Webb et al v. Equifirst Corporation et al
Filing
46
MEMORANDUM OPINION. Signed by District Judge Elizabeth K. Dillon on 3/31/16. (eot)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
ROANOKE DIVISION
CALVIN EDWARD WEBB and
DIANE GROGAN WEBB,
Plaintiffs,
v.
EQUIFIRST CORPORATION, et al.,
Defendants.
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Civil Action No. 7:15-cv-00413
By: Elizabeth K. Dillon
United States District Judge
MEMORANDUM OPINION
Spouses Calvin Edward Webb and Diane Grogan Webb, proceeding pro se, filed two
substantially similar suits in state court, both seeking to stop foreclosure proceedings related to
their residence. The Webbs, who had defaulted on their mortgage obligations, challenged their
loan closing and the subsequent securitization of their loan. Both cases were removed to this
court, and the Webbs have not contested the propriety of the removal in either case.1 Upon
motion of some defendants, the court consolidated the two actions and the second, No. 7:15-cv423, was struck from the active docket of the court. (Dkt. Nos. 9, 13.)2
Pending before the court are two motions to dismiss. The first was filed jointly by two
defendants: U.S. Bank National Association, as Trustee for Structured Asset Securities
Corporation, Mortgage Pass-Through Certificates, Series 2006-EQ1 (U.S. Bank), and Mortgage
Electronic Registration Systems, Inc. (MERS). The second was filed by defendant Aurora Loan
1
The cases were removed on the grounds of both diversity jurisdiction and because the plaintiffs have
asserted claims alleging violations of federal laws, i.e., the Truth in Lending Act, 15 U.S.C. § 1601 et seq. (TILA),
and the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601 et seq. (RESPA). (Notice of Removal, No. 7:15-cv413, Dkt. No. 1; No. 7:15-cv-423, Dkt. No. 1.)
2
Unless otherwise noted, docket references are to electronic filings in the lead case, No. 7:15-cv-413.
1
Services, LLC (Aurora).3 These three defendants seek dismissal of all of the Webbs’ claims
against them. The motions have been fully briefed and are ripe for consideration. For the reasons
set forth herein, the court will grant both motions to dismiss and dismiss all claims against these
defendants.
As to the remaining defendants, the court will direct the Webbs to show cause as to why
those defendants should not be dismissed because of the Webbs’ failure to serve them timely.
I.
BACKGROUND
The facts are taken from the two complaints and documents attached to them, Zak v.
Chelsea Therapeutics Int’l, Ltd., 780 F.3d 597, 606 (4th Cir. 2015).4 The court has also
considered certain exhibits referenced in the complaint and attached to the motions to dismiss,
since those documents are “integral to and explicitly relied on in the complaint,” and there is no
challenge to their authenticity. E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d
435, 448 (4th Cir. 2011) (quoting Phillips v. LCI Int’l, Inc., 190 F.3d 609, 618 (4th Cir. 1999)).
For purposes of both motions to dismiss, the court accepts the complaint’s well-pleaded factual
allegations as true and construes them in the light most favorable to the Webbs. Coleman v. Md.
Court of Appeals, 626 F.3d 187, 189 (4th Cir. 2010). And because the Webbs are pro se litigants,
this court also construes their pleadings liberally. See, e.g., Boag v. MacDougall, 454 U.S. 364,
365 (1982) (citation omitted). The court notes, though, that “[p]rinciples requiring generous
3
Aurora contends that it was not properly served, but it waives proper service and moves for dismissal
instead. (Aurora’s Mem. Supp. Mot. Dismiss 3 n.3, Dkt. No. 26.)
4
The “complaint” in 7:15-cv-413, although titled a “Complaint for TRO, Injunction and for Declaratory
Relief” and filed as a separate action in state court, does not contain specific counts. (First Compl., Dkt. No. 8 at 29–
41.) It appears to be directed more toward supporting the Webbs’ request for preliminary injunctive relief, which was
denied by the state court. (See generally id.; Dkt. No. 8 at 27 (order of Roanoke City circuit court denying motion
for temporary restraining order).) Nonetheless, its allegations are similar (or identical) to those set forth in the
complaint originally filed in the second action removed. (No. 7:15-cv-423, Dkt. No. 1-2 at 6–68.) The court will
treat both documents as a single complaint, but will cite to the one in No. 7:15-cv-413 as the “First Complaint” and
the one in No. 7:15-cv-423 as the “Second Complaint.”
2
construction of pro se complaints are not . . . without limits.” Beaudett v. City of Hampton, 775
F.2d 1274, 1278 (4th Cir. 1985) (affirming district court’s dismissal of pro se complaint).
A.
Factual Allegations
On March 14, 2006, the Webbs executed an adjustable rate note (“the Note”), in favor of
EquiFirst Corporation, in the amount of $340,000. (Second Compl. ¶ 28, No. 7:15-cv-423, Dkt.
No. 1-2; Note at 1, Ex. A to Defs.’ Mem. Supp. Mot. Dismiss (Defs.’ Mem.), Dkt. No. 12-1.) As
part of their obligations under the Note, the Webbs agreed to repay the amount borrowed, plus
interest at a adjustable rate starting at 7.7%. The Note also contains provisions stating that the
Webbs understand that “the Lender may transfer the Note” and that “anyone who takes this Note
by transfer and who is entitled to receive payments under the Note is called the Note Holder.”
(Note at 1.)
