MARC BARRECA, Bankruptcy Judge.
This matter came before the Court on Federal Home Loan Mortgage Corporation, One West Bank FSB, and Northwest Trustee Service's motions for summary judgment on the only remaining claims in this action, violations of the Washington Deed of Trust Act (the "
Subject matter jurisdiction is proper pursuant to 28 U.S.C. §§ 157, 1334, as the claims asserted in this adversary proceeding arise in, under, or are related to Christina Butler's bankruptcy case, Case No. 11-18996-MLB. Venue is proper pursuant to 28 U.S.C. §§ 1408, 1409.
There is no genuine dispute as to the following facts:
Long before the transaction at issue in this case, Federal Home Loan Mortgage Corporation ("
On or about April 27, 2007, Plaintiff executed a promissory note (the "
Sometime in May 2007, IndyMac sold Plaintiff's Loan to a new investor, Freddie Mac. The Note was indorsed in blank, and IndyMac remained the loan servicer. Plaintiff did not deny that Plaintiff's Loan was sold to Freddie Mac or allege facts to genuinely dispute Freddie Mac's ownership of the Note.
On or about May 8, 2007, Deutsche Bank took physical possession of the Note as document custodian for Freddie Mac. Deutsche Bank placed the Note in a secure file room for safekeeping.
On or about July 11, 2008, IndyMac was deemed a failed financial institution and closed by the Office of Thrift Supervision ("
On or about March 19, 2009, the FDIC sold substantially all of IndyMac Federal's assets to One West Bank, F.S.B. ("
On or about May 12, 2009, Freddie Mac, Deutsche Bank, and One West replaced the Original Agreement with the Custodial Agreement: Single-Family Mortgages Freddie Mac Form 1035 (rev. 2/08.2) (the "
The Custodial Agreement required, among other things, that the parties adhere to the Freddie Mac Single-Family Seller/Servicer Guide (the "
One West's responsibilities as Seller/Servicer were articulated in more detail in the Guide and Handbook. Guide Section 18.1 gave One West the latitude to choose the document custodian, so long as the document custodian satisfied all of Freddie Mac's specified requirements set forth in Section 18.2. Notably, under Section 18.2(c), One West had the option of acting as its own custodian. Section 18.2 also reiterated that "[c]ompensation for the Document Custodian's . . . services is the sole responsibility of the Seller/Servicer." Section 18.3 provided that "before delivering any Notes and assignments to a Document Custodian . . ., the Seller/Servicer must deliver a Form 1035, Custodial Agreement: SingleFamily Mortgages, executed by the Seller/Servicer and the Document Custodian to Freddie Mac." In other words, once One West identified and engaged the document custodian it sought to employ, here Deutsche, Freddie Mac indicated its assent to that Document Custodian by entering into a Custodial Agreement with One West and Deutsche Bank. Section 18.4 sets forth the Seller/Servicer's responsibilities, including (1) ensuring that the Document Custodian complies with all applicable Freddie Mac requirements, and (2) monitoring the eligibility status of the Document Custodian. Specifically, Section 18.4 provides in relevant part:
Section 18.6 articulated the Document Custodian's functions and duties. In particular, Deutsche Bank was responsible for "[m]aintaining custody and control of the original Notes and assignments on behalf of Freddie Mac," and storing those documents "in secure, fire resistant facilities." Section 18.6(a)(1)(2). Deutsche Bank was also required to release Notes to One West upon request. Section 18.6(e) provided in relevant part:
The Guide reiterated these duties:
Sometime in August 2009, Plaintiff defaulted on the Note.
On or about November 4, 2009, Erica Johnson-Seck ("
On or about November 10, 2009, JC San Pedro ("
On or about November 10, 2009, Suchan Murray, on behalf of One West, executed an Appointment of Successor Trustee (the "
On or about December 11, 2009, Northwest Trustee executed a Notice of Default pursuant to RCW 61.24.030. The information in the Notice of Default regarding
(emphases in original). The Notice of Default was dated December 11, 2009 and, next to the date, the signature block stated:
The Notice of Default also attached a Beneficiary Declaration Pursuant to Chapter 61.24 RCW (SB 5810) and Foreclosure Loss Mitigation Form (the "
On or about January 18, 2010, Northwest Trustee executed and recorded a Notice of Trustee's Sale, pursuant to RCW 61.24, et seq., setting a sale date of April 23, 2010. It identified One West as the "Beneficiary."
