[Cite as CitiMortgage, Inc. v. Carpenter , 2012-Ohio-1428.]




                            IN THE COURT OF APPEALS OF OHIO
                               SECOND APPELLATE DISTRICT
                                  MONTGOMERY COUNTY

CITIMORTGAGE, INC.                               :
                                                 :       Appellate Case No. 24741
        Plaintiff-Appellee                       :
                                                 :       Trial Court Case No. 10-CV-6549
v.                                               :
                                                 :
SHIRLEY J. CARPENTER                       :     (Civil Appeal from
                                                 :       (Common Pleas Court)
        Defendant-Appellant                      :
                                                 :
                                             ...........

                                             OPINION
                                             th
                           Rendered on the 30 day of March, 2012.

                                             ...........

THOMAS L. HENDERSON, Atty. Reg. #0039789, Lerner, Sampson & Rothfuss,
LPA, Post Office Box 5480, Cincinnati, Ohio 45201-5480
      Attorney for Plaintiff-Appellee, CitiMortgage, Inc.

GEORGE PATRICOFF, 301 West Third Street, 5th Floor, Dayton, Ohio 45422
    Attorney for Defendant-Appellee, Montgomery County Treasurer


ANDREW D. NEUHAUSER, Atty. Reg. #0082799, Advocates for Basic Legal
Equality, Inc., 525 Jefferson Avenue, Toledo, Ohio 43604
and
LAUREN E. DRESHMAN, Atty. Reg. #0085028, Advocates for Basic Legal Equality,
Inc., 333 West First Street, Suite 400-B, Dayton, Ohio 45402
               Attorneys for Defendant-Appellant, Shirley J. Carpenter

                                                              .............

FAIN, J.
                                                                                   2


      {¶ 1} Defendant-appellant Shirley J. Carpenter appeals from a judgment of

foreclosure rendered in favor of plaintiff-appellee CitiMortgage, Inc. Carpenter first

contends that a genuine issue of material fact exists regarding whether CitiMortgage

provided a proper non-approval notice under the federal Home Affordable

Modification Program (HAMP) before filing its foreclosure action. Carpenter argues

that CitiMortgage’s failure to follow Freddie Mac Bulletin 2009-28 and the Department

of the Treasury’s Supplemental Directive 09-08 is an affirmative defense to

foreclosure.

      {¶ 2} We conclude that Carpenter has failed to establish that an affirmative

defense existed under HAMP. Specifically, she failed to present evidence that she

was an intended third-party beneficiary to the servicing contract between

CitiMortgage and Freddie Mac. She also failed to present evidence that the contract

terms between CitiMortgage and Freddie Mac were expressly incorporated into her

mortgage and note. Finally, although the terms of Freddie Mac Bulletin 2009-28 and

the Treasury’s Supplemental Directive 09-08 are mandatory in nature, these terms do

not carry the force and effect of law.      Therefore, Carpenter had no affirmative

defense to foreclosure, rendering the validity of CitiMortgage’s non-approval notice

immaterial. Accordingly, the judgment of the trial court is Affirmed.

                              I. Course of Proceedings

      {¶ 3} CitiMortgage is the holder of a note and mortgage executed by

Carpenter in 2005, when she refinanced her mortgage in order to pay some bills. In

December 2009, Carpenter contacted CitiMortgage to look into whether she could
                                                                                 3


modify the terms of her loan. A CitiMortgage employee told Carpenter that she was

approved for a non-HAMP

loan modification, but Carpenter never received any loan modification paperwork

from CitiMortgage.

