Deed Of Trust | FORECLOSURE FRAUD | by DinSFLA

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The Magic of the Mortgage Electronic Registration System: It Is and It Isn’t

The Magic of the Mortgage Electronic Registration System: It Is and It Isn’t


“Never imagine yourself not to be otherwise than what it might appear to others that what you were or might have been was not otherwise than what you had been would have appeared to them to be otherwise.”1

Excerpt:

While MERS may be named as the actual mortgagee
or its equivalent on the security instrument, in
substance its role is that of a nominee or agent.23
The language in the mortgage generally states:
“‘MERS’ is Mortgage Electronic Registration
Systems, Inc. MERS is a separate corporation that
is acting solely as nominee for Lender and
Lender’s successors and assigns. MERS is the
mortgagee under this Security Instrument.”24 Here
then begins the magic that is MERS—the dual claim
that it is both a principal (mortgagee) and
nominee/agent of the lender/factual mortgagee.25
MERS undertakes these roles but never lends
money and never gives value for the mortgage, nor
does it benefit from the proceeds of foreclosure
and/or collection actions.26 Were MERS’s
involvement in the mortgage market insignificant,
it might not pose much of a legal problem;however,
MERS appears to be involved in sixty
million loans—roughly half of all U.S. home
mortgages.27 The legal role MERS attempts to fill
and MERS’s argument as to standing is: 1) provide
a mortgage clearinghouse and eliminate recording
obligations by having MERS itself act as mortgagee
of record;28 2) allow the promissory note
evidencing the debt to be transferred freely among
MERS members ad infinitum; and 3) when default
occurs, act as the nominee of the current note
holder and mortgagee of record (rejoining the two
interests) even though the current “lender” did
not appoint MERS as mortgagee and may never have
had the right to do so. Ultimately, the argument
is something akin to a merger argument where MERS
claims that the severed interests, that of
security interest and note, are recombined in MERS
at a later date even though it received those
interests from separate entities. As others have
pointed out, MERS is attempting to derive powers
as an agent greater than the sum of the powers of
its principals.29

[ipaper docId=86987723 access_key=key-2k44k0z1xng0exhlu51n height=600 width=600 /]

 

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Posted in STOP FORECLOSURE FRAUDComments (1)

US Treasury: New HAMP Mortgage Modification Program Includes GSE Principal Reductions

US Treasury: New HAMP Mortgage Modification Program Includes GSE Principal Reductions


I posted the quoted text below back on Nov ’10… I wonder who exactly signs off for MERS, if this is so?

The standard modification agreement
is between the Borrower and
the Lender. The agreement amends
and supplements (1) the Mortgage,
Deed of Trust or Deed to Secure
Debt (Security Instrument) and (2)
the Note bearing the same date as,
and secured by, the Security
Instrument. Prior to MERS, the
standard agreement worked
because the Lender was the mortgagee
of record and could modify
the mortgage and also had the
authority to modify the Note.

However, if MERS is the mortgagee
of record, the Lender can’t
modify the mortgage without the
“mortgagee’s” consent.

MNINEWS-

The Obama Administration Friday announced it is expanding its flagship mortgage modification program and will now encourage lenders to reduce the principal loan balance for Fannie Mae and Freddie Mac loans.

The announcement comes just three days after President Obama said he would do more to support the struggling housing market and two days after Federal Reserve Chairman Ben Bernanke said housing is holding back the economic recovery.

Assistant Secretary for Financial Stability Timothy Massad in a blog post Friday outlined the changes to HAMP — including extending the end-date by one year and refocusing on principal reductions.

Massad said Treasury notified the Federal Housing Finance Agency, the regulator for Fannie Mae and Freddie Mac, that they will pay principal reduction incentives to the GSEs if they allow servicers to forgive principal — if done in conjunction with a HAMP modification.

Massad also said Treasury will triple the incentives for HAMP principal reduction modifications by paying from 18 to 63 cents on the dollar, depending on how much the loan-to-value ratio is reduced.

[MNINEWS]

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Posted in STOP FORECLOSURE FRAUDComments (1)

IN RE CRUZ | CA BK Court “2932.5, Foreclosure of the Property was wrongful due to MERS’ unauthorized substitution of trustee”

IN RE CRUZ | CA BK Court “2932.5, Foreclosure of the Property was wrongful due to MERS’ unauthorized substitution of trustee”


In re: CIRILO E. CRUZ JUANA CRUZ, Chapter 13, Debtors,

CIRILO E. CRUZ, Plaintiff,

v.

AURORA LOAN SERVICES LLC; SCME MORTGAGE BANKERS, INC.; ING BANK, F.S.B.; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.; and DOES 1 to 100, Defendants,

Bankruptcy No. 11-01133-MM13, AP: 11-90116-MM.

United States Bankruptcy Court, S.D. California.

August 11, 2011.

MEMORANDUM DECISION ON MOTIONS TO DISMISS SECOND AMENDED COMPLAINT

MARGARET M. MANN, Bankruptcy Judge.

I. INTRODUCTION

The Court has considered the Motions (“Motions”) to Dismiss the Second Amended Complaint (“SAC”) of debtor and plaintiff Cirilo E. Cruz[1] (“Cruz”) brought pursuant to Fed. R. Bankr. P. 7012, incorporating by reference Fed. R. Civ. P. 12(b)(6), by Defendants Aurora Loan Services (“Aurora”), Mortgage Electronic Registration Systems, Inc. (“MERS”), and ING Bank, F.S.B. (“ING”).[2] The Court grants the Motions in part and denies them in part for the reasons set forth in this Memorandum Decision.

All Truth-In-Lending-Act (“TILA”) related causes of action are dismissed with prejudice. The Court concludes that Cruz cannot state a cause of action under any theory challenging the TILA disclosure because his claims are either unripe or barred by the statute of limitations. The TILA allegations cannot be stated as state law claims because of federal preemption as an alternative ground for dismissal. The Motions are granted to the additional extent they assert the foreclosure of the Property was wrongful due to MERS’ unauthorized substitution of trustee.

The Court denies the Motions to the extent that they assert ING was not required to record its assignment of beneficial interest before it foreclosed. The Motions request the Court reconsider its holding in U.S. Bank N.A. v. Skelton (In re Salazar), 448 B.R. 814, 822-24 (Bankr. S.D. Cal. 2011), that California Civil Code § 2932.5[3] pertains to both mortgages and deeds of trust. For the additional reasons set forth in this Memorandum Decision, the Court reaffirms its analysis in Salazar and concludes that ING’s failure to record its beneficial interest rendered its foreclosure sale void.

II. FACTUAL ANALYSIS

A. Standard of Review

The Court assumes the allegations of the SAC are true for purposes of the Motions and construes them liberally in favor of Cruz. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007); Gilligan v. Jamco Development Corp., 108 F.3d 246, 249 (9th Cir. 1997). However, the Court must also find that the SAC pleads sufficient facts to state a claim of relief that is “plausible on its face.” Twombly, 550 U.S. at 570; Ashcroft v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937, 1949 (2009) (citing Twombly). The SAC allegations must “raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555; see also Iqbal, 129 S. Ct. at 1950 (citing Fed. R. Civ. P. 8(a)(2)).

B. Factual Summary

The SAC allegations relate to the 2004 financing of Cruz’s residence located at 3148 Toopal Drive, Oceanside, CA 92054 (” Property”), by a loan provided by SCME (“Loan”) documented by a variable interest rate note (“Note”) and deed of trust (” DOT”). Aurora was the servicer of the Loan and MERS was the initial nominal beneficiary of the Loan. Cruz claims the TILA disclosure provided to him when the Loan was made was misleading by understating its total cost through maturity, which caused him to forego less expensive financing alternatives.

After Cruz defaulted on the Loan, Defendants commenced the foreclosure process. ING had become the successor beneficiary under the DOT at some time before, but never recorded an assignment of beneficial interest. Cruz then entered into a forbearance agreement with Aurora. ING foreclosed on the Property on June 2, 2010 during the extended forbearance period agreed to by Aurora, even though Cruz was current on his payments at the time. ING’s interest, as assignee beneficiary, first appeared of record in the Trustee’s Deed Upon Sale (“Trustee’s Deed”), recorded a few weeks after the foreclosure. The Trustee’s Deed identified ING as the foreclosing beneficiary.

C. Procedural History

Cruz and his wife filed their joint Chapter 13 bankruptcy petition on January 25, 2011, and Cruz filed his First Amended Complaint (“FAC”) about a month thereafter. Defendants responded to the FAC with motions to dismiss brought pursuant to Fed. R. Bankr. P. 7012, incorporating by reference Fed. R. Civ. P. 12(b)(6) (“First Motions”). These were denied in part and granted in part in this Court’s order entered May 24, 2011 (” FAC Order”). The First Motions were denied to the extent they related to Aurora’s forbearance agreement. The Court also denied the First Motions pertaining to whether causes of action were stated under TULA and under California Business and Professions Code § 17200 (“Section 17200”). The Court granted the First Motions with leave to amend as to whether the TILA causes of action were barred by the statute of limitations; whether MERS had authority to substitute the trustee under the DOT; whether ING’s interest was required to be of record; and whether Cruz could allege facts to tender the Loan amount to set aside the foreclosure under TILA or to claim damages. The Court also granted leave to amend for Cruz to clarify which Defendants were named in the different causes of action.

In response to the FAC Order, Cruz filed his SAC,[4] to which Defendants responded with these Motions.

III. LEGAL ANALYSIS

A. The First Third and Tenth Causes of Action of the SAC are Preempted.

Cruz attempts in the first, third and tenth causes of action to allege his TILA claims indirectly under Section 17200, and as state law fraud and negligent misrepresentation claims. Since these causes of action rely upon the TILA disclosures made to Cruz when the Loan was made, they must be dismissed with prejudice due to federal preemption. In Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1003 (9th Cir. 2008), the Section 17200 claims were alleged based upon TILA disclosures. The Ninth Circuit dismissed these claims, finding Congress intended for TILA to preempt the field. Id. at 1004-06. Here as well, although the deceit and Section 17200 claims do not reference TILA, they are based solely upon the representations mandated by TILA. As in E*Trade Mortg. Corp., id., attempts to camouflage these claims from TILA scrutiny cannot save them from dismissal.

B. The First. Third and Tenth Causes of Action Relating to TILA Disclosures are Not Timely.

Even if the preemption bar did not apply, the Court concludes the first, third and tenth causes of action should still be dismissed. The FAC Order at ¶¶ 12-14 granted leave to amend the TILA causes of action to specify when Cruz discovered, or should have discovered, the harm of the alleged TILA inaccuracy. Gutierrez v. Mofid, 39 Cal. 3d 892, 897-98 (1985) (relevant discovery time is of the nature of the harm, not the existence of legal remedies). This is the date of discovery under state law for statute of limitations tolling purposes. See Grisham v. Philip Morris USA, Inc., 40 Cal. 4th 623, 646 (2007) (personal injury claim for a tobacco company’s misrepresentation accrued at the time that “the physical ailments themselves were, or reasonably should have been, discovered”).

Rather than providing more detail on when the harm was discovered, as required by the FAC Order, the SAC hedges the issue. It alleges that Cruz could not have discovered the understatement of the cost of the 2004 Loan until the TILA disclosure was reviewed by an expert in 2010. Alternatively, the SAC alleges that the harm could not be discovered until 2015, when the interest rate will become variable. SAC ¶ 23. But under either discovery date, Cruz cannot state a cause of action.

If the alleged harm occurred when the Loan was made in 2004 by misleading Cruz into a bad financing choice, then the cause of action is barred by the three year statute of limitations for state law deceit claims. Cal. Code Civ. Pro. § 338(d). Even though a complicated analysis is required, it is possible to discern from the Loan documents attached to the SAC that the total cost of financing on the TILA disclosure differed from the stated interest rate. Although Cruz only alleges state law deceit claims, the Court finds persuasive Ninth Circuit authority that addressed when the harm of TILA misrepresentations should be discovered. Although these claims are alleged under state law, both federal and state courts have applied TILA to assess related state law claims. See e.g. Pacific Shore Funding v. Lozo, 138 Cal. App. 4th 1342, 1347 (2006); Rubio v. Capital OneBank, 613 F.3d 1195, 1203 (9th Cir. 2010). Under Meyer v. Ameriquest Mortgage Co., 342 F.3d 899, 902 (9th Cir. 2003), because the plaintiffs “were in full possession of all information relevant to the discovery of a TTLA violation and a § 1640(a) damages claim on the day the loan papers were signed,” they could not toll the statute of limitations.

Cruz was in full possession of the Loan documentation in 2004. Because there are no allegations of fraudulent concealment, or any other action on the part of any Defendant to cover up the misrepresentations, the deceit causes of action accrued when the Loan was made. Id. This was the date the harm to Cruz could have been determined from the face of the Loan documents.

The alternative explanation of the discovery of the harm is that it has not yet occurred and will not occur, if at all, until the interest rate on the Loan becomes variable in 2015. SAC ¶ 23-33. Whether the Loan will be more or less expensive than either the stated 5.85% initial contract rate, or the projected variable index rate of 4.85% starting in 2015, cannot be known until 2015. It is beyond the capabilities of this Court, or any expert or jury, to speculate about future interest rates. If interest rates drop below the index assumption used when the Loan was made, Cruz will receive a windfall. If they rise, Cruz will suffer loss assuming he is still paying on the Loan. This lack of a concrete impact on the parties renders these claims unripe for resolution. See Thomas v. Union Carbide Agricultural Prod. Co., 413 U.S. 568, 580 (1985) (ripeness doctrine prevents premature adjudication where the impact of a claim against the parties cannot be known); see also Exxon Corp. v. Heinze, 32 F.3d 1399, 1404 (9th Cir. 1994).

The first, third and tenth causes of action, to the extent they are related to the TTLA disclosures,[5] are accordingly dismissed with prejudice because they are either barred by the statute of limitations or are unripe.

C. The Eighth and Ninth Causes of Action for Wrongful Foreclosure and Quiet Title Cannot Be Based upon a Wrongful Substitution of Trustee. But Only upon Section 2932.5.

There are two separate factual scenarios alleged in the wrongful foreclosure causes of action: 1) that MERS lacked authority to substitute Quality as trustee of the DOT; and 2) that ING had no recorded beneficial interest at the time it foreclosed. The second scenario, but not the first, alleges a viable cause of action.

1. The Substitution of Trustee by MERS was Valid.

In the FAC Order, Cruz was directed to specifically allege why MERS, as the nominee of the Lender under the DOT and the beneficiary of record, lacked authority under § 2934a(a)(1)(A) to substitute the trustee. The Court earlier ruled in the FAC Order that if MERS was authorized by the Lender under the DOT to substitute the trustee, this substitution would be valid.

Instead of alleging specific facts that MERS was not authorized by the Lender to substitute the trustee, Cruz relies upon general allegations that two parties cannot both be the beneficiary. SAC ¶ 101. These allegations seem to leave the resolution of whether MERS was authorized to substitute the trustee to the outcome of the litigation. But California law does not provide a cause of action to determine whether or not a party has authority to institute foreclosure proceedings. Gomes v. Countrywide Home Loans, 192 Cal. App. 4th 1149, 1154-56 (2011).

Cruz separately alleges that ING was the beneficiary throughout the foreclosure process.[6] He argues in his opposition that the DOT follows the Note, and MERS could not have been the beneficiary once ING was assigned the Note. This argument ignores that once ING was entitled to enforce the Note, it became the Lender under the DOT, even if its interest was not yet of record. As such, ING could direct MERS, as the beneficiary of record and as the Lender’s nominee, to substitute Quality as the trustee of the DOT. Ferguson v. Avelo Mortgage LLC, 195 Cal. App. 4th 1618, 1628 (2011) (authorized beneficiary may substitute the trustee). Avelo relied upon § 2934a which specifically authorizes substitutions of trustees to be recorded after the substituted trustee takes action. Id.

Leave to amend the substitution of trustee claim will not be granted because Cruz’ allegations that ING was the beneficiary throughout the foreclosure process disprove this claim. Abagninin v. AMVAC Chem. Corp., 545 F.3d 733, 742 (9th Or. 2008) (leave to amend may be denied if the allegation of other facts, consistent with those plead, cannot cure the deficiency).

2. Section 2932.5 Applies to Deeds of Trust.

Although Cruz’s other causes of action are fatally defective, Cruz has properly stated claims for wrongful foreclosure and quiet title based upon ING’s non-judicial foreclosure of the DOT.[7] Section 2932.5 required that ING’s interest be of record at the time of the foreclosure sale, and it was not. MERS was the beneficiary of record when ING foreclosed, but ING was the actual foreclosing beneficiary.[8] The Trustee’s Deed identified ING as the foreclosing beneficiary, and that recital is a binding statement of fact. Bank of America v. La Jolla Group II, 129 Cal. App. 4th 706, 731-32 (2005). Because ING lacked an interest of record, it was not authorized to proceed with the foreclosure sale under § 2932.5, rendering the sale void. Dimock v. Emerald Properties, 81 Cal. App. 4th 868, 874 (2000) (sale under deed of trust by former trustee void, and tender of the amount due is unnecessary); Bank of America, 129 Cal. App. 4th at 712.[9]

To reevaluate whether § 2932.5 concerns both mortgages and deeds of trust, the Court has carefully considered the” intermediate appellate court decisions, decisions from other jurisdictions, statutes, treatises, and restatements as guidance . . .” to attempt to determine how the California Supreme Court would rule. Lewis v. Tel. Employees Credit Union, 87 F.3d 1537, 1545 (9th Cir. 1996). The Court remains convinced that the highest court in this state would hold that § 2932.5 requires an assignee trust deed beneficiary to record its interest before it non-judicially forecloses.

a. The Plain Language of § 2932.5 Can Be Applied to Deeds of Trust.

Defendants first contend the plain language of § 2932.5[10] cannot accommodate deeds of trust within its ambit. Starting with a review of the statutory language, and considering its legislative history, see Conservatorship of Whitley, 50 Cal. 4th 1206, 1214 (2010), the Court finds the plain language of § 2932.5 easily pertains to deeds of trust:

Where a power to sell real property is given to a mortgagee, or other encumbrancer, in an instrument intended to secure the payment of money, the power is part of the security and vests in any person who by assignment becomes entitled to payment of the money secured by the instrument. The power of sale may be exercised by the assignee if the assignment is duly acknowledged and recorded.

(Emphasis added). The statute does not only apply to mortgagees but also to other encumbrancers. That a beneficiary under a deed of trust is an encumbrancer is confirmed by the California Supreme Court. “(M)ortgagees and trust deed beneficiaries alike hold security interests in property encumbered by mortgages and deeds of trust.” Monterey S. P. P’ship v. W. L. Bangham, 49 Cal. 3d 454, 461 (1989) (rejecting that a deed of trust conveyed true title to the trustee). Section 2932.5 further provides that the “power [of sale] is part of the security and vests in any person who by assignment becomes entitled to payment of the money secured by the instrument.” As the assignee of the Note, ING was the party entitled to the payment of money. It took title to the Property in satisfaction of the secured debt at the time of the foreclosure sale. Each of the clauses of § 2932.5 applies comfortably to deeds of trust.

The legislative history of § 2932.5 also supports its application to deeds of trust as well as mortgages. Section 2932.5 succeeded to § 858 verbatim as part of the 1986 technical revisions to California trust law. See Recommendation Proposing the Trust Law (Dec. 1985) 18 Cal. Law Revision Rep. (1985) p. 764; Selected 1986 Trust and Probate Legislation, (Sept. 1986) 18 Cal. Law Revision Com. Rep. (1986) p. 1483, available at http://www.clrc.ca.gov/Mreports-publications.html#V18. These technical revisions included two changes to California foreclosure law pertaining to deeds of trust-to renumber § 2932.5 as part of the non-judicial foreclosure statute, and to add § 2934b to apply Probate Code §§ 15643 (vacancy in the office of trustee) and 18102 (protections for third persons dealing with former trustee.) Had § 2932.5 been limited to mortgages, there would have been no need to revise it at the time of the other revisions to California trust law.

Strike v. Trans-West Discount Corp., 92 Cal. App. 3d 735, 742 (1979) cited the predecessor to § 2932.5; i.e., § 858 to validate the exercise of the power of sale by a trust deed beneficiary of record. Tamburri v. Suntrust Mortg., Inc., 2011 U.S. Dist. LEXIS 72202 * 12-13 (N.D. Cal. July 6, 2011) recognized that whether § 2932.5 applies to deeds of trust raises a serious question sufficient to grant a preliminary injunction against the sale of foreclosed property. The two authoritative treatises that discuss § 2932.5 also agree that deeds of trust fall within its purview. 4 Harry D. Miller & Marvin B. Starr, California Real Estate, §§ 10.2, 10:38, 10:39[11] (3d ed. 2010); and Cal Jur 3d (Rev) Deeds of Trust § 112.[12]

Defendants do not discuss the interpretation of § 2932.5 by these persuasive treatises and other authorities. They point instead to the conveyance language of the DOT, which conveys title to the Property, “with power of sale,” to the trustee, to claim the beneficiary cannot be the “encumbrancer” in whom a power of sale is vested. Not only does this contention ignore that the power of sale in the DOT is controlled and must be invoked by the beneficiary, it seeks to revive the outdated title distinction between mortgages and deeds of trust rejected by the California Supreme Court.

b. Defendants’ Primary Authority is Out-Dated.

Defendants primarily[13] rely on Stockwell v. Barnum, 7 Cal. App. 413, 416-17 (1908), and the District Court cases[14] that follow it, to assert the power of sale in a deed of trust is held by the trustee, not the beneficiary. Stockwell is not a sound basis to determine how the California Supreme Court would apply § 2932.5 because it relies upon the archaic title theory of deeds of trust rather than the modern lien theory. 4 Witkin Sum. Cal. Law STRP § 6(2) (10th ed.) (“In most situations, the title theory has been disregarded, and the deed of trust has been deemed to create a mere lien on the property.”).

In Stockwell, id. at 415, an assignee of a note and deed of trust failed to record her interest before the property was sold at a foreclosure sale. Before the foreclosure sale, the borrower had conveyed the property to someone else. Stockwell held that the purchaser at the foreclosure sale had superior title over the successor owner because the predecessor statute to § 2932.5 only applied to mortgages. Id. Its reason for the distinction was that a deed of trust “instead of creating a lien only, as in the case of a mortgage, passes the legal title to the trustee, thus enabling him in executing the trust to transfer to the purchaser a marketable record title.” Id. at 417.[15]

This reasoning of Stockwell is now inapposite. Under Monterey, 49 Cal. 3d at 461, a deed of trust is no longer a conveyance of actual title to the Property, but merely a lien. The borrower now retains actual title to the property. Bank of Italy Nat. Trust & Sav. Assn. v. Bentley, 217 Cal. 644, 656 (1933). That this title theory is discredited by the Supreme Court is recognized by the Ninth Circuit. Olympic Federal Sav. & LoanAsso. v. Regan, 648 F.2d 1218, 1221 (9th Cir. 1981) (mortgages and deeds of trust are “legally identical,” so that the borrower retains actual title to the property that the Internal Revenue Service can redeem despite the presence of a junior deed of trust). See also Aviel v. Ng, 161 Cal. App. 4th 809, 816 (2008) (to interpret a subordination clause in a lease, the terms mortgages and deeds of trust were treated as synonymous based upon Bank of Italy, 217 Cal. at 656).

This Court finds the California Supreme Court is likely to overrule Stockwell’s holding that the trustee of a deed of trust holds actual legal title, rather than a lien. It has done so before. Monterey, 49 Cal. 3d at 463 (overruling Johnson v. Curley 83 Cal. App. 627 (1927), which held that beneficiaries under a deed of trust were not necessary parties to an action to have that deed declared void for fraud).

c. The Beneficiary, Not the Trustee. Holds the Power of Sale.

A better predictor than Stockwell, 7 Cal. App. at 416-17, of whether the California Supreme Court would apply § 2932.5 to deeds of trust, is that Court’s analysis of the respective roles of trust deed trustees and beneficiaries found in Monterey, 49 Cal. 3d at 463. The trustee merely holds bare legal title to the extent necessary to reconvey the lien if the debt is paid, or to foreclose the security interest if it is not. Id. at 460. The trustee is bound by no fiduciary duties, and has no duty to defend the rights of the beneficiary, or authority to appear in the suit in its behalf. Id. at 462. The trustee of a deed of trust serves merely as a common agent of both parties. Vournas v. Fidelity Nat. Tit. Ins. Co. 73 Cal. App. 4th 668, 677 (1999). Because the beneficiary’s economic interests are threatened when the existence or priority of the deed of trust is challenged, it is the real party in interest under a deed of trust. Monterey, 49 Cal. 3d at 461 (trust deed beneficiary must be named in a mechanics lien foreclosure suit since trustee does not protect its interests). See also Diamond Heights Village Assn., Inc. v. Financial Freedom Senior Funding Corp., 196 Cal. App. 4th 290, 304 (2011) (beneficiary is the real party in interest in a fraudulent conveyance action to void the security).

To claim the trustee, rather than the beneficiary, is the party who holds the power of sale under the deed of trust, elevates form over substance. The beneficiary is the real party in interest and should comply with § 2932.5.

d. Section 2932.5 Protects Borrowers’ Rights.

The California Supreme Court is clear that the distinction between mortgages and deeds of trust is inapplicable where necessary to protect a borrower’s rights. Bank of Italy, 217 Cal. at 658. Even though other statutes address the notices required to be sent to the borrower,[16] who no longer has a right to redeem the property after any foreclosure,[17] the borrower still has a right to strict construction of all of the non-judicial foreclosure statutes, including § 2932.5, to prevent an improper sale of its property. See System Inv. Corp. v. Union Bank, 21 Cal. App. 3d 137, 153 (1971) (harshness of non-judicial foreclosure justifies strict compliance with statutes); Bank of America, 129 Cal. App. 4th at 712 (“Statutory provisions regarding the exercise of the power of sale provide substantive rights to the trustor and limit the power of sale for the protection of the trustor,” citing Miller & Starr, § 10:123 (3d ed. 2003)). Deeds of trust are “far more widely used in this state” than mortgages. 4 Witkin Sum. Cal. Law STRP § 4 (10th ed.) (Citations omitted). Application of § 2932.5 to deeds of trust advances California’s broader statutory scheme to protect borrowers, consumer and otherwise, from a wrongful foreclosure.

MERS argues that the assignee beneficiary need not record its interest to prevent a gap in title. It again confuses the title to the lien of the deed of trust with title to the Property. That MERS was the beneficiary of record even though ING was the foreclosing beneficiary created a gap in title to the lien. ING was a stranger to the record before the foreclosure giving rise to suspicion that the sale was not authorized. This is the very risk that § 2932.5 was intended to safeguard. Stockwell, 7 Cal. App. at 416-17 (“the record should correctly show the authority of a mortgagee or his assigns to sell” to ensure that the title so conveyed be free from suspicion).

D. MERS Remains a Party to the Eighth and Tenth Causes of Action.

MERS seeks to dismiss the only two causes of action against it in the SAC, the eighth (wrongful foreclosure) and the tenth (Section 17200). MERS remains a party to the wrongful foreclosure cause of action due to this Court’s ruling on § 2932.5, even though the substitution of trustee claims found in that cause of action are dismissed. Because MERS may be liable for wrongful foreclosure on that basis, Cruz has also stated a viable 17200 claim as well.

Section 17200 establishes a disjunctive three part definition prohibiting any “unlawful, unfair, or fraudulent business practice.” “Each of these three adjectives captures a `separate and distinct theory of liability.'” Rubio, 613 F.3d at 1203, citing Kearns v. Ford Motor Co., 567 F.3d 1120, 1127 (9th Cir. 2009). As amended by Proposition 64, Section 17200 is applicable to protect consumers who have suffered an injury in fact as well as business competitors. Californians for Disability Rights v. Mervyns’LLC, 39 Cal. 4th 223, 228 (2006).

Since MERS is not alleged to have participated in any fraudulent activity, the last prong is not at issue. Under its “unlawful” prong, Section 17200 borrows violations of other laws and makes them independently actionable. Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal. 4th 163, 180 (1999). Although not a criminal statute, violation of other civil statutes can satisfy Section 17200. State Farm Fire & Casualty Co. v. Superior Court, 45 Cal. App. 4th 1093, 1103 (1996) (unlawful prong includes “anything that can properly be called a business practice and that at the same time is forbidden by law,” including antidiscrimination laws, antitrust laws, environmental protection laws, fish and game laws, housing laws, labor laws, vehicle laws, and criminal laws (citations omitted)); Rubio, 613 F.3d at 1204 (TILA violation). The “unfair” prong is measured by the alternative public policy test adopted by Rubio, 613 F.3d at 1205, citing Gregory v. Albertson’s, Inc., 104 Cal. App. 4th 845, 854 (2002). This test looks to whether the practice violates public policy as declared by “specific constitutional, statutory or regulatory provisions.” Rubio, 613 F.3d at 1205. In Rubio, the Ninth Circuit simply noted that the statutory policy behind TILA would satisfy the “unfair” prong of the test. It in effect collapsed the two prongs where statutory violations are alleged. Id.

The allegations of the SAC support MERS’ involvement in the violation of § 2932.5. MERS was the beneficiary of record, even though ING was the foreclosing beneficiary. The “unlawful” prong is met; as is the “unfair prong” under these allegations, and MERS will not be dismissed from either the eighth or tenth causes of action.

IV. CONCLUSION

The distinction between mortgages and deeds of trust is more one of terminology than substance as Monterey, 49 Cal. 3d at 464 stated: “Regrettably, it appears to be too late in the development of our vocabulary to rename deeds of trust and the `trustees’ who act under those instruments.” Weighing the dubious continuing viability of the Stockwell case against the other authority cited in this Memorandum Decision, the Court concludes that ING as the foreclosing beneficiary under the DOT is as subject to the mandates of § 2932.5 as if it held a mortgage. The DOT gives the authority to exercise the power of sale to ING, who is the real party in interest by law for foreclosure matters. For the same reasons as a mortgagee must record its interest before it forecloses, so must a beneficiary of a deed of trust under § 2923.5. The ministerial role of the trustee does not justify any distinction between the two instruments for purposes of § 2932.5 because the trustee as agent simply acts at the direction of the beneficiary.

This Memorandum Decision will constitute the Court’s findings of fact and conclusions of law pursuant to Fed. R. Bankr. P. 7052. Counsel for Cruz is directed to prepare an order in accordance with this Memorandum Decision within ten days of the date of entry.

IT IS SO ORDERED.

[1] The Court rules on the Motions despite the recent death of plaintiff Cruz. His demise does not abate this adversary proceeding, which pursues claims which now either belong to his estate or successor. Fed. R. Civ. P. 25 applies to allow the substitution of the successor of the deceased party in this case. Hawkins v. Eads, 135 B.R. 380, 384 (Bankr. E.D. Cal. 1991); see Fed. R. Bankr. P. 7025. The Court will decide any motion of substitution by any party or by the successors of Cruz at a later time. Hawkins, 135 B.R. at 384. The Chapter 13 case remains pending as Cruz’s wife is a co-debtor, and its status will be addressed in the bankruptcy case in chief pursuant to Fed. R. Bankr. P. 1016.