The Note was secured by a deed of trust (“Deed of Trust”) for the property where the
Webbs resided, 3617 Laurel Ridge Road, NW, in Roanoke, Virginia (“the Property”). (Deed of
Trust, Ex. B to Defs.’ Mem., Dkt. No. 12-2.) As with any deed of trust under Virginia law, the
Deed of Trust had a “grantor” (here, the Webbs), a “grantee” (here, MERS), and a trustee (here,
Burton L. Albert). See Khair v. Countrywide Home Loans, Inc., No. 1:10-cv-410, 2010 WL
2486430, at *3 (E.D. Va. June 14, 2010) (discussing deeds of trust generally and citing Virginia
Code §§ 55-58 and 55-59). The Deed of Trust explicitly designates MERS as beneficiary and
nominee for EquiFirst, the original lender. (Deed of Trust 1–2, Dkt. No. 12-2.) The Deed of Trust
also contained a “Sale of Note” clause, which states that “[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” and explains that a sale could result “in a change in the entity (known as the ‘Loan
Servicer’) that” could collect payments due under the Note. (Deed of Trust ¶ 20, Dkt. No. 12-2 at
3
12.) The Deed of Trust and an adjustable rate rider signed by the Webbs were both recorded in
the Roanoke City Circuit Court on March 20, 2006. (Dkt. No. 12-2 at 19–20.)
According to the complaint, at some point after their closing, the Webbs’ loan went
through a securitization process, whereby it was grouped with other mortgage loans and sold to
investors as a security. The Webbs’ Note was assigned by MERS to U.S. Bank, as trustee for a
trust referred to as “Structured Assets Securities Corporation, Mortgage Pass-Through
Certificates, Series 2006-EQ1.” (Second Compl. ¶¶ 6–21; see also Defs.’ Mem. 7–8.) The
process by which any particular loan ends up being transferred to such a trust is governed by a
contract known as a Pooling and Servicing Agreement (PSA). (Second Compl. ¶ 19.) The PSA
and another contract called the Mortgage Loan Purchase Agreement (MLPA) govern the
securitization transactions. (Id.)
Although the complaint does not contain much detail on the foreclosure proceedings, the
original state court records contain a recorded document titled a “Substitution of Trustee,” dated
January 6, 2015, in which U.S. Bank, as trustee for the trust, states that it is “either the original
payee of the Promissory Note or the Promissory Note has been duly indorsed.” (No. 7:15-cv-423,
Dkt. No. 1-2 at 47.) The same document removes Albert as trustee and appoints instead
Professional Foreclosure Corporation of Virginia as substitute trustee. (Id.) The document was
executed by Wells Fargo Bank, N.A., as servicing agent to U.S. Bank, as trustee for the trust. (Id.)
Based on this document, it appears that, at the time of foreclosure, Wells Fargo Bank, N.A., was
the servicing agent for U.S. Bank as Trustee, the owner of the Note. This is also consistent with
correspondence sent from U.S. Bank to the Webbs in July 2014. (See No. 7:15-cv-413, Dkt. No.
16-1 at 41.)
4
Based on the foreclosure proceedings, and other allegations in the complaint concerning
the Webbs’ inability to make their payments, it appears that the Webbs defaulted on their Note at
some point. (E.g., Second Compl. ¶ 48 (noting the Webbs could not afford the loan); ¶ 129
(describing the Webbs as “permanently burdened” by the loan).) Certainly, they do not allege that
they have repaid their debt in full.5 The reason for the default and the details of the foreclosure
proceedings, however, are not explained in the complaint or elsewhere.
As described by the Webbs in their “introductory allegations,” they “dispute[] the title and
ownership of” the Property and allege that the originating mortgage lender and others alleging an
ownership interest in the Note and Deed of Trust, “have unlawfully sold, assigned and/or
transferred their ownership and security interest” and thus “do not have lawful ownership or a
security interest” in the Property. (Id. ¶ 14.) They seek to quiet title on this basis. (Id.)
Their remaining claims are based “upon the facts and circumstances surrounding [the
Webbs’] original loan transaction and subsequent securitization.” (Id. ¶ 15.) The Webbs describe,
as the “very basis” of their complaint, “that Defendants breached their PSA contract, and through
misrepresentation are about to foreclose on [the Property], and that because of the securitization
process Defendants and their predecessors in interest failed to properly assign [the Webbs’]
mortgage note and Deed of Trust according to state law and the PSA governing the original loan.”
(First Compl. 10.) They point to a number of specific alleged “deficiencies” in the securitization
process and posit that these “render invalid any security interest in [their] mortgage.” (Id. at 8.)
Among other things, these supposed deficiencies include the “splitting or separation of title,” a
5
In a document Mr. Webb prepared and recorded, the Webbs purported to modify their earlier deed by
simply stating that the prior Deed of Trust “erroneously set forth the amount of indebtedness secured” as $340,000
and that the Deed of Trust should be modified “to correctly reflect the amount of indebtedness secured thereby to be
zero dollars ($0.00).” (No. 7:15-cv-423, Dkt. No. 1-2 at 39–40.) That document was not signed by anyone other
than Mr. Webb and a notary. The Webbs do not cite to that document nor do they appear to rely on it. In any event,
they have not pointed to any authority that would allow debtors to unilaterally erase their debts simply by recording
such a “modification” signed only by them, and the court is unaware of any.
5
failure to properly assign the deed of trust, failures to record either the assignment or the default,
and different failures to comply with the PSA and/or MLPA. (Id.) The court discusses each of
these theories in more detail infra at Section II.B.
In addition to their challenges to the securitization process, the Webbs also allege, in
general terms, that the defendants “intentionally concealed the negative implications of the loan
they were offering” to the Webbs and now the Webbs have the “potential of losing their home to
the very entities who placed them in this position.” (Id. at 5.) They claim that the “terms of the
finance transaction with EquiFirst” were illegal and that the loan was illegal, because the terms
were not clear, conspicuous, or consistent. They also contend that the loan was underwritten
without proper due diligence. In particular, they contend that the underwriter, Lehman Brothers,
failed to verify the Webbs’ income and that they should not have qualified for the loan in the first
place.6 (Id. at 5–6.)
B.
