DAVIN J. ANDERSON v. ALASKA HOUSING FINANCE CORPORATION
Supreme Court No. S-17077
THE SUPREME COURT OF THE STATE OF ALASKA
April 17, 2020
Opinion No. 7440
Superior Court No. 3AN-17-05945 CI. Appeal from the Superior Court of the State of Alaska, Third Judicial District, Anchorage, Frank A. Pfiffner, Judge. Appearances: James J. Davis, Jr., Alaska Legal Services Corporation, Anchorage, for Appellant. Laura Fox and Stefan Saldanha, Assistant Attorneys General, Anchorage, and Jahna Lindemuth, Attorney General, Juneau, for Appellee. Before: Bolger, Chief Justice, Winfree, Stowers, Maassen, and Carney, Justices.
Notice: This opinion is subject to correction before publication in the PACIFIC REPORTER. Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, email corrections@akcourts.us.
OPINION
STOWERS, Justice, dissenting.
I. INTRODUCTION
Alaska Housing Finance Corporation (AHFC), a public corporation, held a promissory note and deed of trust executed in connection with a borrower‘s purchase of his home. AHFC non-judicially foreclosed on the deed of trust without first providing the borrower an opportunity to present to a decision-maker his argument why under AHFC‘s policies and procedures he was entitled to loan assistance to prevent the foreclosure. The borrower brought suit, alleging, among other things, that he was denied procedural due process protections before AHFC took his property by foreclosure. The superior court rejected his due process argument and granted AHFC summary judgment on all issues. The sole issue on appeal is the due process question. We conclude that AHFC is a “state actor,” that the foreclosure effected a deprivation of the borrower‘s property, and that the borrower was not afforded a constitutionally required pre-deprivation opportunity to be heard. We therefore reverse the superior court‘s summary judgment decision on the due process question and remand for further proceedings.
II. FACTS AND PROCEEDINGS
A. AHFC‘s History And Lending Activities
AHFC is “a public corpоration organized within the Alaska Department of Revenue.”1 Although AHFC has “a legal existence independent of and separate from the [S]tate,”2 in practice it is state-controlled and enjoys
The legislature created AHFC to address the shortage of residential housing available to low- and middle-income Alaskans and to promote the development of the State‘s “remote, underdeveloped, or blighted areas.”6 AHFC “is empowered to act on behalf of the [S]tate and its people in serving [AHFC‘s] public purpose.”7 Part of AHFC‘s public purpose is encouraging private lending to low- and middle-income borrowers by purchasing mortgage loans on the secondary market.8
AHFC contracts with lenders to service its loan portfoliо. AHFC requires its servicers to “establish a system for servicing delinquent loans that follows the accepted standards of prudent lending.” AHFC‘s servicing guide provides that a servicer may be required to repurchase a loan if it fails to adequately service the loan. AHFC‘s servicing guide also calls for compliance with “requirements of the insurer or guarantor” to assure mortgage insurance proceeds. AHFC must approve all loan modifications and mortgage foreclosures.
B. Anderson Purchases A Residence Financed By A Promissory Note Secured By A Deed Of Trust
In September 2006 Davin Anderson borrowed $90,950 from Wells Fargo Bank, N.A. to purchase a residential property. Anderson executed a 30-year promissory note at a 5.75% annual interest rate. The note was secured by a deed of trust covering the property.9 A rider to the deed of trust contemplated that Wells Fargo might assign the note and deed of trust to AHFC.
The deed of trust described the note holder‘s rеmedies if Anderson defaulted on payment. The deed of trust permitted the note holder to accelerate the debt and to exercise a power of sale to non-judicially foreclose on the property.10 The deed of trust required that prior to acceleration the note holder give Anderson notice specifying:
(a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date [of the notice], by which the default must be cured; and (d) that failure to cure the default on or before the date specified . . . may result in acceleration of the sums secured by [the deed of trust] and sale of the [p]roperty.11
The deed of trust required that prior to the trustee exercising power of sale it “execute a written notice of the occurrence of an event of default and of the election to cause the [p]roperty to be sold and . . . record such notice in [the] Recording District in which . . . the [p]roperty is located.”12 The trustee also was required to mail or personally deliver notice to anyone holding an interest in the property.13 Following the required notice period, the trustee was allowed to “sell the [p]roperty at public auction to the highest bidder at the time and place and under the
Shortly after the secured loan was originated, Wells Fargo sold and assigned both the note and deed of trust to AHFC. AHFC retained Wells Fargo to service the loan.
