NOT RECOMMENDED FOR PUBLICATION File Name: 15a0657n.06
No. 15

- 1241

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT RO D ERICK RAY ; MATTIE RAY, Plaintiffs

- Appellants ,

v. U.S. BANK NATIONAL ASSOCIATION, Successor Trustee to Bank of America, Successor by Merger to LaSalle Bank, N.A., Trustee, Defendant

- Appellee

. ) ) ) ) ) ) ) ) ) ) ) ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF MICHIGAN

BEFORE: BATCHELDER, ROGERS, and COOK, Circuit Judges. ROGERS , Circuit Judge

. In this case arising out of the mortgage litigation in Michigan, Roderic k and Mattie Ray seek to have the foreclosure of their home by US Bank set aside due to alleged violations of both Michigan and federal law relating to the foreclosure proceeding and the loan modification process. The Rays have not adequately alleged preju dice from the Michigan statutory violations , and cannot state a claim for failure of US Bank to comply with certain federal regulations that were not in force at the time of foreclosure. The Rays’ other claims also fail, and the district court therefore p rope rly dismissed all of the Rays’ claims. In 2006, the Rays obtained a $175,000 loan from First Franklin, a division of National City Bank, and granted Mortgage Electronic Registration Systems, Inc. (“MERS”) a mortgage against their home as security for the loan. MERS assigned the mortgage to La Salle BankNo. 15

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- National Association. In 2009, LaSalle foreclosed on the home; however, as a result of post

foreclosure litigation, LaSalle set aside the 2009 foreclosure and revived the mortgage. In April 2012, th e Rays submitted a loan modification application to Bank of America, the servicer of the loan. In December 2012, LaSalle assigned the mortgage t o US Bank, the defendant

- appellee in the present action. Bank of American never modified the Rays’ loan, and
t he Rays defaulted. US Bank then initiated foreclosure proceedings and purchased the Rays’ home at a sheriff’s sale on June 20, 2013. Under Michigan law, mortg agors may redeem the property during the six month s following a sheriff’s sale. Mich. Comp. Laws § 600.3240. After the redemption period expired on December 20, 2013, US Bank filed a summary proceeding in Michigan’s 36th District Court to evict the Rays. On February 28, 2014, t he Rays filed six counterclaims against US Bank , seeking to have the foreclosure sale set aside : (I ) violation of Mich. Comp. Laws § 600.3205,

et seq. , now repealed, but which at the time governed the loan modification process ; (II ) violation of the Real Estate Settl ement Procedures Act (“RESPA”) regulation 12 C.F.R. § 102 4.41 , which prohibits a loan servicer from foreclosing on a property after a borrower submits a loan modification application unless certain conditions are met, and RESPA provision 12 U.S.C. § 2605(k)(1)(E), which prohibits mortgage service r s from failing to comply with regulations implementing RESPA ; (III ) common

- law negligence based on US Bank’s alleged failure to comply with guidelines established by the federal Home Affordable Mortgage Program (“HAMP”); (IV ) illegal foreclosure in violation of Mich. Com p. Laws § 600.3204, et seq. , for failure to give proper notice of the foreclosure ; (V ) racial discrimination in violation of the Fair Housing Act, 42 U.S.C. § 360 5 ; and (VI ) exemplary damages.No. 15

