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Gardner v. Nationstar Mortgage, LLC

United States District Court, D. Arizona

June 27, 2017

JAY N. GARDNER and RACHEL B. GARDNER, Plaintiffs,
v.
NATIONSTAR MORTGAGE, LLC, et al., Defendants. JAY N. GARDNER and RACHEL B. GARDNER, Plaintiffs,
v.
NATIONSTAR MORTGAGE, LLC, et al., Defendants.

          ORDER

          H. Russel Holland United States District Judge.

         Motion for Summary Judgment

         Defendants Nationstar Mortgage, LLC and U.S. Bank, N.A. move for summary judgment.[1] This motion is opposed.[2] Defendants' motion and plaintiffs' response were supplemented by the parties' written responses to written questions posed to them by the court.[3] Oral argument was requested and has been heard. The parties' arguments have been transcribed.[4]

         Parties

         Plaintiffs are Jay N. Gardner and Rachel B. Gardner. The remaining defendants are Nationstar Mortgage, LLC (“Nationstar”); and U.S. Bank, N.A., (“U.S. Bank”), trustee of the Lehman XS Trust Mortgage Pass-Through Certificates, Series 2007-15N (“the Lehman XS Trust”).

         Defendants Starlett J. Japp, Clayton G. Goff, and T.D. Servicing Company of America were each at one time Trustee under the Deed of Trust that is the subject of this case. All of these defendants have been dismissed.[5] Defendant AMSL Legal Group, LLP, which had a limited power of attorney to execute substitutions of trustee on behalf of Nationstar, [6] has also been dismissed.[7]

         AMSL Legal Group, LLC, is still listed on the court's docket as a defendant in this case. At oral argument, the court asked plaintiffs' counsel whether “AMSL Legal” was still a party to this case and plaintiffs' counsel replied that it was not.[8] It was not clear from this exchange to which AMSL Legal Group plaintiffs' counsel was referring. However, plaintiffs have alleged and provided evidence that defendant AMSL Legal Group, LLC is a nonexistent entity, [9] a fact which AMSL Legal Group, LLP has confirmed.[10] The court concludes that AMSL Legal Group, LLC is a non-existent entity and as such lacks the capacity to be sued. Plaintiffs' remaining claims against the AMSL Legal Group, LLC are dismissed with prejudice.

         Facts

         Based upon the documents put before the court by defendants and plaintiffs, and except as expressly stated otherwise, the following are the material facts as to which there is no reasonable basis for dispute.

         The Property.

         The property which is the subject of this case is described as:

The North 205 feet of the West half of the Northwest quarter of the Northwest quarter of the Southeast quarter of Section 25, Township 3 North, Range 3 East of the Gila and Salt River Base and Meridian, Maricopa County, Arizona[;]

         and is also known as 3601 East Mountain View Road, Phoenix, Arizona 85028 (herein “the Property”).[11] Plaintiffs purchased the Property on April 20, 2007 and acquired title to the same by warranty deed.[12] Plaintiffs continue to reside at the Property.[13]

         The Note.

         Plaintiffs' purchase of the Property was financed by GreenPoint Mortgage Funding, Inc. (“GreenPoint), as Lender, in whose favor plaintiffs executed an adjustable rate note (“the Note”) dated April 19, 2007.[14] Plaintiffs as borrowers promised to pay GreenPoint $960, 000 plus interest.[15] Plaintiffs agreed to pay interest at a yearly rate of 1%, subject to future adjustment but never greater than 12% per annum.[16] The Note expressly provides that failure to pay each monthly payment in full would constitute a default.[17] The Note further provides that, if after notice by the Note Holder, the borrowers failed to pay the overdue amount, the entire balance plus interest might be demanded.[18] The Note also expressly reserved to the original Lender the right to transfer the Note, providing that “anyone who takes this Note by transfer and who is entitled to receive payments under this Note is called the ‘Note Holder'”[19]

         On an unknown date, the original Lender and Note Holder, GreenPoint, endorsed the Note:

WITHOUT RECOURSE
PAY TO THE ORDER OF:
Green Point Mortgage Funding, Inc.
[by] Larry R. Kern
Assistant Vice President[20]

         The Note is in the physical possession of Nationstar.[21]

         The Deed of Trust.