C. Anderson Defaults And Seeks A Modification
Anderson later began having financial difficulties. He declared bankruptcy in 2010 and discharged his personal obligation on the note. In 2013 Anderson fell behind on his payments and Wells Fargo placed the loan in “loss mitigation status.” Anderson and Wells Fargo corresрonded several times in 2014 about possible loan modification options. Wells Fargo notified Anderson in December that AHFC had rejected a proposed modification.
Anderson then tried to communicate directly with AHFC. Anderson wrote AHFC in January 2015 asking for help refinancing or modifying his loan to make it affordable. AHFC forwarded the letter to Wells Fargo. In March Anderson emailed AHFC a proposed payment schedule. Wells Fargo requested updated financial information to determine if Anderson qualified for a repayment plan. Anderson did not respond for several months, and AHFC instructed Wells Fargo to proceed with foreclosure. The foreclosure sale was scheduled for September.
In August Anderson called Wells Fargo to determine how he could stop the foreclosure sale. Wells Fargo told him he would need to pay $14,195, which included all past-due payments and foreclosure-related expenses.16 Anderson submitted the payment and his loan was reinstated.
Anderson soon defaulted again; his last payment was in December 2015. He sent AHFC a letter in March 2016 seeking an interest rate reduction. AHFC forwarded the letter to Wells Fargo. Wells Fargo mailed Anderson a “[l]oss [m]itigation package” and followed up with several phone calls. By May Anderson had not responded, and Wells Fargo recommended that AHFC again begin the foreclosure process. AHFC approved foreclosure.
D. AHFC Directs Foreclosure Pursuant To The Power Of Sale
The second non-judicial foreclosure process under Anderson‘s deed of trust began in June 2016; a foreclosure sale was scheduled for September. The trustee recorded a notice of default describing the property, the amount owed, and how the loan could be reinstated. The notice was posted in three public buildings near the property; published online and in a newspaper; posted at a conspicuous place on Anderson‘s property; and mailed to him.17 The notice mailed to Anderson also included disclosures implicated by the federal Fair Debt Collection Practices Act, including the following:
Unless within 30 days after receipt of this notice you dispute the debt or any portion of it, we will assume the debt to be valid. . . . If you notify us in writing within 30 days after receipt of this notice that you dispute the debt or any part of it, we will obtain verification of the debt and mail it to you.
E. Anderson Unsuccessfully Sues; Anderson Appeals
In April 2017, a few months before the foreclosure sale, Anderson sued AHFC and Wells Fargo to enjoin the sale and recover damages related to Wells Fargo‘s alleged misrepresentations. Wells Fargo later settled with Anderson, leaving Anderson‘s claim that AHFC had failed to afford him due process because it had not provided him a pre-foreclosure opportunity to be heard. Anderson apparently did not seek a temporary injunction, and his suit thus did not halt the foreclosure sale. Following the sale AHFC brought a counterclaim to recover possession of the property and damages.21
Anderson sought summary judgment on his due process claim. AHFC opposed that motion and sought summary judgment on all other issues, arguing that Anderson received sufficient due process and that his other claims were barred by statute or AHFC‘s sovereign immunity. The superior court heard oral argument on the cross-motions. The court then denied Anderson‘s motion and granted AHFC‘s, without providing specific reasoning, but stating that Anderson should appeal to the supreme court for a ruling on his due process claim.
After the summary judgment ruling, the parties engaged with the superior court for entry of final judgment. As part of the final judgment, Anderson was ordered to pay AHFC damages for his post-foreclosure possession of his residence. The parties then stipulated to a stay of execution and to Anderson‘s continued possession of the residence аt a specified monthly rate pending Anderson‘s appeal to the supreme court. AHFC subsequently obtained an attorney‘s fees award against Anderson under
Anderson appeals the ruling rejecting his due process claim.
