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Erickson v. Ditech Financial, LLC

United States District Court, D. Arizona

April 27, 2017

Judith D. Erickson, an unmarried woman, and as Trustee of The Erickson Family Trust, Plaintiff,
v.
Ditech Financial, LLC, a Delaware limited liability company, f/k/a Green Tree Servicing, LLC, a Delaware Limited Liability Company; Federal National Mortgage Association, a District of Columbia corporation; John and Jane Does 1-1000; XYZ Corporations 1-1000; ABC Limited Liability Companies 1-1000; and 123 Banking Associations 1-1000, Defendants. Ditech Financial, LLC, a Delaware limited liability company, Counterclaimant,
v.
Judith D. Erickson, an individual; Judith D. Erickson, as trustee of the Erickson Family Trust, Counterdefendants. Ditech Financial, LLC, a Delaware limited liability company, Third-Party Plaintiff,
v.
Holua, LLC, an Arizona limited liability company; John Darreld Erickson, an individual; Mortgage Electronic Registration Systems, Inc., a foreign corporation; The Bank of New York Mellon f/k/a The Bank of New York as successor Indenture trustee to JPMorgan Chase Bank, National Association for CWHEQ Revolving Home Equity Loan Trust, Series 2006-I; and ROES I through X, Inclusive, Third-Party Defendants.

          ORDER

          Neil V. Wake Senior United States District Judge.

         Before the Court are the Motion for Summary Judgment by the Federal National Mortgage Association (“Fannie Mae”) and Ditech Financial LLC (“Ditech”)[1] (Doc. 211) and the Cross-Motion for Summary Judgment on Plaintiff's Claims and Counterclaim for Judicial Foreclosure by Plaintiff/Counterdefendant Judith D. Erickson (“Erickson”) (Doc. 220).

         I. OVERVIEW

         In June 2006, Erickson borrowed $338, 000 from a bank. The home loan was memorialized by a promissory note and secured by a trust deed. Erickson quit making loan payments in 2013.

         In November 2006, Fannie Mae acquired ownership of Erickson's loan and obtained possession of the promissory note, which is indorsed in blank. Under Arizona law, the transfer of a promissory note secured by a trust deed operates as a transfer of the trust deed. A.R.S. § 33-817. Fannie Mae continues to be the owner of Erickson's loan, but has transferred possession of the note to Ditech.

         Fannie Mae manages its loans through Ditech and other loan servicers, which interact with borrowers on Fannie Mae's behalf. Fannie Mae's servicing guide states that whenever a servicer represents Fannie Mae's interests in a foreclosure action, the servicer automatically has constructive, temporary possession of the mortgage note. Ditech began non-judicial foreclosure proceedings against Erickson in 2013. Ditech received physical possession of the note in April 2015. In May 2015, Ditech canceled the scheduled trustee's sale, and it now seeks judicial foreclosure.

         A “person entitled to enforce” a promissory note includes not only a holder of the note, but also a nonholder in possession of the note who has the rights of a holder. A.R.S. § 47-3301. A person may be a “person entitled to enforce” a promissory note even though the person is not the owner. Id. Thus, Ditech is a “person entitled to enforce” Erickson's note through foreclosure either as a holder or a nonholder in possession of the note who has the rights of a holder.

         In addition to challenging Ditech's entitlement to judicial foreclosure, Erickson seeks damages against Ditech under state law claims for signing and recording documents in preparation for a trustee's sale. Erickson contends that the assignment of her trust deed to Ditech was invalid, consequently Ditech lacked authority to substitute the trustee for the trust deed, and therefore the substituted trustee lacked authority to record notice of the trustee's sale. However, Erickson has failed to prove any of the documents were groundless or contained material misstatements. Erickson also contends that Ditech misrepresented Fannie Mae's interest in her loan by asserting that Ditech was the creditor and by failing to disclose an unrecorded assignment of the trust deed from Ditech to Fannie Mae executed before the scheduled trustee's sale. She has failed to show any material misstatements regarding Fannie Mae's interest in her loan.

         Two groups of issues are presented by the pending motions: (1) Is Ditech entitled to judicial foreclosure or is Erickson entitled to declaratory judgment that Ditech is not entitled to either judicial or non-judicial foreclosure? (2) Is Erickson entitled to damages for any statutory violations by Ditech?

