152-153 (regarding a GSE loan contract); Markle at *2-7 (regarding a GSE loan
contract); Marks, D. Ariz. No. 03:10-cv-08039-PHX-JAT, 2010 WL 2572988, *5-7 8
(regarding a non-GSE loan SPA); Warren v. U.S. Bank of America, S.D. Ga No.
4:11-cv-70, 2011 WL 2116407, *2-5 (May 24, 2011) (no standing to enforce HAMP
terms of a non-GSE loan SPA). Turning to Ohio law, specifically: “Only a party to
a contract or an intended third-party beneficiary of a contract may bring an action on
a contract in Ohio.” Grant Thornton v. Windsor House, Inc., 57 Ohio St.3d 158, 161,
566 N.E.2d 1220 (1991).
{¶ 15} An affirmative defense, like a cause of action, is a claim of right. In a
cause of action, the claim of right is a claim to relief; in an affirmative defense, the
claim of right is the avoidance of liability under another’s claim to relief. It follows
then, that a party seeking to assert an affirmative defense under a contract must
either be a party to the contract or an intended third-party beneficiary of a contact.
In the HAMP context, a New York court concluded that, “an alleged breach of the
[HAMP Service Provider] Agreement cannot form the basis of a defense, because
[the borrower] cannot be considered an intended beneficiary of the Agreement, as
there is neither evidence nor allegation that it was [the bank’s] intention to benefit
homeowners in entering into the Agreement.” Wells Fargo Bank v. Small, 2010 NY
Slip Op 30424U, *5, 2010 NY Misc. LEXIS 2478 (N.Y. Sup. Ct. Feb. 16, 2010).
{¶ 16} Carpenter contends that there is a genuine issue of material fact
whether the evaluation she received conformed with Freddie Mac Bulletin 2009-28
and the Treasury’s Supplemental Directive 09-08. But that issue of fact can only be
material if Carpenter had an affirmative defense to this foreclosure action based on
CitiMortgage’s alleged non-conformity. Carpenter does not contend that she is an 9
intended third-party beneficiary to the contract between Citimortgage and Freddie
Mac. Carpenter asserts that she has an affirmative defense, even though she is not
a beneficiary to the servicer contract, due to “CitiMortgage’s failure to follow Freddie
Mac Bulletin [20]09-28 and HAMP Supplemental Directive 09-08.” We disagree. In
order for Carpenter to have an affirmative defense based upon the contract terms
between CitiMortgage and Freddie Mac – terms incorporating Freddie Mac Bulletins
and Treasury Supplemental Directives – Carpenter had to have presented evidence
establishing a genuine issue of material fact as to her status as an intended
third-party beneficiary to the servicer contract. She did not present any evidence of
that. Therefore, Carpenter has no standing to assert an affirmative defense on her
loan contract, and CitiMortgage is entitled to judgment as a matter of law.
B. If Carpenter Is Not an Intended Third-Party Beneficiary to a Contract,
Is an Affirmative Defense Nevertheless Available to Her under HAMP?
1. The Terms of the CitiMortgage/Freddie Mac Servicing Contract
Were Not Expressly Incorporated into Carpenter’s Mortgage or Note,
Therefore No Affirmative Defense Exists.
{¶ 17} Even without being an intended third-party beneficiary of the servicer
contract between CitiMortgate and Freddie Mac, Carpenter would be entitled to an
affirmative defense based upon CitiMortgage’s failure to have complied with HAMP
servicing requirements if those requirements had been incorporated in her contract 10
with CitiMortgage. Neither Carpenter nor Citimortgage presented evidence that the
terms of the contract between CitiMortgage and Freddie Mac were incorporated into
Carpenter’s note or mortgage. Therefore, this potential avenue for an affirmative
defense of non-compliance with HAMP servicing requirements is not available to her.
2. Even Though the Terms within the HAMP Guidelines Are Mandatory
in Nature, They Do Not Establish an Affirmative Defense,
Because the HAMP Guidelines Do Not Have the Force and Effect of Law.
