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Welch v. Countrywide Home Loans

September 21, 2009



This case came before the court on April 3, 2009, for hearing of defendant Countrywide Home Loans, Inc.'s (hereinafter "Countrywide") motion to dismiss plaintiff's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). (Doc. No. 7). Plaintiffs Stuart Welch and Paula Welch, proceeding pro se, appeared on their own behalf. Jon D. Ives, Esq. appeared telephonically for defendant Countrywide.*fn1 Upon consideration of all written materials filed in connection with the motion, the parties' arguments at the hearing, and the entire file, the undersigned will grant defendant Countrywide's motion to dismiss and grant plaintiffs leave to file an amended complaint.


Plaintiffs filed their fee paid complaint on January 20, 2009 and the Clerk of the Court issued summons for service on defendants. Defendant Countrywide, successor in interest to defendant Encore Credit Corp., filed its motions to dismiss on February 20, 2009. (Doc. No. 7.) Plaintiffs filed their written opposition to the motion, entitled as a response, on March 20, 2009. (Doc. No. 12.) Defendant filed a timely reply on March 27, 2009. (Doc. No. 13.)


In their complaint plaintiffs allege, in vague and conclusory fashion, as follows. On June 23, 2005, plaintiffs refinanced their home in Vallejo, California by obtaining an adjustable rate mortgage loan from Encore Credit Corp. in the amount of $476,321.43 with a monthly payment of $2,495.84 at the time of closing which dramatically increased thereafter. Plaintiffs were fraudulently induced to refinance their property by defendants. Closing and other documents were not provided to them prior to closing as required under federal law. The appraisal of their home was intentionally overstated by the lender in order to push the loan through. The loan was then sold prior to the signing of closing documents and was transferred several times for servicing before ending up with defendant Countrywide. Defendant Countrywide has charged excessive fees and also allowed plaintiffs' personal information to be exposed to identity theft.

Plaintiffs seek an order enjoining defendants from violating federal lending laws and regulations, the rescission or reformation of the loan contract, a refund of all monies paid by plaintiffs to defendants, as well as statutory, actual and punitive damages.


Defendant seeks dismissal of plaintiffs' claims pursuant to Federal Rule of Civil Procedure 12(b)(6) on the following grounds: (a) plaintiff Stuart Welch lacks standing to prosecute his claims because he neither signed the loan in question nor does he own the property used to secure the loan because a few days before his wife, plaintiff Paula Welch, took out the loan, Stuart Welch transferred his ownership interest in the property to his wife; (b) plaintiffs' vague allegations of fraud fail to meet the strict pleading requirements of Rule 9 of the Federal Rules of Civil Procedure; (c) to the extent plaintiffs' are presenting claims under the Truth in Lending Act (TILA), the Real Estate Settlement Procedure Act (RESPA), the Home Ownership and Equity Protection Act (HOEPA) or the Equal Credit Opportunity Act, their claims are time-barred; (d) plaintiffs lack standing to brings claims under the Federal Trade Commission Act and the Privacy Act; and (e) plaintiffs have failed to state a cognizable claim for relief under the Fair Credit Reporting Act or California's Unfair Competition Law.

Defendant Countrywide also argues that, contrary to the suggestion in plaintiffs' complaint, the possession of the original note is not a prerequisite to foreclosure. Defendant Countrywide notes that it did not originate this loan and therefore could not have fraudulently induced plaintiffs to do anything. Finally, defendant argues that at the very least the court should require a more definite statement from plaintiffs pursuant to Federal Rule of Civil Procedure 12(e) in light of the vague and ambiguous nature of their allegations.*fn2

In plaintiffs' opposition to the motion they contend that Stuart Welch does have standing to pursue his claims because he was fraudulently induced by defendant Encore Credit Corp. to transfer title to the property solely into his wife's name in order to obtain the loan in question. Moreover, plaintiffs argue, the property remains the community property of both Stuart and Paula Welch thereby providing Stuart Welch a property right and standing to pursue these claims. Plaintiffs also contend that the defendants defrauded them by encouraging Paula Welch, who was an unemployed housewife at the time of the transaction, to take out this "no doc" loan based upon an application essentially completed by the defendants themselves, knowing that she could not repay it.


The purpose of a motion to dismiss pursuant to Rule 12(b)(6) is to test the legal sufficiency of the complaint. N. Star Int'l v. Ariz. Corp. Comm'n, 720 F.2d 578, 581 (9th Cir. 1983). "Dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). A plaintiff is required to allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Thus, a defendant's Rule 12(b)(6) motion challenges the court's ability to grant any relief on the plaintiff's claims, even if the plaintiff's allegations are true.

In determining whether a complaint states a claim on which relief may be granted, the court accepts as true the allegations in the complaint and construes the allegations in the light most favorable to the plaintiff. Hishon v. King & Spalding, 467 U.S. 69, 73 (1984); Love v. United States, 915 F.2d 1242, 1245 (9th Cir. 1989). In general, pro se complaints are held to less stringent standards than formal pleadings drafted by lawyers. Haines v. Kerner, 404 U.S. 519, 520-21 (1972). However, the court need not assume the truth of legal conclusions cast in the form of factual allegations. W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). The court is permitted to consider material which is properly submitted as part of the complaint, documents not physically attached to the complaint if their authenticity is not contested and the plaintiff's complaint necessarily relies on them, and matters of public record. Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001).

Federal Rule of Civil Procedure 9, titled "Pleading Special Matters," provides as follows with regard to claims of "Fraud, ...

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