III. STANDARD OF REVIEW
“We review a grant of summary judgment de novo“;23 we also “review constitutional questions, including due process [questions], de novo,”24 and we “adopt the rule of law that is most persuasive in light of precedent, reason, and policy.”25
IV. DISCUSSION
The Alaska Constitution provides that “[n]o person shall be deprived of life, liberty, or property, without due process of law.”26 A due process claimant must prove the existence of “state action and the deprivation of an individual interest of sufficient importance to warrant constitutional protection.”27 We first analyze whether Anderson has demonstrated the existence of state action and a sufficient property interest to warrant constitutional protection. Concluding that he has, we then examine whether hе received a constitutionally sufficient pre-deprivation opportunity to be heard.
A. AHFC Is A Government Actor For Due Process Purposes.
AHFC seemingly contends in its brief that we should not find “state action” for
In considering whether an entity is subject to the federal due process clause, federal courts appear to first ask whether the entity is part of the government, and then, if it is not, whether the entity‘s actions nevertheless constituted government action.30 The U.S. Supreme Court formulated a two-part test in Lebron for determining whether a nominally private entity is itself the government, holding:
[A] corporation is an agency of the Government, for purposes of the constitutional obligations of Gоvernment rather than the “privileges of the government,” when the State has specifically created that corporation for the furtherance of governmental objectives, and not merely holds some shares but controls the operation of the corporation through its appointees.31
The Court used that test to conclude that Amtrak was part of the federal government and therefore subject to First Amendment restrictions imposed on the government.32 The Court first noted that “Amtrak was created by a special statute, explicitly for the furtherance of federal governmental goals.”33 The Court then concluded that the federal government controlled Amtrak because the government retained the “permanent authority” to appoint six of Amtrak‘s eight directors.34
We looked to Lebron for guidance in Laverty v. Alaska Railroad Corp.35 Alaska Railroad Corporation argued that its lands were not state lands subject to the Alaska Constitution‘s Public Notice Clause.36 We rejected Alaska Railroad‘s argument, comparing its creation and governance structure to Amtrak‘s.37 Like Amtrak, Alaska Railroad was created by special statutes to carry out the “essential government function” of operating a railroad, and eight of Alaska Railroad‘s nine board members were politically appointed.38 And we concluded our discussion of Lebron by reviewing other Alaska cases involving public corporations and noting that “[o]ur precedent . . . fits into the Lebron framework: public corporations, particularly those significantly controlled by the state, must meet constitutional mandates, but may be regulated by statute separately from other government entities.”39
AHFC is a state actor under Lebron and Laverty. First, AHFC was “specifically created [by the legislature] for the furtherance of governmental objectives.”40 AHFC was created in 1971 to address the shortage of residential housing available to low- and middle-income
Second, AHFC is wholly controlled by the State through its appointees.43 All seven members of AHFC‘s board are government officials or appointed by the governor.44 The State has more control over AHFC than it had in Laverty over Alaska Railroad, with eight of Alaska Railroad‘s nine board members being political appointees,45 and than the federal government had over Amtrak in Lebron, with six of Amtrak‘s eight directors being governmentally appointed.46 Because the State created AHFC in furtherance of government objectives and exercises control over it through government appointees, it is, “by its very nature, what the Constitution regards as the government.”47 As a government entity, AHFC must satisfy restrictions imposed on state action by the Alaska Constitution, including its Due Process Clause.
B. Anderson Has A Constitutionally Protected Property Interest In His Home And Did Not Waive Due Process Rights.
1. Mortgagors facing state-sponsored non-judicial deed of trust foreclosures have constitutionally protected property interests in their homes.48
Anderson contends that he has a constitutionally protected property interest in his home because “[o]wnership of real property is one of the quintessential forms of property protected by due process.” Anderson is correct that his interest in his home is a sufficient property interest to invoke due process protections in the face of state action. In Fuentes v. Shevin the U.S. Supreme Court held that debtors who had made “substantial installment payments” under conditional sales contracts for household goods had a property interest protected by the federal due process clause.49 If a property interest in a stove or stereo can trigger due process protections, surely an interest in real property can as well.50
AHFC appears to argue that we should not find a deprivation of property because foreclosure was the agreed-upon contractual