       {¶ 4} Carpenter continued to make her monthly mortgage payments between

January, 2010 and March 2010. She did not make her April 2010 or May 2010

installments, but did make her June 2010 payment. In a letter dated June 30, 2010,

Carpenter was notified by CitiMortgage that she had defaulted under the terms of the

Note and Mortgage. The parties were asked at oral argument whether Carpenter

had been evaluated under HAMP; neither party appeared to dispute that she was

evaluated.   Furthermore, a letter from CitiMortgage dated July 8, 2010, sent to

Carpenter informing her that a loan modification under HAMP was denied, implies

that an evaluation under HAMP was completed. The letter states that the reason for

denial is, “because you

are current on your mortgage loan and * * * you are not at risk of default because:

You have not documented a financial hardship that has reduced your income or

increased your expenses, thereby impacting your ability to pay your mortgage as

agreed.” Exhibit 3, p. 1.

       {¶ 5} Upon Carpenter’s failure to cure the default, CitiMortgage accelerated

the loan and commenced a foreclosure action against Carpenter. The trial court

rendered summary judgment in favor of CitiMortgage in the amount of $37,690.12,

plus interest from April 1, 2010.
                                                                                      4


       {¶ 6} Carpenter appeals from the summary judgment rendered against her.



            II. Carpenter Has No Affirmative Defense to Foreclosure

         on Her Mortgage Loan Based on CitiMortgage’s Alleged Failure

                    to Have Complied with HAMP Requirements

       {¶ 7} Carpenter’s sole assignment of error is as follows:

       “THE TRIAL COURT ERRED IN GRANTING CITIMORTGAGE’S MOTION

FOR SUMMARY JUDGMENT.”

       {¶ 8} Carpenter contends that CitiMortgage’s failure to follow the Department

of the Treasury’s (Treasury) HAMP Supplemental Directives and Freddie Mac

HAMP-related Bulletins constitutes an affirmative defense. She contends that there

is a genuine issue of material fact regarding whether CitiMortgage failed to follow

notice procedures outlined in the Treasury’s Supplemental Directive 09-08 and

Freddie Mac Bulletin 2009-28.

       {¶ 9} A trial court may grant a moving party summary judgment pursuant to

Civ. R. 56 if there are no genuine issues of material fact remaining to be litigated, the

moving party is entitled to judgment as a matter of law, and reasonable minds can

come to only one conclusion, and that conclusion is adverse to the nonmoving party,

who is entitled to have the evidence construed most strongly in his favor. Smith v.

Five Rivers MetroParks, 134 Ohio App.3d 754, 760, 732 N.E.2d 422 (2d Dist. 1999).

“We review summary judgment decisions de novo, which means that we apply the

same standard as the trial court.” GNFH, Inc. v. W. Am. Ins. Co., 172 Ohio App.3d
                                                                                       5


127, 2007-Ohio-2722, 873 N.E.2d 345, ¶ 16 (2d Dist.). In other words, “we review

the judgment independently and without deference to the trial court’s determination.”

Brown v. Scioto Cty. Bd. Of Commrs., 87 Ohio App.3d 704, 711, 622 N.E.2d 1153

(4th Dist. 1993).

       {¶ 10} Congress passed the Emergency Economic Stabilization Act (EESA),

12 U.S.C. 5201, et seq., in response to the downward turn of the financial market and

credit crisis in 2008. A major component of the statute, the Trouble Asset Relief

Program (TARP), authorized the Secretary of the Department of Treasury (Treasury)

to undertake foreclosure mitigation initiatives and preserve home ownership. 12

U.S.C. 5211-5241. Specifically, TARP required the Secretary to “implement a plan

that seeks to maximize assistance for homeowners and * * * encourage[s] the

servicers of the underlying mortgages * * * to take advantage of * * * other available

programs to minimize foreclosures.” 12 U.S.C. 5219(a)(1).               Additionally, “the

Secretary may use loan guarantees and credit enhancements to facilitate loan

modifications to prevent avoidable foreclosures.” Id.

       {¶ 11} The authority granted to the Treasury under EESA to implement

foreclosure mitigation efforts is broad. “Notably, Congress did not require that the

Treasury’s plan benefit any identified category of borrowers of loans, or that the plan

utilize any specific form of assistance.” Nguyen v. BAC Home Loan Servs., LP, N.D.