[2] Defendant SCME Mortgage Bankers, Inc. (“SCME”) has been defunct since 2007 and has not responded in any way to the complaints filed by Cruz. Quality Loan Service Corporation (“Quality”) has been deleted as a Defendant in the SAC, likely due to its filing of a Declaration of Nonmonetary Status pursuant to Cal. Civ. Code § 29241 (“Status Declaration”) to which Cruz did not timely object. In the Status Declaration, Quality stated it did not hold title to the Property and only served as the parties’ agent. Quality also agreed to be bound by any nonmonetary order or judgment of this Court. The Court will thus address the SAC only as it pertains to the moving parties Aurora, ING and MERS (collectively “Defendants”).

[3] All references to a statutory section are references to the California Civil Code unless otherwise specified.

[4] The SAC alleges ten causes of action: 1) intentional misrepresentation as to SCME and ING; 2) intentional misrepresentation as to Aurora and ING; 3) negligent misrepresentation as to SCME and ING; 4) negligent misrepresentation as to Aurora and ING; 5) breach of contract as to Aurora and ING; 6) breach of implied covenant of good faith and fair dealing as to ING and Aurora; 7) promissory estoppel as to ING and Aurora; 8) wrongful foreclosure as to ING, Aurora and MERS; 9) quiet title as to ING; and 10) violation of Section 17200 as to all Defendants.

[5] Cruz argued that since the Court denied the First Motions to dismiss the Section 17200 cause of action, MERS is precluded from challenging it again. But the Court’s analysis of the ripeness of this dispute is based upon new allegations of the SAC found in paragraph 23-that Cruz “would have discovered the interest rate discrepancy in the year 2015 when his payments would have deviated significantly from what the TILA disclosure statement reflected.”

[6] In SAC ¶ 100, Cruz alleges that “ING claims that they are and were the beneficiary of the Deed of Trust throughout the foreclosure process.” Cruz also alleges in SAC ¶ 61 that “Aurora was acting as agent for ING,” including when Aurora entered into the “Forbearance Contract” in October 2009. SAC ¶ 83.

[7] Although not the focus of his SAC, which is instead on the substitution of trustee under the DOT, Cruz alleges sufficient facts to assert this claim in SAC ¶ 106.

[8] Defendants do not contest that § 2932.5, if applicable, was not complied with by ING’s foreclosure without its interest being of record. They merely contest whether the statute applies to deeds of trust, or only to mortgages.

[9] Avelo, 195 Cal. App. 4th at 1628, on which Aurora relies for the broad statement that tender is required in any case seeking to set aside a completed sale, is not to the contrary. Avelo recognized that an unauthorized foreclose sale was void, but did not find the sale at issue was unauthorized. There, the substitution of trustee was signed by a lender before it was assigned any interest in the deed of trust. Because § 2934a retroactively validates a substitution of trustee by an unauthorized beneficiary, the substitution of trustee was deemed valid as of the time the deed of trust was assigned. Id., citing Dimock, 81 Cal. App. 4th at 876-78.

[10] Aurora and ING also direct the Court to a portion of § 2920(b) asserting that mortgages and deeds of trust are mutually exclusive under the foreclosure statute. This assertion ignores that § 2920(b) by its express terms only applies “(f)or purposes of Sections 2924 to 2924h, inclusive . . .” This limited exclusion of a deed of trust from the definition of a mortgage is patently inapplicable to § 2932.5.

[11] MERS incorrectly cites 4 Harry D. Miller & Marvin B. Starr, California Real Estate, §§ 10:2, 10:38, 10:39 (3d ed. 2010) (“Miller & Starr”) despite it being cited by MERS as an authoritative source on real estate. MERS quotes Miller & Starr to state that (“An assignment of the note and deed of trust need not be recorded to be effective. . . .”). The text quoted by MERS pertains only to the effectiveness of assignments between the assignee and assignor, but not to § 2932.5. Miller & Starr in the same section, § 10:39, proceed to specifically apply § 2932.5 to deeds of trust as well as mortgages: “In the case of a deed of trust or mortgage with a power of sale, an assignee can only enforce the power of sale if the assignment is recorded, because the assignee’s authority to conduct the sale must appear in the public records.”

[12] Cal Jur 3d (Rev) Deeds of Trust § 112 cites § 2932.5 and other authority for the following:

The assignment of a note and trust deed ordinarily vests in the assignee all the rights and interest of the beneficiary. The assignee becomes the equitable owner of the security and is entitled, as successor to the beneficiary, to all that is equitably due on the trust deed including interest on the amount secured to the date of payment or tender. The assignee has a right to bring a foreclosure action and may exercise the power of sale in a security instrument if the assignment is duly acknowledged and recorded.

[13] Defendants also cite two cases, neither of which supports that a deed of trust grants the power of sale to the trustee, rather than the beneficiary. Garretson v. Post, 156 Cal. App. 4th 1508, 1516 (2007) was actually a SLAPP case against the beneficiary arising from a claim of wrongful foreclosure, which summarily described the non-judicial foreclosure process. Py v. Pleitner, 70 Cal. App. 2d 576, 579 (1945) involved an obsolete difference between the right of redemption between mortgages and deeds of trust, rather than whether the trustee or beneficiary held the power of sale. Since Code of Civil Procedure § 729.010 now provides for a right of redemption following a judicial sale under either a mortgage or a deed of trust, Civ. Proc. § 729.010 (Deering 2011), it is particularly inapposite here.

[14] This Court respectfully is not bound by these District Court decisions. See State Compensation Ins. Fund v. Zamora (In re Silverman), 616 F.3d 1001, 1005 (9th Cir. 2010) (reserving whether bankruptcy courts are bound by district court decisions within the district where the bankruptcy court sits, but recognizing problems with a non-uniform body of law might result).

[15] Stockwell, 7 Cal. App. at 417, secondarily based its holding on its conclusion that “[i]t is immaterial who holds the note,” a conclusion recognized by Defendants as erroneous. In fact, they assert who holds the Note is dispositive, rather than “immaterial.” Defendants claim that because ING was the holder of the Note at the time of the foreclosure, it was unnecessary for it to record the assignment, because when the Note was transferred to ING, the beneficial interest in the DOT automatically transferred with it. Polhemus v. Trainer, 30 Cal. 686, 688 (1866) (interest in the collateral subject to the mortgage “does not pass unless the debt itself [is] assigned”). That ING is entitled to enforce the Note does not alone obviate compliance with § 2932.5, which also requires the assignment be recorded before the power of sale is exercised by the beneficiary.

[16] MERS correctly points out that notice requirement for borrowers are also addressed by other statutes. See §§ 2924b(b)(1) (trustor and mortgagee must receive copy of recorded notice of default via mail), 2924b(b)(2) (trustor and mortgagee must receive copy of recorded notice of sale via mail) and 2937 (trustor and mortgagee of residential property must receive notice of assignment of servicing of mortgage of trust deed via mail). This does not change the Court’s view addressed in Salazar, 448 B.R. at 821, that § 2932.5 helps ensure borrowers know who actually owns the loan and is the real party in interest during the foreclosure process. Id. at 818.

[17] See footnote 13, infra.

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IN RE DeSHETLER | OH BK Court GRANTS THE UNITED STATES TRUSTEE’S MOTION FOR ENTRY OF AN ORDER AUTHORIZING THE EXAMINATION OF AND REQUIRING THE PRODUCTION OF DOCUMENTS BY WELLS FARGO HOME MORTGAGE

IN RE DeSHETLER | OH BK Court GRANTS THE UNITED STATES TRUSTEE’S MOTION FOR ENTRY OF AN ORDER AUTHORIZING THE EXAMINATION OF AND REQUIRING THE PRODUCTION OF DOCUMENTS BY WELLS FARGO HOME MORTGAGE


In re: THOMAS L. DeSHETLER, CHERYL A. DeSHETLER, Chapter 13, Debtors.

Case No. 10-36557.

United States Bankruptcy Court, S.D. Ohio, Western Division, Dayton.

July 12, 2011.

Scott A. King, Jennifer L. Maffett, 2000 Courthouse Plaza, N.E., Dayton, Ohio, Counsel for Wells Fargo Bank, N.A.

Pamela Arndt, Office of the United States Trustee, Columbus, Ohio, Counsel for the United States Trustee.

DECISION GRANTING IN PART AND DENYING IN PART THE UNITED STATES TRUSTEE’S MOTION FOR ENTRY OF AN ORDER AUTHORIZING THE EXAMINATION OF AND REQUIRING THE PRODUCTION OF DOCUMENTS BY WELLS FARGO HOME MORTGAGE

GUY R. HUMPHREY, Bankruptcy Judge.

I. Introduction

This contested matter is before the court on the motion filed by the United States trustee[1] seeking an order authorizing him to conduct an examination of Wells Fargo Home Mortgage, one of the nation’s largest residential mortgage lenders, pursuant to Federal Rules of Bankruptcy Procedure 2004 and 9016. Wells Fargo objects to this request.

As a backdrop to understanding this contested matter, the UST’s motion seeking to conduct a 2004 examination comes in the wake of the mortgage crisis that has gripped this nation for the last several years, highlighted by an unprecedented number of foreclosures and litigation in the bankruptcy courts concerning issues of standing and documentation.[2] The volume of foreclosure proceedings has caused strain on mortgage servicers’ ability to process the large volume of delinquent loans encountered in the last several years. Compounding the challenges arising out of the sheer volume of the foreclosure filings is that most of these loans are syndicated, having been originated at a local level, bundled with other mortgage loans, and then sold to private investors, resulting in at least one and usually multiple transfers of the loan.[3] Thus, the state and federal courts, particularly the bankruptcy courts, have been engulfed by the “perfect storm” arising out of the mass syndication of mortgage loans and the ensuing financial crisis.

The UST’s motion raises several issues. The threshold issue is whether the UST has the authority to conduct an examination and to compel the production of documents pursuant to Federal Rule of Bankruptcy Procedure 2004. If the UST possesses such authority, two additional issues must be addressed: 1) whether the UST has demonstrated “good cause” under Rule 2004 for this request; and 2) whether the scope of the requested examination is appropriate.

For the reasons to be discussed, the court finds that the UST has the authority to conduct an examination under Rule 2004, including the ability to compel the production of documents. The court further finds that the UST has established good cause. However, the court limits the scope of the examination to the documents related to Wells Fargo’s claim that it is the holder, or other person entitled to enforce, the promissory note that is the subject of this inquiry. Any oral examination, as limited by this decision, shall only proceed in the event that the UST determines that Wells Fargo has not produced sufficient documentation to establish that it is entitled to enforce the note and when that occurred.

II. Factual and Procedural Background

Thomas L. DeShetler and Cheryl A. DeShetler (the “Debtors”) filed a joint chapter 13 petition on October 11, 2010 (doc. 1). Wells Fargo Home Mortgage filed a proof of claim (claim 9-1) on November 19, 2010 on behalf of Well Fargo Bank, N.A.[4] Attached to Wells Fargo’s proof of claim are copies of a mortgage granted to Washington Mutual Bank, FA (the “Mortgage”) and a promissory note payable to Washington Mutual Bank, FA endorsed in blank (the “Note”). On December 8, 2010 the court entered an order confirming the Debtors’ plan (doc. 21).

The UST filed a motion seeking to conduct a 2004 examination on December 8, 2010 (doc. 19) (the “2004 Motion”); on January 7, 2011 Wells Fargo filed an objection to the 2004 Motion (doc. 27) on February 22, 2011 the UST filed a reply (doc. 37) and on March 15, 2011 Wells Fargo filed a supplemental brief (Doc. 43) and a Request for Hearing (doc. 44), which the court granted (doc. 45). The court heard oral argument on April 13, 2011.

III. Positions of the Parties

The UST argues that he may conduct a 2004 examination because Wells Fargo’s proof of claim fails to attach documentation that Wells Fargo had standing to file its claim. In particular, the UST asserts that the Mortgage and Note attached to the proof of claim reference only Washington Mutual Bank, FA and that it is unknown whether the Note and Mortgage were ever properly assigned to Wells Fargo. To assist in determining the validity of Wells Fargo’s claim, the UST requests that Wells Fargo produce the “transactional mortgage loan history on the Debtors’ mortgage loan, along with payments for escrow advances made by Wells Fargo.” 2004 Motion, Exhibit A. The UST also requests that Wells Fargo provide evidence of the chain of assignment of the Mortgage and endorsement of the Note. Finally, the UST seeks to examine a representative of Wells Fargo regarding those documents.

In response, Wells Fargo asserts that the statutory powers granted to the UST do not include the authority to investigate and determine validity of claims based on state law rights and unilaterally increase the documentation necessary to file a valid proof of claim under Federal Rule of Bankruptcy Procedure (“BR”) 3001.[5] Wells Fargo further argues that, assuming that the UST has the statutory powers to conduct a 2004 examination, the UST lacks good cause to request a 2004 examination because the proof of claim establishes that Wells Fargo holds the Note since a copy is attached to its proof of claim and because, under Ohio law, security follows the debt, it need not provide a copy of the assignment of the Mortgage. Finally, Wells Fargo challenges the UST’s request for a “complete loan history” as unnecessary. If the court allows the 2004 examination, Wells Fargo concludes that the scope of the document requests must be narrowed and any examination conducted at the place of employment of the individual representative who is examined.

IV. Legal Analysis

A. Jurisdiction

This court has jurisdiction pursuant to 28 U.S.C. § 1334 and General Order No. 05-02 of the United States District Court for the Southern District of Ohio, which is the general order of reference referring all bankruptcy proceedings and matters to this bankruptcy court. This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A) and (O).

B. The Role of the United States Trustee’s Program

Because Wells Fargo challenges the UST’s authority to conduct 2004 examinations, an examination of the role of the UST, including the relevant statutes, is in order.

The UST was created by the Bankruptcy Reform Act of 1978 (the “1978 Act”) as a pilot effort in select federal judicial districts of the United States to remedy the perceived institutional bias arising out of bankruptcy judges’ handling of both the judicial and administrative aspects of the bankruptcy system. H.R. Rep. No. 595, 95th Cong., 1st Sess. 100, reprinted in 1978 U.S.C.C.A.N. 5963, 6061. Under the program, the UST was appointed to take over the administrative functions previously assumed by bankruptcy judges. Id.

To implement the newly created program, the 1978 Act added a new chapter to Title 28 of the United States Code, chapter 39, which addresses, among other things, the appointment, role, and salaries of United States trustees. See 28 U.S.C. §§ 581-586(a). Section 586 sets forth a list of the duties of the UST and defines the United States Attorney General’s supervision to be exercised over these trustees. 28 U.S.C. § 586; In re Countrywide Home Loans, Inc., 384 B.R. 373, 380 (Bankr. W.D. Pa. 2008). It provides in relevant part that:

(a) Each United States trustee, within the region for which such United States trustee is appointed, shall—

(3) supervise the administration of cases and trustees in cases under chapter 7, 11, 12, 13, or 15 of title 11 by, whenever the United States trustee considers it to be appropriate—

[…]

(C) monitoring plans filed under chapters 12 and 13 of title 11 and filing with the court, in connection with hearings under sections 1224, 1229, 1324, and 1329 of such title, comments with respect to such plans;

[…]

(F) notifying the appropriate United States attorney of matters which relate to the occurrence of any action which may constitute a crime under the laws of the United States and, on the request of the United States attorney, assisting the United States attorney in carrying out prosecutions based on such action;

(G) monitoring the progress of cases under title 11 and taking such actions as the United States trustee deems to be appropriate to prevent undue delay in such progress…

28 U.S.C. § 586(a). The legislative history explains:

The Trustee in each case will be responsible for the administration of the case. The bill gives him adequate powers to accomplish what must be done, and relieves him of the necessity for applying to the court and receiving court approval for every action he proposes to take. The bill introduces the concept that the trustee may take any action necessary to the administration of the case if he notifies those parties in interest to whom notice would be appropriate under the particular circumstances . . . and provide an opportunity for a party in interest to object.

H.R. Rep. No. 595, 95th Cong., 1st Sess. 107-108, reprinted in 1978 U.S.C.C.A.N. 5963, 6069. Based on the pilot program’s success, Congress expanded the program and made it permanent through the enactment of the Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986 (the “1986 Act”), P.L. 99-554. See also U.S. Trustee v. Columbia Gas Sys., Inc. (In re Columbia Gas Sys. Inc.), 33 F.3d 294, 296 (3rd Cir. 1994).

As part of the 1986 Act, Congress added a new provision to the Code — 11 U.S.C. § 307. That section provides that “[t]he United States trustee may raise and may appear and be heard on any issue in any case or proceeding under this title but may not file a plan pursuant to section 1121(c) of this title” (emphasis added). The House Report explains:

The U.S. Trustee is given standing to raise, appear, and be heard on any issue in any case or proceeding under Title 11, U.S. Code-except that the U.S. Trustee may not file a plan in a Chapter 11 case. In this manner, the U.S. Trustee is given the same right to be heard as a party in interest, but retains the discretion to decide when a matter of concern to the proper administration of the bankruptcy laws should be raised.

H.R. Rep. No. 764, 99th Cong., 2d Sess. 27, reprinted in 1986 U.S.C.C.A.N. 5227, 5240.

Wells Fargo advocates a view that restricts the powers granted to the UST to those specifically enumerated in § 586 and posits that § 307 is merely an enabling provision granting the UST the standing necessary to perform his duties under § 586. The UST argues that, pursuant to his congressionally mandated role as a “watchdog” of the bankruptcy system, § 586 and § 307 confer upon him broad authority to seek and conduct 2004 examinations.

C. Rule 2004 Examinations

The UST seeks to conduct an examination of Wells Fargo pursuant to BR 2004. It provides in pertinent part as follows:

(a) Examination on motion. On motion of any party in interest, the court may order the examination of any entity.

(b) Scope of examination. The examination of an entity under this rule or of the debtor under § 343 of the Code may relate only to the acts, conduct, or property or to the liabilities and financial condition of the debtor, or to any matter which may affect the administration of the debtor’s estate, or to the debtor’s right to a discharge. In . . . an individual’s debt adjustment case under chapter 13 . . ., the examination may also relate to the operation of any business and the desirability of its continuance, the source of any money or property acquired or to be acquired by the debtor for purposes of consummating a plan and the consideration given or offered therefor, and any other matter relevant to the case or to the formulation of a plan.

(c) Compelling attendance and production of documents. The attendance of an entity for examination and for the production of documents, whether the examination is to be conducted within or without the district in which the case is pending, may be compelled as provided in Rule 9016 for the attendance of a witness at a hearing or trial. As an officer of the court, an attorney may issue and sign a subpoena on behalf of the court for the district in which the examination is to be held if the attorney is admitted to practice in that court or in the court in which the case is pending.

* * * *

(e) Mileage. An entity other than a debtor shall not be required to attend as a witness unless lawful mileage and witness fee for one day’s attendance shall be first tendered . . . .

BR 2004.

The purpose of 2004 is to provide a tool to parties to a bankruptcy, particularly trustees, to obtain information concerning “the acts, conduct, or property” of the debtor, “the liabilities and financial condition of the debtor,” “any matter which may affect the administration of the debtor’s estate, or to the debtor’s right to a discharge,” and in a Chapter 11, 12, or 13 case, “the operation of any business and the desirability of its continuance, the source of any money or property acquired or to be acquired by the debtor for purposes of consummating a plan and the consideration given or offered therefor, and any other matter relevant to the case or to the formulation of a plan.” SeeIn re GHR Energy Corp., 35 B.R. 534, 536-38 (Bankr. Mass. 1983). See also In re Express One Int’l, Inc., 217 B.R. 215, 216 (Bankr. E.D. Tex. 1998) (The general purpose of a BR 2004 examination is to review the estate’s condition for the benefit of the rights of creditors.). BR 2004(b);

Bankruptcy courts have broad discretion in determining whether to order a 2004 examination. Bank One, Columbus NA v. Hammond (In re Hammond), 140 B.R. 197, 201 (S.D. Ohio 1992); In re Drexel Burnham Lambert Group, Inc., 123 B.R. 702, 708-09 (Bankr. S.D.N.Y. 1991); and In re Fearn, 96 B.R. 135 (Bankr. S.D. Ohio 1989). As Judge Cole noted, a 2004 examination’s scope is very broad:

It is well-established that the scope of a Rule 2004 examination is very broad and great latitude of inquiry is ordinarily permitted. The scope of examination permitted pursuant to Rule 2004 is wider than that allowed under Federal Rules of Civil Procedure and can legitimately be in the nature of a “fishing expedition”. Although the primary purpose of a Rule 2004 examination is to permit a party in interest to quickly ascertain the extent and location of the estate’s assets, such examination is not limited to the debtor or his agents, but may properly extend to creditors and third parties who have had dealings with the debtor.

Id. at 137-38 (citations omitted). However, Judge Cole also noted that, while broad, the scope of Rule 2004 examinations is not “limitless.” Id. at 138. “The examination should not be so broad as to be more disruptive and costly to the party sought to be examined than beneficial to the party seeking discovery.” Id. Moreover, an examination cannot be used for purposes of abuse or harassment. Fearn, 96 B.R. at 138; In re Mittco, Inc., 44 B.R. 35, 36 (Bankr. E.D. Wisc. 1984).

The use of a 2004 examination is not permitted for matters not related to the financial condition of a debtor or a debtor’s estate. Upon a creditor objection, the examiner must establish “good cause,” taking into consideration the totality of the circumstances, including the importance of the information to the examiner and the costs and burdens on the creditor. See Countrywide Home Loans, 384 B.R. at 393. The level of good cause required to be established varies depending on the potential intrusiveness. Id., citing Fearn, 96 B.R. at 138. See also Official Cmte. Of Unsecured Creditors v. Eagle-Pitcher Indus., Inc. (In re Eagle-Pitcher Indus., Inc.), 169 B.R. 130, 134 (Bankr. S.D. Ohio 1994)Hammond, 140 B.R. at 201 (similar). (examination should not be so broad as to be more disruptive and costly to the party to be examined than beneficial to the party seeking discovery);

D. The UST Has Authority to Monitor the Bankruptcy Claims Process

Wells Fargo argues that the UST lacks the authority under § 586 to investigate the proof of claim that it filed and, therefore, no basis exists for the UST to conduct a 2004 examination. Wells Fargo argues that § 586 sets forth the specific and limited tasks which the UST may undertake and that § 307 merely provides the UST with standing to take actions related to those specific tasks. Wells Fargo asserts that investigation of proofs of claim is not one of those specific tasks.

28 U.S.C. § 586(a)(3) grants the UST broad authority to “supervise the administration of cases and trustees in cases under chapter 7, 11, 12, 13, or 15 of title 11 by, whenever the United States trustee considers it to be appropriate . . . [.]” This authority includes “monitoring the progress of cases under title 11 and taking such actions as the United States trustee deems to be appropriate to prevent undue delay in such progress[.]” 28 U.S.C. § 586(a)(3)(G). As such, the UST is charged by statute with the duty to oversee and supervise the administration of bankruptcy cases. 28 U.S.C. § 586(a). Congress has summarized the role of the UST as protector of the public interest with the responsibility to ensure that bankruptcy cases are conducted in accordance with the law. Morgenstern v. Revco D.S., Inc. (In re Revco D.S., Inc.), 898 F.2d 498, 500 (6th Cir. 1990), citing H. Rep. No. 595 at 109, reprinted in 1978 U.S.C.C.A.N. at 6070; United Artists Theatre Co. v. Walton, 315 F.3d 217, 225 (3rd Cir. 2003); U.S. Trustee v. Clark (In re Clark), 927 F.2d 793, 795 (4th Cir. 1990); In re Plaza de Diego Shopping Center, 911 F.2d 820, 824 (1st Cir. 1990); Adams v. Zarnel (In re Zarnel), 619 F.3d 156, 162 (2nd Cir. 2010).

Further, Congress has expressly given the UST standing under § 307 to raise and be heard on any issue under title 11, except that the UST may not file a chapter 11 plan. 11 U.S.C. § 307; Revco, 898 F.2d at 500; United States Trustee v. Price Waterhouse, 19 F.3d 138, 141 (3rd Cir. 1994); U.S. Trustee v. FIshback (In re Glados, Inc.), 83 F.3d 1360, 1361, n.1 (11th Cir. 1996); In re Donovan Corp., 215 F.3d 929, 930 (9th Cir. 2000); Clark, 927 F.2d at 796; Plaza de Diego Shopping Center, 911 F.2d at 824.[6] Because of his role as representative of the public interest, the UST is not required to demonstrate any concrete pecuniary injury to exercise his standing under § 307 of the Code. Revco, 898 F.2d at 500. For example, the Sixth Circuit has held that a United States trustee had standing to appeal a bankruptcy court decision not to appoint an examiner under 1104(b)(2) because the public interest is a sufficient stake to confer standing upon the UST.[7] Id.

Wells Fargo’s argument that § 586 circumscribes the UST’s authority under § 307 contradicts the express language of § 307. Section 307 specifically provides that “[t]he United States trustee may raise and appear and be heard on any issue in any case or proceeding under this title . . . .” 11 U.S.C. § 307 (emphasis added). In enacting § 307, Congress did not limit the issues which the United States trustees may raise to those specifically enumerated in § 586. Rather, Congress used very broad, all-inclusive language to authorize the United States trustees to raise any issue in any case or proceeding. In Countrywide, after an extensive review of the history of the UST, including the legislative history behind §§ 586 and 307, case law interpreting the powers granted to the United States trustees under those provisions, and a thorough application of traditional canons of statutory interpretation, the court concluded that:

Section 307 is written in extremely broad language. Indeed it is difficult to conceive of how section 307 could have been written in any broader language. The court has thus no difficulty concluding that the plain meaning of the power to “raise” and to “appear and be heard” as to any issue in any bankruptcy case or proceeding includes the ability to conduct examinations pursuant to Rule 2004 in the right circumstances.

Countrywide, 384 B.R. at 384. The court adopts the thorough analysis performed by the Countrywide court in concluding that the UST’s authority is not limited to the specific tasks expressly mentioned in § 586 and that the UST may conduct the requested 2004 examination in this case.

The claims process, including the filing and allowance of claims, constitutes a significant part of the bankruptcy process. Sections 501 through 511 of the Code directly address the claims process in bankruptcy cases. Other Code provisions cover varying issues relating to the determination, allowance, and treatment of claims.[8] In addition to these Code provisions, Rules 3001 through 3014 address the claims process and claims issues in bankruptcy cases. Additional Rules cover the diverse issues relating to the determination, allowance, and treatment of claims.[9] Section 586 is broad enough to allow the UST to monitor the claims process, including through the investigation of proofs of claim filed by creditors, to assist in his duty of monitoring the progress of cases. Issues, with proofs of claims filed by mortgage lenders, affect the administration of cases. Accordingly, monitoring the claims process falls well within the UST’s duty to monitor the progress of bankruptcy cases.

Other courts have recognized the UST’s ability to monitor the claims process in bankruptcy cases and under the broad standing accorded by § 307, to object to proofs of claim. In re Borrows, 2011 WL 721842 (Bankr. W.D. Wash. Feb. 22, 2011). In Borrows, the United States trustee filed an objection to a mortgage lender’s proof of claim. The lender, rather than responding to the substance of the objection, challenged the United States trustee’s standing to object to claims. Id. at *1. The court determined that § 307 provided standing to the United States trustee to object to a proof of claim. In so deciding, it found that § 586(3)(G) provided “specific authority for the UST to bring an objection to claim under the circumstances of this case.” Id. at *2.[10]

Similarly, in Countrywide, the court concluded that the UST had sufficient interest to conduct a 2004 examination in connection with the UST’s challenge to Countrywide’s manner of calculating proofs of claim because “she has been charged to act as a watchdog to protect the integrity of the bankruptcy system.” Countrywide, 384 B.R. at 391, citingRevco, 898 F.2d at 500 and Eagle-Pitcher Holdings, 2005 WL 4030131, at *4 (Bankr. S.D. Ohio Aug. 26, 2005). The UST filed notices of 2004 examinations to obtain information from Countrywide in various bankruptcy cases alleging that the lender had engaged in questionable actions when filing proofs of claims. The UST sought to examine a corporate representative of Countrywide regarding “[its] bankruptcy procedures as they related to the Debtors’ financial affairs, the administration of their estate and the impact of Countrywide’s bankruptcy procedures on the integrity of the bankruptcy process in the Western District of Pennsylvania.” Countrywide, 384 B.R. at 400. The subpoena part of the request asked Countrywide to produce a variety of documents. The court rejected many of the same arguments made by Wells Fargo in this case in finding that the UST had the authority to conduct 2004 examinations relating to claims filed by Countrywide.

In addition, In re Wilson is instructive because it dealt with the UST’s on-going investigation into mortgage lenders’ filings in bankruptcy cases. 413 B.R. 330 (Bankr. E.D. La. 2009). In that case, the UST did not move for a 2004 examination but merely issued subpoenas to the mortgage lender. The court, finding “no reason to differ from the vast majority of courts on this issue” specifically adopted the reasoning in Countrywide, and allowed the UST to propound discovery on a mortgage lender in connection with allegations of improper filings by the lender pursuant to 11 U.S.C. §307 and § 105(a). Id. at 335-36. Noting that even though the UST had not sought discovery pursuant to 2004, “the preferable method for the UST to obtain the information it seeks from the [m]ovants,” the court concluded that its decision would have been the same. Id. at 336.

Perhaps most apposite to this case is the decision in In re Michalski, 449 B.R. 273 (Bankr. N.D. Ohio 2011). Wells Fargo filed a motion to quash a subpoena issued by the UST and requesting the court to reconsider an order granting a 2004 examination. The UST sought to examine records and documentation pertaining to the proof of claim which Wells Fargo filed in the debtors’ Chapter 13 case. While limiting the scope of the examination and documents to be produced, the court otherwise enforced the subpoena and denied the request to reconsider the granting of the 2004 examination. The court relied in large part on the rationale provided by Countrywide and Wilson and held that the UST had the authority “under Sections 307 and/or 586” to conduct the 2004 examination and to subpoena the documents underlying Wells Fargo’s proof of claim. Id. at 280.

Finally, another bankruptcy court rejected similar arguments made by BAC Home Loans Servicing, adopting the rationale of Countrywide, Wilson, and Michalski. The court stated: “The UST is charged to serve as a watchdog to protect the integrity of the bankruptcy system. That status compels the conclusion that Congress intended the UST to have the tools, including the ability to conduct Rule 2004 examinations and issue subpoenas, to carry out that duty. Without such authority, the UST’s role as a watchdog would be circumscribed and toothless.” In re Youk-See, ___ B.R. ___, 2011 WL 2458106, at *9 (Bankr. D. Mass. June 16, 2011).

The cases upon which Wells Fargo relies to argue that the UST’s authority under § 586 is very narrow do not alter this court’s conclusions. First, Wells Fargo cites In re Washington Mfg. Co., but that decision addressed the issue of whether a UST could intervene in an adversary proceeding under BR 7014, not the power of the UST to move for a 2004 examination. Citicorp North Amer., Inc. v. Finley (In re Washington Mfg. Co.) 123 B.R. 272, 275-76 (Bankr. M.D. Tenn. 1991). Of even greater significance, Washington Mfg. was decided prior to the Sixth Circuit’s decision in Revco.[11]

Accordingly, the court concludes that the UST may be involved in the claims process by virtue of his duty to monitor the progress of bankruptcy cases in his role as the “public watchdog” of the system.

