TOBIAS et al v. NATIONSTAR MORTGAGE, LLC et al
Filing
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MEMORANDUM OPINION AND ORDER signed by JUDGE N. C. TILLEY, JR on 1/2/2018, for the reasons explained herein, that Defendants' Partial Motion to Dismiss Complaint [Doc. # 9 ] is GRANTED and that the third and fourth claims are DISMISSED. (Butler, Carol)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
RICHARD TOBIAS and SHARON B.
TOBIAS,
Plaintiffs,
v.
NATIONSTAR MORTGAGE, LLC;
U.S. BANK AS TRUSTEE FOR
SPECIALTY UNDERWRITING AND
RESIDENTIAL FINANCE TRUST
SERIES 2006-BC5; MORTGAGE
ELECTRONIC REGISTRATION
SYSTEMS, INC.; and DOES 1-10,
inclusive,
Defendants.
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1:17CV486
MEMORANDUM OPINION AND ORDER
This matter is before the Court on a Partial Motion to Dismiss Complaint
[Doc. #9] by Defendants Nationstar Mortgage LLC (“Nationstar”), U.S. Bank, as
Trustee for Specialty Underwriting and Residential Finance Trust Series 2006-BC5
(“U.S. Bank”), and Mortgage Electronic Registration Systems, Inc. (“MERS”)
(collectively “Defendants”). For the reasons explained below, Defendants’ Motion
is granted and claims three and four are dismissed.
I.
Plaintiffs Richard and Sharon Tobias obtained a mortgage loan for their
residence at 493 Liberty Hill Church Road in Mount Gilead, North Carolina
(“Subject Property”) on or about September 7, 2006, from Wilmington Finance,
Inc. memorialized by a Deed of Trust. (Compl. ¶¶ 1, 12 [Doc. #5]; Ex. A to Compl.
[Doc. #5-1].) The Deed of Trust was recorded in Montgomery County Recorder’s
Office. (Compl. ¶ 12.) In September 2012, the Tobiases entered into a loan
modification agreement with Bank of America. (Id. ¶ 14; Ex. D1 to Compl. [Doc.
#5-4].) The following year, on September 3, 2013, an Assignment of the Deed of
Trust (“Assignment”) was recorded in the Montgomery County Recorder’s Office
which “purports to convey the beneficial interest in the Deed of Trust from
Wilmington Finance, Inc. to Nationstar Mortgage, LLC.” (Id. ¶ 15; Ex. C2 to Compl.
[Doc. #5-3].) According to the Tobiases, “the Assignment is fraudulent and/or
forged as a ‘Robo-Signed’ document that is a fraudulent/forged documents it is
void ab initio [sic].” (Compl ¶ 15.) The Tobiases also allege that the Assignment is
void ab initio “because it was transferred after its closing date of November 28,
2006” which they describe as being a part of a “securitized trust prospectus”. (Id.
¶ 33.)
The Complaint then describes a series of communications between Non
Profit Alliance of Consumer Advocates (“Non Profit Alliance”) and Nationstar
between December 3, 2015, and April 15, 2016, during which time Non Profit
Alliance assisted the Tobiases with a loan modification application to Nationstar.
(Id. ¶¶ 16-20.) Ultimately, Nationstar “closed out” the loan modification
application “due to the expired time to submit documents” and Non Profit
1
The Complaint cites Exhibit C as the Loan Modification Agreement, (see Compl.
¶ 14), but Exhibit C is the Assignment of Deed of Trust.
2
The Complaint cites Exhibit D as the Assignment of the Deed of Trust, (see
Compl. ¶ 15), but Exhibit D is a Loan Modification Agreement.
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Alliance’s failure to submit “the lease agreements and rental receipts.” (Id. ¶¶ 19,
20.)
II.
The Tobiases have sued Nationstar and U.S. Bank alleging violations of
12 C.F.R. § 1024 (Claim 1) and 12 C.F.R. § 1024.41 (Claim 2) related to their
loan modification application and have sued all Defendants seeking cancellation of
written instruments (Claim 3) and alleging unfair and deceptive trade practices
(Claim 4) related to the Assignment. Pursuant to Rule 12(b)(6) of the Federal
Rules of Civil Procedure, Defendants have moved to dismiss Claims 3 and 4 for
lack of standing and, in the alternative for Claim 4, because the North Carolina
Debt Collections Act serves as the exclusive remedy for debt collection actions
alleging unfair and deceptive practices.
