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Small v. Mortgage Electronic Registration Systems

September 15, 2010

EDUARDO M. SMALL, ET AL., PLAINTIFFS,
v.
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., ET AL., DEFENDANTS.
EDUARDO M. SMALL, ET AL., PLAINTIFFS,
v.
COUNTRYWIDE HOME LOANS, ET AL., DEFENDANTS.



FINDINGS AND RECOMMENDATIONS

Plaintiffs Eduardo M. Small and Katrina M. Small are proceeding pro se in two cases in this court. Plaintiffs' foreclosure action, case No. 2:09-cv-0458, came before the court on October 30, 2009, for hearing on defendants' motion to dismiss plaintiffs' complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). (Doc. No. 14). Brian J. Recor, Esq. appeared telephonically for the ten moving defendants. Plaintiffs appeared in court on their own behalf. After the parties' arguments were heard, defendants' motion to dismiss was submitted.

Plaintiffs' quiet title action, case No. 2:10-cv-0342, came before the court on March 26, 2010 for hearing on defendant Countrywide Home Loans, Inc.'s motion to dismiss plaintiffs' complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). (Doc. No. 9.) Brian J. Recor, Esq. appeared telephonically for the moving defendant. Plaintiffs appeared in court on their own behalf. After the parties' arguments were heard, defendant's motion was submitted.

Upon consideration of all written materials filed in connection with the motions in both cases, the parties' arguments at both of the hearings, and the court files, the undersigned recommends that defendants' motions be granted and both cases be dismissed in their entirety.

BACKGROUND

I. Foreclosure Case

Plaintiffs filed their foreclosure action in this court on February 17, 2009, naming three entities and two individuals as defendants, and alleging causes of action for unlawful foreclosure and unlawful eviction. On May 6, 2009, plaintiffs filed an amended complaint naming three entities and eleven individuals as defendants, and alleging causes of action for unlawful foreclosure, unlawful eviction, and fraud. (Doc. No. 5.) On June 5, 2009, plaintiffs filed a second amended complaint to include exhibits not attached to their May 6, 2009 pleading. (Doc. No. 10.) The second amended complaint is the operative pleading before the court.

The United States Marshal filed returns of service unexecuted for defendants Kristi Brockman, Nelson A. Hernandez, Carlos Sotelo, and Elizavet Meza. (Docs. No. 19 & 33.) These four defendants have not appeared in the case.

On September 14, 2009, the three entity defendants and seven of the individual defendants -- Mortgage Electronic Registration Systems, Inc., Countrywide Home Loans, Inc., Recontrust Company, N.A., Regina Myles, Abraham Bartamian, Paula Franklin, Alberta Kossakowski, Veronica Vega, Lorrie Matheson, and Stacy O'Neal Haggard -- filed their motion to dismiss plaintiffs' second amended complaint. (Doc. No. 14.) The motion was fully briefed and, as noted above was argued and submitted on October 30, 2009.

II. Quiet Title Case

On October 14, 2009, after defendants had moved to dismiss plaintiffs' foreclosure case but before their motion was heard, plaintiffs filed a quiet title action in the Sutter County Superior Court. (See Doc. No. 2, Def't's Notice of Removal at 2 & Ex. A.) On February 9, 2010, defendant Countrywide Home Loans, Inc. removed that state court action to federal court pursuant to 28 U.S.C. § 1441(b) on the basis of federal question jurisdiction, contending that plaintiffs' quiet title complaint asserts claims that necessitate the adjudication of substantial disputed questions of federal law. Defendant characterized plaintiffs' state court complaint as a duplicate of the plaintiff's federal foreclosure case. (Id. at 3.)

On February 16, 2010, defendant Countrywide Home Loans, Inc. filed a motion to dismiss plaintiffs' quiet title complaint. (Doc. No. 9.) The motion was fully briefed and, as noted above, was argued and submitted on March 26, 2010.

III. Related Case Order

On February 9, 2010, counsel for defendants filed a notice of related case in plaintiffs' quiet title action and on April 1, 2010, a notice of related case was filed in plaintiff's foreclosure case. (Doc. No. 3 in Case No. 2:10-cv-0342; Doc. No. 34 in Case No. 2:09-cv-0458.) By order filed April 8, 2010, the two cases were related and appropriate reassignments were made so that both cases are assigned to the same district judge and the same magistrate judge. (Doc. No. 16 in Case No. 2:10-cv-0342; Doc. No. 35 in Case No. 2:09-cv-0458.)

PLAINTIFFS' CLAIMS

I. The Foreclosure Case (2:09-cv-0458 GEB DAD PS)

Plaintiffs' factual allegations and prayer for relief in this action are set forth in the first 36 pages of their 166-page second amended complaint. Factual allegations are few and are obscured by conclusory assertions and argument.

