Heffner v. Bank of America et al

Filing 23

ORDER granting 13 Motion to Dismiss for Failure to State a Claim; denying 21 Motion for TRO. Signed by Jeremiah C. Lynch on 5/8/2012. (TCL, ) Modified on 5/8/2012 to reflect copy mailed to Heffner this date (APP, ).

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
MISSOULA DIVISION
_____________________________________________
J. HEFFNER,
CV 11-144-M-JCL
Plaintiff,
vs.
ORDER
BANK OF AMERICA, successor in
interest to COUNTRYWIDE
HOME LOAN; BANK OF AMERICA,
successor by merger to BAC HOME LOANS
SERVICING, LP; MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS; AMERICA’S
WHOLESALE LENDER; RECONTRUST
COMPANY, NA; CWALT, INC;
BANK OF NEW YORK; and JOHN DOES 1-50,
Defendants.
_____________________________________________
Plaintiff J. Heffner filed this diversity action to quiet title to his residence
located at 511 7th Street, Dayton, Montana 59914 (“the Residence”).
The matter is before the Court on the joint Fed. R. Civ. P. 12(b)(6) motion
of Defendants Bank of America, N.A., successor by merger to BAC Home Loans
Servicing, LP (“Bank of America”), Countrywide Home Loans, Inc.
(“Countrywide”) d/b/a America’s Wholesale Lender (“America”), Mortgage
Electronic Registrations Systems, Inc. (“MERS”), Recontrust Company, N.A.
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(“Recontrust”), and Bank of New York, as Trustee for CWALT, Inc. (“Bank of
New York”) (collectively “Defendants”) requesting Heffner’s complaint be
dismissed for failure to state a claim for relief. For the reasons discussed, the
motion is granted.
I. BACKGROUND
On January 2, 2007, Heffner obtained a mortgage loan for $198,450 from
America as evidenced by a promissory note (“Note”) executed by Heffner that
same day. The loan was secured by a Deed of Trust to the Residence which
identifies America as the lender, names Charles J. Peterson as the trustee, and
names MERS as the beneficiary. The Deed of Trust also names MERS as the
“nominee for the Lender, and Lender’s successors and assigns.” The Deed of
Trust was executed under the Small Tract Financing Act of Montana, Mont. Code
Ann. §§ 71-1-301 et seq.
Subsequently, on May 11, 2009, MERS executed a Substitution of Trustee
appointing Recontrust as trustee in the place of Charles J. Peterson. And on July
12, 2011, MERS assigned the Deed of Trust to Bank of America.1 On that same

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The Assignment document identifies Bank of America as the successor by
merger to BAC Home Loans Servicing, LP fka Countrywide Home Loans
Servicing, LP.
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date, Recontrust executed a Notice of Trustee’s Sale of the Residence. A second
Notice of Trustee’s Sale was executed by Recontrust on December 13, 2011.
In response to the first Notice of Trustee’s Sale, Heffner commenced this
quiet title action. Heffner claims that none of the Defendants — and for that
matter no one — have the authority to enforce either the Note or Deed of Trust.
As best as can be ascertained from Heffner’s disjointed complaint, he offers three
theories in support of his claim.
For his first theory, Heffner alleges that Countrywide acquired the Note
from the originating lender America, and promptly securitized the Note into a
REMIC (Real Estate Mortgage Investment Conduit).2, 3 From this premise,
Heffner asserts that the “real and beneficial interest holders” of the Note are the
individual shareholders in REMIC. And it is only those shareholders — not the

