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Bonner v. Fay Servicing, LLC

United States District Court, N.D. California

July 25, 2016

ERNEST L. BONNER, Plaintiff,
v.
FAY SERVICING, LLC; CHRISTIANA TRUST, a Division of Wilmington Savings Fund Society FSB as Trustee for ARLP Trust 2; WESTERN PROGRESSIVE, LLC; OCWEN LOAN SERVICING, LLC; and DOES 1-100, inclusive, Defendants.

          ORDER CONVERTING MOTIONS TO DISMISS INTO MOTIONS FOR SUMMARY JUDGMENT

          WILLIAM ALSUP UNITED STATES DISTRICT JUDGE

         INTRODUCTION

         In this foreclosure dispute, defendants loan servicers move to dismiss the borrower’s complaint. For the reasons set forth below, their motions will be converted to motions for summary judgment.

         STATEMENT

         In July 2006, plaintiff Ernest Bonner obtained a thirty-year adjustable loan for $880, 000, secured by a deed of trust with New Century Mortgage Corporation (now dissolved) to purchase real property in Alameda, California. Bonner has lived rent-free in the house for several years without paying on the home loan. By way of his own commissioned “third-party forensic mortgage securitization investigation and audit, ” Bonner attempts to outline the history of his loan’s securitization and chain of title (Compl. ¶¶ 3-4). He challenges his pending foreclosure by claiming that the securitization of his original mortgage loan was improper and thus void. Here are the details.

         In December 2006, New Century bundled Bonner’s loan in a pool with similar residential mortgage loans and sold it to Carrington Securities, LP. According to the complaint, after the first transaction occurred, Bonner’s loan underwent a series of transactions during the securitization process, where it landed in the hands of an unknown lender and beneficiary (id. at ¶¶ 5-8). Then, in 2007, defendant Ocwen Loan Servicing, LLC, acting as attorney-in-fact for New Century, issued an assignment of the deed of trust to REO Properties Corporation.

         The gist of Bonner’s allegations is that Ocwen (as New Century’s agent) had no interest in the deed of trust to assign to REO Properties or anyone else because New Century had already transferred all beneficial interests in the deed of trust to Carrington before REO Properties acquired any assets from New Century (id. at ¶ 11). Bonner states that “without a continuing agency relationship and authority from the unassigned and unknown new lender and beneficiary in the deed of trust, any beneficial interest that New Century Mortgage (or its servicing agent Ocwen) may have retained under the securitization agreements . . . was also effectively and completely extinguished” (id. at ¶ 8).

         The complaint states that in 2014, despite this invalid second assignment, REO Properties transferred the loan to defendant Christiana Trust, a Division of Wilmington Savings Fund Society FSB as Trustee for ARLP Trust 2. In turn, Christiana Trust transferred the loan to Wilmington Trust, which is the entity pursuing the current foreclosure but not a defendant to this action. Ocwen also transferred the loan to another servicing agent, defendant Fay Servicing, LLC, in 2015 (id. at ¶¶ 2-4).

         Basically, Bonner contends New Century sold his loan twice and only the original purchaser (and its successors in the chain of title) may sue on a default, not the second. Nine years after the mortgage was originally issued, Bonner received a notice of default and initiated this action against defendants (as servicers descending from the second assignment to REO Properties) for pursuing a foreclosure that he claims is illegal, null and void.

         At oral argument, defense counsel explained the apparent discrepancy of the second assignment to REO Properties. While defendants agree that there was an initial assignment to Carrington, they claim that Bonner failed to pay on the original loan and it was therefore tendered back to New Century as a nonperforming loan, making the subsequent assignment by New Century to defendants valid. The complaint does not address this reassignment back to New Century and therefore does not rule out this possibility.

         Bonner incorporates his theory of void assignment to allege the following claims for relief: (1) wrongful foreclosure, (2) fraud, (3) slander of title, (4) a violation of Sections 2934a(a)(1)(A) and 2924.5 of the California Civil Code, and (5) a violation of Section 17200 of the California Business and Professions Code. Bonner also seeks to permanently enjoin all foreclosure activity on his real property as well as restitution, accounting, and declaratory relief.

         Bonner initiated the instant action in state court in February 2016 against defendants, who jointly removed it here on the basis of diversity jurisdiction. Defendants Fay Servicing and Christiana Trust now jointly move to dismiss for failure to state a claim and defendant Ocwen separately moves to dismiss on the same grounds. Bonner also names as defendant Western Progressive, LLC, which was listed as a trustee on the notice of default. At the hearing, Western Progressive’s counsel stated that they are a non-party to the action after filing a declaration of non-monetary status in state court, which Bonner did not oppose. This order follows full briefing and oral argument.

         ANALYSIS

         Defendants contend that Bonner lacks standing to challenge the original assignment because it was at most voidable, not void. The California Supreme Court in Yvanova v. New Century Mortg. Corp., 62 Cal.4th 919, 939 (2016) (emphasis added), held that ...


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