E. A 2004 Examination is a Tool Which the UST May Use in Exercising His Authority to Monitor the Progress of Bankruptcy Cases, Including the Claims Process

As noted, the UST has the authority under § 586 to monitor the progress of bankruptcy cases and to investigate conduct to determine if a crime has been conducted. Through § 307 Congress made the UST a party in interest to all bankruptcy cases and authorized the UST to appear in any case or proceeding and to raise any issue in any case or proceeding. The 2004 examination is a tool which Congress has given to parties in interest in bankruptcy cases to investigate matters relating to debtors’ financial condition, including to determine whether to proceed with litigation. A 2004 examination may be used by the UST to investigate proofs of claim filed in bankruptcy cases provided that the examination is otherwise appropriate under Rule 2004. Accordingly, the court will now address whether the UST’s requests in this case meet the requirements of Rule 2004.

F. The Requirements and Limits of Rule 2004 Examinations Applied to the UST’s Request

1. Standing: The UST Has Standing To Pursue a Rule 2004 Examination

For the reasons discussed, the UST has standing pursuant to 28 U.S.C. § 586 and § 307 to pursue a 2004 examination.

2. Good Cause: The UST Has Established Good Cause for Conducting a 2004 Examination

Wells Fargo argues that the UST does not have the necessary good cause to conduct a 2004 examination. Wells Fargo explains that “[a] UST is not vested with the power to independently investigate and determine the validity of claims based on state law rights and, in the process, unilaterally increase the required documentation necessary for the filing of a valid proof of claim under Fed. R. Bankr. 3001.” doc. 27, p. 3. Wells Fargo further argues that “the documents attached to the Wells Fargo claim already establish its standing.” doc. 27, p. 8. The court disagrees.[12]

Essentially, Wells Fargo’s argument is premised upon an erroneous conclusion — that attaching a copy of a promissory note asserted to be the Note executed by the Debtors conclusively establishes that it is the holder of the Note and, therefore, is entitled to enforce the rights under the Note and Mortgage. See Objection, pp. 8-11. The court does not disagree with, and the UST has conceded, the propositions that under Ohio law the holder of a promissory note may enforce the note and that the rights under a mortgage are incidental to the rights under the promissory note which it secures.[13] However, Wells Fargo’s argument that attachment of a copy of a promissory note to a proof of claim conclusively establishes Wells Fargo’s standing to file the proof of claim is not well taken.

A properly filed proof of claim is only prima facie evidence of the validity of a claim, and the UST is entitled to verify that eligibility by requiring that original documents or other evidence of the claimant’s entitlement to file and enforce the claim be produced. 11 U.S.C. § 502(a). Wells Fargo’s argument that the UST’s request amounts to an attempt to rewrite the rules governing the documentation of proofs of claim misses the point. In seeking to verify Wells Fargo’s standing to file a proof of claim, the UST is seeking to ensure that Wells Fargo complies with the Code and the Rules and to verify that Wells Fargo is a creditor entitled to file a proof of claim under § 501 of the Code. While the UST has not yet challenged the validly of Wells Fargo’s claim by objecting to it, he is entitled to make preliminary inquiries before determining if an objection is warranted. That inquiry is exactly the purpose of a 2004 examination. As noted, the UST seeks production of the Note based on the fact that the copy of the Note affixed to Wells Fargo’s proof of claim, which Note is endorsed in blank, fails to show Wells Fargo as the holder of the Note. Wells Fargo’s ability to provide a copy of the Note does not necessarily equate to it being in possession of the original Note, much less being in its possession at the time it filed its proof of claim. Under these circumstances, the UST may seek to verify Wells Fargo’s entitlement to file the proof of claim, including review of the original Note or such other appropriate documentation to convince the UST that Wells Fargo is in possession of the original Note or otherwise was entitled to file the proof of claim.[14] In this regard, the court notes that the Debtors’ case is an open Chapter 13 case continuing to be administered by the Chapter 13 Trustee and an objection to the claim could still be made. After conducting its 2004 examination, the UST can decide if it is appropriate to object to Wells Fargo’s proof of claim or to take other appropriate action.

Under the standards described, the UST has established good cause to conduct a 2004 examination. The Debtors’ case is open and being administered. The UST has questioned the status of Wells Fargo as the legitimate holder of the Note and Mortgage attached to Wells Fargo’s proof of claim based on the fact that neither of those documents shows Wells Fargo as the holder. Because the Note was endorsed in blank, the UST seeks production of the original Note by Wells Fargo to evidence Wells Fargo’s possession of that Note. As the recognized “watchdog” of the bankruptcy system, charged with the duties to protect its integrity and to ensure that bankruptcy cases are conducted in accordance with the law, the UST is a party in interest entitled to seek to verify the standing of claimants and their entitlement to payment. Those matters relate to the Debtors’ liabilities and financial condition and may affect the administration of their estate and the dividend paid to unsecured creditors in particular. See BR 2004(b).

Wells Fargo also suggests that a 2004 examination is inappropriate because no objection to Wells Fargo’s proof of claim has been filed, but a contested matter is not required. See Hammond, 140 B.R. at 204 (A 2004 examination is appropriate to determine whether a potential plaintiff has grounds under 11 U.S.C. § 523(d) and BR 9011 for filing an action); In re Johnson, 2007 Bankr. LEXIS 3022 (Bankr. S.D. Ohio July 23, 2007) (2004 examination is normally a pre-litigation device); In re Michalski, 449 B.R. at 281 (“[A] Rule 2004 examination is frequently used as a pre-litigation tool . . . .”); Collier on Bankruptcy, ¶ 2004.01[1]. See also In re Robinson, 2011 Bankr. LEXIS 1667 (Bankr. W.D. Tenn. April 6, 2011) (United States trustee has standing to examine the representative of the holder of an allowed secured claim when no objection has been filed with respect to the claim by the Chapter 13 Trustee or anyone else.).

Having decided that good cause exists for the UST to conduct a 2004 examination, the last issue is whether the scope of the UST’s request is appropriate.

3. The Scope of the Examination

The UST seeks to examine a Wells Fargo representative at the UST’s office in Columbus, Ohio and requests that Wells Fargo produce the following documents:

1. The actual, contemporaneously-kept transactional mortgage loan history on the Debtors’ mortgage loan, along with payments for escrow advances made by Wells Fargo Home Mortgage.

2. Evidence of the chain of assignment of the mortgage and chain of endorsement of the note which would tend to support claimant’s right to make the within claim in Debtor’s bankruptcy case.

Motion, Exhibit A, p. 9.

Wells Fargo argues that the scope of the production of documents is too broad. It explains that it should not have to produce a complete loan history as it is irrelevant to Wells Fargo’s standing to file its proof of claim, the only basis asserted by the UST for his request. In that same vein, Wells Fargo adds that an in-person examination is superfluous as the standing issue can be addressed through the production of documents.

Rule 2004(c) provides with respect to examinations that:

Compelling attendance and production of documents. The attendance of an entity for examination and for the production of documents, whether the examination is to be conducted within or without the district in which the case is pending, may be compelled as provided in Rule 9016 for the attendance of a witness at a hearing or trial. As an officer of the court, an attorney may issue and sign a subpoena on behalf of the court for the district in which the examination is to be held if the attorney is admitted to practice in that court or in the court in which the case is pending.

BR 2004(c).

In Countrywide, the court linked the good cause requirement with the scope of the examination. The court was legitimately concerned with the potential for abuse that could occur if parties were given essentially carte blanche to conduct broad, unlimited investigations resulting in unwarranted expensive burdens on private parties. The court stated:

Countrywide points out that a finding of an unchecked power in the UST to pursue examinations of creditors under Rule 2004 could lead to full-scale “investigations” by the UST that would unfairly intrude into the private business affairs of creditors and chill their participation in the bankruptcy process. That is a legitimate concern which the Court takes seriously. While the UST was undoubtedly intended to be a “watchdog” of the bankruptcy system, that cannot and should not be viewed as providing a license for the UST to engage in potentially invasive and expensive Rule 2004 discovery based on nothing more than her own curiosity. Such a license would be inimical to bedrock principles underlying the relationship between the federal government and the people (intended in the broad sense, including corporations such as Countrywide.)

Countrywide, 384 B.R. at 392 [footnote omitted]. In order to guard against over-reaching intrusions and examinations, the court applied a sliding scale approach to determine whether the United States trustee had sufficient cause to justify the scope of the examination she sought to conduct. The court continued:

The question of whether the UST has shown sufficient good cause to pursue a Rule 2004 examination and the type of discovery implicitly allowed by the Rule in a given matter is not suited to application of a mechanical test. Rather, a totality of circumstances approach is required, taking into account all relevant factors. Consistent with this approach it is appropriate to apply the “good cause” standard in what may be termed a “sliding scale” manner or balancing test. That is to say, the level of good cause required to be established by the UST before she can obtain certain documents or pursue a certain line of inquiry in a Rule 2004 examination involving a creditor will vary depending on the potential intrusiveness involved.

Id. at 393. While such factors may bear on whether good cause exists for a 2004 examination, these considerations are even more useful in determining the appropriate scope of the examination once a party establishes standing and good cause. The more compelling the cause, the greater latitude the court will allow for the 2004 examination.

In this case the UST’s cause for the examination is narrow — determining whether Wells Fargo was legally entitled to file the proof of claim. Accordingly, the scope of any examination granted should likewise be narrowly focused. In order to verify Wells Fargo’s entitlement to file a proof of claim in this case, the UST is entitled to review the original Note and any such documents that establish Wells Fargo is the holder of the Note under the Ohio Uniform Commercial Code and when Wells Fargo came into possession of the original Note. To the extent that the “contemporaneously-kept transactional mortgage loan history on the Debtors’ mortgage loan” is intended by the UST to capture documents in Wells Fargo’s possession relating to the transfer of the Note or interests in the Note from one entity to another until Wells Fargo became the holder of the Note, the request is granted and Wells Fargo shall produce such documents to the UST.[15] In addition, the request for documents pertaining to “the chain of assignment of the mortgage and chain of endorsement of the note which would tend to support claimant’s right to make the within claim in Debtor’s bankruptcy case” is granted as those documents are clearly relevant to the UST’s inquiry into Wells Fargo’s legal basis and standing for filing the proof of claim. However, to the extent that the UST is seeking a loan history relating to the payments made by the Debtors, charges made by the lender on the account, and other debits and credits relating to the loan evidenced by the Note and Mortgage, or any documents other than the original Note and other documents pertaining to the chain of ownership interests in the Note, the UST’s request is denied. The UST is not challenging the amount of the claim filed by Wells Fargo or any other issue other than the legal basis for its filing the proof of claim and, therefore, any other such documents would unnecessarily burden Wells Fargo. Any production of documentations authorized in this decision shall occur within forty-five (45) days after entry of the court’s order on this decision unless otherwise agreed by the parties.

After the documents are produced by Wells Fargo, if the UST determines that the documents produced do not establish Wells Fargo as the person entitled to enforce the Note under Ohio law and that it had that status at the time the proof of claim was filed, then at the request of the UST, Wells Fargo shall appear for an oral examination through an appropriate representative designated by Wells Fargo to be examined concerning how Wells Fargo became the holder of the Note. Any such examination shall take place at the office of the UST nearest to the principal place of business of the representative designated by Wells Fargo to be orally examined or at such other location or manner as the parties may agree.[16] To the extent such oral examination is not conducted by consent of the parties, the UST shall comply with the requirements of Rule 2004(c) and (d).

V. Conclusion

For the foregoing reasons, the court grants in part and denies in part the UST’s Motion for Entry of an Order Authorizing the Examination of and Production of Documents by Wells Fargo Home Mortgage Pursuant to Fed. R. Bankr. P. 2004 and 9016 (doc. 27). The court finds that the UST has the authority to investigate the proof of claim filed by Wells Fargo and has standing to conduct a 2004 examination for that purpose and that the UST has demonstrated good cause to conduct a 2004 examination. However, the examination shall be limited as provided by this decision, with an oral examination to occur only in the event that the documentary production is insufficient to establish Wells Fargo’s standing to file the proof of claim. In the event that the UST determines that an oral examination is necessary, the oral examination shall be conducted in accordance with BR 2004(c) and (d) and this decision, unless otherwise agreed upon by the parties.

The court is concurrently entering an order consistent with this decision.

IT IS SO ORDERED.

[1] “United States trustee” includes a designee of the United States Trustee. 11 U.S.C. § 102(9). For simplicity, the court will use the abbreviation “UST” whether referring to the movant, Daniel M. McDermott, United States Trustee for Region 9, his designee, or the United States Trustee program generally.

[2] See e.g., Harker v. Wells Fargo Bank, NA (In re Krause), 414 B.R. 243, 268, n.22 (Bankr. S.D. Ohio 2009); In re Parsley, 384 B.R. 138 (Bankr. S.D. Tex. 2008); Nosek v. Ameriquest Mortgage Co. (In re Nosek), 386 B.R. 374 (Bankr. D. Mass 2008), aff’d in part, vacated in part 406 B.R. 434 (D. Mass. 2009), aff’d as modified 609 F.3d 6 (1st Cir. 2010); In re Foreclosure Cases, 521 F. Supp. 2d 650 (N.D. Ohio 2007).

[3] See In re Saffold, 373 B.R. 39, 42 (Bankr. N.D. Ohio 2007); Chris Markus, Ron Taylor & Blake Vogt, From Main Street to Wall Street: Mortgage Loan Securitization and New Challenges Facing Foreclosure Plaintiffs in Kentucky, 36 N. Ky. L. Rev. 395 (2009).

[4] The proof of claim describes the creditor as Wells Fargo Bank, NA and the name to which notices and payments should be sent as Wells Fargo Home Mortgage. The United States Trustee, in his motion, used Wells Fargo Home Mortgage while the creditor used Wells Fargo Bank, NA in its filings. The court will simply refer to Wells Fargo Bank, N.A. and Wells Fargo Home Mortgage collectively as “Wells Fargo.”

[5] Unless otherwise noted, all references to rules of court shall be to the Federal Rules of Bankruptcy Procedure (“BR”).

[6] Some courts have discussed whether § 307 enlarges or further defines the authority granted to the UST § 586. See e.g., In re Parsley, 384 B.R. 138, 147 (Bankr. S.D. Tex. 2008) (it is well within the authority of the UST to investigate the activities of a loan servicer and its local and national counsel); In re South Beach Securities, Inc., 606 F.3d 366, 371 (7th Cir 2010) (finding, among other things, that section 307 gives the United States UST the power to object to a chapter 11 plan of reorganization in his role as guardian of the public interest in bankruptcy proceedings); In re LWD Inc., 342 B.R. 514, 519 (Bankr. W.D. Ky. 2006) (the UST is not limited to the duties set out in § 586); and Zarnel, 619 F.3d at 161-62. Wells Fargo’s argument relies in large part on this debate, wanting this court to conclude that § 586 limits the authority of the UST, while § 307 is merely a standing provision giving the UST authority to act in bankruptcy cases in those areas expressly mentioned in § 586. While the interaction between § 586 and § 307 and the reach of these statutes continues to be debated, this court only finds that under § 586 and § 307 the UST has sufficient authority to conduct a 2004 examination under these circumstances. Even if § 586 circumscribes § 307, the court finds that the UST has sufficient authority under § 586 to monitor the progress of cases, including the claims process, and that includes the ability to object to claims and to conduct 2004 examinations. See In re Borrows, 2011 WL 721842 at *2 (Bankr. W.D. Wash. Feb. 22, 2011) (“Without deciding whether Section 586 is all inclusive as to the permissible activities of the UST in bankruptcy cases, the Court concludes that subsection (a)(3)(G) of Section 586 provides specific authority for the UST to bring an objection to [a] claim under the circumstances of this case.”).

[7] The United States Supreme Court has long recognized that the pecuniary interest test may not be the only test to confer standing and that noneconomic tests may also confer standing as long as the “interest sought to be protected by the complainant is arguably within the zone of interests to be protected or regulated by the statute or constitutional guarantee in question.” Ass’n of Data Processing Servs. Orgs., Inc. v. Camp, 397 U.S. 150, 153 (1970).

[8] See e.g., § 523 (concerning dischargeability of debts); § 524 (c) & (d) (concerning reaffirmation agreements); § 552 (concerning the post-petition effect of prepetition security interests); § 553 (concerning setoffs against claims); § 1111 (deeming proofs of claim or interest in Chapter 11 cases filed for claims or interests scheduled other than as disputed, contingent, or unliquidated and allowing for the “1111(b)” election for secured creditors); and §§ 1122, 1222(a)(3), and 1322(a)(3) (concerning classification and treatment of claims and interests in Chapter 11, 12, and 13 plans).

[9] See e.g., BR 1007 (concerning the filing of the schedules and other documents at the inception of the case); 2016 (professional compensation and reimbursement of expenses); 3021 (distribution to claims under a plan); 4007 (outlining the procedure for determinations of the dischargeability of debts); and 4008 (outlining the reaffirmation process).

[10] Although the obligation to challenge the validity of filed proofs of claim generally falls upon debtors or standing trustees, the overarching duty of the UST is to ensure the proper management of debtors’ debts provides them with the requisite standing to review proofs of claims. See In re Wassenaar, 268 B.R. 477, 479 (W.D. Va. 2001). Wells Fargo argues that the UST cannot interject himself into state law issues as to the validity of proofs of claim. However, in Wassenaar, the court rejected this notion, stating: “[t]he question in this case is whether creditors’ attorney’s fees should be charged as an administrative expense to the bankruptcy estate. While this issue focuses on the state-law question of awarding attorney’s fees, the federal bankruptcy issue remains. The United States Trustee’s interest is plain: to ensure the proper management of Kurt Wassenaar’s debts. The Bankruptcy Court, therefore, properly allowed the Trustee to participate in this case.” Id. at 479. See also Borrows, 2011 WL 721842, at *3 (rejecting BAC Home Loans Servicing, L.P.’s argument that granting the UST authority to investigate proofs of claim “impermissibly encroaches on the province of the Chapter 13 trustee to object to proofs of claim.”).

[11] Wells Fargo also cites to In re Gold Standard Baking, Inc., 179 B.R. 98 (Bankr. N.D. Ill. 1995) and In re Howard Ins. Agency, Inc., 109 B.R. 445, 446 (Bankr. N.D. Okla. 1989). Both cases are distinguishable in that the former dealt with a UST’s attempt to impose a new requirement on Chapter 11 debtors-in-possession to imprint their checks with the phrase “Debtor in Possession” and the latter with the power of the UST to promulgate administrative regulations.

[12] Another court rejected essentially this same argument made by Wells Fargo in In re Michalski, 449 B.R. 273 (Bankr. N.D. Ohio 2011) (“Wells Fargo mistakenly construes the Rule 2004 examination as an attempt by the UST to `unilaterally increase the requirements for filing a valid proof of claim.'” Id. at 280 (internal citations omitted). Noting that determination of proofs of claim in bankruptcy cases frequently requires analysis of state law, the court found that “[t]his argument totally misses the mark” and that the UST could conduct a Rule 2004 examination to obtain information from Wells Fargo concerning the proof of claim it filed in that case. Id.

[13] Under Ohio law, security follows the note and therefore whoever holds the note also holds any security securing such note. See Noland v. Wells Fargo Bank, N.A. (In re Williams), 395 B.R. 33, 47 (Bankr. S.D. Ohio 2008), citing Gemini Services, Inc. v. Mortgage Electronic Registration Systems, Inc. (In re Gemini Services, Inc.), 350 B.R. 74, 82 (Bankr. S.D. Ohio 2006).

[14] The most common, but not exclusive way to establish being the “person entitled to enforce” a negotiable instrument, under the Ohio U.C.C., is to be the holder, such as a typical promissory note. See Ohio Revised Code § 1303.31 (Person entitled to enforce an instrument). If a promissory note is endorsed in blank, possession of the original note, endorsed in blank, establishes the right to enforce it as the holder and, therefore, standing to file a proof of claim. Densmore v. Litton Loan Servicing, L.P. (In re Densmore), ___ B.R. ___, 2011 WL 1181359 (Bankr. D. Ct. March 21, 2011).

[15] It appears that there may be some confusion as to what the UST meant with respect to “transactional loan history.” Wells Fargo appears to construe this request as a request for a “complete loan history,” or in other words, the history of payments made by the Debtors and charges made by the lender relating to the loan account and perhaps this construction of that request is understandable given the ending phrase of that request — “along with payments for escrow advances made by Wells Fargo Home Mortgage.” See doc. 27, pp. 8 & 11.

[16] The UST has suggested the possibility of videoconferencing.

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SACCI v. MERS | CA Dist. Court “MYSTIFYING, UTTERLY CONFUSING ASSIGNMENTS, SUBSTITUTIONS, HOST OF ENTITIES, 2923.5”

SACCI v. MERS | CA Dist. Court “MYSTIFYING, UTTERLY CONFUSING ASSIGNMENTS, SUBSTITUTIONS, HOST OF ENTITIES, 2923.5”


UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA


ANGELA SACCI, et al

vs

MORTGAGE ELECTRONIC REGISTRATION SYSTEMS , INC,, et al


EXCERPT:

This Court has dealt with numerous mortgage-related cases, and in the process of wading through them it has learned that seemingly straightforward transactions -non – judicial foreclosures- are not at all routine. Indeed, all too often they are mystifying, because of the utterly confusing assignments, substitutions, and other transactions (some recorded, some not) conducted by a host of entities. The number and names of the defendants in Plaintiffs’ FAC only hint at what has now been revealed as the tangled story underlying this loan and the other loans involved in many of these cases.

[…]

Not only is Gomes distinguishable on it’s facts, the Gomes court actually suggested a cause of action for wrongful foreclosure might survive if “the plaintiff complaint identified a specific factual basis for alleging that the foreclosure was not initiated by the correct party.” Id. (emphasis in original). Here, Plaintiffs have alleged just such a specific factual basis – namely, that RCS was not yet the beneficiary under the DOT when it executed the Substitution of Trustee in favor of Fidelity.

[…]

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BREAKING: Sarah Palin, Your New AZ Home Robo-Signed… Again, Meet Deborah Brignac

BREAKING: Sarah Palin, Your New AZ Home Robo-Signed… Again, Meet Deborah Brignac


Commonwealth of Massachusetts
Southern Essex District Registry of Deeds
Shetland Park
45 Congress Street
Suite 4100
Salem, Massachusetts 01970

JOHN L. O’BRIEN, JR.
Register of Deeds
Phone: 978-542-1704
Fax: 978-542-1706
website: www.salemdeeds.com

NEWS
FOR IMMEDIATE RELEASE

Salem, MA
June 9th, 2011

Contact:
Kevin Harvey, 1st Assistant Register
978-542-1724
kevin.harvey@sec.state.ma.us

Marie McDonnell, President McDonnell Property Analytics, Inc.
508-694-6866
marie@mcdonnellanalytics.com

Massachusetts Register of Deeds John O’Brien and Forensic Mortgage Fraud Examiner Marie McDonnell find former Vice-Presidential candidate Sarah Palin is victim of potential mortgage fraud; expert says chain of title to new Arizona home clouded by robo-signers.

In what is an ironic twist of fate today Register of Deeds John O’Brien and nationally renowned mortgage fraud examiner Marie McDonnell, President of McDonnell Property Analytics, Inc., announce that former Alaska Governor and Vice-Presidential nominee Sarah Palin is an unwitting victim of mortgage fraud and has purchased a home in Arizona that contains flaws in the chain of title.

Register O’Brien said, “If fundamental property principles still matter in this country, Sarah Palin may have legal issues that could affect the ownership of her home. Through no fault of her own, Sarah Palin has become a victim like thousands of others across the country that have the same problem with their chain of title. I feel bad for Governor Palin and all the homeowners who have been victimized by this scheme, it just goes to show you that no one is immune from this type of fraud and irresponsible behavior that these banks participated in.”

Marie McDonnell added, “Sarah Palin’s chain of title has been swept up into the eye of the ‘perfect storm’ where robo-signer Linda Green’s fraudulent Deed of Release on behalf of Wells Fargo Bank, N.A. is eclipsed by robo-signer Deborah Brignac’s fraudulent foreclosure documents. Brignac, a Vice President of California Reconveyance Company (a subsidiary of JPMorgan Chase Bank), assigned the homeowner’s Deed of Trust to JPMorgan Chase Bank in her capacity as a Vice President of Mortgage Electronic Registration Systems, Inc. (“MERS”); in the same breath, Brignac executed a document appointing California Reconveyance Company (her real employer) as Substitute Trustee in her alleged capacity as a Vice President of JPMorgan Chase.”

Sound confusing? McDonnell explained, “This is a shell game where Brignac purports to be Vice President of three (3) different entities so that she can manufacture the paperwork necessary for JPMorgan Chase Bank to hijack the mortgage and then foreclose on the property. This is an excellent example of how MERS is being used by its Members to perpetrate a fraud. I have laid out a timeline that illustrates the defects in Sara Palin’s chain of title which shows that it is seriously, if not fatally impaired.” McDonnell whose firm performed the extensive forensic analysis. (See McDonnell’s Mortgage Map)

O’Brien, who recently announced that he found 6047 fraudulent Linda Green documents recorded in the Essex Southern District Registry of Deeds which had 22 different variations of a Linda Green signature has been the National Leader in blowing the whistle on banks such as Bank of America, J.P. Morgan Chase, Wells Fargo for their business practices. O’Brien said “These banks have participated in a national epidemic of fraud that has clouded or damaged the chain of title of hundreds of thousands of American homeowners all across the country”. O’Brien further said “Sadly, Sarah Palin’s misfortune will however, hopefully shine the national spotlight on this issue. Given her position in the country, I am sure that she will use her influence to stand up for homeowners and their property rights”.

[Click image below to see McDonnell’s Palin Mortgage Map]


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[Sarah Image: VARIGHT.com]

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IN RE FONTES | Arizona Bankr. Court Appellate Panel Slams Standing “MERS Assignment, HSBC Affidavit”

IN RE FONTES | Arizona Bankr. Court Appellate Panel Slams Standing “MERS Assignment, HSBC Affidavit”


In re: CARLOS RAMON FONTES and EVA MARIE FONTES, Debtors.
CARLOS RAMON FONTES; EVA MARIE FONTES, Appellants,
v.
HSBC BANK, USA, NA; DIANNE CRANDELL KERNS, Chapter 13 Trustee, Appellees.

BAP No. AZ-10-1345-JUMKPa, Bk. No. 08-13133.

United States Bankruptcy Appellate Panel, Ninth Circuit.

.

Argued and Submitted on February 17, 2011 at Phoenix, Arizona. April 22, 2011.

Ronald Ryan, Esq. argued for Appellants Carlos and Eva Fontes Steven D. Jerome, Esq. of Snell & Wilmer LLP argued for Appellee HSBC Bank USA, NA Craig Morris, Esq. argued for Appellee Dianne Crandell Kerns.

Before: JURY, MARKELL, and PAPPAS, Bankruptcy Judges.

EXCERPT:

A. HSBC’s Theories

HSBC argues that we should affirm the court’s decision on the ground that debtors’ statements in their schedules and confirmed plan regarding ASC were judicial admissions[9] that HSBC had standing to bring the motion for relief from stay because ASC was HSBC’s loan servicer. HSBC further argues that the doctrine of judicial estoppel[10] should bar debtors from challenging HSBC’s standing because debtors acknowledged their debt to ASC, HSBC’s loan servicer, in their schedules and plan. Thus, HSBC maintains that debtors should not be able to take an inconsistent position in the context of the relief from stay proceeding. Finally, HSBC contends that despite these grounds for affirming the bankruptcy court’s ruling, it independently met its burden of proof that it had a colorable claim to debtors’ property.[11]

Although we may affirm the bankruptcy court’s decision on any ground fairly supported by the record, Wirum v. Warren (In re Warren), 568 F.3d 1113, 1116 (9th Cir. 2009), we disagree with HSBC that it should prevail under any of these theories.

We first address HSBC’s argument that it proved it had a colorable claim to debtors’ property. The record shows that the bankruptcy court did not directly address this question because it relied on debtors’ confirmed plan for its decision. Regardless, we review standing issues de novo and there is no evidence in the record that supports HSBC’s contention.

The assignment of the deed of trust from MERS, as nominee for Infinity, to HSBC also purported to assign the note. However, HSBC, as MER’S assignee, would take subject to the rights and remedies of its assignor. HSBC overlooks the fact that there is no evidence in the record that shows MERS had any interest in the note to assign. Although the deed of trust gave MERS, as nominee, the power to assign the deed of trust, it did not mention the note, nor did the note itself name MERS as nominee, so MERS could not take this right from the documents themselves. Further, there is no independent evidence that Infinity conveyed the note to MERS. Finally, debtors were not obligated under the note to make payments to MERS. In short, the language in the deed of trust which names MERS as a beneficiary, solely as nominee of Infinity, was insufficient to confer any economic benefit on MERS. In re Weisband, 427 B.R. 13, 20 (Bankr. D. Ariz. 2010).

In Weisband, the bankruptcy court considered whether a MERS assignment of a deed of trust provided the loan servicer with standing for purposes of obtaining relief from stay. The court concluded that MERS had no interest in the note and would suffer no injury if the note was not paid and the deed of trust not foreclosed. As a result, the court concluded that MERS did not have constitutional standing and, if MERS did not have constitutional standing, its assignee could not satisfy the requirements for constitutional standing either. Id.; see also Wilhelm, 407 B.R. at 404[12] (discussing validity of MERS’s assignments related to the note). We do not perceive a different result is warranted under these circumstances.

Moreover, HSBC gives the Williams’ declaration more credence than the rules of evidence allow. Williams’ declaration was conclusory, simply stating that she was familiar with the business records of HSBC and that HSBC was the “holder or servicer” of the note. Williams also stated that HSBC had a contractual right to collect payments and maintain legal actions for the beneficial note holder, either as the current note holder or pursuant to either a Master Servicing Agreement or Power of Attorney. However, neither of those documents were attached to her declaration and there is no other foundation for her to have made these equivocal statements. Finally, the declaration creates an ambiguity because Williams stated that HSBC was “the holder or servicer” of the Note. Which is it? If HSBC was a servicer of the note, it does not necessarily follow that HSBC was the holder of the note under Ariz. Rev. Stat. § 47-1201(B)(21)(a).[13]Weisband, 427 B.R. at 21 (noting that “[E]ven if a servicer has constitutional standing, it may still not be the `real party in interest’ under Fed. R. Civ. P. 17 and may not, therefore be able to satisfy the requirements for prudential standing.”). In short, Williams’ declaration did not establish that HSBC had constitutional or prudential standing or that HSBC had authority to act for any entity that did have standing. See

HSBC’s judicial admission and estoppel theories as grounds for affirmance are also unpersuasive. HSBC seeks to have these doctrines applied to itself vis-a-vis ASC. The only manner in which HSBC links itself to ASC in the record is through its repeated assertion without reference to any evidence that ASC was its “servicer.”[14] No further details are given. Does HSBC mean that ASC was its agent at the time of debtors’ filing? Or, does HSBC mean it somehow became the successor in interest to ASC? The record does not support either theory.

Generally, a loan servicer acts only as the agent of the owner of the instrument. We do not find any evidence in the record that establishes an agency relationship between HSBC and ASC that existed when debtors filed their petition and proposed their plan. The record contains no servicing agreement between ASC and HSBC indicating that ASC was HSBC’s agent, and ASC’s proof of claim did not state that it was acting as the authorized agent for HSBC. Further, MERS’s assignment to HSBC of the trust deed and note is dated September 11, 2009 — a date well past the petition and plan confirmation dates. Thus, the only inference to be drawn from the record is that ASC was acting as servicer for some party other than HSBC when debtors filed their petition.

