UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 11-2419
ELAYNE WOLF,
Plaintiff - Appellant,
v.
FEDERAL NATIONAL MORTGAGE ASSOCIATION, a/k/a Fannie Mae; BAC
HOME LOANS SERVICING, LP; PROFESSIONAL FORECLOSURE
CORPORATION OF VIRGINIA,
Defendants - Appellees.
----------------------------------------
CONSUMER FINANCIAL PROTECTION BUREAU,
Amicus Supporting Appellant,
AMERICAN BANKERS ASSOCIATION; CONSUMER BANKERS ASSOCIATION;
CONSUMER MORTGAGE COALITION,
Amici Supporting Appellees.
Appeal from the United States District Court for the Western
District of Virginia, at Charlottesville. Norman K. Moon,
Senior District Judge. (3:11-cv-00025-NKM-BWC)
Argued: December 5, 2012 Decided: February 28, 2013
Before TRAXLER, Chief Judge, and FLOYD and THACKER, Circuit
Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Peter G. Wilson, CONSUMER FINANCIAL PROTECTION BUREAU,
Washington, D.C., for Amicus Supporting Appellant. Henry Woods
McLaughlin, III, LAW OFFICE OF HENRY MCLAUGHLIN, P.C., Richmond,
Virginia, for Appellant. John Donley Adams, MCGUIREWOODS, LLP,
Richmond, Virginia, for Appellees. ON BRIEF: Seth A. Schaeffer,
Jeffrey D. McMahan, Jr., Matthew A. Fitzgerald, MCGUIREWOODS,
LLP, Richmond, Virginia, for Appellees Federal National Mortgage
Association and BAC Home Loans Servicing, LP; Peter I. Grasis,
Daniel M. Rathbun, RATHBUN & GOLDBERG, P.C., Fairfax, Virginia,
for Appellee Professional Foreclosure Corporation of Virginia.
Leonard J. Kennedy, General Counsel, To-Quyen Truong, Deputy
General Counsel, David M. Gossett, Assistant General Counsel,
Rachel Rodman, Senior Counsel, Kristin Bateman, CONSUMER
FINANCIAL PROTECTION BUREAU, Washington, D.C., for Amicus
Supporting Appellant. Kirk D. Jensen, Michael R. Williams,
Jeffrey P. Naimon, BUCKLEYSANDLER LLP, Washington, D.C., for
Amici Supporting Appellees.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
Appellant Elayne Wolf appeals the district court’s
dismissal of her amended complaint with prejudice. Wolf brought
suit against Federal National Mortgage Association (Fannie Mae),
BAC Home Loans Servicing, L.P. (BAC), and Professional
Foreclosure Corporation of Virginia (PFC), seeking rescission of
her home mortgage loan under the Truth in Lending Act (TILA), 15
U.S.C. §§ 1601-1667. In addition to her TILA claims, Wolf
asserts that the foreclosure and sale of her house was also
invalid because of deficiencies in the transfer of the deed of
trust and the appointment of a substitute trustee. Wolf
additionally makes claims of fraud, defamation, and breach of
the implied covenant of good faith and fair dealing. The
district court dismissed Wolf’s case in its entirety, and Wolf
timely appealed. For the reasons that follow, we affirm.
I.
We review a district court’s grant of a motion to dismiss
de novo and view the facts in the light most favorable to the
non-moving party. Gilbert v. Residential Funding, LLC, 678 F.3d
271, 273 (4th Cir. 2012).
This action arises from Wolf’s attempt to rescind her
mortgage through TILA. Wolf’s complaint alleges that she owned
a home in Charlottesville, Virginia, and, on May 14, 2007,
3
refinanced her existing home mortgage with MetroCities Mortgage,
LLC (MetroCities). The loan was evidenced by a note that was
secured by a deed of trust, and by a lien on Wolf’s home. The
deed of trust named Mortgage Electronic Systems (MERS) as the
lender’s nominee, granting MERS legal title to the deed of trust
and giving MERS legal rights, including the right to foreclose.
The deed of trust named Michael J. Barrett as trustee. At the
loan closing, Wolf received a disclosure statement and a “Notice
of Right to Cancel” the loan as required by TILA. See 15 U.S.C.
