Erickson et al v. Green Tree Servicing LLC et al

Filing 90

ORDER that the Motion to Dismiss First Amended Complaint by Defendants Countrywide Home Loans, Inc., and Bank of America, N.A. (Doc. 60 ) is granted. FURTHER ORDERED that Green Tree, Fannie Mae, and MERS' Motion to Dismiss First Amended Compla int (Doc. 53 ) is denied as to Plaintiff's claims for declaratory judgment and to clear title under A.R.S. § 33-420 against Defendant Green Tree Servicing LLC. FURTHER ORDERED that Green Tree, Fannie Mae, and MERS' Motion to Dismis s First Amended Complaint (Doc. 53 ), joined by Defendants Countrywide Home Loans, Inc., and Bank of America, N.A., is granted in part, as follows (see order for details). FURTHER ORDERED that Plaintiff may file a further amended complaint by 06/18/15. If Plaintiff does not file a further amended complaint by 06/18/15, the time for Defendant Green Tree Servicing LLC to file a responsive pleading will begin to run the next business day. Signed by Judge Neil V. Wake on 6/3/15. (NKS)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Judith D. Erickson, individually and as
trustee of the Erickson Family Trust,

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Plaintiff,

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ORDER

v.

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No. CV-14-08089-PCT-NVW

Green Tree Servicing LLC; Countrywide
Home Loans, Inc.; Bank of America, N.A.;
Federal National Mortgage Association;
Mortgage Electronic Registration Systems,
Inc.,

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Defendants.

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Before the Court are Green Tree, Fannie Mae, and MERS’ Motion to Dismiss

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First Amended Complaint (Doc. 53) and the Motion to Dismiss First Amended

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Complaint by Defendants Countrywide Home Loans, Inc., and Bank of America, N.A.,

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and Joinder in Defendants Green Tree Servicing LLC, Federal National Mortgage

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Association and Mortgage Electronic Registration Systems, Inc.’s Motion to Dismiss

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First Amended Complaint (Doc. 60). The Court has considered the parties’ motions,

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responses, replies, supplemental briefing, and oral argument.

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I.

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

allegations of material fact are assumed to be true and construed in the light most
favorable to the nonmoving party. Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir.
2009). Dismissal under Rule 12(b)(6) can be based on “the lack of a cognizable legal

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theory” or “the absence of sufficient facts alleged under a cognizable legal theory.”
Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990).

To avoid

dismissal, a complaint need contain only “enough facts to state a claim for relief that is
plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The
principle that a court accepts as true all of the allegations in a complaint does not apply to
legal conclusions or conclusory factual allegations. Ashcroft v. Iqbal, 566 U.S. 662, 678
(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.
Generally, material beyond the pleadings may not be considered in deciding a
Rule 12(b)(6) motion. However, a court may consider evidence on which the complaint
necessarily relies if (1) the complaint refers to the document, (2) the document is central
to the plaintiff’s claim, and (3) no party questions the authenticity of the copy of the
document submitted to the court. Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006).
The First Amended Complaint (Doc. 49) refers to exhibits attached to the initial
complaint (Doc. 1-1), which are central to Plaintiff’s claims, and no party questions the
authenticity of Plaintiff’s exhibits. Therefore, the Court considers the exhibits attached to
the initial complaint (Doc. 1-1) in deciding the present Rule 12(b)(6) motions, but does
not consider exhibits Defendants submitted in its supplemental briefing that were
unavailable to Plaintiff when she filed the First Amended Complaint.
Although leave to amend should be freely given “when justice so requires,” Fed.
R. Civ. P. 15(a)(2), courts should consider five factors: bad faith, undue delay, prejudice
to the opposing party, futility of amendment, and whether the plaintiff has previously
amended the complaint. Johnson v. Buckley, 356 F.3d 1067, 1077 (9th Cir. 2004).
“Futility alone can justify the denial of a motion to amend.” Id. Leave to amend should
be granted if the complaint’s deficiencies can be cured with additional factual allegations
that are consistent with and do not contradict allegations in the challenged pleading.

