Hurley v. Dietech Financial LLC
2:16-cv-01541
E.D. Wis.Aug 3, 2017Background
- Michael and Carol Hurley defaulted; Ditech obtained a foreclosure judgment (Mar 4, 2014) and a sheriff’s sale occurred nine months later.
- Plaintiffs submitted a loss-mitigation / loan modification request after the sheriff’s sale (Sept 15, 2015); Ditech initially denied, then later solicited additional documents and ultimately denied the request (Feb 15, 2016).
- Ditech repeatedly rescheduled its motion to confirm the sheriff’s sale; Wisconsin court confirmed the sale after plaintiffs filed suit (sale confirmed Nov 28, 2016; suit filed Nov 18, 2016).
- Plaintiffs’ amended complaint asserted: violation of federal loss-mitigation regulations (26 U.S.C. §2605(f) and 12 C.F.R. §1024.41), equitable estoppel, interference with contract (re: Fannie Mae), and violation of Wis. Stat. §224.77.
- Ditech moved to dismiss for failure to state a claim under Fed. R. Civ. P. 12(b)(6); the district court considered whether §1024.41’s protections apply when an application is submitted after a sheriff’s sale.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 12 C.F.R. §1024.41 protects borrowers who submit a complete loss-mitigation application after a sheriff’s sale but before court confirmation | Hurley: “foreclosure sale” should be defined under Wisconsin law and requires confirmation, so §1024.41 should still apply | Ditech: §1024.41’s deadlines are tied to the date of the foreclosure sale (sheriff’s sale); it imposes no post-sale obligations | Court: §1024.41 measures time from the foreclosure sale date (sheriff’s sale); plaintiffs’ application was post-sale and §1024.41 does not apply—dismissed federal claim |
| Whether plaintiff may sue under HAMP or rely on HAMP-based rights | Hurley: alleged servicer misapplied HAMP guidelines as part of loss-mitigation claim | Ditech: HAMP confers no private right of action | Court: Plaintiffs conceded they were not suing under HAMP; HAMP provides no private cause of action |
| Whether state-law claims should remain in federal court after dismissal of federal claim | Hurley: asked court to exercise supplemental jurisdiction over equitable estoppel, interference with contract, and Wis. Stat. §224.77 claims | Ditech: argued dismissal of federal claim eliminates basis for supplemental jurisdiction | Court: Declined to exercise supplemental jurisdiction and dismissed state-law claims without prejudice |
| Whether diversity jurisdiction could save state-law claims | Hurley: did not plead diversity jurisdiction | Ditech: noted defendant is an LLC with unspecified members | Court: Insufficient pleadings on LLC citizenship and amount in controversy; cannot assert diversity jurisdiction |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard; plausibility required)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (antitrust pleading standard; plausibility framework)
- Tamayo v. Blagojevich, 526 F.3d 1074 (7th Cir.) (notice-pleading and plausibility in the Seventh Circuit)
- Colon v. Option One Mortgage Co., 319 F.3d 912 (7th Cir.) (interpreting "foreclosure sale" in bankruptcy cure context)
- Shuput v. Lauer, 109 Wis.2d 164 (Wis.) (distinguishing judgment of foreclosure from post-judgment sale proceedings)
- Family Sav. & Loan Ass’n v. Barkwood Landscaping Co., Inc., 93 Wis.2d 190 (Wis.) (trial court authority to set aside or confirm sheriff’s sale)
- Security Bank v. Sechen, 288 Wis.2d 168 (Wis. Ct. App.) (addressing redemption and when sale vests title upon confirmation)