Russell et al v. Federal Home Loan Mortgage Corporation et al

Filing 36

MEMORANDUM DECISION AND ORDER granting 10 Defendnant's MOTION to Dismiss, with respect to Plaintiffs claim alleging that Securitization Separated the Deed of Trust from the Note. Signed by Judge B. Lynn Winmill. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by cjm)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

MARK AND VICKY RUSSELL,
Case No. 1:11-cv-00222-BLW
Plaintiff,
MEMORANDUM DECISION AND
ORDER

v.
ONEWEST BANK FSB.; PIONEER
LENDER TRUSTEE SERVICES, LLC;
FEDERAL HOME LOAN MORTGAGE
CORPORATION; and UNKNOWN
INDIVIDUALS, TRUSTS, AND
ENTITIES JOHN and/or JANE DOES,
1-100,
Defendants.

INTRODUCTION
The Court has before it Defendants’ Motion to Dismiss. (Dkt. 10.) In an earlier
order (Dkt. 32), the Court granted Defendants’ Motion with respect to all but one of
Plaintiffs’ claims for relief. The Court stayed consideration of that claim pending the
Idaho Supreme Court’s issuance of a decision addressing a dispositive issue of state law.
That decision has now been released. Trotter v. Bank of New York Mellon, __ P.3d __,
No. 38022-2010, 2012 WL 206004 (Idaho Jan. 25, 2012). With the benefit of the Trotter
decision, the Court has determined that Defendants’ Motion is suitable for disposition
without oral argument or additional briefing. For the reasons explained below, the Court
MEMORANDUM DECISION AND ORDER - 1

will grant Defendants’ Motion to Dismiss as it applies to Plaintiffs’ remaining claim.
ANALYSIS
Plantiffs Mark and Vicky Russell allege that Defendants foreclosed on their rental
property and engaged in loan-modification negotiations in a fashion that violated various
federal and state laws and constitutional provisions. Because the Court’s previous order
details the factual background and the pertinent legal standard, the Court will not repeat
them here.
The Court’s previous order dismissed all of Plaintiffs’ federal claims and many of
its state law claims for failure to state a claim upon which relief may be granted and/or as
inadequately pled. The Court stayed consideration of a single state law claim: That
remaining claim alleges that Defendant OneWest did not have the legal right to foreclose
on Plaintiffs’ home because it could not “produce the [Promissory] Note.” (Compl. ¶ 17,
Dkt. 1.) Plaintiff alleges that the Note is “held by bond investors in collateralized
mortgage obligation securities held in a pool of notes,” (id. ¶ 18), and that because
OneWest never held the Note and Deed of Trust together, it never possessed “authority to
foreclose,” (id. ¶ 17). Plaintiff requests declaratory relief that the trustee’s deed
transferring title to the property to the buyer at the foreclosure sale is void. (Id. ¶ 55.)
Plaintiffs’ claim is based on the legal theory that a trustee, in order to initiate
foreclosure on a property, must first establish the substantive right to foreclose on the
home in question by producing both the promissory note and the deed of trust. The Ninth
Circuit has made clear that such claims are only viable if they allege a “violation of state
MEMORANDUM DECISION AND ORDER - 2

recording and foreclosure statutes.” Cervantes v. Countrywide Home Loans, Inc., 656
F.3d 1034, 1044 (9th Cir. 2011). Whether Plaintiffs’ claim is viable thus turns on the
question of whether Idaho’s non-judicial foreclosure statute, Idaho Code § 45-1502 et
seq., requires a trustee to produce the promissory note before availing itself of the
procedure for non-judicial foreclosure.
In Trotter, the Idaho Supreme Court answered this question in the negative. Trotter
challenged the validity of foreclosure proceedings on his home, asserting that the trustee
lacked “standing” to initiate non-judicial foreclosure. Trotter, 2012 WL 206004 at *3.
Trotter alleged that the defendant lacked standing because the sale of his promissory note
to a securitized loan trust scrambled ownership of the promissory note so that there was
no entity that possessed both the trust deed and note. Id. Because no entity could establish
that it was the current owner of the note and the deed, Trotter argued that his loan
obligation had been “liquidated” and he could not be in default. Id.
The Idaho Supreme Court unanimously rejected Trotter’s arguments. It held that
“nothing in the text of the [non-judicial foreclosure] statute can reasonably be read to
require the trustee to prove it has ‘standing’ before foreclosing.” Id. The court held that
the only limit on a trustee’s ability to foreclose is their compliance with the procedural
requirements of the Idaho’s non-judicial foreclosure statute. Id. (“[T]he Act sets forth all
of the requirements to foreclose on a deed of trust.” (emphasis added)). Thus, the court
concluded that “a trustee may initiate nonjudicial foreclosure proceedings on a deed of
trust without first proving ownership of the underlying note or demonstrating that the
MEMORANDUM DECISION AND ORDER - 3

deed of trust beneficiary has requested or authorized the trustee to initiate those
proceedings.” Id. at *4.
The Idaho Supreme Court’s authoritative interpretation of state law precludes
Plaintiffs’ remaining claim. After Plaintiffs defaulted on their loan, Defendant OneWest
had no duty to “produce the Note,” (Compl. ¶ 17), as a prerequisite to initiating
foreclosure proceedings, Trotter, 2012 WL 206004 at *3. Idaho law required the
Defendants only to comply with “the requirements of [Idaho Code] §§ 45–1505 and
45–1506” in order to lawfully foreclose on Plaintiffs’ property. Id. at *4. And while the
Complaint did allege various violations of I.C. § 45-1505 and 45-106, the Court
previously dismissed those claims. Plaintiff’s Complaint thus fails to state a claim upon
which relief may be granted. Because no allegation of failure to possess or produce the
Promissory Note would state a plausible claim after Trotter, this claim is dismissed with
prejudice. See Swartz v. KPMG LLP, 476 F.3d 756, 761 (9th Cir. 2007) (dismissal with
prejudice appropriate where amendment is futile).
CONCLUSION
In accordance with the analysis above, the Court will grant the Motion to Dismiss
with respect to Plaintiffs’ remaining cause of action titled “Securitization Separated the
Deed of Trust from the Note.” (Compl. ¶¶ 15-30.)
ORDER
IT IS ORDERED:
1.

Defendants’ Motion to Dismiss (Dkt. 10) is GRANTED with respect to

MEMORANDUM DECISION AND ORDER - 4

Plaintiffs’ claim alleging that “Securitization Separated the Deed of Trust
from the Note.” (Compl. ¶¶ 15–30.) The claim is dismissed with prejudice.

DATED: February 10, 2012

Honorable B. Lynn Winmill
Chief U. S. District Judge

MEMORANDUM DECISION AND ORDER - 5