2

Securitization generally describes the process of pooling loans and selling
shares in the pools to investors on the open market. See Commonwealth Property
Advocates, LLC v. Mortgage Electronic Registration Systems, Inc., ___ F.3d ___,
2011 WL 6739431, *7 n.2 (10th Cir. 2011) (citation omitted); see also Christopher
L. Peterson, Predatory Structured Finance, 28 Cardozo L. Rev. 2185, 2186 n.1
(2007).
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Heffner also alleges the Note may have been securitized into a “common law
trust” identified as the “Alternative Loan Trust”. For purposes of the present
analysis, the specific identity of the pool into which the Note was placed is of no
consequence, the Court simply accepts as true Heffner’s allegation that the Note
was securitized in the fashion alleged by Heffner.
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Defendants — who can enforce the Note. But because the Note was placed in
default, so the theory goes, the individual shareholders in REMIC received a tax
credit when the Note was “written off” resulting in the debt evidenced by the Note
being fully discharged. Finally, Heffner alleges that because the debt evidenced
by the Note has been discharged, the Deed of Trust is null and void.
For his second theory, Heffner asserts that the ownership of the Note and
the Deed of Trust has been split. Consequently, he contends that either the Deed
of Trust, or both the Note and the Deed of Trust are unenforceable due to the
separate ownership of those documents.
As his third theory, Heffner alleges generally that neither MERS, nor any
other Defendant has standing and authority to enforce and foreclose on the Deed
of Trust. Therefore, he contends he is entitled to quiet title to the Residence.
Defendants’ assert that Heffner’s claims should be dismissed because they
are based on legal theories that are not cognizable as a matter of law.
II. APPLICABLE LAW
A. Fed. R. Civ. P. 12(b)(6) - Motion to Dismiss Standards
A motion to dismiss under Fed. R. Civ. P. 12(b)(6) for failure to state a
claim upon which relief can be granted “tests the legal sufficiency of a claim.”
Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). A dismissal for failure to
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state a claim under Rule 12(b)(6) is proper if there is a “lack of a cognizable legal
theory or the absence of sufficient facts alleged under a cognizable legal theory.”
Balistreri v. Pacifica Police Department, 901 F.2d 696, 699 (9th Cir. 1990). To
survive a motion to dismiss, a plaintiff’s complaint must have sufficient facts “to
state a facially plausible claim to relief.” Shroyer v. New Cingular Wireless
Services, Inc., 622 F.3d 1035, 1041 (9th Cir. 2010). The court accepts all factual
allegations in the complaint as true and construes the pleadings in the light most
favorable to Heffner. Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005).
Conclusory allegations and unwarranted inferences, however, are insufficient to
defeat a motion to dismiss. Johnson v. Lucent Techs. Inc., 653 F.3d 1000, 1010
(9th Cir. 2011).
In a Rule 12(b)(6) motion, a court may consider the complaint and only a
very few other categories of materials. Daniels-Hall v. National Education
Association, 629 F.3d 992, 998 (9th Cir. 2010). 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 attached to the 12(b)(6) motion.” Marder v.
Lopez, 450 F.3d 445, 448 (9th Cir. 2006) (citations omitted). “The court may treat
such document as ‘part of the complaint, and thus may assume that its contents are
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true for purposes of a motion to dismiss under Rule 12(b)(6).’” Id. (citations
omitted).
Here, the Defendants have appended to their moving papers copies of the
following documents: (1) Deed of Trust dated January 2, 2007; (2) Substitution of
Trustee dated May 11, 2009; (3) Assignment of Deed of Trust dated July 12, 2011;
(4) Notice of Trustee’s Sale dated July 12, 2011; and (5) Notice of Trustee’s Sale
dated December 13, 2011. All of these documents are properly considered by the
Court because the three prerequisites to their consideration are satisfied.
B. Application of Montana Law
Jurisdiction over this action is founded upon diversity of citizenship under
28 U.S.C. § 1332(a). Consequently, the Court applies the substantive law of
Montana, the forum state. Medical Laboratory Mgmt. Consultants v. American
Broadcasting Companies, Inc., 306 F.3d 806, 812 (9th Cir. 2002).
If an issue of state law arises and “the state’s highest court has not
adjudicated the issue, a federal court must make a reasonable determination of the
result the highest state court would reach if it were deciding the case.” Medical
Laboratory Mgmt. Consultants, 306 F.3d at 812 (citations omitted). In doing so,
the court must “look to existing state law without predicting potential changes in
that law.” Ticknor v. Choice Hotels International, Inc., 265 F.3d 931, 939 (9th Cir.
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2001) (citation omitted). The court should also rely on other persuasive
authorities including treatises and decisions from other jurisdictions, as guidance.
Strother v. Southern California Permanente Medical Group, 79 F.3d 859, 865 (9th
Cir. 1996).
C. Pro Se Pleadings
Finally, Heffner is proceeding pro se in this action. Therefore, the Court
must construe his pleadings liberally, and his allegations, “however inartfully
pleaded, must be held to less stringent standards than formal pleadings drafted by
lawyers[.]” Erickson v. Pardus, 551 U.S. 89, 94 (2007) (citation omitted). See
also Neitzke v. Williams, 490 U.S. 319, 330 n.9 (1989). In general,
a district court should grant leave to amend even if no request to amend the
pleading was made, unless it determines that the pleading could not possibly
be cured by the allegation of other facts.
Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (quoting Doe v. United States,
58 F.3d 494, 497 (9th Cir. 1995)).
III. DISCUSSION
Under Montana law, a quiet title action is authorized for the purpose of
determining a person’s rights in claiming title to real property as against others’
claims to that property. See Mont. Code Ann. § 70-28-101. To obtain a decree to
quiet title to property involving a mortgage interest, a mortgagor must establish:
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(1) that the debt has been satisfied, (2) that he has offered to pay the debt; or (3)
the debt is unenforceable as a matter of law. See Montana Valley Land Co. v.
Bestul, 253 P.2d 325, 328 (Mont. 1953).
The legal theories advanced by Heffner are predicated on the assertion that
the underlying debt is unenforceable as a matter of law. For the reasons discussed,
however, the Court concludes that Heffner’s theories as to the unenforceability of
the Note lack any legal merit.
A. Securitization of the Note
Courts have consistently rejected mortgagors’ theories asserting that the sale
and securitization of a loan invalidates the power of sale authorized in a deed of
trust. Washburn v. Bank of America, N.A., 2011 WL 7053617, *5 (D. Idaho 2011)
(citing cases). The theory that the securitization of a promissory note renders a
deed of trust unenforceable “is frivolous, [and] has no support in the law[.]”
Marty v. Wells Fargo Bank, 2011 WL 1103405, *7 (E.D. Cal. 2011) (citing cases).
Furthermore, the Deed of Trust in this case permits the Note to be sold. Therefore,
under the circumstances alleged by Heffner, the securitization of the Note does not
affect the enforceability of the Deed of Trust or the power of sale authorized in the
Deed of Trust.

