2011 Comm. Fin. News. 18
Commercial Finance Newsletter
February 28, 2011
Borrower Cannot File Suit to Determine Whether MERS Has Authority to Commence Foreclosure, and Trust Deed Expressly Authorized MERS to Do So. [Gomes v. Countrywide Home Loans, Inc.,(Cal.App.).]
A California borrower executed a deed of trust, in which Mortgage Electronic Registration Systems (MERS) was designated as the nominee for the lender. Following the borrower’s default, an agent acting on behalf of MERS initiated nonjudicial foreclosure proceedings. The borrower filed suit challenging the authority of MERS to act on behalf of the underlying owner of the note and deed of trust. The trial court sustained the defendants’ demurrer, and the court of appeal affirmed.
The court held that the borrower had no factual basis for believing that MERS lacked authority to act on behalf of the beneficial owner of the note and deed of trust, and there was no statute permitting a private action seeking to determine whether MERS had such authority. As a fallback, the court also held that MERS did, indeed, have the authority to initiate a foreclosure, under the express terms of the deed of trust.
In holding that MERS had the authority to conduct the foreclosure, the court declined to follow Landmark Nat. Bank v. Kesler, 289 Kan. 528, 216 P.3d 158 (2009)
, holding that MERS had no standing to intervene in a foreclosure case (and, by implication, that MERS was simply irrelevant to the foreclosure process). The court noted that under Cal. Civ. Code § 2924(a)(1)
, “[t]he trustee, mortgagee, or beneficiary, or any of their authorized agents shall first file… a notice of default.” Therefore, since MERS was an “authorized agent,” it necessarily acted properly in commencing the foreclosure.
By holding that the borrower could not even file suit in state court in order to determine whether the proper party had commenced the foreclosure, the court has sent a clear (and perhaps inadvertent) message to borrowers and their attorney’s: instead of filing suit in state court, file a bankruptcy petition. That shifts the burden to the creditor, who will have to file a motion for relief from stay in the bankruptcy court and will have to establish its right to foreclose as part of that motion. Unlike the California state courts, the California bankruptcy courts have been critical of poorly documented mortgage transactions and sloppily conducted foreclosure proceedings.
As to the substantive issue, i.e., whether MERS really has the authority to act on behalf of the lender, the case law is decidedly mixed. The cases in California tend to be more sympathetic to MERS, while the cases in much of the rest of the nation are much less deferential to MERS. For discussions of some of those cases, see:
– 2010 Comm. Fin. News. 51,
Foreclosure Is Valid Because MERS Has Power to Designate New Trustee Under Deed of Trust, Even Though It Holds No Interest in Underlying Note.
– 2009 Comm. Fin. News. 103,
Assignee of Mortgage Lacks Standing to Foreclose Because Assignee Failed to Show That MERS Assigned Underlying Promissory Note, Along with Mortgage.
– 2009 Comm. Fin. News. 59,
Assignees of Mortgages Cannot Enforce Unendorsed Notes in Their Possession Because MERS Documentation Does Not Expressly Authorize Assignment of Notes.
– 2009 Comm. Fin. News. 57,
Assignee in Possession of Mortgage Note May Not Enforce It Because Note Is Not Endorsed to Assignee.
– 2008 Comm. Fin. News. 104,
Mortgagee May Not Obtain Relief from Automatic Stay in Order to Foreclose When Necessary Evidence Is Supplied by Low-Level Clerk Without Personal Knowledge of Underlying Facts.
– 2008 Comm. Fin. News. 95,
Mortgage Assignee’s Failure to Record Assignment Does Not Empower Mortgagor’s Trustee in Bankruptcy to Avoid Underlying Mortgage.
– 2008 Comm. Fin. News. 86,
Mortgagee’s Agent May Not Foreclose if Agent Cannot Properly Trace Assignment of Mortgage from Original Lender to Assignee Pursuant to Securitization.