Plaintiffs' exhibits reveal that they purchased a home located at 641 Falling Rock Court in Yuba City, California on May 20, 2004. They financed the purchase through a thirty-year fixed rate V.A. mortgage loan in the amount of $261,865 secured by a First Deed of Trust on the subject property and arranged through non-defendant RBC Mortgage Company. (Doc. 10, Second Amended Compl., Ex. A.) On August 13, 2008, a Notice of Default and Election to Sell Under Deed of Trust was issued by defendant Recontrust Company as trustee and agent for beneficiary First American Title Insurance Company. (Id., Ex. B.) On November 15, 2008, defendant Recontrust Company issued a Notice of Trustee's Sale setting the sale for January 20, 2009; a second notice was issued on December 30, 2008. (Id., Exs. C & D.) In a reinstatement calculation dated January 3, 2009, defendant Countrywide Home Loans advised plaintiffs that they could reinstate their loan and prevent foreclosure by paying the net amount of $26,978.88 by January 14, 2009. (Id., Ex. F.) At the request of defendant Recontrust Company, a trustee's deed upon sale and an assignment of deed of trust were recorded on March 6, 2009, showing transfer of plaintiffs' property to defendant Countrywide for $237,545.94. (Id., Exs. R & S.) On March 12, 2009, the trustee's deed upon sale was rescinded by defendant Countrywide on the ground that the foreclosure sale had been conducted in error due to failure to communicate timely notice of conditions which would have warranted a cancellation of the foreclosure sale that occurred on February 27, 2009. (Id., Ex. T.) A second Notice of Trustee's Sale was issued by defendant Recontrust Company on March 20, 2009, setting the sale for April 9, 2009. (Id., Ex. Y.) A second Trustee's Deed Upon Sale was recorded on April 22, 2009, showing transfer of plaintiff's property to defendant Countrywide for $189,479.50. (Id., Ex. Z3.)

The caption of plaintiffs' second amended complaint includes a list of twelve entries composed of citations to twelve federal statutes and six state statutes. (Id. at 1-4.) In the pleading, plaintiffs assert three causes of action: (1) illegal foreclosure (id. ¶¶ 63-138); (2) illegal eviction (id. ¶¶ 139-164); and (3) fraud (id. ¶¶ 165-186). In their prayer for relief, plaintiffs request a court order compelling defendants to "surrender" to them (1) "261.865.00 in gold bullion for failing to produce the 'Original Deed of Trust' signed May 20th 2004"; (2) the same amount in the same form "for failing to generate the 'Assignment of Deed/Mortgage' evidencing lawful conveyance from RBC Mortgage to Countrywide Home Loans in the Office of the Recorder Country [sic] of Sutter"; (3) "the value of all Mortgage Payments made by Plaintiff in gold bullion"; and (4) "full satisfaction of the Note and Mortgage." Plaintiffs also seek "dismissal" of the foreclosure and an order requiring defendants to produce certain documents and the names of all mortgage brokers, real estate brokers, developers, appraisers, mortgage aggregators, investors, and other sellers of security instruments who allege an interest in the deed of trust dated May 20, 2004 and recorded on May 27, 2004 as Instrument No. 2004-0014020.

II. The Quiet Title Action (2:10-cv-0342 GEB DAD PS)

In their complaint for quiet title, plaintiffs name Countrywide Home Loans as the sole defendant and allege as follows. They are now the owners by adverse possession of the real property located at 641 Falling Rock Court, in Yuba City, California. They have possessed the property by actual, open, hostile, continuous, and exclusive possession since May 30, 2004. The property is protected by a substantial enclosure, has been improved by plaintiffs, and has been occupied by the plaintiffs continuously for over five years, adverse to defendant Countrywide Home Loans and all other persons. Plaintiffs' adverse possession cures any defects in the deed of trust pursuant to which they initially occupied the property in May 2004. They have paid for all maintenance, improvements, utilities, and waste disposal assessments that have been assessed against the property and intend to pay all future taxes levied or assessed against the property. Defendant Countrywide Home Loans abandoned its case for taking possession of the property when it requested dismissal of a state court suit and sought dismissal of plaintiffs' complaint in case No. CIV S-09-0458 GEB DAD PS. Plaintiffs seek to quiet title because they are unable to seek modification, sell, do a short sale, or refinance because they do not know who is authorized to sign a satisfaction of mortgage or a release and reconveyance, and do not know who the real lender is and what the real balance is on the deed of trust recorded on the property in May 2004.

Plaintiffs seek a judgment that they are the fee simple owners of all rights, title, and interest to the property at issue and that defendant Countrywide Home Loans does not have any rights, title, estate, or interest to, or lien on, the property.

