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Constance Solano and the Solano Family Trust v. America's Servicing Company

September 26, 2011


The opinion of the court was delivered by: Garland E. Burrell, Jr. United States District Judge


Defendant MortgageIT, Inc. ("MortgageIT") moves for dismissal of Plaintiffs' First Amended Complaint ("Amended Complaint") under Federal Rule of Civil Procedure ("Rule") 12(b)(6), arguing Plaintiffs fail to state a viable claim against it.

Defendants Wells Fargo Bank, N.A. dba America's Servicing Company ("Wells Fargo Bank"); Mortgage Electronic Registration Systems, Inc. ("MERS"); and U.S. Bank N.A. as Trustee for Banc of America Funding 2007-6 Trust ("U.S. Bank") (collectively referred to as "Wells Fargo Defendants") also seek dismissal of Plaintiffs' claims under Rule 12(b)(6). Defendant NDeX West, LLC ("NDeX") joins Wells Fargo Defendants' dismissal motion.

For the reasons stated below, the motions to dismiss are granted.


"In reviewing the dismissal of a complaint, we inquire whether the complaint's factual allegations, together with all reasonable inferences, state a plausible claim for relief." Cafasso, U.S. ex rel. v. General Dynamics C4 Systems, 637 F.3d 1047, 1054 (9th Cir. 2011) (citing Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949-50 (2009)). The material allegations of the complaint are accepted as true and all reasonable inferences are drawn in favor of the plaintiff. Al-Kidd v. Ashcroft, 580 F.3d 949, 956 (9th Cir. 2009). However, this tenet "is inapplicable to legal conclusions." Iqbal, 129 S. Ct. at 1949. Further, "[a] pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.' Nor does a complaint suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'" Id. (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 557 (2007)). "In sum, for a complaint to survive a motion to dismiss, the nonconclusory 'factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009) (internal citation omitted).


On or about March 23, 2007, Plaintiff Constance Solano ("Solano") obtained two loans, which were secured by her real property, located at 3161 Big Bear Drive, Roseville, CA (the "Property"). (First Amended Complaint ("FAC") ¶¶ 1, 18, 25.) The primary loan was for $592,000.00 (the "Primary Loan"), and the second loan was for $83,000.00 (the "Secondary Loan"). (FAC ¶¶ 19, 25.) However, Plaintiffs do not distinguish between the two loans within the Amended Complaint. In their opposition brief, Plaintiffs argue "all of the securitization and chain of title problems apply equally to [the Secondary Loan]." (Pl.'s Opp'n 13:14-19.) Therefore, unless otherwise indicated, it is assumed each claim refers to both the Primary and Secondary loans.

On or about May 12, 2007, Solano "grant deeded the subject property to . . . Solano-3161 Big Bear, LLC" ("Solano-3161"). (FAC ¶ 20.) On or about July 1, 2010, Solano-3161 "quitclaimed the subject property to the Solano Family Trust." Id.

The Deed of Trust on the Primary Loan identifies Mortgage & Investment Consultants, Inc., as the lender, Financial Title Company as trustee, and MERS as beneficiary. Id. Ex. A. The Deed of Trust on the Secondary Loan identifies MortgageIT as the lender, Financial Title Company as trustee, and MERS as beneficiary. Id. Ex. B. Plaintiffs allege Wells Fargo Bank subsequently began servicing the loans. Id. ¶¶ 2, 21-22.

An Assignment of Deed of Trust dated March 29, 2010, assigned and transferred to U.S. Bank "all beneficial interest under [the] Deed of Trust" on the Primary Loan. Id. Ex. E. U.S. Bank substituted NDeX as trustee of the Deed of Trust on the Primary Loan on April 9, 2010. Id. Ex. F.

On or about March 8, 2010, an agent of NDeX signed and recorded a Notice of Default, naming NDeX as the trustee. Id. ¶ 24. On or about June 9, 2010, NDeX filed a Notice of Trustee Sale in connection with the Primary Loan, in which it indicated the Property was in foreclosure. Id. ¶ 24, Ex. G.

On January 5, 2011, U.S. Bank purchased the Property in a foreclosure sale from NDeX West, the foreclosing beneficiary. Id. ¶ 24, Ex. I.*fn1 Plaintiffs remain in possession of the property. Id. ¶ 24.

Plaintiffs' claims stem from their allegations that Defendants have acted improperly from the loans' origin through foreclosure. Id. ¶¶ 25-30.


Defendants filed earlier dismissal motions challenging Plaintiffs' Complaint, which were granted with leave to amend as to all but the TILA Rescission claim, which was dismissed with prejudice. Plaintiffs subsequently filed their Amended Complaint on May 11, 2011, which comprises thirteen claims.