We also cannot conclude on this record that HSBC established that it was ASC’s successor in interest. A successor in interest is “one who follows another in ownership or control of property. A successor in interest retains the same rights as the original owner, with no change in substance.” Black’s Law Dictionary, (9th ed. 2009). Nothing in the record shows ASC was in the line of assignments of the note or trust deed. In reality, ASC and HSBC appear to be separate unrelated entities at the time of debtors’ filing. Without a direct link to ASC, HSBC cannot take advantage of the judicial admission or estoppel doctrines to bar debtors’ challenge to its standing.

In sum, the record is devoid of evidence that would support any of HSBC’s theories.

[…]

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IN RE MACKLIN, Bankr. Court, ED California | “Preliminary Injunction, cc 2932.5, Deutsche Bank”

IN RE MACKLIN, Bankr. Court, ED California | “Preliminary Injunction, cc 2932.5, Deutsche Bank”


In re: JAMES L. MACKLIN, Debtor(s).
JAMES L. MACKLIN, Plaintiff(s),
v.
DEUTSCHE BANK NATIONAL TRUST CO., Defendant(s).

Case No. 10-44610-E-7, Adv. Pro. No. 11-2024, Docket Control No. HSB-3.

United States Bankruptcy Court, E.D. California, Sacramento Division.

May 19, 2011.

NOT FOR PUBLICATION

MEMORANDUM DECISION AND OPINION

RONALD H. SARGIS, Bankruptcy Judge

EXCERPTS:

BACKGROUND

Macklin refinanced his Wise Road Property in April 2006 and executed a Note and Deed of Trust in favor of Accredited Home Lenders, Inc. It is alleged in the Complaint that subsequently the Note was transferred to unidentified parities and eventually transferred to Deutsche Bank. Several documents for the substitution of the trustee under the Deed of Trust were recorded, and the Deed of Trust was assigned to Deutsche Bank, as indenture trustee for the 2006-2 Trust. The Note and Deed of Trust transfers are summarized as follows:

a. April 14, 2006: $532,000.00 Note. James Macklin Borrower, Accredited Home Lenders, Inc., Lender. Macklin Exhibit 1, Deutsche Bank Exhibit A.

b. April 28, 2006 (recorded) Deed of Trust. James Macklin Borrower/Trustor, Accredited Home Lenders, Inc. Lender, Financial Title Company Trustee, and Mortgage Electronic Registration Systems, Inc. (“MERS”) Beneficiary solely as the nominee of Lender.

The Deed of Trust states that “Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this [Deed of Trust], but, if necessary to comply with law or custom, MERS (as nominee of Lender and Lender’s successors and assigns) has the right to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and cancelling this Security Instrument.” Macklin Exhibit 2.

c. December 8, 2008 (recorded) Notice of Default and Election to Sell under Deed of Trust(dated December 4, 2008). By Windsor Management Co., as agent for MERS. Deutsche Bank Exhibit E.

d. March 10, 2009, 9:31 a.m. (recorded) Substitution of Trustee (dated January 30, 2008, by MERS, notarized March 4, 2009, San Diego, California notary). By MERS, Windsor Management, Co. identified as new trustee under Deed of Trust. Deutsche Bank Exhibit F.

e. March 10, 2009, 9:32 a.m. (recorded) Notice of Trustee’s Sale (dated March 9, 2009). By Windsor Management Co. Deutsche Bank Exhibit G.

f. November 25, 2009 (recorded) Notice of Trustee’s Sale (dated November 12, 2009). By Quality Loan Service Corp. Deutsche Bank Exhibit I.

g. November 25, 2009 (recorded) Substitution of Trustee (dated August 21, 2009, notarized August 21, 2009, Dakota, Minnesota notary). Deutsche Bank, substituting Quality Loan Service Corporation as the trustee under the Deed of Trust. Deutsche Bank Exhibit H.

h. November 30, 2009 (recorded) Assignment of Deed of Trust (dated November 17, 2-[illegible], notarized November 17, 2-[illegible], Salt Lake City, Utah notary) to Deutsche Bank. Deutsche Bank Exhibit J.

i. December 21, 2009 (recorded) Trustee’s Deed Upon Sale. By Quality Loan Service Corporation as grantor/trustee, Deutsche Bank as grantee. Deutsche Bank Exhibit K.


[…]

Civil Code § 2932.5 provides that, where a power of sale for real property is given to a mortgagee or other encumbrancer to secure an obligation, such power of sale may be exercised by the assignee who is entitled to receive payment of the obligation “if the assignment is duly acknowledged and recorded.” If the assignment has not been recorded, then the power cannot be exercised. The application of Civil Code § 2932.5 to all encumbrances, including deeds of trust, works to protect the borrower (trustor), lender (beneficiary), trustee, purchaser at a foreclosure sale, and subsequent owners of the property. Before persons purport to take action and exercise rights under a Deed of Trust, the assignment documenting the acquisition of those rights is recorded with the county recorder. This results in the real property records clearly and unambiguously stating who held the rights and who asserted the rights. This minimizes title disputes years later as to whether a notice of default or notice of sale was given by a properly authorized party and whether the purported sale under the Deed of Trust is void. This imposes the minimalist of burdens on the beneficiary acquiring a Note secured by a Deed of Trust — recording the notice of assignment before purporting to change the trustee or authorize a foreclosure.

In the present case, Macklin and Deutsche Bank have demonstrated that the recording of the assignment of the Deed of Trust post-dated Deutsche Bank recording documents purporting to change the trustee to Windsor Management and then Windsor Management purporting to give a notice of sale. Though there are only days by which Deutsche Bank, 2006-2 failed to record the assignment of the trust deed, a record has been created that someone not of record title purported to take action on a Deed of Trust prior to compliance with Civil Code § 2932.5. Issues of title and the record upon which future generations of owners will reply cannot be subject to a would-you-believe-I-missed-it-by-that-much implied waiver of this statutory requirement.

Macklin has shown a likelihood of prevailing on the issue of the purported foreclosure sale not having been properly conducted, thereby resulting in a void deed. The court issues the preliminary injunction on this ground.

….

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Sarah Palin, Meet Linda Green (And MERS): Was Palin’s New Home Purchase Preceded By A “Robosigned” (And Fraudulent) Title Release

Sarah Palin, Meet Linda Green (And MERS): Was Palin’s New Home Purchase Preceded By A “Robosigned” (And Fraudulent) Title Release


No..It’s not Tina Fey!

Zero Hedge

Steven Soraya, who had a loan amounting to $980,500.00 with Wells Fargo, which was released on July 3, 2007 and which just so happens was signed by Robosigner extraordinaire, the one, the only, the infamous Linda Green. Ergo our question: did miss Palin just procure a property to which there is no legitimate title, and which, therefore, may not have been legitimately sold to her? Oh yes, MERS is of course involved too.

Continue to ZH to witness the docx…

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Judge sides with homeowners in foreclosure suit due to foreclosing entities not sure who owns note

Judge sides with homeowners in foreclosure suit due to foreclosing entities not sure who owns note


Salt Lake Tribune-

U.S. District Judge Dee Benson left open a legal window Wednesday for two South Jordan residents facing the loss of their house, one of the first cracks in federal court for Utahns trying to save homes from the wave of foreclosures swamping the state.

Benson declined to grant a motion to dismiss the lawsuit brought by Michael and Dana Geddes to halt the foreclosure on their home while they try to negotiate a loan modification. That means the couple and their attorney can proceed with gathering testimony and documents to try to prove their contention that the foreclosure process to which they’re being subjected does not comply with Utah and federal laws.

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In re: DOBLE | CA BK Judge Rips Deutsche, MERS, LPS System & Multiple “True & Correct” Copies of Note

In re: DOBLE | CA BK Judge Rips Deutsche, MERS, LPS System & Multiple “True & Correct” Copies of Note


CESAR M. DOBLE,

v.

DEUTSCHE BANK NA T’L TRUST
COMPANY, AS TRUSTEE OF THE
HARBORVIEW MORTGAGE LOAN TRUST
2005-5, MORTGAGE LOAN PASSTHROUGH
CERTIFICATES, SERIES 2005-5
AND ONEWEST BANK, F.S.B.

Excerpts:

Instead, One West forwarded the Complaint to an outside vendor, Lender Processing Services (“LPS”), which is retained by One West to handle routine legal matters, but not litigation. LPS then exacerbated the problem by assigning an incorrect response date and sending the Complaint to the wrong outside counsel.

[…]

The most disconcerting misrepresentation to the Court was Defendants’ submission of multiple “true and correct”  copies of the Note under penalty of perjury without any endorsement from Plaza.  Whether the Note was endorsed is central to the merits ofthis case. When Defendants finally submitted an endorsed copy of the Note on November 8, 2010, they attempted to pass off the first three unendorsed copies of the Note as “illegible.” The first three copies of the Note were fully readable, so the phantom endorsement page was not a problem with legibility. The timing of this tardily produced endorsement, produced after several requests, suggests it was added only in response to the litigation.

To add to the Court’s incredulity, Defendants have never answered the Court’s specific questions as to when and under what circumstances this newly proffered endorsement was executed.

[…]

The first two causes of action seek damages and disallowance of Defendants’ secured and unsecured claims for lack of standing on four separate grounds: (a) MERS’ assignment of the DOT to One West and, in tum, One West’s assignment to Deutsche Bank, were invalid; (b) Defendants have no interest in the Note nor any right to enforce it under California law; (c) the assignment of the DOT to Deutsche Bank was not of public record; and (d) Defendants violated New York Trust law so that Deutsche Bank cannot be the owner of the Loan as a matter oflaw. Where a secured creditor cannot establish a right to enforce a loan, it has no standing to file or defend a claim, or to seek relief from stay. In re Gavin, 319 B.R. 27,32 (B.A.P. 1st Cir. 2004); In re Hayes, 393 B.R. 259,269-70 (Bankr. D. Mass. 2008).

Although the Court rejects Doble’s New York Trust claims and his avoiding power claim, the record here supports Doble’s first three standing claims. MERS had no authority to assign the DOT, under its terms and as a matter oflaw, without the authority to assign the Note. The Note was not assigned until it was endorsed by Plaza. Until that endorsement, the MERS’ assignments were a nullity. Deutsche Bank currently lacks authority to enforce the Loan as the assignee of Plaza, and will continue to lack authority until it records its assignment.

[…]

III. CONCLUSION

The Court denies Defendants’ request to set aside the clerk’s entry of a default, but grants their Motion to Dismiss the portions of the first and second causes of action relating to Doble’s New York Trust claims and avoiding power claims. Defendants’ Motion to Dismiss Doble’s third and fourth causes of action is also granted. As to the remainder of the first and second causes of action, the Court finds MERS’ limited role as beneficiary of the DOT did not provide talismanic protection against the myriad foreclosure deficiencies committed by Defendants [*47] regarding this Loan. MERS’ role did not provide Defendants the authority to enforce the DOT, the ability to assign the Note without an endorsement from Plaza, or an exception to their obligation to record the assignment to Deutsche Bank. The Court will allow Doble to produce additional evidence in support of his claims, but not his wife’s claims. The Court will disallow Defendants’ secured and unsecured claims without prejudice. Defendants may file an amended proof of claim in this case if they fully address the defects identified in this Memorandum Decision.

The Court orders Defendants to appear and show cause why they should not pay Doble’s attorneys fees for their conduct in this action, and schedules a status conference for April 28, 2011 at 3:00 in Department 1 of this Court.

Dated: April 14, 2011

/s/ Margaret M. Mann

[ipaper docId=54824981 access_key=key-1lk1l5qi5u0y0hqswz1u height=600 width=600 /]

In re: CESAR M. DOBLE, Chapter 13, Debtor,
CESAR M. DOBLE, Plaintiff,
v.
DEUTSCHE BANK NAT’L TRUST COMPANY, AS TRUSTEE OF THE HARBORVIEW MORTGAGE LOAN TRUST 2005-5, MORTGAGE LOAN PASS-THROUGH CERTIFICATES, SERIES 2005-5 AND ONEWEST BANK, F.S.B., Defendants.

Bankruptcy No: 10-11296-MM13, AP: 10-90308-MM.

United States Bankruptcy Court, S.D. California.

April 14, 2011.

MEMORANDUM DECISION RE MOTION TO VACATE CLERK’S ENTRY OF DEFAULT AND MOTION TO DISMISS COMPLAINT; ORDER TO SHOW CAUSE FOR CONTEMPT OF COURT

MARGARET M. MANN, Bankruptcy Judge

Defendants OneWest Bank, F.S.B. (“OneWest”) and Deutsche Bank National Trust Company (“Deutsche Bank”), as Trustee of the HarborView Mortgage Loan Trust 2005-5, Mortgage Loan Pass-Through Certificates, Series 2005-5 Under the Pooling and Servicing Agreement Dated June 1, 2005, were defaulted by debtor Cesar Doble (“Doble”) when they failed to timely respond to the complaint in this action (“Complaint”). The Complaint challenges Defendants’ right to assert claims based upon a loan secured by Doble’s residence, and seeks damages for Defendants’ refusal to modify the loan. After the default, Defendants brought a Motion to Vacate Clerk’s Entry of Default and a Motion to Dismiss Plaintiffs Complaint. The Court held several continued hearings on both motions, at which additional evidence and argument were presented.

Due to Defendants’ misconduct in this case and others that threatens the integrity of the judicial process the Court declines to set aside the default. The Court also issues an order to show cause why Defendants should not be held in contempt and ordered to pay Doble’s attorneys fees. Despite this ruling, the Court will not allow Doble relief he is not entitled to receive. The Court also grants much of the Defendants’ Motion to Dismiss. Further proceedings will be scheduled to determine the judgment to be entered in this case.

I. FACTUAL BACKGROUND

A. The Loan

Doble and his wife Martha Doble own a residence located at 1466 Heatherwood Avenue in Chula Vista, California (“Property”). The Property is encumbered by a deed of trust (“DOT”) securing a promissory note (“Note”) payable on its face to Plaza Home Mortgage, Inc. (“Plaza”), executed in connection with a $650,000 loan (“Loan”) made by Plaza. The DOT identifies Plaza as “Lender,” and Mortgage Electronic Registration Systems, Inc. (“MERS”) as beneficiary. The DOT grants Lender the right to repayment of the Loan and performance of Borrower’s covenants, explicitly stating that MERS “holds only legal title to the interests granted by Borrower” and MERS may exercise “any or all… interests, including … the right to foreclose and sell the Property” only “if necessary to comply with law or custom.”[1]

The Dobles defaulted on the Loan a few years later and sought to take advantage of the federal Home Affordable Mortgage Program (“HAMP”) by modifying the Loan so they could afford the payments. After a trial loan modification was granted, the Dobles made two payments in the modified amount. Despite the last payment under the modified Loan being in default, the Dobles were offered a permanent modification to the Loan, which they attempted to accept. Thereafter, the Dobles made no more payments under the Loan.

B. The Bankruptcies

Martha Doble filed a chapter 13 bankruptcy case in 2009 (Case No. 09-16970-LA13, Bankr. S.D. Cal.), which was dismissed. Doble filed this Chapter 13 bankruptcy case on June 28, 2010. The Complaint filed by Doble the day after he filed bankruptcy seeks damages and equitable relief, alleging that Defendants have no secured or unsecured claims in this case, that they violated the automatic stay by seeking to foreclose on the DOT without owning the Loan, and that they failed to discharge their responsibilities regarding modifying the Loan. Based upon a slew of contradictory documents purporting to transfer interests in the Note and DOT among the Defendants, Plaza and MERS, OneWest and Deutsche Bank have each represented to the Court to be the owner of the Loan in both cases. One West has separately asserted it is the servicer of the Loan.

C. Defendants’ Failure to Respond to the Complaint

The summons to the Complaint established a response date of July 29, 2010. Together with the Complaint, the summons was promptly served and received by Defendants. Pursuant to their servicing agreement, Deutsche Bank forwarded the Complaint to OneWest’s legal headquarters in Pasadena on July 2. Deutsche Bank then apparently did nothing further to respond to the Complaint, and OneWest misplaced the Complaint, failed to calendar a response, and did not otherwise follow-up on the matter.

The Complaint resurfaced after a response was due. When it was found on August 4, OneWest compounded the error. It did not follow internal protocol, which would have required the Complaint be sent to its litigation office in Austin, Texas, for referral to outside counsel. Instead, OneWest forwarded the Complaint to an outside vendor, Lender Processing Services (“LPS”), which is retained by OneWest to handle routine legal matters, but not litigation. LPS then exacerbated the problem by assigning an incorrect response date and sending the Complaint to the wrong outside counsel. In a final mishap, outside counsel neglected to look at the response date on the summons, and then waited another week until August 11 to request an extension. By this point, the default had already been entered.

Defendants filed their Motion to Vacate the Default and their Motion to Dismiss the Complaint on August 31, 2010. Defendants initially offered a declaration of outside counsel to explain their failure to timely respond to the Complaint. Counsel averred that he received the assignment of the Complaint on August 4, with a referral form showing a due date of August 20, although Defendants’ Motion to Vacate contrarily states Defendants mistakenly believed the due date was August 11. Counsel apparently relied upon the incorrect due date on the referral form calculated by the outside vendor, and did nothing to confirm the correct response date, which was apparent from the face of the summons. Not until August 11 did counsel contact Doble to request an extension. Defendants were already in default by this time, and the extension was denied.[2]

Because the Defendants initially provided no reason for their failure to respond to the Complaint until after the response was overdue, the Court asked a series of questions regarding the improper calendaring. In response to the Court’s questions, Defendants submitted the declaration of OneWest employee, Charles Boyle, who was resident in the Austin, Texas office. This employee averred that, after receipt of the Complaint in Pasadena, the Complaint was inadvertently logged into an automated referral system by a non-legal staff employee who has since resigned. Boyle averred this error was discovered the first week of August by a supervisor who re-referred the Complaint to local counsel.

Since Defendants had still not answered many of the Court’s questions, the Court again requested more information. Specifically, the Court requested Defendants provide more information regarding: 1) Boyle’s personal knowledge of the events in Pasadena given his residence in Texas; 2) what happened to the Complaint during the first month after it was served, and 3) why outside counsel waited seven days to contact Doble after receiving the Complaint on August 4. Finally, at the hearing on December 16, 2010, in response to questions asked from the bench, counsel for Defendants provided a more complete story: the Complaint had been lost, there were multiple departures from protocol, and several attorneys had received the Complaint and not bothered to review it. After a final attempt to clarify some of the facts pertaining to ownership of the Loan and why Defendants failed to timely respond to the Complaint, the Court took the matter under submission on February 3, 2011.

II. ANALYSIS

A. Defendants have not Demonstrated Good Cause to Vacate the Clerk’s Default

Rule 55(c) permits the Court to set aside an entry of default only “for good cause.” Defaulting parties have the burden of proving good cause. Franchise Holding II, LLC v. Huntington Restaurants Group, Inc., 375 F.3d 922, 926 (9th Cir. 2004) (quoting TCI Group Life Ins. Plan, Life Ins. Co. of N. Am. v. Knoebber, 244 F.3d 691, 697 (9th Cir. 2001)).

To determine whether good cause exists, courts consider (1) whether the default is the result of the defaulting party’s” culpable conduct”; (2) whether the defaulting party has a” meritorious defense”; or (3) whether reopening the default would “prejudice”[3] the innocent party. United States v. Mesle, 615 F.3d 1085, 1091 (9th Cir. 2010).[4] The test for good cause is disjunctive, and the defaulting party must prove all three factors favor setting the default aside. Franchise Holding, 375 F.3d at 926; Mesle, 615 F.3d at 1091. If any one factor favors upholding the default, the Court need not set it aside. Id. However, all doubt should be resolved in favor of a trial on the merits. Id. While there was no prejudice to Doble for the delayed response, the Court is without doubt that Defendants’ pervasive misconduct alone precludes a finding of good cause to set aside the default.

To determine whether Defendants have a meritorious defense, the Court has evaluated Defendants’ Motion to Dismiss, including admitting evidence and taking judicial notice as requested of the documents of public record in the case. SeeLee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001). The Court agrees that Doble cannot state a claim for relief on his third, fourth, and part of his first and second causes of action, and dismisses these claims with prejudice. Upon a proper motion to enter a default judgment under Rule 55(b)(2), the Court will exercise its discretion to permit the submission of evidence from all parties on whether Doble can prove his prima facie case on the other claims. However, Defendants will be prohibited from presenting a case in defense of Doble’s claims because the default will be upheld. Fed. R. Evid. 210; Fed. R. Civ. P. 55(b)(2);

1. Defendants Are Culpable

A defendant’s conduct is culpable if it is consistent with a “devious, deliberate, willful, or bad faith failure to respond.” Mesle, 615 F.3d at 1092. Where a defendant’s actions are negligent, and not intentional, the defendant is not culpable. Id.; TCI, 244 F.3d at 698-99. For “legally sophisticated” defendants, however, intentionality is assumed because legally sophisticated parties are held to understand the consequences of their actions. Mesle, 615 F.3d at 1093. As large financial institutions, OneWest and Deutsche Bank are sophisticated parties.

Where sophisticated defendants are aware of the pendency of a suit, but are indifferent to the consequences of not responding, culpability may be found even when bad faith is absent. Franchise Holding II, 375 F.3d at 926 (defendant was culpable for failing to respond despite plaintiffs warning it would seek a default after side-agreement negotiations broke down); Direct Mail Specialists, Inc. v. Eclat Computerized Technologies, Inc., 840 F.2d 685, 690 (9th Cir. 1988)Oracle USA, Inc. v. Qtrax, Inc., No. C09-3334 SBA, 2010 U.S. Dist. LEXIS 97630, at *12-*13 (N.D. Cal. Sept. 3, 2010) (defendant’s conduct was culpable when defendant did not respond to accommodate the convenience of the CEO, cost considerations, and its hope for a settlement); Markel Ins. Co. v. Dahn Yoga & Health Ctrs., Inc., No. C09-1221RSM, 2010 U.S. Dist. LEXIS 58763, at *11-*15 (W.D. Wash. May 17, 2010) (defendants were culpable where one failed to keep registered service agent updated on its address and another failed to inform itself that the client had waived a service problem). (defendant was culpable in not responding due to a mistaken belief service was improper);

Defendants’ conduct can only be described as an intentional disregard for their obligations to comply with Court procedures and provide candid answers to the Court’s questions. As in Franchise II, Oracle, Direct Mail, and Markel,[5] properly calendared the response date. Whether due to apathy or profit maximizing considerations, Defendants relied exclusively upon a non-attorney outside vendor, contrary to protocol, and failed to properly implement litigation procedures. See Franchise II, 375 F.3d at 926; Oracle, 2010 U.S. Dist. LEXIS 97630, at * 10-12 (defendants failed to appropriately allocate corporate resources to respond to the litigation). This misplaced reliance on a non-attorney to calculate a response time is similar to the conduct of the defendants in Direct Mail and Markel, who erred in their analysis that service was improper. See Direct Mail, 840 F.2d at 690; Markel, 2010 U.S. Dist. LEXIS 58763, at *16 (“[Defendant] will not be heard to object that service was improper, nor blame its failure to respond … on poor document management policies.”). Defendants’ multiple errors are also thus distinguishable from Park v. U.S. Bank Nat’l Ass’n, No. 10cvf1546-WQH-WMc, 2010 U.S. Dist. LEXIS 123119, at *8-*10 (S.D. Cal. Nov. 19, 2010), where the defendants’ failure to answer was the result of an unintentional administrative error rather than culpable misconduct. While the Court appreciates that mistakes happen and isolated negligence can be excusable neglect, see Pioneer, 507 U.S. at 407-08,[6] what happened here was not mere negligence. Defendants were aware of the suit and the consequences of the default, but repeatedly failed to follow their own protocols. Defendants have never explained why none of Defendants’ three attorneys

Compounding their culpability problems, the Court finds that Defendants’ initial explanation of the default was neither candid nor credible. A “devious” failure to respond is culpable. Mesle, 615 F.3d at 1092. The full story belies their initial characterization that their errors in handling the Complaint were minor and isolated. No less than six mistakes or breaches of protocol occurred in how the Complaint was handled: (1) both copies of the Complaint were not sent immediately to Boyle in Austin, Texas, where litigation was to be handled; (2) the Complaint was lost for a month; (3) when the Complaint was found on August 4, 2010, it was not sent to Austin as protocol demanded, but mistakenly logged into the non-attorney LPS system; (4) LPS miscalculated the response date for the Complaint; (5) LPS incorrectly assigned the response to a law firm who was not the appropriate counsel to handle litigation for OneWest; and (6) Outside counsel failed to check the correct response date and relied upon the LPS miscalculation. The Court cannot accept Boyle’s claim that new intake protocols have solved OneWest’s systemic problems. Defendants themselves could not fully explain what went wrong in their efforts to respond to the Complaint. Even after three tries, Defendants have left questions unanswered.

Defendants’ disregard for their obligations of candor to the Court and compliance with Court procedures, not only in connection with the entry of default, but also in the presentation of numerous other documents to the Court on the merits, is culpable. The default will not be set aside.

2. Defendants Acted in Bad Faith

Defendants’ conduct in presenting evidence on the merits of this case and others demonstrates a callousness towards their legal obligations that amounts to bad faith; an additional reason not to set aside the default. Defendants filed numerous pleadings in this case and in the Martha Doble case seeking the Court’s assistance in enforcing the Loan.[7][8][9] tell a convoluted tale as to who owns the Loan and is thus entitled to enforce it. This Court was forced to repeatedly request additional evidence from Defendants to evaluate their own motions. Defendants’ pleadings and transactional documents

The most disconcerting misrepresentation to the Court was Defendants’ submission of multiple “true and correct” copies of the Note under penalty of perjury without any endorsement from Plaza. Whether the Note was endorsed is central to the merits of this case. When Defendants finally submitted an endorsed copy of the Note on November 8, 2010, they attempted to pass off the first three unendorsed copies of the Note as “illegible.” The first three copies of the Note were fully readable, so the phantom endorsement page was not a problem with legibility. The timing of this tardily produced endorsement, produced after several requests, suggests it was added only in response to the litigation. To add to the Court’s incredulity, Defendants have never answered the Court’s specific questions as to when and under what circumstances this newly proffered endorsement was executed. For the purpose of its analysis on the merits, the Court finds that the endorsement was not made until it was presented to the Court on November 8, 2010.[10]

This lack of candor in the presentation of evidence on the merits supports a finding of bad faith in regard to the default. The court system can only function if parties take their representations and responsibilities seriously. Chambers v. NASSCO, Inc., 501 U.S. 32, 43, 47 (1991); see also In re Snyder, 472 U.S. 634, 641 (1985). Courts have held that a lender’s actions amount to bad faith where the lender is shown to have routinely misrepresented its role in bankruptcy cases, caused unnecessary litigation, or prejudiced another party. See Ameriquest Mortg. Co. v. Nosek (In re Nosek), 609 F.3d 6, 9 (1st Cir. 2010). In two previous cases before this Court, Defendant OneWest has been ordered to show cause for failing to comply with its obligations as a party before the Court. See In re Carter, Ch. 13 Case No. 10-10257-MM13 (Bankr. S.D. Cal.); In re Telebrico, Ch. 13 Case No. 10-07643-LA13 (Bankr. S.D. Cal.). Not only in this action, but in others as well, One West has demonstrated a “confusion and lack of knowledge, or perhaps sloppiness, as to their roles.” Ameriquest, 609 F.3d at 9.[11]

Because Defendants’ conduct in not responding to the Complaint was intentional and in bad faith, the Court will not set aside the default.

B. Resolution of the Merits of the Case

To uphold the default entered against Defendants, the Court must consider both the merits of Defendants’ defense and the merits of Plaintiff’s case, as challenged in Defendants’ Motion to Dismiss. Mesle, 615 F.3d at 1094 (defaulting party must present a valid defense before court can set aside a default); Fed.R. Civ. P. 55(b); Eitel v. McColl, 782 F.2d 1470, 1471 (9th Cir. 1986); Cashco Fin. Servs. v. McGee (In re McGee), 359 B.R. 764, 771 (B.A.P. 9th Cir. 2006) (default judgment requires assessment of the merits of plaintiff’s claims).[12] This task is made more difficult since neither Doble’s Complaint, nor Defendants’ Motion to Dismiss, is a model of clarity. Five causes of action are alleged in the Complaint, but more than five are presented.

Defendants’ Motion to Dismiss complicates the analysis further since it questions a few, but not all, of Doble’s claims. Defendants claim MERS had authority to transfer the Loan as a matter of law, but not that the assignment was properly executed or acknowledged. Defendants dispute Doble’s attempt to employ 11 U.S.C. §544(a) to set aside the MERS’ assignment to OneWest. They also argue HAMP does not provide a private cause of action. Defendants do not, however, address the state law claims contained in the fifth cause of action.

Sorting the parties’ claims and defenses, the Court concludes some of Doble’s claims lack merit, and others require further evaluation. Even though the Court will uphold the default entry resulting from Defendants’ culpable conduct, it will nevertheless dismiss with prejudice Doble’s third and fourth causes of action, and part of Doble’s first and second causes of action relating to New York Trust law and 11 U.S.C. § 544(a). See Moore v. United Kingdom, 384 F.3d 1079, 1090 (9th Cir. 2004) (invalid causes of action may be dismissed despite default). The Court will hold further proceedings on the remaining claims to respect the due process rights of Defendants. Danning v. Lavine, 572 F.2d 1386, 1388-89 (9th Cir. 1978) (default judgment proceedings should be consistent with due process).

1. Defendants’ Secured and Unsecured Claims (1st and 2nd Causes of Action)

The first two causes of action seek damages and disallowance of Defendants’ secured and unsecured claims for lack of standing on four separate grounds: (a) MERS’ assignment of the DOT to OneWest and, in turn, OneWest’s assignment to Deutsche Bank, were invalid; (b) Defendants have no interest in the Note nor any right to enforce it under California law; (c) the assignment of the DOT to Deutsche Bank was not of public record; and (d) Defendants violated New York Trust law so that Deutsche Bank cannot be the owner of the Loan as a matter of law. Where a secured creditor cannot establish a right to enforce a loan, it has no standing to file or defend a claim, or to seek relief from stay. In re Gavin, 319 B.R. 27, 32 (B.A.P. 1st Cir. 2004); In re Hayes, 393 B.R. 259, 269-70 (Bankr. D. Mass. 2008).