To survive a Rule 12(b)(6) motion, the complaint “must contain sufficient
factual matter, accepted as true, to ‘state a claim to relief that is plausible on its
face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). “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. (citing
Twombly, 550 U.S. at 556); see also McCleary-Evans v. Md. Dep’t of Transp.,
State Highway Admin., 780 F.3d 582, 585 (4th Cir. 2015) (noting that a
complaint must “contain[] sufficient factual matter, accepted as true, to state a
claim to relief that is plausible on its face in the sense that the complaint’s factual
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allegations must allow a court to draw the reasonable inference that the defendant
is liable for the misconduct alleged”). When evaluating whether the complaint
states a claim that is plausible on its face, the facts are construed in the light most
favorable to the plaintiff and all reasonable inferences are drawn in its favor. U.S.
ex rel. Oberg v. Pa. Higher Educ. Assistance Agency, 745 F.3d 131, 136 (4th Cir.
2014). Nevertheless, “labels and conclusions[,]” “a formulaic recitation of the
elements of a cause of action[,]” and “naked assertions . . . without some further
factual enhancement” are insufficient. Twombly, 550 U.S. at 557.
A.
In their third claim seeking cancellation of written instruments, the Tobiases
challenge the Assignment and presumably a pooling and servicing agreement
(“PSA”) they refer to as a “securitized trust prospectus”. (Compl. ¶¶ 15, 33 (“the
Assignment . . . is void ab initio because it was transferred after its closing date . .
. [and] PLAINTIFFS do not yet have possession of a copy of this securitized trust
prospectus”).) They have “a reasonable apprehension that if these void ab initio
written instruments are left outstanding, they may cause serious injury due to
those documents being void or voidable” and “seek to cancel the . . . written
instruments . . . due to their being fraudulently forged, notarized, and criminally
recorded”. (Id. ¶¶ 35, 36.) In response, Defendants argue that the Assignment is
between Bank of America, N.A.3 and Nationstar, not the Tobiases. (Mem. of Law
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While the Complaint alleges that the Assignment was by Wilmington Finance,
Inc., (see Compl. ¶ 15), the Assignment attached as Exhibit C to the Complaint
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in Supp. of Defs.’ Partial Mot. to Dismiss Compl. at 4-5 [Doc. #11].) The Tobiases
neither allege to have been parties to the Assignment nor that the Assignment
altered their rights or obligations under the Deed of Trust; therefore, according to
Defendants, they lack standing to challenge the Assignment’s validity. (Id.)
Furthermore, the Tobiases have not alleged that they were a party to any PSA and,
therefore, according to Defendants, similarly lack standing “to assert a violation of
the securitized trust’s pooling and servicing agreement.” (Id. at 5 (referring to the
allegation of a “securitized trust” in paragraph 33 of the Complaint).)
The Court agrees with Defendants that the Tobiases lack standing to
challenge the Assignment and the PSA. “[S]tanding in federal court is a question
of federal law”. Hollingsworth v. Perry, ____ U.S. ____, 133 S. Ct. 2652, 2667
(2013). The United States Supreme Court has taught that “the irreducible
constitutional minimum of standing contains three elements” – (1) an injury in fact,
(2) a causal connection between the injury and the defendant’s conduct, and (3)
the likelihood that a favorable decision will redress the injury. Lujan v. Defenders of
Wildlife, 504 U.S. 555, 560-61 (1992). “[W]here state-created interests are at
issue, . . . federal courts look to state law to aid in the definition of the ‘injury’ a
plaintiff may assert to meet Article III requirements.” Higdon v. Lincoln Nat’l Ins.
Co., No. ELH-13-2152, 2014 WL 6951290, at *7 (D. Md. Dec. 8, 2014) (applying
shows Wilmington Finance, Inc. as the “Original Lender”, but the “Assignor” to be
Bank of America, N.A., from whom the Tobiases received a loan modification in
September 2012.
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Maryland law in analysis of standing because “Maryland law creates and defines
the . . . asserted contract right”); see also Wolf v. Fed. Nat’l Mortg. Ass’n, 512 F.
App’x 336, 342 (4th Cir. 2013) (unpublished) (applying Virginia law to determine
standing to challenge an assignment of a promissory note); Gen. Tech.
Applications, Inc. v. Exro Ltda, 388 F.3d 114, 118 (4th Cir. 2004) (“A litigant
bringing a diversity action (or seeking removal on that basis) can have no greater
ability to assert legal rights created under state law than it would have in the state
forum.”).
Under North Carolina law, only a party to a contract or an intended thirdparty beneficiary of the contract may bring a claim under the contract. Tasz, Inc. v.
Indus. Thermo Polymers, Ltd., 80 F. Supp. 3d 671, 681 (W.D.N.C. 2015) (citing
Vogel v. Reed Supply Co., 177 S.E.2d 273, 279 (N.C. 1970)); Holshouser v.
Shaner Hotel Grp. Props. One Ltd. P’ship, 518 S.E.2d 17, 24-25 (N.C. Ct. App.
1999). The Tobiases have not alleged that they were parties to or intended thirdparty beneficiaries of the Assignment or PSA, nor does the language of the
Assignment suggest they were.