Parties, Causes of Action, and Defendants’ Motions to Dismiss
The complaint names as defendants EquiFirst Corporation (twice), U.S. Bank, Aurora,
MERS, and “Does 1 through 100, Registration.” The Webbs allege that each of the named
defendants was a “purported participant in the imperfect securitization of the Note and/or the
Deed of Trust.” (Second Compl. ¶¶ 4-7). EquiFirst is also listed as the Lender on the note
executed by the Webbs. (Note, Dkt. No. 12-1 at 1.) The Webbs further identify U.S. Bank as the
6
In their opposition memorandum, the Webbs raise for the first time a new theory in which they claim they
“did not default on the loan because the loan was never completed. EquiFirst was not the Lender, there was no notary
present to verify signature and no lender present at the closing.” (Pls.’ Opp’n to Defs.’ Mot. Dismiss 1, Dkt. No. 16.).
The Webbs point to no authority to support their claim that a failure to have a notary present invalidates their Note or
their Deed of Trust. Cf. Davis v. Wells Fargo Bank, N.A., No. 3:13-cv-586, 2014 WL 106257, at *6 (E.D. Va. Jan. 8,
2014) (concluding that, because the Virginia Code does not require the notarization of deeds, even if a notarization
was improper, a deed cannot be voided on that ground). In any event, these additional allegations are not contained in
the complaint, except that there is a reference to EquiFirst not being the originator. (Second Compl. ¶ 75.) They also
contradict other allegations in the complaints, as well as the documents attached to the complaint itself, which
indicate both that EquiFirst was the lender, and that a notary signed the documents. Particularly in the absence of any
motion to amend the complaint, the court will not consider those allegations further.
6
“purported Trustee for the Securitized Trust,” (Second Compl. ¶ 5).7 The Webbs describe Aurora
as the “master servicer” for the securitized trust. (Id. ¶¶ 5–6). Defendant MERS is identified as
the “beneficiary under the Deed of Trust.” (Id. ¶ 7; see also Deed of Trust, Dkt. No. 12-2.) The
complaint also names as defendants “Does 1 through 100,” describing these defendants as
unknown entities who may claim “some right, title, or interest in the Property. (Id. ¶ 9.)
The complaint does not specify which claims are brought against which defendants;
instead, it names all the defendants in all of the following ten claims:
1.
2.
3.
4.
5.
6.
7.
8.
Lack of standing to foreclose;
Fraud in the concealment;
Fraud in the indictment;
Intentional infliction of emotional distress;
Quiet title;
Slander of title;
Declaratory relief;
Violations of the Truth in Lending Act, 15 U.S.C. § 1601 et seq.
(TILA);
9. Violations of the Real Estate Settlement Procedures Act, 12
U.S.C. § 2601 et seq. (RESPA); and
10. Rescission.
(Second Compl. at 1.)
The Webbs filed suit days before to a threatened foreclosure sale and sought an injunction
prohibiting the sale. The state court denied the request for injunctive relief, and the Webbs
acknowledge that the foreclosure sale has now occurred (see, e.g., Pls.’ Opp’n to Defs.’ Mot.
Dismiss 2, Dkt. No. 16). Defendants subsequently removed both cases to this court, and they
have been consolidated.
As noted, there are two motions to dismiss pending. In their motions, defendants argue
that the Webbs’ claims fail for various reasons. In the first motion, U.S. Bank and MERS assert a
7
Elsewhere in the complaint, though, the Webbs refer to U.S. Bank as the master servicer for the securitized
trust (Second Compl. ¶¶ 24–26), which is not only inconsistent with the primary allegations in the complaint
identifying it as the trustee (id. at ¶ 5), but also apparently inaccurate. (See Defs.’ Mem. 3 n.3.) In any event, U.S.
Bank’s role makes no difference to the court’s analysis.
7
number of grounds for dismissal. First, they argue that most of the Webbs’ claims are based on
challenges to the securitization process and that the Webbs do not have standing to raise those
challenges. (Defs.’ Mem. 6–8, Dkt. No. 12.) Second, they assert that there is no basis in law for
the Webbs’ argument that a “splitting” of the Note and Deed of Trust resulted in an imperfect
security interest. (Id. at 9–10.) Third, they posit that the Webbs’ complaint: (a) fails to state a
claim for quiet title (id. at 10–11); (b) fails to state any cognizable claim for fraud both because
any such claim is time-barred and because it has not been pleaded with particularity (id. at 11–
13); (c) fails to demonstrate a basis for injunctive or declaratory relief, both because the
foreclosure has already occurred and because the Webbs have not pleaded sufficient facts to
support the requests for relief (id. at 14–16); (d) erroneously suggests that foreclosure was
precluded because EquiFirst failed to record a notice of default (id. at 16–17); and (e) fails to state
any allegations in support of the claims under TILA,8 or RESPA (id. at 17).9
Aurora’s motion to dismiss echoes some of these arguments. Aurora groups together
counts 1 through 8 of the Webbs’ complaint as being “premised on the theory that the note was
not properly securitized or assigned.” (Mem. Supp. Aurora’s Mot. to Dismiss 4, Dkt. No. 26.) It
contends that all of these counts fail because the Webbs do not have standing to challenge the
PSA. Second, Aurora claims that all the counts, including the two that do not implicate the PSA,
should be dismissed for failure to comply with Rule 8. (Id. at 3–4.)
8
Defendants do not reference the Home Owners and Equity Protection Act (HOEPA), nor do the Webbs list
a violation of HOEPA as a separate count in the title of the complaint. But the Webbs refer to the statute in the eighth
cause of action, along with TILA, and elsewhere in the complaint. (Second Compl. ¶¶ 15, 124–133.) “Congress
enacted HOEPA in 1994 as an amendment to TILA [that] requires lenders to provide borrowers with additional
disclosures with respect to certain home mortgages.” Dash v. FirstPlus Home Loan Owner Tr. 1996-2, 248 F. Supp.
