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Rivac v. NDEX West, LLC

United States District Court, N.D. California

March 22, 2017

SEVERINO RIVAC, et al., Plaintiffs,
v.
NDEX WEST, LLC, et al., Defendants.

          ORDER VACATING JANUARY 2, 2014, JUDGMENT; ORDER DENYING RECONSIDERATION OF ORDER GRANTING MOTION TO DISMISS SECOND AMENDED COMPLAINT

          PHYLLIS J. HAMILTON United States District Judge

         This matter is before the court for reconsideration of the order of dismissal and the judgment entered in the above-entitled action on January 2, 2014. Plaintiffs Severino Rivac and Warlita Rivac obtained a loan in 2007, evidenced by a promissory note and secured by a Deed of Trust on real property located in San Leandro, California (“the property”). After plaintiffs defaulted on the loan payments, the property was sold at a non-judicial foreclosure sale in February 2013.

         Plaintiffs filed the original complaint on February 20, 2013, against defendants NDeX West LLC ("NDeX West"); JPMorgan Chase Bank, N.A. ("JPMorgan" - erroneously sued as JP Morgan Chase Bank f.k.a. EMC Mortgage Corporation); Wells Fargo Bank, N.A. ("Wells Fargo"); and Mortgage Electronic Registration Systems, Inc. ("MERS"). Plaintiffs asserted numerous causes of action, including a claim of wrongful foreclosure. Plaintiffs alleged that the assignment of the promissory note and deed of trust was void, and that the entity that had conducted the nonjudicial foreclosure sale thus had no interest in the underlying debt or in the property.

         After the court granted defendants' motion to dismiss the second amended complaint ("SAC") on December 17, 2013, without leave to amend, and entered judgment on January 2, 2014, plaintiffs filed a notice of appeal. On October 6, 2016, without having ruled on the appeal, the Ninth Circuit remanded the case to this court "to reconsider its holding in light of" the California Supreme Court's February 18, 2016, decision in Yvanova v. New Century Mortgage Corp., 62 Cal.4th 919 (2016). Pursuant to this court's order, the parties submitted supplemental briefs.

         Having read the parties' papers and carefully considered their arguments and the relevant legal authority, the court DENIES reconsideration and finds that the SAC was properly dismissed.

         BACKGROUND

         In January 2007, plaintiffs Severino Rivac and Warlita Rivac borrowed $728, 000 secured by a promissory note and deed of trust on property located in San Leandro, California. The Deed of Trust listed the lender as BC Bancorp, and named Stewart Title of California as trustee and Mortgage Electronic Registration Systems, Inc. (“MERS”) as beneficiary. The Deed of Trust stated that MERS was "acting solely as a nominee for" the lender (BC Bancorp) and the lender's successors and assigns. On February 13, 2007, Stewart Title recorded the Deed of Trust with the Alameda County Recorder, as Instrument No. 2007068834.

         The Deed of Trust provided that "[t]he Note or a partial interest in the Note (together with this Security Instrument) can be sold one or more times without prior notice to Borrower." The Deed of Trust further provided that "Lender, at its option, may from time to time appoint a successor trustee to any Trustee appointed hereunder by an instrument executed and acknowledged by Lender and recorded in the office of the Recorder of the county in which the Property is located. . . . Without conveyance of the Property, the successor trustee shall succeed to all the title, powers, and duties conferred upon the Trustee herein and by Applicable Law. . . ."

         Plaintiffs assert that BC Bancorp “securitized” and "sold" the interest in plaintiffs' Deed of Trust to a mortgage-backed securities trust, through EMC Mortgage Corporation (“EMC”), to Wells Fargo Bank, N.A., as trustee for Structured Assets Mortgage Investments II, Inc., Bear Stearns Mortgage Funding Trust 2007-AR5 Mortgage Pass-Through Certificates, Series 2007-AR5 ("SAMI II 2007-AR5 Trust"). EMC (later merged into JPMorgan Chase Bank, N.A. (“JPMorgan”)) retained the servicing rights. Plaintiffs allege that "according to [p]laintiffs' audit" (an apparent reference to the 125-page "Audit and Analysis, " discussed below, which was attached to the original complaint), the closing date of the SAMI II 2007-AR5 Trust was June 29, 2007.