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United States v. Corinthian Colleges, 655 F.3d 984, 995 (9th Cir. 2011). Dismissal
without leave to amend is proper if the complaint cannot be cured by any amendment. Id.
II.

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

to dismiss the First Amended Complaint. The Court makes no determination of whether
they are in fact true.

The Court does not assume to be true legal conclusions or

conclusory factual allegations, such as assertions that an assignment is void and a person
lacks authority.
On June 24, 2006, Plaintiff entered into a home loan agreement with Countrywide
Home Loans, Inc. (“Countrywide”), executing a Note in the amount of $338,000, which
was secured by a Deed of Trust. The Deed of Trust states: “‘Lender’ is Countrywide
Home Loans, Inc.” (Doc. 1-1 at 53.) It also states:
“MERS” is Mortgage Electronic Registration Systems, Inc. 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. MERS is organized and existing under the laws of
Delaware, and has an address and telephone number of P.O. Box 2026,
Flint, MI 48501-2026, tel. (888) 679-MERS.
(Id. at 54 (emphasis in original).) The Deed of Trust further states:
TRANSFER OF RIGHTS IN THE PROPERTY
The beneficiary of this Security Instrument is MERS (solely as nominee for
Lender and Lender’s successors and assigns) and the successors and assigns
of MERS. This Security Instrument secures to Lender (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. For this purpose, Borrower irrevocably
grants and conveys to Trustee, in trust, with power of sale, the following
described property . . . .
(Id. at 54-55.) The Deed of Trust defines “Security Instrument” as “this document”
“together with all Riders to this document.” (Id. at 53.) At closing, Plaintiff received a
separate document titled “Disclosure Statement About MERS” that stated MERS is a
company separate from the Lender (i.e., Countrywide), the Lender “has elected to name
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MERS as the mortgagee in a nominee capacity,” and that doing so does not affect
Plaintiff’s obligation to the Lender. (Id. at 70.)
The Deed of Trust states that the Note can be sold one or more times without prior
notice to the Borrower. (Id. at 61.) It does not require that the Borrower ever be notified
regarding transfers of beneficial interest in the Note.
The Deed of Trust defines “Loan Servicer” as the entity “that collects Periodic
Payments due under the Note and this Security Instrument and performs other mortgage
loan servicing obligations under the Note, this Security Instrument, and Applicable Law.”
(Id.) It states that there might be one or more changes of the Loan Servicer, related or
unrelated to a sale of the Note, and if there is a change of the Loan Servicer, Borrower
will be given written notice of the change with the name and address of the new Loan
Servicer. (Id.) Further, the Deed of Trust authorizes Lender to remove the Trustee and
appoint a successor trustee at any time and for any reason. (Id. at 62.)
In January 2008, Bank of America, N.A. (“BANA”) acquired Countrywide. By
letter dated November 22, 2011, Green Tree Servicing LLC (“Green Tree”) notified
Plaintiff that BANA was transferring servicing of her loan to Green Tree, effective
December 1, 2011. (Id. at 76-79.) The letter stated, “The servicing transfer does not
affect any terms or condition of your current mortgage loan, other than the terms directly
related to the servicing of your loan.” (Id. at 76.) The letter did not state that Green Tree
was or was not the beneficiary of the Deed of Trust securing Plaintiff’s debt. In letters
dated February 11 and 15, 2013, regarding the availability of homeownership counseling,
Green Tree again identified itself as the servicer for Plaintiff’s loan and did not claim or
disclaim being the creditor or beneficiary, but it did state, “You are not released from
your obligation to Green Tree.” (Id. at 81-84.)
On February 18, 2013, Green Tree sent Plaintiff a letter titled “Notice of Default
and Right to Cure Default.” (Id. at 86.) It identified Green Tree as the creditor for
Plaintiff’s loan. It stated Plaintiff failed to submit monthly payments due 1/1/2013

