DENNIS MONTALI, U.S. Bankruptcy Judge.
On August 30, 2013, the court held a hearing on the motion of Capital One, N.A. ("Capital One"), U.S. Bank, as Trustee for Chevy Chase Mortgage Funding LLC Mortgage-Backed Certificates, Series 2006-1 Trust ("U.S. Bank"), and Mortgage Electronic Registration Systems, Inc. ("MERS") (collectively, "Defendants") to dismiss the adversary complaint ("MTD") filed against them by plaintiff Cheryl Sandri ("Debtor"). The parties each filed supplemental briefs on September 9, 2013, and the court took the MTD under advisement. For the reasons set forth below, the court is GRANTING the MTD.
"To 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.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). When deciding a motion to dismiss, the court considers "only allegations contained in the pleadings, exhibits attached to the complaint, and matters properly subject to judicial notice." Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir.2007) (per curiam).
Even though the court may not consider any material outside of the pleadings when ruling on a Rule 12(b)(6) motion, two exceptions exist. Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir.2001). First, the court may consider material that a plaintiff properly submits as part of the complaint or, even if not physically attached to the complaint, material that is not contested as to authenticity and that is necessarily relied upon by the plaintiff's complaint. Id. Second, under Federal Rule of Evidence 201, the court may take judicial notice of matters of public record. Id. at 689. Here, the court is considering the allegations of the complaint, the documents referenced in the complaint (although not attached), and documents filed by Debtor in her main bankruptcy case. Pursuant to Federal Rule of Evidence 201, the court takes judicial notice of Debtor's bankruptcy filings as these are matters of public record.
Debtor has asserted five causes of action in her complaint: (1) Slander of Title; (2) Wrongful Foreclosure; (3) Express and Implied Breach of Agreement; (4) Violation of California Civil Code 2923.5; and (5) Violation of the Unfair Business Practices Act ([Cal. Bus. & Prof.Code] § 17200). With the exception of the fourth cause of action, all of the claims arise out of the securitization of her note and deed of trust.
In December 2005, Debtor executed a promissory note ("Note") in favor of Chevy Chase Bank, F.S.B. ("Chevy Chase"). To secure repayment of the Note, Debtor also executed a first priority deed of trust ("DOT") against property located in Redwood City, California (the "Property") in favor of Chevy Chase. Chevy Chase was identified as the Lender and Trustee, and MERS was identified as the "beneficiary" and nominee for the lender and lender's successors and assigns. See paragraphs 6-7 of the complaint; see also Debtor's
The DOT expressly provides that Debtor "understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender's successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, releasing and canceling this Security Instrument." See DOT at page 3 (Docket No. 18-3 in Debtor's main case). In addition, the DOT provides:
See id. at page 11 (paragraph 20).
In paragraph 7 of the complaint, Debtor alleges that in 2006 Chevy Chase bundled and sold her mortgage (which became securitized pursuant to a pooling and service agreement ("PSA")) to Chevy Chase Mortgage Funding LLC Mortgage-Backed Certificates, Series 2006-1 Trust ("CCFM 2006-1 Trust"), with U.S. Bank acting as Trustee.
Debtor does not dispute her liability under the Note and DOT. Instead, she alleges in the complaint that Capital One and its trustee (now Quality Loan Services Corporation) or assignees cannot enforce the Note and DOT, because (1) MERS did not have the legal right to assign or transfer any interest in the DOT, (2) Charity Henson was a robo-signer without authority to sign documents on behalf of MERS; (3) any assignment occurring after the closing date of the PSA (March 17, 2007) is invalid. See paragraphs 18-32 of the complaint.
No foreclosure sale has occurred, although an unrescinded notice of default was recorded on June 7, 2012. See paragraph 15 of the Complaint. Debtor filed her chapter 13 case fifteen days later.
Approximately three weeks prior to the hearing on the MTD the Bankruptcy Appellate Panel for the Ninth Circuit (BAP) and the California Court of Appeals for the Fifth District issued two cases involving similar facts and claims, but reaching disparate conclusions. In Nordeen v. Bank of America, N.A. (In re Nordeen), 495 B.R. 468 (9th Cir. BAP 2013), BAP affirmed the dismissal of an action for monetary and declaratory relief, holding that the securitization of a deed of trust loan did not in any way alter or affect standing to enforce the deed of trust, and that debtors did not state a plausible cause of action for misleading communications regarding the identity of the note holder and deed of trust beneficiary/trustee. In contrast, in Glaski v. Bank of America, 218 Cal.App.4th 1079, 160 Cal.Rptr.3d 449 (Cal. App. 5th Dist.2013), the court held that borrowers have standing to challenge foreclosure on the basis that assignments of loan were void, as they occurred after the closing date of the securitized trust agreement to which borrowers were not the parties.