On or about April 18, 2010 Plaintiff obtained a screenshot from the Freddie Mac website showing that Freddie Mac is the owner of Plaintiff's mortgage.
On or about June 1, 2010, One West sent Plaintiff a letter indicating that according to their records "the investor for your loan is Federal Home Loan Mtg Co.," and "IndyMac Mortgage Services, a division of One West Bank, FSB, is the servicer of your loan." One West also noted that, "[w]e are available to answer any questions regarding your loan."
On or about June 22, 2011, Northwest Trustee executed and recorded an Amended Notice of Trustee's Sale, setting a Trustee's Sale for July 29, 2011. It identified One West as the "Beneficiary." On or about July 28, 2011, Plaintiff filed for
Deutsche Bank had physical possession of the Note until March 14, 2012 when it was sent to One West, at One West's request, for purposes of litigation. One West then forwarded the Note to its counsel, Routh Crabtree Olsen, PS ("
On or about August 15, 2013, One West stopped servicing Plaintiff's Loan, and servicing was taken over by Ocwen Loan Servicing LLC ("
No non judicial foreclosure sale ever occurred, and no non judicial foreclosure is pending.
Plaintiff attempted to create disputes of fact by suggesting that the "Court should closely scrutinize Defendants' evidence for admissibility as well as authenticity with a big question mark on witness credibility." However, after considering Plaintiff's arguments, the Court concludes that there is no genuine dispute of fact to preclude admission of the evidence submitted by Defendants.
Plaintiff attempted to attack the credibility of declarants Charles Boyle ("
Plaintiff further asserted that the declarations of Boyle and Campbell were inadmissible hearsay. Federal Rule of Evidence Rule 803(6) provides that evidence is not excluded by the rule against hearsay if it is
FRE 803(6). As the Ninth Circuit recognized:
Miller v. Fairchild Industs., Inc., 885 F.2d 498, 514 (9th Cir.1989) (internal quotations omitted). The declarations submitted by Boyle and Campbell track the required elements of Rule 803(6) and satisfy the business records exception.
Plaintiff's attacked Cody Hoesly's declaration on the basis that it was too vague and was made without personal knowledge. Mr. Hoesly's supplemental declaration more than clarified for Plaintiff the matters she questioned. Moreover, Hoesly's declaration is only tangentially relevant, as the custody of the Note during this litigation is inconsequential to resolving the disputes at hand.
Finally, Plaintiff alleged that Johnson-Seck and San Pedro did not review or understand various documents they signed on behalf of their respective entities. Plaintiff also pointed to testimonial excerpts from other, unrelated cases to suggest that Johnson-Seck may not have fully understood her capacity to sign on behalf of One West. Regardless of whether these allegations are true, Plaintiff did not identify material inaccuracies in the documents that Johnson-Seck and San Pedro signed, nor did Plaintiff allege specific facts to suggest that Johnson-Seck and San Pedro did not have the requisite capacities to sign the documents. Their understanding of their capacities and the documents themselves is largely irrelevant.
For these reasons, there is no genuine dispute of fact that precludes admissibility of the evidence submitted by Defendants.
Federal Rule of Civil Procedure 56(a) provides that "[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A fact is material if it might affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). When a properly supported motion for summary judgment has been presented, the adverse party "may not rely merely on allegations or denials in its own pleadings." Id. at 248, 106 S.Ct. 2505. Rather, the non-moving party must set forth specific facts demonstrating the existence of a genuine issue for trial. Id. at 256, 106 S.Ct. 2505.
Defendants seek summary judgment on Plaintiff's claims for violation of Washington's Deed of Trust Act, RCW 61.24 et seq. Recently Division I of the Court of Appeals held that "a borrower has an actionable claim against a trustee who, by acting without lawful authority or in material violation of the [Deed of Trust Act], injures the borrower, even if no foreclosure sale has occurred." Walker, 176 Wn.App. 294, 313, 308 P.3d 716 (2013). For the reasons set forth below, the Defendants did not act without lawful authority
Central to the dispute in this case is what it means to be a "beneficiary" for purposes of the Deed of Trust Act. Plaintiff argued that "beneficiary" status under Washington law hinges on "actual physical possession" of the original signed promissory note.
"Beneficiary" is defined in RCW 61.24.005(2) as "the holder of the instrument or document evidencing the obligations secured by the deed of trust." Unfortunately, Washington's Deed of Trust Act does not define what constitutes a "holder."