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B. Split Ownership of the Note and the Deed of Trust
No cognizable legal theory of recovery supports Heffner’s allegations
asserting that the Note and the Deed of Trust are unenforceable based on this splitthe-note theory, and other courts have uniformly rejected the theory. Even if the
various transfers split the Note from the Deed of Trust in this case, it does not
follow that “no party has the power to foreclose.” Cervantes v. Countrywide
Home Loans, Inc., 656 F.3d 1034, 1044 (9th Cir. 2011). The fact that transfers of a
promissory note and an associated deed of trust result in different entities holding
those interests does not cloud title to the property and does not provide a basis on
which to quiet title in the mortgagor. See Washburn v. Bank of America, N.A.,
2011 WL 7053617, *5-6 (D. Idaho 2011) (citing cases); and Hoilien v. OneWest
Bank, FSB, 2012 WL 1379318, *6 (D. Hawaii 2012) (rejecting the “note-splitting”
theory and citing Cervantes, 656 F.3d at 1044).
C. MERS and Other Defendants’ Authority to Foreclose
Reading Heffner’s allegations liberally, his final theory rests on the
assertion that America’s appointment of MERS as its nominee and as beneficiary
in the Deed of Trust runs afoul of Montana’s Small Tract Financing Act
(“STFA”), thus rendering the Deed of Trust unenforceable by MERS directly, or

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by any successor trustee named by MERS.4 Heffner’s theory, however, is laid to
rest by the prior decisions of this Court.
In Diehl v. Northwest Trustee Services, Inc. et al., this Court held that the
STFA does not prohibit a trustee from delegating to an agent the duty to call a
foreclosure sale. Diehl v. Northwest Trustee Services, Inc. et al., 2010 WL
2178513, *1-2 (D. Mont., May 27, 2010), affirmed 2011 WL 834140, **1 (9th Cir.
March 10, 2011). The rationale underlying the holding was that the Montana
Code allows principals to delegate tasks to agents “unless a contrary intention
clearly appears.” Mont. Code Ann. § 28-10-105. And nothing in the STFA
expresses such an intention — a conclusion confirmed by the Montana Supreme
Court. See Knucklehead Land Co., Inc. v. Accutitle, Inc., 172 P.3d 116, 120-121
(Mont. 2007).
The same rationale is controlling here, as recently recognized by United
States Magistrate Judge Ostby, with respect to a lender’s appointment of MERS as

