Mundinger v. Wells Fargo Bank NA et al

Filing 22

ORDER granting 16 Defendants Motion to Dismiss; denying as moot 21 defendants' motion to continue the May 13, 2011. The scheduling conference is vacated and the clerk shall enter final judgment.Signed by Judge Frederick J Martone on 4/22/11.(DMT)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Amy Y. Mundinger, Aaron Mundinger, )
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Plaintiff,
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vs.
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Wells Fargo Bank, et al.,
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Defendants.
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No. CV-10-2774-PHX-FJM
ORDER

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The court has before it defendants Wells Fargo Bank and Deutsche Bank’s motion to

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dismiss the first amended complaint for failure to state a claim, Fed. R. Civ. P. 12(b)(4), and

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failure to serve, Fed. R. Civ. P. 4(m), (doc. 16), plaintiff’s response (doc. 17), and

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defendants’ reply (doc. 20). We also have before us defendants’ motion to continue the May

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13, 2011 scheduling conference (doc. 21).

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Plaintiffs filed this action in state court on July 27, 2010, asserting claims of

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constructive fraud and fraudulent misrepresentation related to their home loan. On December

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23, 2010, defendants removed the action to this court asserting diversity jurisdiction under

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28 U.S.C. § 1332. Plaintiffs then filed an amended complaint seeking a declaratory judgment

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that would invalidate the trustee’s sale of their property, and raising state law claims of unjust

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enrichment and estoppel.

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In March 2006, plaintiffs purchased property located at 10255 South Del Rey Drive

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in Yuma, Arizona, with a loan from M&T Mortgage Corporation for $360,000. The loan

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was secured by a deed of trust that appointed Mortgage Electronic Registration Systems, Inc.

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(“MERS”) as the beneficiary and Old Republic Title Insurance Agency, Inc. as the trustee.

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Plaintiffs allege that on September 1, 2006, defendant Wells Fargo, doing business as

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America’s Servicing Company (“ASC”), began servicing the loan. On March 9, 2009,

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MERS filed a Notice of Substitution of Trustee, appointing First American Title Insurance

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Company (“First American”) as trustee. Amended Complaint, ex. A. This Notice incorrectly

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listed ASC as the beneficiary, although the Notice was properly signed by MERS. Also on

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March 9, 2009, First American filed a Notice of Trustee’s Sale. This notice also incorrectly

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listed ASC as the beneficiary. Id., ex. B. The sale was subsequently cancelled on June 3,

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2010. Id., ex. E. On April 2, 2009, MERS assigned the beneficial rights under the deed of

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trust to Deutsche Bank. Id., ex. C.

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Some time in 2009, plaintiffs were conditionally approved for a loan modification

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through ASC. They were instructed to begin making 3 trial-period payments in the reduced

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amount of $1,756.79. Plaintiffs made these modified payments from October 2009 through

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June 2010. ASC accepted and cashed each of the checks. Plaintiffs believed that their loan

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had been permanently modified because ASC accepted modified payments beyond the 3-

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month period. Response at 4. However, in May 2010, ASC sent plaintiffs a letter denying

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their requested loan modification. In June 2010, ASC refunded all but 3 of the modified

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payments and on June 3, 2010, First American filed a second Notice of Trustee’s Sale.

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Amended Complaint, ex. D. MERS was incorrectly named as the beneficiary in this second

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Notice of Trustee’s Sale, despite the fact that the beneficial interest had been transferred to

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Deutsche Bank on April 2, 2009. Id., ex. C. The trustee’s sale was eventually held on

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October 7, 2010, and Deutsche Bank acquired the property by credit bid. On December 2,

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2010, Deutsche Bank filed a forcible detainer complaint in state court seeking to evict

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plaintiffs from the property. That action is currently pending.

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Relying on the errors contained in the various recorded documents, plaintiffs seek a

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declaratory judgment that would void the trustee’s sale to Deutsche Bank, declare the Trust
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Deed void, and re-vest title in the property to plaintiffs.

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Plaintiffs first argue that the March 9, 2009 Notice of Substitution of Trustee,

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appointing First American as trustee, is invalid because the document listed ASC as the

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beneficiary, although it is signed by MERS. Defendants respond that this is nothing more

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than a typographical error and that MERS was the true beneficiary with authority to appoint

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a substitute trustee. There is no allegation that MERS had transferred its beneficial interest

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in the deed of trust prior to filing the Notice of Substitution of Trustee. We agree that the

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error in naming the beneficiary in the Notice did not alter MERS’ authority under the deed

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of trust to name a substitute trustee.