         To secure repayment of the Note, plaintiffs executed a Deed of Trust on April 19, 2007.[22] The Deed of Trust identifies the above-described Note executed by plaintiffs and the Property in question.[23]

         The Deed of Trust identifies and defines the following parties:

Borrower: Plaintiffs, Jay N. Gardner and Rachel B. Gardner
Lender: GreenPoint Mortgage Funding, Inc.
Trustee: Marin Conveyancing Corp. The Deed of Trust expressly provides that plaintiffs “irrevocably grant[] and convey[] to Trustee, in trust, with power of sale” the Property.[24]
Beneficiary: Mortgage Electronic Registration Systems, Inc. (“MERS”)

         The Deed of Trust spells out the roles of the foregoing parties, as well as the role of a loan servicer. Unlike the usual note/deed of trust situation, and because plaintiffs' loan was being securitized, MERS was designated as the “beneficiary” of plaintiffs' Deed of Trust. Critical to understanding this arrangement is the fact that MERS, as well as its “successors and assigns”, were designated to act “solely as nominee for Lender and Lender's successors and assigns[.]”[25]

         Uniform Covenant 20 of the Deed of Trust addresses “Sale of Note; Change of Loan Servicer[.]”[26] In this provision, plaintiffs acknowledged that their Note might be sold one or more times, without prior notice to them, and that any such sale of the Note “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....”[27] By this provision, plaintiffs were further advised that, upon a change of loan servicer, they would be given notice of the change and the address to which payments should be made in the future.[28]

         Like the Note, the Deed of Trust makes provision for notice and acceleration of the entire principal balance after an uncured default. In this regard, Non-Uniform Covenant 22 of the Deed of Trust spells out the procedure to be followed if a default is not cured.[29] In such event, the Lender may invoke the power of sale, which the Deed of Trust grants to the Trustee.[30] Covenant 22 provides that it is the Lender who invokes the power of sale and gives instructions to the Trustee when a default goes uncured.[31] The Trustee has the responsibility of recording a notice of sale and providing the borrowers with a copy of the notice.[32] If that procedure is followed and a sale is conducted, the Trustee delivers to the foreclosure sale purchaser a trustee's deed.[33]

         Non-Uniform Covenant 24 of the Deed of Trust provides that the “Lender may, for any reason or cause, from time to time remove Trustee and appoint a successor trustee to any Trustee appointed hereunder.”[34] It is expressly provided that no conveyance of the Property is necessary and that a successor trustee succeeds to “all the title, power and duties conferred upon Trustee....”[35]

         The Subsequent History.

         The foregoing describes the original posture of the parties upon execution of plaintiffs' Note and Deed of Trust. As contemplated by those documents, over time there were numerous changes in the identities of the various participants.

         Borrower:

         Plaintiffs remain the borrowers. Plaintiffs ceased making payments on their Note during June of 2011.[36]

         Lender/Note Holder:

         Although plaintiffs' Note is in the physical possession of Nationstar, it is undisputed - and plaintiffs have been informed[37] - that the right to receive payments on plaintiffs' Note is now owned by the Lehman XS Trust, with U.S. Bank as trustee.[38] That is to say, the Lehman XS Trust is the successor Lender/Note Holder.

         Beneficiary/Nominee:

         By corporate assignment of deed of trust, dated September 21, 2011, MERS - “as nominee for GreenPoint Mortgage Funding, Inc., its successors, and/or assigns” - assigned to Aurora Bank FSB “all its right, title and interest in and to said Deed of Trust.”[39] This assignment was expressly executed by MERS “as nominee for GreenPoint Mortgage Funding, Inc.”[40] This assignment had the effect of transferring - from MERS to Aurora Bank FSB - the role of beneficiary/nominee as described above with respect to the Deed of Trust. Put more simply, this was a transfer of MERS' role as nominee for the Note Holder to Aurora Bank FSB.

         The foregoing corporate assignment (the “First Assignment”) was executed by Stacy Sandoz, an authorized signing officer based upon a MERS corporate resolution effective September 21, 2011.[41] The validity of the First Assignment is discussed below.

         There was a second assignment of the role of beneficiary/nominee under plaintiffs' Deed of Trust on June 28, 2012, on which date Aurora Bank FSB assigned to Nationstar the role of beneficiary/nominee under the Deed of Trust.[42] Assuming the validity of the First Assignment of the beneficiary/nominee's role, there can be no dispute that Nationstar is the current beneficiary/nominee under plaintiffs' Deed of Trust as a result of the Second Assignment.