2. Anderson did not waive due process rights by signing the note and deed of trust.
AHFC relatedly contends that “Anderson contracted for . . . a specific kind of notice and a specific kind of opportunity to be heard” and that he received the contractual proсedure. In other words, AHFC argues that Anderson waived any additional due process protections he may have been entitled to by agreeing in the deed of trust with Wells Fargo that whoever held the note and deed of trust could utilize Alaska‘s non-judicial
“[A] waiver of constitutional rights must be knowing and voluntary . . . .”57 We “indulge every reasonable presumption against” the waiver of constitutional rights and will find waiver via a contractual agreement only when the waiver is “clear.”58 And we have found a waiver “clear” when contained in an agreement resulting from “a reciprocal negotiation between forces with strengths on both sides.”59
There is no clear waiver of constitutional rights in Anderson‘s note or deed of trust. First, no provision in either document expressly waives Anderson‘s constitutional rights, including the right to a pre-deprivation hearing; indeed, the note and deed of trust were executed in favor of Wells Fargo, which is not a state actor. Second, we note that both agreements appear to be contracts of adhesion,60 and there likely was no “reciprocal negotiation between forces with strengths on both sides” in this case.61 We have declined to find an implied waiver of constitutional rights involving an adhesion contract.62 We similarly decline to find a waiver in this case.
C. AHFC‘s Foreclosure Process Violated Anderson‘s Due Process Rights By Failing To Expressly Provide Him A Pre-deprivation Opportunity To Be Heard.
1. Anderson was entitled to a pre-deprivation opportunity to be heard.
Although a post-deprivation hearing often is sufficient under the U.S. Constitution when the government engages in a deprivation of property,63 we have held that the Alaska Constitution requires more. Under the Alaska Constitution, “before the state may deprive a person of a protected property interest there must be a hearing.”64 In accordance with this principle, we have concluded that some sort of pre-termination hearing is required before a quasi-public hospital terminates a doctor‘s admitting privileges,65 before a public employee is fired,66 before a municipality revokes a taxi license,67 and before a creditor attaches a debtor‘s property by court order.68 The only exceptions
No exceptions appear relevant in this case. AHFC does not claim that this was an emergency foreclosure or that public health, safety, or welfare required summary action. We thus conclude that some opportunity to be heard was required in this case before AHFC foreclosed on Anderson‘s deed of trust.
2. No procedure AHFC used to foreclose on Anderson‘s home constituted an “opportunity to be heard.”
Although AHFC never explicitly argues that Anderson received an opportunity to be heard, it contends thаt Alaska‘s non-judicial foreclosure procedure, along with Wells Fargo‘s loan-servicing procedures, afforded Anderson sufficient due process. It references six different procedural protections allegedly ensuring that “there is little risk of erroneous foreclosure sales.” We conclude that none of these protections constitutes an opportunity to be heard before a neutral and unbiased decision-maker, as required under Alaska‘s Constitution.70
AHFC begins by pointing to Alaska‘s non-judicial foreclosure statute‘s notice requirements.
Second, AHFC contends that Anderson was protected against erroneous deprivation of his property interest by his ability to cure his default and stop the foreclosure sale.71 But the ability to pay money to stop a deprivation of property is not the same as an opportunity to be heard and raise objections prior to the deprivation.
Third, AHFC contends that Anderson‘s ability to converse with Wells Fargo, his loan servicer, gave him the opportunity to raise any arguments he may have had about an unjustified foreclosure. AHFC cites no authority for the proposition that customer service telephone calls are an “opportunity to be heard” under the U.S. or Alaska Constitutions. And Anderson‘s call transcripts with Wells Fargo reflect that its representatives did not have decision-making authority over Anderson‘s account. Due process requires a “meaningful” opportunity to be heard;72 speaking with a loan service representative who lacks decision-making authority is not a “meaningful” hearing.