         II. LEGAL STANDARD

         Summary judgment should be granted if the evidence shows there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The moving party must produce evidence and show there is no genuine issue of material fact. Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Cos., Inc., 210 F.3d 1099, 1102 (9th Cir. 2000). A material fact is one that might affect the outcome of the suit under the governing law, and a factual dispute is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

         On summary judgment, the nonmoving party's evidence is presumed true, and all inferences from the evidence are drawn in the light most favorable to the nonmoving party. Eisenberg v. Ins. Co. of North America, 815 F.2d 1285, 1289 (9th Cir. 1987); Baldwin v. Trailer Inns, Inc., 266 F.3d 1104, 1117 (9th Cir. 2001). “The court need consider only the cited materials, but it may consider other materials in the record.” Fed.R.Civ.P. 6(c)(3). But it is not the Court's task “to scour the record in search of a genuine issue of triable fact.” Keenan v. Allan, 91 F.3d 1275, 1279 (9th Cir. 1996).

         The evidence presented by the parties must be admissible. LRCiv 56.1(a), (b); see Fed. R. Civ. P. 56(e). “An affidavit or declaration used to support or oppose a motion must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant or declarant is competent to testify on the matters stated.” Fed.R.Civ.P. 56(c)(4). Conclusory and speculative testimony in affidavits and moving papers is insufficient to raise genuine issues of fact and to defeat summary judgment. Thornhill Publ'g Co., Inc. v. GTE Corp., 594 F.2d 730, 738 (9th Cir. 1979). “If a party fails to properly support an assertion of fact or fails to properly address another party's assertion of fact as required by Rule 56(c), the court may . . . consider the fact undisputed for purposes of the motion.” Fed. R. Civ. 56(e)(2).

         III. MATERIAL FACTS

         A. Evidentiary Objections

         Erickson and Third-Party Defendant John Darreld Erickson[2] (collectively “the Ericksons”) dispute certain paragraphs of Defendants' statement of facts “to the extent of any reliance on the Payment History attached as Exhibit G.” (Doc. 217 at 4, ¶¶ 10, 11.) The Ericksons assert, “Exhibit G is not admissible through deposition testimony attached, or any Declaration or Affidavit attached. Its content is inadmissible.” (Id.) They also dispute paragraphs 17 through 26 “only to the extent of any reliance on Exhibit G, which is inadmissible.” (Id. at 6.) In other words, they object to the admissibility of Exhibit G, but do not dispute the content of ¶¶ 10, 11, and 17-26 of Defendants' statement of facts. Nor do the Ericksons refer to a specific admissible portion of the record as the Local Rules require if a fact is disputed. See LRCiv 56.1(b).

         Moreover, the Affidavit of Jennifer Rasmussen states the basis for her personal knowledge of Ditech's business records and declares under penalty of perjury that Exhibit G is a true and correct copy of Erickson's payment history with Ditech. (Doc. 208-4.) Therefore, the Ericksons' objection to the admissibility of Defendants' Exhibit G is overruled.

         The parties' remaining evidentiary objections, which primarily assert lack of relevance, are overruled.

         B. The Note

         On June 24, 2006, Erickson signed a Fixed/Adjustable Rate Note (“Note”)[3] that memorialized her debt in the principal amount of $338, 000.00 to the Lender, Countrywide Home Loans, Inc. (“Countrywide”) for the real property at 2655 Skyview Way, Sedona, Arizona (“Property”). David A. Spector, Managing Director of Countrywide, indorsed the original Note in blank.[4]

         By signing the Note, Erickson agreed that the Lender may transfer the Note. The Note further states: “Lender or anyone who takes this Note by transfer and who is entitled to receive payments under this Note is called the ‘Note Holder.'”[5]

         Under the terms of the Note, Erickson promised to make monthly payments on the first day of each month beginning on August 1, 2006, until she had paid the principal, interest, and any other charges that she owed under the Note. The Note also states:

“If I do not pay the full amount of each monthly payment on the date it is due, I will be in default. . . . If I am in default, the Note Holder may send me a written notice telling me that if I do not pay the overdue amount by a certain date, the Note Holder may require me to pay immediately the full amount of Principal that has not been paid and all the interest that I owe on that amount.” The Note states that in addition to the protections given to the Note Holder under the Note, a Deed of Trust, dated the same day as the Note, protects the Note Holder if the borrower does not keep the promises made in the Note.

