Erickson et al v. Green Tree Servicing LLC et al

Filing 189

ORDER that the Motion to Dismiss Counterclaim (Doc. 158 ) by Plaintiffs and Counterdefendants Judith D. Erickson individually and as Trustee of The Erickson Family Trust is denied. See order for details. Signed by Senior Judge Neil V. Wake on 7/29/16. (NKS)

1

WO

2
3
4
5
6

IN THE UNITED STATES DISTRICT COURT

7

FOR THE DISTRICT OF ARIZONA

8
9
10

Judith D. Erickson, an unmarried woman,
and as Trustee of The Erickson Family
Trust,

11

Plaintiff,

12

v.

13

Ditech Financial, LLC, a Delaware limited
liability company, f/k/a Green Tree
Servicing, LLC, a Delaware Limited
Liability Company; Federal National
Mortgage Association, a District of
Columbia corporation; John and Jane Does
1-1000; XYZ Corporations 1-1000; ABC
Limited Liability Companies 1-1000; and
123 Banking Associations 1-1000,

14
15
16
17
18

Defendants.

19
20

Ditech Financial, LLC, a Delaware limited
liability company,

21
Counterclaimant,

22
23

v.

24

Judith D. Erickson, an individual; Judith D.
Erickson, as trustee of the Erickson Family
Trust,

25
26
27
28

Counterdefendants.

No. CV-14-08089-PCT-NVW
ORDER
[Not for Publication]

1
2

Ditech Financial, LLC, a Delaware limited
liability company,

3
4

Third-Party Plaintiff,
v.

5
6
7
8
9
10
11
12

Holua, LLC, an Arizona limited liability
company; John Darreld Erickson, an
individual; Mortgage Electronic Registration
Systems, Inc., a foreign corporation; The
Bank of New York Mellon f/k/a The Bank of
New York as successor Indenture trustee to
JPMorgan Chase Bank, National Association
for CWHEQ Revolving Home Equity Loan
Trust, Series 2006-I; and ROES I through X,
Inclusive,
Third-Party Defendants.

13
14

Before the Court is a Motion to Dismiss Counterclaim (Doc. 158) by Plaintiff and

15

Counterdefendant Judith D. Erickson individually and as Trustee of The Erickson Family

16

Trust.

17

I.

RULE 12(b)(6) LEGAL STANDARD

18

On a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), all

19

allegations of material fact are assumed to be true and construed in the light most

20

favorable to the nonmoving party. Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir.

21

2009). Dismissal under Rule 12(b)(6) can be based on “the lack of a cognizable legal

22

theory” or “the absence of sufficient facts alleged under a cognizable legal theory.”

23

Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990).

24

dismissal, a complaint need contain only “enough facts to state a claim for relief that is

25

plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The

26

principle that a court accepts as true all of the allegations in a complaint does not apply to

27

legal conclusions or conclusory factual allegations. Ashcroft v. Iqbal, 566 U.S. 662, 678

28
-2 

To avoid

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

(2009). “A claim has facial plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Id.
II.

FACTUAL ALLEGATIONS ASSUMED TO BE TRUE
The following facts are assumed to be true for the purpose of deciding the motion

to dismiss Ditech Financial, LLC’s Counterclaim. The Court makes no determination of
whether they are in fact true.
On June 24, 2006, Judith Erickson signed and delivered to Countrywide Home
Loans, Inc., an Adjustable Rate Note in the original principal amount of $338,000.00 to
memorialize a loan to Erickson to purchase the Property at 2655 Skyview Way, Sedona,
Arizona. The Note includes a promise from Erickson to pay the principal amount plus
interest and her acknowledgement that Countrywide may transfer the Note. The Note
states, “Lender or anyone who takes this Note by transfer and who is entitled to receive
payments under this Note is called the ‘Note Holder.’”1

The Note is in Ditech’s

possession and is endorsed in blank by Countrywide.
As security for the amounts due and owing on the Note, Erickson executed and
delivered a Deed of Trust to Countrywide, which was recorded on July 6, 2006, in the
Official Records of the Yavapai County Recorder. The Deed of Trust granted a security
interest in the Property. Federal National Mortgage Association (“Fannie Mae”) owns
Erickson’s loan, and Ditech services the loan on behalf of Fannie Mae.
Erickson conveyed the Property to The Erickson Family Trust. In January 2013,
Erickson failed to make payment pursuant to the terms of the Note and Deed of Trust.
On February 15, 2013, Ditech commenced representation of Fannie Mae’s interests in
foreclosure and began to initiate non-judicial foreclosure.

On February 15, 2013,

pursuant to its Single Family Servicing Guide, Fannie Mae automatically transferred

26
27

1

Plaintiff incorrectly states that the Note Holder must be entitled to “keep
payments” under the Note.

