Chapter 13
MEMORANDUM DECISION ON THE MOTION OF CAPITAL ONE AND MERS TO DISMISS ADVERSARY PROCEEDING UNDER RULE 7012
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 San-dri (“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 time, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal,
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,
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 Debt- or “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:
The Note or a partial interest in the Note (together with this Security Instrument) can be sold one or more times without prior notice to Borrower. A sale might result in a change in the entity (known as the “Loan Servicer”) that collects Periodic Payments due under the Note and this Security Instrument and performs other mortgage loan servicing obligations under the Note, this Security Instrument, and Applicable Law. There also might be one or more changes of the Loan Servicer unrelated to a sale of the Note. If there is a change of the Loan Servicer, Borrower will be given written notice of the change which will state the name and address of the new Loan Servicer, the address to which payments should be made and any other information RESPA requires in connection with a notice of transfer of servicing. If the Note is sold and thereafter the Loan is serviced by a Loan Servicer other than the purchaser of the Note, the mortgage loan servicing obligations to Borrower will remain with the Loan Servicer or be transferred to a successor Loan Servicer and are not assumed by the Note purchaser unless otherwise provided by the Note purchaser.
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 sec-uritized 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.
II. DISCUSSION
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),
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 Debt- or), 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.
A. The Purported Robo-Signing Does Not Give Rise to a Claim For Relief
Debtor contends that Charity Henson is a robo-signer who was not authorized to act on behalf of MERS,
B. Debtor Cannot Assert a Claim for Breach of the PSA
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.
1. The Weight of Authority is Against Glaski
While Glaski allowed a borrower to challenge foreclosure on the basis that a secu-ritized 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.,
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.,
2. Glaski’s Reasoning is Not Persuasive
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,
New York intermediate appellate courts have repeatedly and consistently found
Even assuming, as Plaintiffs insist, that New York law governs interpretation of the PSA, and assuming that the transfer of Plaintiffs’ loan to the Trust violated the terms of the PSA, that after-the-deadline transaction would merely be voidable at the election of one or more of the parties — not void. Accordingly, Plaintiffs, who were not parties to the PSA do not have standing to challenge it. [E]ven if it is true that the Note was transferred to the Trust in violation of the PSA, that transaction could be ratified by the beneficiaries of the Trust and is merely voidable.
Calderon,
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,
3. Postr-Glaski Authority is Persuasive
In Dick v. Am. Home Mortg. Servicing, Inc.,
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
4. Nordeen is Persuasive
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 securiti-zation 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 securiti-zation fail.” Nordeen,
In reaching this holding, the BAP observed:
[ H]ome loan borrowers are not purchasing an investment when they enter into a loan agreement to purchase or refinance a home. When they sign a promissory note and mortgage or trust deed secured by their real property, they are entering into a contract for a loan transaction on fixed terms, and any “upside” or investment incentive to enter into the transaction is based on a prospective increase in the value of the subject real property. Accordingly, the borrower’s loan contract (the Note and Trust Deed in this appeal) is distinct and separate from any securities transaction in the “secondary market” encompassing assignment of the contract.
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 securiti-zation 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.
C. Debtor Has No Remedy for Violation of Civil Code Section 2923.5
Debtor alleges in 41-43 of the complaint that Capital One and Quality violated California Civil Code section
III. CONCLUSION
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 Gane-san, 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,
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.
Notes
. Debtor named two other defendants, T.D. Service Company ("T.D.”) and Quality Loan
. The following narrative is taken from the complaint and other court documents that provide uncontested facts. For the purposes of the MTD, the court assumes the allegations of the complaint to be true. See Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
. Defendants state in their memorandum of points and authorities in support of their MTD that Chevy Chase was retained as servi-cer of the loan, but do not provide any independent evidence of a servicing agreement. Nonetheless, Debtor did execute a loan modification with Chevy Chase in 2008, and did enter into an adequate protection agreement with Capital One, N.A. (successor-in-interest to Chevy Chase, as admitted in paragraph 9 of the complaint) after Capital One filed a motion for relief from stay because Debtor had purportedly failed to make seven post-petition payments. See Motion for Relief From Stay at Docket No. 49 and Adequate Protection Order at Docket No. 54, both filed in the main case (No. 12-31854).
. Debtor indicates in her supplemental brief that she is not challenging the authority of a nominee to initiate foreclosure proceedings but is instead pursuing questions regarding the chain of title. The court thus assumes that Debtor is abandoning her position in paragraphs 16-20 of the complaint, in which she alleges that "any purported assignment of
. Courts have similarly rejected other theories that securitization of a loan somehow diminishes the underlying power of sale that can be exercised upon a trustor’s breach. Zadrozny v. Bank of N.Y. Mellon,
. Debtor conceded in paragraph 36 of the complaint that her claim for violation of California Business and Professions Code section 17200 "is a derivative cause of action” and that her "ability to pursue this cause of action depends on the success or failure of [her] substantive causes of action.”
. The court will not dismiss the action against the non-moving defendants (Quality and T.D.) in the absence of a motion to dismiss by them or a voluntary dismissal by Debtor. If Debtor believes that she has independent grounds for claims against Quality and T.D. notwithstanding the holdings in this memorandum decision, she should file and serve a 30-day (at a minimum) notice that a status conference is scheduled for January 31, 2014, at 1:30 p.m.