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Reade v. Citimortgage, Inc.

United States District Court, Ninth Circuit

November 7, 2013

CITIMORTGAGE, INC., and DOES 1-10, Defendants.


M. JAMES LORENZ, District Judge.

On February 20, 2013, Plaintiffs Dan V. Reade and Jenet M. Foures filed this action against Defendant CitiMortgage. After defaulting on their home loan, Plaintiffs are attempting to prevent foreclosure of the property securing their loan and to identify the entity that is entitled to collect on their debt. Defendant now moves to dismiss the Complaint. The motion has been fully briefed and is considered on the papers submitted and without oral argument. See Civ. L.R. 7.1(d)(1).


On September 11, 2007, Plaintiffs executed a promissory note in favor of ABN AMRO Mortgage Group, Inc. ("AMRO") in the amount of $405, 000.00, secured by a Deed of Trust, to refinance real property located in Santee, California. (Compl. ¶ 32. [Doc. 1].) The Deed of Trust, attached as Exhibit A to the Complaint, named Plaintiffs as Borrowers, AMRO as Lender, and First American Title Insurance Company as the Trustee. ( Id. )

Plaintiffs believe that AMRO sold their loan to a currently unidentified third party. (Compl. ¶ 42.) Plaintiffs allege that this unknown entity is not the Defendant because the original lender, AMRO, never sold, transferred, or assigned the Deed of Trust to the Defendant. ( Id. ¶ 25, 42.) In addition, Plaintiffs assert that the Defendant failed "to follow basic legal requirements for the transfer of a negotiable instrument to the Trust." (Compl. ¶ 25.) Specifically, Plaintiffs contend that Defendant CitiMortgage never acquired any interest in their note and mortgage because neither the promissory note nor the security instrument, the Deed of Trust, were validly transferred to the Defendant Trust during the securitization process. ( Id. ¶ 19, 25.) As the trust agreement specifies, Plaintiffs' loan must be deposited within the Trust on or before the "closing date." ( Id. ¶ 45.) "The closing date' is the date by which all of the Notes and Mortgages must be transferred into the Unknown Trust if at all." ( Id. ) Plaintiffs allege that no recorded or unrecorded assignment of the original deed of trust was executed either before or after the closing date. ( Id. ¶ 46.)

At some point, Plaintiffs defaulted on their loan. They do not dispute that money is owed on their mortgage obligation. (Compl. ¶ 30.) Although they have made payments on the debt, Plaintiffs allege that they have overpaid interest as a result of the Defendant's inaccurate management of their accounts. ( Id. ¶ 62-65.)

On November 2, 2012, Northwest Trustee Services, Inc. recorded a "Notice of Default and Election to Sell Under Deed of Trust" with the San Diego County Recorder's office. (Compl. ¶ 36 & Ex. C.) The Notice of Default is dated October 31, 2012, and signed by Rebecca Hall, who signed on behalf of "Northwest Trustee Services, Inc. as Trustee." ( Id. ¶ 36, 37.) However, Plaintiffs allege that Rebecca Hall was not authorized by the actual Trustee, First American Title Insurance Company, to execute the document. ( Id. ¶ 38, 39.) Accompanying the Notice of Default was a declaration signed by an employee of Defendant CitiMortgage. (Ex. C.) Plaintiffs allege that at all relevant times, Defendant CitiMortgage was neither the Lender nor the successor in interest under the Note and had no right to record any document relative to the Note and Deed of Trust. ( Id. ¶ 40.) Plaintiffs also purport to have repeatedly requested Defendant to verify the validity of their debt, but assert that the Defendant has failed to respond. ( Id. ¶ 44.)

Plaintiffs verified complaint asserts the following seven claims: (1) declaratory relief; (2) negligence; (3) quasi contract; (4) violation of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692; (5) violation of California Business and Professions Code § 17200, et seq.; (6) accounting; and (7) cancellation of instrument. Defendant now moves to dismiss the complaint in its entirety with prejudice.