28
-3 

1
2

constructive possession of the Note to Ditech, and Ditech has continuously possessed the
Note ever since. On April 30, 2015, Ditech received physical possession of the Note.

3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

Ditech’s Counterclaim alleges that the Note and Deed of Trust are in default
because of nonpayment and also because Erickson conveyed the Property to The
Erickson Family Trust.

It alleges damages incurred because of Erickson’s default.

Ditech elects to judicially foreclose the Deed of Trust pursuant to A.R.S. § 33-807(B).
III.

ANALYSIS
Under the Arizona Deed of Trust Act, a trustee or beneficiary may file and

maintain an action for judicial foreclosure at any time before the trust property has been
sold under the power of sale. A.R.S. § 33-807(B); see A.R.S. § 33-721 (foreclosure of
mortgage by court action).
Ditech alleges that it is both the Note Holder and the Deed of Trust Beneficiary.
“‘Negotiation’ means a transfer of possession, whether voluntary or involuntary, of an
instrument by a person other than the issuer to a person who thereby becomes its holder.”
A.R.S. § 47-3201(A). “If an instrument is payable to bearer, it may be negotiated by
transfer of possession alone.” A.R.S. § 47-3201(B). “When indorsed in blank, an
instrument becomes payable to bearer and may be negotiated by transfer of possession
alone until specially indorsed.”

A.R.S. § 47-3205(B).

“Transfer of an instrument,

whether or not the transfer is a negotiation, vests in the transferee any right of the
transferor to enforce the instrument, including any right as a holder in due course, but the
transferee cannot acquire rights of a holder in due course by a transfer, directly or
indirectly, from a holder in due course if the transferee engaged in fraud or illegality
affecting the instrument.” A.R.S. § 47-3203(B).
As alleged, the Note was endorsed in blank by Countrywide, and both constructive
and physical possession of the Note was transferred to Ditech. Thus, Ditech became the
Note Holder. As the Note Holder, Ditech is a “person entitled to enforce” the Note:
“Person entitled to enforce” an instrument means the holder of the
instrument, a nonholder in possession of the instrument who has the rights
-4 

1

of a holder or a person not in possession of the instrument who is entitled to
enforce the instrument pursuant to § 47-3309 or § 47-3418, subsection D.
A person may be a person entitled to enforce the instrument even though
the person is not the owner of the instrument or is in wrongful possession of
the instrument.

2
3
4
5
6
7
8
9

A.R.S. § 47-3301. Therefore, Ditech has any right to enforce the Note that Countrywide
held.
As alleged, Ditech is also the Beneficiary under the Deed of Trust because the
transfer of a contract secured by a trust deed operates as a transfer of the trust deed.
A.R.S. § 33-817. A mortgage is a “mere incident” to the debt it secures:

16

The law seems to be well settled that the mortgage is a mere incident to the
debt and that its transfer or assignment does not transfer or assign the debt
or the note. The mortgage goes with the note. If the latter is transferred or
assigned, the mortgage automatically goes along with the assignment or
transfer. . . . The mortgage, being a mere incident of the debt, cannot be
assigned separately from it, so as to give any beneficial interest. . . . A
mortgage, as distinct from the debt it secures, is not a thing of value nor a
fit subject of transfer; hence an assignment of the mortgage alone, without
the debt, is nugatory, and confers no rights whatever upon the assignee. . . .
An assignment of the note carries the mortgage with it, while the
assignment of the latter alone is a nullity.

17

Hill v. Favour, 52 Ariz. 561, 568, 84 P.2d 575, 578 (1938); accord Rodney v. Arizona

18

Bank, 172 Ariz. 221, 223, 836 P.2d 434, 436 (Ct. App. 1992). Thus, transfer of the Note

19

from Countrywide to Ditech operated as a transfer of the Deed of Trust.

10
11
12
13
14
15

20

Erickson contends that Ditech is barred from seeking judicial foreclosure because

21

it failed to assert that as a compulsory counterclaim in its Answer to the Second

22

Amended Complaint. The Arizona Deed of Trust Act explicitly provides that a trustee or

23

beneficiary may file and maintain an action for judicial foreclosure at any time before the

24

trust property has been sold under the power of sale. A.R.S. § 33-807(B). Without any

25

authority, it cannot be concluded that, by seeking declaratory judgment that Ditech was

26

not the Note Holder or Beneficiary of the Deed of Trust, Erickson forced Ditech to elect

27

judicial foreclosure or forever waive its right to do so.

28
-5 

1
2
3
4
5
6

The Court does not consider Erickson’s additional arguments raised for the first
time in her reply brief.
IT IS THEREFORE ORDERED that the Motion to Dismiss Counterclaim (Doc.
158) by Plaintiffs and Counterdefendants Judith D. Erickson individually and as Trustee
of The Erickson Family Trust is denied.
Dated this 29th day of July, 2016.

7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-6