{¶ 18} An affirmative defense may be available if the mortgage servicing
requirements are “ ‘ * * * mandatory and expressly [require] compliance * * * ’and * * *
the requirements ‘ * * * also have the force and effect of law * * *.’ ” GMAC Mtge. of
Pennsylvania v. Gray, 10th Dist. No. 91AP-650, 1991 WL 268742, *6 (Dec. 10, 1991),
quoting Bankers Life Co. v. Denton, 120 Ill. App.3d 576, 578, 458 N.E.2d 203 (1983).
In other words, even if the terms within the HAMP guidelines, directives, and
bulletins are found to be mandatory, and expressly require compliance, for those
terms to create a private right on the part of a borrower, the terms themselves must
also have the force and effect of law. Otherwise, an affirmative defense will not be
created.
{¶ 19} Whether mortgage servicing requirements are mandatory and
expressly require compliance depends on the language used within the servicing
terms themselves. See Bankers Life at 578. In Bankers Life, the borrower raised an
affirmative defense, alleging that the bank failed to comply with Housing and Urban 11
Development (HUD) servicing requirements. Id. at 577. When analyzing whether
the language of the servicing requirements was mandatory, the court cited several
sections of the relevant Code of Federal Regulations (C.F.R.); for example: “It is the
intent of the Department [of Housing and Urban Development] that no mortgagee
shall commence foreclosure or acquire title to a property until the requirements of
this subpart have been followed,” 24 CFR 203.500; and:
The mortgagee must have a face-to-face interview with the mortgagor,
or make a reasonable effort to arrange such a meeting, before three full
monthly installments due on the mortgage are unpaid. If default
occurs in a repayment plan arranged other than during a personal
interview, the mortgagee must have a face-to-face meeting with the
mortgagor, or make a reasonable attempt to arrange such a meeting
within 30 days after such default and at least 30 days before
foreclosure is commenced * * *. 24 CFR 203.604 (emphasis added);
Bankers Life at 578-579.
In addition, the court noted that the word “shall” was used throughout the HUD
requirements, indicating that the directives were mandatory in nature. Id.
{¶ 20} As in Bankers Life, the language cited by Carpenter in Freddie Mac
Bulletin 2009-28 and the Treasury’s Supplemental Directive 09-08 also appears to be
mandatory in nature. Freddie Mac Bulletin 2009-28 states, “With this Bulletin, we
are advising Freddie Mac Servicers that they must comply with the requirements set
forth in [Treasury Supplemental Directive] 09-08 * * *.” (Emphasis added.) Freddie 12
Mac: Bulletin Number: 2009-28, http://www.freddiemac.com/sell/guide/bulletins/pdf/
bll0928.pdf, 7 (accessed Feb. 16, 2012). Specifically, the sections of the Treasury’s
Supplemental Directive 09-08 incorporated in Freddie Mac Bulletin 2009-28 includes,
“complete requirements and additional information with respect to determining when
a Servicer must send a Borrower Notice and the requirements for the content of a
Borrower Notice.” Id. According to Supplemental Directive 09-08, “[a] servicer
must send a Borrower Notice to every borrower that has been evaluated for HAMP
but * * * is not offered an official HAMP modification * * *.” (Emphasis added.) U.S.
Dept. of the Treasury, Supplemental Directive 09-08,
https://www.hmpadmin.com/portal/programs/ docs/hamp_servicer/sd0908.pdf, 1
(accessed Feb. 16, 2012). The explanations utilized in the Borrower Notice for
non-approval “must provide the primary reason or reasons for the non-approval.”
(Emphasis added.) Id. at 2. Furthermore, these explanations “must relate to one of
more of the Non-Approval/Not Accepted reason codes specified in Schedule IV of
[Treasury] Supplemental Directive 09-06 (Home Affordable Modification Guidelines:
Data Collection and Reporting Requirements Guidance).” (Emphasis added.)