Although the Court rejects Doble’s New York Trust claims and his avoiding power claim, the record here supports Doble’s first three standing claims. MERS had no authority to assign the DOT, under its terms and as a matter of law, without the authority to assign the Note. The Note was not assigned until it was endorsed by Plaza. Until that endorsement, the MERS’ assignments were a nullity. Deutsche Bank currently lacks authority to enforce the Loan as the assignee of Plaza, and will continue to lack authority until it records its assignment.

a. MERS Cannot Transfer DOT Enforcement Rights to Defendants

Defendants’ Motion to Dismiss relies upon MERS’ status as nominal beneficiary of the DOT[13] to establish their standing to enforce the Loan. They cite several cases which have so held. Lane v. Vitek Real Estate Indus. Group, 713 F. Supp. 2d 1092, 1099 (E. D. Cal. 2010); Hafiz v. Greenpoint Mortg. Funding, Inc., 652 F. Supp. 2d 1039, 1043 (N.D. Cal. 2009); Pantoja v. Countrywide Home Loans, Inc., 640 F. Supp. 2d 1177, 1190 (N.D. Cal. 2009); see also Perry v. Nat’l Default Servicing Corp., No. 10-CV-03167-LHK, 2010 U.S. Dist. LEXIS 92907, at *11 (N.D. Cal. Aug. 20, 2010).[14] The Court does not disagree with these cases to the extent they hold MERS need not have physical possession of the note to commence a foreclosure, and securitization of a mortgage note need not impact the enforceability of the mortgage itself. The key issue before the Court is different: whether MERS had statutory authority to assign the DOT under its terms, particularly when MERS held no rights under the Note. To decide this issue, the Court rejects Defendants’ invitation to overlook the statutory foreclosure mandates of California law, and rely upon MERS as an extra-judicial commercial alternative.[15]

The DOT is a four party instrument among the Dobles as Borrowers, Plaza as Lender, First American Title as trustee, and MERS as beneficiary. The Lender’s rights regarding the Loan are pervasive. The Lender (Plaza) is entitled to receive all payments under the Note, to control enforcement of the DOT under its terms, and only the Lender is entitled to conduct a nonjudicial foreclosure.[16]

MERS has none of these rights under the DOT and is not even mentioned in the Note. MERS is not given any independent authority to enforce the DOT under its terms, and its status as beneficiary under the DOT is only “nominal.” While the Borrowers acknowledge in the DOT that MERS can exercise the Lender’s rights as “necessary to comply with law or custom,[17] this acknowledgement is not accompanied by any actual allocation of authority to nonjudicially foreclose on the Property, nor is such authority allocated in any other document in the record. See also, e.g., LaSalle Bank Nat’l Ass’n v. Lamy, No. 030049/2005, 2006 NY Slip Op 51534U, slip op. 2 (N.Y. Sup. Ct. 2006); MERS v. Saunders, 2 A.3d 289, 295 (Me. 2010) (“MERS’ only right is to record the mortgage. Its designation as the `mortgagee of record’ in the document does not change or expand that right….”). Defendants’ authority to foreclose cannot, therefore, be derived from MERS because MERS never held such authority.[18] Shannon v. General Petroleum Corp., 47 Cal. App. 2d 651, 661 (1941) (assignment can only carry rights owned by the assignor.)

Even though MERS’ status as the nominal beneficiary of the DOT may have allowed it to assign that limited status, this authority does not convey a right to enforce the Loan. An assignment of a mortgage without assignment of the corresponding debt is a nullity under controlling law. Carpenter v. Longan, 83 U.S. 271, 275 (1872); Kelley v. Howarth, 39 Cal. 2d 179, 192 (1952); Johnson v. Razy, 181 Cal. 342, 344 (1919) (“A mortgage is mere security for the debt, and it cannot pass without transfer of the debt.”); Polhemus v. Trainer, 30 Cal. 686, 688 (1866) (interest in the collateral subject to the mortgage does not pass “unless the debt itself [is] assigned.”). Within California’s comprehensive statutory nonjudicial foreclosure scheme found at Civil Code sections 2920-2955, four separate statutes corroborate that the secured debt must be assigned with the deed of trust.[19]

Since MERS could not assign any enforcement rights under the Note or DOT because it held none, Defendants could not rely on the invalid MERS assignment to enforce the DOT. Polhemus, 30 Cal. at 688; see also U.S. Bank Nat’l Ass’n v. Ibanez, 458 Mass. 637, 651 (2011). They had to receive an assignment from Plaza as the payee of the Note before the MERS assignment of its nominal interest in the DOT could have any enforceable impact.

b. Defendants’ Right to Enforce the Note

A negotiable promissory note such as the Note can only be enforced in accordance with Article 3 of the Commercial Code (“CCC”), Cal. Com. Code §§ 1101-16104 (Deering 2011). The CCC permits enforcement of a note by a party who: (1) holds a directly endorsed note (section 1205(21)); (2) previously had the ability to enforce the note, but it was lost, destroyed, or stolen (section 3309); (3) has possession of an endorsed-in-blank instrument (section 1205(21)); or (4) can prove both possession of the enforcement rights received from its transferor (section 3301). Id; In re McMullen Oil Co., 251 B.R. 558, 568 (Bankr.C.D. Cal. 2000); In Re Carlyle, 242 B.R. 881, 887 (Bankr. E.D. Va. 1999). These requirements apply to every link in the chain of transfer of the note. Where a note has been assigned several times, each assignment in the chain must be valid or the party claiming the note cannot enforce it. In re Gavin, 319 B.R. 27, 32 (B.A.P. 1st Cir. 2004); In re Wells, 407 B.R. 873 (Bankr. N.D. Ohio 2009). Even if a party is the owner of a promissory note, it is not entitled to enforce the note unless it meets the statutory criteria for enforcement. Cal.Com. Code §3203(b) cmt. 2.

Enforcement option 1 is not applicable. The Note is not payable to Defendants, but to Plaza. Neither Defendant can enforce the Note as a direct payee or endorsee. In re Wilhelm, 407 B.R. 392, 402 (Bankr. D. Idaho 2009); Chicago Title Ins. Co. v. Allfirst Bank, 905 A.2d 366, 374 (Md. 2006). No claim was made that the Note was lost or stolen, which eliminates option 2.

As to option 3, not until November 8, 2010 did Defendants produce the Note endorsed in blank by Plaza. An endorsement is not effective until it is signed. Com.Code §3203(c); Security Pacific Nat. Bank v. Chess, 58 Cal. App. 3d 555, 564 (1976). Until the note is properly endorsed, assignments of the deed of trust do not serve to transfer enforcement rights. Id. The endorsement must be on the note or attached. Lopez v. Puzina, 239 Cal. App. 2d 708, 714 (1st Dist. 1966).

Defendants did not attempt to demonstrate the requirements of option 4; that they had possession of the Note and that Plaza had transferred to them the right to enforce it even without an endorsement. Instead, they erroneously relied upon the MERS assignment. Com.Code § 3203 (1), (2) n. 17; In re McMullen Oil Co., 251 B.R. 558, 567 (Bankr. CD. Cal. 2000); In re Agard, No. 10-77338-reg, 2011 Bankr. LEXIS 488, at *58 (Bankr. E.D.N.Y. Feb. 10, 2011) (“[E]ven if MERS had assigned the Mortgage acting on behalf of the entity which held the Note at the time of the assignment, this Court finds that MERS did not have authority, as “nominee” or agent to assign the Mortgage absent a showing that it was given specific written directions by its principal.”). Under the circumstances of this case, the Court declines to give the Defendants another chance to “prove the transaction.” Instead, the Court finds that Defendants did not have any right to enforce the Note before November 8, 2010, when they produced an endorsement of the Note from Plaza.

c. Deutsche Bank’s Assignment of the DOT Must Still be Recorded

Although Deutsche Bank met the first of the foreclosure prerequisites to enforce the power of sale in the DOT under Civil Code section 2932.5[20] when it became the holder of the Note on November 8, 2010, it still failed to meet the second. Civil Code section 2932.5 requires that the assignee of the secured debt record its interest before it can exercise the power of sale under the DOT and nonjudicially foreclose. Deutsche Bank admits it has recorded neither of the two assignments from OneWest to Deutsche Bank. Deutsche Bank, therefore, still lacks authority to enforce the DOT, and any enforcement actions taken thus far are void. Ibanez, 458 Mass, at 651; Polhemus, 30 Cal. at 688.

d. New York Trust Law

As part of the first and second causes of action, Doble alleges that Deutsche Bank cannot own the Loan because the Loan was not properly transferred to it in accordance with New York Trust law and the trust documents. Under the terms of the Purchase and Servicing Agreement (“PSA”), Doble alleges all assets to be part of the trust had to be conveyed before June 1, 2005. Since none of the assignments of the Loan met that deadline, Doble claims Deutsche Bank has no interest in the Loan. Defendants, in turn, claim Doble has no standing to challenge the trust, citing Rogan v. Bank One, N.A. (In re Cook), 457 F.3d 561, 567 (6th Cir. 2006). While the Court agrees that Doble has no standing to interfere with trust administration, he does have standing to challenge Defendants’ assertion they had standing to file a claim and to seek to foreclose the Loan. Wilhelm, 407 B.R. at 400.

The Court nevertheless finds the allegations of this claim to be too flawed to remain a part of this suit. See Eitel, 782 F.2d at 1471. Based on the allegations of the Complaint, the Court cannot determine whether the Loan was validly conveyed to the trust, whether the trust is invalid, or what effect such an invalidation would have on Defendants’ claim.[21] Doble has provided no legal support for his claims. His citation to New York Estate Powers and Trusts Law section 7-2.4 (Consol. 2010), to support that any “sale, conveyance, or other act” in “contravention” of the trust is void, is incorrect.[22]

Doble’s New York trust claim within the first and second causes of action therefore will be dismissed with prejudice.

2. The Assignments May Not be Avoided (2nd Cause of Action)

The Court agrees that Doble has no viable avoiding power claim to assert as a result of Defendants’ recordation of assignments after the Martha Doble bankruptcy case was filed. Doble was provided constructive notice of Defendants’ lien from the recordation of the DOT, regardless of whether interests in the Loan were later transferred. In re Cook, 457 F.3d at 568; Kapila v. Atl. Mortg. & Inv. Corp. (In re Halabi), 184 F.3d 1335, 1338 (11th Cir. 1999); see also In re Probasco, 839 F.2d 1352, 1354 (9th Cir. 1988) (applying California law, a bona fide purchaser who records prevails over a prior transferee who failed to record). The Court also notes these claims are property of the Martha Doble bankruptcy estate, not this case. Doble thus lacks standing to assert this claim. See Estate of Spirtos v. One San Bernardino County, 443 F.3d 1172, 1176 (9th Cir. 2006) (husband does not have authority to assert claims on the part of wife without substantial proof of standing). This part of the second cause of action is also dismissed with prejudice.

3. Violation of Stay (3rd Cause of Action)

Doble’s third cause of action alleges[23] that Assignments 2 and 3 from OneWest to Deutsche Bank were executed post-petition in Martha Doble’s case, and are void and in violation of his co-debtor stay under 11 U.S.C. §1301. In response, Defendants assert that the stay is not violated by assignments of their mortgage interests post-petition, because those interests do not belong to Martha Doble’s bankruptcy estate.

The Court agrees that this is not a valid cause of action. Because the automatic stay only applies to transfers of a debtor’s property interests under 11 U.S.C. § 362(a)(3), Defendants’ transfers of their interests in the Loan do not violate the automatic stay. Halabi, 184 F.3d at 1337; Cook, 457 F.3d at 568. This cause of action will be dismissed with prejudice.

4. Violation of Bankruptcy Code (4th Cause of Action)

Doble specifically seeks damages and sanctions relating to Defendants’ proof of claim and false declaration filed in the relief from stay motion in Martha Doble’s case. Defendants’ only response to this is to reiterate that the unrecorded assignment is not avoidable under § 544(a). Defendants fail to address any other allegations in this cause of action.

Despite Defendants’ failure to cogently respond to this cause of action, the Court finds Doble has no standing to assert damages in his wife’s bankruptcy case. Doble was not a joint debtor in that case, and Martha Doble is not a party in this case. See In re Scott, 437 B.R. 376, 379-80 (B.A.P. 9th Cir. 2010). This cause of action is not viable to the extent it seeks damages for Doble in his wife’s case, and it will be dismissed with prejudice.

5. Loan Modification Claims (5th Cause of Action)

In the fifth cause of action, Doble alleges an array of theories complaining of Defendants’ conduct in the loan modification process, including that they engaged in unlawful business practices, violated California’s Consumer Legal Remedies Act, California Civil Code Section §§ 1750-1759, and breached the covenant of good faith and fair dealing. In response, Defendants only challenge whether HAMP establishes a private cause of action, based on Doble’s allegation he is an intended third party beneficiary under the HAMP contract.

The facts alleged in the Complaint, as well as the additional evidence proffered by the parties in response to the Court’s inquiries, reflect ongoing efforts by Doble to modify the Loan over a period of eighteen months. Doble claims the efforts were successful, and Defendants should be bound by the permanent loan modification they offered him in May 2010. Defendants claim the Loan modification effort failed because Doble failed to make all of the payments due during the trial period. To resolve this basic controversy requires further evidentiary proceedings, since the communications by Defendants were confusing and contradictory, but Doble did fail to make all of the required payments even if there was a binding loan modification with Defendants. To facilitate the evidentiary hearing, the Court will preliminarily address Doble’s theories of recovery.

Courts have differed on whether HAMP permits a private right of action. Compare Benito v. Indymac Mortg. Servs.,and Escobedo v. Countrywide, No. 09-cv-1557 BTM (BLM), 2009 U.S. Dist. LEXIS 117017, at * 4-*7 (S.D. Cal. Dec. 15, 2009) (same), with Marques v. Wells Fargo Home Mortgage Inc., No. 09-cv-1985-L (RBB), 2010 U.S. Dist. LEXIS 81879, at *19-*20(S.D. Cal. Aug. 12, 2010) (finding a borrower is a third party beneficiary with regard to certain contract terms that are not discretionary, and HAMP otherwise has no enforcement remedies). In determining whether a party is an intended beneficiary of a government contract, a court must examine “the precise language of the contract for a clear intent to rebut the presumption that the third parties are merely incidental beneficiaries.” County of Santa Clara v. Astra USA, Inc., 588 F.3d 1237, 1244 (9th Cir. 2009), cert. granted sub. nom, Astra USA, Inc. v. Santa Clara County, 131 S.Ct. 61 (2010) (failure to include express language identifying parties as intended beneficiaries is not dispositive). To the extent Doble can prove a specific provision of HAMP was violated, and compliance with the provision was mandatory for Defendants, he may be able to prove a valid cause of action as a third party beneficiary of HAMP. No. 2:09-CV-001218-PMP-PAL, 2010 U.S. Dist. LEXIS 51259, at *20-*21 (D. Nev. May 21, 2010) (holding a borrower is not a third party beneficiary),

Doble’s other claims are not invalid as a matter of law even if he cannot establish a direct cause of action under HAMP. Failure to establish a HAMP third party beneficiary contract cause of action does not preclude state law claims relating to the Lender’s alleged misconduct. Escobedo, 2009 U.S. Dis. LEXIS 117017, at * 10 (allowing claims for violation of unfair business practices under Cal. Bus. & Prof. Code § 17200); Villa v. Wells Fargo Bank, N.A., No. 10CV81 DMS (WVG), 2010 U.S. Dist. LEXIS 23741, at *9 (S.D. Ca. 2010) (allowing an amendment to allege misrepresentation claims); Aceves v. U.S. Bank, N.A., 192 Cal. App. 4th 218, 233 (2d Dist. 2011) (allowing promissory estoppel and fraud claims). Doble’s claims under the California Legal Remedies Act, Cal. Civ. Code §§ 1750-1759, and his claims for breach of the covenant of good faith and fair dealing, therefore, cannot be dismissed as a matter of law at this time.

C. Order To Show Cause

Based on the facts and circumstances described in this Memorandum Decision, the Court orders that Defendants appear and show cause why they should not pay Doble’s attorney’s fees for their conduct in this action. This order to show cause is issued pursuant to this Court’s authority under 28 U.S.C. § 157, 11 U.S. C. § 105, Bankruptcy Rule 9011(c)(1)(b) and the Court’s inherent power to monitor the proceedings before it for the benefit of the Court, the profession and the public. Chambers v. NASCO, Inc., 501 U.S. 32, 43, 47 (1991); In re Sunshine Jr. Stores, Inc., 456 F.3d 1291, 1305 (11th Cir. 2006) (“it is within a court’s discretion to assess attorney’s fees on a party … for actions taken in bad faith”).

III. CONCLUSION

The Court denies Defendants’ request to set aside the clerk’s entry of a default, but grants their Motion to Dismiss the portions of the first and second causes of action relating to Doble’s New York Trust claims and avoiding power claims. Defendants’ Motion to Dismiss Doble’s third and fourth causes of action is also granted. As to the remainder of the first and second causes of action, the Court finds MERS’ limited role as beneficiary of the DOT did not provide talismanic protection against the myriad foreclosure deficiencies committed by Defendants regarding this Loan. MERS’ role did not provide Defendants the authority to enforce the DOT, the ability to assign the Note without an endorsement from Plaza, or an exception to their obligation to record the assignment to Deutsche Bank. The Court will allow Doble to produce additional evidence in support of his claims, but not his wife’s claims. The Court will disallow Defendants’ secured and unsecured claims without prejudice. Defendants may file an amended proof of claim in this case if they fully address the defects identified in this Memorandum Decision.

The Court orders Defendants to appear and show cause why they should not pay Doble’s attorneys fees for their conduct in this action, and schedules a status conference for April 28, 2011 at 3:00 in Department 1 of this Court.

[1] See infra Part II.B.1.a.

[2] Doble’s reason for not agreeing to set aside the default was his frustration with the “false documents” submitted regarding ownership of the Loan.

[3] To be prejudicial, reopening the default must result in greater harm than a mere delay in relief. Mesle, 615 F.3d at 1095; see also Franchise Holding II, 375 F.3d at 926 (plaintiff was prejudiced where there was a possibility that a delay in judgment would allow defendant an opportunity to hide assets). Here, Defendants have asserted that Doble is not prejudiced by their delay and there is no evidence before the Court to the contrary. Ultimately, however, since Rule 55(c)’s good cause factors are disjunctive, and Defendants’ conduct is culpable, a prejudice analysis is unnecessary.

[4] The Rule 55(c) good cause factors are identical to those used to consider whether relief should be granted from a default judgment under Rule 60(b). See Mesle, 615 F.3d at 1091; TCI, 244 F.3d at 696. However, while the factors are the same, the standards for evaluating the factors are distinct. O’Brien v. R.J. O’Brien & Assocs., Inc., 998 F.2d 1394, 1401 (7th Cir. 1993). Rule 55(c)’s relief from default standard is less rigorous than the relief from judgment standard of Rule 60(b). Hawaii Carpenters’ Trust Funds v. Stone, 794 F.2d 508, 513 (9th Cir. 1986) (“The different treatment of default entry and judgment by Rule 55(c) frees a court considering a motion to set aside a default entry from the restraint of Rule 60(b) and entrusts determination to the discretion of the court.”); accord Tessill v. Emergency Physician Assocs., 230 F.R.D. 287, 289 (W.D.N.Y. 2005).

[5] These three attorneys are the Deutsche Bank counsel who forwarded the Complaint to OneWest, the OneWest Corporate Legal Department who received both the OneWest Complaint it received on its own behalf and the Complaint sent by Deutsche Bank, and Burnett & Matthews, the first outside counsel who received the Complaint.

[6] This reading of culpability is consistent with the Supreme Court’s interpretation of the analogous “excusable neglect” standard of Rule 60(b)(1). Pioneer Inv. Serv. Co. v. Brunswick Assocs. Ltd., 507 U.S. 380, 393, 395-97 (1993) (a party’s failure to respond is excusable if inadvertent or negligent); Mesle, 615 F.3d at 1092; Franchise Holding II, 375 F.3d at 927.

[7] In the Martha Doble case, in a Declaration filed May 4, 2010, Deutsche Bank, through its purported power of attorney, One West, claimed to be the owner of the Loan based upon a chain of assignments. Deutsche Bank claimed the same in its proof of claim. However, in this case, OneWest filed the proof of claim for the Loan identifying itself as the creditor. In this adversary case, Defendants averred MERS assigned all beneficial interest under the DOT to OneWest on October 22, 2009 and OneWest assigned all beneficial interest to Deutsche Bank in an unrecorded assignment dated May 19, 2010. This assignment to Deutsche Bank on May 19, 2010, however, is dated after Deutsche Bank averred to this Court on May 4, 2010 that it was the owner of the Loan. Separately, Deutsche Bank has also claimed it owned the Loan as of 2008 without evidentiary support.

[8] The Court on October 5, 2010 issued a tentative ruling continuing the hearing on the Motions and seeking additional evidence regarding who had the right to foreclose the Loan, and whether the Loan Modification Agreement, which Doble alleges he executed on June 3, 2010, was also executed by Defendants. The Court issued another tentative ruling on December 15, 2010 seeking an “explanation from Defendants regarding the contradictory statements submitted by Defendants under penalty of perjury in both Debtor’s and Martha Doble’s bankruptcy cases regarding the identity of the owner of the Note,” the role of OneWest, and the circumstances of the endorsement of the Note. The Court inquired twice more regarding the circumstances of the alleged loan modification and the Defendants’ default.

[9] Defendants provided the Court with an “Assignment of Deed of Trust” executed on June 26, 2009 through which MERS, as the original beneficiary, purports to assign to OneWest all beneficial interest under the DOT, “together with the Note” (“Assignment 1”). However, One West did not record its interest until after its foreclosure proceedings were started. On July 14, 2009, a Notice of Default on the loan was recorded by OneWest, even though OneWest lacked any recorded interest in the Loan at the time. Only when OneWest recorded a Notice of Sale on the Loan on October 22, 2009, did it finally record Assignment 1.

On November 24, 2009, OneWest executed, but did not record, an Assignment of Deed of Trust to Deutsche Bank “together with the Note” (“Assignment 2”). Then on May 19, 2010, OneWest executed but did not record another Assignment of Deed of Trust “together with the Note” (“Assignment 3”) to Deutsche Bank. Deutsche Bank curiously produced a copy of a power of attorney it granted to OneWest regarding ownership of the Loan. Whatever significance this power of attorney has, it does not support the assignment from OneWest to Deutsche Bank because Deutsche Bank had no apparent rights to the Loan before it received them from OneWest.

[10] This sanction is similar to the entry of a default judgment against Defendants for their bad faith failure to comply with the orders of this Court. See, e.g., Carter v. Brooms (In re Brooms), No. NC-10-1117-KiSah, 2011 Bankr. LEXIS 648, at *21 (B.A.P. 9th Cir. Jan. 18, 2011) (upholding the court’s default judgment pursuant to 7016(d) for a party’s failure to comply with a pre-trial order).

[11] Specifically, an inability to coherently prove ownership is both endemic to the industry, and a common problem. Ameriquest, 609 F.3d at 9; see also, e.g., U.S. Bank Nat’l Ass’n v. Ibanez, 458 Mass. 637 (2011) (holding US Bank did not sufficiently demonstrate it held title to a mortgage under Massachusetts law prior to foreclosure where US Bank alleged it received title pursuant to a trust agreement and did not provide the trust agreement but, instead, provided an unsigned offer of mortgage-backed securities to potential investors that did not specifically identify the mortgage in question).

The Court’s finding here is consistent with the findings of the academics and reporters who note this pattern of behavior is common in the mortgage industry. Studies have shown that mortgage holders and servicers routinely file inaccurate claims, some of which may not be lawful. See Katherine Porter, Misbehavior and Mistake in Bankruptcy Mortgage Claims, 87 Tex. L. Rev. 121, 123-24 (2008); Andrew J. Kazakes, Developments in the Law: the Home Mortgage Crisis, 43 Loy. L.A. L. Rev. 1383, 1430 (2010) (citing David Streitfeld, Bank of America to Freeze Foreclosure Cases, N.Y. Times, Oct. 2, 2010, at B1) (reporting that after revelation of Porter’s study several Banks froze foreclosures); Eric Dash, A Paperwork Fiasco, N.Y. Times, Oct. 24, 2010, at WK5 (reporting the repeal of the initial freeze and the problems banks faced in clearing up foreclosure paperwork). The Inspector General overseeing the recent financial crisis has studied this issue and concluded:

Anecdotal evidence of [loan servicers’] failures [have] been well chronicled. From the repeated loss of borrower paperwork, to blatant failure to follow program standards, to unnecessary delays that severely harm borrowers while benefiting servicers themselves, stories of servicer negligence and misconduct are legion, and . . . they too often have financial interests that don’t align with those of either borrowers or investors.

Office of the Special Inspector General for the Troubled Asset Relief Program, Quarterly Report to Congress 12 (Jan. 26, 2011), available at http://www.sigtarp.gov/ (follow link for “Quarterly Report to Congress”).

[12] After entry of a default, a court may exercise its discretion to enter a default judgment on the merits of the case. Fed. R. Civ. P. 55(b); Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). The Ninth Circuit in Eitel identified the following factors for a court to consider in exercising that discretion:

(1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff’s substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in the action; (5) the possibility of a dispute concerning material facts; (6) whether the default was due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits.

Eitel, 782 F.2d at 1471-72.

[13] The DOT states “MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS is the beneficiary under this Security Instrument.” DOT at p. 1.

[14] Under Ninth Circuit law this Court may decline to follow these decisions because it is not bound. State Compensation Ins. Fund v. Zamora (In re Silverman), 616 F.3d 1001, 1005 (9th Cir. 2010). While the Ninth Circuit reserved the issue of whether bankruptcy courts are bound by district court decisions within the district where the bankruptcy court sits, it recognized that such a requirement “could create the same problem of subjecting bankruptcy courts to a non-uniform body of law.” Id.

[15] The Court notes that circumventing the public recordation system is, in fact, the purpose for which the MERS system was created. Merscorp, Inc. v. Romaine, No. 179, 2006 NY Slip Op. 9500, slip op. 6 (Ct. of Appeals 2006). Creation of a private system, however, is not enforceable to the extent that it departs from California law as explained in this Memorandum Decision.

[16] Under the DOT, the Lender is secured the right to: “(i) the repayment of the Loan, and all renewals, extensions and modifications of the Note; and (ii) the performance of Borrower’s covenants and agreements under this Security Instrument and the Note.” In addition, under the covenants executed between the Lender and Doble, the Lender is granted exclusive authority to accelerate repayment, “give notice to Borrower prior to acceleration,” “invoke the power of sale” through written notice to the Trustee in the event of default, and appoint successor trustees. DOT at pp. 2, 11, 12.

[17] The DOT provides, “Borrower 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 of Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing or cancelling this Security Instrument.” DOT at p. 3 (emphasis added).

[18] Since the briefing on this matter was completed, Gomes v. Countrywide Home Loans, Inc., 192 Cal. App. 4th 1149, 1151-58 (4th Dist. 2011) was decided. Gomes held that there is no cause of action under Civil Code section 2924(a)(1) that would permit a borrower to test MERS’ authority to initiate a nonjudicial foreclosure without a specific factual basis for the challenge. Neither Gomes nor Civil Code section 2924(a)(1) however, address Civil Code section 2932.5, applicable when an assignee forecloses. Id. at 1155. Instead, Gomes relied upon the borrower’s acknowledgement of MERS’ authority in the DOT to allow MERS to foreclose as nominal beneficiary. Gomes, 192 Cal. App. 4th at 1157-58. MERS, here, had no such authority under the DOT. The Lender, not MERS, has the right to “invoke the power of sale” under the DOT.

[19] These statutes are: Civil Code sections 2932.5 (assignee of secured debt cannot nonjudicially foreclose without right to payment and a recorded assignment), 2935 (notice of an assignment of a mortgage does not change the borrowers’ obligation to make payments to the holder of the note), 2936 (transfer of a note carries with it an assignment of the debt, not vice versa), and 2937 (borrowers must be notified of transfers of servicing rights).

[20] Civil Code section 2932.5 provides:

Where a power to sell real property is given to a mortgagee, or other encumbrancer, in an instrument intended to secure the payment of money, the power is part of the security and vests in any person who by assignment becomes entitled to payment of the money secured by the instrument. The power of sale may be exercised by the assignee if the assignment is duly acknowledged and recorded.

Civ. Code § 2932.5 (Deering 2011) (emphasis added). While the exact language of Civil Code section 2932.5 mentions mortgages and not deeds of trust, the distinction between the two instruments is obsolete. N. Brand Partners v. Colony GFP Partners, L.P. (In re 240 N. Brand Partners), 200 B.R. 653, 658 (B.A.P. 9th Cir. 1996) (“The terminology creates a difference without distinction.”); Yulaeva v. Greenpoint Mortg. Funding, Inc., No. S-09-1504, 2009 U.S. Dist. LEXIS 79094, at *4 (E.D. Cal. Sept. 3, 2009) (citing 4 B.E. Witkin, Summary of California Law, ch. VIII, § 5 (10th ed. 2005)); Bank of Italy Nat. Trust & Sav. Assn. v. Bentley, 217 Cal. 644, 656 (1933) (legal title under a deed of trust, though held by the trustee to the extent necessary for execution of the trust, does not carry any “incidents of ownership of the property”); see also 1 Roger Bernhardt, California Mortgages, Deeds of Trust, and Foreclosure Litigation, § 1.35 (4th ed. 2009); Bank of Italy Nat. Trust & Sav. Assn. v. Bentley, 217 Cal. 644, 656 (1933) (legal title under a deed of trust, though held by the trustee to the extent necessary for execution of the trust, does not carry any “incidents of ownership of the property”); 4 Harry D. Miller & Marvin B. Stan, Miller & Starr California Real Estate, § 10:1 n. 9 (3d 2010) (citing Dowarad v. Fisher & Burke, Inc., 270 Cal. App. 2d 543, 553 (1st Dist. 1969)) (mortgages and deeds of trust have the same effect and economic function and are “subject to the same procedures and limitations on judicial and nonjudicial foreclosure”).

[21] Specifically, the Court is unclear as to (1) whether the PSA intended to transfer the Loan to the trust (Was Doble’s Loan listed on the mortgage schedule?); (2) whether, if the PSA did intend to transfer the Loan to the trust, whether it made the transfer and documentation of the transfer was lost or whether the Loan was never transferred at all (Was the mortgage file conveyed to the trustee? Did the trustee certify the receipt of the mortgage file? Did the trustee attempt to exercise the Repurchase Provisions of the trust?); (3) whether, if the PSA intended to transfer the Loan, the parties failed to properly transfer it or whether the Loan was properly transferred but subsequent documentation was lost; and (4) whether, if the PSA did not intend to transfer the Loan to the trust, a subsequent transfer to the trust is valid under the terms of the PSA (Did the trustee receive an REMIC opinion? Did the trustee make other arrangements prior to the subsequent transfer to protect the trust’s REMIC status? Does a violation of the trust’s REMIC status negate the transfer or simply leave the trust vulnerable to an REMIC adverse event for purposes of the Tax Code?)

[22] New York Estate Powers and Trusts Law is not relevant here. Under section 11-1.1(a), New York Estate Powers and Trusts Law explicitly excludes business trusts. The Trust here is registered with the SEC, and the PSA provides for the issuance of certificates and the election of REMIC status with the IRS. Trusts whose shares are traded on the American Stock Exchange and that qualify as “real estate investment trusts” under the Internal Revenue Code are considered business trusts. Prudent Real Estate Trust v. Johncamp Realty, Inc., 599 F.2d 1140, 1141 (C.A.N.Y. 1979). As a business trust, New York’s Estate Powers and Trusts Law does not govern Deutsche Bank’s ownership of the Loan. Rather, the ownership issue is governed by law applicable to trusts generally. See, e.g., Fogelin v. Nordblom, 521 N.E.2d 1007, 1012 (Mass 1988); In re Great Northern Iron Ore Props., 263 N.W.2d 610 (Minn. 1978).

[23] While Doble does not limit the cause of action to just this allegation, and instead states “the actions of [Defendants] as set forth hereinabove” constitute violations of the stay, these allegations are too diffuse to address without more specificity.

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MERS Loses Quiet Title Appeal in Texas, Affirms Trial Court Judgment of Voiding Deed of Trust: MERS v. GROVES

MERS Loses Quiet Title Appeal in Texas, Affirms Trial Court Judgment of Voiding Deed of Trust: MERS v. GROVES


Via: William A. Roper

MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., AS NOMINEE FOR GREENSPOINT FUNDING, Appellant,
v.
NANCY GROVES, Appellee.

No. 14-10-00090-CV.

Court of Appeals of Texas, Fourteenth District, Houston.

Memorandum Opinion filed April 12, 2011.