A. Breach of Contract

Movants seek dismissal of Plaintiffs' following two claims based in breach of contract: a violation of the Home Ownership Protection Act ("HOEPA") and a breach of the security instrument.

Movants seek dismissal of Plaintiffs' HOEPA claim, arguing, inter alia, the HOEPA rescission claim is barred by the three-year statute of limitations and the HOEPA damages claim is barred by the one-year statute of limitations. (MortgageIT's Mot. 6:4-9; Wells Fargo Defs.' Mot. 4:5-6.)

Plaintiffs allege Defendants Mortgage & Investors, MERS, MortgageIT, and U.S. Bank violated HOEPA by failing to make certain required disclosures prior to when their loan transactions closed; and, by "[e]ngaging in a pattern and practice of extending credit to Plaintiffs without regard to her ability to pay." (FAC ¶ 64.) Plaintiffs allege they "have a legal right to resend [sic] the consumer credit transaction" and "Defendants [are] liable to the Plaintiffs for [damages]." (FAC ¶¶ 65, 69.)

"HOEPA is an amendment of TILA, and therefore is governed by the same remedial scheme and statutes of limitations as TILA." Hamilton v. Bank of Blue Valley, 746 F. Supp. 2d 1160, 1179 (E.D. Cal. 2010) (citation and internal quotation marks omitted). A borrower's right to rescind a loan transaction under TILA "expire[s] three years after the date of the consummation of the transaction[.]" 15 U.S.C. § 1635(f) (2010). "Consummation" is defined under the statute as "the time that a consumer becomes contractually obligated on a credit transaction." Grimes v. New Century Mortg. Corp., 340 F.3d 1007, 1009 (9th Cir. 2003) (quoting 12 C.F.R. § 226.2(a)(13)(2010)). This three-year limitations period "represents an absolute limitation on rescission actions [and] bars any claims filed more than three years after the consummation of the transaction. Therefore, § 1635(f) is a statute of repose, depriving the courts of subject matter jurisdiction when a § 1635 claim is brought outside of the three-year limitation period." Miguel v. Country Funding Corp., 309 F.3d 1161, 1164 (9th Cir. 2002) (internal quotation marks and citation omitted).

Since Plaintiffs allege "[o]n or about March 23, 2007," Solano "executed a written Promissory Note," the three-year statute of limitations expired on or about March 23, 2010. (FAC ¶ 19.) However, Plaintiffs did not rescind the transaction until they filed their Complaint on September 9, 2010. (Compl. ¶ 119; ECF No. 1.) Therefore, the Court lacks subject matter jurisdiction over Plaintiffs' HOEPA rescission claim, and this claim is dismissed against all Defendants with prejudice. See Omar v. Sea-Land Serv., Inc., 813 F.2d 986, 991 (9th Cir. 1987) ("A trial court may dismiss a claim sua sponte under Fed. R. Civ. P. 12(b)(6) . . . without notice where the claimant cannot possibly win relief.").

HOEPA damages claims are also subject to TILA's statute of limitations. See Hamilton, 746 F. Supp. 2d at 1179. An action under TILA for actual or statutory damages must be brought "within one year from the date of the occurrence of the violation." 15 U.S.C. § 1640(e)(2010). "[A]s a general rule[, this] limitations period starts [to run] at the consummation of the transaction." King v. California, 784 F.2d 910, 915 (9th Cir. 1986). Therefore, the statute of limitations on Plaintiffs' HOEPA damages claim expired on or about March 23, 2008.

Plaintiffs allege equitable tolling for their HOEPA damages claim as follows:

Plaintiffs first learned of the actions of Defendants, including their failure to disclose and the fraud committed upon them in May of 2010. Any applicable statute of limitations should run from this date. . . . Plaintiff could not have learned of these violations at the time the loan was obtained by looking at her loan documents and escrow closing statements as the true facts of the lender and the securitization of her note and deed of trust and the fees attached thereto, which were undisclosed to her, were not apparent from the face of the loan documents, nor deed of trust.

(FAC ¶ 72.) Further, Plaintiffs assert "a lay Plaintiff without legal knowledge as to the aforementioned federal statutes and state causes of action would not have been able to discover what Defendants failed to disclose." (Pl.'s Opp'n 15:12-14.) These tolling allegations are insufficient to justify equitable tolling since Plaintiffs have not alleged facts demonstrating they were prevented from discovering Defendants' alleged HOEPA violations within the one-year statutory period. See Davis v. Mortgageit, Inc., No. Civ. S-09-3028 FCD/GGH, 2010 WL 2943162, at *3-4 (E.D. Cal. July 23, 2010) (finding equitable tolling inapplicable in a case where Plaintiffs argued it was only after performing a Forensic Loan Document Audit that they discovered the alleged TILA violations since Plaintiffs "could have conducted an audit of their documents, forensic or otherwise" within the limitations period); see also Ahmad v. World Savings Bank, at *2 (finding equitable tolling inapplicable since plaintiff failed to allege facts explaining how she was prevented from comparing her loan documents and disclosures with TILA statutory and regulatory requirements to discover alleged TILA disclosure violations). Plaintiffs "have offered no factual allegations to show that they were unable to compare the allegedly improper disclosures in the loan documents with the required disclosures under . . . HOEPA." Wadhwa v. Aurora Loan Servs., LLC, 2011 WL 1601593, at *3 (E.D. Cal. Apr. 27, 2011). Therefore, Plaintiffs' HOEPA damages claim is dismissed against all Defendants.

