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Ruiz v. Mortgage Electronic Registration System

August 3, 2009


The opinion of the court was delivered by: Frank C. Damrell, Jr. United States District Judge


This matter is before the court on defendants Greenpoint Mortgage Funding, Inc.'s ("Greenpoint") and GMAC Mortgage's ("GMAC") (collectively, "defendants") motions to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6),*fn1 or in the alternative, motions for a more definite statement pursuant to Rule 12(e) (Docket #s 7, 10), and GMAC's motion to strike pursuant to Rule 12(f) (Docket # 12).*fn2 Plaintiff opposes the motions.*fn3

For the reasons set forth below, defendants' motions to dismiss pursuant to Rule 12(b)(6) are GRANTED with prejudice; plaintiff is not permitted leave to amend. Because the court grants defendants' motions to dismiss, it is unnecessary to consider defendants' alternative motions for a more definite statement and to strike.


On or about February 24, 2006, plaintiff financed and obtained a loan through Triple E, a mortgage broker, who obtained concurrent funding through Greenpoint. The first deed of trust was for $504,000. (Pl.'s Compl., filed March 19, 2009 [Docket # 2], ¶ 9.) Plaintiff used the loan proceeds to purchase a parcel of real property known as "9471 McKenna Drive, Elk Grove, California, 95757" (the "Property"). (Id. at ¶ 1.) Executive Trustee Services, LLC obtained compensation through points, and when the loan was sold, plaintiff alleges it failed to disclose the range of points on the Truth In Lending Disclosure Statement Form, as mandated by the Real Estate Settlement Procedures Act ("RESPA"). (Id. at ¶ 10.)

Plaintiff alleges generally that defendants entered into a fraudulent scheme, for the purpose of making loans to plaintiff that plaintiff could not afford, at a cost "far exceeding" the market rate, and falsely represented to plaintiff that he could not qualify for any other financing. (Id. at ¶ 11.) Plaintiff further alleges that this scheme was devised to extract illegal and undisclosed compensation from plaintiff through an undisclosed yield spread premium of which defendants shared in some unknown percentage. (Id.)

Plaintiff acknowledges that defendants allege he "defaulted" on his loan, but claims that this was due to the high payments and structure of the loan and interest rate. (Id. at ¶ 13.) Plaintiff claims that he did not "default"; rather, because of the alleged prior breach of the terms of the notes by defendants, plaintiff claims his own performance was excused. (Id.) Plaintiff also alleges that after his loans were originated and funded, they were sold on multiple occasions, bundled into a group of trust deeds and subsequently sold to investors, so that none of the defendants owned the loan, and therefore, none had the right to declare a default, to cause notices of default to issue or be recorded, or to foreclose on plaintiff's interest in the Property. (Id. at ¶ 14.)

Plaintiff further alleges that the foreclosure sale of the Property was not executed in accordance with the requirements of California Civil Code sections 1624 and 2932.5 and Commercial Code section 3302 et seq. (Id. at ¶ 17.) Plaintiff states that although California Civil Code section 1624 requires an agency relationship to be in written form, the trustee here, acting as the agent of the principal, did not have written authorization to act for the principal. (Id. at ¶ 18.) Plaintiff contends that California Civil Code section 2924 et seq. are being unlawfully applied against plaintiff because the party acting as the trustee proceeded with the foreclosure of the Property without possession of the original Note. (Id. at ¶ 20.) Because of this alleged violation of Section 2924, plaintiff contends that the foreclosure of the Property is void as a matter of law. (Id. at ¶ 22.)

Plaintiff's first cause of action against all defendants is for a judicial determination of defendants' rights, obligations and duties, and a declaration of the current owner of the Property. (Id. at ¶ 28.) Plaintiff claims that a controversy exists concerning plaintiff and defendants' rights, obligations and duties as they relate to the Property, specifically because plaintiff contends that defendants were not holders in due course of the Note and Deed of Trust executed by plaintiff, that defendants had no right to foreclose on plaintiff's Deed of Trust and Note, that their application of Civil Code section 2924 is unlawful, and that defendants utilized an electronic recording system, the Mortgage Electronic Registration System, to further their alleged scheme to defraud plaintiff. (Id. at ¶ 27.)

Plaintiff's second cause of action is for fraud against defendants Triple E and Greenpoint. (Id. at ¶ 30.) Plaintiff alleges that on or about February 24, 2006, defendants were engaged in an illegal scheme to execute loans secured by real property in order to make commissions, kickbacks, illegal undisclosed yield spread premiums, and undisclosed profits. (Id.) Plaintiff claims that defendants represented to plaintiff and others that they were the owners of the Deed of Trust and Note for plaintiff's Property, caused a Notice of Default to be issued and recorded, and subsequently executed a foreclosure that permanently affected plaintiff's right, title and interest in the Property. (Id.)