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- The 36th District Court severed the Rays’ counterclaims and transferred them to the Wayne County Circuit Court as a separate action. US Bank removed the action to the Eastern District of Michigan under diversity jurisdiction and then moved to dismiss the Rays’ si x claims under Federal Rule of Civil Procedure 12(b)(6). The district court granted US Bank’s motion, and the Rays now appeal the dismissal of five of the six of their claims. 1
The district court reasoned that Counts I and IV should be dismissed becaus e the Rays ’ claims came after the expiration of the statutory redemption period and because the Rays did not sufficiently allege that they were prejudiced by a fraud or irregularity in the foreclosure procedure. Next, the district court ruled that Count I I should be dismissed because the RESPA regulation did not become effective until after the Rays’ foreclosure sale and does not apply retroactively. The district court then dismissed Count III because courts have overwhelmingly held that HAMP does not imp ose a duty of care on a mortgage lender or servicer. The district court also dismissed Count V because the Rays failed to allege both that they met all relevant qualifications for a loan modification under HAMP and that US Bank continued to engage in
HAMP loan modifications with individuals outside of the Rays’ protected class while continuing to deny the Rays a modification. Finally, the district court dismissed Count VI because exemplary damages are a form of compensation and do not constitute a cause o f action. The Rays challenge the district court’s rulings on appeal, but their arguments lack merit. First, t he Rays have failed to state a claim upon which relief can be granted for either of the alleged violatio ns of Michigan foreclosure laws (Counts I and IV) because their claim s co me after the expiration of the statutory redemption period and because the Rays’ complaint does not sufficiently allege prejudice caused by fraud or irregularity in the foreclosure procedure

. The

1 The Rays did not list as an issue presented in their brief, nor discuss in the brief’s argument section, the district court’s dismissal of Count VI of their complaint, which contained a claim for exemplary damages. Thus, the Rays have waived this argumen t. See, e.g. , Ahlers v. Schebil , 188 F.3d 365, 374 (6th Cir. 1999)

.No. 15

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- Rays allege that US Bank violated Mich. Comp. Laws § 600.3205, et seq. , and Mich. Comp. Laws § 600.3204, et seq. , by failing to provide proper notice of the foreclosure, foreclosing on their property while they were under review for a loan modification, not complying with loan modification guidelines, not working with the Rays to determine if they qualified for a loan modification, and foreclosing via advertisement rather than by judicial sale. However, u nder Michigan law , all of the mortgagor’s “right, title, and intere st in and to the property” are extinguished at the end of the six

- month statutory redemption period. Conlin v. Mortg. Elec. Registration Sys., Inc. , 714 F.3d 355, 359 (6th Cir. 2013) ( quoting Piotrowski v.
State Land Office Bd. , 4 N.W.2d 514, 517 (Mich. 1942)); see Bryan v. JPMorgan Chase Bank , 848 N.W.2d 482, 485 (Mich. Ct. App. 2014)

. Michigan law does provide an exception to this rule: a mortgago r may seek to set aside a foreclosure sale after the expiration of the redemptio n period if the mortgagor can make a “clear showing of fraud [] or irregularity” in th e foreclosure procedure that “prejudiced” the mortgagor. Conlin , 714 F.3d at 359

- 61 ( quoting Schulthies v.
Barron , 167 N.W.2d 784, 785 (Mich. Ct. App. 1969) and Kim v. JPMorgan Chase Bank, N.A. , 825 N.W.2d 329, 337 (Mich. 2012) ) ; see also Diem v. Sallie Mae Home Loans, Inc. , 859 N.W.2d 238, 242 (Mich. Ct. App. 2014). Regardless of whether the Rays have adequately shown fraud or irregularity in the foreclosure procedure (which US Bank maintains that they have not ), the Rays’ claims fail because their complaint does not sufficiently allege that they were prejudiced by US Bank’s purported violations. Th e Michigan Supreme Court has explained that in order to demonstrate prejudice, mortgagors “ must show that they would have been in a better position to preserve their interest in the property absent defendant's noncompliance with the statute .” Kim , 825 N.W.2d at 337. Here, the Rays’ complaint merely alleges that they were “severely prejudiced by theNo. 15

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- misconduct” of US Bank, that they “have suffered prejudice and damages including the foreclosure of their home,” that they experienced “pain and suffering,” and that the al legedly illegal foreclosure caused “harm and prejudice.”
T he Rays’ claims of prejudice fail because they are too general and vague; for example, the Rays did not allege that they were able to or intended to redeem the property or pay off the debt , that they were exposed to double liability, or that they were misled about the occurrence of the foreclosure sale. Holliday v. Wells Fargo Bank, N.A. , 569 F. App’x 366, 372 (6th Cir. 2014); Derbabian v. Bank of Am., N.A. , 587 F. App’x 949, 9 57 (6th Cir. 2014); Conlin , 714 F.3d at 362;
Diem , 859 N.W.2d at 242

