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Mik v. Federal Home Loan Mortgage Corp.

United States District Court, W.D. Kentucky, Louisville Division

March 6, 2017

PAUL F. MIK, JR., et al., Plaintiffs,
v.
FEDERAL HOME LOAN MORTGAGE CORPORATION, Defendant.

          MEMORANDUM OPINION AND ORDER

          David J. Hale, Judge

         Plaintiffs 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.

         I. BACKGROUND

         Wanda 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, 000." (Id)

         Before 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)

         The 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 that

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.

         Freddie 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)

         The 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).

         In 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).

         A. Bona Fide Tenancy

         Freddie 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 ...

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