Neal v. Wells Fargo Home Mortgage, Inc.

BARBERA, Judge. This appeal involves the Housing and Urban Development’s (“HUD”) mortgage servicing requirements. See 24 C.F.R. §§ 203.500 et seq. (1996).

Those requirements were issued pursuant to the National Housing Act (“the Act”), 12 U.S.C. § 1701 (1934). 1 The issue before us is whether, notwithstanding the lack of a private right of action to enforce those regulations, a mortgagee can agree as a term of a deed of trust to comply with those requirements and, upon noncompliance, become liable to the mortgagor for breach of contract. Although we answer that question in the affirmative, we must remand this case so that the circuit court can decide whether the parties to this appeal had such an agreement. Appellant, Alan Neal (“Neal”), has a residential mortgage loan that appellee, Wells Fargo Home Mortgage, Inc. (“Wells Fargo”), services. A Deed of Trust (“Deed”) secures the loan, and the Federal Housing Authority (“FHA”) insures it.

For purposes of this appeal, it is necessary to know only that Neal defaulted on the mortgage and Wells Fargo initiated foreclosure proceedings. Neal believes that Wells Fargo breached the terms of Paragraph 9(d) of the Deed, which refers to HUD foreclosure regulations. Paragraph 9(d) provides: Regulations of HUD Secretary. In many circumstances regulations issued by the Secretary will limit Lender’s rights in the case of payment defaults to require immediate payment in full and foreclose if not paid.

This Security Instrument does not authorize acceleration or foreclosure if not permitted by regulations of the Secretary. ⁷⁵⁰ Although the regulations referred to in that paragraph are not identified, the parties agree that they are HUD’s mortgage servicing requirements. Neal filed a complaint against Wells Fargo in the Circuit Court for Frederick County for breach of contract and for a declaratory judgment. 2 Wells Fargo countered with a motion for summary judgment, arguing that the National Housing Act and the mortgage servicing requirements promulgated thereunder do not provide a private cause of action to enforce compliance with the regulations. Neal opposed that motion and filed his own summary judgment motion, again contending that Wells Fargo breached the provision in paragraph 9(d) of the Deed. The parties’ motions came on for a hearing on September 7, 2004.

At the conclusion of the hearing, the court announced its intention to grant summary judgment in favor of Wells Fargo, stating that “the regulations which were set out and reflected in the handbook 3 are there for the regulatory scheme and not for the benefit of the individual borrower.” Consequently, the court reasoned, there was “not a private cause of action under th[o]se specific provisions.... ” Two days later, the court issued an order granting Wells Fargo’s summary judgment motion and ordering the Clerk to enter judgment in favor of Wells Fargo and against appellant. This timely appeal followed the docketing of that order. Neal presents two questions on appeal, which we have condensed into one: Was the circuit court legally correct in granting summary judgment in favor of Wells Fargo? For ⁷⁵¹ the following reasons, we vacate the judgment and remand for further proceedings.

DISCUSSION The circuit court determined that Wells Fargo was entitled to summary judgment because Neal has no private cause of action to enforce the HUD-promulgated mortgage servicing requirements to which paragraph 9(d) of the Deed refers. Neal contends that the court’s ruling is wrong as a matter of law. He argues that incorporation of the HUD regulations into the Deed provides him with the right to enforce the regulations in a breach of contract action. 4 Directing us to the language of paragraph 9(d) that “[t]his Security Instrument does not authorize acceleration or foreclosure if not permitted by regulations of the Secretary[,]” Neal asserts that Wells Fargo breached the terms of the Deed by initiating foreclosure without first complying with the relevant HUD regulations. Wells Fargo counters that the HUD servicing requirements on which Neal’s complaint is premised do not permit a private light of action against Wells Fargo.

Wells Fargo further argues that Neal’s “attempt to plead his claim as a breach of contract claim [and a claim for declaratory relief] does not allow him to circumvent the clear law prohibiting private enforcement of HUD regulations.” Therefore, Wells Fargo maintains, the court properly granted summary judgment in its favor. A motion for summary judgment may be granted when the court determines that “there is no genuine dispute as to any material fact and that the party is entitled to judgment as a matter of law.” Md. Rule 2-5Ql(a). These are legal questions; consequently, the standard by which we ⁷⁵² review the decision is “whether the trial court was legally correct.” Converge Servs. Group, LLC v. Curran, 883 Md. 462 , 476, 860 A.2d 871 (2004) (citation and internal quotation marks omitted).

As a general rule, this Court limits its review of the grant of summary judgment to the grounds relied upon by the trial court. See Ross v. State Bd. of Elections, 387 Md. 649, 667 , 876 A.2d 692 (2005). When, however, an “alternative ground is one upon which the circuit court would have had no discretion to deny summary judgment,” we may affirm a grant of summary judgment “for a reason not relied on by the trial court.” Vogel v. Touhey, 151 Md.App. 682, 706 , 828 A.2d 268 (citation and internal quotation marks omitted), cert. denied, 378 Md. 617 , 837 A.2d 927 (2003). In reviewing the court’s grant of summary judgment, “[w]e review the record in the light most favorable to the nonmoving party and construe any reasonable inferences that may be drawn from the facts against the moving party.” Myers v. Kayhoe, 391 Md. 188, 203 , 892 A.2d 520 (2006).