         Trustees:

         On October 25, 2011, Aurora Bank FSB substituted Quality Loan Servicing Corp. as the Trustee holding power of sale.[43] Assuming the validity of the First Assignment of beneficiary/nominee status, the designation of Quality Loan Servicing as Trustee was valid.

         After Nationstar assumed the role of beneficiary/nominee on June 28, 2012, there have been four more substitutions of Trustee. On April 19, 2013, T.D. Service Company was substituted for Quality Loan Servicing Corp.[44] On April 30, 2014, Nationstar executed a power of attorney in favor of AMSL Legal Group;[45] and that power of attorney was employed to substitute Japp as Trustee, [46] followed by Goff.[47] On April 19, 2016, Nationstar substituted Carson Emmons as the Trustee.[48] If the First and Second Assignments are valid, these four substitutions are also valid.

         Based upon instructions from the then-current beneficiary/nominee, notices of default by plaintiffs were recorded twice: first, on November 9, 2011, by Quality Loan Service Corp. upon the instructions of Aurora Bank FSB, [49] and second, on April 29, 2013, by T.D. Service Company upon the instructions of Nationstar.[50] The first sale appears to have been aborted because of a loan modification, [51] and the second sale was aborted because of this litigation.

         Servicers:

         In connection with the securitization of loans, U.S. Bank, as trustee for the Lehman XS Trust, and Aurora Loan Services, LLC entered into an agreement as of July 1, 2007, for the administration and servicing of mortgage loans.[52] Aurora Loan Services did not, however, begin servicing plaintiffs' loan until November 1, 2010.[53] On June 12, 2012, Nationstar acquired from Aurora Loan Services responsibility for servicing plaintiffs' loan.[54]On July 15, 2012, plaintiffs were advised by Nationstar of its role as servicer of plaintiffs' loan on behalf of U.S. Bank, trustee for the Lehman XS Trust.[55] As recently as September 18, 2013, and in response to their inquiries, plaintiffs were informed that the Lehman XS Trust was the owner of their Note, that U.S. Bank was the trustee for the Trust, and that Nationstar was the servicer for their loan.[56]

         Claims.

         Six counts in plaintiffs' Fourth Amended Complaint remain. Count One is a claim for declaratory relief. Count Two is a breach of contract claim. Count Three is a breach of the duty of good faith and fair dealing claim. Count Four contains a quiet title claim under A.R.S. § 33-420 and a slander of title claim under A.R.S. § 33-420. Count Five contains two negligence per se claims. And Count Eight is an intentional interference with contractual relations claim. In addition to the declaratory relief plaintiffs seek in Count One, they also seek compensatory damages, statutory damages, and punitive damages.[57]

         Discussion

         Summary judgment is appropriate when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The initial burden is on the moving party to show that there is an absence of genuine issues of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). If the moving party meets its initial burden, then the non-moving party must set forth specific facts showing that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). In deciding a motion for summary judgment, the court views the evidence of the non-movant in the light most favorable to that party, and all justifiable inferences are also to be drawn in its favor. Id. at 255. “[T]he court's ultimate inquiry is to determine whether the ‘specific facts' set forth by the nonmoving party, coupled with undisputed background or contextual facts, are such that a rational or reasonable jury might return a verdict in its favor based on that evidence.” T.W. Elec. Service, Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 631 (9th Cir. 1987).

         There is no material fact in dispute regarding the validity of plaintiffs' Note or the Deed of Trust which secures it. The Lehman XS Trust is the successor Lender/Note Holder with respect to plaintiffs' Note, which is and has been in default since June of 2011. There is no material fact in dispute as to the status of Nationstar as current servicer of plaintiffs' loan. The principal disputes of substance between the parties are the question of whether or not Nationstar is the current beneficiary/nominee and whether Nationstar, as either the current beneficiary/nominee or loan servicer, is entitled to declare a default on behalf of the successor Lender and to call upon or designate a trustee to sell the property if plaintiffs' default is not cured.

         As an initial matter, plaintiffs argue that defendants' motion must be denied because a condition precedent to any foreclosure is a default by the borrower. Plaintiffs argue that there is no evidence of a default by them. In addition, plaintiffs argue that defendants cannot offer any evidence of default because only the Lender can declare a default and there is no dispute that neither Nationstar nor U.S. Bank is the Lender.