Fourth, AHFC argues that “[t]he trustee‘s role in the nonjudicial foreclosure process offers an additional layer of protection against erroneous deprivation” of property. Under
Fifth, AHFC contends that Anderson was given an “opportunity to speak up and prevent an erroneous foreclosure sale” when the trustee included debt collection disclosures in the notice of default that it mailed him. The federal Fair Debt Collection Practices Act requires a debt collector to send a consumer notice containing specific information within five days of the “initial communication” with the consumer about a debt.76 This information includes a statement that, unless the consumer disputes the debt within 30 days, the debt will be assumed valid as well as a statement notifying the consumer of the right to obtain “verification of the debt.”77 AHFC seems to argue that the trustee‘s compliance with this law constitutes an opportunity to be heard. But such compliance does not. Most federal courts have set a relatively low bar for the Act‘s verification requirement. To comply, a debt collector need only “confirm[] in writing that the amount being demanded is what the creditor is claiming is owed.”78 The trustee followed now-likely-inapplicable federal law79 by giving Anderson the right to request confirmation of his debt amount, but this does not mean that he received an opportunity to be heard for due process purposes. Debt verification under the Act does not provide a debtor like Anderson the ability to present objections to loan mitigation and related foreclosure action to a decision-maker capable of rectifying any errors.80
Finally, AHFC points to two other proceedings in which Anderson could have raised arguments contesting the foreclosure: in an independent lawsuit or in post-foreclosure eviction proceedings. AHFC contends that federal courts have held that an opportunity to bring suit is sufficient to satisfy due process requirements. And AHFC notes that Alaska requires debtors to take affirmative steps to raise a dispute in municipal prоperty tax foreclosures and foreclosures of limited entry fishing permits. Anderson responds that bringing a separate lawsuit or raising foreclosure defenses in a post-foreclosure eviction proceeding are unrealistic options for those likely already in financial distress.
We conclude that Anderson‘s ability to bring an independent lawsuit or a counterclaim in an eviction procedure is inadequate to satisfy due process. An eviction proceeding occurs after foreclosure; even if it were a sufficient opportunity to be heard, it occurs post-deprivation. And as discussed earlier, absent exceptional circumstances, the Alaska Constitution requires a pre-deprivation hearing;81 a pre-foreclosure lawsuit by the borrower is not a reasonable substitute for a
The two examples AHFC cites for the proposition that Alaska already requires debtors to take affirmative steps to contest foreclosures are distinguishable. First, when a municipality institutes judicial foreclosure proceedings to enforce a tax lien, a debtor may file objections with the court and have the objections adjudicated by the court through a summary process.84 But AHFC did not initiate a judicial proceeding in which Anderson could have his objections considered by a neutral decision-maker. And second, unlike the non-judicial foreclosure process in this case, the Commercial Fisheries Entry Commission fishing-permit foreclosure process offers a debtor an opportunity for a hearing.85
In summary, AHFC fails to demonstrate that Anderson received a constitutionally sufficient opportunity to be heard. Although “the existence of . . . other, less effective, safeguards may be among the considerations that affect the form of hearing demanded by due process, they are far from enough by themselves to obviate the right to a prior hearing of some kind.”86 Furthermore, we are not persuaded that providing debtors a simple administrative-type hearing prior to foreclosure would result in the parade of fiscal horribles AHFC elaborates in its brief. As Anderson notes, AHFC already provides administrative hearings to rental tenants for whom assistance is denied or terminated.87 A pre-foreclosure hearing need not be elaborate to comport with due process - all that is needed is an opportunity to contest the foreclosure “at a meaningful time and in a meaningful manner.”88 Although providing such a hearing may not be entirely
We thus disagree with the dissent‘s position that Anderson had an actual opportunity to be heard when he filed his lawsuit and could have attempted to stay the foreclosure. We already have noted the unlikelihood that someone in Anderson‘s situation could post the necessary bond for a foreclosure stay pending litigation. But, more to the point, Anderson‘s due process claim focused on securing the right to a pre-foreclosure opportunity to be heard regarding a possible loan workout under AHFC‘s policies and procedures rather than a legal defense to a foreclosure; the superior court ruled that he had no such right. To say that Anderson had an opportunity to be heard by the superior court about his right to be heard by AHFC - a right the superior court said is non-existent - begs the precise question Anderson raised. And, as a result of what the dissent calls an actual opportunity to be heard, Anderson ultimately had judgment entered against him for over $7,000 in attorney‘s fees. Litigation subjecting Anderson to entry of an adverse attorney‘s fees award is not what he sought and not what the Alaska Constitution requires in the context of non-judicial property deprivations.
