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McLeod v. DHI Mortgage Co.

May 15, 2009

ROBERT MCLEOD AND ESTER MCLEOD, PLAINTIFFS,
v.
DHI MORTGAGE COMPANY, LTD.; COUNTRYWIDE HOME LOANS, INC.; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.; NAVY FEDERAL CREDIT UNION; RECONTRUST COMPANY; AND DOES 1-50 INCLUSIVE, DEFENDANTS.



The opinion of the court was delivered by: Hayes, Judge

ORDER

The matters before the Court are the motion for remand (Doc. 18) filed by Plaintiffs and the motion to dismiss (Doc. 10) filed by Defendants Countrywide Home Loans, Mortgage Electronic Registration Systems, and ReconTrust Company.

ALLEGATIONS OF THE COMPLAINT

1. Parties

Plaintiffs Robert McLeod and Ester McLeod are the owners of certain real property located in Carlsbad, California. (Complaint ¶ 1.) Defendant DHI Mortgage Company (DHI) is a limited partnership organized under the laws of Texas authorized to do business in the State of California. (Id. ¶ 2.) Defendant Countrywide Home Loans, Inc. is a New York corporation authorized to do business in the State of California. (Id. ¶ 3.) Defendant Mortgage Electronic Registration Services, Inc. (Mortgage Electronic) is a Delaware corporation acting as a nominee beneficiary under the deed of trust to the property that is the subject of this action. (Id. ¶ 4.) Plaintiffs allege that Mortgage Electronic is not authorized to do business in the State of California. Defendant Navy Federal Credit Union is a duly authorized financial institution authorized to do business within the State of California. (Id. ¶ 5.) Plaintiffs name Navy Federal as a defendant "solely because . . . it is an indispensable and necessary party to the complete resolution of this matter." (Id.) Defendant ReconTrust Company is a Delaware corporation authorized to do business in the State of California. (Id. ¶ 6.)

2. Factual Allegations and Claims for Relief

On September 15, 2006, Plaintiffs, as borrowers, executed and delivered a written promissory note in the amount of $869,072.00 to lender DHI Mortgage Company. (Id. ¶ 12.) To secure payment of the principal sum and interest as provided in the note, Plaintiffs executed and delivered a deed of trust to DHI. (Id. ¶ 13.) Mortgage Electronic is the beneficiary under the deed of trust. (Id.) The deed of trust was recorded in the office of the County Record in San Diego, California. (Id.) "Subsequent to plaintiffs entering into the promissory note and providing the deed of trust on the property, DHI transferred, sold and/or assigned the promissory note and deed of trust to Countrywide." (Id. ¶ 13.)

On April 2, 2008, Defendant ReconTrust recorded a notice of default and election to sell the property in the San Diego County recorders office on behalf of Mortgage Electronic, the beneficiary under the deed of trust. (Id. ¶ 14.) The notice of default informed Plaintiffs that Mortgage Electronic was electing to sell the property based on "plaintiffs' alleged failure to pay the mortgage in arrears of approximately $16,140.88." (Id.)

Plaintiffs allege that Defendants DHI, Countrywide, Mortgage Electronic, and ReconTrust have engaged in the following wrongful conduct:

(a) wrongfully and fraudulently stating excessive income over and above the amount of monthly income actually earned by plaintiffs, in order to get loan approval quickly and allow defendants to sell the loan to the secondary real estate market (b) charging excessive closing costs fees to plaintiff that have no reasonable value basis to the services actually performed by defendants (c) failing and refusing to provide escrow final closing documents in the form and manner required in HUD-1 statement (d) failing to properly follow statutory procedures in the foreclosure process (e) making material misrepresentations about the nature and type of loans, including plaintiffs loan, to the effect that interest rates were not properly disclosed or explained to plaintiffs . . . (Id. ¶ 8.) Plaintiffs allege claims for (1) declaratory relief, (2) injunctive relief, (3) demand for accounting, (4) rescission, (5) breach of fiduciary duty, (6) reformation of unconscionable contract, and (7) unfair and unlawful business practices in violation of California Civil Code 17200.

In their first claim for declaratory relief, Plaintiffs allege that "defendants have no standing to foreclose on the property; plaintiffs are unable to determine to whom any alleged arrearages [sic] should be tendered to without a declaration of rights; defendants cannot produce the original executed note on the subject loan to verify that they are in fact the real party in interest." (Complaint ¶ 16.) Plaintiffs seek a judicial determination naming "the real party in interest with respect to the holder of the note on the subject property and whether defendants have failed to meet statutory requirements for conducting a foreclosure sale on the subject property." (Id. ¶ 17.)

In their second claim for injunctive relief, Plaintiffs allege that DHI is not the real party in interest entitled to foreclose on the property "because it has sold or otherwise transferred the original note that represents the contract between plaintiffs and the original note holder for the purchase of the subject real property." (Id. ¶ 20.) Plaintiffs allege that Defendant Mortgage Electronic is not qualified to do business in the State of California and thus "cannot proceed with or cause an entity designated as a trustee, such as Defendant ReconTrust, to proceed with a foreclosure proceeding in the State of California." (Id.) Plaintiffs allege that each of the Defendants have: (1) failed to "follow California Civil Code § 2924 in dealing with plaintiffs;" (2) failed to negotiate with Plaintiffs "to modify the loan for defendants' and plaintiffs' mutual benefit" in violation of California Civil Code § 2923.6; and (3) failed to comply with the fair debt collection laws of the State of California "and the federal equivalent of said laws." (Id.) Plaintiffs seek an injunction preventing Defendants from foreclosing on the property. (Id. ¶ 21.)

In their third claim for accounting, Plaintiffs allege that Defendants have refused to respond to Plaintiffs' demand for an accounting in violation of "state and federal law which require the providing of loan file contents upon proper request by a trustor (debtor)." (Id. ¶ 24.)

In their fourth claim for rescission, Plaintiffs allege that Defendants DHI, Countrywide, Mortgage Electronic, and ReconTrust fraudulently and deceitfully lulled Plaintiffs into a loan agreement that had "low teaser rates and negative amortization rates with immediate provisions for interest rate adjustment that quickly raise the monthly payments to an amount higher than the borrower is able to pay." (Id. ¶ 27.) Plaintiffs allege that Defendants Countrywide, Mortgage Electronic, and ReconTrust "committed fraud by intentionally charging plaintiffs unlawful and unfair closing costs in the form of settlements costs that were excessive and padded to increase the return to defendants in the closing of the loan and there was no need for such excessive cost to be assessed against plaintiffs." (Id. ¶ 30.) As a result of the fraud and misrepresentation allegedly perpetrated by the Defendants, Plaintiffs allege that the loan ...


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