Cal No. C-10-01712, 2010 WL 3894986, *1 (Oct. 1, 2010). The Treasury has “full

discretion to structure foreclosure mitigation initiatives, including their size, duration,

and scope.” Id.
                                                                                 6


      {¶ 12} Pursuant to its broad discretionary authority, the Treasury introduced

the Making Homes Affordable Program, which included the Home Affordable

Modification Program (HAMP). “HAMP was aimed at helping homeowners who were

in or were at immediate risk of being in default on their home loans by reducing

monthly payments to sustainable levels.” Costigan v. Citimortgage, Inc. S.D. NY No.

10 Civ 8776, 2011 WL 3370397, *1 (Aug. 2, 2011). “ * * * HAMP works by providing

financial incentives to participating mortgage servicers to modify terms of eligible

loans.”   Marks v. Bank of America, N.A.    D. Ariz. No. 03:10-cv-08039-PHX-JAT,

2010 WL 2572988, *5 (June 22, 2010).

      {¶ 13} Participants in HAMP include servicers with loans guaranteed by

Government Sponsored Enterprises (GSE), such as Fannie Mae and Freddie Mac,

as well as loans that are not guaranteed, known as non-GSE loans. See Markle v.

HSBC Mortgage Corp. (USA),         F.Supp.2d     , D. Mass No. 10-40189, 2011 WL

6944911, *1 (July 12, 2011). “The Department of the Treasury and Fannie Mae

have issued a series of directives that provide guidance to mortgage servicers

implementing HAMP.” Id. at *2. Servicers who enter into a contract with Fannie

Mae and have their loans guaranteed by Fannie Mae are required to participate in

HAMP and to abide by Fannie Mae servicing guides and bulletins, which are

expressly incorporated into the contact. Id. at *1. We see no reason why the same

principle would not apply to servicers who enter into similar GSE servicing

agreements with Freddie Mac. See Freddie Mac, Bulletin Number: 2009-6,

http://www.freddiemac.com/sell/guide/bulletins/pdf/bll096.pdf, 1 (accessed Feb 16,
                                                                                 7


2012). Non-GSE servicers who opt into participating in HAMP by signing a Servicer

Participation Agreement (SPA) are also required to evaluate borrowers for HAMP

eligibility and must abide by Treasury’s handbooks and directives.    Markle at *1;

Edwards v. Aurora Loan Serv.’s, LLC, 791 F.Supp.2d 144, 147 (D.D.C. 2011).

Although these guidelines from both the Treasury and Freddie Mac require servicers

to evaluate borrowers prior to initiating a foreclosure proceeding, that does not

necessarily mean that a loan modification will result.     See BAC Home Loans

Servicing v. Bates, Butler C.P. No. CV 2009062801, 5-7 (Mar. 8, 2010); U.S. Bank,

N.A. v. Bleckinger, Seneca C.P. No. 10-CV-0095, 6 (Oct. 13, 2010); U.S. Dept. of the

Treasury,    Supplemental       Directive    09-01,     https://www.hmpadmin.com/

portal/programs/docs/hamp_servicer/sd0901.pdf (accessed Feb. 16, 2012)(governing

non-GSE loan servicers); Freddie Mac, Chapter C65: Home Affordable Modification

Program, http://www.freddiemac.com/sell/guide/ bulletins/pdf/bll096xA.pdf, (accessed

Feb 16, 2012)(governing Freddie Mac guaranteed loans).



        A. Carpenter Is Not a Third-Party Beneficiary To The Contract;

                         No Affirmative Defense Exists.

      {¶ 14} Regardless of whether a servicer is the holder of a GSE loan or a

non-GSE loan, most courts have found that borrowers do not have standing to

enforce the terms of HAMP as third-party beneficiaries.     See, e.g., Edwards at

152-153 (regarding a GSE loan contract); Markle at *2-7 (regarding a GSE loan

contract); Marks, D. Ariz. No. 03:10-cv-08039-PHX-JAT, 2010 WL 2572988, *5-7
                                                                                     8


(regarding a non-GSE loan SPA); Warren v. U.S. Bank of America, S.D. Ga No.