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through 2/1/13 and could cure her default within 30 days by paying $3,331.89 or by
completing a modification or repayment arrangement through Green Tree.
On March 8, 2013, Ashley Braband, identified as assistant secretary for MERS as
nominee for Countrywide, its successors and assigns, executed a Corporate Assignment
of Deed of Trust, assigning from MERS, as nominee for Countrywide, to Green Tree “the
described Deed of Trust together with all interest secured thereby, all liens, and any rights
due or to become due thereon.” (Id. at 106.) Braband is an employee of Nationwide
Title Clearing, a document preparation service located in Pinellas County, Florida, and
not an employee of MERS or an officer of Nationwide Title Clearing.
On May 13, 2013, Green Tree sent Plaintiff a letter titled “Notice of Default and
Right to Cure Default,” which identified Green Tree as the creditor for Plaintiff’s loan.
(Id. at 87.) It stated Plaintiff failed to submit monthly payments due 4/1/2013 through
5/1/13 and could cure her default within 30 days by paying $3,307.58 or by completing a
modification or repayment arrangement through Green Tree. By letter dated November
19, 2013, Green Tree notified Plaintiff that her account had been referred to an attorney
to initiate foreclosure action against her property. (Id. at 89.)
On December 3, 2013, Lori Hennessey, Foreclosure Supervisor for Green Tree,
signed a Notice of Substitution of Trustee, appointing Jason P. Sherman as the successor
trustee under the Deed of Trust. (Id. at 108.) On February 7, 2014, the Notice of
Substitution of Trustee and a Notice of Trustee’s Sale were recorded in Yavapai County,
Arizona. (Id. at 108, 110.) The Notice of Trustee’s Sale, signed by Jason P. Sherman as
trustee, identified Green Tree as the beneficiary. A Statement of Breach, Notice of
Default and Election to Sell Under Deed of Trust, signed by Jason P. Sherman as trustee
and dated February 7, 2014, also identified Green Tree as the beneficiary and described
Plaintiff’s breach as failure to make payments due beginning September 1, 2013. It
further stated that Green Tree “requires immediate payment in full of all sums secured by
the Deed of Trust and further elects to sell the subject property.” (Id. at 113-14.) As of

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April 2014, MERS identified Green Tree as the servicer of Plaintiff’s loan and Federal
National Mortgage Association (“Fannie Mae”) as the Investor. (Id. at 72.)

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Although Plaintiff “does not admit any default, and in fact refuses to confirm the
debt at this stage in the proceedings,” she does not allege that she made all loan payments
when they were due under the Note and Deed of Trust or under any loan modification
agreement.

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She also does not allege that alleged defects in the

documents prevented her from making timely payments.

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(Doc. 72 at 10.)

On June 1, 2015, Jason P. Sherman, as trustee for the Deed of Trust, canceled the
sale described in the Notice of Trustee’s Sale recorded on February 7, 2014, and recorded
notice of the cancellation in the office of the County Recorder of Yavapai County, State
of Arizona. (Doc. 89.) The notice of cancellation does not cancel the Statement of
Breach, Notice of Default and Election to Sell Under Deed of Trust, signed by Jason P.
Sherman as trustee and dated February 7, 2014.
III.

THE ARIZONA DEED OF TRUST ACT
A.

Origins and Purposes

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Before 1971, the contractual instrument known as a “deed of trust” was treated as

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a mortgage and could be foreclosed only by judicial action, followed by a six-month

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redemption period. M & I Bank, FSB v. Coughlin, 805 F. Supp. 2d 858, 861 (D. Ariz.

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2011) (citing Gary E. Lawyer, The Deed of Trust: Arizona’s Alternative to the Real

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Property Mortgage, 15 Ariz. L. Rev. 194, 194-95 (1973)).