         At some point, plaintiffs fell behind with the loan payments, and defaulted on the loan. On March 15, 2011, MERS recorded two assignments of Deed of Trust. In the first assignment, MERS, acting as nominee for BC Bancorp, recorded, in the Alameda County Recorder's Office, an assignment of "all beneficial interest" under the Deed of Trust (Instrument No. 2007068834), in favor of MERS as nominee for EMC. The document bears the signature of D'ne Fuller, as Assistant Secretary of MERS, and the assignment was dated March 8, 2011. Plaintiffs assert that Fuller was in fact a “robo-signer” employed by Wells Fargo. In the second assignment, MERS, as nominee for EMC, recorded an assignment of "all beneficial interest" under the Deed of Trust (Instrument No. 2007068834), also signed by D'ne Fuller, to Wells Fargo, as trustee for the certificateholders of SAMI II 2007-AR5 Trust ("second assignment"). That second assignment, which was recorded subsequent to the recording of the first assignment, was also dated March 8, 2011.

         On June 1, 2011, NDeX West LLC (“NDeX”), acting as agent for Wells Fargo (JPMorgan), recorded a Notice of Default and Election to Sell under Deed of Trust in the Alameda County Recorder's Office. The Notice of Default indicated that plaintiffs were $73, 501.02 in arrears on their loan payments. The Notice of Default was signed by Shannon E. Coleman, an employee of NDeX, as agent for the beneficiary, and was accompanied by a declaration of compliance with California Civil Code § 2923.5, signed by Keith Shehorn, an employee of EMC.

         On May 31, 2012, a Substitution of Trustee was recorded by Wells Fargo (JPMorgan) in favor of NDeX. It bears the signature of Birhan Ayele as Vice President of JPMorgan. Plaintiffs allege that Mr. Ayele was also a “robo-signer, ” with no authority to act on behalf of the true beneficiary of the Deed of Trust. On June 8, 2012, a Notice of Trustee's Sale was recorded in the Alameda County Recorder's Office by NDeX. However, no sale was conducted at that time.

         On January 28, 2013, another notice of Trustee's Sale was recorded in the Alameda County Recorder's Office by NDeX. This notice indicated that the unpaid balance on the plaintiffs' loan was $915, 024.47, and that the sale would go forward on February 21, 2013.

         Plaintiffs filed the original complaint on February 20, 2013, against NDeX; JPMorgan (erroneously sued as JP Morgan Chase Bank f.k.a. EMC Mortgage Corporation); Wells Fargo; and MERS. Plaintiffs alleged seven causes of action - breach of contract; breach of implied agreement; slander of title; violation of California Civil Code § 2923.5; wrongful foreclosure; violation of 18 U.S.C. § 1962 (“RICO”); violation of California Business & Professions Code § 17200; and injunctive relief. Attached as an exhibit to the complaint was a 125-page document entitled "Mortgage Securitization Audit & Analysis Report, " dated October 29, 2012, prepared by a third party identified as "Certified Securitization Analysis LLC." Plaintiffs asserted that this document should be incorporated by reference into the complaint. On March 1, 2013, NDeX recorded a Trustee's Deed Upon Sale, indicating that the property had been sold to Wells Fargo on February 21, 2013.

         On May 15, 2013, defendants filed a motion to dismiss, which was granted on July 10, 2013. The court found that the complaint did not allege facts sufficient to state a claim under any of the causes of action. The court found further that the facts alleged in the complaint were not related in any comprehensible way to any facts in the attached 125-page "Audit and Analysis, " which also contained large portions that were illegible. The court noted that the facts asserted in the complaint all appeared to relate in one way or another to the “securitization” of the loan, and the foreclosure process, but indicated that it was not possible to tell which defendant was alleged to have done what.

         The court granted leave to amend as to all causes of action except the RICO claim, and stated that "[p]laintiffs must clarify the bases of the claims, and must allege supporting facts as to each defendant." The court added, "As indicated at the hearing, the court will not consider the 125-page alleged ‘expert report' as part of an amended complaint."

         Plaintiffs filed the first amended complaint ("FAC") on August 7, 2013. Defendants filed a motion to dismiss on September 13, 2013, and on September 27, 2013, plaintiffs filed a second amended complaint ("SAC"). The court terminated the motion to dismiss the FAC and allowed the filing of the SAC, on the basis that plaintiffs had not previously used their one opportunity to amend “as a matter of course.”

         In the SAC, plaintiffs alleged causes of action for (1) breach of contract; (2) breach of implied agreement; (3) slander of title; (4) wrongful foreclosure; (5) violation of § 17200, (6) violation of the Truth in Lending Act, 15 U.S.C. § 1601, et seq. (“TILA”); (7) violation of the Real Estate Settlement Practices Act, 12 U.S.C. § 2601, et seq. (“RESPA”), and (8) violation of the Federal Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (“FDCPA”). Plaintiffs did not attach the 125-page "Audit and Analysis Report, " but did refer throughout the SAC to "plaintiffs' audit, " without any clear explanation.