4:11-cv-70, 2011 WL 2116407, *2-5 (May 24, 2011) (no standing to enforce HAMP

terms of a non-GSE loan SPA). Turning to Ohio law, specifically: “Only a party to

a contract or an intended third-party beneficiary of a contract may bring an action on

a contract in Ohio.” Grant Thornton v. Windsor House, Inc., 57 Ohio St.3d 158, 161,

566 N.E.2d 1220 (1991).

      {¶ 15} An affirmative defense, like a cause of action, is a claim of right. In a

cause of action, the claim of right is a claim to relief; in an affirmative defense, the

claim of right is the avoidance of liability under another’s claim to relief. It follows

then, that a party seeking to assert an affirmative defense under a contract must

either be a party to the contract or an intended third-party beneficiary of a contact.

In the HAMP context, a New York court concluded that, “an alleged breach of the

[HAMP Service Provider] Agreement cannot form the basis of a defense, because

[the borrower] cannot be considered an intended beneficiary of the Agreement, as

there is neither evidence nor allegation that it was [the bank’s] intention to benefit

homeowners in entering into the Agreement.” Wells Fargo Bank v. Small, 2010 NY

Slip Op 30424U, *5, 2010 NY Misc. LEXIS 2478 (N.Y. Sup. Ct. Feb. 16, 2010).

      {¶ 16} Carpenter contends that there is a genuine issue of material fact

whether the evaluation she received conformed with Freddie Mac Bulletin 2009-28

and the Treasury’s Supplemental Directive 09-08. But that issue of fact can only be

material if Carpenter had an affirmative defense to this foreclosure action based on

CitiMortgage’s alleged non-conformity. Carpenter does not contend that she is an
                                                                                     9


intended third-party beneficiary to the contract between Citimortgage and Freddie

Mac. Carpenter asserts that she has an affirmative defense, even though she is not

a beneficiary to the servicer contract, due to “CitiMortgage’s failure to follow Freddie

Mac Bulletin [20]09-28 and HAMP Supplemental Directive 09-08.” We disagree. In

order for Carpenter to have an affirmative defense based upon the contract terms

between CitiMortgage and Freddie Mac – terms incorporating Freddie Mac Bulletins

and Treasury Supplemental Directives – Carpenter had to have presented evidence

establishing a genuine issue of material fact as to her status as an intended

third-party beneficiary to the servicer contract. She did not present any evidence of

that. Therefore, Carpenter has no standing to assert an affirmative defense on her

loan contract, and CitiMortgage is entitled to judgment as a matter of law.



   B. If Carpenter Is Not an Intended Third-Party Beneficiary to a Contract,

     Is an Affirmative Defense Nevertheless Available to Her under HAMP?



        1. The Terms of the CitiMortgage/Freddie Mac Servicing Contract

      Were Not Expressly Incorporated into Carpenter’s Mortgage or Note,

                     Therefore No Affirmative Defense Exists.

      {¶ 17} Even without being an intended third-party beneficiary of the servicer

contract between CitiMortgate and Freddie Mac, Carpenter would be entitled to an

affirmative defense based upon CitiMortgage’s failure to have complied with HAMP

servicing requirements if those requirements had been incorporated in her contract
                                                                                    10


with CitiMortgage. Neither Carpenter nor Citimortgage presented evidence that the

terms of the contract between CitiMortgage and Freddie Mac were incorporated into

Carpenter’s note or mortgage. Therefore, this potential avenue for an affirmative

defense of non-compliance with HAMP servicing requirements is not available to her.



    2. Even Though the Terms within the HAMP Guidelines Are Mandatory

            in Nature, They Do Not Establish an Affirmative Defense,

    Because the HAMP Guidelines Do Not Have the Force and Effect of Law.