2d 489, 505 (M.D.N.C. 2003) (citing 15 U.S.C. § 1639(a)(1)). The court’s analysis of the Webbs’ TILA claim is
applicable to their HOEPA claim, as well.
9
In addition to these reasons, Defendant MERS also contends that it is fraudulently joined and should be
dismissed. (Defs’ Mem. 8-9.) In light of the court’s ruling that all of plaintiffs’ claims are subject to dismissal, the
court does not address this argument.
8
The Webbs have filed two memoranda in opposition to the U.S. Bank and MERS motion
to dismiss, and one in response to Aurora’s, all of which the court has considered. (Dkt. Nos. 16,
21, 34.)10
The court concludes, however, that the vast majority of defendants’ arguments are
meritorious, as discussed below. After setting forth the standards that govern the defendants’
motions to dismiss, the court will discuss first the general legal theories underlying all (or nearly
all) of the Webbs’ claims and the overwhelming authority rejecting the same types of challenges
to foreclosures based on these theories. It will then turn to a brief examination of each of the
specific counts and additional reasons why each is subject to dismissal.
II. DISCUSSION
A.
Standard for Motions Under Rule 12(b)(6)
To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a
plaintiff’s allegations must “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)).
This standard “requires the plaintiff to articulate facts, when accepted as true, that ‘show’ that the
plaintiff has stated a claim entitling him to relief, i.e., the ‘plausibility of entitlement to relief.’”
Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009) (quoting Iqbal, 556 U.S. at 678). The
plausibility standard requires more than “a sheer possibility that a defendant has acted
unlawfully.” Iqbal, 556 U.S. at 678.
B.
Legal Theories Relied Upon By Plaintiff
As to the Webbs’ claims that the securitization process had deficiencies that resulted in no
interest in their property being transferred, they rely on theories that have repeatedly been rejected
10
In their response to the motion to dismiss, the Webbs attach a number of documents, although none of
them are properly considered on a motion to dismiss and so the court does not consider them here.
9
by this court and others. The underlying theories the Webbs rely on are that: (1) securitization
itself has somehow led to the defendants’ lack of a legally enforceable interest in the Property; (2)
the defendants failed to comply with the terms of the PSA and/or the MLPA; (3) the original Note
has not been produced by any defendant and, therefore, no defendant has proved it is a holder
with authority to demand payment or to foreclose; (4) the Note and Deed of Trust were “split”
during the securitization process and thus the holder of the note does not have a perfected security
interest; and (5) foreclosure was improper as a result of failures to record either the assignments
of the Note or Deed, or the Webbs’ default. As discussed below, none of these theories are
legally sufficient to entitle the Webbs to the relief they seek.
1.
The mere fact of securitization does not extinguish the Webbs’ obligations
under their Note.
The Webbs appear to contend that interests cannot be, or were not, transferred properly
during the securitization process. (Second Compl. ¶¶ 14, 16–25; see also First Compl. 7 (“[I]f the
Defendants, and each of them, did not hold and possess the Note on or before the closing date of
the Trust herein, they are estopped and precluded from asserting any secured or unsecured claim
in this case.”).) But there is nothing inherent in securitization that alters the Webbs’ obligations
under their Note or prevents a purchaser of the Note from enforcing it. As explained by the court
in Upperman v. Deutsche Bank National Trust Co., No. 01:10-cv-149, 2010 WL 1610414, at *2
(E.D. Va. Apr. 16, 2010): “[t]here is no legal authority that the sale or pooling of investment
interest in an underlying note can relieve borrowers of their mortgage obligations or extinguish a
secured party’s rights to foreclose on secured property.” Judge Moon of this court quoted this
same language in rejecting theories similar to those asserted here. Blick v. JP Morgan Chase
Bank, N.A., No. 3:12-cv-1, 2012 WL 1030115, at *5 (W.D. Va. Mar. 27, 2012), aff’d, 474 F.
App’x 932 (4th Cir. 2012); see also McFadden v. Fannie Mae, No. 7:11-cv-335, 2012 WL 37169,
10
at *5 (W.D. Va. Jan. 9, 2012) (“[T]he Fourth Circuit has rejected the notion that the validity of a
note or deed of trust is compromised by transfer to another party.” (citing Horvath v. Bank of
N.Y., N.A., 641 F.3d 617, 619 (4th Cir. 2011)).
In their response to Aurora’s motion to dismiss, the Webbs acknowledge that Virginia law
does not “prohibit[] the securitization of the note or allow[] borrowers to escape their payment
obligations as a result of securitization.” (Pls.’ Opp’n to Aurora’s Mot. Dismiss 3, Dkt. No. 34.)
But they argue that they “should have been told at the closing that their note would be securitized
and they could [have] made the decision to accept the loan or not,” and complain that they “were
not given that choice.” (Id.) They contend that because they were not informed that their loan
would become part of a trust, there “was not a meeting of the minds.” (Id. at 2.)
As Aurora points out in its reply, however, the Deed of Trust signed by the Webbs allows
their Note to be sold to others without prior notice to them:
The Note or partial interest in the Note (together with this Security
Instrument) can be sold one or more times without prior notice to
Borrower. A sale might result in a change in the entity (known as
the “Loan Servicer”) 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.
(Deed of Trust ¶ 20, Dkt. No. 12-2 at 12.) Further, nothing about the securitization altered the
terms of the Webbs’ underlying obligations. So it is difficult to discern why any advance notice of
securitization would have caused them not to accept the loan. In any event, based on the
foregoing authority, the court concludes that the securitization here did not strip the holder of the
Webb’s Note of the right to foreclose, nor did it extinguish the Webbs’ underlying obligations.
11
2.
The Webbs do not have standing to challenge failures to comply with the PSA
or the MLPA.
