Bonner v. Fay Servicing, LLC et al

Filing 55

ORDER CONVERTING MOTIONS TO DISMISS INTO MOTIONS FOR SUMMARY JUDGMENT [re 10 MOTION to Dismiss Plaintiff's Original Complaint filed by Christiana Trust, a Division of Wilmington Savings Fund Society FSB, as Trustee for ARLP Trus t 2, Fay Servicing, LLC, 11 MOTION to Dismiss Plaintiff's Complaint; Memorandum of Points and Authorities in Support Thereof filed by OCWEN Loan Servicing, LLC]. Signed by Judge William Alsup on 7/25/2016. (whasec, COURT STAFF) (Filed on 7/25/2016)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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ERNEST L. BONNER,

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For the Northern District of California

United States District Court

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Plaintiff,

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No. C 16-01363 WHA
v.
FAY SERVICING, LLC; CHRISTIANA
TRUST, a Division of Wilmington Savings
Fund Society FSB as Trustee for ARLP Trust
2; WESTERN PROGRESSIVE, LLC;
OCWEN LOAN SERVICING, LLC; and
DOES 1–100, inclusive,

ORDER CONVERTING
MOTIONS TO DISMISS
INTO MOTIONS FOR
SUMMARY JUDGMENT

Defendants.
/

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INTRODUCTION

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In this foreclosure dispute, defendants loan servicers move to dismiss the borrower’s

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complaint. For the reasons set forth below, their motions will be converted to motions for

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summary judgment.

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STATEMENT
In July 2006, plaintiff Ernest Bonner obtained a thirty-year adjustable loan for $880,000,

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secured by a deed of trust with New Century Mortgage Corporation (now dissolved) to

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purchase real property in Alameda, California. Bonner has lived rent-free in the house for

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several years without paying on the home loan. By way of his own commissioned “third-party

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forensic mortgage securitization investigation and audit,” Bonner attempts to outline the history

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of his loan’s securitization and chain of title (Compl. ¶¶ 3–4). He challenges his pending

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foreclosure by claiming that the securitization of his original mortgage loan was improper and

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thus void. Here are the details.

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In December 2006, New Century bundled Bonner’s loan in a pool with similar

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residential mortgage loans and sold it to Carrington Securities, LP. According to the complaint,

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after the first transaction occurred, Bonner’s loan underwent a series of transactions during the

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securitization process, where it landed in the hands of an unknown lender and beneficiary (id. at

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¶¶ 5–8). Then, in 2007, defendant Ocwen Loan Servicing, LLC, acting as attorney-in-fact for

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New Century, issued an assignment of the deed of trust to REO Properties Corporation.
The gist of Bonner’s allegations is that Ocwen (as New Century’s agent) had no interest

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For the Northern District of California

United States District Court

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in the deed of trust to assign to REO Properties or anyone else because New Century had

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already transferred all beneficial interests in the deed of trust to Carrington before REO

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Properties acquired any assets from New Century (id. at ¶ 11). Bonner states that “without a

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continuing agency relationship and authority from the unassigned and unknown new lender

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and beneficiary in the deed of trust, any beneficial interest that New Century Mortgage (or its

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servicing agent Ocwen) may have retained under the securitization agreements . . . was also

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effectively and completely extinguished” (id. at ¶ 8).

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The complaint states that in 2014, despite this invalid second assignment, REO

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Properties transferred the loan to defendant Christiana Trust, a Division of Wilmington Savings

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Fund Society FSB as Trustee for ARLP Trust 2. In turn, Christiana Trust transferred the loan

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to Wilmington Trust, which is the entity pursuing the current foreclosure but not a defendant to

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this action. Ocwen also transferred the loan to another servicing agent, defendant Fay

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Servicing, LLC, in 2015 (id. at ¶¶ 2–4).

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Basically, Bonner contends New Century sold his loan twice and only the original

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purchaser (and its successors in the chain of title) may sue on a default, not the second.

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Nine years after the mortgage was originally issued, Bonner received a notice of default and

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initiated this action against defendants (as servicers descending from the second assignment

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to REO Properties) for pursuing a foreclosure that he claims is illegal, null and void.
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At oral argument, defense counsel explained the apparent discrepancy of the second

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assignment to REO Properties. While defendants agree that there was an initial assignment

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to Carrington, they claim that Bonner failed to pay on the original loan and it was therefore

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tendered back to New Century as a nonperforming loan, making the subsequent assignment

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by New Century to defendants valid. The complaint does not address this reassignment back

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to New Century and therefore does not rule out this possibility.