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“legislature created the deed of trust, under which there is no right of redemption and

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foreclosure occurs outside of the judicial process through a trustee’s sale,” to avoid the

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more time-consuming and expensive mortgage foreclosure process. In re Vasquez, 228

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Ariz. 357, 359 n.1, 266 P.3d 1053, 1055 n.1 (2011). The Deed of Trust Act recognized

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for the first time the deed of trust as a real property security device distinct from a

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mortgage, set forth detailed provisions governing formation and administration of trust

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deeds, and introduced procedures markedly different from those governing mortgages.

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In 1971, the Arizona

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The Act also preserved the trust deed beneficiary’s option to foreclose judicially in
compliance with the statutes regulating mortgage foreclosures. A.R.S. § 33-807(A).
One of the most notable differences under the Deed of Trust Act was recognition
of the “power of sale.” This power permits the trust deed beneficiary to cause the trust
property to be sold and to apply the proceeds of that sale to a defaulted loan, without
going to court. Unlike mortgage foreclosures, which begin with the filing of a lawsuit, a
sale under the power of sale begins when a trustee (appointed by the beneficiary) files a
notice of trustee’s sale giving the defaulting borrower 90 days to cure the default. If the
borrower does not do so, and if the trustee complies with all of the Act’s requirements,
then the trustee can auction the property. The borrower has no right of redemption after
such a sale, and the successful bidder is entitled to immediate possession.

If the

beneficiary and trustee follow statutorily required procedures, the Deed of Trust Act
eliminates the need for judicial proceedings before conducting a trustee’s sale of the
property securing the trust deed.
Because the Arizona Deed of Trust statutes “strip borrowers of many of the
protections available under a mortgage, . . . lenders must strictly comply with the Deed of
Trust statutes, and the statutes and Deeds of Trust must be strictly construed in favor of
the borrower.” Patton v. First Federal Sav. & Loan Ass’n, 118 Ariz. 473, 477, 578 P.2d
152, 156 (1978); accord In re Krohn, 203 Ariz. 205, 208, 52 P.3d 774, 777 (2002).
B.

Statutory Requirements for Non-Judicial Foreclosure

Under the Deed of Trust Act, a “trust deed” or “deed of trust” means a deed
conveying property to a trustee to secure the performance of a contract.

A.R.S.

§ 33-801(8). The statutory definition of “Contract” includes, but is not limited to, “a
note, a promissory note or provisions of any trust deed.” A.R.S. § 33-801(4). “‘Trustor’
means the person conveying trust property by a trust deed as security for the performance
of a contract or contracts, or the successor in interest of such person.”

A.R.S.

§ 33-801(11). “‘Beneficiary’ means the person named or otherwise designated in a trust

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deed as the person for whose benefit a trust deed is given, or the person’s successor in
interest.” A.R.S. § 33-801(1).
“Trustee” is defined as the individual or entity, or the successor in interest, “to
whom trust property is conveyed by a trust deed.” A.R.S. § 33-801(10). At any time, the
beneficiary may appoint a successor trustee, and the appointment constitutes a
substitution of trustee. A.R.S. § 33-804(A), (B). At the time of the substitution, a notice
of substitution of trustee must be recorded, and the beneficiary must give written notice
to the trustor. A.R.S. § 33-804(C). “By virtue of his position, a power of sale is
conferred upon the trustee of a trust deed under which the trust property may be sold . . .
after a breach or default of the trust deed.” A.R.S. § 33-807(A). The power of sale may
not be exercised before the ninety-first day after the date of the recording of the notice of
the sale. A.R.S. § 33-807(D). The notice of sale must include the names and addresses
of the beneficiary and the trustee, the telephone number of the trustee, the name and
address of the original trustor as stated in the deed of trustee, and the signature of the
trustee, among other things. A.R.S. § 33-808(C). “The address of the beneficiary shall
not be in care of the trustee.” Id.
Within five business days after recording the notice of sale, the trustee must mail
by certified or registered mail, a copy of the notice of sale to each of the persons who
were parties to the trust deed. A.R.S. § 33-809(C). The notice to each party must include
an additional notice stating that a breach of the trust deed or the contract secured by the
trust deed has occurred, setting forth the nature of the breach, and stating the
beneficiary’s election to sell or cause to be sold the trust property under the trust deed.
Id. The additional notice must be signed by the beneficiary or the beneficiary’s agent.
Id. The trustee must set forth the unpaid principal balance. Hogan v. Wash. Mut. Bank,
N.A., 230 Ariz. 584, 586, 277 P.3d 781, 783 (2012).
Transfer of a debt evidenced by a promissory note and secured by a trust deed
transfers beneficial interest in the trust deed by operation of law: “The transfer of any