As to the Webbs’ claims that there were breaches of the PSA or the MLPA, or that
transfers were not made in compliance with those agreements, defendants correctly note that the
Webbs do not have standing to challenge such breaches because they were not parties to either
agreement. This is true under both Virginia law, which governs the foreclosure of the Property,
and New York law, under which the trust here was allegedly created. Wolf v. Fed. Nat’l Mortg.
Ass’n, 512 F. App’x 336, 342 (4th Cir. 2013) (affirming district court’s ruling that mortgagor
lacked standing to challenge the propriety of the assignment of her mortgage under Virginia law);
Bell v. Clarke, No. 15-cv-1621, 2016 WL 1045959, at *2 (D. Md. Mar. 16, 2016) (collecting
authority for the proposition that, under New York law, “a person cannot sue under a contract
when that person is neither a party to nor a third-party beneficiary of the contract” and thus that
“mortgagors generally lack standing to attack transfers of their mortgages through assignments
and PSAs to which they are not parties”); Grenadier v. BWW Law Grp., No. 1:14-cv-827, 2015
WL 417839, at *4–5 (E.D. Va. Jan. 30, 2015) (holding that the mortgagor lacked standing to
challenge the validity of any assignments of her note and deed of trust, and lacked standing to
challenge any defects in the securitization process for the note); Figueroa v. Deutsche Bank Nat’l
Trust Co., No. 1:13-cv-592, 2013 U.S. Dist. LEXIS 180404, at *3–4 (E.D. Va. July 10, 2013),
aff’d, 548 F. App’x 85 (4th Cir. 2013) (holding that a borrower, who is not a party to a PSA, “has
no standing to challenge the defendants’ compliance therewith”).
The Webbs do not allege that they were parties to the MLPA that created the trust or the
PSA that governed the trust. They also do not allege that they were third-party beneficiaries, nor
could they, since the entities involved in the sale of the securitized mortgages did not engage in
12
those transactions to benefit the Webbs. For these reasons, claims based on purported violations
of those agreements will be dismissed for lack of standing.
3.
The Webbs’ “show me the note” theory has no basis in Virginia law.
The Webbs also claim that no evidence exists to prove that the owner of the original note
properly transferred or assigned it to any of the entities seeking to foreclose. According to them,
therefore, the defendants lack standing to enforce the note. This is the same type of “show me the
note” defense that other courts have rejected under Virginia law. Even if the note were actually
and permanently lost, “[c]ourts have routinely rejected [this] theory,” which “began circulating
through courts across the country in 2009.” Gallant v. Deutsche Bank Nat’l Trust Co., 766 F.
Supp. 2d 714, 720 (W.D. Va. 2011) (citing Stein v. Chase Home Fin., LLC, Civ. No. 09–1995,
2010 WL 4736828, at *3 (D. Minn. Aug. 13, 2010)).
In Virginia,
[i]f a note or other evidence of indebtedness secured by a deed of
trust is lost or for any reason cannot be produced . . . , the trustee
may nonetheless proceed to sale, provided the beneficiary has given
written notice to the person required to pay the instrument that the
instrument is unavailable and a request for sale will be made of the
trustee upon expiration of 14 days from the mailing of the notice.
Gallant, 766 F. Supp. 2d at 721 (quoting Virginia Code § 55–59.1(B)). Based on this statute, and
just like the plaintiffs’ claims in Gallant, the Webbs’ claims alleging that the defendants lack
“standing to enforce the Note” because they have been unable to produce a copy of it, are subject
to dismissal. Id.; Grenadier, 2015 WL 417839, at *5 (holding that plaintiff’s arguments based on
defendants’ alleged refusal to produce the original note before foreclosure “are not cognizable
under Virginia law”).11
11
The Webbs complain that, absent a requirement that the proper documentation be produced, it is possible
that multiple entities could seek to obtain payments on the note. But those are not the facts here. Nowhere do the
Webbs allege that multiple entities claiming the same interest have sought payments from them.
13
4.
The Webbs’ theory that the note has been “split” and is thus unenforceable, is
incorrect.
The Webbs also argue that because securitization resulted in a “splitting or separation of
title, ownership and interest in [Plaintiffs’] Note and Deed of Trust of which the original lender is
the holder,” a security interest was not properly transferred. (Second Compl. ¶ 45(a).) This court,
and other federal district courts in Virginia, have flatly rejected this theory. See, e.g., Wolf v. Fed.
Nat’l Mortgage Ass’n, 830 F. Supp. 2d 153, 162–63 (W.D. Va. 2011), aff’d, 512 F. App’x 336
(2013); Tapia v. U.S. Bank, N.A., 718 F. Supp. 2d 689, 700–01 (E.D. Va. 2010). See also Martins
v. BAC Home Loans Servicing, L.P., 722 F.3d 249, 255 (5th Cir. 2013) (rejecting the “split-thenote theory” and finding that an assignee of a deed of trust has authority to foreclose without
physical possession of the note); Horvath, 641 F.3d at 624 (explaining that transferring a note
does not “strip it from the security that gives it value” because to so hold would “render the note
largely worthless”). There is no merit to the Webbs’ theory regarding “splitting,” and thus it
cannot support their claims.
5.
The failure to record does not preclude foreclosure in Virginia.
The Webbs’ contention that the defendants either have no interest in the property, or no
ability to foreclose, because of a failure to record transfers of the Note or Deed of Trust, is not
supported by the law. Here, as in Blick,
neither the note, nor the deed of trust, nor any Virginia law cited by
[the Webbs] requires that assignments [or] transfers of such
instruments be recorded in the county land records. See Daugherty
v. Diment, 385 S.E.2d 572, 574–75 (Va. 1989) (noting that the
assignor was “not required to obtain the consent of anyone” when
the subject contract included a clause specifying free
assignability”).