- 43

. Thus, the district court correctly dismissed Counts I and IV because the Rays did not allege any facts that show that they would have been in a better position to protect t heir interest in their home but for US Bank’s purported violations of the foreclosure
statutes. Additionally, r egarding the alleged violations of Mich. Comp. Laws § 600.3205 , et seq. , t he Rays argue that they were prejudiced because t hey were engaged in l oss mitigation at the time of the foreclosure

. Thus, the Rays’ argument appears to be that they were prejudiced because the modification that could have resulted from the loss

- mitigation process might have allowed them to become current on the loan. Howe ver, the only remedy Michigan law provided for violations of Mich. Comp. Laws § 600.3205, et seq. , was to permit mortgagors to convert a foreclosure by advertisemen t into a judicial foreclosure; the statute did not permit a court to invalidate a completed foreclosure. Mich. Comp. Laws § 600.3205c(6) (repealed) ; Elsheick v. Select Portfolio Servicing, Inc. , 566 F

. App ’ x. 492, 499 (6th Cir. 2014). Accordingly , t he statutory remedy to convert the foreclosure by advertisement into a judicial sale was necessarily only available when the foreclosure p rocess itself was still pending and is inapplicable to a case,No. 15

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- such as this one, where the foreclosure sale has been completed. Holliday , 569 F. App’x at 370 (citing Smith v. Bank of Am. Corp. , 485 F. App’x 749, 756 (6th Cir. 2012)). Therefore , the Rays’ argument that the foreclosure sale should be set aside because US Bank foreclosed on their home while they were still engaged in loss mitigation is unavailing

. Terry v. Fed. Nat’l Mortg. Ass’n , No. 321141 , 2015 WL 4546570, *2 (Mich. Ct. App. July 28, 2015). Second, the district court also properly dismissed Count II, which alleges violations of
12 C.F.R. § 1024.41 and 12 U.S.C. § 2605(k)(1)(E), because § 1024.41 d id not become effective until after the foreclosure of the Rays’ home and because the regulation does not apply retroactively. Section 1024.41, which prohibits a loan servicer from initiating foreclosure if a mortgagor has submitted a loan

- modification application unless certain conditions are met, became effective on January 10, 2014

— more than six months after the foreclosure sale of the Rays’ home on June 20, 2013. Recently, in a case brought by the Rays’ counsel on behalf of other clients in which counsel submitted a nearly identical brief , this court held that § 1024.41 does not apply retroactively. Campbell v. Nationstar Mortg. , No. 14

- 1751, 2015 WL 2084023, at *6

- 8 (6th Cir. May 6, 2015)

. We explained in Campbell that § 1024.41 d oes not apply retroactively under the two

- part test enunci ated by the Supreme Court in Fernandez

- Vargas v. Gonzales , 548 U.S. 30, 37

- 38 (2006), because the regulation specifically includes an effective date of January 10, 2014, and because retroactive application would impermissibly impose new substantive duties on already completed foreclosures. Id. at *7

- 8. We reasoned that the first inquiry of the Fernandez

- Vargas
test

— “whether Congress has expressly prescribed the statute’s proper reach”

— indicates that the Consumer Financial Protection Bureau (“CFPB”) did not intend the regulation to apply retroactively because it carefully chose the effective date of January 10, 2014, in order to giveNo. 15

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- regulated entities sufficient time to implement the new requirements and in order to make § 1024.41 consistent with the effective dates of other regulations issued pursuant to the Dodd

Frank Act. Id. at *7 (quoting Fernandez

- Vargas , 548 U.S. at 37 ). Additionally, we reasoned that the second prong of the Fernandez

- Vargas test

— whether applying the statute retroact ively would affect “substantive rights, liabilities, or duties [on the basis of] conduct arising before [its] enactment”

— also weighed against applying the regulation retroactively b ecause retroactive application would impose on the defendant the duty not t o foreclose on the property if the mortgagor had submitted a loan modification application when no such duty existed under the law at the time of the foreclosure sale. Id. at * 7

