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Keo v. Federal Home Loan Mortgage Corp.

United States District Court, N.D. California

September 13, 2019



          Richard Seeborg United States District Judge.


         Plaintiff Chanht Keo (“Keo”) brings this action against Defendant Federal Home Loan Mortgage Corporation (“Freddie Mac”) alleging that Freddie Mac's nonjudicial foreclosure of Keo's former residence at 18 Falmouth Cove in San Rafael (the “property”)-where Keo still resides pending eviction-violated her Fifth Amendment right to due process. Keo also brings a claim for cancellation of instruments, alleging that Freddie Mac's subsequent purchase of the property using a “credit bid” at a trustee sale was invalid and should therefore be rescinded. Freddie Mac moves to dismiss, arguing first and foremost that both of Keo's claims are barred by res judicata, given the multiple prior state court decisions dismissing Keo's earlier challenges to the same foreclosure proceeding. The Federal Housing Finance Agency (“FHFA”) was permitted to intervene as Conservator of Freddie Mac and adopted the pending motion. Pursuant to Civil Local Rule 7-1(b), the motion is suitable for disposition without oral argument, and the hearing set for September 26, 2019 is vacated. Because the foreclosure in question has already been scrutinized and uniformly endorsed in numerous prior state court proceedings, in which all of Keo's claims were or could have been brought, Freddie Mac's motion to dismiss is granted, without leave to amend, on res judicata grounds.

         II. BACKGROUND[1]

         In December of 2008, Keo obtained a refinance loan from Countrywide Bank, FSB in the amount of $417, 000, secured by a Deed of Trust.[2] By September of 2011, Keo had fallen behind in her obligations under the loan, which was then nearly $80, 000 past due. On September 15, 2011, Quality Loan Service Corporation (“Quality Loan”), having been substituted in place of the original trustee under the Deed of Trust, recorded a Notice of Default with Marin County. Three months later, Quality Loan recorded with the County a notice of trustee's sale on the loan, which listed Keo by name, advised her that she was in default, and advised her to contact a lawyer should she need assistance.

         On April 12, 2012, Keo filed suit in the Superior Court for the State of California, County of Marin (“Action 1”), asserting nine causes of action including wrongful foreclosure, fraud, quiet title, recoupment, and declaratory relief. At bottom, Keo challenged defendants' right to collect payments and foreclose on the property. Keo later amended her complaint to include as a defendant Nationstar Mortgage LLC (“Nationstar”), Freddie Mac's servicer on the loan, but she never amended the complaint to include Freddie Mac. The Superior Court ultimately dismissed Keo's case without leave to amend. Keo appealed dismissal of her wrongful foreclosure claim and her functional cancellation of instruments claim[3], and the Court of Appeal ultimately affirmed the dismissal in September of 2015. (See Dkt. 21-1, Ex. 11.)

         In the meantime, in January 2013 an assignment of the Deed of Trust in favor of Nationstar Mortgage LLC (“Nationstar”) was recorded with the County of Marin, and four months later, Quality Loan recorded with the County a second notice of trustee's sale, which again listed Keo by name, advised her that her loan was in default, and advised her to contact counsel should she need assistance. Of course by this time, her first state court action was already underway.

         After the Court of Appeal affirmed the dismissal of Action I, Keo did not seek review by the California Supreme Court; instead, she returned to Superior Court to file a second action on January 25, 2016 (“Action 2”), alleging causes of action for violation of the state Homeowner's Bill of Rights and federal Truth in Lending Act (“TILA”), rescission under TILA, and breach of the covenant of good faith and fair dealing. Nationstar was again a named defendant, but Freddie Mac was not. Nationstar prevailed in Action 2 on summary judgment, and the Court of Appeal again affirmed. The Court of Appeal concluded that, despite alleging new causes of action, the complaint in Action 2 centered on the same “primary right”-namely defendants' right to foreclose on Keo's property. In finding Keo's first claim was properly dismissed on res judicata grounds, the Court of Appeal noted:

Keo's prior lawsuit and the instant case also involve the same primary right. That she labeled her first lawsuit as one for “wrongful foreclosure, ” and in her first cause of action in the instant action purports to assert a statutory claim under Civil Code section 2924 subdivision (a)(6), does not change the fact that in both lawsuits she challenged the defendants' right to foreclose, including on the ground they lacked authority to do so because they supposedly did not have an adequate interest in the property. . . . She therefore cannot, in this case, take a second bite of the apple under the rubric of a statutory claim, rather than a “wrongful foreclosure” claim.

(Dkt. 21-2, Ex. 15 at 5.) Again, Keo did not seek California Supreme Court review of the Court of Appeal's decision in Action 2, but rather filed a third lawsuit on September 21, 2018 (“Action 3”), again in state court, and again challenging defendants' authority to foreclose. Keo once more named Nationstar and Quality Loan as defendants, but not Freddie Mac. After the Superior Court denied Keo's ex parte application for a temporary restraining order in this third lawsuit, the property was sold to Freddie Mac at a trustee sale on September 26, 2018. Later in Action 3, the Superior Court sustained Nationstar's demurrer without leave to amend on February 1, 2019, concluding:

The current action is Plaintiff's third lawsuit all claiming that Defendant lacks authority to foreclose on the property. The court finds that the entire complaint is barred by the doctrine of res judicata. . . . It is readily apparent that Plaintiff's claims in all three cases are the same in that they all address Defendant's right to foreclose. All claims seeking to enforce[] the same “primary right” are regarded as the same cause of action regardless of the legal theory raised.

(Dkt. 21-3, Ex. 19 at 7.) Keo then filed a post-judgment motion for relief from dismissal in Action 3, which on March 8, 2019 was likewise denied by the Superior Court. Keo currently has two appeals pending in the First Appellate District relating to Action 3, one filed on November 19, 2018, before Nationstar's demurrer was heard, which challenges the court's denial of Keo's request for injunctive relief, and the other filed on May 6, 2019, after her motion for relief from dismissal was denied, which challenges the dismissal.

         Just nine days after filing her second appeal from her third state-court action contesting the nonjudicial foreclosure, Keo filed this action in federal court against Freddie Mac, asserting a Fifth Amendment due process claim and a cancellation of instruments claim. Keo alleges that Freddie Mac's nonjudicial foreclosure, conducted in accordance with California's nonjudicial foreclosure scheme as set forth in California Civil Code sections 2924 through 2924k, did not afford her adequate notice and opportunity to be heard in violation of her right to due process.[4] Keo also brings a cancellation of instruments claim, claiming Freddie Mac's purchase of the property via a “credit bid” should be rescinded because Freddie Mac was not the “present beneficiary” of the deed at issue at the time of the sale and therefore lacked authority to make a credit bid pursuant to California Civil Code § 2924h(b).

         Relatedly, Freddie Mac filed an eviction action against Keo in state court in November 2018. Keo removed the case to federal court, and it was subsequently related to this action and remains pending. See Fed. Home Loan Mortg. Corp. v. Keo, No. 19-cv-2099-RS (N.D. Cal. filed Nov. 5, 2018). Since entering default in 2009, Keo has made no payments on ...

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