Plaintiff alleges the promissory notes were assigned in violation of Civil Code section 2932.5 et seq., as the assignment was not recorded, and thus, the promissory note was rendered non-negotiable and no power of sale was conveyed with the note at the time of assignment. (Id.) Plaintiff alleges that defendants falsely told plaintiff they were experts in obtaining affordable loans and would only offer plaintiff loans in his best interest, given his credit history, financial needs and limitations. (Id. at ¶ 31.) Plaintiff further alleges: (1) the loans provided by defendants contained excessive financing; (2) defendants failed to utilize due diligence regarding plaintiff's ability to repay the loan; (3) defendants intentionally gave plaintiff a "sub-prime loan" in order to benefit themselves with high interest rates; (4) defendants failed to provide federally mandated disclosures; and (5) defendants employed coercive tactics to force plaintiff to sign the loan documents. (Id. at ¶ 32.)

Plaintiff further asserts that defendants were secretly compensated for the loan in violation of RESPA, 12 U.S.C. section 2607, which requires that fees be paid in accordance with the value of the work performed. (Id. at ¶ 36.) Plaintiff claims that defendant Greenpoint paid the other defendants fees exceeding the value of the services performed, constituting an illegal kickback. (Id. at ¶ 37.) Plaintiff also claims that Executive Trustee Services, LLC had an undisclosed agency relationship with Greenpoint, which was contrary to plaintiff's interests. (Id. at ¶ 39.) Plaintiff alleges that (unnamed) defendants paid other (unnamed) defendants a yield spread premium to make the loan more favorable to defendants by providing plaintiff with higher interest rates, for the overall purpose of increasing the value of the loan for Greenpoint and subsequent purchasers. (Id.) Plaintiff further alleges that at the time the Note and Deed of Trust were assigned to Greenpoint, the Note was no longer negotiable, and thus, the power of sale was not conveyed through the assignment. (Id. at ¶ 48.) Plaintiff contends that defendants were not the legal owners of the Note and Deed of Trust when they issued notices of foreclosure and commenced the foreclosure process, and that defendants intentionally and fraudulently converted plaintiff's right, title and interest in his property. (Id. at ¶ 49.)

Plaintiff contends that due to his reliance on defendants' representations, he was damaged in an amount exceeding $1,000,000, with additional costs relating to his relocation.

(Id. at ¶ 52.) Plaintiff also claims that he suffered severe emotional distress, mortification, anxiety and humiliation in an amount that has not yet been ascertained, but which exceeds the jurisdictional limitations of this court. (Id. at ¶ 53.) Plaintiff also contends that defendants' conduct was intentional, oppressive, fraudulent, and malicious, thereby justifying an award of punitive damages. (Id. at ¶ 54.)

Plaintiff's third cause of action is for violation of RESPA, 12 U.S.C. section 2607(b), by Greenpoint. (Id. at ¶ 64.) Plaintiff claims that Greenpoint paid Triple E compensation outside of escrow to place plaintiff in a less desirable loan, and also paid Triple E an undisclosed point spread outside of escrow. (Id. at ¶ 60.) Plaintiff also claims that defendants "structured" an undisclosed, unknown percentage of the loan for servicing the loan and failed to disclose this information on the HUD1 statement. (Id.) Plaintiff alleges that these fees and kickbacks were illegal under Section 2607(b), and that plaintiff is accordingly entitled to treble damages in a sum subject to proof at trial. (Id. at ¶ 64.) Plaintiff also claims that GMAC purchased the note from Greenpoint and paid defendants' fees after closing based on the interest rate of the loan, without disclosing the fees nor the effect on the loan, and seeks damages accordingly. (Id. at ¶ 65.)

Plaintiff's fourth cause of action is against defendants Executive Trustee Services, LLC, Greenpoint and GMAC and asks the court to set aside the foreclosure. (Id. at ¶ 69.) Plaintiff claims that defendants created a "special relationship" with him in which defendants voluntarily assumed a "special duty" to plaintiff not to offer, expose or execute a loan which was not within plaintiff's financial needs and limitations. (Id. at ¶ 70.) Plaintiff alleges that defendants breached this "special duty" through the following: (1) by offering plaintiff a loan he could not afford; (2) by executing a loan which defendants knew plaintiff could not afford; (3) by failing to disclose the true cost of originating the loan; (4) by negligently failing to comply with the disclosure requirements of the Truth In Lending Act; (5) by negligently failing to comply with RESPA by charging and failing to disclose an excessive yield spread premium; (6) by negligently executing a foreclosure based upon a void promissory note; (7) by negligently executing a foreclosure without possession of the original promissory note; and (8) by negligently making the loan in an unsafe and ...

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