At the hearing on the MTD, the court directed the parties to provide supplemental briefing regarding these two cases (neither of which is binding on the court). Having considered both supplemental briefs and other case law regarding the standing of borrowers to assert claims arising out of securitizations (including other California Court of Appeals decisions rejecting claims similar to those of Debtor), the court does not believe that Debtor has stated any cognizable claim arising from the securitization and assignments of the Note and DOT. The court will address each of Debtor's arguments in turn.
Debtor contends that Charity Henson is a robo-signer who was not authorized to act on behalf of MERS,
Debtor relies on Glaski in asserting that any assignment of the Note that occurred after the closing date of the PSA is ineffective and thus Defendants cannot enforce the Note and DOT. The court disagrees, as Glaski is inconsistent with the majority line of cases and is based on a questionable analysis of New York trust law.
While Glaski allowed a borrower to challenge foreclosure on the basis that a securitized mortgage trustee's attempt to accept the loan after a trust's closing date was void under New York law (the law governing the pooling and servicing agreement), it is an outlier. A majority of district courts in California have held that borrowers do not have standing to challenge the assignment of a loan because borrowers are not party to the assignment agreement. See Patel v. Mortgage Electronic Registration Systems, Inc., 2013 WL 4029277 (N.D.Cal. Aug. 6, 2013) ("[T]he securitization process did not break the chain of title; MERs [sic] does have authority to assign the DOT ...; Plaintiffs have failed to plead breach of the DOT and do not have standing to assert a breach of any PSA; and the robo-signing allegations have not been properly pled.") (emphasis added); Aniel v. GMAC Mortg., LLC, 2012 WL 5389706 at *4 (N.D.Cal. Nov. 2, 2012) (plaintiffs lacked standing to challenge assignment of deed of trust
More importantly, other California Courts of Appeal have rejected claims similar to those asserted in Glaski and by Debtor here. See, e.g. Siliga v. Mortgage Electronic Registration Systems, Inc., 219 Cal.App.4th 75, 161 Cal.Rptr.3d 500 (Cal. App.2d Cir.2013) (decided on August 27, 2013) (borrowers lacked standing to complain about loan servicer's and assignee's alleged lack of authority to foreclose on deed of trust where borrowers were in default under the note, absent evidence that the original lender would have refrained from foreclosure); Jenkins v. JP Morgan Chase Bank, N.A., 216 Cal.App.4th 497, 156 Cal.Rptr.3d 912 (Cal. App.4th Dist.2013) (borrower does not have the right to bring a preemptive judicial action to determine defendants' standing to foreclose; foreclosing party need not have beneficial interest in promissory note and deed of trust); Fontenot v. Wells Fargo Bank, N.A., 198 Cal.App.4th 256, 272, 129 Cal.Rptr.3d 467 (1st Dist.2011) (to recover on wrongful foreclosure claim, borrower must demonstrate that the alleged imperfection in the foreclosure process was prejudicial; no prejudice exists where borrower was in default and the assignment of the loan did not interfere with the borrower's ability to pay).
In determining that the borrower had standing to challenge the validity of assignments that occurred after a trust document's closing date, the Glaski court held that under New York law, a transfer made in violation of the terms of the trust document was void, not voidable. The Glaski court acknowledged that under California law, a third party "and particularly the obligor" cannot successfully challenge the validity or effectiveness of the transfer when the assignment is merely voidable, not void. Glaski, 218 Cal.App.4th at 1094, 160 Cal.Rptr.3d 449. This court agrees. This court, however, does not agree with the next prong of the Glaski analysis: that an assignment violating the trust agreement or pooling service agreement is void under New York state law and thus subject to challenge by non-parties.
New York intermediate appellate courts have repeatedly and consistently found
Calderon, 941 F.Supp.2d at 766-67, 2013 WL 1741951 at **10-11 (emphasis added) (analyzing New York statutory and case law on trusts).
The Glaski court cited only two cases in support of its determination that acts by a trustee in contravention of a trust were void. The first, Wells Fargo Bank, N.A. v. Erobobo, 39 Misc.3d 1220(A), 972 N.Y.S.2d 147 (N.Y.Sup.Ct.2013), was issued by a New York trial court. Its reasoning and holding has been called into doubt. See Koufos v. U.S. Bank, N.A., 939 F.Supp.2d 40 (D.Mass.2013); Orellana v. Deutsche Bank Nat. Trust Co., 2013 WL 5348596 (D. Mass. Aug. 30, 2013). The second is an unpublished opinion by the Bankruptcy Court for the Southern District of Texas that relies on Erobobo and that is inconsistent with a district court decision from that district issued just days earlier. In re Saldivar, 2013 WL 2452699, at *4 (Bankr. S.D. Tex. June 5, 2013) (transfer was void); compare to Sigaran v. U.S. Bank Nat. Ass'n, 2013 WL 2368336 at *3 (S.D.Tex. May 29, 2013) (holding that "assignments made after the Trust's closing date are voidable, rather than void").