ARGUMENTS OF THE PARTIES

I. The Foreclosure Case (2:09-cv-0458 GEB DAD PS)

A. Defendants' Arguments

Defendants seek dismissal of plaintiffs' complaint in this action pursuant to Federal Rule of Civil Procedure 12(b)(6) on the grounds that plaintiffs have failed to state any cognizable claim. Specifically, defendants argue that the twelve claims listed in the caption of plaintiffs' second amended complaint fail to state a claim upon which relief may be granted because: (1) there is no private right of action against defendants under "H.R. 1424 T.A.R.P.," 12 U.S.C. § 5201, et seq.; (2) there is no private right of action to enforce criminal statute 18 U.S.C. § 666; (3) there is no private right of action to enforce criminal statute 18 U.S.C. § 1344; (4) plaintiffs have failed to allege sufficient or plausible facts to state a claim under 42 U.S.C. §§ 1981 and 1982; (5) plaintiffs have failed to allege sufficient or plausible facts to state a claim under the Equal Credit Opportunity Act (ECOA), 15 U.S.C. §§ 1691 and1692; (6) there is no private right of action to enforce criminal statute 18 U.S.C. §§ 1341 and 1343; (7) plaintiffs have failed to allege sufficient or plausible facts to state a claim under 15 U.S.C. § 1125; (8) there is no private right of action to enforce criminal statute 26 U.S.C. §§ 7201 and 7203; (9) there is no private right of action to enforce criminal statute California Penal Code § 422; (10) plaintiffs have failed to allege facts sufficient to state a claim under California Code of Civil Procedure § 512.10 because they have failed to allege tender, the "personal property" is unidentified, and the exhibits to plaintiffs' second amended complaint show that the April 2009 Trustee's Sale was proper; (11) plaintiffs have failed to allege facts sufficient to state a claim under California Code of Civil Procedure §§ 1161 and 1162 because they have not alleged tender and the exhibits to their second amended complaint show that the April 2009 Trustee's Sale was proper; and (12) plaintiffs have failed to allege facts sufficient to state a claim under California Code of Civil Procedure §§ 2924f and 2934 because they have not alleged tender and the exhibits to plaintiffs' second amended complaint show that the April 2009 Trustee's Sale was proper.

B. Plaintiffs' Arguments

Plaintiffs' timely opposition to defendants' motion consists of a short memorandum of points and authorities and two copies of an "affidavit." (Docs. No. 21, 22, 23.) Defendants' arguments for dismissal are not addressed in these filings.

In reply to plaintiffs' opposition, defendants note that plaintiffs accuse counsel of perjury and demand affidavits in support of the motion to dismiss. Defendants correctly observe that affidavits would be improper under Rule 12 and emphasize that it is plaintiffs' burden to plead sufficient facts to state claims for relief. Defendants assert that plaintiffs' opposition makes no attempt to support the claims brought pursuant to 12 U.S.C. § 5201, et seq.;18 U.S.C. §666; 18 U.S.C. § 1344; 18 U.S.C. §§ 1341 and 1343; 26 U.S.C. §§ 7201 and 7203; TILA, 15 U.S.C. § 1601 et seq.; and California Business & Professions Code § 17200, et seq. Defendants request that the court dismiss all of these claims and the claim brought by plaintiffs under California Penal Code § 422 with prejudice. Defendants also note that plaintiffs offer no support for their claims of racial discrimination, fail to demonstrate that defendants were required to modify plaintiffs' loan, do not address the tender requirement, and appear to base their foreclosure claims on a belief that the grantee has to be physically present at the trustee's sale. Defendants argue that all eleven individual defendants should be dismissed because plaintiffs' opposition fails to suggest that any additional facts could be alleged to support the claims against the individuals, four of whom have not been served and three of whom are not subject to this court's personal jurisdiction. Defendants request that the second amended complaint be dismissed in its entirety, with prejudice.

After defendants filed their reply to plaintiffs' opposition, plaintiffs filed an unauthorized sur-reply that was entered on the court's docket just three days prior to the hearing of the motion. In their belated and unauthorized filing, plaintiffs argue that the tender requirement does not apply to them and that every mortgage assignment must be recorded. In support of the latter assertion, plaintiffs cite California Civil Code § 2934. However, § 2934 provides only that any assignment of a mortgage and any assignment of the beneficial interest under a deed of trust "may be recorded" and, if recorded, the recording of the assignment serves as constructive notice of the contents of the recorded document. Plaintiffs argue nonetheless that no effective mortgage assignment occurred prior to either of defendants' foreclosure sale and that therefore defendant Recontrust never had possession of the mortgage note and had no right to proceed with either sale.

Plaintiffs also dispute defendants' argument that their racial discrimination allegations lack plausible supporting facts. Plaintiffs contend that racial discrimination is evident from their allegation that persons were sent to evict them through threats and intimidation. Plaintiffs argue that such an action is "consistent with the trickery, extortion, and intimidation commonly associated with racial discrimination levied against vulnerable persons of color" and that racial discrimination "is a plausible explanation" for a national company's use of "dirty, underhanded, and intimidating measures" to "retaliate" against buyers in default on their mortgage loans. (Doc. No. 30, Pls.' Sur-reply at 3.)

In addition, plaintiffs object to defendants' argument that their fraud allegations are based on an erroneous belief that the grantee must be physically present to have the highest bid at a trustee's foreclosure sale. Plaintiffs deny that characterization of their claim but then assert that "for an individual to have participated in a 'public auction' (aka foreclosure sale), that individual must have been physically present in order to make a 'bid' and 'tender money' to consummate the 'sale'; otherwise the requirement of a 'public auction' would be unnecessary and not required by CA Civil statutes." (Id. at 4.) Plaintiffs cite the definitions of "bid" and "absentee bid" from the web site of an auctioneers' organization and argue that defendants failed to correctly identify themselves in the record as absentee bidders. ...


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