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Bayer v. Nationstar Mortgage LLC

United States District Court, D. Arizona

March 27, 2017

Peter A Bayer and Renee L Bayer, Plaintiffs,
Nationstar Mortgage LLC and Aurora Loan Services LLC, Defendants.


          David G. Campbell United States District Judge

         Defendants Nationstar Mortgage LLC and Aurora Loan Services, LLC move for summary judgment and have filed a statement of facts in support of that motion. Docs. 32, 33. Plaintiffs Peter and Renee Bayer, who are represented by counsel, have responded (Doc. 34) and filed an “Objection[] to Defendants' Evidence Submitted In Support of Summary Judgment” (Doc. 35). Plaintiffs' “Objection” contains both an opposing statement of facts and a 14-page memorandum outlining specific and general objections to Defendants' declaration of Fay Janati. Id. Defendants have replied and moved to strike the 14-page memorandum pursuant to LR Civ. 7.2(m)(2). Doc. 40. Neither party has requested oral argument. Defendants' motion will be granted in part and denied in part.

         I. Background.

         On October 25, 2006, Plaintiffs signed a Deed of Trust securing a Promissory Note in the amount of $269, 000 from GN Mortgage LLC (“GNM”). Doc. 33, ¶¶ 1, 2. The Deed was recorded on November 2, 2006 on property owned by Plaintiffs at 10685 East Valley View Drive in Gold Canyon Arizona. Doc. 1-1 ¶¶ 1, 12-14. The Note, as submitted by Defendants, bears several endorsements. Doc. 33, ¶ 3; Doc. 32-1 at 25 (Exhibit B to the motion). Plaintiffs object to the authenticity and admission of Defendants' Exhibit B. Doc. 35, ¶ 3.

         Defendants assert that Federal National Mortgage Association (“Fannie Mae”) owns the debt the Note represents. Doc. 33, ¶ 6. Nationstar is a loan servicer for Fannie Mae, and “currently possesses the original Note endorsed in blank.” Id., ¶¶ 4-5. Plaintiffs dispute these facts, and assert that “no admissible evidence demonstrates that Fannie Mae ‘owns' the debt that the Note represents” or “reflects a servicing arrangement between Nationstar and Fannie Mae.” Doc. 35, ¶¶ 5-6.

         The named beneficiary on the Deed of Trust is Mortgage Electronic Registration Systems Inc. (“MERS”), “acting solely as a nominee for Lender and Lender's successors and assigns.” Doc. 33, ¶ 8. The Deed of Trust provides:

Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, 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 the Property, and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument.

Id., ¶ 9.

         On December 6, 2010, MERS assigned its beneficial interest under the Deed of Trust, including “the full benefit of all powers” contained therein, to Aurora Loan Services LLC, effective as of November 15, 2010. Id., ¶ 10. On June 26, 2012, Aurora assigned “all its right, title and interest In [sic] and to said Deed of Trust” to Nationstar, effective as of July 1, 2012. Doc. 32-1 at 47; Doc. 33, ¶ 11. In June 2015, Nationstar executed a Substitution of Trustee, appointing David W. Cowles as Successor Trustee under the Deed of Trust. Doc. 33, ¶ 12. On June 19, 2015, Mr. Cowles recorded a Notice of Trustee's Sale, setting the property to be sold at public auction on September 25, 2015. Id., ¶ 13; Doc. 32-1 at 52 (Exhibit G - Notice of Trustee's Sale). A “Notice of Statement of Breach or Non-Performance” is attached to the Notice of Trustee's Sale, and states that Plaintiffs breached the Note and Deed of Trust for “failure to make monthly payments of $1, 160.87 each, from 8/01/13 and all subsequent installments.” Doc. 33, ¶ 14; Doc. 32-1 at 54.

         Plaintiffs do not deny that these events - the assignments, substitution, and filing of Notices as reported by Defendants - occurred, but rather dispute the legal effect of the acts and the authority of the entities performing them. Doc. 35, ¶¶ 10-14. Plaintiffs further dispute Defendants' assertion that Plaintiffs failed to make payments from August 2013 forward, and argue that payments they made between 2013 and 2015 were either returned, misapplied, or assessed to unauthorized charges and fees. Id., ¶ 14.

         On November 18, 2015, Plaintiffs filed this action against Aurora, Nationstar, and Cowles in Pinal County Superior Court, and requested a Temporary Restraining Order (“TRO”). Doc. 1-1. The TRO was granted, temporarily enjoining the trustee's sale. Id. at 50. The case was removed to this Court on November 30, 2015. Doc. 1. On December 29, 2015, Plaintiffs filed an amended complaint, eliminating Cowles as a Defendant. Doc. 10.