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contract or contracts secured by a trust deed shall operate as a transfer of the security for
such contract or contracts.” A.R.S. § 33-817; see Vasquez, 228 Ariz. at 359, 266 P.3d at
1055 (when the note was assigned, the trust deed was transferred by operation of law).
But assignment of a trust deed without assignment of the debt it secures does not
convey beneficial interest:

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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.

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

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Bank, 172 Ariz. 221, 223, 836 P.2d 434, 436 (Ct. App. 1992).

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Arizona statutes do not require that an assignment of a trust deed be recorded

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before recording the notice of trustee’s sale. Vasquez, 228 Ariz. at 359, 266 P.3d at 1055.

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Because the notice of sale must identify the current beneficiary of the trust deed, the

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obligor will receive notice of the beneficiary’s identity before the scheduled sale. Id. at

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360, 266 P.3d at 1056.

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Arizona statutes do not require the beneficiary to show possession of or otherwise

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document its right to enforce the underlying note before a trustee may exercise the power

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of sale. Hogan, 230 Ariz. at 586, 277 P.3d at 783. “Absent an affirmative allegation by

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the borrower that the trustee or beneficiary is not, in fact, the ‘true’ trustee/beneficiary,

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the trustee or beneficiary may conduct a trustee’s sale without having to demonstrate his

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authority to foreclose.” Steinberger v. McVey ex rel. Cnty. of Maricopa, 234 Ariz. 125,

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136, 318 P.3d 419, 430 (Ct. App. 2014), review denied Sept. 23, 2014. However, “if a

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borrower is in default and possesses a good faith basis to dispute the authority of an entity
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to conduct a trustee’s sale, the borrower should not be prohibited from challenging its
authority simply because such action may slow down the foreclosure process.” Id.

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During the recent recession, many Arizona homeowners fell behind on their
mortgage obligations and sought to avoid losing their homes in trustee’s sales by filing
state court actions. Many of those lawsuits were removed to the federal court. As a
result, some of the legal issues presented in this case, although common, have not been
decided by the Arizona state courts. At the pleading stage, those issues are not decided
here with finality. It is necessary only to determine whether, assuming Plaintiff’s factual
allegations to be true and construing them in the light most favorable to Plaintiff, Plaintiff
“possesses a good faith basis to dispute the authority of an entity to conduct a trustee’s
sale.”
IV.

ANALYSIS
A.

Plaintiff’s Claims

The First Amended Complaint alleges five counts:

(1) declaratory judgment

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regarding contract rights of the parties, assignment of the deed of trust, substitution of the

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trustee, and notice of trustee’s sale; (2) breach of contract (the Note and Deed of Trust);

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(3) breach of the duty of good faith and fair dealing; (4) quiet title under A.R.S. § 33-420;

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and (5) negligence per se. (Doc. 49.) Plaintiff asserts that she has a good faith basis to

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dispute Green Tree’s authority as the Note holder and beneficiary of the Deed of Trust, or

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agent of the Note holder and beneficiary of the Deed of Trust, to issue a notice of default

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on May 13, 2013, and record a notice of substitution of trustee on December 3, 2013. If

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Green Tree lacked such authority, the trustee appointed by Green Tree lacks authority to

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conduct a trustee’s sale.

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B.