The court must dismiss a cause of action for failure to state a claim upon which relief can be granted. FED. R. CIV. P. 12(b)(6). A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). The court must accept all allegations of material fact as true and construe them in the light most favorable to the nonmoving party. Cedars-Sanai Med. Ctr. v. Nat'l League of Postmasters of U.S., 497 F.3d 972, 975 (9th Cir. 2007). Material allegations, even if doubtful in fact, are assumed to be true. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). However, the court need not "necessarily assume the truth of legal conclusions merely because they are cast in the form of factual allegations." Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003) (internal quotation marks omitted). In fact, the court does not need to accept any legal conclusions as true. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009).

"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." Twombly, 550 U.S. at 555 (internal citations omitted). Instead, the allegations in the complaint "must be enough to raise a right to relief above the speculative level." Id. Thus, "[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Iqbal, 129 S.Ct. at 1949 (citing Twombly, 550 U.S. at 570). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. "The plausibility standard is not akin to a probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. A complaint may be dismissed as a matter of law either for lack of a cognizable legal theory or for insufficient facts under a cognizable theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984).


Plaintiffs' primary contention is that the Defendant "is a third-party stranger to the mortgage loan that is secured by a Deed of Trust on their home" because there was no valid or actual assignment of their Promissory Note and Deed of Trust that allowed the Defendant to collect on their debt obligation. (Compl. ¶ 1.) They contend that their loan was never properly assigned, thereby leaving the Defendant with no authority to collect payment, declare a default, or schedule and conduct a sale of the property. (Compl. ¶ 25.)

A. Applicability of Gomes

Plaintiffs contend that the alleged assignment of their loan to the CitiMortgage Trust is improper because (1) neither the Promissory Note nor the Deed of Trust were validly transferred during securitization, and (2) it was not assigned before, or even after, the closing date listed in the Trust Agreement. Furthermore, Plaintiffs argue that the Defendant's collection of the debt and Notice of Default are also improper given that their loan was never properly assigned to Defendant CitiMortgage. The Defendant frames Plaintiffs' argument as an improper and unnecessary "standing" challenge that interferes with the process of a nonjudicial foreclosure proceeding. (Defs.' Mot. 3:5-12.) The Defendant primarily relies on Gomes v. Countrywide Home Loans, Inc. 192 Cal.App.4th 1149 (2011) to argue that no judicial action is required "to determine whether the person initiating the foreclosure process is indeed authorized" to do so. (Def.'s Mot. 3:25-27.)

In Gomes, the borrower alleged that the nominee identified on the deed of trust was not authorized to initiate foreclosure proceedings because the owner of the Note did not authorize the nominee to do so. Gomes, 192 Cal.App.4th at 1152. The California Court of Appeal held that a plaintiff does not have a right to bring a legal action to determine if a nominee has the authority to conduct a nonjudicial foreclosure on behalf of a noteholder. Id. at 1155. The Court reasoned that such a speculative lawsuit is not permitted, especially where no " specific factual basis for alleging that the foreclosure was not initiated by the correct party" is asserted. Id. at 1156 (emphasis in original). Here, Plaintiffs allegation is that the loan was not properly assigned to the CitiMortgage Trust by the closing date as required by the Trust Agreement.

Plaintiffs' argument must fail in light of the valid merger between AMRO and Defendant CitiMortgage. Defendant CitiMortgage is the successor by merger to AMRO, as evidenced by a Certificate of Merger with an effective date of September 1, 2007. (Dft's Ex. B.)[1] With the Certificate of Merger, the loan was transferred to Defendant CitiMortgage when it became the successor to AMRO, the Plaintiffs' original lender. Therefore, no additional or independent assignment or transfer of their loan was required. In light of the valid merger, the Plaintiffs' allegation of an improper loan assignment is insufficient to deny Defendant's motion with respect to this issue.

Furthermore, in their response, the Plaintiffs' argue that the Defendant relies on statutes and case law that have been repealed by the Homeowners Bill of Rights enacted in California on January 1, 2013. (Pl.'s Opp'n 6:20-27.) The foreclosure proceedings initiated against the Plaintiffs began in November of 2012, when the Notice of Default was recorded, prior to the enactment of the statute. As the Defendant points out, the Homeowners Bill of Rights does not apply retroactively to the foreclosure proceedings initiated against the Plaintiffs. See Def.'s Reply 3:2-5; McGough v. Wells Fargo ...

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