– 2007 Comm. Fin. News. 93,
Mortgage Holder Seeking Relief from Automatic Stay in Order to Foreclose May Be Denied Relief for Failure to Establish Chain of Title from Loan Originator to Ultimate Assignee.
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|End of Document
||© 2011 Thomson Reuters. No claim to original U.S. Government Works.
Posted in Foreclosure, Law, Mortgage Crisis
Tagged 1714.10, 2924, 2924a, 2924i, Bankruptcy, California, Commentary on Gomes, eviction, Foreclosure, Gomes, Gomes v Countrywide, Law Review, Mortgage Crisis, Rule 2004, Shifting Burden of Proof
JUDICIALLY UNQUESTIONABLE but PLAINLY ILLEGAL DEBT COLLECTION and ENFORCEMENT SPELLS DEATH to the AMERICAN FAMILY, PRIVATE PROPERTY, and the middle class’ (“bourgeois”) DEMOCRATIC-REPUBLICAN STATE:
Ever since I learned of the Gomes v. Countrywide Home Loan decision on February 18, 2011 of this year, I have lost faith that the people can use any aspect of California law to shake off the “private property purges” whereby in true Stalinist fashion, the banks and the (apparently) Bank-Controlled Judiciary enforce mass foreclosure and eviction against the people. Decision after decision comes down against homeowners, and all I can do is ask the downtrodden current and former homeowners and other victims of predatory lending in California (and everywhere in the United States) to support my campaign to become the next U.S. Senator from California and unseat the Banks’ and corrupt Judiciary’s best friend, Dianne Feinstein.
I was “cite-checking” Gomes hopefully this morning, looking for some glimmer of light in the tunnel, and instead found this newly handed down, albeit unpublished, decision where the U.S. District Court for the Southern District of California had followed a whole series of bad, anti-private property, unconstitutional precedents, precisely last (but not at all least) among which was Gomes. The Federal Courts seem unwilling to address the constitutionality of California Civil Code 2924 et seq., even the notorious subsections 2924a and 2924i which insulate trustees and trustee sales from all judicial challenges, and/or 1714.10 which shields lawyers from suit for every kind of fraud committed in conjunction with clients (and judges). Despite the fact that ALL of these sections of the California Civil Code and related provisions of the California Code of Civil Procedure violate the letter and spirt of the Constitution’s Impairment of Contracts clause, the Fifth Amendment, and the statutory guarantees of equal access to the Courts and equal rights to make and enforce contracts relating to the purchase and maintenance of interests in property enshrined in 42 U.S.C. Sections 1981 and 1982 pursuant to the Fourteenth Amendment, the Federal Courts, the guarantors of the Constitution, unceasingly yield to the Bankers and Attorneys for the Mortgage Finance Industry:
2011 WL 1597475
Only the Westlaw citation is currently available.
United States District Court,
Sharon J. MADRID, Plaintiff,
BANK OF AMERICA CORPORATION doing business as BAC Home Loan Servicing, LP, MERA, Does 1 through 50, inclusive, Defendants.
No. 3:11–cv–0077 AJB (WVG).
April 26, 2011.
Attorneys and Law Firms
ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS AND DENYING PLAINTIFF’S MOTION FOR A PRELIMINARY INJUNCTION AS MOOT
*1 Pending is Plaintiff’s Motion for Temporary Restraining Order and Preliminary Injunction (Doc. No. 10), filed February 3, 2011, and Defendants’ Motion to Dismiss the First Amended Complaint (Doc. No. 15), filed February 16, 2011.
On June 7, 2005, Plaintiff obtained a loan from Countrywide Home Loans, Inc. (“Countrywide”) and executed a promissory note in the amount of $1,555,000. (Am.Compl.Ex. C). As security for the note, Plaintiff signed a Deed of Trust that was recorded on June 23, 2005. (Am.Compl.Ex. B). The Deed of Trust identifies Countrywide as the lender, ReconTrust Company, N.A. (“Recon”) as the trustee, and Mortgage Electronic Registration Systems, Inc. (“MERS”) as the beneficiary and nominee for the lender. (Id.). Bank of America Corporation doing business as BAC Home Loan Servicing, LP (“BAC”) purchased Countrywide. (Am.Compl.¶ 8).