In Bain, the Washington Supreme Court considered what it meant to be a "beneficiary" for purposes of the Deed of Trust Act. Since a "beneficiary" is defined as "the holder" under Washington law, the Washington Supreme Court also considered what it meant to be a "holder," and stated that it was being guided by the Uniform Commercial Code's ("
The UCC provides that "holder" means "the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession." See U.C.C. § 1-201(b)(21). Notably, the identical definition has been adopted in Washington's Commercial Code. See RCW 62A.1-201(a)(21). The Note at issue here has no specific payee; it is indorsed in blank. Therefore, the appropriate inquiry is what it means to be a "person in possession" of a promissory note.
In Bain, after adopting the UCC's definition of "holder," the Washington Supreme Court subsequently stated that "a beneficiary must either actually possess the promissory note or be the payee." (emphasis added). However, the UCC definition of "holder" does not include a requirement of "actual" possession. Rather, the UCC requires only "possession." The Washington Supreme Court offered no explanation as to why the word "actual" was being inserted into the analysis of what it means to be a holder, and gave no indication of what "actual" was intended to mean. Bain's articulation requiring "actual" possession appears to have been nothing more than an attempt to restate the UCC's definition of "holder" in simpler terms. Whatever the genesis, given the Washington Supreme Court's express adoption of the UCC's definition of "holder" and its silence as to why the word "actual" was being inserted, the Court concludes that the word "actual" is superfluous dicta.
Having carefully reviewed the relevant law, the Court concludes that in
The Permanent Editorial Board for the Uniform Commercial Code offers some illustrations that demonstrate how an entity may be a "holder" even if the entity possesses the note through an agent. The illustrations are as follows:
Permanent Editorial Board for the Uniform Commercial Code, Application of the Uniform Commercial Code to Selected Issues Relating to Mortgage Notes, p. 7 (Nov. 14, 2011). In Illustration 4, Transferee is a "holder" (as it was in Illustration 2) notwithstanding that it never had physical possession of the note. And the agent who holds physical possession of the note in Illustration 4 may or may not be entitled to enforce the note, depending upon applicable non-UCC agency and real property law.
Indeed, Division I of the Washington Court of Appeals recently recognized that a holder can possess a note directly or through an agent. See Ortega v. Northwest Trustee Servs. Inc., 2014 WL 646347, 2014 Wash.App. LEXIS 382 (Wash.Ct. App. Feb. 18, 2014) (unpublished). In Ortega, Wells Fargo was a loan servicer on behalf of HSBC, and Wells Fargo physically possessed the note. Wells Fargo executed a beneficiary declaration identifying HSBC as the "actual holder," and Wells Fargo appointed the successor trustee. The court stated:
Id. at *7 n. 6, 2014 Wash.App. LEXIS 382, at *19 n. 6.
According to the Washington Supreme Court, "an agency relationship results from the manifestation of consent by the [principal] to act on his behalf and subject to his control." Bain, 175 Wash.2d at 106, 285 P.3d 34. Similarly, the Restatement Third of Agency provides that "agency is the fiduciary relationship that arises when one person (a `principal') manifests assent to another person (an `agent') that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents so to act."
The Custodial Agreement between Freddie Mac, One West, and Deutsche Bank, which incorporated the Guide and Handbook, created various agency relationships. Plaintiff did not genuinely dispute that One West was Freddie Mac's agent for purposes of servicing notes and appointing, monitoring, and managing the document custodian. Nor did Plaintiff genuinely dispute that Deutsche Bank was Freddie Mac's agent for purposes of physically possessing the Note. What Plaintiff disputed was the legal question of whether Deutsche Bank was One West's agent for purposes of physically possessing the Note and, ultimately, whether One West was a "holder" and "beneficiary" for purposes of the Deed of Trust Act.
One West exercised significant control over the details of Deutsche Bank's work, and both parties assented to the relationship. Their relationship was set forth in writing not only in the Custodial Agreement, but also in the Guide and Handbook.
Critical to the legal issue of agency, One West also directly controlled Deutsche Bank with regard to possession of the Note. Upon making a proper request, One West could demand physical possession of the Note from Deutsche Bank at any time. Guide Section 18.6(e) provided that upon request, the "Document Custodian will release to the Seller/Servicer any Note and related documents in the Document Custodian's custody" (emphasis added). That section also provided that the Seller/Servicer "may require" those documents "in conjunction with the ... foreclosure ... of a Mortgage" (emphasis added).