Panel consists of Justices Brown, Boyce and Jamison.

MEMORANDUM OPINION

WILLIAM J. BOYCE, Justice.

Nancy Groves sued Mortgage Electronic Registration Systems, Inc. (MERS), as nominee for Greenspoint Funding, to invalidate a deed of trust securing MERS’s alleged lien on Groves’s property. The trial court entered a default judgment against MERS, which then filed this restricted appeal. We affirm.

BACKGROUND

Groves filed her original petition against MERS on May 8, 2009. She alleged that she owns a certain tract of land subject to a lien secured by a deed of trust “accepted and recorded” by MERS. She further alleged that the deed of trust is invalid and asked the trial court to remove it and quiet title in Groves. MERS was served with process but failed to file an answer, and Groves filed a motion for default judgment. The trial court signed a default judgment against MERS stating that (1) Groves owns the property in question; (2) the deed of trust is “void and of no force or effect;” and (3) the deed of trust be removed from the property title.

MERS filed a timely notice of restricted appeal, arguing that (1) “Groves failed to properly state a cause of action and such failure is plain on the face of Groves’s petition;” and (2) “no justiciable controversy is alleged in Groves’s petition.”

ANALYSIS

A restricted appeal is available when (1) it is filed within six months after the trial court signed the judgment; (2) by a party to the suit; (3) who, either in person or through counsel, did not participate at trial and did not timely file any post-judgment motions or requests for findings of fact and conclusions of law; and (4) error is apparent from the face of the record. Tex. R. App. P. 26.1(c), 30; Alexander v. Lynda’s Boutique, 134 S.W.3d 845, 848 (Tex. 2004). The face of the record consists of all papers on file in the appeal. Osteen v. Osteen, 38 S.W.3d 809, 813 (Tex. App.-Houston [14th Dist.] 2001, no pet.).

MERS, a party to this suit, did not participate in the trial court and did not file any post-judgment motion or request for findings of fact or conclusions of law. MERS filed its notice of restricted appeal on January 26, 2010, less than six months after the trial court signed the default judgment on September 25, 2009. Accordingly, the only issue in this restricted appeal is whether error is plain on the record’s face. See Tex. R. App. P. 26.1(c), 30; Alexander, 134 S.W.3d at 848.

I. Groves’s Pleadings

MERS argues in its first issue that error is plain on the record’s face because Groves’s pleading does not properly raise a claim for which the trial court could grant relief. According to MERS, Groves’s pleading does not raise a viable claim because Groves (1) failed to base her claim on the superiority of her own title to the property; and (2) requested only declaratory relief under the Declaratory Judgment Act.

Groves stated in her petition:

Nancy Groves, Plaintiff, petitions the court pursuant to the Declaratory Judgment Act . . . for a declaration of the invalidity of certain documents and claim held by the Defendant, [MERS], in order to quiet title to the property in which Plaintiff has an interest, and for cause of action shows:

* * *

3. Plaintiff’s Interest in Property. The plaintiff is the owner of a certain tract of land located in Harris County, Texas, as shown in the Assessment Lien Deed recorded under document number V230924 in the official Public records of Tarrant County, Texas, and more particularly described as Lot Thirteen (13), in Block Two (2), of Summerwood, Section 4, Seven Oaks Village, an addition in Harris County, Texas, according to the map or plat thereof recorded in Film Code No. 388 of the Map Records of Harris, County, Texas.

* * *

5. Invalidity of Defendant’s Claim. The Deed of Trust under which the Defendant or the Lender or Lender’s assigns asserts an interest that interferes with Plaintiff’s title, although appearing valid on its face, is in fact invalid and of no force or effect. The Plaintiff will show that Defendant nor the Lender’s assigns is not the holder of the original Real Estate Lien note that is secured by the Deed of Trust.

Groves also requested “other and further relief for which Plaintiff may be justly entitled” based on allegations that (1) she owns the property in question; (2) MERS accepted and recorded a deed of trust securing an alleged lien on the property; and (3) the deed of trust “is in fact invalid and of no force or effect.”

The trial court’s judgment states:

[T]he court Orders and Adjudges, that [Groves] is the owner of [the property].

The court further Orders and Adjudges that the Deed of Trust filed is void and has no force or effect.

The court further orders the deed of trust removed from the title to the property made the subject of this litigation.

A. Strength of Title

MERS first argues that the judgment was in error because Groves pleaded “a quiet title (or trespass-to-try-title) claim” but did not “base her claim solely on the strength of her own title.” MERS argues that suits to quiet title must be based on the strength of the claimant’s own title, rather than the weakness of the adverse claimant’s title. See, e.g., Fricks v. Hancock, 45 S.W.3d 322, 327 (Tex. App.-Corpus Christi 2001, no pet.). Resolution of this contention requires consideration of the different types of claims that have been characterized as suits to quiet title. The case law is not entirely consistent on this issue.

A suit to quiet title is equitable in nature, and the principal issue in such suits is “`the existence of a cloud on the title that equity will remove.'” Florey v. Estate of McConnell, 212 S.W.3d 439, 448 (Tex. App.-Austin 2006, pet. denied)Bell v. Ott, 606 S.W.2d 942, 952 (Tex. Civ. App.-Waco 1980, writ ref’d n.r.e.)). A “cloud” on legal title includes any deed, contract, judgment lien or other instrument, not void on its face, that purports to convey an interest in or makes any charge upon the land of the true owner, the invalidity of which would require proof. Wright v. Matthews, 26 S.W.3d 575, 578 (Tex. App.-Beaumont 2000, pet. denied). A suit to quiet title “`enable[s] the holder of the feeblest equity to remove from his way to legal title any unlawful hindrance having the appearance of better right.'” Florey, 212 S.W.3d at 448 (quoting Thomson v. Locke, 1 S.W.112, 115 (Tex. 1886)). (quoting

Courts have used the term “suit to quiet title” to refer to legal disputes regarding

(1) title to and possession of real property; and (2) the validity of other “clouds” on an undisputed owner’s title to real property. Compare Alkas v. United Sav. Ass’n of Tex., Inc., 672 S.W.2d 852, 855-56 (Tex. App.-Corpus Christi 1984, writ ref’d n.r.e.) (suit to adjudicate ownership of property to determine whether creditors of original owner retained interest in property purportedly conveyed to new owner was action “to quiet title”), with Sw. Guar. Trust Co. v. Hardy Rd. 13.4 Joint Venture, 981 S.W.2d 951, 956-57 (Tex. App.-Houston [1st Dist.] 1998, pet. denied) (undisputed property owner’s action to invalidate lien and deed of trust securing lien constituted suit “to quiet title”); see also Florey, 212 S.W.3d at 449 (distinguishing between “suits to quiet title that are equivalent to trespass-to-try-title actions” and suits to quiet title involving interests that only “indirectly impact” title to and possession of real property).[1]

The first type of claim, which involves title to and possession of real property, is essentially “the equivalent to [a] trespass-to-try-title action[].” See Florey, 212 S.W.3d at 449; see also Sani v. Powell, 153 S.W.3d 736, 746 (Tex. App.-Dallas 2005, pet. denied) (quiet title claim involving allegedly invalid tax sale of property characterized as trespass to try title action). “A trespass to try title action is the method of determining title to lands, tenements, or other real property.” Tex. Prop. Code Ann. § 22.001 (Vernon 2000). A trespass to try title action “is typically used to clear problems in chains of title or to recover possession of land unlawfully withheld from a rightful owner.” See Martin v. Amerman, 133 S.W.3d 262, 265 (Tex. 2004), superseded by statute, Tex. Civ. Prac. & Rem. Code Ann. § 37.004 (Vernon 2008) (reversing Martin‘s holding that relief under the Declaratory Judgment Act was unavailable for boundary dispute). It is the exclusive remedy by which to resolve competing claims to property. Jordan v. Bustamante, 158 S.W.3d 29, 34 (Tex. App.-Houston [14th Dist.] 2005, pet. denied). Courts require claimants bringing this type of “suit to quiet title” to base their claims on the strength of their own title. See Kennedy Con., Inc. v. Forman, 316 S.W.3d 129, 135 (Tex. App.-Houston [14th Dist.] 2010, no pet.); Alkas, 672 S.W.2d at 857. To recover, a claimant must establish a prima facie right of title by proving one of the following: (1) a regular chain of conveyances from the sovereign; (2) a superior title out of a common source; (3) title by limitations; or (4) prior possession, which has not been abandoned. Kennedy Con., Inc., 316 S.W.3d at 135.

The second type of claim, which involves other “clouds” on an undisputed owner’s title to real property, challenges an adverse interest that impacts title and possession only indirectly. See Florey, 212 S.W.3d at 449; see also Max Duncan Family Inv., Ltd. v. NTFN Inc., 267 S.W.3d 447, 453-54 (Tex. App.-Dallas 2008, pet. denied) (undisputed property owner’s suit to invalidate promissory note and lien securing note “involve[d] more than just title and possession of real property”); Cadle Co. v. Ortiz, 227 S.W.3d 831, 837-38 (Tex. App.-Corpus Christi 2007, pet. denied) (undisputed property owner’s post-foreclosure suit to invalidate mechanic’s lien distinguished from trespass to try title action); Sw. Guar. Trust Co., 981 S.W.2d at 957 (undisputed property owner’s action to declare lien invalid was “really one to quiet title”). A claim is sufficiently adverse if its assertion would cast a cloud on the owner’s enjoyment of the property. See Katz v. Rodriguez, 563 S.W.2d 627, 629 (Tex. Civ. App.-Corpus Christi 1977, writ ref’d n.r.e.). To remove such a cloud, a plaintiff must “allege right, title, or ownership in herself with sufficient certainty to enable the court to see she has a right of ownership that will warrant judicial interference.” Wright, 26 S.W.3d at 578.

MERS does not dispute that Groves holds title to the property subject to the deed of trust; Groves does not dispute that the deed of trust securing the lien belongs to MERS. Groves’s claim that the deed is invalid does not directly implicate any issues to be resolved by a trespass to try title suit. See Tex. Prop. Code Ann. § 22.001 (Vernon 2000) (“A trespass to try title action is the method of determining title to lands, tenements, or other real property.”); Martin, 133 S.W.3d at 265 (trespass to try title statute is “typically used to clear problems in chains of title or to recover possession of land unlawfully withheld from a rightful owner”); see also Deutsche Bank Nat’l Trust Co. v. Stockdick Land Co., No. 14-09-00617-CV, 2011 WL 321742, at *10 (Tex. App.-Houston [14th Dist.] Feb. 3, 2011, no pet.) (“If the Bank succeeds in its arguments . . . then the Property is subject to the Bank’s lien. If not, then the Property is not subject to the lien. In any event, title to the Property or to the liens is not in question . . . . [The Bank] is not required to pursue a trespass-to-try-title action.”). Therefore, Groves’s claim is not in the nature of a trespass to try title action and she was not required to base her claim upon the strength of her own title.

Groves alleged in her pleading that she owns the property by virtue of her recorded deed. This satisfies the requirement that she “allege right, title, or ownership in herself with sufficient certainty to enable the court to see she has a right of ownership that will warrant judicial interference” in the issue of the deed of trust’s validity. Wright, 26 S.W.3d 575.[2] Therefore, Groves’s pleadings do not establish error on the face of the record.

B. Relief under Declaratory Judgment Act

MERS alternatively argues that “the trespass-to-try-title statutes [are] Groves’s sole remedy” and complains that Groves “did not raise a cause of action under those statutes” because she requested only declaratory relief under the Declaratory Judgment Act. MERS bases its argument on Martin v. Amerman, 133 S.W.3d at 267-68. The holding in Martin rested upon the court’s characterization of section 22.001 of the Texas Property Code as the exclusive remedy for trespass to try title actions. See id.

We need not decide whether Martin precludes Groves’s request for declaratory relief under the Declaratory Judgment Act in this case.[3] Groves requested relief under the Declaratory Judgment Act, as well as “other and further relief to which [she] may be justly entitled.” The trial court’s judgment does not indicate that it granted her request to “quiet title” exclusively under the Declaratory Judgment Act. Accordingly, no error appears on the face of this record. SeeAlexander, 134 S.W.3d at 848. Tex. R. App. P. 26.1(c), 30;

We overrule MERS’s first issue.

II. Justiciable Controversy

MERS argues in its second issue that the trial court lacked jurisdiction over the action because Groves “failed to allege a justiciable controversy under the Declaratory Judgment Act.”

A justiciable controversy between the parties must exist at every stage of the legal proceedings. Williams v. Lara, 52 S.W.3d 171, 184 (Tex. 2001). We cannot decide moot controversies. Nat’l Collegiate Athletic Ass’n v. Jones, 1 S.W.3d 83, 86 (Tex. 1999). “In order to maintain a suit to quiet title, there must be an assertion by the defendant of a claim to some interest adverse to plaintiff’s title; and the claim must be one that, if enforced, would interfere with the plaintiff’s enjoyment of the property.” Mauro v. Lavlies, 386 S.W.2d 825, 826-27 (Tex. Civ. App.-Beaumont 1964, no writ) (internal quotation omitted) (no justiciable controversy existed because the judgments defendants obtained against plaintiffs asserted no claims against plaintiffs’ property and defendants made no attempt to create a lien upon property or to have property sold to satisfy judgments).

Groves alleged in her petition that MERS’s deed of trust “purported to create a lien for security purposes on Plaintiff’s property as described.” This alleged lien constitutes an adverse interest to Groves’s title, which, if enforced, would interfere with her enjoyment of the property. See id. Therefore, a justiciable controversy existed, and the trial court had subject matter jurisdiction over the case. See Williams, 52 S.W.3d at 184; Mauro, 386 S.W.2d at 826-27.[4]

We overrule MERS’s second issue.

CONCLUSION

Having overruled both of MERS’s issues on appeal, we affirm the trial court’s judgment.

[1] Other decisions have stated that a suit to quiet title is distinct from a trespass to try title action. See, e.g., Longoria v. Lasater, 292 S.W.3d 156, 165 n.7 (Tex. App.-San Antonio 2009, pet. denied); Fricks v. Hancock, 45 S.W.3d 322, 327 (Tex. App.-Corpus Christi 2001, no pet.); McCammon v. Ischy, No. 03-06-00707-CV, 2010 WL 1930149, at *7 (Tex. App.-Austin May 12, 2010, pet. denied) (mem. op.).

[2] Even assuming for argument’s sake that Groves’s suit is properly characterized as a trespass to try title suit, the rule that a claimant in such an action must base her claim on the superiority of her own title concerns Groves’s burden of proof. See Kennedy Con., Inc., 316 S.W.3d at 135 (“To recover [in trespass to try title action], Forman must establish a prima facie right of title by proving [strength of Forman’s own title by one of four ways].”) (emphasis added). Any alleged error relating to this issue would be one of proof and is not apparent from Groves’s petition or on the face of this record. See Tex. R. App. P. 26.1(c), 30; Alexander, 134 S.W.3d at 848.

[3] Although Martin addressed exclusivity of relief under the Texas Property Code for trespass to try title claims, courts of appeals are split on whether exclusivity of relief under the Texas Property Code applies to all suits characterized as suits to quiet title. Compare Sw. Guar. Trust Co., 981 S.W.2d at 957 (action to quiet title brought to invalidate lien on property was governed exclusively by trespass to try title statute), with Florey, 212 S.W.3d at 449 (Martin does not preclude relief under the Declaratory Judgment Act for actions to quiet title that only indirectly impact title and possession and therefore are not not equivalent to trespass to try title actions).

[4] MERS also argues: “All Groves alleged is MERS lacked an enforceable security interest in the property at the time she filed her petition because MERS was not then holder of the original note secured by the deed of trust. . . . [T]his one fact shows Groves’s action is based entirely on facts subject to change” and therefore fails to manifest the “ripening seeds of a controversy” between Groves and MERS. MERS argues that a justiciable controversy does not exist because it “may or may not be required to hold the original note” to enforce the security interest and could “acquire noteholder status through assignment” if so required. This argument goes to the merits of Groves’s argument for invalidating the deed of trust and does not affect whether a controversy existed as to the validity of the deed of trust.

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Washington State Attorney General McKenna Letter To Trustees RE: Potential Unlawful Foreclosure Practices

Washington State Attorney General McKenna Letter To Trustees RE: Potential Unlawful Foreclosure Practices


A homeowner who is unable to find a local address or phone number for their trustee should file a complaint with the Attorney General’s Office online at http://atg.wa.gov/FileAComplaint.aspx. However, this will not stop a foreclosure sale.  Homeowners should also contact a housing counselor or an attorney.

Washington is a “non-judicial foreclosure” state, which means that a lender can proceed directly to selling a home at public auction without first filing a lawsuit. This process was created by the state Legislature. Although lenders may foreclose in court in Washington, they almost always choose non-judicial foreclosures.

If a trustee is unwilling to stop a foreclosure, then the homeowner must file a lawsuit under the Deed of Trust Act and obtain a court order before the sale. Bankruptcy may stop or delay a foreclosure but it may also put the homeowner in a worse position. Legal representation is essential to a successful case, McKenna said.

BORROWER RESOURCES:

  • If you believe unlawful activity has occurred in regard to your mortgage, you should speak with an attorney. A homeowner may file a suit to challenge a foreclosure, but they must do so prior to the foreclosure sale.
  • If you are unable to afford a lawyer, you should contact the Washington State Homeownership Information Hotline at 1-877-894-4663 (HOME) for referral to the Home Foreclosure Legal Aid Project. The hotline can also refer to you to a free, state-approved housing counselor.
  • Te Attorney General’s Office cannot stop a foreclosure or provide individuals with legal advice, as the office is barred by law from representing private citizens.
  • Homeowners should read the Washington Foreclosure Prevention Resources Guide, provided by the Seattle-King County Asset Building Collaborative Foreclosure Prevention Team and recommended by the Attorney General’s Office and the Washington State Department of Financial Institutions.
  • Additional resources can be found at www.atg.wa.gov/foreclosure.aspx.

Source: http://atg.wa.gov

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As We Were Saying, eMortgage Coming To Your Town?

As We Were Saying, eMortgage Coming To Your Town?


Come hungry…close a loan electronically within 15 minutes and with doughnuts. Not like it took any longer the paper route!

Providing all the ‘errors’ and ‘mistakes’ currently happening in foreclosure land, just hope your eNote/eMortgage doesn’t get deleted by accident.

via Housing Wire:

Harry Gardner, president of SigniaDocs, said the perfect infrastructure is one that manages all mortgage documents electronically, but the number of loans in the Mortgage Electronic Registration Systems’ eRegistry is about 200,000, or “a small fraction of mortgages written in the last 10 years.”

“And by eMortgage, we mean truly paperless not some hybrid of some paper and some electronic documentation,” Gardener said. “Ten years ago, we were saying mainstream eMortgage documentation was three to five years away, and I’m happy to say that mainstream eMortgage documentation is now three to five years away.”

continue reading….  Housing Wire

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eMortgages, eNotes …Get Ready For The No-DOC Zone

eMortgages, eNotes …Get Ready For The No-DOC Zone


For you to understand the plan the financial institutions have you need to grasp the following. Will MERS patterns continue? Imagine the price you will pay when these files are hacked or manipulated.

Everyone knows by now that MERS was ‘invented’ to keep costs low for the banks, reduce the risk of record-keeping errors and make it easier to keep track of loans for the banks not the borrowers. By these actions, not only has MERS eliminated crucial chain in title documents, has proven in many court cases to assign absolutely nothing because it had no power to negotiate the note but also eliminated an enormous amount of county revenues.

Last week SFF wrote about the latest invention planned to coexist with MERS called SmartSAFE, which will be used for creating, signing, storing, accessing and managing the lifecycle of electronic mortgage documents. According to Wave’s eSignSystems Executive VP Kelly Purcell, “Mortgages are sold several times throughout the life of a loan, and electronic mortgages address the problem of the ‘lost note,’ while improving efficiency in the process.”

This goes a step forward of what MERS can do today.

Will this process eliminate recording paper mortgages/deeds from county records? Eliminate fees that counties in trouble desperately need? THIS IS VERY DANGEROUS.

Still with me? Finally, according to CUinsight, a sample eNote in the form of a MRG Category 1 classified SMARTDoc, was successfully delivered to Xerox’s BlitzDocs eVault, a virtual repository that connects directly to the MERS® eRegistry and eDelivery systems, where it was electronically signed and registered.

Adding the finishing touches to permit MERS access to future eNotes? I say this is the master plan.

Looking forward to what MA John O’Brien, the Essex County register of deeds, NC Register of deeds Jeff Thigpen and NY Suffolk County, former county clerk Ed Romaine’s approach is after they read what they plan on doing to land records. If they thought it was limited to the elimination of recording fees for assignments of mortgage, they are mistaken.

Questions remain as to why replace something that has been working for so long? Why continue with MERS, a system which has failed in many ways? MERS is under investigation for fraud is it not? Why in a time where mortgage fraud is wide spread, will anyone even trust using electronic devices to manage possibly future trillions of dollars worth?

Say farewell to a tradition that has been here for well over 300 years. Eliminating ‘paper’ will put promissory notes and  mortgage related documents in great jeopardy. No computer system in the world is secure [PERIOD].

© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



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LQQK ‘MOM’, No paper, Lost Paper, Detroyed and Misfiled Paper…The Next Wave

LQQK ‘MOM’, No paper, Lost Paper, Detroyed and Misfiled Paper…The Next Wave


Before you go down to the “New Device” take a look back when THE FLORIDA BANKER’S ASSOCIATION ADMITTED THAT NOTES ARE DESTROYED:

This is a direct quote from the Florida Banker’s Association Comments to the Supreme Court of Florida files September 30, 2009:

“It is a reality of commerce that virtually all paper documents related to a note and mortgage are converted to electronic files almost immediately after the loan is closed. Individual loans, as electronic data, are compiled into portfolios which are transferred to the secondary market, frequently as mortgage-backed securities.

The reason “many firms file lost note counts as a standard alternative pleading in the complaint” is because the physical document was deliberately eliminated to avoid confusion immediately upon its conversion to an electronic file. See State Street Bank and Trust Company v. Lord, 851 So. 2d 790 (Fla. 4th DCA 2003). Electronic storage is almost universally acknowledged as safer, more efficient and less expensive than maintaining the originals in hard copy, which bears the concomitant costs of physical indexing, archiving and maintaining security. It is a standard in the industry and becoming the benchmark of modern efficiency across the spectrum of commerce—including the court system.”

Now if there is no issues surrounding what everyone is shouting from their roof tops, then why integrate a new software that was suppose to have been implemented already to “Improves Efficiency & Transparency of Electronic Mortgage Transactions” within MERS itself?

THEY KNOW THEY HAVE A PROBLEM!

Now from SYS-CON on SmartSAFE

“During the foreclosure crisis of the last few years we saw many instances where the original and subsequent paperwork was lost, destroyed or misfiled when loans were bought and sold,” commented Kelly Purcell, Executive Vice President for Wave’s eSignSystems division. “Mortgages are sold several times throughout the life of a loan, and electronic mortgages address the problem of the ‘lost note,’ while improving efficiency in the process.”

This will debut during next week’s MBA National Technology in Mortgage Banking Conference and Expo 2011 (at the Westin Diplomat Resort & Spa in Ft. Lauderdale, Fla.).

Will this be the new system that will eventually take over MERS as MOM?

This one is both “Smart & Safe” <wink>


 

© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



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CALIFORNIA BK COURT ISSUES ‘TRO, WHO OWNS THE NOTE’ IN RE PINEDA

CALIFORNIA BK COURT ISSUES ‘TRO, WHO OWNS THE NOTE’ IN RE PINEDA


In re: WALTER RALPH PINEDA, Debtor(s).
WALTER RALPH PINEDA, Plaintiff(s),
v.
BANK OF AMERICA, N.A., et al, Defendant(s).

Case No. 10-91936-E-7, Adv. Pro. No. 10-9060, Docket Control No. WRP-5.

United States Bankruptcy Court, E.D. California, Modesto Division.

March 15, 2011.

NOT FOR PUBLICATION

MEMORANDUM FOR ISSUANCE OF TEMPORARY RESTRAINING ORDER

RONALD H. SARGIS, Bankruptcy Judge

The court has been presented with a Motion for Injunctive Relief and Ex Parte Application for a Temporary Restraining Order filed by Walter R. Pineda, a pro se plaintiff in this adversary proceeding. The Motion was presented the court at 4:00 p.m. on March 14, 2011. In the Motion Mr. Pineda asserts that Bank of America Corp, LP, a defendant, intends to conduct a non-judicial foreclosure sale at 3:00 p.m. on March 15, 2011, for real property commonly known as 22550 Bennett Road, Sonora, California (“Bennett Road Property”). The Bennet Road Property is listed on Schedule A as real property owned by the Debtor and his unnamed spouse, with a value of $210,000.00 Schedule A, Docket Entry No. 16, Case No. 10-91936.

The Debtor commenced a voluntary Chapter 7 case on May 20, 2010. The petition lists the Bennett Road Property as his street address. The nature of the Debtor’s business is listed as “Law.” The petition further states that the Debtor has not filed any prior bankruptcy cases within the last 8 years. Petition, Docket Entry No. 1, Case No. 10-91936.

On Schedule D filed by the Debtor on June 14, 2010, the Debtor lists the Bank of New York Mellon as his only creditor having a secured claim. He states under penalty of perjury that there is a codebtor, that the date the claim was incurred, nature of the lien, and description of collateral is “Unknown,” the value of the unknown collateral is $10.00, and the amount of the claim is $10.00. Docket Entry No. 18. In the original Schedule D filed on June 3, 2010, the Debtor stated under penalty of perjury that Bank of America had a claim for a debt incurred on August 13, 2002, secured by a deed of trust against the Bennett Road Property, that the Bennett Road Property had a value of $300,000.00, and that the Bank’s disputed claim was for $477,894.27. Nothing in the court’s file indicates which statement under penalty of perjury is true and correct.

The Motion asserts that by proceeding with a trustee’s sale under the deed of trust, Bank of America Corp., LP is attempting to usurp the court’s authority with respect to this adversary proceeding, and is in violation of Rule 7001, Federal Rules of Civil Procedure (which states the matters for which an adversary proceeding is required), and Rule 65, Federal Rules of Civil Procedure, and Rule 7065, Federal Rules of Bankruptcy Procedure, (injunctive relief). The Motion does not assert how a non-judicial foreclosure sale usurps the court’s power relating to adversary proceedings and injunctive relief. The court construes this contention to be that if the foreclosure sale is allowed to proceed, the court will be unable to grant the relief requested by the Debtor in the Complaint.

The Debtor next contends that he will suffer immediate, irreparable injury, loss or damage in that Plaintiff/Debtor’s “current poor, physical condition will worsen and Plaintiff will become homeless balanced against adding another vacant home to Defendant’s hundreds of thousands of vacant homes inventory.” Motion, pg. 2:17-20. The Debtor/Plaintiff further alleges that a non-judicial foreclosure will impair the administration of the Chapter 7 case, but does not identify the potential impairment.

The Debtor has filed a document titled affidavit in support of the Motion in which he states that he is currently under treatment for a deteriorating transplanted liver and will become homeless in the event of a sale. Further, that failure to grant the restraining order will result in the Debtor/Plaintiff being denied the protection of the injunctive relief rules, as well as frustrating (in an unstated way) the administration of the Chapter 7 case. The “Affidavit” further states that he called the law office for Bank of America’s attorneys and advised them that he was seeking a temporary restraining order. Though this document is not in the proper form or notarized as an affidavit and does not state that it is under penalty of perjury so as to be a declaration, the court takes into account that the Debtor is representing himself in pro se, and for purposes of this ex parte Motion will consider the statements as being made under penalty of perjury.

On January 25, 2010, Bank of America, N.A., as the alleged beneficiary under the deed of trust, instructed ReconTrust Company, N.A. to file a notice of default. The deed of trust, Exhibit 4, names PRLAP, Inc. as the trustee and not ReconTrust Company, N.A. On February 9, 2010, Bank of America an assignment of trust deed and a substitution of trustee, naming ReconTrust Company as the trustee. It is alleged that this assignment was for the purpose of misrepresenting who is the owner of the note and deed of trust. Debtor/Plaintiff further contends that Bank of America, N.A. and ReconTrust Company improperly commenced the nonjudicial foreclosure in violation of California Civil Code Sections 2924a et. seq.

Debtor/Plaintiff further alleges that on May 2, 2010, he was notified that a nonjudcial foreclosure sale would be conducted at 3:30 p.m. pursuant to the deed of trust. It is contended that such sale was improper because Bank of America and ReconTrust Company did not have the authority to conduct a nonjudical foreclosure sale.

Summary of Complaint

The court has reviewed the First Amended Complaint filed in this Adversary Proceeding, Docket Entry No. 57. The Debtor/Plaintiff first asserts a series of claims against Bank of America, N.A. and other Defendants arising under the Real Estate Settlement Procedures Act (RESPA, 12 U.S.C. 2601 et seq.), Truth in Lending Act (15 U.S.C. § 1600 et. seq.), Fraud (California Civil Code § 1709), California Unfair Business Practices Act (California Civil Code § 17200 et seq.), and breach of contract. The gist of the complaint is that various improper conduct has existed with respect to loan foreclosures throughout the country. This is commonly referred to as the Robo-Signing investigations. It is alleged that the Defendants have refused to provide the Debtor/Plaintiff with an accounting as required under 12 U.S.C. § 2605(a)(1)(A), (f), which has caused Debtor/Plaintiff unstated pecuniary damages. Much of this part of the complaint appears to focus on default swaps, obtaining funds from investors, credit obtained by Defendants, securitized loan pools into which the note was transferred. These allegations do not go to the question of whether the Debtor/Plaintiff has defaulted on his particular loan. At no point in the Complaint or present motion does the Debtor/Plaintiff assert that he is current on the obligations secured by the Deed of Trust. Rather, the contention appears to be that based upon the post-loan financial transactions of the Defendants, monies they received from third-parties from the sale and brokering of the note should be treated as payments on the Note.

It is also asserted that neither Bank of America, N.A. or ReconTrust Company are authorized as agents of the Bank of New York Mellon, the alleged trustee of the trust in which the Debtor/Plaintiff’s note has been transferred to initiate the nonjudical foreclosure process. It is further contended that the nonjudical foreclosure process is an attempt to swindle the property from the Debtor/Plaintiff. Through this second cause of action the Debtor/Plaintiff seeks a determination of the rights of the respective parties.

In reviewing the exhibits filed with the original complaint, there is a May 7, 2010 letter from Bank of America, to the Debtor/Plaintiff stating that it was servicing the loan for the Bank of New York, the investor. The letter does not explain what is meant by referencing the Bank of New York as an investor. However, the letter does clearly state that Bank of America is the entity servicing the loan, though that position is not explained in the letter. Finally, this letter unequivocally states that “Bank of America did not sell your loan at anytime.”

The Debtor/Plaintiff has attached as Exhibit 2 an April 6, 2010 letter from Bank of America to the Debtor/Plaintiff which states that a copy of the complete loan history is attached. (The Debtor/Plaintiff did not include the loan history as part of the exhibit.) This letter states that “The Bank of New York Mellon, fka The Bank of New York, as trustee for the certificate holders of GSR 2003-9…” is the owner of the Note. This appears to conflict with the May 7, 2010 letter stating to the Debtor/Plaintiff that the note has never been sold. Additionally, the letter identifies the Bank of New York Mellon as the trustee for the “certificate holders” of the trust, and not as a trustee of the trust itself.

