Laues-Gholston v. HSBC Mortgage Services
2:13-cv-12463
E.D. Mich.Feb 9, 2015Background
- Plaintiffs Roy and Kristen Laues-Gholston (pro se) sued to quiet title and invalidate first and second mortgages after default, alleging an assignment from MERS to HSBC severed the promissory note from the mortgage.
- Plaintiffs sought extinguishment of defendants’ interests based on alleged fraud and the “bifurcation” (separation) of note and mortgage; they also asserted a TILA claim for failure to receive assignment notice within 30 days.
- Defendants HSBC and MERS moved to dismiss under Fed. R. Civ. P. 12(b)(6); Encore Credit Corp. was named but never served.
- The magistrate judge applied Twombly/Iqbal pleading standards and Michigan law on foreclosure by advertisement.
- The court concluded the bifurcation theory is foreclosed by the Michigan Supreme Court’s decision in Residential Funding Co. v. Saurman, rendering the fraud claim meritless; the TILA claim was time-barred.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity of foreclosure/ability to foreclose after assignment | Assignment from MERS to HSBC severed mortgage from promissory note, so assignee cannot foreclose | Assignee (HSBC) as record mortgage holder has an "interest in the indebtedness" and may foreclose by advertisement | Dismissed: Saurman controls; assignment/bifurcation does not invalidate foreclosure rights |
| Fraud based on bifurcation/assignment | Assignment and bifurcation constitute fraud justifying extinguishment of mortgage interest | Fraud claim is derivative of the rejected bifurcation theory and lacks merit | Dismissed: Fraud claim fails because underlying theory is legally insufficient |
| TILA claim (15 U.S.C. §1641(g)) | Plaintiffs did not receive required notice of assignment within 30 days | Claim is time-barred; filed more than one year after alleged assignment(s) | Dismissed sua sponte for lack of jurisdiction as frivolous/time-barred |
| Claims against unserved Encore Credit Corp. | Same claims as against HSBC; Encore holds similar interests | Encore not served but claims are meritless for same reasons | Dismissed sua sponte as devoid of merit |
Key Cases Cited
- Residential Funding Co., L.L.C. v. Saurman, 490 Mich. 909, 805 N.W.2d 183 (2011) (Michigan Supreme Court holding record mortgage holder has an "interest in the indebtedness" and may foreclose by advertisement)
- Apple v. Glenn, 183 F.3d 477 (6th Cir. 1999) (district court may sua sponte dismiss frivolous claims for lack of subject-matter jurisdiction)
- Neitzke v. Williams, 490 U.S. 319 (1989) (frivolousness standard: lacks arguable basis in law or fact)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard: distinguish factual allegations from legal conclusions; plausibility requirement)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (complaint must plead enough facts to make claim plausible)
Outcome: Magistrate Judge recommended granting HSBC’s and MERS’ motion to dismiss, sua sponte dismissal of the TILA claim and claims against unserved Encore, and dismissal of the complaint with prejudice.