Moreover, although One West chose to use Deutsche as the Document Custodian, One West could have changed its mind at any time and become its own Document Custodian. Guide Section 18.2(c) expressly contemplated that One West could choose to physically possess the notes on its own behalf, rather than through an agent. It provided that: "Seller/Servicer may act as its own Document Custodian." In other words, One West delegated its Document Custodian responsibilities to its agent, Deutsche Bank, but One West also could have performed all of its responsibilities without ever employing a Document Custodian.
Given One West's monitoring and management responsibilities over Deutsche Bank, its comprehensive control over Deutsche Bank's ability to remain in its role as Document Custodian, and its ability to demand the Note from Deutsche Bank, the Court concludes that Deutsche Bank was an agent of One West for purposes of physically possessing the Note.
In sum, Deutsche Bank was simultaneously the agent of both Freddie Mac and One West for purposes of physically possessing the Note. Freddie Mac was a "holder" and "beneficiary" of the note for purposes of Washington law, as the Note was indorsed in blank and Freddie Mac had possession of the Note through its agent and Document Custodian, Deutsche Bank. Similarly, One West was also a "holder" and "beneficiary," as the Note was indorsed in blank and One West also had possession of the Note through its agent, Deutsche Bank.
Plaintiff argued that One West violated the Deed of Trust Act by identifying itself on the Beneficiary Declaration as the "actual holder" of the promissory note and/or "beneficiary" under Washington law. Tim Stephenson, Plaintiff's "expert on loan transfers and mortgage-backed securities" offered his opinion that "One West Bank, FSB is not the beneficiary, holder, or owner of the subject loan." However, this statement is a legal conclusion, not an expert opinion. "[A]n expert witness cannot give an opinion as to her legal conclusion, i.e., an opinion on an ultimate issue of law." United States v. Boulware, 558 F.3d 971, 975 (9th Cir.2009) (quoting Nationwide Transp. Fin. v. Cass Info. Sys., 523 F.3d 1051, 1059-60 (9th Cir.2008) (emphasis in original)).
Because, for the reasons set forth above, One West was a "holder" of the Note, One
RCW 61.24.020 requires that only a deed of trust securing payments to a "beneficiary" may be foreclosed. Plaintiff argued that One West was not a "beneficiary" under Washington law. For the reasons set forth above, One West was a beneficiary under Washington law, and One West had the authority to prosecute the non judicial foreclosure. Therefore, RCW 61.24.020 was not violated.
RCW 61.24.010(2) provides that "the beneficiary shall appoint a trustee or a successor trustee." Plaintiff argued that One West was not a "beneficiary" and that, therefore, One West could not appoint Northwest Trustee as successor trustee. Here, because One West was a "beneficiary" under Washington law, it did not violate RCW 61.24.010(2) in appointing Northwest Trustee as successor trustee.
In Washington, a security interest follows the obligation it secures. See e.g., Am. Sav. Bank & Trust Co. v. Helgesen, 64 Wn. 54, 61, 116 P. 837 (1911), on reh'g, 67 Wn. 572, 122 P. 26 (1912) ("There is no doubt that a mortgage, or any other security given for the payment of a bill or note, passes by a transfer of the bill or note to the transferee."). In Bain, the Washington Supreme Court expressly provided that this maxim extends to Washington's Deed of Trust Act. "Washington's [Deed of Trust Act] contemplates the security instrument will follow the note, not the other way around." Bain, 175 Wash.2d at 104, 285 P.3d 34. Therefore, any assignment of the Deed of Trust from MERS to One West had no legal effect on the ownership or possession of the Note and was irrelevant for purposes of the disputes at issue here. See also McPherson v. Homeward Residential, 2014 WL 442378, at *6, 2014 U.S. Dist. LEXIS 15123, at *14-17 (W.D.Wash. Feb. 4, 2014) (noting that "recording of an assignment of a deed of trust does not affect a borrower's rights").
RCW 61.24.030(7)(a) provides that:
As explained above, One West is a "holder" and "beneficiary" under Washington law and properly executed the Beneficiary Declaration. Per the statute's plain language, the Beneficiary Declaration is sufficient proof of "ownership" for purposes of RCW 61.24.030(7)(a). Although the statute's reference to "owner" has long-puzzled courts, the Division I Court of Appeals recently concluded that the beneficiary "need not show that it is the owner of the note." See Trujillo v. Northwest Trustee Services, Inc., ___ Wash.App. ___, 326 P.3d 768, 776 (2014). The "required proof is that the beneficiary must be the holder of the note." Id. (emphasis added).