The Debtor/Plaintiff also contends that the Substitution of Trustee and Assignment of Deed of Trust recorded by Bank of America on February 9, 2010, Exhibit 8 is false as there is no basis for showing that it had the authority to do so at that time. The document purports to assign all beneficial interest in the deed of trust from Bank of America, N.A. to Bank of America, N.A., as servicer for GSR Mortgage Loan Trust 2003-9. This purported assignment was made three months prior to the May 7, 2010 letter in which Bank of America advised the Debtor/Plaintiff that Bank of America never sold the loan at any time.

The Debtor/Plaintiff has attached as Exhibit 10 the notice of default issued with respect to the Note and Deed of Trust. This notice was recorded on January 25, 2010 and states that ReconTrust Company is acting as the agent for the beneficiary under the Deed of Trust. At this juncture, based upon the allegations in the complaint, Bank of New York Mellon was the owner of the Note, as the trustee of the GSR Mortgage Loan Trust 2003-9 (the court is presuming that the reference by Bank of America to Bank of New York Mellon being the trustee for the certificate holders actually means the trustee of the trust for which the beneficiaries are certificate holders). The purported assignment of the Deed of Trust to Bank of America, as servicer did not occur until February 2010, after the notice of default was issued and recorded.

From the court’s survey of California law, an assignment of the note carries the mortgage with it, while an assignment of the mortgage alone is a nullity. Carpenter v. Longan, 83 U.S. 271, 274 (1872); accord Henley v. Hotaling, 41 Cal. 22, 28 (1871); Seidell v. Tuxedo Land Co., 216 Cal. 165, 170 (1932). If one party receives the note and another receives the deed of trust, the holder of the note prevails regardless of the order in which the interests were transferred. Adler v. Sargent, 109 Cal. 42, 49-50 (1895). “Where a power to sell real property is given to a mortgagee, or other encumbrancer, in an instrument intended to secure the payment of money, the power is part of the security and vests in any person by assignment becomes entitled to payment of the money secured by the instrument. The power of sale may be exercised by the assignee if the assignment is duly acknowledged and recorded.” California Civil Code § 2932.5.

The Debtor/Plaintiff also alleges that the Defendants have breach their contractual obligations arising under the Note and Deed of Trust. The alleged breaches include instructing ReconTrust to file the notice of default; failure to advise the Debtor/Plaintiff of the transfer of the Note; failing to account for the monies received in the transfers, securitization, and credit default swaps; and using the note in the GSR Trust. Debtor/Plaintiff asserts that his damages include the drop in real estate values due to the Defendants “reckless, irresponsible, and greedy conduct” in the home mortgage market in the 2000’s.

In light of the Debtor/Plaintiff’s pro se status, it also appears that the Complaint seeks to enjoin the Defendants from proceeding with a non-judicial foreclosure sale peding a determination of who owns the note and who is the beneficiary of under the Deed of Trust.

STATUS OF ADVERSARY PROCEEDING

The Adversary Proceeding was filed August 20, 2010. No answer has been filed, with the Defendants having filed several motions attacking the complaint. These have been denied without prejudice. On January 28, 2011 the Debtor/Plaintiff, Bank of America, N.A., ReconTrust Company, N.A., Bank of New York Mellon, N.A., Inc., and Goldman Sachs, Inc. (GSR Mortgage Loan Trust 2003-9) filed a stipulation extending the deadline for Debtor/Plaintiff to file a first amended complaint. The First Amended Complaint was filed on February 4, 2011, and the Defendants have filed a Motion to Dismiss which is set for hearing on April 6, 2011. It appears that the Motion to Dismiss directly attacks the issues raised in the Complaint and are inexorably tied to the issuance of injunctive relief in this case.

RULING

Though the Debtor/Plaintiff appears to have staked his case on contentions and allegations which have nothing to do with his performance on the Note — making the payments promised for the monies borrowed, he does raise a credible issue as to who owns the note, and under California law, who is the beneficiary entitled to enforce the Note. At this early juncture, it appears that by the time Bank of America sought to “assign” the beneficial interest to itself as servicer, the Note had been transferred to The Bank of New York Mellon, as Trustee. Since the obligation was owed to the Bank of New York Mellon, as Trustee, it appears that it is this bank that holds the beneficial interest.

The parties must properly address who holds the note and has the right to enforce the beneficial interest. The court issues the Temporary Restraining Order to maintain the status quo pending the hearing on the motion to dismiss. If the parties elect to extend the term of the Temporary Restraining Order so as to allow the hearing on the preliminary injunction to April 6, 2011, the court will do so for the convenience of the parties.

Pursuant to Rule 65, Federal Rules of Civil Procedure, and Rule 7065, Federal Rules of Bankruptcy Procedure, the court may issue a temporary restraining order without notice if there is a clear showing of immediate and irreparable harm. As stated above, the court accepts the pro se Debtor/Plaintiff’s statements in the Motion for Temporary Restraining Order as being stated under penalty of perjury. The court shall not grant the Debtor/Plaintiff shall liberties in the future, and even the pro se plaintiff must comply with basic requirements for pleadings and evidence.

In balancing the hardships, there appears to be little hardship for the Defendants as they have been litigating this case since August 2010, and are operating under a stipulated time line. Further, it appears that the automatic stay continues in full force and effect in this case as to property of the estate, even though the Debtor/Plaintiff has been discharged. The bankruptcy case has not been closed and the property has not been abandoned by the Chapter 7 Trustee. 11 U.S.C. § 362(c)(2). If the automatic stay does not apply, then there is potential significant harm to the Debtor/Plaintiff by clouding title to the property through a purported valid non-judicial foreclosure sale or a potential third-party purchasing the property at the sale. The potential loss of his interest in the real property is potential irreparable harm sufficient for the issuance of this preliminary injunction.

At this juncture and given that the parties are already in the process of addressing the issues in the Motion to Dismiss of whether there are even valid claims pled, the court finds that no bond is required pending the hearing on the preliminary injunction. In granting this Temporary Restraining Order, the Debtor/Plaintiff should not be misled into thinking that the court has determined that the various claims and assertions attacking the home mortgage market in the 2000’s, Robo-Signing, and post-Pineda loan transactions by financial institutions are meritorious with respect to the obligations owed by the Debtor/Plaintiff on the Note that is secured by the Deed of Trust. Debtor/Plaintiff shall have to carry his burden for any such claims at the hearing on the motion for preliminary injunction, as well as the facts at his for his specific loan, payments made by him on his specific loan, the balance due on his loan, and why the holder of the note, whomever it is, should not be allowed to foreclose based on the borrower’s (Pineda’s) failure to make payments for the monies borrowed.

The court shall issue a Temporary Restraining Order and set the hearing on the Preliminary Injunction for 10:30 a.m. on March 23, 2011, at the United States Bankruptcy Court, 1200 I Street, Modesto, California.

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NC Appeals Court Reversal IN THE MATTER OF FORECLOSURE OF A DEED OF TRUST

NC Appeals Court Reversal IN THE MATTER OF FORECLOSURE OF A DEED OF TRUST


IN THE MATTER OF THE FORECLOSURE OF A DEED OF TRUST FROM ELOISE HALL TO SIDNEY P. JESSUP, TRUSTEE, DATED OCTOBER 2, 2007 AND RECORDED IN BOOK 1745, PAGE 243, DARE COUNTY PUBLIC REGISTRY; SEE SUBSTITUTION OF TRUSTEE RECORDED IN BOOK 1812, PAGE 300.

No. COA10-1002.Court of Appeals of North Carolina.

Filed March 15, 2011.Oliver & Friesen, PLLC, by Jonathan E. Friesen, for Eloise Hall respondent appellant.

Hornthal, Riley, Ellis & Maland, LLP, by L. Phillip Hornthal, III, for Bank of Currituck petitioner appellee.

McCULLOUGH, Judge.

Eloise Hall (“respondent-appellant”) appeals from an order entered by the trial court authorizing a substitute trustee to proceed with foreclosure on her property pursuant to the terms of a deed of trust held by the Bank of Currituck. We reverse.

I. Background

On 19 April 2007, Matthew Hall, President of Outer Banks Construction Co., Inc. (“OBC”), executed a promissory note in favor of the Bank of Currituck (the “Bank”) in the principal amount of $550,000 with a maturity date of 18 April 2008 (the “2007 Note”). The purpose of the 2007 Note was to provide a back-up letter of credit on which OBC’s bonding company could draw for the building of a construction project. The 2007 Note was labeled “Loan Number 65257145.”

Subsequently, on 2 October 2007, respondent-appellant, mother of Matthew Hall, executed a North Carolina Future Advance Deed of Trust (the “Deed of Trust”) to the Trustee for the Bank, which was recorded in the office of the Register of Deeds of Dare County on 4 October 2007. The Deed of Trust contained the following provision:

This Deed of Trust is given to secure all present and future advances made or to be made pursuant to the terms of the obligation. . . . [T]he maximum amount of present and future obligations which may be secured at any one time is $350,000.00 . . . . The period within which any and all future advances are to be made and secured hereunder is the period between the date hereof and April 18th 2008.

The Deed of Trust further provided that the “loan documents” secured by the Deed of Trust included:

[A] Promissory Note, issued by [the Bank] dated February 15th, 2007 in the face amount of $150,000 and modified and reduced to $80,000 on July 26th, 2007 and an Irrevocable Letter of Credit issued by [the Bank] dated April 19th, 2007 in the aggregate face amount of up to $550,000, and a Back up Line of Credit Facility dated April 19th, 2007 in the face amount of up to $500,000 executed by Matthew F. Hall President as [sic] Outer Banks Construction Co[.] Incorporated[.]

The Deed of Trust provisions made no reference to securing any renewals, modifications, or extensions of the obligations listed. At the time the Deed of Trust was executed, the present obligation secured totaled zero, as reflected on the face of the Deed of Trust.

On 2 October 2007, respondent-appellant also executed a Hypothecation Agreement. The terms of the Hypothecation Agreement authorized “Matthew Hall President Outer Banks Construction Co. Inc.” to hypothecate or pledge as collateral certain property of Eloise Hall to secure “any present or future indebtedness, obligation or liability howsoever evidenced, . . . or any extension, modification or renewal thereof, the undersigned [Eloise Hall] hereby consenting to the extension or renewal . . . and waiving any notice of any such extension, modification or renewal.”

As of 18 April 2008, the maturity date on the 2007 Note, OBC’s bonding company had made no demands on the letter of credit. Therefore, on 19 April 2008, Matthew Hall executed a new promissory note in the principal amount of $550,000 (the “2008 Note”). The 2008 Note was labeled “Renewal of 65257145.” In August 2008, OBC’s bonding company began making draws on the letter of credit. No payments were made on the 2008 Note, and OBC defaulted.

The Substitute Trustee commenced this action upon filing a Notice of Hearing on Foreclosure of Deed of Trust on behalf of the Bank on 5 October 2009. A hearing was conducted before the Clerk of Superior Court of Dare County on 15 January 2010. The Clerk entered an order authorizing the Substitute Trustee to proceed with foreclosure under the terms of the Deed of Trust. Pursuant to statute, the order made the following findings of fact:

1. That The Bank of Currituck is the holder and owner of the [2008 Note], . . . and the balance and amounts due on [the 2008 Note] constitutes a valid debt owed by Outer Banks Construction Co., Inc. to The Bank of Currituck.

2. That the debtor, Outer Banks Construction Co., Inc., is in default under the [2008 Note] and the deed of trust . . . securing the debt which is identified and referred to hereinabove.

3. That said debt owed by Outer Banks Construction Co., Inc. to The Bank of Currituck is secured by [the Deed of Trust] . . . pursuant to the terms and provisions of the Hypothecation Agreement. . . .

4. That, under the terms and provisions of the deed of trust, the Substitute Trustee has the authority to foreclose under the power of sale set forth in the deed of trust.

5. That notice of this hearing has been served upon [all proper parties] . . . .

. . . .

7. The deed of trust contains a power of sale. The note holder has the right to have the deed of trust foreclosed under the power of sale contained and set forth therein.

On 25 January 2010, respondent-appellant filed notice of appeal with the Clerk of Superior Court of Dare County. On 5 March 2010, a hearing was conducted in the Superior Court of Dare County. At the hearing, the trial court considered the documents involved and heard the testimony of Mr. Lee Wilson, credit administrator for the Bank. Mr. Wilson testified that it was the understanding of the parties that the 2008 Note was merely an extension of the 2007 Note for an additional year because of construction delays on the project for which the 2007 Note was issued and that the Deed of Trust would continue to secure the renewal. However, Mr. Wilson acknowledged that he was not present at the time of the signing of the 2008 Note. On 29 March 2010, the trial court entered an order affirming the findings of fact made by the Clerk of Court and authorizing the Substitute Trustee to proceed with foreclosure under the terms of the Deed of Trust. Respondent-appellant appeals.

II. Standard of Review

N.C. Gen. Stat. § 45-21.16 (2009) provides that a mortgagee who seeks to exercise a power of sale under a deed of trust may do so only upon proper notice to all interested parties and only after a hearing before the clerk of superior court. Id. Any party may appeal from the clerk’s findings to the superior court. N.C. Gen. Stat. § 45-21.16(d1). The superior court, like the clerk of court, is limited in its review to determination of four factual issues set out in N.C. Gen. Stat. § 45-21.16(d):

[T]he trial court in the appeal of a foreclosure action is to conduct a de novo hearing to determine the same four issues determined by the clerk of court: (1) the existence of a valid debt of which the party seeking foreclosure is the holder, (2) the existence of default, (3) the trustee’s right to foreclose under the instrument, and (4) the sufficiency of notice of hearing to the record owners of the property.

In re Foreclosure of Azalea Garden Bd. & Care, Inc., 140 N.C. App. 45, 49-50, 535 S.E.2d 388, 392 (2000) (citing In re Foreclosure of Goforth Properties, Inc., 334 N.C. 369, 374, 432 S.E.2d 855, 858 (1993)). “The applicable standard of review on appeal where . . . the trial court sits without a jury, is whether competent evidence exists to support the trial court’s findings of fact and whether the conclusions reached were proper in light of the findings.” Id. at 50, 535 S.E.2d at 392 (citing Walker v. First Federal Savings and Loan, 93 N.C. App. 528, 532, 378 S.E.2d 583, 585, disc. review denied, 325 N.C. 320, 381 S.E.2d 791 (1989)).

III. Discussion

Respondent-appellant assigns error to the trial court’s findings of fact that the 2008 Note is secured by the Deed of Trust and that such Deed of Trust secures the 2008 Note pursuant to the terms of the Hypothecation Agreement. Respondent-appellant contends that neither the terms of the Hypothecation Agreement nor the provisions of the Deed of Trust extend her property as collateral to secure the debt incurred under the 2008 Note. We agree.

To be a valid lien on real property, North Carolina law requires a deed of trust to specifically identify the obligation it secures. Putnam v. Ferguson, 130 N.C. App. 95, 98, 502 S.E.2d 386, 388 (1998); In re Foreclosure of Enderle, 110 N.C. App. 773, 775, 431 S.E.2d 549, 550 (1993); see also In re Head Grading Co., Inc., 353 B.R. 122, 123 (Bankr. E.D.N.C. 2006) (“North Carolina law requires deeds of trust to specifically identify the debt referenced therein.”). In the present case, the Deed of Trust very specifically describes the obligation secured as including:

[A] Promissory Note, issued by [the Bank] dated February 15th, 2007 in the face amount of $150,000 and modified and reduced to $80,000 on July 26th, 2007 and an Irrevocable Letter of Credit issued bythe Bank] dated April 19th, 2007 in the aggregate face amount of up to $550,000, and a Back up Line of Credit Facility dated April 19th, 2007 in the face amount of up to $500,000 executed by Matthew F. Hall President as [sic] Outer Banks Construction Co[.] Incorporated . . . . [

(Emphasis added.) Therefore, the Deed of Trust explicitly secures the 2007 Note.

In addition, our Supreme Court has held that a deed of trust executed as security for a debt will secure all renewals of the debt unless a different intent appears. Wachovia Nat’l Bank v. Ireland, 122 N.C. 571, 574, 29 S.E. 835, 835 (1898)See In re Blevins, 255 B.R. 680, 684 (W.D.N.C. 2000) (affirming Bankruptcy Court’s holding that, under North Carolina contract law, a promissory note executed as a renewal does not cancel the original promissory note or the deed of trust securing the debt incurred under the original promissory note). Our Supreme Court has further held, “Where a note is given merely in renewal of another note and not in payment thereof, the effect is to extend the time for the payment of the debt without extinguishing or changing the character of the obligation[.]” Dyer v. Bray, 208 N.C. 248, 248, 180 S.E. 83, 83 (1935). Accordingly, a promissory note executed as a renewal only operates as an extension of time for payment and will continue to be secured by a deed of trust that secures the original debt, unless a contrary intent appears. (“The deed contains a covenant that the charge shall be binding for all renewals of the debts specified. This would be so without any agreement, unless a different intent appeared.”). Although more than a hundred years old, this holding has never been overturned and still serves as controlling precedent in North Carolina today.

In the present case, respondent-appellant disputes that the 2008 Note, in addition to the 2007 Note, is secured by the Deed of Trust. The face of the 2008 Note specifically states that it is a “renewal of” loan number “65257145.” This loan number is the loan number of the 2007 Note. Therefore, the documents indicate the fact that the 2008 Note was issued as a renewal of the 2007 Note, and because a renewal note is not intended to extinguish the original obligation, the Deed of Trust that encompasses the original 2007 Note also secures the new 2008 Note, unless a contrary intent appears. The Bank maintains that the Deed of Trust “evinces the intent” that the Deed of Trust secures the 2008 Note based simply on the fact that the 2008 Note is a renewal of the 2007 Note. However, counter to the Bank’s assertion, the terms of the Deed of Trust do in fact reflect the contrary intent that the debts incurred under the 2008 Note are not secured under the Deed of Trust.

On the face of the Deed of Trust appears the following future advances clause:

This Deed of Trust is given to secure all present and future advances made or to be made pursuant to the terms of the obligation. The amount of the present obligation secured hereunder is $00.00 (zero) and the maximum amount of present and future obligations which may be secured at any one time is $350,000.00 (three hundred and fifty thousand dollars). The period within which any and all future advances are to be made and secured hereunder is the period between the date hereof and April 18th, 2008. This Deed of Trust is made pursuant to Article 7 of Chapter 45 of the North Carolina General Statutes.

(Emphasis added.) Article 7 of Chapter 45 of the North Carolina General Statutes addresses “Instruments to Secure Future Advances and Future Obligations.” N.C. Gen. Stat. §§ 45-67 through -79 (2009). The future advances clause in the Deed of Trust is consistent with the provisions of N.C. Gen. Stat. § 45-68(1) (2007) (amended 2009) in effect at the time the Deed of Trust was executed, which instructs that a security instrument, including a deed of trust, shall secure future advances and future obligations so as to give priority so long as certain criteria are stated in the security instrument. Id. Notably, one term that must be stated in a deed of trust is: “The period within which future obligations may be incurred, which period shall not extend more than 15 years beyond the date of the security instrument . . . .” Id. Therefore, in anticipation of any extensions or renewals, the Bank could have secured priority for future advances or future obligations for up to fifteen years pursuant to the terms of the statute in effect at that time. However, the Deed of Trust expressly limits the time period for which future advances “are to be made and secured hereunder” to the period expiring on 18 April 2008. As such, the Deed of Trust evinces the intent to limit the extent to which the Deed of Trust secures future advances to only those made prior to 18 April 2008.

Furthermore, our courts adhere to the central principle of contract interpretation that “`[t]he various terms of the [contract] are to be harmoniously construed, and if possible, every word and every provision is to be given effect.'” Duke Energy Corp. v. Malcolm, 178 N.C. App. 62, 65, 630 S.E.2d 693, 695 (2006) (quoting Gaston County Dyeing Machine Co. v. Northfield Ins. Co., 351 N.C. 293, 299-300, 524 S.E.2d 558, 563 (2000)); see also In re Den-Mark Const., Inc., 398 B.R. 842, 850 (Bankr. E.D.N.C. 2008) (“Contract interpretation in North Carolina must favor an interpretation of a contract that gives meaning to every clause over an interpretation that does not.”). “It is a well-settled principle of legal construction that it must be presumed the parties intended what the language used clearly expresses, and the contract must be construed to mean what on its face it purports to mean.” Self-Help Ventures Fund v. Custom Finish, ___ N.C. App. ___, ___, 682 S.E.2d 746, 749 (2009) (internal quotation marks and citations omitted). “Moreover, all contemporaneously executed written instruments between the parties, relating to the subject matter of the contract, are to be construed together in determining what was undertaken.” Id. (internal quotation marks and citation omitted). “Thus, where a note and a deed of trust are executed simultaneously and each contains references to the other, the documents are to be considered as one instrument and are to be read and construed as such to determine the intent of the parties.” In re Foreclosure of Sutton Investments, 46 N.C. App. 654, 659, 266 S.E.2d 686, 689 (1980).

In the present case, respondent-appellant executed two documents contemporaneously on 2 October 2007: the Deed of Trust and the Hypothecation Agreement. Respondent-appellant contends that the trial court erred in finding that the Deed of Trust secures the 2008 Note pursuant to the terms of the Hypothecation Agreement. Respondent-appellant argues that in construing the Deed of Trust and the Hypothecation Agreement together, the intent of the parties was to limit the period in which advances could be made and secured under the Deed of Trust. We find respondent-appellant’s argument particularly persuasive under the facts of this case.

The primary purpose of the Hypothecation Agreement signed by respondent-appellant on 2 October 2007 is to:

[A]uthorize[] Matthew Hall President Outer Banks Construction Co. Inc. (Debtor) to hypothecate, pledge and/or deliver to [the Bank] . . . property (Collateral) described below belonging to the undersigned [Eloise Hall], and the undersigned agrees that when so hypothecated, pledged and/or delivered said Collateral shall be collateral to secure any present or future indebtedness, obligation or liability howsoever evidenced, owing by Debtor to [the Bank], or any extension, modification or renewal thereof, the undersigned hereby consenting to the extension or renewal . . . and waiving any notice of any such extension, modification or renewal.

The language of the Hypothecation Agreement thereby authorized OBC to pledge the property of respondent-appellant for any present or future obligations to the Bank, including any extensions or renewals of those obligations. The future advances provision in the Deed of Trust, on the other hand, made no provision for extensions or renewals of the specified obligations and expressly limited both the amount that the Deed of Trust would secure, as well as the period within which advances could be made and secured. Further, the Deed of Trust expressly stated the final date for payment of the obligation secured thereunder was 18 April 2008, the same maturity date reflected on the 2007 Note. Construed together, the instruments reveal that respondent-appellant provided OBC with the authority to pledge her property as security for any renewals or extensions on the obligations, but limited the initial time period during which any advances would be secured by that property to the period ending 18 April 2008.

Respondent-appellant cites McNeary’s Arborists v. Carley Capital Group, 103 N.C. App. 650, 406 S.E.2d 644 (1991) in support of her contention that the future advances time limitation stated in the Deed of Trust must control. In McNeary’s Arborists, the deed of trust at issue explicitly stated that “the period within which future obligations may be incurred hereunder expires March 3, 1988.” Id. at 651, 406 S.E.2d at 645. Subsequently, on 10 June 1988, the parties modified the terms of the deed of trust to extend the time period within which future advances may be made. Id.Id. at 652, 406 S.E.2d at 645. Accordingly, we agree with respondent-appellant’s contention that the express time limitation for future advances contained in the terms of the Deed of Trust controls and evinces the intent of the parties that the property of respondent-appellant pledged as collateral was meant to secure only those advances made prior to 18 April 2008. However, this Court found that any obligations incurred in the interim period between 3 March and 10 June 1988 did not have seniority over an intervening mechanic’s lien filed against the subject property pledged as collateral under the deed of trust. This Court held: “Under the explicit terms of [the lender’s] deed of trust, the period within which Carley’s future obligations could be incurred expired on 3 March 1988.”

Alternatively, the Bank contends that, because the 2008 Note is a renewal of the 2007 Note, any advances made under the 2008 Note should not be considered an advance made after the expiration of the future advances period, but rather should be considered as the original debt. The only case applying North Carolina law on which the Bank relies for its contention is In re Blevins, 255 B.R. 680 (W.D.N.C. 2000). In Blevins, the debtors both applied for and receivedId. at 682. Both loans were secured by deeds of trust pledging certain real property of the debtor as collateral. Id. The original promissory notes specifically provided that the debtor would continue to be obligated to pay the loans, “even if the loans were renewed or extended.” Id. When the 1992 Notes became due one year later, the debtor was unable or unwilling to pay the amounts owed on the notes at that time, and instead of foreclosing on the notes, the lender allowed the debtor to extend the loans for an additional year pursuant to a renewal note. Id. at 682-83. Therefore, the debtor executed renewal promissory notes on the 1992 Notes in 1993, 1994, and 1995. Id. at 683. The bankruptcy court, applying North Carolina contract law, held that the renewal notes executed by the debtor in 1993, 1994, and 1995 “were merely extensions of the 1992 Promissory Notes and therefore did not cancel the 1992 Notes or the 1992 Deeds of Trust executed by the Debtor.” Id. at 684. two loans from the lender in December 1992.

Unlike the facts in Blevins, in the present case no amounts were owed at the time of the original maturity date of the 2007 Note, which was 18 April 2008. The renewal notes in Blevins extended the time for payment on amounts already advanced and owed under the original note for which the deed of trust was executed. However, in the present case, the 2008 Note, despite being labeled a “renewal” of the 2007 Note, was not an extension of time for payment, as no debt was owed under the original 2007 Note which the Deed of Trust secured. Had the amounts been advanced under the original 2007 Note and renewed under the 2008 Note, as in Blevins, then the advances would have been made prior to the 18 April 2008 expiration date and would have been secured by the Deed of Trust. Such is not the case here.

Additionally, the North Carolina Supreme Court case of Ireland, 122 N.C. 571, 29 S.E. 835, which established the rule regarding renewals on which the Bank relies, is also distinguishable from the facts of the present case. In Ireland, the deed of trust at issue contained an express covenant that the property pledged as collateral “shall be binding for all renewals of the debts specified.” Id. at 574, 29 S.E. at 835. However, in the present case, the Deed of Trust made no covenants for renewals. Rather, the Deed of Trust expressed a clear intent to limit the initial period for which the collateral would be pledged as security to cover advances made before 18 April 2008.

Lastly, this result is compelled by the “well[-]settled” principle “that a power of sale contained in a deed of trust must be exercised in strict conformity with the terms of the instrument.” Sutton Investments, 46 N.C. App. at 659, 266 S.E.2d at 688. If the language in a separate instrument is contradictory, “language in a deed of trust expressly limiting the exercise will govern.” Id. at 659, 266 S.E.2d at 689.

In the present case, the Deed of Trust expressly limits the collateral pledged as security for only those advances made prior to 18 April 2008. The facts before the trial court unequivocally established that all advances made to OBC were under the 2008 Note and were made after the 18 April 2008 date. Despite signing a new promissory note, the Bank overlooked the term limit under the Deed of Trust securing its future advances. As between the two parties, the responsibility of ensuring that future advances are adequately secured falls on the Bank. The Bank failed to execute a modification of the time period for which future advances would be secured under the Deed of Trust, despite both its ability to extend the term pursuant to N.C. Gen. Stat. § 45-68 and OBC’s authority to pledge the collateral for such a modification, extension, or renewal pursuant to the Hypothecation Agreement. As such, the Deed of Trust expired on 18 April 2008, since no sums were advanced prior to that date, and all advances made after that express date pursuant to the 2008 Note were no longer secured under the Deed of Trust. Thus, the trial court erred in finding that the Deed of Trust secures the debt evidenced by the 2008 Note either by its terms or pursuant to the terms and provisions of the Hypothecation Agreement. Consequently, the trial court erred in finding that OBC is in default under the Deed of Trust and that the Substitute Trustee thereby has the authority to foreclose on respondent-appellant’s property under the Deed of Trust’s power of sale provision.

IV. Conclusion

We hold the trial court erred in its findings of fact that the debt owed by OBC to the Bank as evidenced by the 2008 Note is secured by the Deed of Trust pursuant to the terms of the Hypothecation Agreement and that OBC is in default under the Deed of Trust. Because these findings are not supported by competent evidence, the trial court erred in its conclusion that the Substitute Trustee is entitled to foreclose on respondent-appellant’s property pursuant to the power of sale under the terms of the Deed of Trust. Accordingly, the order of the trial court authorizing the Substitute Trustee to proceed with foreclosure under the power of sale contained in the Deed of Trust must be reversed.

Reversed.

Judges GEER and STEPHENS concur.

[ipaper docId=51088296 access_key=key-cc0x5djzw687nwxyxhl height=600 width=600 /]
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DailyFinance | California Court Gives Hope to Homeowners Lied to by Banks

DailyFinance | California Court Gives Hope to Homeowners Lied to by Banks


Posted 3:00 PM 02/02/11

On Jan. 27, a California appeals court ruled that U.S. Bank conned Claudia Aceves out of her home. Specifically, the court found that U.S. Bank (USB) told Aceves that if she gave up bankruptcy court protection on her home, it would negotiate a loan modification with her. But, the court found, the bank had no intention of negotiating. Instead, as soon as the bankruptcy court protection was removed, the bank foreclosed. As a result, the court ruled, Aceves can sue U.S. Bank for damages and fraud.

What she can’t do, unfortunately, is get her house back. The court found the foreclosure, once Aceves was duped into allowing it, was done legitimately. In further bad news for Aceves, the opinion contains enough information to make it likely that U.S. Bank didn’t have standing to foreclose when it did, but her lawyers did not raise those issues at trial, and weren’t asked by the court to raise them on appeal, so the court refused to consider them. One of her attorneys, Nick Alden, said that because of that, he considered the case a loss despite the ruling against the bank.

Key to the decision was the bank’s promise, and Aceves’s reliance on that promise to her significant detriment. Specifically, the bank promised to negotiate a mortgage loan modification, and relying on that promise, Aceves gave up her bankruptcy protections, so she was significantly damaged when the bank reneged. For the fraud claim, the court found that the bank not only failed to keep its promise, it never had any intent of keeping it. As Aceves’s other attorney, Dennis Moore, put it, “borrowers should be able to rely on the banks when negotiating.”

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CA APPEALS COURT REVERSAL “PROMISSORY ESTOPPEL, CAN SUE FOR FRAUD” ACEVES v. U.S. BANK

CA APPEALS COURT REVERSAL “PROMISSORY ESTOPPEL, CAN SUE FOR FRAUD” ACEVES v. U.S. BANK


CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION ONE

CLAUDIA JACQUELINE ACEVES, Plaintiff and Appellant,

v.

U.S. BANK, N.A., as Trustee, etc.,

Defendant and Respondent.

B220922 (Los Angeles County

Super. Ct. No. BC410890)

APPEAL from an order and a judgment of the Superior Court of Los Angeles County, Michael L. Stern, Judge.  Affirmed in part and reversed in part.

Dennis Moore; Nick A. Alden for Plaintiff and Appellant.

Brooks Bauer, Michael R. Brooks and Bruce T. Bauer for Defendant and Respondent.

___________________________________________

As alleged in this case, plaintiff, a married woman, obtained an adjustable rate loan from a bank to purchase real property secured by a deed of trust on her residence.  About two years into the loan, she could not afford the monthly payments and filed for bankruptcy under chapter 7 of the Bankruptcy Code (11 U.S.C. §§ 701–784).  She intended to convert the chapter 7 proceeding to a chapter 13 proceeding (11 U.S.C. §§ 1301–1330) and to enlist the financial assistance of her husband to reinstate the loan, pay the arrearages, and resume the regular loan payments.