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Bonner incorporates his theory of void assignment to allege the following claims

Sections 2934a(a)(1)(A) and 2924.5 of the California Civil Code, and (5) a violation of

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Section 17200 of the California Business and Professions Code. Bonner also seeks to

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For the Northern District of California

for relief: (1) wrongful foreclosure, (2) fraud, (3) slander of title, (4) a violation of

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United States District Court

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permanently enjoin all foreclosure activity on his real property as well as restitution,

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accounting, and declaratory relief.

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Bonner initiated the instant action in state court in February 2016 against defendants,

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who jointly removed it here on the basis of diversity jurisdiction. Defendants Fay Servicing

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and Christiana Trust now jointly move to dismiss for failure to state a claim and defendant

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Ocwen separately moves to dismiss on the same grounds. Bonner also names as defendant

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Western Progressive, LLC, which was listed as a trustee on the notice of default. At the

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hearing, Western Progressive’s counsel stated that they are a non-party to the action after filing

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a declaration of non-monetary status in state court, which Bonner did not oppose. This order

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follows full briefing and oral argument.

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ANALYSIS
Defendants contend that Bonner lacks standing to challenge the original assignment

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because it was at most voidable, not void. The California Supreme Court in Yvanova v.

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New Century Mortg. Corp., 62 Cal. 4th 919, 939 (2016) (emphasis added), held that “borrowers

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have standing to challenge assignments as void, but not as voidable.”

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Bonner alleges, to repeat, that the original lender, New Century, sold his loan to

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Carrington Securities for full loan value. As a result of this first assignment, Bonner alleges

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that the original lender had no interest in the deed of trust when it assigned the deed of trust
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for a second time to REO Properties, because all beneficial interests in the deed of trust had

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already been transferred to another entity, Carrington, before the assignment. Consequently, the

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original beneficiaries failed to assign Bonner’s loan to a subsequent trustee within the time

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frame governed by state law — on or before the closing date of December 19, 2006 (Compl.

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¶ 19). Bonner alleges the assignment and all the documents related to it are null and void.

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Defendants contend that Bonner’s theory of improper securitization merely renders

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the assignment voidable at most, rather than void. Defendants contest the allegation that

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New Century had no interest to assign the loan to REO Properties. They claim that Bonner

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defaulted on the loan after it was assigned to Carrington, therefore the non-performing loan
was validly tendered back to New Century for it to reassign. If it was true that the loan was put

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For the Northern District of California

United States District Court

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back to the originator and then reassigned, then the Court would agree that Bonner has failed to

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state a claim for relief.

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When a complaint is challenged under FRCP 12(b)(6), we must accept the facts

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in plaintiff’s complaint as true. Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005).

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Here, however, defendants attempt to undermine Bonner’s factual allegations that the

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assignment of this loan is void. Defendants ask the Court to take judicial notice of various

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documents, including notices of default and assignment records, to demonstrate that Bonner

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defaulted in 2007 and that the subsequent assignments were valid. In these circumstances,

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this order converts the motions to dismiss to motions for summary judgment.

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Under FRCP 12(d), a district court may convert a motion to dismiss to a motion for

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summary judgment. FRCP 12(d) provides that if, on a motion to dismiss under 12(b)(6),

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“matters outside the pleadings are presented to and not excluded by the court, the motion must

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be treated as one for summary judgment under Rule 56. All parties must be given a reasonable

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opportunity to present all the material that is pertinent to the motion.” Once the motion is

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converted, the legal standard changes and summary judgment is proper if there is no genuine

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issue as to any material fact and the moving party is entitled to judgment as a matter of law.

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Because defendants’ motions to dismiss rely on evidence outside the pleadings,
pursuant to FRCP 12(d) the motions will be converted into motions for summary judgment
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under FRCP 56. Defense counsel shall have FOURTEEN CALENDAR DAYS to submit further

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competent proof to prove up their representations at the hearing concerning the reassignment

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back to New Century. Plaintiff’s counsel shall have TWENTY-EIGHT CALENDAR DAYS to

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conduct discovery, all of which shall be expedited, more if good cause is shown. Counsel must

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cooperate in the discovery. At the end of discovery, plaintiff and defendants shall submit a

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supplement to the record, including briefing, by NOON ON SEPTEMBER 5, 2016.

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IT IS SO ORDERED.

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Dated: July 25, 2016.

WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

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For the Northern District of California

United States District Court

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