Plaintiff subsequently defaulted on the loan. (Am.Compl.Ex. D). Recon, acting as an agent for MERS, issued a Notice of Default beginning foreclosure proceedings against Plaintiff in September 2010. (Id.). Plaintiff received two letters from Recon, dated September 2, 2010, and September 23, 2010, verifying the indebtedness on the note and identifying Countrywide as the original creditor of the underlying debt. (Am.Compl.Ex. C).
On January 13, 2011, Plaintiff filed this action against BAC, MERS, and Does 1–50. Specifically, Plaintiff alleges that MERS served solely as the nominee for the lender and could not be the beneficiary of the Deed of Trust. (Id.
at ¶¶ 9, 11). Plaintiff argues that MERS, while serving a limited capacity as nominee on the Deed of Trust, had no authority to transfer any beneficial interest in the Deed of Trust. (Am.Compl.¶¶ 11, 12). Plaintiff contends that the current beneficiary of the note is unknown because there are “no recorded documents that transfer, convey, or assign any rights, title or interest as beneficiary holding legal title to a different present beneficiary.” (Id.
at ¶ 9). Thus, Plaintiff alleges that Recon lacks the authority necessary to institute foreclosure proceedings on Plaintiff’s property. Based on these allegations, the First Amended Complaint contains the following five counts: Count One—Fraud and Fraud in the Inducement against BAC and MERS; Count Two—Declaratory Relief against BAC; Count Three—Negligence against BAC and MERS; Count Four—Negligent Misrepresentation against BAC and MERS; and Count Five—Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692
LEGAL STANDARD FOR MOTION TO DISMISS
A complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)
. A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure
tests the legal sufficiency of the claims asserted in the complaint. Fed.R.Civ.P. 12(b)(6)
; Navarro v. Block, 250 F.3d 729, 731 (9th Cir.2001)
. The court must accept all factual allegations pleaded in the complaint as true, and must construe them and draw all reasonable inferences from them in favor of the nonmoving party. Cahill v. Liberty Mutual Ins. Co., 80 F.3d 336, 337–38 (9th Cir.1996)
. To avoid a Rule 12(b)(6)
dismissal, a complaint need not contain detailed factual allegations, rather, it must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)
. A claim has “facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, –––U.S. ––––, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009)
(citingTwombly, 550 U.S. at 556).
*2 However, “a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555
(quoting Papasan v. Allain,478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986)
) (alteration in original). A court need not accept “legal conclusions” as true. Iqbal, 129 S.Ct. at 1949
. In spite of the deference the court is bound to pay to the plaintiff’s allegations, it is not proper for the court to assume that “the [plaintiff] can prove facts that [he or she] has not alleged or that defendants have violated the … laws in ways that have not been alleged.” Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983)
. “Where a complaint pleads facts that are ‘merely consistent with’ a defendant’s liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.’ ” Iqbal, 129 S.Ct. at 1949
(quoting Twombly,550 U.S. at 557).
