Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-4_16-cv-00336/USCOURTS-azd-4_16-cv-00336-0/pdf.json

Nature of Suit Code: 370
Nature of Suit: Other Fraud
Cause of Action: 28:1331 Fed. Question

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IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Richard Shupe, 

Plaintiff, 

v. 

Nationstar Mortgage LLC, et al., 

Defendants. 

No. CV-16-00336-TUC-JAS (LCK)

REPORT AND 

RECOMMENDATION 

 Defendant Nationstar Mortgage, LLC filed a Motion to Dismiss all of Plaintiff 

Richard Shupe’s claims against it based on failure to state a claim. (Doc. 35.) Plaintiff 

responded and Defendant Nationstar replied. (Docs. 37, 28.) Pursuant to the Rules of 

Practice of the Court, this matter was referred to Magistrate Judge Kimmins for Report 

and Recommendation. The Magistrate Judge recommends the District Court, after its 

independent review of the record, dismiss the complaint against Defendant Nationstar for 

failure to state a claim. 

FACTUAL AND PROCEDURAL BACKGROUND 

Plaintiff initiated this case by filing a Complaint against Nationstar Mortgage on 

June 8, 2016. (Doc. 1.) Before an answer was filed, on July 8, 2016, Plaintiff filed an 

Amended Complaint naming as Defendants Nationstar and the Federal Housing 

Administration (FHA).1

 (Doc. 16.) In response to the Amended Complaint, Nationstar 

 

1

 The FHA’s response to the current complaint is due on February 17. (Doc. 44.) 

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filed a Motion to Dismiss. (Doc. 19.) Plaintiff responded to Nationstar’s motion by 

stating that, after the FHA answered, he intended to seek leave of the Court to amend the 

complaint a second time. In turn, the Court set a deadline for Plaintiff to file a second 

amendment. (Doc. 23.) Plaintiff filed a Second Amended Complaint on September 16, 

2016. (Doc. 26.) The Court granted leave for him to file a Third Amended Complaint on 

October 14, 2016 (Doc. 32); Nationstar responded with the instant motion to dismiss. 

 The current, Third Amended, Complaint alleges that Plaintiff purchased a home in 

2010 through an FHA loan program. Nationstar purchased Plaintiff’s loan in 2015. 

Plaintiff alleges he has a loan balance of $110,000, and that, based on an appraisal and 

area comps, his home’s current value is at least $230,000. Plaintiff has sent numerous 

letters to Nationstar asking that the mortgage insurance premium (MIP) of $167 per 

month be cancelled. He alleges that Nationstar has not responded to any of his letters. 

 Plaintiff alleges that a borrower that makes a down payment of less than 20% is 

required by the FHA to pay MIP for a minimum of five years. But a homeowner that puts 

down at least 20% of the loan amount is exempt from MIP. Plaintiff alleges that the FHA 

discriminates and unjustly enriches itself by forcing borrowers to continue paying MIP 

after they build up 20% equity in their homes. Plaintiff alleges Nationstar has the ability 

to stop Plaintiff’s MIP payments but refuses to acknowledge his requests to do so. 

Plaintiff claims a due process violation and discrimination under Bivens, gross 

negligence, unfair business practices under A.R.S. § 44-1522, and unjust enrichment. 

STANDARD OF REVIEW 

 “To survive a motion to dismiss, a complaint must contain sufficient factual 

matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. 

Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 

(2007)) (internal quotation marks omitted). Dismissal is only appropriate if the 

complaint’s factual allegations, together with all reasonable inferences drawn in the 

plaintiff’s favor, fail to state a plausible claim for relief. Id. at 678; see also Erickson v. 

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Pardus, 551 U.S. 89, 94 (2007) (allegations in the complaint must be construed in the 

light most favorable to the plaintiff). While a complaint need not plead “detailed factual 

allegations,” the factual allegations it does include “must be enough to raise a right to 

relief above the speculative level.” Twombly, 550 U.S. at 545. The plausibility standard 

does not amount to a probability requirement, however, it demands “more than a sheer 

possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678. A mere 

formulaic recitation of the elements of a cause of action is not sufficient to establish a 

claim, and legal conclusions are not entitled to an assumption of truth. Id. at 679. 

DISCUSSION 

Defendant Nationstar seeks judicial notice of four documents: (1) Plaintiff’s 

original promissory note for the FHA loan at issue; (2) the deed of trust for the property 

Plaintiff purchased; (3) the HUD-1 settlement statement from Plaintiff’s purchase of the 

property; and (4) HUD Mortgagee Letter 2010-28, available through its website, titled 

“Changes to FHA Mortgage Insurance Premiums.2

 (Doc. 20, Exs. 1-4.) Plaintiff has not 

objected to the Court taking judicial notice of these documents. 