3. We presume prejudice when a party is entirely denied a required opportunity to be heard.
AHFC argues that we should reject Anderson‘s due process challenge because he cannot show he was prejudiced by not having a pre-deprivation opportunity to be heard. AHFC claims Anderson raised no foreclosure defense at any point in this case, despite having the opportunity to do so. AHFC also cites a case in which we said due process does not require a hearing “in the area of administrative law” “if there is nothing to hold a hearing about.”89
Although we often require litigants to demonstrate possible prejudice before we will find a due process violation,90 demonstrating prejudice is not required when a litigant was entirely denied a hearing.91 (Again, we note that Anderson‘s quest for a pre-foreclosure hearing did not relate to legal defenses to a foreclosure, but rather it related to AHFC‘s discretionary loan-workout authority.) When a party already has received the “minimum” due process required, the party‘s arguments about prejudice can be grounded in the realities of the process actually received and the outcome. But when a party is denied entirely the right to be heard, requiring proof of prejudice is a hypothetical exercise.
AHFC‘s argument relies in part on an “exception” to the rule that due process requires an opportunity for a hearing supposedly adopted in Miner‘s Estate v. Commercial Fisheries Entry Commission.92 In Miner‘s Estate we upheld the Commercial Fisheries Entry Commission‘s decision not
Miner‘s Estate is both distinguishable and inconsistent with our more recent City of North Pole v. Zabek99 decision and with the U.S. Supreme Court‘s Fuentes v. Shevin100 decision and must be limited to its facts. In Zabek the City of North Pole terminated a police dispatcher‘s employment after her Alaska Public Safety Information Network clearance was revoked.101 The City argued that no pre-termination hearing was required because the dispatcher did not contest that her clearance had been revoked or that having it was a requirement of her job.102 We rejected the City‘s argument, holding that even if a case seemingly presents no factual issues, “it is not possible to be certain without a proper hearing.”103 We noted:
[O]ne of the reasons a pre-termination hearing is required is to give the employee the opportunity to present in her defense facts which, if developed, might weigh against her termination. Even if it appears almost certain that the employee will be unable to do so, due process requires that she be given the opportunity to try.104
In Fuentes v. Shevin the U.S. Supreme Court held that Florida‘s and Pennsylvania‘s replevin statutes were invalid because they deprived debtors of property without affording them a prior opportunity to be heard.105 The Court noted that it was possible the debtors were not, in fact, entitled to continued possession of the household goods at issue.106 But the Court stated:
[E]ven assuming that the appellants had fallen behind in their installment payments, and that they had no other valid defenses, that is immaterial here. The right to be heard does not depend upon an advance showing that one will surely prevail at the hearing. “To one who protests against the taking of his property without due process of law, it is no answer to say that in his particular case due process of law would have led to the same result because he had no аdequate defense upon the merit.”107
Following Zabek and Fuentes, we reject AHFC‘s argument that Anderson was required to demonstrate prejudice in this case.
We REVERSE the superior court‘s summary judgment decision regarding due process and REMAND for further proceedings consistent with this opinion.
STOWERS, Justice, dissenting.
I dissent from the court‘s holding that Anderson did not receive a constitutionally sufficient opportunity to be heard before AHFC non-judicially foreclosed on the deed of trust. Anderson filed a notice of lis pendens and brought suit against AHFC in April 2017. Although he alleged a number of tort and constitutional claims, he did not seek a preliminary injunction to prevent the foreclosure sale, which went forward in August 2017. Thus it is evident that Anderson had an actual opportunity to be heard prior to the foreclosure sale; he simply failed to avail himself of the opportunity. In my opinion, no more process was due.
Not only does the court needlessly create a requirement for a pre-foreclosure hearing in Anderson‘s case, it also needlessly creates additional burdens of time (delay) and expense (attorney‘s fees) to the non-judicial foreclosure process - a process intended to avoid delay and expense. Neither the facts of this case nor the constitution requires these unnecessary burdens.