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Reynaldo A. Paje and Teresita L. v. Recontrust Company

January 10, 2012

REYNALDO A. PAJE AND TERESITA L. PLAINTIFFS,
v.
RECONTRUST COMPANY, N.A. ET DEFENDANTS.



The opinion of the court was delivered by: John A. Houston United States District Judge

ORDER SUA SPONTE DISMISSING CASE FOR LACK OF SUBJECT MATTER JURISDICTION

INTRODUCTION

Now pending before the Court in this foreclosure case is a motion to dismiss filed by defendants Recontrust Company, N.A. ("Recontrust"); BAC Home Loans Servicing, L.P. (erroneously sued as Bank American Corporation Home Loan Servicing, L.P.); Mortgage Electronic Registration Systems, Inc. ("MERS"); and US Bank, N.A. (as trustee for the certificate holders of SARM 05-19XS) (collectively, "Defendants"). (Dkt. No. 18.) After a review of Plaintiffs' First Amended Complaint ("FAC"), however, this Court finds that it lacks subject matter jurisdiction over this matter and, accordingly, sua sponte DISMISSES this case without prejudice. Thus, Defendants' Motion to Dismiss is DENIED as moot.

PROCEDURAL BACKGROUND

On March 3, 2011, Plaintiffs filed their original complaint, which alleged causes of action for (1) violation of California Civil Code section 2923.5, (2) breach of the implied covenant of good faith and fair dealing, (3) civil conspiracy in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), (4) violation of the Real Estate Settlement Procedures Act ("RESPA"), and (5) fraudulent concealment. (Dkt. No. 1.)

Thereafter, on July 26, 2011, Plaintiffs filed their FAC, which alleges only causes of action for declaratory and injunctive relief pursuant to California Code of Civil Procedure sections 1060 and 526, respectively. (Dkt. No. 4.)

On August 15, 2011, this Court granted Plaintiffs' Motion for Preliminary Injunction, enjoining Defendants from taking any action to foreclose the property at issue. (Dkt. No. 14.)

On August 22, 2011, Defendants filed the instant motion to dismiss.*fn1 (Dkt. No. 18.) On November 28, 2011, the Court granted the parties' joint motion to continue the hearing date on Defendants' Motion to Dismiss to January 9, 2012. (Dkt. No. 27.)

ALLEGATIONS

Plaintiffs allege they agreed to pay former defendant K. Hovnanian American Mortgage, LLC ("KHAM") $400,000.00 in exchange for real property located in San Diego, California. (FAC ¶ 13.) The agreement was accomplished through the use of a promissory note, secured by a deed of trust. (Id.) Plaintiffs allege the original deed of trust names defendant MERS as beneficiary, Nick Pappas as trustee, and KHAM as lender. (Id. ¶ 14.) Plaintiffs allege that, after the transaction was consummated, Reconstruct was appointed as successor trustee, and Countrywide Home Loans acquired the obligation then securitized it through a series of financial transactions.

With regard to the successor trustee, Plaintiffs allege that Defendants have no valid legal interest in the subject property because the purported appointment of Reconstruct failed to comply with applicable provisions in the deed of trust. (Id. ¶¶ 15-16.) Specifically, Plaintiffs allege the deed of trust's provision regarding substitute trustees requires any substitution of trustee to be recorded in the office of the county recorder in which the property is located.

Plaintiffs allege no such substitution was recorded as required by the deed of trust. As such, Plaintiffs allege that, contrary to the notice of trustee's sale naming Recontrust as the trustee, Nick Pappas remains the current trustee.

With regard to the securitization of the obligation, Plaintiffs allege that Defendants have no valid legal interest in the subject property because Countrywide Home Loans failed to comply with "traditional contract law" rules needed to maintain a valid lien with regard to a securitized mortgage. (Id. ¶¶ 22-23.) That is, Plaintiffs allege Countrywide Home Loans was required to, but did not, properly assign and transfer the promissory note and deed of trust when transferring the right to repayment under the loan to the pool of mortgages that was eventually securitized.

In sum, Plaintiffs allege Defendants have no authority to foreclose on the subject property per defects in appointing a successor trustee and per defects ...


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