“Hence the only circumstances under which [the Tobiases] would have
standing to challenge [the] [A]ssignment[] would be upon a showing of prejudice,
i.e. that [they] face[] the potential for double liability if the [A]ssignment stands.”
In re Sprouse, Bankr. No. 09-31054, 2014 WL 948490, at *2 (Bankr. W.D.N.C.
Mar. 11, 2014). There are no allegations that the Assignment or the PSA
subjected the Tobiases to double liability or similar prejudice. The allegations that
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Nationstar closed out their loan modification application do not plausibly allege
prejudice relating to the Assignment or the PSA. (See Compl. ¶¶ 16-20.)
Furthermore, the allegations (in support of their fourth claim for unfair and
deceptive trade practices) that the marketability of the Subject Property has been
harmed by a cloud on title are conclusory and unsupported by any other allegations
in the Complaint. (See id. ¶ 41.)
Courts facing similar challenges by debtors, although often after a
foreclosure, have consistently found the debtors lack standing. See, e.g., Davis v.
BSI Fin. Servs., Inc., 633 F. App’x 837, 838 (4th Cir. Feb. 29, 2016)
(unpublished) (affirming plaintiff’s lack of standing to challenge the purportedly
“robo-signed” note because, “[r]egardless of the truth of this assertion, Davis was
not a party to the assignment and fails to demonstrate either that he has standing
to challenge the assignment or that robo-signing renders the assignment void”);
Wolf, 512 F. App’x at 342 (affirming plaintiff’s lack of standing to challenge the
validity of the assignment because she did “not allege that she is a party to the
assignment . . . or that she is an intended beneficiary of the assignment” and
explaining further that “the assignment does not affect Wolf’s rights or duties at all
[because she] still has the obligation under the note to make payments[;] [i]n fact,
the only thing the assignment affects is to whom Wolf makes the payments”);
Grenadier v. BWW Law Grp., No. 1:14CV827, 2015 WL 417839, at *4-5 (E.D.
Va. Jan. 30, 2105) (finding that the plaintiff lacked standing to challenge the
validity of the assignments and the securitization process because she did not
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allege any facts showing that she was a party or intended third-party beneficiary of
any of the assignments); In re Sprouse, 2014 WL 948490, at *2 (describing
“ample authority” in support of the finding that the plaintiff, a stranger to the
assignments who failed to allege or show exposure to double liability, lacked
standing to challenge the assignments as void); McGee v. Countrywide Bank FSB,
No. 1:12CV772, 2013 WL 942394, at *3 (M.D.N.C. Mar. 11, 2013), adopted,
(Apr. 25, 2013) (“[A] judicial consensus has developed holding that a borrower
lacks standing to (1) challenge the validity of a mortgage securitization or (2)
request a judicial determination that a loan assignment is invalid due to
noncompliance with a [PSA], when the borrower is neither a party to nor a third
party beneficiary of the [PSA]) (quoting In re Walker, 466 B.R. 271, 285 (Bankr.
E.D. Pa. 2012)); Ward v. Sec. Atl. Mortg. Elec. Registration Sys., Inc., 858 F.
Supp. 2d 561, 568 (E.D.N.C. 2012) (finding that the plaintiffs lacked standing to
challenge the validity of any assignment because they alleged neither a concrete
and particularized injury fairly traceable to the challenged assignment nor that they
were parties to or intended beneficiaries of the assignments). Here, the Tobiases
neither allege that they were parties to or intended beneficiaries of the Assignment
or the PSA nor allege prejudice such as double liability arising from the
instruments. Therefore, they lack standing to bring their third claim seeking
cancellation of written instruments.
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B.
Defendants next move to dismiss the Tobiases’ fourth claim alleging
violation of North Carolina’s Unfair and Deceptive Trade Practices Act (“UDTPA”).
The Tobiases have alleged that “Defendants’ use of a void assignment of the Deed
of Trust in the mortgage loan process is an unfair or deceptive act or practice” and
“placed an unfair and deceptive cloud on title to the Subject Property that harms
its marketability and PLAINTIFFS’ ability to sell it”. (Compl. ¶¶ 39, 41.) In
response, Defendants argue that, because the Tobiases lack standing to challenge
the Assignment, they cannot maintain a claim for unfair and deceptive trade
practices based on the Assignment. (Mem. of Law in Supp. of Defs.’ Partial Mot.
to Dismiss Compl. at 6.) They also argue that the claim fails because the North
Carolina Debt Collections Act is the exclusive remedy for allegedly unfair debt
collection practices. (Id.) The Court agrees that the Complaint fails to state a claim
for unfair and deceptive trade practices, but for reasons other than those advanced
by Defendants.
