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Sisti v. Federal Housing Finance Agency

United States District Court, D. Rhode Island

August 2, 2018

JUDITH A. SISTI, Plaintiff,



         The Plaintiffs in these cases seek a ruling that Defendants Federal Housing Finance Agenc3r ("FHFA"), Federal National Mortgage Association ("Fannie Mae"), and Federal Home Loan Mortgage Corporation ("Freddie Mac") are government actors, and thus, violated the Plaintiffs' Fifth Amendment due process rights when they conducted non-judicial foreclosures on the Plaintiffs' homes. The Defendants have moved for judgment on the pleadings. For the following reasons, their motions are DENIED.

         I. BACKGROUND

         Because the Defendants have moved for judgment on the pleadings, the Court accepts as true the well-pleaded facts from the Amended Complaints and draws all reasonable inferences in the Plaintiffs' favor. Doe v. Brown Univ., ___ F.3d ___, 2018 WL 3454469, at *1 (1st Cir. July 18, 2018).

         A. Fannie Mae, Freddie Mac, and FHFA

         During the subprime mortgage crisis, Congress passed the Housing and Economic Recovery Act of 2008 ("HERA"), 12 U.S.C. § 4501 et seq., creating FHFA and empowering it to supervise and regulate Fannie Mae and Freddie Mac (collectively, the "government-sponsored enterprises" or "GSEs"). HERA also empowered FHFA to place the GSEs into conservatorship or receivership "for the purpose of reorganizing, rehabilitating, or winding up the affairs" of the GSEs. 12 U.S.C. § 4617(a)(2). FHFA's director exercised this power in the fall of 2008 and placed the GSEs into conservatorship.

         While acting as conservator, FHFA controls all of the rights, titles, powers, and privileges of the shareholders and boards of directors of the GSEs. FHFA elects the entirety of both boards of directors; the shareholders do not. FHFA also determines the boards' size and scope of authority.

         FHFA controls the business activities of the GSEs, and manages them to serve public ends. It does not manage the GSEs to maximize profitability or shareholder returns. FHFA prohibits the GSEs from paying any dividends to their common shareholders.

         There is no date certain for when the conservatorship will end, nor will it end upon the completion or attainment of predetermined criteria. Instead, FHFA's director has total authority and discretion over whether its control of the GSEs will end.[1]

         Presently, the United States government owns all of the senior preferred stock of the GSEs; this stock is senior in right for both dividends and liquidation to all other preferred or common stock. The government also has warrants to purchase 79.9% of the GSEs' common stock. The GSEs cannot issue new shares, declare dividends, or dispose of assets without approval of the U.S. Treasury. In exchange, Fannie Mae has received some $116 billion from the Treasury to maintain liquidity; Freddie Mac has received some $71 billion.

         Both GSEs have paid more dividends into the Treasury than they received in the bailout: Fannie Mae has paid approximately $151 billion and Freddie Mac has paid approximately $98 billion. However, under the senior preferred stock purchase agreement, these dividend payments do not reduce the government's ownership interest in the GSEs, The Congressional Budget Office considers payments from the GSEs into the Treasury to be "intragovernmental payments."

         The GSEs cannot redeem the senior preferred stock prior to the termination of the government's funding commitment; that will not occur until all of the GSEs' liabilities have been satisfied.

         After appointing itself conservator of the GSEs, FHFA created the Servicer Alignment Initiative ("SAI"), which directs actions taken by the GSEs' mortgage servicers when servicing a delinquent mortgage. The SAI requires servicers of GSE- owned mortgages to follow specific timelines for processing foreclosures. The SAI directed the GSEs' servicers to use nonjudicial foreclosure procedures when foreclosing in Rhode Island.

         B. The Plaintiffs

         Judith Sisti owned real property in North Providence, Rhode Island, subject to a mortgage. In May of 2012, Ms. Sisti became delinquent on her mortgage payments. Four years later, Defendant Nationstar Mortgage, LLC, [2] as agent for Freddie Mac, conducted a foreclosure sale on Ms. Sisti's property. Freddie Mac made the highest bid, and Nationstar signed and recorded a foreclosure deed. This was a non-judicial foreclosure: none of the Defendants provided Ms. Sisti the opportunity to have an evidentiary hearing, to confront or cross-examine witnesses, to present arguments and evidence, to be represented by counsel, or to have a neutral hearing officer adjudicate the matter. Following the foreclosure, Freddie Mac sought to evict Ms. Sisti.

         Cynthia Boss owned real property in Woonsocket, Rhode Island, subject to a mortgage held by Santander Bank.[3] Santander Bank assigned its interest in Ms. Boss's mortgage to Fannie Mae in 2014. In March of 2016, Fannie Mae conducted a foreclosure sale on Ms. Boss's property in which Fannie Mae made the highest bid. Following the sale, Fannie Mae and Santander signed and recorded a foreclosure deed. Just like Ms. Sisti, Ms. Boss did not have the opportunity to be heard, confront and cross witnesses, present arguments and evidence, have counsel, or have a neutral decisionmaker during her foreclosure proceedings. Fannie Mae has sued in state court to evict Ms. Boss.

         Seeking to prevent their evictions, Ms. Sisti sued FHFA, Freddie Mac, and Nationstar; Ms. Boss sued FHFA, Fannie Mae, and Santander. Plaintiffs allege that FHFA, Fannie Mae, and Freddie Mac are government entities, and as such, that they deprived the Plaintiffs of due process by conducting non-judicial foreclosures. FHFA, Fannie Mae, and Freddie Mac have moved for judgment on the pleadings. Because these cases present the same legal issues, the Court consolidated them for oral argument and disposition of the motions.[4]


         Federal Rule of Civil Procedure 12(c) allows a party to move for judgment on the pleadings. "A motion for judgment on the pleadings bears a strong family resemblance to a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), and these two types of motions are treated in much the same way." Kando v. R.I. State Bel of Elections, 880 F.3d 53, 58 (1st Cir. 2018). "[A] 'court may not grant a defendant's Rule 12(c) motion "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to ...

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