§ 1635(a). Additionally, Wolf received a separate notice
informing her of her ability to opt out of an arbitration
agreement with MetroCities.
On March 12, 2010, Wolf defaulted on the terms of her loan.
On March 30, 2010, MERS assigned the deed of trust to BAC. On
this same day, BAC appointed PFC as substitute trustee in place
of the original trustee-Barrett. BAC instructed PFC to
foreclose. In response, PFC advertised a foreclosure sale for
May 5, 2010. On May 2, 2010, just three days before the
foreclosure sale, Wolf attempted to rescind her mortgage loan
pursuant to TILA by mailing a notice of rescission to BAC. As a
result, BAC temporarily cancelled the foreclosure sale.
However, the foreclosure sale eventually took place in July
2010, and Fannie Mae purchased the home.
4
Thereafter, Fannie Mae instituted an unlawful detainer
action against Wolf in the General District Court of Albemarle
County. After the Albemarle County court awarded possession of
the property to Fannie Mae, Wolf filed her initial complaint in
this action in the same court. PFC successfully removed this
action to the United States District Court for the Western
District of Virginia.
Wolf submits that she is entitled to have her home loan
rescinded pursuant to TILA. In furtherance of this argument,
Wolf alleges that the original lender, MetroCities, materially
underdisclosed the finance charge that was applied as part of
obtaining her loan. Specifically, Wolf claims that MetroCities
materially underdisclosed the finance charge based on its
failure to disclose the following: (1) a $10 charge for
recordation costs, (2) an interest charge of $15, and (3) an
excess charge for casualty insurance that was at least $50 more
than reasonable. Next, Wolf alleges that her right to rescind
the loan was not properly disclosed to her. In addition to her
TILA claims, Wolf asserts that the foreclosure sale of her house
is void because the assignment of the note from MERS to BAC was
invalid as was the appointment of PFC as substitute trustee.
Wolf also makes claims for fraud against BAC and PFC, defamation
against PFC, and breach of the implied covenant of good faith
and fair dealing against BAC. In support of her fraud claim,
5
Wolf argues that appointment of PFC as substitute trustee was an
act of fraud, and that the advertisement of the foreclosure sale
itself was a fraudulent representation. She further argues that
the advertisement of the foreclosure sale defamed her and caused
her considerable public shame and embarrassment. Wolf’s claim
for breach of the implied covenant of good faith and fair
dealing also centers on her allegation that the appointment of
PFC and the subsequent foreclosure sale were deficient.
The district court found that Wolf’s TILA claims were
untimely and that the rest of her allegations failed to state a
cognizable claim. The district court then granted BAC, PFC, and
Fannie Mae’s motion to dismiss the case in its entirety. This
appeal followed. We have jurisdiction pursuant to 28 U.S.C.
§ 1291.
II.
A.
Wolf first argues that the district court erred in
dismissing her TILA claims based on her failure to timely
exercise her right to rescind the home mortgage loan. In
enacting TILA, Congress decided “that economic stabilization
would be enhanced . . . by the informed use of credit.” 15
U.S.C. § 1601(a). In furtherance of informed use of credit,
TILA requires that a creditor make certain disclosures of terms
6
when a loan transaction is made. When a consumer enters into a
loan secured by her principal residence, TILA’s “buyer’s
remorse” provision allows the consumer to rescind the agreement.
Id. § 1635(a). Ordinarily, the right of rescission may be
exercised within three business days from either closing,
delivery of notice of the right to rescind, or delivery of all
“material disclosures,” whichever occurs last. Id. If the
required notice or material disclosures are not provided or are
deficient, the deadline to rescind is extended to three years
after consummation, transfer, or sale of the property, whichever
event occurs first. Id. § 1635(f).
TILA also requires that lenders disclose to borrowers
“finance charges,” which are the cost of borrowing and include
“the sum of all charges . . . imposed directly or indirectly by
the creditor as an incident to the extension of credit.” Id.
