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Holli Nicewander v. Mtc Financial

August 17, 2011

HOLLI NICEWANDER,
PLAINTIFF,
v.
MTC FINANCIAL, INC. DBA TRUSTEE CORPS, ET AL.,
DEFENDANTS.



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

ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS WITH ) LEAVE TO AMEND ) [Doc. no. 18 & 29]

In this mortgage foreclosure action Defendants OneWest Bank ("OneWest"), Federal Home Loan Mortgage Corporation ("Freddie Mac") and Mortgage Electronic Registration Systems, Inc. ("MERS") filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Subsequently Defendant MTC Financial, Inc. dba Trustee Corps ("Trustee Corps") also filed a Rule 12(b)(6) motion. Plaintiff opposed both motions. For the reasons which follow, the motions are GRANTED WITH LEAVE TO AMEND.

Plaintiff owned the residence located at 18630 Quail Trail Drive in Jamul, California ("Property"). On or about June 19, 2007 she executed a note for $368,000 secured by a deed of trust on the Property. (First Am. Compl. Exh. A & B.) The lender on the loan was American Mortgage Network, Inc., the trustee under the deed of trust was First American Title Insurance Company, and the beneficiary under the deed of trust, solely as nominee for the lender and its successors and assigns, was MERS. (Id.) On April 22, 2009 the deed of trust was assigned to IndyMac Federal Bank, F.S.B. ("IndyMac"). (Id. Exh. F.)

Plaintiff claims she applied and was approved for loan modification in early 2009, but nevertheless received a notice of default. (Id. at 10.) She claims that while her loan modification application was pending, OneWest, as the loan servicer, would not accept her payments. (Id.) A Notice of Default and Election to Sell Under Deed of Trust was recorded on April 24, 2009. It was signed by Trustee Corps as agent for IndyMac. (Id. Exh. C.)

On June 15, 2009 a substitution of trustee was signed, whereby IndyMac named Trustee Corps as the successor trustee under the deed of trust. (Id. Exh, E.) On the same day the deed of trust was assigned to Freddie Mac. (Id. Exh. G.) A notice of trustee's sale was recorded on August 6, 2009, setting the sale date for August 26, 2009. (Id. Exh. D.) It was signed by Trustee Corps as the successor trustee.

Although Plaintiff made payments after loan modification was approved, the Property was still foreclosed. (Id. at 28.) It was sold to Freddie Mac at a non-judicial foreclosure sale on June 7, 2010. (Id. Exh. H.) The trustee for the sale was Trustee Corps.

On August 11, 2010 Plaintiff filed a complaint in state court seeking relief from the foreclosure. Freddie Mac removed the action to this court pursuant to 12 U.S.C. Section 1452(f), which provides for removal by a federal home loan mortgage corporation.

Plaintiff's operative first amended complaint is based on the premise that the foreclosure was invalid for various reasons. She claims the assignments of the deed of trust and substitution of the trustee were invalid. Specifically, she contends that Freddie Mac did not acquire a security interest in the Property when the deed of trust was assigned to it because the underlying loan was securitized and as such was not properly transferred and assigned to Freddie Mac. According to Plaintiff, securitization occurs when mortgage loans become security for interests transferred to investors. In addition, Plaintiff alleges the assignments were invalid because they were not filed before the notice of default was recorded, and were not recorded until after the trustee's sale. She also maintains the substitution of the trustee was invalid because it was not recorded before the notice of default. Finally, she asserts that the assignments were invalid because they were signed by robo-signers. In addition, she argues that the trustee's sale was invalid because the original note and the original assignments of the deed of trust were not presented. (First Am. Compl. at 7-15; see also id. at 3.) The complaint is also based on the contention that the foreclosure was wrongful because Defendants failed to comply with statutory provisions designed to avoid foreclosure. (Id. at 22.) Plaintiff alleged causes of action styled as injunctive relief [to set aside trustee's sale], cancellation of written instrument (Cal. Civ. Code § 3412) [trustee's deed upon sale], cancellation of written instrument (Cal. Civ. Code § 3412) [deed of trust], wrongful foreclosure, violation of California Business and Professions Code Section 17200 et seq. and California Penal Code Section 115.5 [false and/or fraudulently procured documents], violation of California Business and Professions Code Section 17200 et . ["fairness doctrine"], and violation of the one action rule (Cal. Code Civ. Proc. § 726). Plaintiff wants to set aside the trustee's sale and recover damages, including punitive damages.