         On October 18, 2013, defendants filed a motion to dismiss the SAC. The court granted the motion in an order issued on December 17, 2013. Because the court found that amendment would be futile, the dismissal was with prejudice.

         On January 2, 2014, the court issued an order dismissing nominal defendant NDeX (based on plaintiffs' statement of non-opposition to that dismissal). Also on January 2, 2014, the court entered judgment in favor of defendants.

         On January 31, 2014, plaintiffs filed a notice of appeal. Plaintiffs listed the issues for review as whether the court had erred in ruling that each of their eight causes of action failed to allege facts sufficient to state a claim, and whether the court had erred in denying further leave to amend. Nevertheless, their arguments in the appeal all relied on their legal conclusion that the foreclosure sale was “void.” In support of this proposition, plaintiffs argued that the assignments of the loan during securitization were untimely or were not recorded, which allegedly destroyed the chain of title to the loan and with it, the authority of any of the defendants to foreclose; and that the recorded assignments were void because the person who signed them was a “robo-signer” and lacked authority.

         After the briefing was completed and the appeal was scheduled for oral argument, the Ninth Circuit panel vacated the hearing date and indicated that submission of the case was being "deferred pending the California Supreme Court's decision" in Yvanova (which had been issued on February 18, 2016). The Ninth Circuit requested the parties to submit supplemental briefs addressing the application of the Yvanova decision to the case. Both briefs were filed by the May 18, 2016 due date.

         On October 6, 2016, the Ninth Circuit panel issued an order stating that the case was submitted for decision. That same day, the panel remanded the case to this court to reconsider its holding in light of the Yvanova decision, adding, "We express no opinion as to the outcome of that inquiry."

         DISCUSSION

         A. Allegations in the SAC

         Throughout the SAC, plaintiffs alleged variants on the theme that the “securitization” of their loan was "improper." Plaintiffs asserted that in June 2007, their loan was "securitized, " which they defined as "the act of producing an investment vehicle of Mortgage-Backed Securities ("MBS") using the Borrower's Mortgage Note as the under-lying corpus, as collateral." SAC ¶¶ 12, 33. They claimed that their loan was “split from the Deed of Trust for securitization, ” and that they “obtained an Audit evidencing [the] loan transaction both as it actually occurred and as it was fraudulently portrayed in the securitization documents filed with the SEC[, ]” including the Pooling and Servicing Agreement (“PSA”), the Prospectus, and the Forms 10-K, 10-Q, 8-K, and 15-D. SAC ¶¶ 12-14.

         Plaintiffs asserted that "the actual lenders in the case, the individuals who invested in the securitized note, have not been consulted as to a loan modification, foreclosure or settlement" and further, that "JP Morgan and Wells Fargo failed to communicate with anyone representing the actual investor, and committed fraud on both the [p]laintiffs and the actual investors when they claimed to have done so." SAC ¶ 13.

         Plaintiffs alleged that defendants “failed to follow the [PSA] for the securitized trust, failed to endorse the note and assign the deed of trust in a timely manner as set forth in the PSA, and failed to properly identify the true party of interest in their foreclosure action.” SAC ¶ 14. They claimed that under the terms of the PSA, all promissory notes transferred to the Trust were required to have a “complete chain of endorsements” by no later than 90 days after the Trust's closing date, and that because these conditions were not complied with, the servicer in the present case was “trying to force through a foreclosure in the name of a beneficiary that clearly [had] no interest in the underlying loan as it had previously been sold.” SAC ¶ 15.

         Plaintiffs also asserted that the closing date for the SAMI II 2007-AR5 Trust was on or about June 29, 2007, and that the Trust was no longer reporting income as of 2008. SAC ¶ 72. They alleged that their Note and Deed of Trust was securitized "on or before June 29, 2007, and was sold to a Real Estate Mortgage Investment Conduit (REMIC)[1]"according to [p]laintiffs' audit" (apparently a reference to the 125-page document attached as an exhibit to the original complaint). SAC ¶ 73.

         Plaintiffs alleged, however, that any assignment of a beneficial interest of a deed of trust occurring in 2011 (as here) or later, could not have REMIC status, and the advantageous tax treatment associated therewith, because under the terms of the PSA, the securitized trust must have received the assignments of the beneficial interest of the Deed of Trust within 90 days of the close of the trust (June 29, 2007). SAC ¶¶ 71-72. They asserted that in recording the assignments in 2011, defendants breached the PSA as well as the terms of plaintiffs' Deed of Trust. SAC ¶ 73. Based on this, plaintiffs claimed that ...


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