      {¶ 18} An affirmative defense may be available if the mortgage servicing

requirements are “ ‘ * * * mandatory and expressly [require] compliance * * * ’and * * *

the requirements ‘ * * * also have the force and effect of law * * *.’ ” GMAC Mtge. of

Pennsylvania v. Gray, 10th Dist. No. 91AP-650, 1991 WL 268742, *6 (Dec. 10, 1991),

quoting Bankers Life Co. v. Denton, 120 Ill. App.3d 576, 578, 458 N.E.2d 203 (1983).

 In other words, even if the terms within the HAMP guidelines, directives, and

bulletins are found to be mandatory, and expressly require compliance, for those

terms to create a private right on the part of a borrower, the terms themselves must

also have the force and effect of law. Otherwise, an affirmative defense will not be

created.

      {¶ 19} Whether mortgage servicing requirements are mandatory and

expressly require compliance depends on the language used within the servicing

terms themselves. See Bankers Life at 578. In Bankers Life, the borrower raised an

affirmative defense, alleging that the bank failed to comply with Housing and Urban
                                                                                   11


Development (HUD) servicing requirements. Id. at 577. When analyzing whether

the language of the servicing requirements was mandatory, the court cited several

sections of the relevant Code of Federal Regulations (C.F.R.); for example: “It is the

intent of the Department [of Housing and Urban Development] that no mortgagee

shall commence foreclosure or acquire title to a property until the requirements of

this subpart have been followed,” 24 CFR 203.500; and:

      The mortgagee must have a face-to-face interview with the mortgagor,

      or make a reasonable effort to arrange such a meeting, before three full

      monthly installments due on the mortgage are unpaid.            If default

      occurs in a repayment plan arranged other than during a personal

      interview, the mortgagee must have a face-to-face meeting with the

      mortgagor, or make a reasonable attempt to arrange such a meeting

      within 30 days after such default and at least 30 days before

      foreclosure is commenced * * *. 24 CFR 203.604 (emphasis added);

      Bankers Life at 578-579.

In addition, the court noted that the word “shall” was used throughout the HUD

requirements, indicating that the directives were mandatory in nature. Id.

      {¶ 20} As in Bankers Life, the language cited by Carpenter in Freddie Mac

Bulletin 2009-28 and the Treasury’s Supplemental Directive 09-08 also appears to be

mandatory in nature. Freddie Mac Bulletin 2009-28 states, “With this Bulletin, we

are advising Freddie Mac Servicers that they must comply with the requirements set

forth in [Treasury Supplemental Directive] 09-08 * * *.” (Emphasis added.) Freddie
                                                                                 12


Mac: Bulletin Number: 2009-28, http://www.freddiemac.com/sell/guide/bulletins/pdf/

bll0928.pdf, 7 (accessed Feb. 16, 2012). Specifically, the sections of the Treasury’s

Supplemental Directive 09-08 incorporated in Freddie Mac Bulletin 2009-28 includes,

“complete requirements and additional information with respect to determining when

a Servicer must send a Borrower Notice and the requirements for the content of a

Borrower Notice.”    Id.   According to Supplemental Directive 09-08, “[a] servicer

must send a Borrower Notice to every borrower that has been evaluated for HAMP

but * * * is not offered an official HAMP modification * * *.” (Emphasis added.) U.S.

Dept.       of      the      Treasury,       Supplemental      Directive      09-08,

https://www.hmpadmin.com/portal/programs/       docs/hamp_servicer/sd0908.pdf,     1

(accessed Feb. 16, 2012).       The explanations utilized in the Borrower Notice for

non-approval “must provide the primary reason or reasons for the non-approval.”

(Emphasis added.) Id. at 2. Furthermore, these explanations “must relate to one of

more of the Non-Approval/Not Accepted reason codes specified in Schedule IV of

[Treasury] Supplemental Directive 09-06 (Home Affordable Modification Guidelines:

Data Collection and Reporting Requirements Guidance).”           (Emphasis added.)

