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Robert Gerth et al v. American Mortgage Expressfinancial

March 18, 2011


The opinion of the court was delivered by: M. James Lorenz United States District Court Judge


In this mortgage foreclosure action Defendants Bank of America, N.A, Mortgage Electronic Registrations System, Inc., BAC Home Loans Servicing, LP, Federal National Mortgage Association, Landsafe, Inc. and Reconstruct Company, N.A. (collectively "Moving Defendants") filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), which Plaintiffs opposed. For the reasons which follow, the motion to dismiss is GRANTED WITH LEAVE TO AMEND.

According to the operative first amended complaint ("Compl."), Plaintiffs Robert and Judith Gerth entered into two refinance transactions secured by the property located at 23877 Sundance View Lane in Descanso, California ("Property"). On March 1, 2004 they borrowed $296,000 from American Mortgage Express Financial ("AMEF" and "First Loan," respectively),*fn1 secured by a deed of trust on the Property. On November 16, 2005 Mr. and Mrs. Gerth borrowed $130,000 from another lender, which is not identified in the first amended complaint ("Second Loan"). The Second Loan is also secured by a trust deed on the Property. Mr. and Mrs. Gerth fell behind on payments for both loans. On May 26, 2009 a notice of default issued for default on the First Loan and on July 13, 2009 a notice of default issued for default on the Second Loan. Notices of trustee's sale were recorded on May 26, 2009 and on October 22, 2009, respectively.

On November 4, 2009 Plaintiffs filed a complaint in this court together with an ex parte application for a restraining order to prevent foreclosure of the Property. Plaintiffs' initial and subsequent applications for a temporary restraining order were denied. (See orders filed Nov. 5 and 6, 2009.) On April 16, 2010 Plaintiffs filed the operative first amended complaint. They based federal subject matter jurisdiction on 28 U.S.C. Section 1331 and 1367.

Plaintiffs claim that they were defrauded into entering the two loans, that proper disclosures were not made, that due to various improprieties Defendants have no interest in the two deeds of trust, and that they cannot lawfully foreclose on the Property. Plaintiffs asserted causes of action for violation of the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601 et

. ("RESPA"), Truth in Lending Act, 15 U.S.C. §§ 1601 et seq. ("TILA"), California Civil Code Section 2943 and California Business and Professions Code § 17200 et seq. ("UCL"), equitable wrongful foreclosure, cancellation of the deeds of trust, quiet title, breach of fiduciary duty, fraud and declaratory relief. They seek damages, rescission and cancellation of the deeds of trust, among other remedies.

The Moving Defendants filed a motion to dismiss for failure to state a claim upon which relief can be granted. A Rule 12(b)(6) motion tests the sufficiency of the complaint. Navarro v. , 250 F.3d 729, 732 (9th Cir. 2001). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotation marks, brackets and citations omitted). In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the truth of all factual allegations and must construe them in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Legal conclusions need not be taken as true merely because they are cast in the form of factual allegations. Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987); W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). Similarly, "conclusory allegations of law and unwarranted inferences are not sufficient to defeat a motion to dismiss." Pareto v. Fed. Deposit Ins. Corp., 139 F.3d 696, 699 (9th Cir. 1998).

Plaintiffs argue that the motion is precluded by the automatic stay under 11 U.S.C. Section 362(a), which applies in bankruptcy proceedings. (Opp'n at 4-5.) On July 20, 2010 Mr. and Mrs. Gerth filed a voluntary petition for bankruptcy protection under Chapter 7. (Defs' Request for Judicial Notice, Exh. 6.)*fn2 The automatic stay does not apply to offensive actions brought by a debtor and "does not prohibit a defendant in an action brought by a plaintiff/debtor from defending itself in that action." In re Way (Eisinger v. Way), 229 B.R. 11, 13 (9th Cir. B.A.P. 1998). Plaintiffs' argument is therefore rejected.

The Moving Defendants contend, among other things, that the fifth cause of action based on TILA violations is time barred. Plaintiffs asserted this claim based on alleged failures to disclose and failure to rescind the mortgages based on their notices to rescind. (Compl. at 28-36, 40-41.)

The statute of limitations for damage claims under TILA is "one year from the date of the occurrence of the violation." 15 U.S.C. § 1640(e). "[T]he limitations period in Section 1640(e) runs from the date of consummation of the transaction . . .." King v. California, 784 F.2d 910, 915 (9th Cir. 1986). Both loans were consummated more than three years prior to Plaintiffs' filing of the initial complaint. (See Compl. at 5, 8.) Accordingly, the statute of limitations expired long before the filing. Although Plaintiffs correctly note that the statute of limitations may be subject to equitable tolling, see King, 784 F.2d at 915, they did not allege any facts in support of tolling in this case.

"A motion to dismiss based on the running of the statute of limitations period may be granted only 'if the assertions of the complaint, read with the required liberality, would not permit the plaintiff to prove the statute was tolled.'" Supermail Cargo, Inc. v. United States, 68 F.3d 1204, 1206-07 (9th Cir. 1995), quoting Jablon v. Dean Witter & Co., 614 F.2d 677, 682 (9th Cir. 1980). The untimeliness must appear beyond doubt on the face of the complaint before a claim will be dismissed as time-barred. See Supermail Cargo, 68 F.3d at 1206-07.

Because the expiration of the statute of limitations appears on the face of the complaint and because Plaintiffs did not allege any facts in support of equitable tolling, their TILA claim for damages is dismissed as time-barred.

The Moving Defendants also argue that Plaintiffs cannot state a claim for rescission under TILA. A borrower's right to rescind expires after three-years. 15 U.S.C. § 1635(f). The three-year period commences with the "consummation of the transaction." Id. When it expires, the right to rescind is completely extinguished and the court lacks jurisdiction over the claim. Miguel v. Country Fuding Corp., 309 F.3d 1161, 1164 (9th Cir. 2002).

Not only did Plaintiffs file the complaint well after the expiration of the three-year period, their alleged notices of rescission were not timely given. On November 2, 2009 Plaintiffs provided notice of rescission relative to the First Loan. (Compl. at 32.) This was more than three years after March 1, 2004, when they entered into the loan transaction. (Cf. id. at 5.) They provided notice of rescission relative to the Second Loan on November 2, 2009. (Id. at 35.) Again, this was more then three years after November 16, 2005, when they entered into the Second Loan. (Cf. id. at 8.) Because the ...

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