2012 WL 1030115, at *6; see also Davis v. Wells Fargo Bank, No. 3:13-cv-586, 2014 WL
106257, at *2–3 (E.D. Va. Jan. 8, 2014) (rejecting a similar argument and discussing Virginia
14
Code § 55-66.01, which allows an assignee of a debt or other obligation secured by a deed of
trust, at the assignee’s option, to record the instrument of assignment, but expressly states that
“[n]othing in this statute shall imply that recordation of the instrument of assignment or a
certificate of transfer is necessary in order to transfer to an assignee the benefit of the security”).
Likewise, any assertion that foreclosure could not occur unless a default had been
recorded finds no support under Virginia law. As numerous courts have noted in this context,
Virginia operates under non-judicial foreclosure laws. That is, “[s]ections 55–59.1 through 55–
59.4 [of the Virginia Code], which set forth the procedural requirements for a non-judicial
foreclosure, do not require an interested party to prove ‘standing’ in a court of law before
initiating the foreclosure process.” Gallant, 766 F. Supp. 2d at 721 (quoting Tapia, 718 F. Supp.
2d 689, 698 (E.D. Va. 2010)). Accord Grenadier, 2015 WL 417839, at *5; Davis, 2014 WL
106257, at *2–3; Blick, 2012 WL 1030115, at *5. Accordingly, this theory cannot support any of
the Webbs’ claims either.
C.
Specific Claims
For the foregoing reasons, as well as the additional reasons set forth below, each of the
Webbs’ claims is subject to dismissal.
1. Lack of standing to foreclose (Count 1)
This “claim” is not really a separate legal claim, and it fails for all of the reasons discussed
in Section B above. That is, none of the theories the Webbs rely upon to claim that the defendants
lack standing to foreclose find any support in Virginia law. This claim will be dismissed.
2. Fraud in the Concealment and Fraud in the Inducement (Counts 2 and 3)
Counts 2 and 3 allege different species of fraud claims. In order to adequately allege a
fraud claim under Virginia law, a plaintiff must show: (1) a false representation, (2) of material
15
fact, (3) made intentionally and knowingly; (4) with intent to mislead, (5) reasonable reliance by
the party misled, and (6) resulting damages to the party misled. State Farm Mut. Auto. Ins. Co. v.
Remley, 618 S.E.2d 316, 321 (Va. 2005). Additionally, any claim alleging fraud must comply
with Rule 9(b), which requires that the circumstances constituting fraud shall be stated with
particularity. Fed. R. Civ. P. 9(b).
As an initial matter, even liberally construed, the complaint here fails to provide the
defendants with adequate notice regarding which claim is alleged against which particular
defendant. In their “fraud in the concealment” claim, the Webbs simply allege that “[d]efendants
concealed the fact that the Loans were securitized as well as the terms of the Securitization
Agreements.” (Second Compl. ¶ 70.) They further assert that they would not have entered into
the loan had “the truth” been disclosed. (Id. ¶ 71.)12 They also claim that the note and deed of
trust are fraudulent because EquiFirst was not the originator of the loan. (Id. ¶ 75.) Similarly, in
their claim for fraud in the inducement, they claim that “defendants misrepresented that they were
entitled to exercise the power of sale provision” and misrepresented that they were the “holder
and owner” of the Note and the beneficiary of the Deed of Trust.”13
12
The Webbs’ response to the motion to dismiss offers different (and more detailed) factual allegations in
support of their fraud claims, although those allegations do not appear in the complaint. For example, they claim that
they “were not informed they had an adjustable rate Mortgage.” (Pls.’ Opp’n to Defs.’ Mot. Dismiss 9, Dkt. No. 16.)
Elsewhere in their response, they claim that they were told on the good faith estimate their loan was a 7% fixed rate
and not a pre-payment arm, and that “[w]hen [they] discovered this at closing, the broker entered the room and stated
he guaranteed” them that, in two years they would be able to refinance. They were not able to refinance, however.
(Id. at 7.) As noted, these allegations do not appear in their complaint. And even if the additional allegations were
considered part of the complaint, the Webbs nonetheless fail to identify the name of the person who made such
statements or which defendant he worked for. Thus, as discussed herein, then, they fail to allege fraud with
particularity as required.
13
These allegations supporting the fraud in the inducement claim appear to be based on statements made in
connection with the foreclosure proceedings, long after their closing occurred. But the Webbs do not explain how
they relied on these alleged representations to their detriment, nor how they were “induced” to enter into any
agreement based on them. Indeed, the Webbs have fought the foreclosure proceedings. Further, although the Webbs
allege these statements were “false,” the court has rejected each of the theories offered in support of the alleged
falsity.
16
The Webbs have failed to allege their claims for fraud with particularity as to each
defendant. See, e.g., Dealers Supply Co. v. Cheil Indus., Inc., 348 F. Supp. 2d 579, 590
(M.D.N.C. 2004) (“Courts have been quick to reject pleadings in which multiple defendants are
lumped together and in which no defendant can determine from the complaint which of the
alleged representations it is specifically charged with having made . . . .”) (internal quotation
marks and citations omitted). See also Taylor v. Wells Fargo Bank, N.A., 85 F. Supp. 3d 63, 72–73
(D.D.C. 2015) (rejecting similar fraud claims where plaintiff failed to allege “which defendants
made the misrepresentations”).