§§ 1605(a), 1632(a). If a lender fails to accurately disclose
finance charges to the borrower and a foreclosure is underway,
any charge that varies more than $35 from the actual sum of the
finance charge is grounds for rescission. Id. § 1635(i)(2). In
addition to the required disclosure of finance charges, TILA
also mandates that the lender accurately disclose the consumer’s
right to rescind the loan. Id. § 1635(a). The lender must give
notice that “clearly and conspicuously discloses” the borrower’s
right to rescind. Id.
7
As noted previously, the loan between Wolf and Metrocities
was finalized on May 14, 2007, but Wolf did not file a notice of
rescission until May 2, 2010. Thus, in order for her rescission
to be timely, she must establish that the three-year extended
deadline applies. Wolf contends that the three-year deadline
applies because: (1) MetroCities assessed three underdisclosed
finance charges, and (2) MetroCities did not adequately disclose
her rescission rights in that the inclusion of an arbitration
clause rendered the notice of the right to rescind
“insufficiently clear to comply with the elements of TILA.”
The district court found it unnecessary to decide whether
the three-year deadline applied because it determined that even
if it did apply, Wolf did not validly exercise her right of
rescission because she failed to file a lawsuit within the
three-year deadline. The district court issued its decision on
November 23, 2011. On May 3, 2012, this Court issued its
opinion in Gilbert v. Residential Funding LLC, 678 F.3d 271 (4th
Cir. 2012). This Court held that a borrower does not need to
file a lawsuit seeking rescission within the three-year time
frame and instead, must only notify her lender that she is
exercising her right of rescission within the three-year limit.
Id. at 277. Therefore, the district court’s holding that Wolf’s
rescission claim had expired is now contrary to the law of this
circuit. In light of Gilbert, Wolf’s claim had not necessarily
8
expired when Wolf filed suit, and the relevant question becomes
whether Wolf has adequately alleged facts such that the three-
year deadline applies.
B.
Despite the fact the district court failed to evaluate the
substance of Wolf’s TILA claims, we are “entitled to affirm the
district court on any ground that would support the judgment in
favor of the party prevailing below.” Crosby v. City of
Gastonia, 635 F.3d 634, 643 n.10 (4th Cir. 2011) (quoting
Catawba Indian Tribe v. City of Rock Hill, 501 F.3d 368, 372 n.4
(4th Cir. 2011)) (internal quotation marks omitted). Here, even
with the benefit of Gilbert, Wolf’s TILA claims fail.
As previously noted, when a foreclosure is underway, any
failure to accurately disclose a finance charge exceeding $35 is
grounds for rescission. 15 U.S.C. § 1635(i)(2). Wolf asserts
that MetroCities failed to disclose three finance charges: (1)
an excess charge for casualty insurance that was at least $50
more than reasonable, (2) a $10 recordation fee, and (3) a $15
interest charge which arose because the bank received an
overpayment from Wolf and failed to return it for two months.
Because the recordation fee and the interest charge together
fail to meet the threshold amount, we begin with the alleged
excess casualty charge.
9
Wolf alleges that she was charged $591 for one year of
casualty insurance and that escrow reserved an additional
$443.25 for nine months of additional insurance. Although
casualty insurance charges are part of the applicable finance
charge, id. § 1605(c), escrow payments are not, id.
§ 1605(e)(3). Further, if the borrower is given the option to
pick his or her own casualty insurer and this right is disclosed
at closing, then casualty insurance is not a part of the finance
charge. Id. § 1605(c). The applicability of the escrow
exemption is conditioned upon the payments being bona fide and
reasonable. Regulation Z, 12 C.F.R. § 1026.4(c)(7) (previously
codified at 12 C.F.R. § 226.4(c)(7)).
Wolf does not contend that the $591 for casualty insurance
is unreasonable. Instead, it appears that Wolf takes issue with
the escrow fees, as Wolf avers that the amount charged for
casualty insurance was unreasonable because it required payment
in advance for an excessive amount of time. Wolf summarily
claims that the amount charged “was unreasonable by at least
$50.” Wolf, however, presents no facts as to why the amount of
escrow charged was unreasonable. Wolf’s bare assertion that the
fees charged were unreasonable “stops short of the line between
possibility and plausibility” of the right to relief. Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 546 (2007). Because of
10
this, her claim that the escrow payments were unreasonable
fails.
