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Foreclosure Procedures and Satisfaction of Due Process Rights

Posted By USFN, Monday, June 8, 2015
Updated: Friday, September 25, 2015

June 8, 2015


by Matthew Theunick
Formerly with Trott Law, P.C. – USFN Member (Michigan)

In Garcia v. Fannie Mae, the Sixth Circuit Court of Appeals was presented with one issue on appeal: whether or not the district court erred in dismissing the plaintiffs’ due process claim because it found that Fannie Mae was not a state actor for constitutional purposes when it foreclosed upon the plaintiff’s home? [2015 U.S. App. LEXIS 5532; 2015 FED App. 0064P (6th Cir. Apr. 7, 2015)]. The Sixth Circuit is comprised of Kentucky, Michigan, Ohio, and Tennessee.

With respect to the Due Process Clause of the U.S. Constitution, the Fifth and Fourteenth Amendments prohibit the deprivation of property by a state actor without due process of law. In Garcia, the borrowers alleged that there were violations of their Fifth and Fourteenth Amendment Due Process Rights. Ultimately, the borrowers’ challenge to government-sponsored enterprise (GSE) Fannie Mae was predicated upon the notion that Fannie Mae was a state actor for constitutional purposes, and that the borrowers’ due process rights were violated in the foreclosure by advertisement that occurred.

One of the traditional defenses brought by the Federal Housing Finance Agency (FHFA) as conservator of Fannie Mae and Freddie Mac against due process challenges was based upon the argument raised in Lebron v. National Railroad Passenger Corp., 513 U.S. 374, 115 S. Ct. 961, 130 L. Ed. 2d 902 (1995). That is, that Fannie Mae and Freddie Mac are not governmental actors who can be held liable for due process clause violations, as the federal government does not have permanent authority to appoint a majority of the directors of the GSEs. This argument has proven successful in defending a number of due process challenges. Additionally, the FHFA contended in Syriani v. Freddie Mac Multiclass Certificates, 2012 U.S. Dist. LEXIS 179863, * 11-12 (C.D. Cal. 2012), that the temporary nature of the FHFA’s conservatorship also supports the conclusion that the GSEs have not been transformed into a governmental actor. See also Herron v. Fannie Mae, 857 F. Supp. 2d 87, 93 (D.D.C. 2012) (holding that because the FHFA’s conservatorship “is by nature temporary, the government has not acceded to permanent control over the entity and Fannie Mae remains a private corporation.”)

However, in Garcia, the Sixth Circuit affirmed the district court’s judgment, dismissing the due process challenges as without merit, on the grounds that the FHFA’s compliance with Michigan’s foreclosure by advertisement procedures satisfied the requirements of the Due Process Clause. In elaborating upon this compliance, the Sixth Circuit stated that the “notice requirements are not at odds with notions of due process under both common law and Supreme Court precedent.” Garcia at 12. The Sixth Circuit noted that the statute requires notice and opportunities to cure the default or redeem the property at several points before the borrower’s rights are fully extinguished. Id. Additionally, the Sixth Circuit pointed out that a foreclosed borrower’s ability to bring an action before expiration of the statutory redemption period satisfies the requirement that there be a hearing “at a meaningful time and in a meaningful manner.” Id. at 10. Thus, the Sixth Circuit’s opinion in Garcia provides further support to the FHFA against due process challenges to foreclosures by advertisement in Michigan, and arguably beyond.

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