United States District Court, W.D. Kentucky, Louisville Division
PAUL F. MIK, JR., et al., Plaintiffs,
FEDERAL HOME LOAN MORTGAGE CORPORATION, Defendant.
MEMORANDUM OPINION AND ORDER
J. Hale, Judge
Paul Mik, Lee Ann Mik, and PALS Enterprises entered into a
lease agreement with Wanda Meyer, that included an option to
purchase the residence. (Docket No. 49, PageID # 826-28)
While the Miks were living in the home, Meyer defaulted on
her mortgage, and Defendant Federal Home Loan Mortgage
Corporation (Freddie Mac) acquired the property.
(Id.) After obtaining a writ of possession for the
property, Freddie Mac had the county sheriff remove the
Miks' property from the residence. (Id., PageID
# 829-30) Plaintiffs filed suit against Freddie Mac, alleging
that it violated the Protecting Tenants at Foreclosure Act of
2009 (PTFA) and wrongfully evicted them. (D.N. 1) In
response, Freddie Mac filed a motion to dismiss (D.N. 6),
which the Court granted, finding that the PTFA did not
provide a private right of action. (D.N. 14) On appeal, the
Sixth Circuit affirmed in part, reversed in part, and
remanded, holding that the plaintiffs' claim of unlawful
eviction should have survived the motion to dismiss. (D.N.
16) Freddie Mac now moves for summary judgment. (D.N. 49)
Because there are genuine disputes of material fact, the
motion for summary judgment will be denied.
Meyer owned a home and four lots surrounding the home. (D.N.
49, PageID # 826) Meyer could no longer afford the mortgage
payments for the properties and contacted a lawyer who
reached out to Paul Mik, a local real estate broker and
auctioneer. (Id., PageID # 827) Mik claims that he
informed Meyer that, while he could not sell the home for a
price that would allow her to retire the mortgage, he and his
family would be interested in a lease-option. (Id.)
Paul Mik and his wife Lee Ann Mik own and operate PALS
Enterprises, LLC (PALS). (D.N. 1, PageID # 2) On October 15,
2010, "PALS, through its member, Paul Mik, "
entered into a lease-option agreement with Meyer. (Id.,
PageID # 828) The contract provided for PALS to lease
the property in exchange for $1, 000 per month in rent, and
PALS had an option to purchase the property for $180, 000
within two years. (Id.) On the same day that the
parties entered into the lease agreement, PALS and Meyer also
executed a deed of conveyance, transferring the four lots
surrounding the property to PALS "for the price of $12,
moving into the home, the Miks made several improvements,
including "replacing] doors, carpeting, the
refrigerator, and ceramic tiles; . . . remov[ing] a wall and
install[ing] columns in the entry foyer." (Id.)
Freddie Mac alleges that "these alterations were made to
the home despite a provision in the Lease-Option prohibiting
alterations." (Id.) Several months after the
Miks moved into the home, Meyer defaulted on her mortgage.
(Id., PageID # 828-29)
Sixth Circuit provided the following summary of the somewhat
convoluted string of events following Meyer's foreclosure
based on the Miks' complaint:
Meyer defaulted on her mortgage, and her lender, CITI
Mortgage, Inc., initiated foreclosure proceedings. The Miks
were not named as parties in the foreclosure action either by
name or as "unknown tenant(s) or occupant(s)." CITI
Mortgage was the successful bidder at the foreclosure sale on
April 20, 2011, and it assigned its bid to Freddie Mac. The
Miks recorded their lease-which they concede was initially
unrecorded-on April 12, 2011, but they did not notify CITI
Mortgage of the existence of their lease until April 28,
2011. The Miks paid rent on April 1, 2011, but they claim
that they did not pay rent thereafter because they did not
know to whom rent should be paid.
In June 2011, the Miks contacted Joe Mai, a paralegal at the
law firm that represented Freddie Mac. They told him that
they had a lease with an option to purchase Meyer's
residence and that they desired to remain in the home. Mai
told the Miks that they could avoid eviction and stay in the
residence until July 25, 2011 if they participated in a
relocation assistance program called Cash for Keys, whereby
they would be paid $1, 500 to vacate the residence. The Miks
signed the agreement, but they were not paid $1, 500 and did
not vacate the residence. The Miks were told to contact
Freddie Mac's agent Sherry Bennett Webb, who would
arrange for the property to be inspected before the Miks were
paid. In July 2011, Paul Mik contacted Webb and informed her
that he had a lease with an option to purchase the residence.
On June 15, 2011, Freddie Mac obtained a writ of possession
for the property. The writ stated that Meyer was to be
evicted from the premises, but it did not mention the Miks.
On July 27, 2011, the Miks were informed that they could buy
the property for $190, 000 and avoid being evicted if they
could demonstrate that they qualified for a loan by 5 p.m. on
Friday, July 29, 2011. On July 28, 2011, deputies from the
Meade County Sheriffs Department arrived at the residence
with a copy of the writ of possession. Lee Ann Mik explained
that Meyer did not live on the property and that the Miks had
not been served with legal documents concerning the eviction.
The deputy said that he would return on Monday to lock the
Miks out of the residence.
The Miks contacted Mai, who reiterated that the Miks could
avoid eviction only by showing that they were approved for a
$190, 000 home loan by 5 p.m. that Friday. The Miks applied
for a loan, and the bank notified Mai that the Miks had
submitted an application but that it would take about two
weeks to have the property appraised. On July 31, 2011, Webb
informed the Miks that they would be evicted the following
day. Paul Mik again told Webb that he had a lease and that he
had not been served with any court documents.
