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Frederick R. Lipscomb and Roilynee M. Lipscomb v. Mortgage Electronic Registration System

August 2, 2011



This case stems from a loan obtained by Plaintiffs on property located in Big Pine, California. The loan went into default and a non-judicial foreclosure occurred in September 2010. Plaintiffs filed this lawsuit in the Inyo County Superior Court and alleged violations of 15 U.S.C. § 1692f (the Fair Debt Collections Practices Act ("FDCPA")) and various state law claims. Defendant Federal Home Loan Mortgage Corporation ("Freddie Mac") removed the case pursuant to 12 U.S.C. § 1452(f). Defendants previously filed a motion to dismiss, but that motion was mooted when Plaintiffs filed an amended complaint as a matter of right pursuant to Federal Rule of Civil Procedure 15. The active complaint is the First Amended Complaint ("FAC").

Freddie Mac, Mortgage Electronic Registration Systems, Inc. ("MERS"), Citimortgage, Inc. ("CMI"), and Citigroup, Inc. ("Citi") move to dismiss the FAC pursuant to Federal Rule of Civil Procedure 12(b)(6). Hearing on the motion is set for August 8, 2011. The Court has reviewed the moving papers and has determined that a hearing is not necessary. See Local Rule 230. The Court will vacate the hearing, and instead issue this order which resolves the motion.


In April 2007, Plaintiffs obtained a loan in the amount of $70,000, secured by a deed of trust that encumbered property located on 321 Pine Street, Big Pine, California ("the Pine Street Property"). See RJN Ex. A. In February 2008, Plaintiffs repaid the loan with funds obtained from a $259,500 refinance loan, which was secured by a deed of trust. See RJN Exs. B, C. In April 2008, Plaintiffs obtained a $357,846 refinance loan, which was secured by a deed of trust. See RJN Exs. D, E.

In July 2008, Plaintiffs refinanced with a loan from Carnegie Mortgage, LLC, in the amount of $417,000 ("July Loan"). See RJN Exs. F, G. As part of this transaction, Plaintiffs executed and delivered a deed of trust (hereinafter "the Deed of Trust"), pursuant to which MERS was the beneficiary. See RJN Ex. F. Apparently beginning in August 2009, Plaintiffs failed to make the monthly payments on the July Loan. See RJN Ex. H; FAC ¶¶ 38, 55.

On November 20, 2009, MERS designated Cal-Western Reconveyance Corp. ("CWRC") as the new trustee. See RJN Ex. I. On November 25, 2009, CWRC caused to be recorded a Notice of Default, which indicated that Plaintiffs were $11,520 in arrears. See RJN Ex. H.

In February 2010, MERS assigned all beneficial interest under the Deed of Trust to CMI by way of an Assignment of Deed of Trust, which was recorded in the Inyo County Recorder's office on February 17, 2010. See RJN J.

On March 3, 2010, CWRC caused to be recorded in the Inyo County Recorder's Office a Notice of Trustee's sale. See RJN Ex. L.

On August 19, 2010, CMI assigned all beneficial interest under the Deed of Trust to Freddie Mac, and the assignment was recorded on September 29, 2010. See RJN Ex. K.

On September 20, 2010, the Pine Property was sold at a foreclosure sale to Freddie Mac, who was the highest bidder at the public auction. See RJN Ex. M.

On February 7, 2011, Plaintiffs filed suit in the Inyo County Superior Court alleging state law claims for quiet title and slander of title, fraud, negligent misrepresentation, bad faith, wrongful foreclosure, violation of 15 U.S.C. § 1692f . See Court's Docket Doc. No. 1. On May 9, 2011, Plaintiffs filed the FAC.


Under Federal Rule of Civil Procedure 12(b)(6), a claim may be dismissed because of the plaintiff's "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). A dismissal under Rule 12(b)(6) may be based on the lack of a cognizable legal theory or on the absence of sufficient facts alleged under a cognizable legal theory. Johnson v. Riverside Healthcare Sys., 534 F.3d 1116, 1121 (9th Cir. 2008); Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). In reviewing a complaint under Rule 12(b)(6), all allegations of material fact are taken as true and construed in the light most favorable to the non-moving party. Marceau v. Blackfeet Hous. Auth., 540 F.3d 916, 919 (9th Cir. 2008); Vignolo v. Miller, 120 F.3d 1075, 1077 (9th Cir. 1999). However, the Court is not required "to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1056-57 (9th Cir. 2008); Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). To "avoid a Rule 12(b)(6) dismissal, "a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009); see Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S.Ct. at 1949. That is, "for a complaint to survive a motion to dismiss, the non-conclusory 'factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. United States Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009). In deciding whether to dismiss a claim under Rule 12(b)(6), the Court is generally limited to reviewing only the complaint, but it may take judicial notice of public records outside the pleadings, review materials which are properly submitted as part of the complaint, and review documents that are incorporated by reference in the Complaint if no party questions their authenticity. See Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005); Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001). If a Rule 12(b)(6) motion is granted, "[the] district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc). In other words, leave to amend need not be granted where amendment would be futile. Gompper v. VISX, Inc., 298 F.3d 893, 898 (9th Cir. 2002).


Defendants' Arguments Defendants argue that dismissal of the complaint is appropriate for several reasons. First, a fundamental premise of the entire complaint is that defendants were not authorized to enforce the Deed of Trust because they do not own the note secured by the Deed of Trust. However, under California law, there is no requirement that the foreclosing beneficiary or its agent produce the original note. Second, Plaintiffs are improperly attempting to convert a non-judicial foreclosure into a judicial action. California courts have recently rejected such attempts. Third, the first and fifth causes of action seek to set aside the trustee's sale, but Plaintiffs have not tendered funds to pay the balance owed on the July Loan. Without tender of the debt owed, these causes of action fail. Additionally, there can be no slander of title because the published foreclosure notices were privileged. Further, the allegation that the July Loan note was "counterfeit" is contrary to documents that have been judicially noticed and is contrary to other allegations where Plaintiffs admit that they made payments on the indebtedness and applied for modifications. Thus, Plaintiffs do not actually dispute the ...

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