         Plaintiffs are correct that neither Nationstar nor U.S. Bank is the successor Lender/Note Holder. Rather, U.S. Bank is the trustee for the current successor Lender/Note Holder, Lehman XS Trust. The Trust is the entity presently entitled to receive payments on plaintiffs' Note. Nationstar, although in physical possession of plaintiffs' Note, is the current successor beneficiary/nominee under the Deed of Trust.[58] In that capacity, Nationstar is entitled to declare a default if payments are not made on plaintiffs' Note; and, if a default is declared but not cured, Nationstar is entitled to call upon the Trustee to initiate foreclosure proceedings for the benefit of Lehman XS Trust.

         While plaintiffs have been very careful to not allege in any of their complaints that their loan was in default, there is evidence from plaintiffs' expert that in June 2011, plaintiffs “made a calculated decision to stop making their monthly mortgage payments.”[59] Plaintiffs have come forward with no evidence of payments made by them after June 2011. At oral argument, the court asked plaintiffs' attorney if plaintiffs' expert had correctly stated that payments were stopped in June of 2011.[60] Counsel first stated that she “d[idn't] know the date[.]”[61] The court then asked, “[d]o you agree with me [that] at some point they did stop making payments on the note?” and counsel answered, “[y]es.”[62]

         It is undisputed that plaintiffs ceased making payments on their Note in June 2011. Plaintiffs' Note expressly provides if plaintiffs do “not pay the full amount of each monthly payment on the date it is due, [they] will be in default.”[63] Plaintiffs' contentions that there is no evidence of default by them and that defendants cannot offer any evidence of default are meritless. It is undisputed that plaintiffs have defaulted on the required monthly payments required by their Note; and there is no need of any further evidence from defendants, plaintiffs' default being conceded.

         Turning then to the merits of defendants' motion for summary judgment, defendants first contend that all of plaintiffs' claims, directly or indirectly, rely on plaintiffs' assertion that only the Lender or Note Holder can be a true beneficiary of the Deed of Trust, which means that MERS cannot be a true beneficiary. And, if MERS cannot be a true beneficiary, then plaintiffs contend it follows that Nationstar never became a beneficiary under their Deed of Trust. Defendants contend that plaintiffs' assertion that MERS could not be the beneficiary of the Deed of Trust is wrong.

         Plaintiffs appear to argue that MERS cannot be a beneficiary because it never had possession of the Note. Arizona courts have rejected the “claim that MERS, as the original beneficiary, did not have the authority to assign its beneficial interest in the deed of trust because it never had possession of the note, ” because “a note and a deed of trust are distinct instruments that serve different purposes.” Steinberger v. McVey ex rel. County of Maricopa, 318 P.3d 419, 427 n.11 (Ariz.Ct.App. 2014) (citation omitted). This court concludes that whether MERS ever had possession of the Note[64] is irrelevant to determining whether MERS could be the beneficiary/nominee of the successor Lender secured by the Deed of Trust.

         Plaintiffs next argue that the only entity that can enforce the Note and foreclose on the security is the entity which possesses the Note and is entitled to payment. Because only the Note Holder or the Lender can enforce the Note or the Deed of Trust, plaintiffs argue that it follows that only the Note Holder or the Lender can be the beneficiary of the Deed of Trust. Plaintiffs argue that it is only the entity that is entitled to payment which is secured by the Deed of Trust and thus this is the only entity which can enforce the Deed of Trust. As the California Supreme Court recently observed “[t]he borrower owes money not to the world at large but to a particular person or institution, and only the person or institution entitled to payment may enforce the debt by foreclosing on the security.” Yvanova v. New Century Mortg. Corp., 365 P.3d 845, 857 (Cal. 2016). Similarly, in Arizona, “a deed of trust ... ‘may be enforced only by, or in behalf of, a person who is entitled to enforce the obligation the mortgage secures.'” Hogan v. Washington Mut. Bank, N.A., 277 P.3d 781, 783 (Ariz. 2012) (quoting Restatement (Third) of Prop.: Mortgages § 5.4(c) (1997)). Plaintiffs argue that Nationstar and U.S. Bank, as trustee for the Lehman XS Trust, are not entitled to enforce the Note or the Deed of Trust because they have admitted that they are not the entities that keep the principal and interest payments. If neither Nationstar nor U.S. Bank can enforce the Note and foreclosure on the Property, then plaintiffs argue that neither of these defendants can be the beneficiary of the Deed of Trust. In short, plaintiffs insist that only the Lender or the Note Holder, or their successors, can be the beneficiary of their Deed of Trust.