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The First Amended Complaint alleges that Green Tree did not receive from MERS

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authority to issue notice of default to Plaintiff, appoint Jason P. Sherman as the successor

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trustee under the Deed of Trust, or direct the trustee to send a notice of trustee sale

Green Tree’s Authority

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because MERS was not the beneficiary of the Deed of Trust and not the holder of the
Note secured by the Deed of Trust.
The Deed of Trust identifies MERS as the beneficiary and also states that MERS
“is acting solely as a nominee for Lender and Lender’s successors and assigns.” It does
not define “nominee” or explain what acting “solely” as a nominee means. If the parties
were able to confer beneficiary status on MERS by executing the Deed of Trust, then by
executing the Corporate Assignment of the Deed of Trust, MERS transferred beneficial
interest in the Deed of Trust to Green Tree. Under this view, Green Tree had authority to
issue notice of default to Plaintiff and to appoint Jason P. Sherman as the successor
trustee under the Deed of Trust, and Sherman had authority to commence non-judicial
foreclosure proceedings under the Arizona Deed of Trust statutes.
But the Arizona Deed of Trust statutes define “beneficiary” as “the person for
whose benefit a trust deed is given.” It is undisputed that MERS never was “the person
for whose benefit a trust deed is given.” Because non-judicial foreclosure is permitted
only in strict compliance with the statutes, it is unlikely that the parties’ agreement may
override the statutory definition of “beneficiary.” If MERS was not the beneficiary, it
could not assign beneficial interest to Green Tree. Therefore, Green Tree likely did not
receive authority from MERS to issue notice of default to Plaintiff and to appoint
Sherman as the successor trustee under the Deed of Trust to commence non-judicial
foreclosure proceedings under the Arizona Deed of Trust statutes.
Another theory is that “nominee” is the equivalent of “agent,” and as agent of the
beneficiary, i.e., Countrywide/BANA, MERS had authority to assign beneficial interest
to Green Tree, which then properly exercised its authority to issue notice of default to
Plaintiff and to appoint Sherman as the successor trustee under the Deed of Trust.
However, “generally the agent must be acting under the control of the principal and for
the principal’s benefit.” Urias v. PCS Health Sys., Inc., 211 Ariz. 81, 88, 118 P.3d 29, 36
(Ct. App. 2005). The Corporate Assignment of Deed of Trust represents that Ashley

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Braband, “as Asst. Secretary for Mortgage Electronic Registration Systems, Inc., as
nominee for Countrywide Home Loans, Inc., its successors and assigns,” assigned the
Deed of Trust to Green Tree. The First Amended Complaint alleges that Ashley Braband
was an employee of Nationwide Title Clearing, a document preparation service, and
lacked authority to execute the assignment on behalf of MERS. But even if she had
authority to represent MERS, the Corporate Assignment of Deed of Trust provides no
evidence that Ashley Braband was acting under the control of Countrywide/BANA.
A third theory is that whatever role MERS played in holding the Deed of Trust as
the nominee for Countrywide and its successors and assigns is irrelevant to Green Tree’s
authority if Green Tree was the Note holder at the time it issued the notice of default and
the notice of substitution of trustee. Under Arizona law, the transfer of a contract secured
by a trust deed operates as a transfer of the trust deed. A.R.S. § 33-817. If Countrywide
transferred the Note, secured by the Deed of Trust, to Green Tree, then the Deed of Trust
transferred by operation of law to Green Tree. Under this theory, Green Tree would have
been the beneficiary of the Deed of Trust as defined by the Arizona Deed of Trust
statutes and authorized to issue the notice of default and the notice of substitution of
trustee while it was the holder of the Note. Identifying Green Tree as the creditor and
beneficiary in the Notice of Default and Right to Cure Default, Notice of Substitution of
Trustee, Notice of Trustee’s Sale, and Statement of Breach then would have been
accurate.
However, this theory works only if Countrywide transferred the Note to Green
Tree, its loan servicer, before Green Tree issued the notices. These notices do not state
that Green Tree is acting as agent for the beneficiary and Note holder, but rather that
Green Tree is the creditor, i.e., beneficiary and Note holder. Having no reason to think
that a loan servicer became a lender, Plaintiff had a good faith basis to question Green
Tree’s status as the beneficiary of the Deed of Trust and holder of the Note. Moreover,
had Plaintiff not filed an action to enjoin the trustee’s sale, she risked waiving “all