On August 8, 2011, Paul Mik posted a copy of the lease on the
door of the residence with a note stating: "We are
asserting our rights under this lease and object to entry by
anyone." That day, deputies from the Meade County
Sheriffs Department "set out" the Miks'
property, removing it from the residence and placing it in
the yard. More than $38, 000 of property was damaged or
destroyed by rain. In November 2011, the Miks obtained the
loan for which they had applied and purchased the property
from Freddie Mac.
In May 2012, the Miks filed suit against Freddie Mac in
federal district court. The complaint alleged that Freddie
Mac "disregarded [Section 702] of the Protecting Tenants
at Foreclosure Act of 2009." The Miks claimed that they
relied on the provisions of the Protecting Tenants at
Foreclosure Act of 2009 to be able to continue to reside in
their home until they were given the notice to vacate
required in the statute and until the expiration of the
remaining term of the lease as prescribed in the statute,
during which time the [Miks] anticipated that their loan
application would be approved and they would be able to
purchase the subject property from [Freddie Mac].
Next, the complaint alleged that the Miks "were
wrongfully evicted when [Freddie Mac] failed to follow due
process prior to evicting the [Miks] from their home."
More specifically, it alleged that Freddie Mac evicted the
Miks without naming them as parties to the foreclosure action
or bringing a forcible detainer action against them. Finally,
the complaint alleged that Freddie Mac's actions
"were outrageous and inflicted severe emotional distress
upon the [Miks]." Paul Mik claimed that he "has
suffered mental anguish" and Lee Ann Mik stated that she
"has experienced severe emotional pain and suffering for
which she has been provided medical treatment."
Freddie Mac filed a motion to dismiss the Miks' complaint
pursuant to Federal Rule of Civil Procedure 12(b)(6), arguing
that Miks' claims are premised on the PTFA, which does
not create a private right of action. The district court
granted Freddie Mac's motion to dismiss. First, it held
that the Miks cannot state a claim under the PTFA, which does
not provide an express or implied private right of action. It
observed that while the PTFA may be raised as a defense in a
foreclosure action in state court, it does not provide a
basis for recovering damages in federal court. Second, the
district court held that "a reading of the Complaint
makes it clear that [the Miks] have asserted only causes of
actions under the Act and not under state law."
Moreover, it noted that a foreclosure sale extinguishes the
rights of tenants under Kentucky law and, therefore, tenants
must raise a defense of due process or unfair conduct during
foreclosure proceedings, which the Miks did not do.
Mik v. Fed. Home Loan Mortgage Corp., 743 F.3d 149,
154-56 (6th Cir. 2014). In Mik, the Sixth Circuit
affirmed in part, reversed in part, and remanded, holding
the PTFA does not provide a private right of action.
Nonetheless, the PTFA requires successors in interest to
foreclosed properties to provide bona fide tenants
with 90 days' notice to vacate and to allow them to
occupy the premises until the end of their lease term unless
certain conditions are met. The PTFA's requirements
preempt state laws that provide less protection to tenants.
While tenants may not bring a federal cause of action for
violations of the PTFA, they may use such violations to
establish the elements of a state law cause of action. We
hold that the Miks have stated a claim for wrongful eviction
but have failed to state claims for denial of due process and
outrageous infliction of emotional distress.
Id. at 154. Therefore, only the Miks' claim for
wrongful eviction based on violations of the PTFA survives.
Mac has now filed a motion for summary judgment. (D.N. 49)
Freddie Mac asserts that (1) Plaintiffs are not entitled to
PTFA protection because they were not bona fide tenants; (2)
even if they were bona fide tenants, they waived all claims
against Freddie Mac by entering into the "Cash for
Keys" agreement; and (3) in the alternative, the Miks
settled and released all claims against Freddie Mac when they
purchased the property from Freddie Mac after the eviction.
(Id.) Plaintiffs refute these assertions and claim
that (1) they were bona fide tenants under the PTFA, (2) they
were under duress when they entered the "Cash for
Keys" agreement and the agreement violates the PTFA, and
(3) they did not release their claims against Freddie Mac
when they purchased the property. (D.N. 57)
Court heard argument on Freddie Mac's motion for summary
judgment. (D.N. 61) Following the hearing, the parties
submitted supplemental briefing. (Id.; D.N. 64; D.N.
65) II. DISCUSSION To grant a motion for summary judgment,
the Court must find that there is no genuine dispute as to
any material fact and that the moving party is entitled to
judgment as a matter of law. Fed.R.Civ.P. 56(a). The moving
party bears the initial burden of identifying the basis for
its motion and those portions of the record that "it
believes demonstrate the absence of a genuine issue of
material fact." Celotex Corp. v. Catrett, 477
U.S. 317, 323 (1986). If the moving party satisfies this
burden, the non-moving party must point to specific facts
demonstrating a genuine issue of fact. Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).
considering a motion for summary judgment, the Court must
review the evidence in the light most favorable to the
non-moving party. Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 586 (1986). However,
"the judge's function is not himself to weigh the
evidence and determine the truth of the matter but to
determine whether there is a genuine issue for trial."
Anderson, Ml U.S. at 249. The non-moving party must
present specific facts demonstrating that a genuine issue of
fact exists by "citing to particular parts of materials
in the record" or by "showing that the materials
cited do not establish the absence ... of a genuine
dispute." Fed.R.Civ.P. 56(c)(1).
Bona Fide Tenancy
Mac claims that the Miks were not bona fide tenants under the
PTFA and therefore were not entitled to 90 days' notice
to vacate the property. (D.N. 49, PageID # 831- 37) The PTFA
provides the following definition of bona fide tenancy:
(b) BONA FIDE LEASE OR TENANCY.-For purposes of this section,
a lease or tenancy shall be ...