Cruz v. Aurora Loan Services LLC (In Re Cruz)
457 B.R. 806
Bankr. S.D. Cal.2011Background
- Cruz financed his Oceanside residence in 2004 with a SCME loan documented by a Note and Deed of Trust (DOT); Aurora serviced the loan and MERS was the initial beneficiary of record.
- ING Bank, F.S.B. became successor beneficiary under the DOT before foreclosure but did not record an assignment of beneficial interest.
- Cruz defaulted, entered a forbearance with Aurora, and ING foreclosed on June 2, 2010 during the forbearance period.
- The Trustee’s Deed Upon Sale identified ING as foreclosing beneficiary, despite MERS being the recorded beneficiary.
- Cruz asserted TILA misrepresentations and related state-law deceit claims as well as wrongful foreclosure/quiet-title claims; the Trustee’s Deed purportedly created a gap in title due to ING’s lack of a recorded interest.
- The court granted in part and denied in part the motions to dismiss, concluding TILA claims are preempted or time-barred, and §2932.5 applies to deeds of trust, rendering ING’s foreclosure void unless its interest was recorded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the TILA-based claims preempted or time-barred? | Cruz asserts TILA disclosures were misrepresented, with later damages. | Defendants contend preemption and statute of limitations bar TILA-based claims. | TILA claims preempted and time-barred; dismissed with prejudice. |
| Does §2932.5 apply to deeds of trust and was ING’s foreclosure permissible without a recorded interest? | ING foreclosed without a recorded interest; MERS lacked authorization questioned. | §2932.5 applies to deeds of trust; foreclosing beneficiary must be recorded. | Section 2932.5 applies to deeds of trust; ING’s foreclosure void due to lack of recorded interest. |
| Was MERS’ substitution of trustee valid under the DOT? | MERS lacked authority to substitute the trustee. | Lender authorized MERS to substitute; substitution valid under statute. | MERS’ substitution of trustee is invalid as a basis for challenge; Court finds substitution effective. |
| Can Cruz state a wrongful-foreclosure/quiet-title claim based on 2932.5? | ING foreclosed without proper interest; 2932.5 protects borrowers. | Alleged missteps do not void foreclosure; requires proper assignment. | Causes of action based on 2932.5 viable; 2932.5 protects borrowers and supports voiding sale. |
| Is MERS still a party to the eighth and tenth claims? | MERS involved in alleged unlawful practices. | MERS’ involvement unclear after substitution issues. | MERS remains a party to the eighth and tenth claims; 17200 claim survives against MERS. |
Key Cases Cited
- Pacific Shore Funding v. Lozo, 138 Cal. App. 4th 1342 (Cal. Ct. App. 2006) (TILA-related state claims analyzed for accrual/ripe issues)
- Rubio v. Capital One Bank, 613 F.3d 1195 (9th Cir. 2010) (TILA violation informs Section 17200 analysis; ripeness/standing)
- Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001 (9th Cir. 2008) (Section 17200 claims preempted by TILA disclosures)
- Meyer v. Ameriquest Mortgage Co., 342 F.3d 899 (9th Cir. 2003) (Discovered-harm rules for TILA-related claims)