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defenses and objections to the sale” under A.R.S. § 33-811(C). Therefore, Plaintiff
possessed “a good faith basis to dispute the authority of an entity to conduct a trustee’s
sale.” See Steinberger, 234 Ariz. at 136, 318 P.3d at 430. But the only entity that has
claimed authority to conduct a trustee’s sale is Green Tree.
C.

Claims to Be Dismissed

Count One of the First Amended Complaint seeks declaratory judgment of the
following: the Corporate Assignment of Deed of Trust, Notice of Substitution of Trustee,
and Notice of Default are void; the void recorded documents must be cancelled by
recordings at the Yavapai County Recorder’s Office; only the holder of the Note may
enforce the terms of the Note and accelerate the balance; only the holder of the Note is
protected by the Deed of Trust as security; and only the holder of the Note may initiate
foreclosure of the Deed of Trust. As found above, Plaintiff has a good faith basis to seek
declaratory judgment regarding Green Tree’s claimed authority to enforce the terms of
the Note and accelerate the balance, issue notice of default, and issue notice of
substitution of trustee.
Count One also seeks declaratory judgment that “no party may notice or re-notice
a trustee’s sale without proving status as Note Holder/Lender and true beneficiary under
the Note and Deed of Trust, and otherwise complying with the contracts.” Under current
Arizona law, a beneficiary is not required to prove its status as Note Holder/Lender
before a trustee may exercise the power of sale, but a defaulting borrower with a good
faith basis to dispute the authority of an entity to conduct a trustee’s sale may bring a
lawsuit to do so. Hogan, 230 Ariz. at 586, 277 P.3d at 783; Steinberger, 234 Ariz. at 136,
318 P.3d at 430. In other words, after notice of a trustee’s sale is given, the burden is on
the borrower to plead a good faith basis that the trustee lacks authority to conduct the sale
before the purported creditor is required to prove it holds the Note.
Count Two fails to state a claim for breach of contract. It alleges that “Defendants
have breached their contracts” with Plaintiff by issuing the notice of default, substitution

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of trustee, and the trustee sale, and that all of the Defendants are bound in contractual
privity. As alleged, Countrywide is the only Defendant that executed a contract with
Plaintiff, Green Tree is not Countrywide’s successor to the contract, and Green Tree is
the only Defendant that issued the notices of default and substitution of trustee. As
alleged, none of the other Defendants can be bound in contractual privity with
Countrywide, and none are liable for Green Tree’s actions. Moreover, Count Two does
not allege any facts regarding how the alleged breach of contract caused Plaintiff harm
beyond that caused by her loan default.
For the same reasons, Count Three fails to state a claim for breach of the duty of
good faith and fair dealing, which arises from a contractual relationship. As alleged, only
Countrywide (and subsequently BANA) had any contractual obligations to Plaintiff, and
the other Defendants were not agents of Countrywide. Moreover, Countrywide did not
hide the identity of the true beneficiary and Note Holder/Lender or masquerade as the
party entitled to declare a default, accelerate the balance, and take action to foreclose; and
Countrywide did not “allow” another entity to declare a default, accelerate the debt, and
initiate a foreclosure.
Count Four partially duplicates Count One, seeking a declaration that the recorded
Corporate Assignment of Deed of Trust, Notice of Substitution of Trustee, and Notice of
Default are null and void. To the extent that Count Four alleges the recorded documents
are invalid and seeks to clear title under A.R.S. § 33-420, it states a claim upon which
relief can be granted.
Count Five alleges negligence per se based on conclusory allegations of statutory
violations by Green Tree and MERS, but fails to allege supporting facts. Further, it
duplicates portions of Count Four. During oral argument, Plaintiff’s counsel indicated
that Plaintiff would like opportunity to amend Count Five, and leave to do so with respect
to only Green Tree will be granted.

