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Wednesday, April 8, 2020

BUTLER SNOW: Sixth Circuit Offers Perspective on Federal Removal and Wrongful Foreclosure in Mortgage Litigation

By Press release submission | Aug 28, 2018

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Butler Snow issued the following announcement on Aug. 22.

In Beasley v. Wells Fargo Bank, N.A., 2018 WL 3478882 (6th Cir. July 19, 2018), the United States Court of Appeals for the Sixth Circuit provided clarification on certain aspects of removing a case from state court to federal court, and on pleading a claim for wrongful foreclosure under Tennessee law. The Sixth Circuit’s opinion offers helpful guidance for financial institutions faced with mortgage litigation.

On June 29, 2004, Terry Joe Beasley (“Beasley”) entered into a Deed of Trust with Ameriquest Mortgage Company securing the purchase of property in Rutherford County, Tennessee. The Deed of Trust was later transferred to Wells Fargo Bank, N.A. (“Wells Fargo”). Beasley fell behind on his mortgage payments and Wells Fargo initiated foreclosure proceedings in April 2016. Wells Fargo ultimately purchased the property for $100,000 at a non-judicial foreclosure sale.

On March 10, 2017, Beasley filed a lawsuit in Rutherford County Chancery Court, alleging wrongful foreclosure. Wells Fargo removed the case to the United States District Court for the Middle District of Tennessee. Beasley filed a motion to remand, claiming that removal was improper because 1) Wells Fargo failed to obtain the consent to removal of the Small Business Administration (“SBA”), one of the other named defendants in the action; and 2) the damages claimed by Beasley were less than $75,000. The district court concluded that removal was proper, and denied Beasley’s motion to remand.

Wells Fargo then moved for judgment on the pleadings, and the district court dismissed Beasley’s complaint in its entirety for failure to state a claim upon which relief could be granted. Beasley appealed both the district court’s denial of his motion to remand and its dismissal of his complaint.

The Sixth Circuit affirmed the denial of Beasley’s motion to remand. The court upheld the district court’s determination that SBA was a nominal defendant and rejected Beasley’s argument that SBA had to consent to removal. The court noted that Beasley asserted no claims against and sought no damages from SBA, and Beasley had not served SBA with the complaint when Wells Fargo filed the removal notice. The Sixth Circuit also rejected Beasley’s argument that the complaint failed to satisfy the amount in controversy requirement for removal to federal court. Beasley argued that the pertinent amount was the difference between the fair market value of the property ($175,000) and the price obtained at the foreclosure sale ($100,000). In assessing Beasley’s argument, the court noted the lack of binding precedent regarding how amount in controversy should be determined in foreclosure-related cases. The court determined that since Beasley sought injunctive relief, the property’s fair market value was the appropriate measure. The fair market value clearly exceeded the $75,000 amount in controversy threshold.

The Sixth Circuit also affirmed the dismissal of Beasley’s claim to set aside the foreclosure sale. The court reasoned that (1) Beasley failed to argue that the foreclosure sale violated the terms of the Deed of Trust, and argued only that Wells Fargo violated Tennessee foreclosure statutes; (2) Beasley failed to show that the sale price of the property was inadequate because he furnished no evidence of the property’s fair market value at the time of foreclosure and because he failed to show that any alleged inadequate sale price was caused by irregularity, misconduct, fraud, or unfairness; (3) the deed of trust authorized Wells Fargo to bid on and buy the property at a non-judicial foreclosure sale; and (4) the fact that the foreclosure was conducted during the pendency of a federal lawsuit challenging Wells Fargo’s right to foreclose was immaterial because there was no injunction forbidding Wells Fargo from foreclosing.

Beasley thus provides a helpful roadmap for financial institutions faced with mortgage litigation. In the removal context, the Sixth Circuit offered guidance on identifying a nominal defendant and asserted its preference to use the property’s fair market value in assessing the amount in controversy requirement. The opinion also provides useful guidance on arguments to assert when faced with a wrongful foreclosure claim.

Original source can be found here.

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