         II. Legal Standard.

         A party seeking summary judgment “bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Summary judgment is appropriate if the evidence, viewed in the light most favorable to the nonmoving party, shows “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). Only disputes over facts that might affect the outcome of the suit will preclude the entry of summary judgment, and the disputed evidence must be “such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

         III. Analysis

         Plaintiffs assert seven causes of action: (1) false recordings in violation of A.R.S. § 33-420; (2) breach of contract; (3) breach of the duty of good faith and fair dealing; (4) negligence per se; (5) violations of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692; (6) violations of the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2605; and (7) violations of the Truth in Lending Act (“TILA”), 15 U.S.C. § 1639. Doc. 10, ¶¶ 98-341. Plaintiffs' claims break down into two categories: claims disputing Defendants' authority to conduct the trustee's sale, and claims alleging unauthorized charges and misapplied payments.

         A. Claims 1-4: Authority to Initiate a Non-Judicial Foreclosure.

         Arizona statutes do not require the beneficiary to show possession of or otherwise document its right to enforce the underlying note before a trustee may exercise the power of sale. Hogan v. Wash. Mut. Bank, N.A., 277 P.3d 781, 783 (Ariz. 2012). “Absent an affirmative allegation by the borrower that the trustee or beneficiary is not, in fact, the ‘true' trustee/beneficiary, the trustee or beneficiary may conduct a trustee's sale without having to demonstrate his authority to foreclose.” Steinberger v. McVey ex rel. Cnty. of Maricopa, 318 P.3d 419, 430 (Ariz.Ct.App. 2014). But “if a borrower is in default and possesses a good faith basis to dispute the authority of an entity to conduct a trustee's sale, the borrower should not be prohibited from challenging its authority simply because such action may slow down the foreclosure process.” Id.

         Defendants argue that they are entitled to summary judgment on all claims involving the trustee's sale. Doc. 32 at 4-9. Defendants assert that “[i]t is well established that MERS may serve as a beneficiary of an Arizona trust deed in a nominee capacity.” Id. at 4-5. Further, “it is beyond dispute that MERS may validly assign its interest in a trust deed and that such assignment does not nullify the power of sale.” Id. at 5 (citing e.g., Steinberger, 318 P.3d at 427 n.11). Defendants frame the analysis as follows: “Plaintiffs executed a Deed of Trust naming MERS as beneficiary in a nominee capacity for the original lender. . . . [and] Defendants obtained their interest in the Deed of Trust by assignment from MERS.” Id. “Nationstar became the beneficiary of the Deed of Trust by assignment from MERS” and “appoint[ed] Mr. Cowles as Successor Trustee.” Id. “Mr. Cowles as Successor Trustee has authority to notice and ultimately to conduct the Trustee's Sale.” Id. (citing A.R.S. § 33-808(A); A.R.S. § 33-810(A)). Thus, Defendants reason, Plaintiffs' claims pertaining to Defendants' lack of authority to initiate a non-judicial foreclosure are without merit and the Court should award summary judgment. Id.

         In response, Plaintiffs make several arguments that Defendants lacked authority to initiate a non-judicial foreclosure under Arizona law: (1) GN Mortgage, LLC did not exist in October 2006 when the Deed of Trust was signed; (2) MERS's assignment of the Deed of Trust in December 2010 was executed without authority and by a non-MERS member; (3) conditions precedent to enforcing the Deed of Trust were not performed in compliance with the Deed's terms; (4) MERS is not a beneficiary of the Deed of Trust under A.R.S. § 33-801(1); and (5) contradictory evidence of ownership raises a material issue of fact. Doc. 34 at 4-14. Defendants contend that each of Plaintiffs' arguments fails as a matter of law. Doc. 40 at 2-4.

         1. GN Mortgage, LLC.

         Plaintiffs first argue that Defendants had no authority under the Deed of Trust because the original Lender, GNM, did not exist in October 2006 when Plaintiffs and GNM signed the Note and Deed of Trust. Thus, Plaintiffs claim, GNM obtained no interest in the Deed of Trust and any interest or authority it assigned to MERS as the nominal beneficiary was defective. Because MERS received a defective interest, it could only assign a defective interest. Accordingly, when MERS recorded an assignment from GNM to Aurora in December 2010, and from Aurora to Nationstar in July 2012, the interest was defective and Defendants lacked authority to act under the Deed of Trust.

         Other courts have rejected similar arguments that a deed of trust was invalid because the original lender named in the deed of trust did not exist as listed. See, e.g., Galindo v. Select Portfolio Servicing, Inc., No. 2: 15-cv-03582, 2016 WL 4925908, at *5- 6 (C.D. Cal. Sept. 12, 2016); Moran v. HSBC Bank USA, N.A., 2015 WL 139705 (N.D. Cal. Jan. 9, 2015). Significantly, Plaintiffs do not contest that they signed the Note and Deed of Trust with GNM in October 2006. Nor do they contest that that they received $269, 000 from GNM that they were obligated to pay back. Plaintiffs fail to ...

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