Smith v. HSBC Bank
3:16-cv-08278
D. Ariz.May 15, 2017Background
- In 2007 Smith bought Lake Havasu property with a $200,000 loan from New Century secured by a Deed of Trust; MERS was the original beneficiary, Wells Fargo serviced the loan, and the beneficiary interest transferred to HSBC in October 2007.
- Smith executed a 2009 loan modification; notices of trustee’s sale were posted in 2007, 2009, 2012 and finally a sale occurred (Trustee’s Deed Upon Sale) on November 24, 2014.
- Smith filed suit in Arizona state court on October 19, 2016; defendants removed to federal court and moved to dismiss all claims.
- Complaint asserted ten claims: lack of standing to foreclose; fraudulent concealment; fraudulent inducement; intentional infliction of emotional distress; slander of title; quiet title; declaratory relief; TILA violations; RESPA violations; and rescission.
- The court took judicial notice of recorded loan documents and concluded many of Smith’s claims rest on a "show me the note" theory and timing defects; it held the claims were legally deficient or time-barred and dismissed them with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to foreclose | Smith: securitization and lack of proof of note/assignment mean trustee lacked authority | Defs: Arizona non-judicial foreclosure law does not require production of the note; sale occurred and statutory pre-sale challenge window applies | Dismissed with prejudice; Smith precluded from contesting sale under A.R.S. §33-811(C); "show me the note" defense rejected |
| Fraud (concealment & inducement) | Smith: Defendants concealed securitization and induced her to accept loan/modification | Defs: securitization is not material to enforceability; claims lack Rule 9(b) particularity | Dismissed; securitization immaterial and fraud claims pleadings insufficient under Rule 9(b) |
| State-law torts (IIED, slander of title, quiet title, declaratory relief) | Smith: foreclosure conduct and recorded notices were wrongful, caused distress and clouded title | Defs: conduct lawful under Arizona foreclosure statutes; Smith defaulted and did not tender debt; elements (malice, falsity, extreme conduct) not pleaded | All dismissed; IIED and slander fail as not extreme/false and lack malice; quiet title requires tender/payment and declaratory relief duplicates failed claims |
| Federal consumer statutes (TILA, RESPA, rescission) | Smith: failed origination disclosures, tolling, and right to rescind | Defs: Defendants weren’t loan originator; claims untimely (statute of limitations) | Dismissed with prejudice; TILA/RESPA claims time-barred or inapplicable to these defendants; rescission time-barred |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must state a plausible claim to relief)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (legal conclusions insufficient; plausibility standard for complaints)
- Hogan v. Washington Mut. Bank, N.A., 277 P.3d 781 (Ariz. 2012) (Arizona non-judicial foreclosure statutes do not require beneficiary to "show the note" before foreclosure)
- Diessner v. MERS, 618 F. Supp. 2d 1184 (D. Ariz. 2009) (defendants need not prove ownership of the note to foreclose nonjudicially)
- Lopez v. Smith, 203 F.3d 1122 (9th Cir. 2000) (leave to amend may be denied when defects cannot be cured)