- 8 (quoting Fernandez

- Vargas , 548 U.S. at 37 ). Our reasoning in Campbell was sound

. Accordingly, the district court correctly dismissed Count II because § 1024.41 was not in effect at the time of foreclosure sale of the Rays’ home and does not apply retroactively. Third, the Rays ’ common

- law negligence claim (Count III) base d on violations of the HAMP regulations fail s to state a claim upon which rel ief can be granted because the
HAMP regulations do not impose a duty of care on service r s to borrowers. The Rays allege that US Bank failed to comply with regulations under HAMP, which is a federal program established by the Emergency Stabilization Act, 12 U.S.C. § 5201, et seq. , that is designed to help homeowners avoid foreclosure by modifying their loans. Relying on Mik v. Federal Home Loan Mortgage Corp. , 743 F.3d 149 (6th Cir. 2014), the Rays argue that violations of a federal statute , such as the HAMP regulations , can be used “offensively” to establish a common - law negligence claim. However, this court recently ruled in Campbell as well as in Rush v. Freddie Mac , 792 F. 3d 600 (6th Cir. 2015)

— both cases again involving substantially similar briefs submittedNo. 15

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- by the Rays’ counsel on behalf of other clients

— that the HAMP regulations do not impose a d uty of care, an essential element of any negligence claim, on servicers to b orrowers under Michigan law. Rush , 792 F.3d at 605

- 06; Campbell , 2015 WL 2084023, at *9. In Rush ( in which we explicitly relied on Campbell ) , we explained that Michigan courts have not recognized that servicers owe a duty to borrowers based on the HAMP r egulations because under Michigan law “the duties established by the mortgage contract govern the re lationship between the parties” and because a Michigan homeowner “who has defaulted may not simply waive the contract and sue in negligence.” Rush , 792 F.3d at 605 (citing Campbell , 2015 WL 2084023, a t *9 )

. Our published opinion in Rush is binding. Be cause any duty US B ank owed to the Rays

arose out of the mortgage contract, the district court correctly ruled that the HAMP regulations do not imp ose a duty of care on US Bank under Michigan tort law and c onsequently that the Rays may not base a common - law negligence claim on violations of the HAMP regulations

. Finally, the Rays fail to state a claim upon which relief can be granted under the Fair Housing Act (Count V) because their complaint omitted one of the essential elemen ts of a prima facie case of racial discrimination under 42 U.S.C. § 3605

. The Rays , who are African

American, allege that US Bank refused to review their loan for a modification under HAMP because of their race. The Rays acknowledge that they do not have direct evidence of US Bank’s alleged discrimination; accordingly, to state a claim under § 3605, they must pl ead that:

(1) they were a member of a protected class; (2) they attempted to engage in a “real estate

- related transaction” with [the defendant], and met all relevant qualifications for doing so; (3) [the defendant] refused to transact business with the pl aintiffs despite their qualifications; and (4) the defendant[] continued to engage in that type of transaction with other parties with similar qualifications.No. 15

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- Mich. Prot. & Advocacy Serv., Inc. v. Babin , 18 F.3d 337, 346 (6th Cir. 1994) (citing Sec’y,
Uni ted States Dept. of Hous. & Urban Dev. ex rel. Herron v. Blackwell , 908 F.2d 864, 870 ( 11th Cir. 1990)). Here, even assuming that the Rays’ conclusory statement that they qualif ied for a loan modification is sufficient to show that they “met all relevant qualifications” without any further facts in the complaint actually demonstrating their qualifications, the Rays’ claim fails because their complaint makes no allegation that US B ank continued to engage in loan

- modification reviews with other similarly qualified individuals outside of their race. Accordingly, because the Rays did not plead one of the essential elements of a discrimination claim under § 3605 of the Fair Housing Act , the district court correctly d ismissed Coun t V of their complaint.
For the foregoing reasons, the judgment of the district court dismissing the Rays’ claims is affirmed.