Second, as already noted, the $10 recordation fee and the
$15 interest fee do not meet the threshold $35 requirement
combined. 12 C.F.R. § 1026.23(h)(2) (stating that once
foreclosure is initiated finance charges are deemed accurate if
they were “understated by no more than $35.”) Therefore, Wolf’s
claim based on the recordation and interest fees fails as a
matter of law.
C.
In support of her TILA claim, Wolf also alleges that the
lender failed to accurately disclose her right to rescind the
loan. In addition to the disclosure of finance charges, TILA
also mandates that the lender “clearly and conspicuously”
disclose the borrower’s right to rescind the loan. 15 U.S.C.
§ 1635(a). Wolf concedes that the Notice of the Right to Cancel
was in proper form. As a condition of the loan, MetroCities
required Wolf to enter an arbitration agreement. After the loan
was closed, Wolf was informed of her right to rescind the
arbitration agreement as well as her right to rescind the loan
itself. Wolf alleges that the information provided in the
arbitration agreement was “drastically inconsistent” with the
information provided for rescinding the loan and that this
11
inconsistency undermined the otherwise accurate rescission
information provided to her. Specifically, Wolf claims that the
arbitration agreement required her to send different information
to a different address than what was required to rescind the
loan. According to Wolf, this rendered the Notice of the Right
to Cancel “insufficiently clear to comply with the requirements
of TILA.”
We are reluctant to accept that an extrinsic document
makes a separate Notice of the Right to Cancel unclear,
especially when Wolf concedes that the notice complied with the
requirements of TILA. The separate arbitration provision simply
gave Wolf a choice to terminate the arbitration provision
without affecting the underlying loan. Wolf’s choice to
arbitrate was wholly separate from her choice to rescind the
loan in its entirety, and her right to rescind the loan was in
no way undermined by her right to opt out of arbitration. The
fact that the arbitration cancellation provisions were different
from the rescission provisions does not affect the clarity of
the separate Notice of the Right to Cancel. Accordingly, we
reject Wolf’s argument that the arbitration cancellation
provision undermined a Notice of the Right to Cancel that was
perfectly consistent with TILA’s disclosure requirements.
12
In sum, Wolf has failed to state any viable claim under
TILA, and we therefore affirm the district court’s dismissal of
her TILA claims.
III.
Wolf next challenges the validity of the assignment of the
note from MERS to BAC. First, Wolf asserts that the deed of
trust did not provide MERS the right to assign the note.
Second, Wolf alleges that neither MERS nor BAC possessed the
note when it was purportedly assigned because the note was lost
at that time. The district court found that Wolf lacked
standing to challenge the propriety of the assignment. We
agree.
In addition to the constitutional requirements for
standing, there exist other “prudential limitations” to
standing. Warth v. Seldin, 422 U.S. 490, 498 (1975). Among
these limitations, is the principle that a party “generally must
assert his own legal rights and interests, and cannot rest his
claim to relief on the legal rights or interests of third
parties.” Id. at 499.
BAC argues that as a non-party to the assignment, Wolf does
not have the right to challenge the assignment. BAC’s argument
is in accord with Virginia law. In Virginia, to sue on a
contract one must be a party to or beneficiary of the contract.
13
See Mich. Mut. Ins. Co. v. Smoot, 129 F. Supp. 2d 912, 920 (E.D.
Va. 2000). Notably, Wolf has not alleged that she is a party to
the assignment from MERS to BAC or that she is an intended
beneficiary of the assignment. Without an enforceable contract
right, Wolf lacks standing to attack the validity of the
assignment. Furthermore, the assignment does not affect Wolf’s
rights or duties at all. Wolf still has the obligation under
the note to make payments. In fact, the only thing the
assignment affects is to whom Wolf makes the payments. Thus,
she has no interest in the assignment from MERS to BAC.
Accordingly, she has no standing to challenge it.
IV.
Wolf next argues that BAC’s appointment of PFC as trustee
was invalid, and because of this PFC was without authority to
foreclose on her property. Wolf makes two arguments in support
of this contention. First, she claims that BAC and MERS were
not in possession of the note at the time they purported to
appoint PFC as trustee. Second, Wolf avers that the notarized
document effectuating PFC’s appointment as trustee was a “bogus”
document because the second page was not attached to the first
page when the document was signed.