For a Rule 12(b)(6)
motion, a court generally cannot consider material outside the complaint. See Branch v. Tunnell, 14 F.3d 449, 453–54 (9th Cir.1994)
, overruled on other grounds by Galbraith v. County of Santa Clara, 307 F.3d 1119 (9th Cir.2002)
. A court may, however, consider exhibits submitted with the complaint. Van Winkle v. Allstate Ins. Co., 290 F.Supp.2d 1158, 1162 n. 2 (C.D.Cal.2003)
. A court may disregard allegations in the complaint if they are contradicted by facts established by exhibits attached to the complaint. Durning v. First Boston Corp., 815 F.2d 1265, 1267 (9th Cir.1987)
California Civil Code section 2924
provides the “comprehensive statutory framework established to govern nonjudicial foreclosure sales [and] is intended to be exhaustive.” Moeller v. Lien, 25 Cal.App.4th 822, 834, 30 Cal.Rptr.2d 777 (1994)
; I.E. Assoc. v. Safeco Title Ins. Co. ., 39 Cal.3d 281, 216 Cal.Rptr. 438, 702 P.2d 596 (1985)
. Under section 2924(a)(1)
, a “trustee, mortgagee, or beneficiary or any of their authorized agents” may conduct the foreclosure process. The Deed of Trust names Recon as the trustee and MERS as nominee for the lender and beneficiary. (Am. Compl. Ex. C at 2). While the Amended Complaint argues that MERS does not have the capacity to act as a beneficiary, Plaintiff has not provided the Court with any legal basis for this proposition. In fact, Plaintiff agreed to MERS’ designation as nominee and beneficiary with the power to foreclose when she executed the Deed of Trust. That document clearly states that “Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property….” (Id. at 3–4, 216 Cal.Rptr. 438, 702 P.2d 596
.). Thus, pursuant to the Deed of Trust, MERS had authority to assign its interest beneficial interest to another party. Castaneda v. Saxon Mortg. Servs., Inc., 687 F.Supp.2d 1191, 1198 (E.D.Cal.2009)
713 F.Supp.2d at 1099 (“MERS has standing to foreclose as the nominee for the lender and beneficiary of the Deed of Trust and may assign its beneficial interest to another party”). As discussed further below, Plaintiff’s claims to the contrary are unsupported.
*3 Count One alleges that BAC and MERS engaged in fraud by intentionally omitting the fact that “MERS had no authority to convey or transfer its beneficial interest to any party because it lacked the substantive rights and … had no legal beneficial interest to begin with.” (Am.Compl.¶ 30). Plaintiff claims that “[t]hrough MERS’s invalid transfer of the Deed of Trust to BAC, a scheme was borne [sic] wherein BAC, as the purported/beneficiary of the Note is now attempting to collect the debt and foreclose on the Subject Property as though it has legal authority to do so.” (Id.
at ¶ 28). As an initial matter, Plaintiff’s allegations that BAC is foreclosing on the loan contradict the Notice of Default attached to the Amended Complaint. (Am.Compl.Ex. D). The Notice of Default clearly states that Recon acting as an agent for MERS is foreclosing on Plaintiff’s property. Both Recon as the trustee and MERS as the beneficiary under the Deed of Trust have authority to foreclose following Plaintiff’s default by virtue of section 2924(a)(1)
. Additionally, Plaintiff has not pled her fraud claim with particularity as required under Fed.R.Civ.P. 9(b)
. While Plaintiff argues that Defendants fraudulently failed to inform her of MERS’ capabilities, Plaintiff has not offered any support for her claim that MERS could not legally serve as beneficiary under the Deed of Trust or the specific nature of the alleged omissions by the Defendants. For these reasons, Count One is dismissed for failure to state a claim upon which relief may be granted.
Counts Three and Four are based upon allegations nearly identical to those in Count One and, thus, fail for the same reason. Count Three asserts a negligence claim against BAC and MERS. Plaintiff claims the Defendants breached their duty of care to Plaintiff by acting carelessly when filing, transferring, and assigning loan-related documents without regard to whether the documents reflected the truth and by wrongfully instituting the foreclosure sale.1
at ¶¶ 46, 47, 50). Similarly, Count Four alleges that BAC and MERS made negligent misrepresentations and omissions “causing Plaintiff to believe any transfers, sales or assignments of the Note would be made in a legal manner consistent with prevailing state law.” (Id.
at ¶ 55). Counts Three and Four allege, in essence, that BAC and MERS negligently failed to inform Plaintiff that MERS could not legally serve as beneficiary on the Deed of Trust or make valid transfers of its interest under the Deed of Trust. Once again, Plaintiff has not offered any support for her claim that MERS could not legally serve as beneficiary. Pursuant to the Deed of Trust, Plaintiff authorized MERS to serve as nominee for the lender and as the beneficiary. Thus, Counts Three and Four are dismissed.