Defendants moved to dismiss the operative complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). A Rule 12(b)(6) motion tests the sufficiency of the complaint. Navarro v. , 250 F.3d 729, 732 (9th Cir. 2001). Dismissal is warranted under Rule 12(b)(6) where the complaint lacks a cognizable legal theory. Shroyer v. New Cingular Wireless Serv., Inc., 622 F.3d 1035, 1041 (9th Cir. 2010) (internal quotation marks and citation omitted); see Neitzke v. Williams, 490 U.S. 319, 326 (1989) ("Rule 12(b)(6) authorizes a court to dismiss a claim on the basis of a dispositive issue of law"). Alternatively, a complaint may be dismissed where it presents a cognizable legal theory yet fails to plead essential facts under that theory. Robertson v. Dean Witter Reynolds, Inc.,749 F.2d 530, 534 (9th Cir. 1984); see also Shroyer, 622 F.3d at 1041. "In addition, to survive a motion to dismiss, a complaint must contain sufficient factual matter to state a facially plausible claim to relief." Shroyer, 622 F.3d at 1041, citing Ashcroft v. , __ U.S. __, 129 S. Ct. 1937, 1949 (2009). 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 couched as factual allegations. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). 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).

All relief sought by Plaintiff is based on the premise that the non-judicial foreclosure sale should be set aside because of alleged irregularities in the assignment of the deeds of trust, substitution of the trustee, and other alleged violations of the pre-foreclosure procedures. "[A]n action to set aside a trustee's sale for irregularities in sale notice or procedure should be accompanied by an offer to pay the full amount of the debt for which the property was security." Karlsen v. Am. Sav. & Loan Assn., 15 Cal. App. 3d 112, 117 (1971) (defaulting borrower's action). In case of a voidable trustee's sale, the defaulting borrower has a right to redeem the property. Id. at 121. When the borrower "fails to effectively exercise [the] right to redeem, the sale becomes valid and proper in every respect." Id. A cause of action "implicitly integrated" with the irregular sale also fails, unless the defaulting borrower can allege and establish a valid tender. Id.

All of Plaintiff's causes of action depend on the alleged invalid sale and are therefore "implicitly integrated" with it. Plaintiff did not allege that she made the requisite tender. Instead, she contends that she is excepted from the requirement.

Citing Dimock v. Emerald Properties LLC, 81 Cal. App. 4th 868 (2000), she argues that the tender rule does not apply to her because she did not allege that the sale was merely voidable, but void. In Dimock the trustee's sale was found void because it was conducted by the original trustee although the original trustee had been substituted with a new trustee prior to the sale. 81 Cal. App. 4th at 874. Recording of the substitution of the trustee was required by law to render it effective. Id. at 874-75 citing Cal. Civ. Code § 2934a. Therefore, on the face of the recorded documents, the original trustee had been replaced and no longer had the power to sell. For this reason, the sale was held void as opposed to merely voidable, the presumption of the validity of the trustee's sale did not apply, and the plaintiff was not required to tender any amounts owing under the deed of trust to obtain relief. Id. at 877-78.

Plaintiff's case is different. The trustee substitution was recorded prior to the sale and the sale was conducted by the successor trustee. (First Am. Compl. Exh. E (Substitution of Trustee recorded Aug. 6, 2009) & Exh. H (Trustee's Deed Upon Sale showing sale conducted by successor trustee on June 7, 2010).) The recorded documents therefore reflect that Trustee Corps was the successor trustee who conducted the sale. Unlike the plaintiff in Dimock, Plaintiff admits that "the Trustee's Deed (Exhibit "H") appears valid on its face." (First Am. Compl. at Instead, Plaintiff's theory of the defect in the substitution of the trustee is that it was not recorded prior to recording the notice of default. (First Am. Compl. at 12-13, Exh. C (Notice of Default and Election to Sell Under the Deed of Trust, recorded Apr. 24, 2009) & Exh. E (Substitution of Trustee, recorded Aug. 6, 2009).) She points to no legal authority to show that this was required for a substitution of the trustee or a non-judicial foreclosure sale to be valid, or that failure to comply with any such requirement would render the trustee's sale void as opposed to merely voidable. Dimock therefore does not support Plaintiff's argument that the tender rule does not apply to her.

Plaintiff also relies on Munger v. Moore, 11 Cal. App. 3d 1 (1970), for the proposition that no tender is required when there was an improper trustee's sale which is being challenged after the fact. Munger presented a situation where the owner of the encumbered property made a proper tender to bring the defaulted loan current, but the trustee wrongfully refused the tender and sold the property to the lenders. 11 Cal. App. 3d at 5-6. The lenders later sold the property to a third party. Id. at 6. After trial the plaintiff was ...


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