The Webbs’ complaint also fails to satisfy the heightened requirements set forth in Rule
9(b), and thus is subject to dismissal on this ground. See Harrison v. Westinghouse Savannah
River Co., 176 F.3d 776, 783 n.5 (4th Cir. 1999) (“[L]ack of compliance with Rule 9(b)’s
pleading requirements is treated as a failure to state a claim under Rule 12(b)(6).”). For example,
the complaint does not allege who made any fraudulent statement, on behalf of which defendant,
or when and where any such statement was made. Id. at 784 (explaining that Rule 9(b)’s
heightened pleading standard requires a plaintiff to state with particularity “the time, place, and
contents of the false representations, as well as the identity of the person making the
misrepresentation and what he obtained thereby”) (citations omitted). The claims containing a
fraud element, therefore, are subject to dismissal on this basis.14
14
There are likely additional reasons why the fraud claims fail, including that they are barred by the
applicable two-year statute of limitations. (See Defs.’ Mem. 11.) In light of the court’s dismissal of these counts, it is
not necessary to determine whether this affirmative defense is clear on the face of the complaint. See Goodman v.
Praxair, Inc., 494 F.3d 458, 464 (4th Cir. 2007) (en banc) (noting that unless “all facts necessary to the affirmative
defense ‘clearly appear[] on the face of the complaint,’” a court cannot reach the merits of an affirmative defense on a
Rule 12(b)(6) motion because such a defense does not affect the legal sufficiency of a plaintiff’s complaint)
(alteration in original) (citations omitted).
17
3. Intentional Infliction of Emotional Distress (Count 4)
To prevail on their intentional infliction of emotional distress claim, the Webbs must
prove, by clear and convincing evidence, that: (1) “the wrongdoer’s conduct is intentional or
reckless,” (2) “the conduct is outrageous and intolerable,” (3) “the alleged wrongful conduct and
emotional distress are causally connected,” and (4) “the distress is severe.” Fuller v. Aliff, 990 F.
Supp. 2d 576, 580 (E.D. Va. 2013) (citing Russo v. White, 400 S.E.2d 160, 162 (Va. 1991)).
Furthermore, intentional infliction of emotional distress claims are not favored under Virginia law.
Barrett, 240 F.3d at 268.
The allegations by the Webbs here are insufficient to allege a plausible claim for
intentional infliction of emotional distress. First, although they allege that defendants’ actions
caused them severe emotional distress, they refer only to “lack of sleep, anxiety, and depression.”
(Compl. ¶ 95.) These allegations do not allege a plausibility that they can satisfy the injury
portion of this tort, which requires them to prove emotional injury “so severe that no reasonable
person could be expected to endure it.” Russo, 400 S.E.2d at 163; Denny v. Elizabeth Arden
Salons, Inc., 456 F.3d 427, 436 (4th Cir. 2006) (same).
Second, given that the Webbs’ theories challenging defendants’ ability to foreclose are not
valid, the conduct that they are alleging is essentially that a defendant is foreclosing on their
property. While undergoing foreclosure on one’s residence is understandably upsetting,
foreclosure is a legal remedy available to the lender under the law and under the terms of the
documents the Webbs signed. It is not, therefore, the type of “severe and outrageous” conduct
that would support an emotional distress claim. Fuller, 990 F. Supp. 2d at 580 (noting that, in
emotional distress cases, liability “has been found only where the conduct has been so outrageous
in character, and so outrageous in degree, as to go beyond all possible bounds of decency, and to
18
be regarded as atrocious, and utterly intolerable in a civilized community.”) (quoting Russo, 400
S.E. 2d at 162); Crittendon v. Arai Americas, Inc., No. 2:13-cv-567, 2014 WL 31490, at *6 (E.D.
Va. Jan. 3, 2014) (dismissing intentional infliction of emotional distress claim and noting that the
second prong, requiring outrageous and intolerable conduct, “is seldom met by plaintiffs under
Virginia law”). Other courts have dismissed intentional infliction of emotional distress claims in
this context. See, e.g., Grenadier, 2015 WL 417839, at *10–11 (rejecting emotional distress
claims based on similar allegations); Taylor, 85 F. Supp. 3d at 73–74 (collecting authority
rejecting intentional infliction claims in same context).
For these reasons, Count 4 is subject to dismissal.
4. “Quiet Title,” “Slander of Title,” and “Declaratory Relief” claims (Counts 5, 6,
and 7)
Like Count 1, the three claims in Counts 5, 6, and 7 all depend on the viability of one or
more of the theories that the court has already explained do not entitle the Webbs to relief.
Further, to the extent that the Webbs are seeking to quiet title to the property, their claim fails for
another important reason: they do not allege that they have fully satisfied their obligations under
the note, or that their debt was otherwise cancelled or forgiven. Instead, they appear to allege that
they were not capable of paying the loan, and that this was true at the time they applied for it.
(Compl. ¶ 48 (claiming that EquiFirst “qualified [plaintiffs] for a loan which EquiFirst knew or
should have known [they] could not qualify for or afford.”).)
As several other judges of this court have held, the failure of a plaintiff in a quiet title
action to allege that he has rights superior to others asserting an interest in the property requires
the claim’s dismissal. See, e.g., Blick, 2012 WL 1030115, at *4; Townsend v. Fed. Nat’l Mortg.
Ass’n, 923 F. Supp. 2d 828, 842 (W.D. Va. 2013); Gallant, 766 F. Supp. 2d at 719. See also
Tapia, 718 F. Supp. 2d at 700 (dismissing quiet title claim where plaintiffs had not alleged that
19
they had fully satisfied their obligations under the note, or that their debt was otherwise cancelled
or forgiven).
Like the plaintiffs in Gallant, the Webbs assert a right to quiet title in “a wholly conclusory
fashion.” See 766 F. Supp. 2d at 719. They have pleaded no facts that demonstrate that they have
a superior title to the property at issue. Indeed, plaintiffs do not contend that they do not owe a
debt to someone; they simply argue that they want “to make sure they were paying the correct
owner of their loan.” (Pl.’s Second Opp’n to Defs.’ Mot. Dismiss 16, Dkt. No. 21.) They do not
assert that they have satisfied the obligations that they admit to having, and they therefore fail to
allege a superior interest in the property. Accordingly, the Webbs have failed to make allegations
that would allow them to go forward with their quiet title claim.