         There are two problems with plaintiffs' argument. First, a beneficiary does not have to be the holder of the Note. See, e.g., Maxa v. Countrywide Loans, Inc., Case No. CV10-8076-PCT-NVW, 2010 WL 2836958, at *6 (D. Ariz. July 19, 2010) (observing that “no Arizona authority has been found that requires a beneficiary under the Deed of Trust to be the owner and holder of the Note”). Second, the fact that neither Nationstar nor U.S. Bank keeps the principal and interest payments is immaterial to the question of whether Nationstar can be a beneficiary of the Deed of Trust because plaintiffs' Deed of Trust designated MERS “and the successors and assigns of MERS” as beneficiary/nominee.[65]

         Plaintiffs do not dispute that the Deed of Trust names MERS as the beneficiary and provides that MERS is acting solely as nominee for the Lender. But, plaintiffs argue that as a “nominee” of the Lender, MERS has very limited authority. Plaintiffs contend that “[t]he word ‘nominee' in its commonly accepted meaning connotes the delegation of authority to the nominee in a representative or nominal capacity only, and does not connote the transfer or assignment to the nominee of any property in or ownership of the rights of the person nominating him.” Ott v. Home Savings & Loan Association, 265 F.2d 643, 647 (9th Cir. 1958) (citation omitted). Thus, plaintiffs argue that MERS, as nominee, could not have had any interest in the Deed of Trust and thus could not have assigned or transferred any interest in the Deed of Trust. Plaintiffs insist that MERS could only assign whatever interest it held in the Deed of Trust, which plaintiffs appear to contend was none.

         Plaintiffs are correct that MERS in its capacity as beneficiary of plaintiffs' Deed of Trust had no property interest or ownership of plaintiffs' Note or the Deed of Trust. They are wrong about MERS and its assigns having no transferable interest under the Deed of Trust. MERS' role was that of beneficiary/nominee of the Lender/Note Holder of plaintiffs' Note. As stated in the Deed of Trust, MERS as beneficiary had the capacity to assign its role as beneficiary/nominee. The first assignment of MERS' beneficiary status is careful to reflect MERS' status as “nominee for by GreenPoint Mortgage Funding, Inc., its successors and/or assigns” - which MERS passed on by assignment to Aurora Bank FSB. The second assignment by Aurora Bank FSB of its beneficiary/nominee status under plaintiffs' Deed of Trust is not quite as specific, but it does acknowledge MERS' “nominee” status.[66] Both assignments expressly assign “all [the assignor's] right, title and interest in and to said Deed of Trust.”[67] Plainly the only interest that MERS or Aurora Bank FSB had in the plaintiffs' Deed of Trust was their status as beneficiary/nominee for the Lender or the Lender's successors. But this status, and the rights that go along with it, were assignable to Nationstar.

         Plaintiffs next argue that MERS cannot be a beneficiary of the Deed of Trust because MERS does not meet the statutory definition of “beneficiary, ” a definition which plaintiffs argue must be strictly enforced. The Arizona Deed of Trust Act defines “beneficiary” as “the person named or otherwise designated in a trust deed as the person for whose benefit a trust deed is given, or the person's successor in interest.” A.R.S. § 33-801(1). Plaintiffs argue that MERS does not fit this definition because it admits that as nominee it has “no rights whatsoever to any payments made on account of MERS Loans, to any servicing rights related to MERS Loans, or to any mortgaged properties securing MERS Loans.”[68] Plaintiffs seem to be arguing that if MERS has no rights in the loan, then it cannot be “the person for whose benefit a trust deed is given[.]” Id.

         The Ninth Circuit has “held that under Arizona law, MERS may serve as a beneficiary in non-judicial foreclosures.” Zadrozny v. Bank of New York Mellon,720 F.3d 1163, 1169 (9th Cir. 2013). This means that MERS, even though it may not meet the Arizona statutory definition of “beneficiary”, can still be a beneficiary ...


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