Plaintiff contacted the bank, which promised to work with her on a loan reinstatement and modification if she would forgo further bankruptcy proceedings.  In reliance on that promise, plaintiff did not convert her bankruptcy case to a chapter 13 proceeding or oppose the bank’s motion to lift the bankruptcy stay.  While the bank was promising to work with plaintiff, it was simultaneously complying with the notice requirements to conduct a sale under the power of sale in the deed of trust, commonly referred to as a nonjudicial foreclosure or foreclosure.  (See Civ. Code, §§ 2924, 2924a–2924k.)

The bankruptcy court lifted the stay.  But the bank did not work with plaintiff in an attempt to reinstate and modify the loan.  Rather, it completed the foreclosure.

Plaintiff filed this action against the bank, alleging a cause of action for promissory estoppel, among others.  She argued the bank’s promise to work with her in reinstating and modifying the loan was enforceable, she had relied on the promise by forgoing bankruptcy protection under chapter 13, and the bank subsequently breached its promise by foreclosing.  The trial court dismissed the case on demurrer.

We conclude (1) plaintiff could have reasonably relied on the bank’s promise to work on a loan reinstatement and modification if she did not seek relief under chapter 13, (2) the promise was sufficiently concrete to be enforceable, and (3) plaintiff’s decision to forgo chapter 13 relief was detrimental because it allowed the bank to foreclose on the property.  Contrary to the bank’s contention that plaintiff’s use of the Bankruptcy Code was ipso facto bad faith, chapter 13 is “‘uniquely tailored to protect homeowners’ primary residences [from foreclosure].’”  (In re Willette (Bankr. D.Vt. 2008) 395 B.R. 308, 322.)

I

BACKGROUND

The facts of this case are taken from the allegations of the operative complaint, which we accept as true.  (See Hensler v. City of Glendale (1994) 8 Cal.4th 1, 8, fn. 3.)

A.        Complaint

This action was filed on April 1, 2009.  Two months later, a first amended complaint was filed.  On August 17, 2009, after the sustaining of a demurrer, a second amended complaint (complaint) was filed.  The complaint alleged as follows.

Plaintiff Claudia Aceves, an unmarried woman, obtained a loan from Option One Mortgage Corporation (Option One) on April 20, 2006.  The loan was evidenced by a note secured by a deed of trust on Aceves’s residence.  Aceves borrowed $845,000 at an initial rate of 6.35 percent.  After two years, the rate became adjustable.  The term of the loan was 30 years.  Aceves’s initial monthly payments were $4,857.09.

On March 25, 2008, Option One transferred its entire interest under the deed of trust to defendant U.S. Bank, National Association, as the “Trustee for the Certificateholders of Asset Backed Securities Corporation Home Equity Loan Trust, Series OOMC 2006-HE5” (U.S. Bank).  The transfer was effected through an “Assignment of Deed of Trust.”  U.S. Bank therefore became Option One’s assignee and the beneficiary of the deed of trust.  Also on March 25, 2008, U.S. Bank, by way of a “Substitution of Trustee,” designated Quality Loan Service Corporation (Quality Loan Service) as the trustee under the deed of trust.  The Substitution of Trustee was signed by the bank’s attorney-in-fact.

In January 2008, Aceves could no longer afford the monthly payments on the loan.  On March 26, 2008, Quality Loan Service recorded a “Notice of Default and Election to Sell Under Deed of Trust.”  (See Civ. Code, § 2924.)  Shortly thereafter, Aceves filed for bankruptcy protection under chapter 7 of the Bankruptcy Code (11 U.S.C. §§ 701–784), imposing an automatic stay on the foreclosure proceedings (see 11 U.S.C. § 362(a)).  Aceves contacted U.S. Bank and was told that, once her loan was out of bankruptcy, the bank “would work with her on a mortgage reinstatement and loan modification.”  She was asked to submit documents to U.S. Bank for its consideration.

Aceves intended to convert her chapter 7 bankruptcy case to a chapter 13 case (see 11 U.S.C. §§ 1301–1330) and to rely on the financial resources of her husband “to save her home” under chapter 13.  In general, chapter 7, entitled “Liquidation,” permits a debtor to discharge unpaid debts, but a debtor who discharges an unpaid home loan cannot keep the home; chapter 13, entitled “Adjustment of Debts of an Individual with Regular Income,” allows a homeowner in default to reinstate the original loan payments, pay the arrearages over time, avoid foreclosure, and retain the home.  (See 1 Collier on Bankruptcy (16th ed. 2010) ¶¶ 1.07[1][a] to 1.07[1][g], 1.07[5][a] to 1.07[5][e], pp. 1?25 to 1?30, 1?43 to 1?45.)

U.S. Bank filed a motion in the bankruptcy court to lift the stay so it could proceed with a nonjudicial foreclosure.

On or about November 12, 2008, Aceves’s bankruptcy attorney received a letter from counsel for the company servicing the loan, American Home Mortgage Servicing, Inc. (American Home).  The letter requested that Aceves’s attorney agree in writing to allow American Home to contact Aceves directly to “explore Loss Mitigation possibilities.”  Thereafter, Aceves contacted American Home’s counsel and was told they could not speak to her before the motion to lift the bankruptcy stay had been granted.

In reliance on U.S. Bank’s promise to work with her to reinstate and modify the loan, Aceves did not oppose the motion to lift the bankruptcy stay and decided not to seek bankruptcy relief under chapter 13.  On December 4, 2008, the bankruptcy court lifted the stay.  On December 9, 2008, although neither U.S. Bank nor American Home had contacted Aceves to discuss the reinstatement and modification of the loan, U.S. Bank scheduled Aceves’s home for public auction on January 9, 2009.

On December 10, 2008, Aceves sent documents to American Home related to reinstating and modifying the loan.  On December 23, 2008, American Home informed Aceves that a “negotiator” would contact her on or before January 13, 2009 — four days after the auction of her residence.  On December 29, 2008, Aceves received a telephone call from “Samantha,” a negotiator from American Home.  Samantha said to forget about any assistance in avoiding foreclosure because the “file” had been “discharged” in bankruptcy.  On January 2, 2009, Samantha contacted Aceves again, saying that American Home had mistakenly decided not to offer her any assistance:  American Home incorrectly thought Aceves’s loan had been discharged in bankruptcy; instead, Aceves had merely filed for bankruptcy.  Samantha said that, as a result of American Home’s mistake, it would reconsider a loss mitigation proposal.  On January 8, 2009, the day before the auction, Samantha called Aceves’s bankruptcy attorney and stated that the new balance on the loan was $965,926.22; the new monthly payment would be more than $7,200; and a $6,500 deposit was due immediately via Western Union.  Samantha refused to put any of those terms in writing.  Aceves did not accept the offer.

On January 9, 2009, Aceves’s home was sold at a trustee’s sale to U.S. Bank.  On February 11, 2009, U.S. Bank served Aceves with a three-day notice to vacate the premises and, a month later, filed an unlawful detainer action against her and her husband (U.S. Bank, N.A. v. Aceves (Super. Ct. L.A. County, 2009, No. 09H00857)).  Apparently, Aceves and her husband vacated the premises during the eviction proceedings.

U.S. Bank never intended to work with Aceves to reinstate and modify the loan.  The bank so promised only to convince Aceves to forgo further bankruptcy proceedings, thereby permitting the bank to lift the automatic stay and foreclose on the property.

The complaint alleged causes of action against U.S. Bank for quiet title, slander of title, fraud, promissory estoppel, and declaratory relief.  It also sought to set aside the trustee’s sale and to void the trustee’s deed upon the sale of the home.

B.        Demurrer

U.S. Bank filed a demurrer separately attacking each cause of action and the requested remedies.  Aceves filed opposition.

At the hearing on the demurrer, Aceves’s attorney argued that Aceves and her husband “could have saved their house through bankruptcy,” but “due to the promises of the bank, they didn’t go those routes to save their house.  [¶] . . . [¶] . . . [T]hat’s the whole essence of promissory estoppel.  [¶] . . . [¶]  Prior to [American Home’s November 12, 2008] letter, there’s numerous phone contacts and conversations with [American Home], which was the agent for U.S. Bank, regarding, ‘Yes, once we get leave, we will work with you, . . . and they did not work with her at all.’”  The trial court replied:  “The foreclosure took place.  There’s no promissory fraud or anything that deluded [Aceves] under the circumstances.”

On October 29, 2009, the trial court entered an order sustaining the demurrer without leave to amend and a judgment in favor of U.S. Bank.  Aceves filed this appeal.

II

DISCUSSION

Aceves focuses primarily on her claim for promissory estoppel, arguing it is adequately pleaded.  She also contends her other claims should have survived the demurrer.  U.S. Bank counters that the trial court properly dismissed the case.

We conclude Aceves stated a claim for promissory estoppel.  As alleged, in reliance on a promise by U.S. Bank to work with her in reinstating and modifying the loan, Aceves did not attempt to save her home under chapter 13.  Yet U.S. Bank then went forward with the foreclosure and did not commence negotiations toward a possible loan solution.  As demonstrated in its brief on appeal, U.S. Bank fails to appreciate that chapter 13 may be used legitimately to assist a borrower in reinstating a home loan and avoiding foreclosure after a default.

All but one of Aceves’s remaining claims were properly dismissed.  She adequately pleaded a claim for fraud.  But the record does not support her other claims or requests for relief:  The complaint does not allege any irregularities in the foreclosure process that would permit the trial court to void the deed of sale or otherwise invalidate the foreclosure.

A.        Promissory Estoppel

“‘The elements of a promissory estoppel claim are “(1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) [the] reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.” . . .’”  (Advanced Choices, Inc. v. State Dept. of Health Services (2010) 182 Cal.App.4th 1661, 1672.)

1.  Clear and Unambiguous Promise

“‘[A] promise is an indispensable element of the doctrine of promissory estoppel.  The cases are uniform in holding that this doctrine cannot be invoked and must be held inapplicable in the absence of a showing that a promise had been made upon which the complaining party relied to his prejudice . . . .’ . . . The promise must, in addition, be ‘clear and unambiguous in its terms.’”  (Garcia v. World Savings, FSB (2010) 183 Cal.App.4th 1031, 1044, citation omitted.)  “To be enforceable, a promise need only be ‘“definite enough that a court can determine the scope of the duty[,] and the limits of performance must be sufficiently defined to provide a rational basis for the assessment of damages.”’ . . . It is only where ‘“a supposed ‘contract’ does not provide a basis for determining what obligations the parties have agreed to, and hence does not make possible a determination of whether those agreed obligations have been breached, [that] there is no contract.”’”  (Id. at p. 1045, citation omitted.)  “[T]hat a promise is conditional does not render it unenforceable or ambiguous.”  (Ibid.)

U.S. Bank agreed to “work with [Aceves] on a mortgage reinstatement and loan modification” if she no longer pursued relief in the bankruptcy court.  This is a clear and unambiguous promise.  It indicates that U.S. Bank would not foreclose on Aceves’s home without first engaging in negotiations with her to reinstate and modify the loan on mutually agreeable terms.

U.S. Bank’s discussion of Laks v. Coast Fed. Sav. & Loan Assn. (1976) 60 Cal.App.3d 885 misses the mark.  There, the plaintiffs applied for a loan and relied on promissory estoppel in arguing that the lender was bound to make the loan.  The Court of Appeal affirmed the dismissal of the case on demurrer, explaining that the alleged promise to make a loan was unclear and ambiguous because it did not include all of the essential terms of a loan, including the identity of the borrower and the security for the loan.  In contrast, Aceves contends U.S. Bank promised but failed to engage in negotiations toward a solution of her loan problems.  Thus, the question here is simply whether U.S. Bank made and kept a promise to negotiate with Aceves, not whether, as in Laks, the bank promised to make a loan or, more precisely, to modify a loan.  Aceves does not, and could not, assert she relied on the terms of a modified loan agreement in forgoing bankruptcy relief.  She acknowledges that the parties never got that far because U.S. Bank broke its promise to negotiate with her in an attempt to reach a mutually agreeable modification.  While Laks turned on the sufficiency of the terms of a loan, Aceves’s claim rests on whether U.S. Bank engaged in the promised negotiations.  The bank either did or did not negotiate.

Further, U.S. Bank asserts that it offered Aceves a loan modification, referring to the offer it made the day before the auction.  That assertion, however, is of no avail.  Aceves’s promissory estoppel claim is not based on a promise to make a unilateral offer but on a promise to negotiate in an attempt to reach a mutually agreeable loan modification.  And, even assuming this case involved a mere promise to make a unilateral offer, we cannot say the bank’s offer satisfied such a promise in light of the offer’s terms and the circumstances under which it was made.

2.  Reliance on the Promise

Aceves relied on U.S. Bank’s promise by declining to convert her chapter 7 bankruptcy proceeding to a chapter 13 proceeding, by not relying on her husband’s financial assistance in developing a chapter 13 plan, and by not opposing U.S. Bank’s motion to lift the bankruptcy stay.

3.  Reasonable and Foreseeable Reliance

“‘Promissory estoppel applies whenever a “promise which the promissor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance” would result in an “injustice” if the promise were not enforced. . . .’”  (Advanced Choices, Inc. v. State Dept. of Health Services, supra, 182 Cal.App.4th at pp. 1671–1672, citation omitted, italics added.)

“[A] party plaintiff’s misguided belief or guileless action in relying on a statement on which no reasonable person would rely is not justifiable reliance. . . . ‘If the conduct of the plaintiff in the light of his own intelligence and information was manifestly unreasonable, . . . he will be denied a recovery.’”  (Kruse v. Bank of America (1988) 202 Cal.App.3d 38, 54, citation omitted.)  A mere “hopeful expectation[] cannot be equated with the necessary justifiable reliance.”  (Id. at p. 55.)

We conclude Aceves reasonably relied on U.S. Bank’s promise; U.S. Bank reasonably expected her to so rely; and it was foreseeable she would do so.  U.S. Bank promised to work with Aceves to reinstate and modify the loan.  That would have been more beneficial to Aceves than the relief she could have obtained under chapter 13.  The bankruptcy court could have reinstated the loan — permitted Aceves to cure the default, pay the arrearages, and resume regular loan payments — but it could not have modified the terms of the loan, for example, by reducing the amount of the regular monthly payments or extending the life of the loan.  (See 11 U.S.C. § 1322(b)(2), (3), (5), (c)(1); 8 Collier on Bankruptcy, supra, ¶¶ 1322.06[1], 1322.07[2], 1322.09[1]–[6], 1322.16 & fn. 5, pp. 23–24, 31–32, 34–42, 55–56.)  By promising to work with Aceves to modify the loan in addition to reinstating it, U.S. Bank presented Aceves with a compelling reason to opt for negotiations with the bank instead of seeking bankruptcy relief.  (See Garcia v. World Savings, FSB, supra, 183 Cal.App.4th at pp. 1041–1042 [discussing justifiable reliance].)

We emphasize that this case involves a long-term loan secured by a deed of trust, one in which the last payment under the loan schedule would be due after the final payment under a bankruptcy plan.  (See 11 U.S.C. § 1322(b)(5).)  Aceves had more than 28 years left on the loan, and a bankruptcy plan could not have exceeded five years.  In contrast, if a case involves a short-term loan, where the last payment under the original loan schedule is due before the final payment under the bankruptcy plan, the bankruptcy court has the authority to modify the terms of the loan.  (See 11 U.S.C. § 1322(c)(2); In re Paschen (11th Cir. 2002) 296 F.3d 1203, 1205–1209; 8 Collier on Bankruptcy, supra, ¶ 1322.17, pp. 57–58; March et al., Cal. Practice Guide: Bankruptcy (The Rutter Group 2010) ¶ 13:396, p. 13?45; compare id. ¶¶ 13:385 to 13:419, pp. 13?42 to 13?48 [discussing short-term debts] with id. ¶¶ 13:440 to 13:484, pp. 13?49 to 13?54 [discussing long-term debts].)  The modification of a short-term loan may include “lienstripping,” that is, the bifurcation of the loan into secured and unsecured components based on the value of the home, with the unsecured component subject to a “cramdown.”  (See In re Paschen, supra, 296 F.3d at pp. 1205–1209; 8 Collier on Bankruptcy, supra, ¶ 1322.17, pp. 57–58; see also March et al., Cal. Practice Guide: Bankruptcy, supra, ¶¶ 13:370 to 13:371.1, p. 13?41 [discussing lienstripping].)  If a lien is “stripped down,” the lender is “only assured of receiving full [payment] for the secured portion of the [bankruptcy] claim.”  (In re Paschen, supra, 296 F.3d at p. 1206.)

4.  Detriment

U.S. Bank makes no attempt to hide its disdain for the protections offered homeowners by chapter 13, referring disparagingly to Aceves’s bankruptcy case as “bad faith.”  But “Chapter 13’s greatest significance for debtors is its use as a weapon to avoid foreclosure on their homes.  Restricting initial . . . access to Chapter 13 protection will increase foreclosure rates for financially distressed homeowners.  Loss of homes hurts not only the individual homeowner but also the family, the neighborhood and the community at large.  Preserving access to Chapter 13 will reduce this harm.

“Chapter 13 bankruptcies do not result in destruction of the interests of traditional mortgage lenders.  Under Chapter 13, a debtor cannot discharge a mortgage debt and keep her home.  Rather, a Chapter 13 bankruptcy offers the debtor an opportunity to cure a mortgage delinquency over time — in essence it is a statutorily mandated payment plan — but one that requires the debtor to pay precisely the amount she would have to pay to the lender outside of bankruptcy.  Under Chapter 13, the plan must provide the amount necessary to cure the mortgage default, which includes the fees and costs allowed by the mortgage agreement and by state law.  Mortgage lenders who are secured only by an interest in the debtor’s residence enjoy even greater protection under 11 U.S.C. § 1322(b)(2) . . . . Known as the ‘anti-modification provision,’ [section] 1322(b)(2) bars a debtor from modifying any rights of such a lender — including the payment schedule provided for under the loan contract. . . . [Cf. 11 U.S.C. § 1322(c)(2) [bankruptcy court has authority to modify rights of lender, including payment schedule, in cases involving short-term mortgages]; see pt. II.A.3, ante.]

“Even though a debtor must, through reinstatement of her delinquent mortgage by a Chapter 13 repayment plan . . . , pay her full obligation to the lender, Chapter 13 remains the only viable way for most mortgage debtors to cure defaults and save their homes.  Mortgage lenders are extraordinarily unwilling to accept repayment schedules outside of bankruptcy. . . . There is no history to support any claim that lenders will accommodate the need for extended workouts without the pressure of bankruptcy as an option for consumer debtors.  Reducing the availability of [C]hapter 13 protection to mortgage debtors is most likely to result in higher foreclosure rates, not in greater flexibility by lenders.”  (DeJarnatt, Once Is Not Enough: Preserving Consumers’ Rights To Bankruptcy Protection (Spring 1999) Ind. L.J. 455, 495–496, fn. omitted.)

“It is unrealistic to think mortgage companies will do workouts without the threat of the debtor’s access to Chapter 13 protection.  The bankruptcy process is still very protective of the mortgage industry.  To the extent that the existence of Chapter 13 protections increases the costs of mortgage financing to all consumers, it can and should be viewed as an essential form of consumer insurance . . . .”  (DeJarnatt, Once Is Not Enough:  Preserving Consumers’ Rights To Bankruptcy Protection, supra, Ind. L.J. at p. 499, fn. omitted.)

We mention just a few of the rights Aceves sacrificed by deciding to forgo a chapter 13 proceeding.  First, although Aceves initially filed a chapter 7 proceeding, “a chapter 7 debtor may convert to a case[] under chapter []13 at any time without court approval, so long as the debtor is eligible for relief under the new chapter.”  (1 Collier on Bankruptcy, supra, ¶ 1.06, p. 24, italics added; accord, March et al., Cal. Practice Guide: Bankruptcy, supra, ¶¶ 5:1700 to 5:1701, 5:1715 to 5:1731, pp. 5(II)?1, 5(II)?3 to 5(II)?5; see 11 U.S.C. § 706(a).)  In addition, Aceves could have “cured” the default, reinstating the loan to predefault conditions.  (See In re Frazer (Bankr. 9th Cir. 2007) 377 B.R. 621, 628; In re Taddeo (2d Cir. 1982) 685 F.2d 24, 26–28; 11 U.S.C. § 1322(b)(5); March et al., Cal. Practice Guide: Bankruptcy, supra, ¶ 13:450, p. 13?50.)  She also would have had a “reasonable time” — a maximum of five years — to make up the arrearages.  (See 11 U.S.C. § 1322(b)(5), (d); 8 Collier on Bankruptcy, supra, ¶ 1322.09[5], pp. 39–40; March et al., Cal. Practice Guide: Bankruptcy, supra, ¶ 13:443, p. 13?49.)  And, by complying with a bankruptcy plan, Aceves could have prevented U.S. Bank from foreclosing on the property.  (See 8 Collier on Bankruptcy, supra, ¶¶ 1322.09[1] to 1322.09[3], 1322.16, pp. 34–37, 55–56.)  “‘“Indeed, the bottom line of most Chapter 13 cases is to preserve and avoid foreclosure of the family house.”’”  (In re King (Bankr. N.D.Fla. 1991) 131 B.R. 207, 211; see also March et al., Cal. Practice Guide: Bankruptcy, supra, ¶¶ 8:1050, 8:1375 to 8:1411, pp. 8(II)?1, 8(II)?42 to 8(II)?47 [discussing automatic stay]; In re Hoggle (11th Cir. 1994) 12 F.3d 1008, 1008–1012 [affirming district court order denying lender’s motion for relief from automatic stay]; Lamarche v. Miles (E.D.N.Y. 2009) 416 B.R. 53, 55–62 [affirming bankruptcy court order denying landlord’s motion to set aside automatic stay]; In re Gatlin (Bankr. W.D.Ark. 2006) 357 B.R. 519, 520–523 [denying lender’s motion for relief from automatic stay].)

U.S. Bank maintains that even if Aceves had pursued relief under chapter 13, she could not have afforded the payments under a bankruptcy plan.  But the complaint alleged that, with the financial assistance of her husband, Aceves could have saved her home under chapter 13.  We accept the truth of Aceves’s allegations over U.S. Bank’s speculation.  (See Hensler v. City of Glendale, supra, 8 Cal.4th at p. 8, fn. 3.)

5.  Absence of Consideration

U.S. Bank argues that an oral promise to postpone either a loan payment or a foreclosure is unenforceable.  We have previously addressed that argument, stating:  “‘[I]n the absence of consideration, a gratuitous oral promise to postpone a sale of property pursuant to the terms of a trust deed ordinarily would be unenforceable under [Civil Code] section 1698.’  (Raedeke v. Gibraltar Sav. & Loan Assn. (1974) 10 Cal.3d 665, 673, italics added.)  The same holds true for an oral promise to allow the postponement of mortgage payments.  (California Securities Co. v. Grosse (1935) 3 Cal.2d 732, 733 [applying Civil Code section 1698].)  However, ‘. . . the doctrine of promissory estoppel is used to provide a substitute for the consideration which ordinarily is required to create an enforceable promise. . . . “The purpose of this doctrine is to make a promise binding, under certain circumstances, without consideration in the usual sense of something bargained for and given in exchange. . . .”’  (Raedeke, supra, 10 Cal.3d at p. 672.)  ‘“Under this doctrine a promisor is bound when he should reasonably expect a substantial change of position, either by act or forbearance, in reliance on his promise, if injustice can be avoided only by its enforcement. . . .”’”  (Sutherland v. Barclays American/Mortgage Corp. (1997) 53 Cal.App.4th 299, 312; accord, Garcia v. World Savings, FSB, supra, 183 Cal.App.4th at pp. 1039–1041.)  We further commented:  “When Raedeke and California Securities Co. were decided, Civil Code section 1698 provided in its entirety:  ‘A contract in writing may be altered by a contract in writing, or by an executed oral agreement, and not otherwise.’ . . . In 1976, a new section 1698 was enacted which states in part:  ‘A contract in writing may be modified by a contract in writing . . . [or] by an oral agreement to the extent that the oral agreement is executed by the parties. . . . Nothing in this section precludes in an appropriate case the application of rules of law concerning estoppel . . . .’”  (Sutherland v. Barclays American/Mortgage Corp., supra, 53 Cal.App.4th at p. 312, fn. 8, citations omitted.)  Our earlier analysis in Sutherland applies here.

Finally, a promissory estoppel claim generally entitles a plaintiff to the damages available on a breach of contract claim.  (See Toscano v. Greene Music (2004) 124 Cal.App.4th 685, 692–693.)  Because this is not a case where the homeowner paid the funds needed to reinstate the loan before the foreclosure, promissory estoppel does not provide a basis for voiding the deed of sale or otherwise invalidating the foreclosure.  (See Garcia v. World Savings, FSB, supra, 183 Cal.App.4th at p. 1047, distinguishing Bank of America v. La Jolla Group II (2005) 129 Cal.App.4th 706, 711–714.)

B.        Remaining Claims

The elements of fraud are similar to the elements of promissory estoppel, with the additional requirements that a false promise be made and that the promisor know of the falsity when making the promise.  (See McClain v. Octagon Plaza, LLC (2008) 159 Cal.App.4th 784, 792–794 [discussing elements of fraud].)  Aceves has adequately alleged those facts.

Aceves’s other claims and requests for relief lack merit as a matter of law.  All of them are based on alleged irregularities in the foreclosure process.  We see no irregularities that would justify relief.  For example, Aceves contends U.S. Bank’s designation of Quality Loan Service as the trustee under the deed of trust was defective because the “Substitution of Trustee” was signed by the bank’s attorney-in-fact.  But Aceves cites no pertinent authority for her contention.  (See Schoendorf v. U.D. Registry, Inc. (2002) 97 Cal.App.4th 227, 237–238 [party forfeits contention absent citation of authority].)  Neither Civil Code section 2934a, which governs the substitution of trustees, nor the trust deed itself precludes an attorney-in-fact from signing a Substitution of Trustee.  And case law strongly suggests Aceves is wrong.  (See Tran v. Farmers Group, Inc. (2002) 104 Cal.App.4th 1202, 1213 [“an attorney-in-fact is an agent owing a fiduciary duty to the principal”]; Burgess v. Security-First Nat. Bank (1941) 44 Cal.App.2d 808, 818–819 [person can perform any legal act through attorney-in-fact that he or she could perform in person, including entering into contracts].)

Aceves also takes issue with the notice of default, pointing out that it mistakenly identified Option One as the beneficiary under the deed of trust when U.S. Bank was actually the beneficiary.  Although this contention is factually correct, it is of no legal consequence.  Aceves did not suffer any prejudice as a result of the error.  Nor could she.  The notice instructed Aceves to contact Quality Loan Service, the trustee, not Option One, if she wanted “[t]o find out the amount you must pay, or arrange for payment to stop the foreclosure, or if your property is in foreclosure for any other reason.”  The notice also included the address and telephone number for Quality Loan Service, not Option One.  Absent prejudice, the error does not warrant relief.  (See Knapp v. Doherty (2004) 123 Cal.App.4th 76, 93–94 & fn. 9.)

Last, after the filing of the reply brief and before oral argument, we requested additional briefing on the protections accorded by chapter 13.  In her letter brief, Aceves went beyond the scope of the request and presented arguments not previously made about the order in which various documents were recorded.  The new arguments were unsolicited; Aceves did not explain why the arguments were not raised earlier; and U.S. Bank had no opportunity to respond.  Accordingly, we do not reach them.  (See City of Costa Mesa v. Connell (1999) 74 Cal.App.4th 188, 197; Campos v. Anderson (1997) 57 Cal.App.4th 784, 794, fn. 3.)

It follows that the trial court properly sustained the demurrer without leave to amend with respect to all claims and requests for relief other than the claims for promissory estoppel and fraud.  Aceves should be allowed to pursue those two claims.

III

DISPOSITION

The order and the judgment are reversed to the extent they dismissed the claims for promissory estoppel and fraud.  In all other respects, the order and judgment are affirmed.  Appellant is entitled to costs on appeal.

CERTIFIED FOR PUBLICATION.

MALLANO, P. J.

We concur:

ROTHSCHILD, J.

JOHNSON, J.

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California BK Adversary Proceeding KENTON v. Bank of America, Wells Fargo, Florida Default Law Group

California BK Adversary Proceeding KENTON v. Bank of America, Wells Fargo, Florida Default Law Group


via: Brian Davies

ELIZABETH ANN KENTON, an Individual.
Plaintiff,

-vs.-

BANK OF AMERICA, N.A.; WELLS FARGO
BANK N.A. F/K/A WELLS FARGO BANK
MINNESOTA, N. A., as Trustee of BANK OF
AMERICAN SECURITIES INC.
ALTERNATIVE LOAN TRUST 2003-2;
FLORIDA DEFAULT LAW GROUP, P.I

Defendants.

COMPLAINT TO DETERMINE THE
NATURE, EXTENT AND VALIDITY
OF LIEN AND TO DISALLOW
SECURED CLAIM, TILA VIOLATION,
FRAUD, LIBEL, QUIET TILE, AND
INJUNCTIVE RELIEF.

continue below…begin on page 4

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Experts Agree On Hawaii Foreclosure Reforms

Experts Agree On Hawaii Foreclosure Reforms


[edit] GUEST COMMENT: Anybody that understands the foreclosure fraud situation and read this document would tell you: REVIEW OF THE HAWAII TASK FORCE REPORT 1/28/11

1. It appears to me that the group was weighted toward lenders/bankers;

2. The report does nothing to address the problems that have been caused by the securitization of mortgages;

3. There is nothing addressing the MERS issue and its subversion of the recordation process;

4. I see nothing that addressed investigating the elimination of non-judicial foreclosures. The recommendations appear to continue the two courses of action (judicial and non-judicial);

5. There was no “out of the box” thinking…just band-aids and hole-plugging. Apparently, Hawaii banks didn’t want to be “painted with the same brush” as mainland banksters; however, all but a couple participated in the securitization feeding frenzi and MERS – and basically didn’t give a damn about the borrower.

More Homeowners Would Have Access To Judge

POSTED: 10:20 am HST January 28, 2011
UPDATED: 1:01 pm HST January 28, 2011

HONOLULU — The state consumer protector said Friday that he was surprised by the consensus between lenders and consumer advocates about several reforms to Hawaii’s foreclosure law that he said will help a lot of people.

Consumer Protector Steven Levins said the recommendations include banning deficiency judgments for people whose homes are lost to nonjudicial foreclosure which is the most often-used process in Hawaii. Nonjudicial foreclosure bypasses the courts in a foreclosure, and is the source of most complaints by consumers, who feel they were not given adequate opportunity to save their homes. Many homeowners who have lost their homes in a nonjudicial foreclosure still must pay the unpaid balance of their mortgage after the foreclosure.

Levins said the proposed reform would not only ban deficiency judgments, but it would allow homeowners to choose to go through judicial foreclosure, which is overseen by a circuit court judge. While that may help protect the homeowners’ rights, Levins said, under judicial foreclosure, the homeowner could still face a deficiency judgment.

The major benefit of judicial oversight is that homeowners would be protected from unethical, illegal or improper procedures by lenders, which he said have become a serious problem with the volume of foreclosures in a Hawaii, many serviced by Mainland lenders.

“We gotta add some humanity to the equation,” said Sen. Brickwood Galuteria.

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