Neither party asserts on appeal that this case involves a dispute of material fact, and we shall assume, as we must for purposes of this opinion, that Wells Fargo did not comply with one or more of the HUD mortgage servicing requirements. Also important for present purposes is that Neal does not dispute Wells Fargo’s claim that there is no private right of action to enforce the HUD regulations. Neal states in his Reply Brief: [Wells Fargo] cites a number of cases for the proposition that the HUD regulations do not provide a private cause of action. However, none of the cases cited by [Wells Fargo] are dispositive of the issue before this court.

The issue before this court is whether or not parties can contract to require compliance with specific regulations. Because Neal does not attack Wells Fargo’s argument of a lack of a private right of action to enforce the regulations, we need not decide that issue. We shall assume that Wells Fargo and the circuit court are correct that no such private cause of action will lie, as the case law clearly appears to hold. See Burroughs v. Hills, 741 F.2d 1525, 1531-32 (7th Cir.1984) ⁷⁵³ (citing numerous instances of “[ejfforts to enforce implied causes of action under the National Housing Legislation or the HUD Handbook,” all of which have failed in appellate courts), cert. denied, 471 U.S. 1099 , 105 S.Ct. 2321 , 85 L.Ed.2d 840 (1985); Shivers v. Landrieu, 674 F.2d 906, 911-12 (D.C.Cir.1981) (finding that the National Housing Act does not provide for an implied private right of action); Falzarano v. United States, 607 F.2d 506, 509-11 (1st Cir.1979) (stating that the National Housing Act does not provide expressly for a private cause of action, and, applying the factors set forth in Cort v. Ash, 422 U.S. 66 , 95 S.Ct. 2080 , 45 L.Ed.2d 26 (1975), holding that there is no implied private right of action); Cedar-Riverside Assocs., Inc. v. City of Minneapolis, 606 F.2d 254, 258-59 (8th Cir.1979) (holding that related HUD programs under the Housing Act of 1949, 42 U.S.C. § 1441 , did not create a private right of action under the circumstances); Roberts v. Cameron Brown Company, 556 F.2d 356, 360 (5th Cir.1977) (concluding that there is no implied private right of action in the National Housing Act).

The court in this case granted summary judgment in favor of Wells Fargo solely on the ground that there is no private right of action to enforce the HUD regulations. The court evidently did not view as a separate question the issue that Neal advanced, i.e., whether, notwithstanding the lack of a private right of action, the parties contracted to require compliance with HUD’s mortgage servicing requirements. Neal insists that the issue is one of contract construction and that the court erred by failing to consider it when ruling on Wells Fargo’s summary judgment motion. He maintains that remand is necessary to permit litigation of that issue.

Wells Fargo sees Neal’s claim for breach of contract and declaratory relief as foreclosed by the lack of a private right of action to enforce HUD’s requirements. As a consequence, Wells Fargo argues, Neal should not be permitted “to circumvent the clear law prohibiting private enforcement of HUD regulations.” ⁷⁵⁴ We agree with Neal that remand is necessary for the court to consider whether the parties actually agreed, as a term of the Deed, that Wells Fargo would comply with the applicable HUD mortgage servicing regulations before initiating foreclosure proceedings or taking any other action against Neal. The two cases to which Neal directs us, Wells v. Chevy Chase Bank, F.S.B., 377 Md. 197 , 832 A.2d 812 (2003), cert. denied, 541 U.S. 983 , 124 S.Ct. 1875 , 158 L.Ed.2d 485 (2004) and College Loan Corp. v. SLM Corp., 396 F.3d 588 (4th Cir.2005), support our conclusion. Wells involved an effort by credit card holders to sue two federally insured banks that issued the cards for breach of a Cardholders Agreement.

The credit card holders, the appellants, alleged that the banks, the appellees, failed to comply with the form of notice that is required, under Subtitle 9 of the Commercial Law Article (“CL”) of the Maryland Code, when a cardholder agreement is amended. 5 See 377 Md. at 199-200 , 832 A.2d 812 . The appellants maintained that the notice provision contained in CL Subtitle 9 governed the parties’ agreement. See id. The appellants relied on a section of the Agreement captioned “Governing Law,” which referred to both CL Subtitle 9 and “applicable federal law.” Id. at 199 , 832 A.2d 812 .

The parties agreed that state laws purporting to regulate the banks’ lending activities are preempted by the Homeowner’s Loan Act, 12 U.S.C. § 1464 (a) (“HOLA”), and its implementing regulations, and that HOLA generally preempted CL Subtitle 9. See id. The appellants, however, “characterize[d] the reference to Subtitle 9 in the Cardholder Agreement as a provision in a contract, which, notwithstanding federal preemption, defines a particular aspect of the relationship between file parties, the manner in which notice is to be given when the Cardholder Agreement is amended.” Id. at 199-200 , 832 A.2d 812 . Because, in the appellants’ view, the banks had failed to satisfy Subtitle 9’s notice requirements, ⁷⁵⁵ the banks were in breach of the terms of the Cardholder Agreement.

See id. at 200 , 832 A.2d 812 . The circuit court granted the banks’ motion to dismiss, reasoning that the