In ruling on a motion to dismiss, the Court generally cannot consider any material 

outside the complaint. See Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001). 

There are two exceptions to the rule, at least one of which applies to each document. One, 

the Court may consider documents one and three because Plaintiff’s Third Amended 

Complaint impliedly relies upon them, in alleging the purchase of his home and the 

accompanying loan, and their authenticity is not in contention. See id.; Cowen v. Auroro 

Loan Servs., CIV 10-452-TUC-CKJ, 2010 WL 3342196, at *2 (D. Ariz. Aug. 25, 2010) 

(considering loan documents attached to motion to dismiss). Two, documents two and 

four are matters of public record of which the Court can take judicial notice. See Lee, 250 

 

2

 Nationstar actually attached HUD Mortgagee Letter 2000-46. However, the Court will take judicial notice of Mortgagee Letter 2010-28, which the Court reviewed on 

the HUD website, https://portal.hud.gov/hudportal/documents/huddoc?id=10-28ml.pdf. 

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F.3d at 688 (citing Fed. R. Evid. 201). Therefore, the Court considers these documents in 

ruling on the motion to dismiss. Additionally, Mortgagee Letter 2010-28 provides that 

cancellation of MIP continues to be governed by Mortgagee Letters 2000-38 and 2000-

46. Therefore, the Court also takes judicial notice of these two HUD Mortgagee Letters. 

Before addressing the specific legal claims alleged by Plaintiff, the Court first 

analyzes Plaintiff’s central allegation – that Defendant Nationstar is wrongfully collecting 

MIP from him despite Plaintiff having more than 20% equity in his home. 

In Mortgagee Letter 2000-38, the FHA announced the following policy: 

Cancellation of the annual mortgage insurance premium after the loan 

amount is reduced to 78% or less of the property value (based on the lower of the sales price or appraised value at origination). 

. . . . 

FHA will determine when a borrower has reached the 78% loan to 

value ratio based on the lower of the sales price or appraised value at origination. New appraised values will not be considered. 

This information was reiterated and expanded upon in Mortgagee Letter 2000-46: 

“FHA’s annual mortgage insurance premium will automatically be canceled – once the 

unpaid principal balance . . . reaches 78 percent of the lower of the initial sales price or 

appraised value based on the initial amortization schedule.” Borrowers may initiate 

cancellation of MIP if, based on prepayments, they reach the “78 percent loan-to-value 

threshold”3

 faster than the original amortization schedule. Id. 

Plaintiff argues these “old” FHA guidelines support Nationstar’s argument while 

the newer ones do not. However, he cites no newer guidelines that supposedly control on 

 

3

 In interpreting this Mortgagee Letter, Plaintiff defines the term “loan to value 

ratio” as the ratio of the “first mortgage line as a percentage of the total appraised value of real property.” (Doc. 37 at 3.) Plaintiff relies upon current appraisal value. However, in 

calculating the relevant ratio for purposes of cancelling MIP, the FHA considers only the appraisal value at time of purchase (or the purchase price). Plaintiff’s allegations regarding the current appraised value of his home are not relevant to eligibility for cancellation of MIP. 

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these issues. In 2010, HUD stated that “[t]he cancellation policies defined in Mortgagee 

Letters 2000-38 and 2000-46 remain unchanged.” Mortgagee Letter 2010-28. 

Plaintiff purchased his home on June 9, 2010. (Doc. 20, Exs. 1, 2.) Shortly 

thereafter, in September 2010, HUD confirmed that Mortgagee Letters 2000-38 and 

2000-46 contained the current relevant policy on cancellation of MIP. Those letters 

confirm that cancellation is only available when a borrower owes 78% or less of the 

purchase price or appraised value of the home as of the date of purchase. Plaintiff 

purchased the home for $125,000. (Doc. 20, Ex. 3.) Seventy-eight percent of the purchase 

price is $97,500.4

 Plaintiff alleges he still owes approximately $110,000 on the loan. 

Because the $110,000 balance owed on his loan is greater than 78% of the purchase price 

($97,500), Plaintiff is not eligible to cancel MIP. This refutes Plaintiff’s argument that 

nothing requires collection of MIP because he now has 22% equity in his home. 

Bivens 

 In Bivens, the Supreme Court recognized a right of action against a federal officer 

for violation of a person’s constitutional rights. See Iqbal, 556 U.S. at 675; Bivens v. Six 

Unknown Named Agents of Fed. Bureau of Narcotics, 403 U.S. 388 (1971). A Bivens

claim may only be brought against an individual “engaged in governmental (or ‘state’) 

action.” Sutton v. Providence St. Joseph Med. Cntr., 192 F.3d 826, 844 (9th Cir. 1999). 