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Therefore, Plaintiff’s claims for breach of contract and breach of the duty of good
faith and fair dealing, i.e., Counts Two and Three, will be dismissed with prejudice.
Plaintiff’s claim for negligence per se, Count Five, will be dismissed with leave to
amend, but only against Green Tree.
D.

Parties to Be Dismissed

Defendants BANA and Countrywide moved to dismiss the First Amended
Complaint under Fed. R. Civ. P. 12(b)(5) and 12(b)(6) because Plaintiff failed to serve
BANA and because BANA and Countrywide were not involved in the 2013 foreclosure
process that is the subject of this lawsuit. (Doc. 60.) In response, Plaintiff stated she
does not object to dismissing BANA from the complaint and responded to the
BANA/Countrywide motion only as it pertains to Countrywide. (Doc. 72.) Therefore,
all claims in this action against BANA will be dismissed with prejudice.
The First Amended Complaint does not allege that Countrywide, MERS, or
Fannie Mae claim an interest in the Note and/or Deed of Trust or that any of them
directly caused to be recorded any false documents clouding title to Plaintiff’s property—
only that they may have played a role in a chain of events resulting in commencement of
trustee sale proceedings. In fact, it alleges almost no facts regarding allegedly wrongful
actions by these Defendants. Plaintiff contends that Countrywide and Fannie Mae may
hold an interest in the Note and/or Deed of Trust and Countrywide may possess relevant
documents or information, but does not allege any cause of action under which
Countrywide, MERS, or Fannie Mae would be liable to Plaintiff. The Complaint’s
deficiencies regarding Countrywide, MERS, and Fannie Mae cannot be cured with
additional factual allegations that are consistent with and do not contradict allegations in
the challenged pleading. See United States v. Corinthian Colleges, 655 F.3d 984, 995
(9th Cir. 2011). Therefore, all claims in this action against Defendants Countrywide,
MERS, and Fannie Mae will be dismissed with prejudice.

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IT IS THEREFORE ORDERED that the Motion to Dismiss First Amended
Complaint by Defendants Countrywide Home Loans, Inc., and Bank of America, N.A.
(Doc. 60) is granted.
IT IS FURTHER ORDERED that Green Tree, Fannie Mae, and MERS’ Motion to
Dismiss First Amended Complaint (Doc. 53) is denied as to Plaintiff’s claims for
declaratory judgment and to clear title under A.R.S. § 33-420 against Defendant Green
Tree Servicing LLC.
IT IS FURTHER ORDERED that Green Tree, Fannie Mae, and MERS’ Motion to
Dismiss First Amended Complaint (Doc. 53), joined by Defendants Countrywide Home
Loans, Inc., and Bank of America, N.A., is granted in part, as follows:
1.

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Inc., Bank of America, N.A., Federal National Mortgage Association, and

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Mortgage Electronic Registration Systems, Inc., are dismissed with

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prejudice.
2.

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Plaintiff’s claims for breach of contract and breach of the duty of good faith
and fair dealing against Defendant Green Tree Servicing LLC are dismissed

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All claims in this action against Defendants Countrywide Home Loans,

with prejudice.
3.

Plaintiff’s claim for negligence per se against Defendant Green Tree
Servicing LLC is dismissed with leave to amend.

IT IS FURTHER ORDERED that Plaintiff may file a further amended complaint
by June 18, 2015. If Plaintiff does not file a further amended complaint by June 18,
2015, the time for Defendant Green Tree Servicing LLC to file a responsive pleading will
begin to run the next business day.
Dated this 3rd day of June, 2015.

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