Wolf contends that the appointment of PFC as trustee was
ineffective because on March 12, 2010, eighteen days before the
14
appointment, she received a letter from BAC’s counsel informing
her that the note “was unavailable at this time.” Wolf claims
that the appointment of PFC as trustee was a nullity because BAC
nor MERS possessed the note at the time of the appointment.
Even if the appointment might be a nullity in that circumstance,
Wolf does not present a sufficient claim that BAC or MERS did
not possess the note. In fact, there is substantial evidence to
the contrary. PFC attached a copy of the note as an exhibit to
the district court, and the note states that PFC is the holder
of the note or the authorized agent of the holder of the note.
The note was also produced at a hearing in the district court.
Further, an examination of the note reveals the endorsement of
the original lender, MetroCities to Countrywide Bank, then from
Countrywide Bank to Countrywide Home Loans—which became BAC—and
then an endorsement in blank by Countrywide Home Loans.
According to Virginia law, “[w]hen endorsed in blank, an
instrument becomes payable to bearer and may be negotiated by
transfer of possession alone until specially endorsed.” Va.
Code Ann. § 8.3A-205(b). And once in possession of an
instrument, the holder is entitled to enforce it. Id. § 8.3A-
301. Thus, PFC as a holder in possession of the note had the
authority to foreclose on the property in accordance with
Virginia law.
15
Wolf’s next argument is that the notarized document
purporting to appoint PFC as trustee is invalid because the
signed second page of the document was not attached to the first
page at execution. Wolf alleges that as a result of this defect
the document was ineffective because of invalid notarization.
In support of this proposition, Wolf relies on Stanley Dale
Williams v. HSBC Finance Corp., No. CL 10-877 (Va. Cir. Ct.
March 30, 2011). In Williams, the plaintiff alleged that the
two pages of a document purporting to appoint a substitute
trustee appeared to have been executed at different places and
times, and because of this may not have been executed in front
of a notary. The court found that this was a valid claim
because the document must be executed in front of a notary to be
effective. Id. at 2. Unfortunately, Williams is not helpful to
Wolf. In Williams, if the claims were true, this would have
established that the document was not properly notarized. Here,
even if the allegations are true, it is irrelevant whether the
pages were stapled together when the documents were signed.
Wolf cites no authority, and we have found none, that requires
papers to be stapled together for a proper notarization.
Therefore, Wolf’s argument fails.
16
V.
Wolf next asserts a claim for fraud. Wolf alleges that
because of the invalid appointment of PFC as the trustee, the
foreclosure action was void, and BAC and PFC committed fraud by
advertising the foreclosure sale. Further, Wolf claims that due
to her reliance on the validity of the appointment, she failed
to take action to prevent the foreclosure prior to the sale. To
plead a claim for fraud, a plaintiff must show: (1) a false
representation, (2) of material fact, (3) made intentionally and
knowingly, (4) with intent to mislead, (5) reliance by the party
misled, and (6) resulting damage to the party misled. State
Farm Mut. Auto. Ins. Co. v. Remley, 618 S.E.2d 316, 321 (Va.
2005). Additionally, the Federal Rules of Civil Procedure
mandate a heightened pleading standard for fraud claims.
Federal Rule of Civil Procedure 9(b) requires a party alleging
fraud to “state with particularity the circumstances
constituting fraud or mistake.” Fed. R. Civ. P. 9(b). The
circumstances required to be pled with particularity are “the
time, place, and contents of the false representations, as well
as the identity of the person making the misrepresentation and
what he obtained thereby.” United States ex rel. Wilson v.
Kellogg Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir. 2008)
(quoting Harrison v. Westinghouse Savannah River Co., 176 F.3d
776, 786 (4th Cir. 1999)).
17
Wolf fails to satisfy the pleading standards for fraud.
First, Wolf does not allege a false representation of material
fact that is contained in the appointment document. Further,
Wolf does not identify any representation that misled her. Even
if we were to accept that the appointment of PFC and the
subsequent foreclosure sale were deficient, the document does
not contain any facts that mislead Wolf. The document simply
captures the intent of BAC and PFC to substitute PFC as trustee.
