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FOUST VS. WELLS FARGO | Nevada Supreme Court Reverses/Remands “Substitution of AHMSI Default as trustee may have been an error, Remand as to whether Wells Fargo was entitled to Enforce the Note”

FOUST VS. WELLS FARGO | Nevada Supreme Court Reverses/Remands “Substitution of AHMSI Default as trustee may have been an error, Remand as to whether Wells Fargo was entitled to Enforce the Note”


IN THE SUPREME COURT OF THE STATE OF NEVADA

GEORGE M. FOUST AND BECKY H.
FOUST, AS HUSBAND AND WIFE,
Appellants,

vs.

WELLS FARGO, N.A., STATE OF
INCORPORATION PRESENTLY
UNKNOWN; MORTGAGE
ELECTRONIC REGISTRATION
SYSTEMS, INC.; AND AMERICAN
HOME SERVICING MORTGAGES,
INC., A DELAWARE CORPORATION,
Respondents.

ORDER OF REVERSAL AND REMAND

This is an appeal from a district court order dismissing a complaint as to respondents, certified as final under NRCP 54(b), in a foreclosure action. Eighth Judicial District Court, Clark County; Timothy C. Williams, Judge.

EXCERPTS:

On January 30, 2009, Wells Fargo signed a document substituting AHMSI Default Services, Inc. (AHMSI Default), as a substitute trustee, but did not have this document acknowledged until February 2, 2009. Also on January 30, 2009, AHMSI Default, acting as a substitute trustee for Wells Fargo, signed and acknowledged a notice of default against the Fousts, and recorded the same on February 2, 2009. However, Wells Fargo’s status as of January 30, 2009, is unclear.

According to the record, American Home Mortgage Servicing, Inc., executed an assignment of the deed of trust to Wells Fargo on February 20, 2009, which was recorded on February 25, 2009. It included a provision stating “Misc. Comments: EFFECTIVE DATE OF ASSIGNMENTS: 01/02/2009.” This effective date is prior to the date on which Wells Fargo substituted AHMSI Default as trustee.

[…]

The issues the Fousts raise on appeal are: (1) whether AHMSI Default wrongfully commenced a foreclosure against them because AHMSI Default was not a proper substitute trustee, as Wells Fargo was not entitled to enforce the note; and (2) whether Wells Fargo was assigned the deed of trust prior to the date on which AHMSI Default entered the notice of default. We conclude that the district court erred in granting the motion to dismiss because the Fousts presented a claim upon which relief could be granted. Thus, we reverse and remand this matter to the district court for further proceedings consistent with this order.

Standard of review

We review the district court’s legal conclusions, including a determination that a plaintiff has failed to state any legitimate causes of action under NRCP 12(b)(5), de novo. See Buzz Stew, LLC v. City of N. Las Vegas, 124 Nev. 224,  228, 181 P.3d 670, 672 (2008). In reviewing motions to dismiss pursuant to NRCP 12(b)(5), we accept all facts in the complaint as true, construe the pleadings liberally, and draw all possible inferences in favor of the nonmoving party: Id.; Blackjack Bonding v. Las Vegas Mun. Ct., 116 Nev. 1213, 1217, 14 P.3d 1275, 1278 (2000). This standard of review is rigorous, and the plaintiffs “complaint should be dismissed only if it appears beyond a doubt that it could prove no set of facts, which, if true, would entitle it to relief.” Buzz Stew, 124 Nev. at 227-28, 181 P.3d at 672.

The Fousts stated a claim upon which relief can be granted

This appeal focuses on the Fousts’ fifth cause of action, in which the Fousts alleged that Wells Fargo may not own the note and mortgage and, therefore, lacked standing to foreclose. Construing this allegation liberally and drawing all possible inferences in favor of the Fousts, the first amended complaint presents a claim upon which relief could be granted.

While deeds of trust and mortgage notes work together in the context of mortgage lending, they are distinct documents with separate functions. Leyva v. National Default Servicing Corp., 127 Nev. „ P.3d , (Adv. Op. No. 40, July 7, 2011). We do not analyze those distinctions here, but possessing only the deed of trust does not create an entitlement to enforce the underlying note. See In re Veal, No. 09-14808, 2011 WL 2304200, at *12 (B.A.P. 9th Cir. June 10, 2011). To enforce a debt secured by a deed of trust and mortgage note, a person must be entitled to enforce the note pursuant to Article 3 of the Uniform Commercial Code. Id. at *7; see also Restatement (Third) of Property: Mortgages § 5.4(c) (1997) (“A mortgage may be enforced only by, or in behalf of, a person who is entitled to enforce the obligation the mortgage secures.”). “Article 3 is codified in NRS 104.3101-.3605.” Levva, 127 Nev. at n.6, P.3d at n.6. If Wells Fargo was not entitled to enforce the note, then the substitution of AHMSI Default as trustee and the subsequent foreclosure notice against the Fousts may have been in error.

Therefore, the central inquiry on remand is whether Wells Fargo was entitled to enforce the note. 5

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