RCW 61.24.030(7)(b) provides that "unless the trustee has violated his or her duty under RCW 61.24.010(4) [which is the duty of good faith to the borrower, beneficiary, and grantor,] the trustee is entitled to rely on the beneficiary's declaration as evidence of the proof required under this subsection." RCW 61.24.030(7)(b) (emphasis added).
The evidence in the record does not indicate that Northwest Trustee violated its duty of good faith to any party. Although Plaintiff alleged that Northwest Trustee "actively concealed" that Freddie Mac was the owner of the Note, Plaintiff submitted no evidence that Northwest Trustee did so. The deposition of Stenman, submitted by Plaintiff, clearly indicates that Northwest Trustee reviewed the Beneficiary Declaration to ensure that One West was the beneficiary. Northwest Trustee was entitled to rely on that Beneficiary Declaration, and had no duty to undertake an independent investigation. Northwest Trustee appropriately relied on the beneficiary declaration as evidence that One West was the "actual holder" of the Note, and did not violate RCW 61.24.030(7).
RCW 61.24.030(8) provides that:
The Notice of Default was issued by Northwest Trustee, as trustee, and accurately described One West as the beneficiary of the Note. Plaintiff correctly pointed out an inaccuracy in the Notice of Default, in which Northwest Trustee was identified as One West's "duly authorized agent." Stenman stated that this reference was a mistake. Although Plaintiff generally complained that the "mistake" had been replicated numerous times, she provided no evidence to put at issue Defendants' assertion that Northwest Trustee was not One West's agent. Moreover, Plaintiff did not address why a reference to Northwest Trustee being One West's "duly authorized agent" would be a material violation of the Deed of Trust Act. It is unclear what alleged harm stemmed from that particular inaccuracy.
RCW 61.24.030(8)(c) provides that the Notice of Default shall contain "[a] statement that the beneficiary has declared the borrower or grantor to be in default, and a concise statement of the default alleged." Here, the Notice of Default stated that the "beneficiary declares you in default for failing to make payments as required by your note and deed of trust." This statement was sufficient. Thus, RCW 61.24.030(8)(c) was not violated.
RCW 61.24.030(8)(l) provides that the Notice of Default shall contain the following information:
Plaintiff alleged that Northwest Trustee violated the Deed of Trust Act by failing to identify the "owner" of the Note. As mentioned before, the Beneficiary Declaration identifying One West as the "actual holder" was adequate to liken One West to the Note "owner" for purposes of RCW 61.24.030(7)(a). See Trujillo v. Northwest Trustee Services, Inc., ___ Wash.App. ___, 326 P.3d 768, 779 (2014). Plaintiff did not allege that the California address and phone number provided for One West were not accurate. Therefore, Northwest Trustee did not violate RCW 61.24.030(8)(l).
RCW 61.24.031(2) provides:
The Loss Mitigation Form executed by One West satisfies RCW 61.24.031(2), and Plaintiff did not allege any specific facts to raise a genuine dispute as to Northwest Trustee's good faith. Therefore, neither One West nor Northwest Trustee violated RCW 61.24.031(2).
RCW 61.24.040(1) provides:
Under this provision only a validly appointed a trustee can record a Notice of Trustee's Sale. Because One West was a "beneficiary," it could properly appoint
As set forth above, Walker held that "a borrower has an actionable clam against a trustee who, by acting without lawful authority or in material violation of the DTA, injures the borrower, even if no foreclosure sale has occurred." 176 Wn.App. 294, 313, 308 P.3d 716 (Wash.Ct.App. 2013) (emphasis added). A beneficiary, lawful or otherwise, could only be vicariously liable if the beneficiary "so controls the trustee so as to make the trustee a mere agent of the beneficiary." Id.
Plaintiff posited that "If NWTS was the agent for One West ... taking directive from its principal, NWTS could not act impartially." This is probably legally correct. However, as set forth above, Plaintiff did not submit specific facts to indicate that One West controlled the details of Northwest Trustee's work or otherwise submit evidence to put agency genuinely in dispute. The same is true for Freddie Mac; Plaintiff did not submit evidence to put agency genuinely in dispute. Therefore, neither One West nor Freddie Mac could be vicariously liable for any acts of Northwest Trustee.
In conclusion, the Deed of Trust was not materially violated by any Defendant, and summary judgment is granted as set forth herein. As granting summary judgment resolves all issues in this matter, Defendants should submit a form of judgment consistent with this order.