Count Two requests declaratory relief because the “scheduled foreclosure and sale [of Plaintiff's property] will be wrongful and should be enjoined by virtue of the facts alleged” in the Amended Complaint. (Id.
at ¶ 44). Plaintiff specifies in her prayer for relief that she seeks a declaration that “trustee had no right to foreclose and conduct the trustee sale, and has no right to transfer title as a result of that sale because no breach occurred by Plaintiff.” (Am. Compl. Prayer ¶ 1). As discussed above, a “trustee, mortgagee, or beneficiary or any of their authorized agents” may conduct the foreclosure process. Inasmuch as Recon had authority to foreclose as both either the trustee or as the beneficiary’s agent under section 2924(a)(1)
, Count Two is dismissed.
*4 Count Five alleges that BAC violated the FDCPA “in that it should have informed Plaintiff that it was the legal owner or had authority from the legal owner to collect and pursue payment on the debt tied to the Note secured to the Deed of Trust.” (Id.
at ¶ 60). The FDCPA prohibits certain unfair and oppressive methods of collecting debt. 15 U.S.C. § 1692e
. In order to be liable under the FDCPA, BAC must fall under its definition of “debt collector.” 15 U.S.C. § 1692a(6)
. A “debt collector” under the FDCPA is “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” Id.
However, it was Recon “acting as an agent for the Beneficiary” MERS that filed the Notice of Default under the Deed of Trust.2
(Am. Compl. Ex. D at 2). Nothing in the Amended Complaint suggests that BAC had any communication with Plaintiff in an attempt to collect on the mortgage debt. Accordingly, Count Five is dismissed for failure to state a claim upon which relief may be granted.
As Plaintiff may wish to amend her Complaint, the Court also notes that Count Five fails to identify the specific sections of the FDCPA that BAC allegedly violated. It is not the role of the Court to construct Plaintiff’s claims based upon the general nature of her pleadings. In order to survive a motion to dismiss, Count Five needs to provided more direction as to the nature of Plaintiff’s FDCPA claim.
Having dismissed each of Plaintiff’s claims for the reasons set forth above, the Court need not address Defendants’ remaining arguments in favor of dismissal, though Plaintiff may wish to consider them when contemplating an amended complaint.
Based on the foregoing, Defendants’ Motion to Dismiss the First Amended Complaint is GRANTED without prejudice. Plaintiff may file an amended complaint consistent with this Order within twenty (20) calendar days from the date of this Order. If Plaintiff chooses to amend the complaint, no additional parties or causes of action shall be included without first filing a motion for leave to amend.
Inasmuch as the Court granted Defendants’ Motion to Dismiss the First Amended Complaint, it is further ORDERED that Plaintiff’s Motion for Temporary Restraining Order and Preliminary Injunction is DENIED as moot.
Posted in Constitutionalist, Dianne Feinstein, Foreclosure, History and Civilization, Judicial Immunity, Law, Mortgage Crisis, mortgage foreclosure help, politics, United States Senate
Tagged 1714.10, 2924 et seq, 2924a, 2924i, 2934, Attorney Immunity, bank controlled judiciary, Banks, California 2924, California Civil Code, california homeowners, Countrywide Home Loans, denial of equal protection, denial of right to enforce contracts, foreclosure epidemic, Gomes, Gomes v Countrywide, Gomes v Countrywide Home Loans, homeowners, mass foreclosure, purge, purges, Southern District of California, Stalinist purges, Trustee liable, trustee sales immune, UNCONSTITUTIONAL, unconstitutional legislation