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Talbot v. U.S. Bank, National Association

United States District Court, E.D. Michigan, Southern Division

September 3, 2019

U.S. BANK, National Association, Defendant.



         After falling behind on their mortgage payments, and unsuccessfully pursuing several lawsuits, the plaintiffs lost their home to foreclosure. They have filed yet another lawsuit, this time alleging fraud against the foreclosing bank, based on the premise that the bank misrepresented throughout the foreclosure proceedings that it had a valid claim on the property. The plaintiffs continue to assert that alleged defects in the chain of title rendered that claim false. But the validity of the bank's interest was an essential fact that anchored each of the judgments against the plaintiffs in the state court cases. Since that fact was determined against them, it cannot be contested here without running afoul of established preclusion doctrines. For this reason, the defendant's motion to dismiss the complaint must be granted and the case must be dismissed.


         Because this is a motion to dismiss, the following facts are stated as alleged in the plaintiffs' extensive (38-page, 191-paragraph) complaint, except where otherwise noted.

         In August 2005, plaintiffs Arthur Talbot and Kelley Bezrutch entered into a purchase contract to buy their former home on South Huron River Drive in Ypsilanti, Michigan for $574, 000. They made a down-payment of $86, 100 and financed the balance of $487, 900 with a loan made by Wilmington Finance. The loan was secured by a mortgage. The loan was “securitized” into a trust arrangement with defendant U.S. Bank, N.A. as Trustee. The plaintiffs allege that there were improprieties in the transfer of the mortgage via the trust, including that transfers of interest were not recorded or were back-dated so that they appeared to have occurred years before they actually happened. The plaintiffs eventually ran into problems keeping up with their payments on the mortgage, and defendant U.S. Bank initiated a foreclosure proceeding in state court on December 10, 2009.

         The plaintiffs allege that the defendant “misrepresented” throughout the foreclosure proceedings that it had a valid claim on the property, when, because of the alleged defects in the chain of title, in fact it had none. Throughout 2010, the plaintiffs attempted to negotiate a loan modification with the defendant, but to no avail. At some point, the defendant's counsel represented that the sheriff's sale “would be adjourned” to December 9, 2010, so that the plaintiffs could further pursue a loan modification. However, when plaintiffs spoke to loan servicing agents in November 2010, they were told that the law firm plaintiffs had been “working with” was not assigned to the account, and that the plaintiffs should communicate with the defendant directly and continue to submit information to support the loan modification request. Plaintiffs communicated further with the defendant during 2011 and were given conflicting reports about the status of their account. And at one point they received a letter indicating that their monthly payment had been increased by more than $2, 000 per month to cover the accrued delinquency.

         On September 8, 2011, while the defendant was still telling the plaintiffs that their loan was merely “delinquent” and not “in foreclosure, ” a sheriff's sale was held, at which the defendant was the high bidder. In April 2012, the defendant's agents presented to the plaintiffs a “move out agreement” indicating that the defendant had obtained title to the property by the foreclosure sale and proposing that if the plaintiffs moved out by May 28, 2012, then the defendant would pay them $3, 385. Plaintiffs heard nothing further until they were served with an eviction complaint on May 7, 2012. The plaintiffs initially failed to appear at a hearing due to their misunderstanding about which court the case was filed in, and a default judgment was entered against them.

         The plaintiffs retained counsel who negotiated a consent order under which plaintiffs would retain possession of the home for another month, during which the defendant represented that they could continue to negotiate a redemption of the property. However, after the consent order was issued, the defendant refused to entertain the plaintiffs' offer to make a lump sum payment to retire the delinquency on the loan. The plaintiffs continued to make offers to redeem the property, which were refused. Eventually, in July 2012, an eviction notice was posted at the property, and plaintiffs' counsel withdrew from the case, after representing that he “could not accomplish anything further.”

         In August 2012, the plaintiffs filed a motion to stay the eviction, which was granted by the state court. A mediation was scheduled, but the plaintiffs did not attend because a notice of the mediation date was mailed to the wrong address. Because they failed to appear, a default judgment again was entered. However, the plaintiffs managed to retain new counsel, who successfully moved to set aside the default. A new mediation date was scheduled, and the state court ordered the plaintiffs to pay $3, 300 per month into an escrow account, which they did. The plaintiffs then offered to redeem the property for a cash payment of $285, 000, which was above its market value but below the loan balance. The plaintiffs and their counsel appeared at a July 22, 2013 mediation hearing, at which they were told that the property had been sold by defendant at auction.

         The state court held a hearing to determine the status of the case after the “surprise” auction sale. At that hearing, defendant's counsel represented that the defendant would not consider any offer other than redemption for the full deficiency amount of more than $574, 000. The state court judge ordered the parties to continue negotiating and to attempt to reach a repurchase agreement and to return to court in two months time. On September 30, 2013, another hearing was held at which defendant's counsel again refused to entertain any offer less than repurchase for the full redemption amount. The state court then entered an order vacating the stay of eviction and giving the plaintiffs 45 days to vacate the property. A writ of restitution was issued on December 12, 2013, and, after a brief stay of execution was granted, the plaintiffs moved out on January 7, 2014.

         The plaintiffs allege that the defendant falsely represented throughout the foreclosure process that it was the holder of the mortgage, and that it had a right to foreclose on the property, but that it was willing to work with the plaintiffs to negotiate a repurchase agreement. However, the plaintiffs contend, throughout the process another lender (Bank of America) actually owned the loan, not the defendant, and, as a result, the defendant never had any right to possession, despite its attempts to record back-dated assignments of interest purporting to transfer the loan to it. The plaintiffs allege that “they suffered serious injury in that [they] lost their home to foreclosure and were evicted from their home in the middle of the Winter of 2014, lost much of [the] contents of their home, and [the plaintiffs] and their children were forced to split up and live in different counties with such of their relatives who could accommodate them, the entire process of which in turn, caused serious psychological/emotional trauma to Plaintiffs and to their children and physical harm to Plaintiffs.” Compl. ¶ 191, ECF No. 1, PageID.37. It appears to be undisputed that the plaintiffs never exercised their statutory right of redemption after the foreclosure sale.

         Although not discussed in the complaint, it appears to be undisputed - and confirmed by state court public records - that the plaintiffs subsequently filed a quiet title action against the present owner of the home, alleging that the foreclosure was invalid based on the same improprieties discussed above. The case eventually was dismissed on a motion for summary disposition. The plaintiffs appealed, and in its order affirming the dismissal the Michigan Court of Appeals stated the following brief recap:

Although the property in this case was foreclosed on and the redemption period expired, plaintiffs nevertheless argue that they have a continuing interest in the property, which is evidenced by a post-foreclosure assignment. However, it is undisputed that plaintiffs fell behind in their payments, U.S. Bank initiated foreclosure, U.S. Bank purchased the property, U.S. Bank was issued a sheriff's deed, and plaintiffs failed to redeem the property. Accordingly, plaintiffs' interest in the property was extinguished.

Talbot v. Davis, No. 323240, 2015 WL 9257863, at *1 (Mich. Ct. App. Dec. 17, 2015). The plaintiffs also evidently filed suit against the defendant's law firm, Orlans Associates, P.C., alleging that it wrongfully converted funds deposited into the escrow account during the foreclosure proceedings. That case also was dismissed summarily.

         The plaintiffs filed their complaint in this Court on January 29, 2019. The defendant ...

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