In Dick v. Am. Home Mortg. Servicing, Inc., 2013 WL 5299180 at *4-5 (E.D.Cal. Sept. 18, 2013), the plaintiffs relied on Glaski to challenge a DOT assignment as void. Observing that a majority of California courts have held that "borrowers do not have standing to challenge the assignment of a loan because borrowers are not party to the assignment agreement," the Dick court noted that it did not even have to reach the issue because the plaintiffs could not establish prejudice. "[A] plaintiff in a suit for wrongful foreclosure has generally been required to demonstrate the alleged imperfection in the foreclosure process was prejudicial to the plaintiff's interests." Id. (citation omitted). "California courts find a lack of prejudice when a borrower is in default and cannot show that the allegedly improper assignment interfered with the borrower's ability to pay or that the original lender would not have foreclosed under the circumstances." Id. at *3 (emphasis added).
Debtor here was in default when the notice of default was recorded; no notice of sale has been recorded and no foreclosure sale has occurred. Shortly after the notice of default was recorded, Debtor filed her chapter 13 petition. Debtor resolved Capitol One's motion for relief from stay by entering into an adequate protection stipulation, by which she
While Nordeen involved mortgage instruments governed by Nevada law, its analysis is instructive and persuasive. The BAP affirmed an order dismissing without leave to amend a pro se complaint filed against the alleged successor beneficiary on a deed of trust and against the servicer. The BAP adopted the majority line of cases rejecting borrowers' theories that securitization and violations of the securitization trust agreement render DOTs unenforceable. "Since the securitization merely creates a separate contract, distinct from [plaintiffs'] debt obligations under the note, and does not change the relationship of the parties in any way, plaintiffs' claims arising out of the securitization fail." Nordeen, 495 B.R. at 480.
In reaching this holding, the BAP observed:
Id. at 479-80. The panel then noted that in the trust deed, the borrowers had agreed that the note (or a partial interest in the note) and the mortgage instrument could be transferred without prior notice. The deed of trust here contains the identical language. Thus, like the borrowers in Nordeen, Debtor consented to the securitization by explicitly agreeing that she understood that the lender may transfer the note.
The BAP also rejected the borrowers' fraud claims arising from confusing and misleading communications as to who held the note and who were the beneficiary and trustee under the mortgage. "Whatever confusion may have resulted from the alleged communications," the borrowers did not rely on those communications when they signed the note and trust deed. Id. at 484. "And since they had defaulted [in their loan payments], they can assert no damages from the alleged communications." Id. In the present case, Debtor similarly did not rely on any alleged misrepresentations by Defendants, all of which purportedly occurred prior to the petition date. To the contrary, as late as 2012 (after such communications purportedly occurred), she obtained a benefit by acknowledging her obligations to under the note and DOT: an order valuing the second lien at zero dollars.
Debtor alleges in 41-43 of the complaint that Capital One and Quality violated California Civil Code section
Debtor's complaint does not state a cognizable claim for several reasons. First, as the District Court for the Northern District has held in Patel and Ganesan, borrowers do not have standing to enforce a pooling and servicing agreement. As Debtor is neither a party to or a third party beneficiary of the PSA, she cannot invalidate her contractual obligations under the note and DOT because the assignments occurred after the closing date of the PSA. Second, as in Dick, Herrera, and Siliga, Debtor cannot demonstrate any prejudice from the purportedly improper assignment. Third, even if the claims were cognizable, they are premature. No foreclosure sale has occurred and preemptive relief "would result in the impermissible interjection of the courts into a nonjudicial [foreclosure] scheme enacted by the California Legislature." Jenkins, 216 Cal. App.4th at 513, 156 Cal.Rptr.3d 912, citing Gomes v. Countrywide Home Loans, Inc., 192 Cal.App.4th 1149, 121 Cal.Rptr.3d 819 (Cal.App.4th Dist.2011). Finally, as in Nordeen, the DOT contains an express consent by Debtor to the assignment of the note and DOT.
With the exception of the claim for violation of California Civil Code section 2923.5 (upon which the court cannot grant effective relief, as discussed above), all of the claims asserted by Debtor arise from the purported improper assignment of the note and deed of trust.
