Editor: David Reiss
Brooklyn Law School

March 9, 2014

Michigan District Court Dismisses Homeowners’ Claims Against J.P. Morgan Chase Bank and Fannie Mae

By Karume James

In October 2013, the United States District Court for the Western District of Michigan in Nederhoed v. J.P. Morgan Chase Bank, 2013 WL 5533683 (W.D.Mich. 2013) dismissed the Plaintiff homeowner’s claims against Defendants J.P. Morgan Chase Bank and Fannie Mae for recission and breach of contract with prejudice.

In July 1999, Plaintiffs Stephen and Paula Nederhoed (“Plaintiffs”) bought a home in Michigan with a mortgage from First Chicago NBD Mortgage Company (First Chicago). In January 2001, First Chicago sold the mortgage to MERS. During 2009, Plaintiffs fell behind in their mortgage payments due to unemployment and economic uncertainties, and entered into a Forbearance Plan Agreement (FPA) with Defendant J.P. Morgan Chase Bank (“Chase”). The FPA required the Plaintiffs to make monthly payments in the amount of $448.88 from July 2009 through December 2009.

Plaintiffs later made their first payment under the FPA but Chase rejected the payment stating that the funds were insufficient to cure the default. Chase sent notices of mortgage rate changes to Plaintiffs in September 2010 and 2011 with details of a new interest rate and a new monthly payment amount. Plaintiffs made timely payments with each rate change but Chase continued to send Plaintiffs delinquency notices. In September 2010, Chase bought Plaintiff’s property at a foreclosure sale and later sold the mortgage to Fannie Mae. Plaintiffs had six months to redeem the property but failed to redeem it within the allotted time. However, Plaintiffs alleged that Chase never provided them with notice of the foreclosure or the foreclosure sale and never posted a notice of foreclosure in a conspicuous place on the Property until May 2012.

In June 2012, Plaintiffs sued Chase and Fannie Mae (“Defendants”) in Michigan state civil court, but the case was removed federal district court in July 2012. Plaintiff sued for rescission (Count I); Defendants’ waiver of right, privilege, advantage or benefit (Count II); estoppel (Count III); unclean hands, civil fraud (Count IV); and breach of contract (Count V). For relief on Counts I through IV, Plaintiffs requested that the Court either rescind or set aside the foreclosure sale and restore Plaintiffs’ ownership of the property. In Count V, Plaintiffs’ sought damages in excess of $25,000 for Defendants’ alleged breach of a forbearance agreement and two adjustment agreements. Defendants moved to dismiss the case under Federal Rules of Civil Procedure 12(b)(6) for failing to state a claim.

The District Court found that since the Plaintiffs did not contest the foreclosure prior to the expiration of the redemption period, they could only obtain relief if they could show a strong case of fraud or irregularity in the foreclosure sale. The Court found that Plaintiffs did not sufficiently allege fraud or irregularity in the foreclosure sale and found that Defendants complied with all of the statutory requirements for the foreclosure sale as they provided adequate notice to Plaintiffs of the sale. The Court therefore dismissed counts I-IV of Plaintiffs claim. The Court dismissed count V of Plaintiffs’ claim for breach of contract because it found that the claim was barred by Michigan’s statute of frauds. All of Plaintiffs’ claims were dismissed with prejudice.

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