         C. The Deed of Trust

         On June 24, 2006, Erickson signed the Deed of Trust as security for the amounts due under the Note to Countrywide. The Deed of Trust granted a security interest in certain real property identified in the Deed of Trust as Parcel ID Number 408-22-070 with the common address of 2655 Skyview Way, Sedona, Arizona 86336-3119 and legally described in the Deed of Trust as:

         Lot 29, HARMONY HIGH PARK, according to the amended plat of record in Book 16 of Maps, Page 92, records of Yavapai County, Arizona.

         The Deed of Trust was recorded on July 6, 2006, in the official records of the Yavapai County Recorder.

         The Deed of Trust identified the Borrower as “Judith Erickson, a single woman” and the Lender as Countrywide. It identified Fidelity National Title Insurance Co. as the Trustee. Referring to Mortgage Electronic Registration Systems, Inc. (“MERS”), it stated in bold, “MERS is the beneficiary under this Security Instrument.” It also stated:

The beneficiary of this Security Instrument is MERS (solely as nominee for Lender and Lender's successors and assigns) and the successors and assigns of MERS. This Security Instrument secures to Lender: (i) the repayment of the Loan, and all renewals, extensions and modifications of the Note; and (ii) the performance of Borrower's covenants and agreements under this Security Instrument and the Note. For this purpose, Borrower irrevocably grants and conveys to Trustee, in trust, with power of sale the following described property. . . .

         MERS is a company that operates an electronic tracking system for mortgage rights. By naming MERS as the mortgagee in a nominee capacity on a mortgage that is recorded in the public land records, lenders that are members of the MERS System can protect their property liens without recording mortgage assignments among members in the public land records. MERS keeps track of the assignments and assigns the mortgage to the current assignee only when it becomes necessary.

         D. The Relationship Between Fannie Mae and Ditech

         On November 1, 2006, Fannie Mae acquired ownership of Erickson's loan. Fannie Mae is a United States government-sponsored enterprise that is publicly traded. Among other things, it acquires and bundles residential mortgages, which are used to back securities that are sold to investors. It enters into agreements with loan servicers to collect payments from borrowers.

         Ditech, formerly known as Green Tree Servicing LLC, services Erickson's loan under an agreement with Fannie Mae. Fannie Mae's Designated Document Custodian (“DDC”) is the Bank of New York Mellon.

         The Fannie Mae Single Family Servicing Guide (March 14, 2012) included the following provisions, which are dated May 23, 2008:

Fannie Mae is at all times the owner of the mortgage note, whether the mortgage loan is in Fannie Mae's portfolio or part of the MBS pool. In addition, Fannie Mae at all times has possession of and is the holder of the mortgage note, except in the limited circumstances expressly described below. Fannie Mae may have direct possession of the note or a custodian may have custody of the note. If Fannie Mae possesses the note through a document custodian, the document custodian has custody of the note for Fannie Mae's exclusive use and benefit.
In order to ensure that a servicer is able to perform the services and duties incident to the servicing of the mortgage loan, Fannie Mae temporarily gives the servicer possession of the mortgage note whenever the servicer, acting in its own name, represents the interests of Fannie Mae in foreclosure actions, bankruptcy cases, probate proceedings, or other legal proceedings. This temporary transfer of possession occurs automatically and immediately upon the commencement of the servicer's representation, in its name, of Fannie Mae's interests in the foreclosure, bankruptcy, probate, or other legal proceeding.

         When Fannie Mae transfers possession, the servicer becomes the holder of the note as follows:

• If a note is held at Fannie Mae's DDC, Fannie Mae has possession of the note on behalf of the servicer so that the servicer has constructive possession of the note and the servicer shall be the holder of the note and is authorized and entitled to enforce the note in the name of the servicer for Fannie Mae's benefit.
• If the note is held by a document custodian on Fannie Mae's behalf, the custodian also has possession of the note on behalf of the servicer so that the servicer has constructive possession of the note and the servicer shall be the holder of the note and is authorized and entitled to enforce the note in the name of the servicer for Fannie Mae's benefit. In most cases, a servicer will have a copy of the mortgage note. If a servicer determines that it needs physical possession of the original mortgage note to represent the interests of Fannie Mae in a foreclosure, bankruptcy, probate, or other legal proceeding, the servicer may obtain physical possession of the original mortgage note by submitting a request directly to the document custodian.

         These provisions were retained with minor revisions in the January 15, 2015 Fannie Mae Servicing Guide.

         On April 6, 2015, Ditech requested from the Bank of New York Mellon physical transfer of the Note to Ditech pursuant to the Fannie Mae Servicing Guide. On April 30, 2015, Ditech received physical possession of the Note. On April 30, 2015, Ditech ...


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