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Hinrichsen v. Bank of America, N.A.

United States District Court, S.D. California

May 9, 2017

BANK OF AMERICA, N.A. ET AL., Defendants.


          Hon. Dana M. Sabraw United States District Judge

         Pending before the Court are Defendants Bank of America, N.A. (“Bof A”) and MTC Financial, Inc. dba Trustee Corps (“MTC”)'s motions to dismiss Plaintiffs Rodney L. Hinrichsen and Deborah A. Hinrichsen's Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Plaintiffs filed an opposition, and Defendants filed replies. For the reasons set forth below, Defendants' motions to dismiss are granted in part and denied in part.

         I. BACKGROUND

         This lawsuit arises out of Defendants' attempt to foreclose on Plaintiffs' home through an allegedly void promissory note and deed of trust. Plaintiffs allege they refinanced their home by executing a promissory note in the amount of $310, 000, secured by a deed of trust in favor of the original lender, MLD Mortgage, Inc. (“MLD”). (Compl. ¶ 8; Request for Judicial Notice (“RJN”), Ex. A.) Approximately two years after obtaining the loan, Plaintiffs exercised their right of rescission under the Truth in Lending Act (“TILA”), 15 U.S.C. § 1635(a) & (f), and sent a letter to MLD purporting to rescind the loan on grounds that MLD failed to make material disclosures in the loan transaction. (Compl. ¶¶ 8-9.) Plaintiffs allege the deed of trust and promissory note became void upon exercising their right of rescission under TILA, 15 U.S.C. § 1635(b). (Id. ¶ 10.) MLD never contested the rescission, and a deed of reconveyance was recorded, fully reconveying the property to Plaintiffs. (Compl. ¶ 11; RJN, Ex. B.)

         Thereafter, Defendant Bof A acquired the loan, discovered the reconveyance of the property to Plaintiffs, and recorded a rescission of reconveyance, stating the deed of reconveyance had been recorded due to inadvertence and mistake, and “[t]he obligation under the Note secured by the Deed of Trust was not and is not satisfied.” (RJN, Ex. D.) Later, Defendant MTC substituted in as trustee and recorded a notice of default and election to sell under deed of trust. (Id., Ex. F.) The notice of default reflects a default amount of $111, 288.61. (Id.) A notice of trustee's sale was recorded on January 30, 2017. (Id., Ex. G.)

         In an effort to stop that sale, Plaintiffs filed the instant complaint against Bof A and MTC, alleging the following five claims: (1) violations of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §§ 1692e & 1692f(6), (2) violation of the Rosenthal Fair Debt Collection Practices Act (“RFDCPA”), Cal. Civ. Code § 1788.17, (3) violation of California Civil Code § 2924(a)(6), (4) violation of California Civil Code § 2924.17(a) & (b), and (5) cancellation of instruments.

         MTC requests the Court to take judicial notice of the following documents: (1) deed of trust recorded on December 28, 2009 (“Exhibit A”), (2) substitution of trustee and reconveyance of property recorded on February 21, 2012 (“Exhibit B”), (3) assignment of deed of trust recorded on April 10, 2013 (“Exhibit C”), (4) rescission of reconveyance recorded on June 22, 2015 (“Exhibit D”), (5) substitution of trustee recorded on October 25, 2016 (“Exhibit E”), (6) notice of default and election to sell under deed of trust recorded on October 25, 2016 (“Exhibit F”), and (7) notice of trustee's sale recorded on January 30, 2017 (“Exhibit G”). Plaintiff does not oppose MTC's request for judicial notice. The Court takes judicial notice of the documents pursuant to Federal Rule of Evidence 201(b).[1]


         Bof A moves to dismiss all claims. First, Bof A argues the debt collection claims fail as a matter of law because it did not engage in “debt collection” within the meaning of the statutes. Second, it asserts the claims for violations of California Civil Code §§ 2924 and 2924.17 fail because these statutes do not allow a right of action prior to foreclosure. Third, Bof A contends Plaintiffs have failed to allege adequate facts to support their claim for cancellation of instruments. MTC also moves to dismiss all claims on many of the same grounds.

         To determine whether dismissal under Rule 12(b)(6) of the Federal Rules of Civil Procedure is proper, the Court must accept as true Plaintiffs' nonconclusory factual allegations, construe all reasonable inferences in favor of Plaintiffs, and consider in that light whether the facts are sufficient to state a claim for relief that is plausible on its face. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

         A. Debt Collection Claims

         1. FDCPA Claim Under § 1692e

         The FDCPA prohibits debt collectors from engaging in abusive, deceptive, and unfair practices in the collection of consumer debts. 15 U.S.C. § 1692. To state a claim under the FDPCA, a plaintiff must allege the following: “(1) the plaintiff has been the object of collection activity arising from a consumer debt, (2) the defendant attempting to collect the debt qualifies as a debt collector under the FDCPA, and (3) the defendant has engaged in a prohibited act or has failed to perform a requirement imposed by the FDCPA.” Miner v. Baker, No. 15-CV-2765-JAH (RBB), 2016 WL 6804440, at *2 (S.D. Cal. Aug. 26, 2016) (citation omitted). Specifically, under § 1692e, a debt collector “may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.” Here, Plaintiffs allege Defendants violated § 1692e by falsely representing the character and legal status of the debt and threatening to conduct a trustee's sale based on a void deed of trust.

         Defendants correctly argue they are not engaged in “debt collection” as contemplated by § 1692e of the FDCPA. The Ninth Circuit in Ho v. ReconTrust Co., 840 F.3d 618, 621 (9th Cir. 2016), held that “actions taken to facilitate a non-judicial foreclosure, such as sending the notice of default and notice of sale, are not attempts to collect ‘debt' as that term is defined by the FDCPA.” The Court reasoned that “[t]he object of a nonjudicial foreclosure is to retake and resell the security, not to collect money[.]” Id. Thus, “debt collection” under the FDCPA-save for one provision in the FDCPA discussed below-refers “only to the collection of a money debt.” Dowers v. Nationstar Mortgage, LLC, 852 F.3d 964, 970 (9th Cir. 2017).

         The complaint does not allege Defendants engaged in any debt collection-related activity. Rather, the complaint focuses solely on Defendants' alleged wrongful enforcement of a void deed of trust, a security interest. Accordingly, Defendants' motions to dismiss the FDCPA claim under § 1692e are granted.

         2. FDCPA Claim Under § 1692f(6)

         Unlike § 1692e, the definition of debt collector under § 1692f(6) “include[s] a person enforcing a security interest.” Dowers, 852 F.3d at 971 (citing 15 U.S.C. § 1692a(6)). Section 1692f(6) regulates more than just the collection of a money debt. It prohibits taking nonjudicial action to recover real property as collateral if there is not an enforceable security interest. 15 U.S.C. § 1692f(6).[2] Because “Section 1692f(6) regulates nonjudicial foreclosure activity, ” Defendants cannot escape liability on grounds that non-judicial foreclosure is not debt collection under the FDCPA. Dowers, 852 F.3d at 971. Further, a trustee can be a debt collector under § 1692f(6). Mashiri v. Epsten Grinnell & Howell,845 F.3d 984, 990 (9th Cir. 2017) (holding, “where an ...

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