4

MERS is an electronic database operated by MERSCORP, Inc. and created to
track transfers of “beneficial interests” in home loans, and to track changes in loan
servicers. See Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034, 1038
(9th Cir. 2011). The MERS system was created to avoid the cumbersome process
of recording multiple transfers of the deed of trust with the county by designating
MERS as the nominal record holder of the deed of trust on behalf of the original
lender and any subsequent lender, thereby requiring the deed of trust to only be
recorded once. Id. at 1039.
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its nominee in a STFA deed of trust. See Joseph v. Bank of America Corp., et al.,
Cause Number CV 11-129-BLG-RFC-CSO (D. Mont. Findings and
Recommendations dated April 23, 2012). Judge Ostby concluded that in
accordance with Montana agency law, a lender may appoint MERS as its agent
“cloaked with authority to act on the lender’s behalf under the Deed of Trust.” Id.
at 33-34.
It is true, as alleged by Heffner, that the STFA does not permit MERS to be
the beneficiary in a trust indenture as the lender’s nominee. That is precisely what
Judge Ostby concluded in Joseph because MERS is not the entity to whom the
secured obligation, i.e. the Note, flows. Joseph, supra, pp. 26-28; see also Mont.
Code Ann. § 71-1-304. And I agree with Judge Ostby’s conclusion. But, I also
conclude — as did Judge Ostby in Joseph — that MERS could and did, as
America’s nominee/agent, assign the beneficial interest in the Deed of Trust to
Bank of America.
As in Joseph, the Deed of Trust here reflects that America designated
MERS as its agent and gave it full authority to act as a nominee for America and
its successors and assigns. The Deed of Trust declares that “MERS (as nominee
for Lender and Lender’s successors and assigns) has the right: to exercise any or
all of those interests, including, but not limited to, the right to foreclose and sell
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the Property; and to take any action required of Lender including, but not limited
to, releasing and cancelling this [Deed of Trust].”
MERS, in its capacity as the nominee/agent of America signed the
Substitution of Trustee on May 11, 2009, appointing Recontrust as the successor
trustee as permitted under Mont. Code Ann. § 71-1-306(2). Therefore, Recontrust
was duly appointed as the successor trustee.
The operative Notice of Trustee’s Sale dated December 13, 2011, was
issued by Recontrust in its capacity as the trustee. The Notice reflects that Heffner
was in default on the Note due to his failure to make his monthly payments
beginning on December 1, 2009, and the Notice set a trustee’s sale for April 30,
2012. The Notice was issued as authorized under Montana law at Mont. Code
Ann. §§ 71-1-313(3) and 315. Furthermore, Montana law grants the power of sale
under a deed of trust to the trustee. Mont. Code Ann. § 71-1-304(2).
Consequently, Heffner’s allegations and the documents reflect that Recontrust has
the present authority to pursue a power of sale. See Joseph, at 36.
Based on the foregoing, Heffner’s allegations that Defendants lack authority
and standing is unsupported, and his allegations establish he is not entitled to
obtain quiet title to the Residence.

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IV. CONCLUSION
For the reasons discussed above, Heffner’s allegations fail to state a viable
claim for a quiet title action. At bottom, his allegations fail to establish that the
debt he owes is unenforceable. Furthermore, under the circumstances of this case
the Court finds the defects in Heffner’s quiet title claim could not be cured by
allegations of further facts. Therefore, IT IS HEREBY ORDERED that
Defendants’ motion to dismiss is GRANTED, and this action is DISMISSED with
prejudice.
IT IS FURTHER ORDERED that Heffner’s Motion for Temporary
Restraining Order is DENIED on the basis that this action is dismissed.
DATED this 8th day of May, 2012.

/s/ Jeremiah C. Lynch
Jeremiah C. Lynch
United States Magistrate Judge

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