Movants also seek dismissal of Plaintiffs' breach of security instrument claim, arguing "there are no facts pled to support [the] elements" of a breach of contract claim. (MortgageIT's Mot. 19:11-12; Wells Fargo Defs.' Mot. 7:19-22.)

In California, "[a] cause of action for breach of contract requires proof of the following elements: (1) existence of the contract; (2) plaintiff's performance or excuse for nonperformance; (3) defendant's breach; and (4) damages to plaintiff as a result of the breach." CDF Firefighters v. Maldonado, 158 Cal. App. 4th 1226, 1239 (2008). This breach of contract claim is premised on Plaintiffs' invalid Substitution of Trustee allegation, as follows:

The Substitution of Trustee in this case is void, due to fraud, and was not executed in compliance with California Civil Code § 29[2]4(a). The Substitution of Trustee was invalid also because it was not executed by the Lender, per requirement of the Deed of Trust. The duly appointed Trustee under the Deed of Trust as of the recording of the Notice of Default on March 8, 2010 was Financial Title Co. NdexWest was [n]ever effectively substituted as trustee. . . . The Notice of Default was recorded PRIOR to the assignment, which if it were the true holder-in-due-course, it would be mandatory to obtain beneficial interest in the Deed of Trust, prior to invoking foreclosure. . . .

The fraudulent assignment was recorded AFTER the Notice of Default, which proves the Notice of Default was void at its inception and recording on March 8, 2010. . . . (FAC ¶¶ 148-49.) Under California Civil Code § 2924(a), "a trustee, mortgagee or beneficiary or any of their authorized agents may conduct the foreclosure process by filing a Notice of Default." Wood v. Aegis Wholesale Corp., 2009 WL 1948844, at *3 (E.D. Cal. July 6, 2009) (internal quotation omitted). "[A]ny of the beneficiary's authorized agents" may file the Notice of Default, and "it is immaterial to the validity of the foreclosure process that [NDeX West] filed the Notice of Default before [NDeX West] was officially substituted as trustee." Id. at *4. Therefore, Plaintiffs' allegation that "the fraudulent assignment was recorded AFTER the Notice of Default, which proves the Notice of Default was void at its inception and recording" is without merit. (FAC ¶ 149.) Therefore, Plaintiffs' breach of security instrument claim is dismissed.


Movants seek dismissal of Plaintiffs' 12 U.S.C. § 2607 Real Estate Settlement Procedures Act ("RESPA") claim, arguing, inter alia, it is barred by the one-year statute of limitations. (MortgageIT's Mot. 5:13-16; Wells Fargo Defs.' Mot. 5:16-20.) Plaintiffs counter that the statute of limitations should be equitably tolled. (Pls.' Opp'n ¶ 35.)

"The primary ill that § 2607 is designed to remedy is the potential for unnecessarily high settlement charges, . . . caused by kickbacks, fee-splitting, and other practices that suppress price competition for settlement services. This ill occurs, if at all, when the plaintiff pays for the tainted service, typically at the closing." Jensen v. Quality Loan Serv. Corp., 702 F. Supp. 2d 1183, 1195 (E.D. Cal. 2010) (quoting Snow v. First Am. Title Ins. Co., 332 F.3d 356, 359-60 (5th Cir. 2003)). 12 U.S.C. § 2614 provides that a § 2607 claim "may be brought . . . [within] 1 year . . . from the date of the occurrence of the violation[.]" "Barring extenuating circumstances, the date of the occurrence of the violation is the date on which the loan closed." Ayala v. World Sav. Bank, FSB, 616 F. Supp. 2d 1007, 1020 (C.D. Cal. 2009) (internal quotation marks and citation omitted); see also Jensen, 702 F. Supp. 2d at 1195 ("[C]courts have considered the 'occurrence of the violation' as the date the loan closed.").

Here, Plaintiffs' loans "closed" on or about March 23, 2007. Therefore, the one-year statute of limitations expired on March 23, 2008. However, Plaintiffs did not file their Complaint in this action until September 9, 2010. Further, Plaintiffs' Amended Complaint does not sufficiently explain why they could not have discovered Defendants' alleged ยง 2607 ...

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