Freddie Mac: Bulletin Number: 2009-28 at 7. As demonstrated above, the use of
the word “must,” as opposed to “may” or “should,” is normally construed by courts to
indicate mandatory terms requiring compliance. Carpenter correctly points out that
the language found in Freddie Mac Bulletin 2009-28 and in Supplemental Directive
09-08 is mandatory in nature.
{¶ 21} But more is required for the establishment of an affirmative defense. 13
In addition to establishing that the terms found in Freddie Mac Bulletin 2009-28 and
the Treasury’s Supplemental Directive 09-08 are mandatory, and expressly require
compliance, these terms must have the force and effect of law. In Banker’s Life, the
court found that the HUD servicing requirements were “adopted as regulations
pursuant to the authority conferred on H.U.D. by the United State’s Congress.” 120
Ohio App.3d at 578, 458 N.E.2d 203. Accord, GMAC Mtge. of Pennsylvania,
supra, 10th Dist. No. 91AP-650, 1991 WL 268742 at *6-7. In other words, the
servicing requirements established by HUD were codified in the C.F.R., and were
therefore determined by the court to have the force and effect of law.
{¶ 22} In arguing that the Freddie Mac Bulletins and Treasury Supplemental
Directives carried the force and effect of law, Carpenter points to 15 U.S.C. 1639a(c),
which states: “The qualified loss mitigation plan guidelines issued by the Secretary
of the Treasury under the Emergency Economic Stabilization Act of 2008 shall
constitute standard industry practice for purpose of all Federal and State laws.” Id.
When read in the context of the statute as a whole, however, this section does not
codify the Treasury’s Directives. Rather, it appears to be intended to protect lending
institutions from being held liable to their investors for failing to maximize profits while
complying with HAMP or other qualified loss mitigation plans. This is evident from
the following division of the statute, 15 U.S.C. 1639(d):
Scope of safe harbor
Any person, including a trustee, issuer, and loan originator, shall not be
liable for monetary damages or be subject to an injunction, stay, or 14
other equitable relief, based solely upon the cooperation of such person
with a servicer when such cooperation is necessary for the servicer to
implement a qualified loss mitigation plan that meets the requirements
of subsection (a).
{¶ 23} Next, Carpenter points to the mandatory language found within the
bulletins and directives themselves. This argument is also unconvincing. Although
the language in the Treasury’s Supplemental Directives requires certain procedures
to be followed, “[t]he HAMP program itself is not codified as a public law.” Cleveland
v. Aurora Loan Servs., N.D. CA No. C11-0773, 2011 WL 2020565, *3 (May 24,
2011); Accord, Edwards, 791 F.Supp.2d 144, 154. Nor is it subject to the Treasury’s
notice and comment rulemaking, or codified within any C.F.R. Edwards at 154.
{¶ 24} As previously noted, Congress bestowed on the Treasury Secretary
broad discretionary power pertaining to the size, structure, scope, and duration of
HAMP. Nguyen, N.D. Cal No. C-10-01712, 2010 WL 3894986, *1. Moreover, the
Treasury Secretary “retains full discretion to end HAMP at any time and, as the
agency already has done, to modify the program as it sees fit.” Edwards at 154.
{¶ 25} Although the terms found within the Treasury’s Supplemental Directive
09-08 and Freddie Mac Bulletin 2009-28 appear to be mandatory, neither HAMP
itself nor the Treasury’s guidelines has the force and effect of law. Therefore, no
affirmative defense is available, and CitiMortgage is entitled to judgment as a matter
of law. 15
{¶ 26} Carpenter’s sole assignment of error is overruled.
III. Conclusion
{¶ 27} Carpenter’s sole assignment of error having been overruled, the
judgment of the trial court is Affirmed.
GRADY, P.J., and DONOVAN, J., concur.
Copies mailed to:
Thomas L. Henderson George Patricoff Andrew D. Neuhauser Lauren E. Dreshman Hon. Mary L. Wiseman