Although the Tobiases base their UDTPA claim on “a void assignment” and
“a void instrument” as Defendants note, they also allege that the purported void
instrument creates a cloud on the title of the Subject Property, a claim for which
they do have standing to bring. Cf. Smallwood v. Irwin Mortg. Co., No. 5:12-CV47-BO, 2013 WL 4735877, at *5 (E.D.N.C. Sept, 3, 2013) (involving a plaintiff’s
quiet title action and recognizing that a plaintiff who acknowledges a deed of trust
can succeed on a quiet title action only if she establishes that the deed is void).
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However, although the Tobiases have standing, they have not sufficiently alleged
facts that plausibly state a claim.
Defendants correctly note that Article 2 of Chapter 75 of the North Carolina
General Statutes, entitled “Prohibited Acts by Debt Collectors”, is the exclusive
remedy under North Carolina law for unfair debt collection practices. See N.C. Gen.
Stat. § 75-56(a) (“The specific and general provisions of this Article shall
exclusively constitute the unfair or deceptive acts or practices proscribed by G.S.
75-1.1 in the area of commerce regulated by this Article.”) However, as the
Tobiases explain, they are not challenging Defendants’ practice of collecting debt.
As a result, they are not limited to recovery under Article 2 of Chapter 75 and may
allege a claim under the UDTPA.
The elements of a claim for a violation of North Carolina’s UDTPA are (1) an
unfair or deceptive trade practice (2) in or affecting commerce (3) which
proximately caused actual injury to the plaintiff. Dalton v. Camp, 548 S.E.2d 704,
711 (N.C. 2001). Most clearly the Tobiases have not sufficiently alleged actual
injury proximately caused by Defendants’ conduct. They have not challenged –
and in fact affirmatively allege – that they obtained a mortgage loan from
Wilmington Finance, Inc. memorialized by a Deed of Trust recorded in the
Montgomery County Recorder’s Office, a copy of which is attached to the
Complaint as Exhibit A and the validity of which is not challenged. (See Compl.
¶ 12.)
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According to the terms of the Deed of Trust, “[t]he Note or a partial interest
in the Note (together with this Security Instrument) can be sold one or more times
without prior notice to Borrower” which “might result in a change in 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.” (Ex. A to Compl. ¶ 20.) In other words,
the terms of the Deed of Trust, to which the Tobiases agreed by way of their
signatures on the Deed of Trust, show that it can be assigned. The terms of the
Assignment reflect that is, indeed, what happened. It reads, in relevant part, “For
Value Received, the undersigned holder of a Deed of Trust . . . does hereby grant,
sell, assign, transfer and convey unto NATIONSTAR MORTGAGE, LLC . . . all
beneficial interest under that certain Deed of Trust described below together with
the note(s) and obligations therein described and the money due and to become
due thereon with interest and all rights accrued or to accrue under said Deed of
Trust.” (Ex. C to Compl.) Although the Tobiases allege that the Subject Property’s
marketability and their ability to sell it are harmed (Compl. ¶ 41), these allegations
are conclusory and unsupported by any other factual allegations.
Even if the Tobiases had sufficiently alleged an actual injury, they have not
alleged conduct that is unfair or deceptive. “A practice is unfair if it is unethical or
unscrupulous, and it is deceptive if it has a tendency to deceive.” Dalton, 548
S.E.2d at 711. As just explained, the terms of the Deed of Trust – the validity of
which is not challenged – permit Wilmington Finance, Inc. to sell the Note and the
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Deed of Trust. In turn, the Assignment – filed on September 3, 2013, in
Montgomery County – acknowledges that the beneficial interest under the Deed of
Trust was sold and assigned to Nationstar. Aside from the conclusory allegations
that the Assignment is void ab initio, a claim the Tobiases have no standing to
pursue, there are no factual allegations of unfair or deceptive conduct on the part
of Defendants. See Smallwood, 2013 WL 4735877, at *4 (dismissing UDTPA
claim where the plaintiff, challenging her mortgage, failed to plead any
“outrageously immoral or oppressive” conduct by the defendants); Joy v.
MERSCORP, Inc., 935 F. Supp. 2d 848, 863-64 (E.D.N.C. (2013) (dismissing
UDTPA claim because “allegations that loan documents and assignments in
support of the third foreclosure were invalid, unauthorized or otherwise defective”
were “not sufficient to establish the egregious or aggravation [sic] circumstances
that must be alleged”) (internal quotations omitted). Accordingly, the fourth claim
alleging a violation of the UDTPA is dismissed.
III.
For the reasons explained herein, IT IS HEREBY ORDERED that Defendants’
Partial Motion to Dismiss Complaint [Doc. #9] is GRANTED and that the third and
fourth claims are DISMISSED.
This the 2nd day of January, 2018.
/s/ N. Carlton Tilley, Jr.
Senior United States District Judge
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