Freddie Mac: Bulletin Number: 2009-28 at 7. As demonstrated above, the use of

the word “must,” as opposed to “may” or “should,” is normally construed by courts to

indicate mandatory terms requiring compliance. Carpenter correctly points out that

the language found in Freddie Mac Bulletin 2009-28 and in Supplemental Directive

09-08 is mandatory in nature.

        {¶ 21} But more is required for the establishment of an affirmative defense.
                                                                                        13


In addition to establishing that the terms found in Freddie Mac Bulletin 2009-28 and

the Treasury’s Supplemental Directive 09-08 are mandatory, and expressly require

compliance, these terms must have the force and effect of law. In Banker’s Life, the

court found that the HUD servicing requirements were “adopted as regulations

pursuant to the authority conferred on H.U.D. by the United State’s Congress.” 120

Ohio App.3d at 578, 458 N.E.2d 203.           Accord,    GMAC Mtge. of Pennsylvania,

supra, 10th Dist. No. 91AP-650, 1991 WL 268742 at *6-7. In other words, the

servicing requirements established by HUD were codified in the C.F.R., and were

therefore determined by the court to have the force and effect of law.

       {¶ 22} In arguing that the Freddie Mac Bulletins and Treasury Supplemental

Directives carried the force and effect of law, Carpenter points to 15 U.S.C. 1639a(c),

which states: “The qualified loss mitigation plan guidelines issued by the Secretary

of the Treasury under the Emergency Economic Stabilization Act of 2008 shall

constitute standard industry practice for purpose of all Federal and State laws.” Id.

When read in the context of the statute as a whole, however, this section does not

codify the Treasury’s Directives. Rather, it appears to be intended to protect lending

institutions from being held liable to their investors for failing to maximize profits while

complying with HAMP or other qualified loss mitigation plans. This is evident from

the following division of the statute, 15 U.S.C. 1639(d):

       Scope of safe harbor

       Any person, including a trustee, issuer, and loan originator, shall not be

       liable for monetary damages or be subject to an injunction, stay, or
                                                                                     14


          other equitable relief, based solely upon the cooperation of such person

          with a servicer when such cooperation is necessary for the servicer to

          implement a qualified loss mitigation plan that meets the requirements

          of subsection (a).

          {¶ 23} Next, Carpenter points to the mandatory language found within the

bulletins and directives themselves. This argument is also unconvincing. Although

the language in the Treasury’s Supplemental Directives requires certain procedures

to be followed, “[t]he HAMP program itself is not codified as a public law.” Cleveland

v. Aurora Loan Servs., N.D. CA No. C11-0773, 2011 WL 2020565, *3 (May 24,

2011); Accord, Edwards, 791 F.Supp.2d 144, 154. Nor is it subject to the Treasury’s

notice and comment rulemaking, or codified within any C.F.R. Edwards at 154.

          {¶ 24} As previously noted, Congress bestowed on the Treasury Secretary

broad discretionary power pertaining to the size, structure, scope, and duration of

HAMP. Nguyen, N.D. Cal No. C-10-01712, 2010 WL 3894986, *1. Moreover, the

Treasury Secretary “retains full discretion to end HAMP at any time and, as the

agency already has done, to modify the program as it sees fit.” Edwards at 154.



          {¶ 25} Although the terms found within the Treasury’s Supplemental Directive

09-08 and Freddie Mac Bulletin 2009-28 appear to be mandatory, neither HAMP

itself nor the Treasury’s guidelines has the force and effect of law. Therefore, no

affirmative defense is available, and CitiMortgage is entitled to judgment as a matter

of law.
                                                                                15


       {¶ 26} Carpenter’s sole assignment of error is overruled.



                                    III. Conclusion

       {¶ 27} Carpenter’s sole assignment of error having been overruled, the

judgment of the trial court is Affirmed.

                                                        .............

GRADY, P.J., and DONOVAN, J., concur.




Copies mailed to:

Thomas L. Henderson
George Patricoff
Andrew D. Neuhauser
Lauren E. Dreshman
Hon. Mary L. Wiseman