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Again referencing the error in the Notice of Substitution of Trustee, plaintiffs next

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argue that MERS had no authority to assign a beneficial interest in the deed of trust to

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Deutsche Bank on April 2, 2009, and therefore Deutsche Bank was not in a position to place

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a credit bid at the trustee’s sale. But, again, the error in the Notice of Substitution of Trustee

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did not transfer beneficiary rights to ASC. That interest remained with MERS, who in turn

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had authority to assign that interest to Deutsche Bank.

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Finally, plaintiffs challenge the June 3, 2010 Notice of Trustee’s Sale, and thus the

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sale itself, because the Notice incorrectly lists MERS, rather than Deutsche Bank, as the

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beneficiary. But an error in the description of the beneficiary will not invalidate an otherwise

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compliant Notice and sale. See A.R.S. § 33-808(E).

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Although several of the recorded documents contained errors, none of the errors

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operated to invalidate the trustee’s sale to Deutsche Bank on October 7, 2010. Plaintiffs’

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claim for declaratory judgment is dismissed for failure to state a claim.

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For the same reason, plaintiffs’ claim for unjust enrichment fails. Plaintiffs assert that

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Deutsche Bank was unjustly enriched by the trustee’s sale because it had no beneficial

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interest in the property. The documents verify, however, that MERS effectively transferred

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its beneficial interest to Deutsche Bank on April 2, 2009. Amended Complaint, ex. C. The

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error in naming the beneficiary in the June 3, 2010 Notice of Sale did not legally alter

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Deutsche Bank’s beneficial interest.
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We also reject plaintiffs’ argument that because Deutsche Bank was not the holder of

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the promissory note at the time of the trustee’s sale, it had no right to foreclose upon the

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property. This argument, and variations of it, have been consistently rejected by courts in

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this District. See, e.g., Diessner v. MERS, 618 F. Supp. 2d 1184, 1187 (D. Ariz. 2009).

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Plaintiffs have failed to cite any Arizona authority that requires a showing that the

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beneficiary of a deed of trust is also the holder of the note. Plaintiffs’ claim for unjust

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enrichment is dismissed for failure to state a claim.

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Finally, plaintiffs assert a claim for estoppel, arguing that based on their compliance

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with the terms of the trial loan modification plan, and Well Fargo’s continued acceptance of

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their modified payments after the trial period ended, they believed that their loan had been

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permanently modified.

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Estoppel applies if (1) the party to be estopped intentionally or negligently induces

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another to believe certain material facts, (2) the induced party takes action in reliance on its

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reasonable belief of those facts, and (3) the induced party is injured by that reliance. Darner

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Motor Sales, Inc. v. Universal Underwriters Ins. Co., 140 Ariz. 383, 394, 682 P.2d 388, 400

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(1984).

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Even if plaintiffs have sufficiently pled that Wells Fargo either intentionally or

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negligently induced them to believe that their loan was permanently modified, or that it was

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reasonable for them to believe that their loan had been permanently modified without notice

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from Wells Fargo, they have not pled facts supporting reliance. Plaintiffs allege that “they

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reasonably believed that the Property was no longer subject to foreclosure based on the loan

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modification they believed was in place, and they took no further steps to avoid foreclosure

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as they believed it was not necessary.” Amended Complaint ¶ 59. But plaintiffs also admit

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that Wells Fargo expressly denied their loan modification and returned the modified

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payments as early as May, 2010. Id. ¶¶ 31, 32. The trustee’s sale did not occur until October

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2010, some five months later. Moreover, plaintiffs filed this action in state court opposing

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the trustee’s sale on July 27, 2010. Rather than being induced into complacency, plaintiffs

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took steps to avoid foreclosure. We conclude that plaintiffs have failed to state a claim of
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estoppel.

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Defendants have alternatively pled that the complaint should be dismissed for lack of

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service. It is undisputed that defendants have not been served. They did not waive their right

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to challenge service either by removing the case or by filing this motion to dismiss. See 28

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U.S.C. § 1448 (providing for service after removal if not accomplished before removal); Fed.

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R. Civ. P. 12(b) (“No defense or objection is waived by joining it with one or more other

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defenses or objections in a responsive pleading or motion.”). While Rule 4(m), Fed. R. Civ.,

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would be an alternative basis upon which to dismiss this amended complaint, we need not

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rely on it because no claims are stated.

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IT IS ORDERED GRANTING defendants’ motion to dismiss (doc. 16). Because

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we conclude that no amendment could remedy these claims, we dismiss the complaint with

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prejudice. IT IS ALSO ORDERED DENYING defendants’ motion to continue the May

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13, 2011 as moot (doc. 21). The scheduling conference is vacated and the clerk shall enter

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final judgment.

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DATED this 22nd day of April, 2011.

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