Moreover, Wolf did not rely on these statements, as she took
action to stop the foreclosure sale when she mailed notice of
rescission.
Similarly, Wolf fails to plead sufficient facts to show
that the advertisement of the foreclosure sale was a false
representation. Nothing in the foreclosure claim was a
misrepresentation of material fact. The advertisement merely
shows that PFC intended to foreclose on the property, an action
on which it followed through. Also, there is no reason to
conclude that BAC and PFC intended to defraud Wolf because they
sought to foreclose on her property after she defaulted on the
loan. It should come as no surprise to a home-owner that the
lender may seek to foreclose on her home when she fails to make
payments. In sum, Wolf fails to plead several required elements
to make a claim for fraud, and the district court was correct in
dismissing her claim.
18
VI.
Next, Wolf contends that PFC defamed her when it published
the foreclosure notice. She claims that the foreclosure notice
caused “her public shame and embarrassment and considerable
emotional harm.” To state a claim for defamation Wolf must
show: (1) publication of (2) a false statement (3) that defamed
Wolf, and (4) was made with the requisite intent. See Chapin v.
Knight-Ridder, Inc., 993 F.2d 1087, 1092 (4th Cir. 1993)
(applying Virginia law). “To be ‘actionable,’ the statement
must be not only false, but also defamatory, that is, it must
‘tend[] so to harm the reputation of another as to lower him in
the estimation of the community or to deter third persons from
associating or dealing with him.’” Id. (quoting Restatement
(Second) of Torts § 559).
In support of her argument Wolf cites language from the
notice of foreclosure. The notice provides:
In execution of a Deed of Trust . . . . from ELAYNE
WOLF dated May 14, 2007 . . . the undersigned
appointed Substitute Trustee will offer for sale at a
public auction at the front of the Circuit Court
building for the County of Albemarle located at 501 E.
Jefferson Street, Charlottesville, Virginia, on July
21, 2010 . . . .
Although Wolf contests the validity of the foreclosure sale, she
has not alleged that the published statements were false. In
fact, the advertisement that a foreclosure sale would occur is
unquestionably true. See Lapkoff v. Wilks, 969 F.2d 78, 82 (4th
19
Cir. 1992) (noting that a true statement cannot be defamatory).
Furthermore, Wolf was undeniably in default, rendering the
publication of a foreclosure notice warranted. In the absence
of any false statement about Wolf, we cannot conclude that the
foreclosure notice defamed her. Because of this, Wolf’s
defamation claim fails.
VII.
Finally, Wolf argues that the note and accompanying deed of
trust contained an implied covenant of good faith and fair
dealing that imposed obligations on the holder of the note.
Wolf claims that BAC breached the implied covenant of good faith
and fair dealing by acting outside of the scope of their rights
when (1) proceeding with the foreclosure even after the
allegedly “bogus” substitution of the trustee and (2) asserting
ownership on the basis of an invalid foreclosure.
Wolf is correct that “[i]n Virginia, every contract
contains an implied covenant of good faith and fair dealing.”
Enomoto v. Space Adventures, Ltd., 624 F. Supp. 2d 443, 450
(E.D. Va. 2009). However, the covenant of good faith and fair
dealing does not mean that a party who has contracted for valid
contractual rights cannot exercise those rights, as long as that
party does not exercise those rights in bad faith. See id.
20
In this case, MERS had the authority to assign the note to
BAC, and BAC had the authority to appoint a substitute trustee,
namely PFC. The note also provided the right to foreclose on
the property. Simply stated, MERS and its assigns had valid
contractual rights to take all of the steps that they did in
fact take. To prevail, Wolf needs to show sufficient evidence
that these rights were exercised in bad faith. Although Wolf
may not agree with actions taken, she has presented no evidence
that BAC’s contractual discretion was exercised in bad faith,
dishonestly, or that she was treated unfairly. Therefore, we
must conclude that BAC did not breach the implied covenant of
good faith and fair dealing.
VIII.
Wolf fails to state any claim that survives a motion to
dismiss. Because of this failure, we affirm the judgment of the
district court.
AFFIRMED
21