The court will dismiss these three counts.
5. Violations of TILA, HOEPA, and RESPA (Counts 8 and 9)
The Webbs’ allegations in support of their claims under TILA, HOEPA , and RESPA are
likewise insufficient to state a claim for relief. The Webbs do not identify with any specificity at
all what specific provision of these statutes were violated. And critically, they fail to point to a
particular defendant who allegedly violated these statutes. The most specific of their allegations
are that they were not provided a mortgage loan origination agreement and that none of the
defendants “explained the workings of the mortgage loan transaction, how the rates, finance
charges, costs and fees were computed [or] the inherent volatility of the loan product provided by
[d]efendants.” (Second Compl. ¶¶ 48–49.) They claim that the defendants violated TILA, for
example, because defendants failed to provide them with “accurate material disclosures,”
including “fully inform[ing] home buyers of the pros and cons of adjustable rate mortgages in a
language . . . that they can understand and comprehend and to advise them to compare a similar
20
loan products with other lenders.” (Pls.’ Opp’n to Defs.’ Mot. Dismiss 9; see also Second Compl.
¶ 126.)
Given the lack of factual allegations against any particular defendant with regard to these
claims, they, too, will be dismissed.
6. Rescission (Count 10)
The Webbs also seek the remedy of rescission—perhaps under TILA, although it is
unclear from their complaint. To the extent they are seeking rescission under TILA, such claims
are subject to a three-year limitations period, at best.15 Here, the closing occurred in 2006, and the
lawsuits were not filed until 2015. Although it is not required that the plaintiffs have actually
filed a lawsuit seeking rescission within the three-year time frame, the borrower must notify his
lender that she is exercising her right of rescission within that three-year period. Gilbert v.
Residential Funding LLC, 678 F.3d 271, 277 (4th Cir. 2012). Critically, the Webbs do not allege
that, at any point in 2009 or earlier, they sought the remedy of rescission from their lender—or
from anyone, for that matter. Thus, it appears plain on the face of the complaint that any claim for
rescission under TILA is time-barred.
Further, whether under TILA or otherwise, the “remedy of unconditional rescission [is]
inappropriate” where the plaintiff is “unable to tender the loan proceeds.” Am. Mortg. Network,
Inc. v. Shelton, 486 F.3d 815, 821 (4th Cir. 2007); Haas v. Falmouth Fin., LLC, 783 F. Supp. 2d
801, 806 (E.D. Va. 2011) (noting that “[d]istrict courts in the Fourth Circuit following Shelton
have routinely dismissed plaintiffs’ rescission claims, both at the Rule 12(b)(6) stage and at
summary judgment, where plaintiffs fail to allege or demonstrate they would be able to meet their
tender obligation if rescission were ordered”). Here, the Webbs have not offered to tender back
15
The three-year limitations period applies only if the lender fails to make certain disclosures. See
generally 15 U.S.C. § 1635(f).
21
the full amount of their remaining loan obligation, nor have they included any allegations in their
complaint suggesting that they have the ability to meet that tender obligation. Thus, their
rescission claim fails for this additional reason. Cf. Moore v. Wells Fargo Bank, N.A., 597 F.
Supp. 2d 612, 617 (E.D. Va. 2009) (denying a motion to dismiss a claim for rescission where the
plaintiff alleged that she would tender the loan proceeds and where she requested “reasonable
time to make” the tender).
* * *
For the foregoing reasons, all of the Webbs’ claims against U.S. Bank, MERS, and Aurora
will be dismissed.
D.
Claims Against the Unserved Defendants
There is no evidence in the record that the Webbs have served any of the remaining
defendants (EquiFirst and Does 1-100), and the time for doing so has passed.16 Pursuant to the
version of Rule 4(m) of the Federal Rules of Civil Procedure in effect when this case was
removed, the court must dismiss the action without prejudice against any defendant that is not
served within 120 days after the complaint is filed, or order that service be made within a
specified time. Fed. R. Civ. P. 4(m). The rule requires the court to extend the period for service if
the Webbs show good cause for their failure. See id. Likewise, the court has discretion under
Rule 6(b) to grant an extension of time for service, if the Webbs could show excusable neglect.
See Fed. R. Cir. P. 6(b).
In light of this background, the court will direct the Webbs to file a statement within thirty
days setting forth any facts they believe show either good cause or excusable neglect for their
failure to timely serve these defendants. The court points out, though, that they cannot rely on
16
According to the notice of removal, EquiFirst went out of business in 2009. (Dkt. No. 1, ¶ 12.)
22
their pro se status to establish either. See Hansan v. Fairfax Cty. Sch. Bd., 405 F. App’x 793, 794
(4th Cir. 2010) (“[p]ro se status . . . is insufficient to establish good cause, even where the pro se
plaintiff mistakenly believes that service was made properly.”); id. (quoting McNeil v. United
States, 508 U.S. 106, 113 (1993) (“[W]e have never suggested that procedural rules in ordinary
litigation should be interpreted so as to excuse mistakes by those who proceed without
counsel.”)); Tann v. Fisher, 276 F.R.D. 190, 193 (D. Md. 2011), aff’d, 458 F. App’x 268 (4th
Cir.) (collecting authority).
III.
CONCLUSION
For the foregoing reasons, the court will grant the defendants’ motions to dismiss (Dkt.
Nos. 11, 25) and will dismiss all claims against MERS, U.S. Bank, and Aurora, each party to bear
its own costs. The court will also allow the Webbs thirty days to provide a written explanation, if
any, as to why the remaining defendants should not be dismissed without prejudice for lack of
service. A separate order will be entered.
Entered: March 31, 2016.
/s/ Elizabeth K. Dillon
Elizabeth K. Dillon
United States District Judge
23
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