 Defendant Nationstar is neither an individual nor, most importantly, a 

governmental actor. Therefore, a Bivens action cannot stand against Nationstar. 

Gross Negligence

 Under Arizona law, a person acts with gross negligence if “he acts or fails to act 

when he knows or has reason to know facts which would lead a reasonable person to 

 

4

 Plaintiff has not alleged the appraisal price of his home at the time he purchased it. If it was higher than the purchase price, it is irrelevant to the calculation because the 

Mortgagee Letters direct the use of the lower of the two. If it was lower, than Plaintiff 

would have to pay the loan down below $97,500 to be eligible for cancellation of MIP. 

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realize that his conduct not only creates an unreasonable risk of [ ] harm to others but also 

involves a high probability that substantial harm will result.” Walls v. Ariz. Dept. of Pub. 

Safety, 826 P.2d 1217, 1221, 170 Ariz. 591, 595 (Ct. App. 1991). 

 Because Plaintiff is not entitled to cancellation of MIP at this time, Nationstar’s 

actions do not create an unreasonable risk of harm to Plaintiff. 

 Unfair Business Practices 

 Arizona Revised Statutes § 44-1522(A), upon which Plaintiff relies, provides: 

The act, use or employment by any person of any deception, deceptive or unfair act or practice, fraud, false pretense, false promise, 

misrepresentation, or concealment, suppression or omission of any material fact with intent that others rely on such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise whether or not any person has in fact been misled, deceived or damaged thereby, is declared to be an unlawful practice. 

Plaintiff alleges Nationstar’s unfair practice is requiring the ongoing payment of MIP 

after a borrower has 20% equity in his home, when borrowers who put down 20% of a 

home’s value from the start never pay MIP. Plaintiff has not alleged he was deceived 

regarding the requirements for cancelling MIP; rather, he contends the requirements are 

unfair. Plaintiff’s allegation contains no suggestion of deception or fraud; therefore, it 

fails to state a cause of action under this statute. 

Unjust Enrichment 

 To establish unjust enrichment under Arizona law, Plaintiff must allege an 

enrichment that is connected to an impoverishment, an absence of justification for that 

enrichment, and the lack of a remedy at law. Wang Elec., Inc. v. Smoke Tree Resort LLC, 

283 P.3d 45, 49, 230 Ariz. 314, 318 (2012). 

 Because Plaintiff has not alleged that he is eligible for cancellation of MIP, he has 

not alleged that he is being impoverished without justification. Therefore, he fails to state 

a claim for unjust enrichment. 

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Amendment 

Plaintiff argues that if the Court grants dismissal it should provide him guidance 

and allow him to amend. When a court grants dismissal, it “should grant leave to amend 

even if no request to amend the pleading was made, unless it determines that the pleading 

could not possibly be cured by the allegation of other facts.” Cook, Perkiss & Liehe, Inc. 

v. N. Cal. Collection Serv., 911 F.2d 242, 247 (9th Cir. 1990). The factual basis of 

Plaintiff’s complaint, which underlies all of his claims against Nationstar, is that he is no 

longer legally required to pay MIP. The Court concluded this allegation is erroneous. 

Therefore, the Court finds no amendment could cure the defect. In addition, Plaintiff 

amended once as of right (Docs. 1, 16), and the Court granted two additional 

amendments after Plaintiff had an opportunity to review Nationstar’s first motion to 

dismiss, which gave him notice of similar deficiencies in his prior complaints (Docs. 19, 

23, 26, 29, 32). Therefore, further amendment is not warranted. 

RECOMMENDATION

 Based on the foregoing, the Magistrate Judge recommends that the District Court 

enter an order granting Defendant Nationstar’s Motion to Dismiss (Doc. 35), dismissing 

Defendant Nationstar with prejudice, and denying leave to amend with respect to 

Nationstar. 

 Pursuant to Federal Rule of Civil Procedure 72(b)(2), any party may serve and file 

written objections within fourteen days of being served with a copy of the Report and 

Recommendation. However, Plaintiff filed a notice that he is unavailable from January 14 

to February 1, 2017. (Doc. 41.) Therefore, the Court extends the parties’ time to file 

objections until February 10, 2017. A party may respond to the other party’s objections 

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within fourteen days. No reply brief shall be filed on objections unless leave is granted by 

the District Court. If objections are not timely filed, they may be deemed waived. 

 Dated this 20th day of January, 2017. 

Honorable Lynnette C. Kimmins

United States Magistrate Judge

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