Gard v. Ocwen Loan Servicing LLC

          ORDER

          DOMINIC W. LANZA, UNITED STATES DISTRICT JUDGE

         INTRODUCTION

         In November 2005, Plaintiffs David and Lisa Gard (“Plaintiffs”) executed a $1.7 million promissory note and deed of trust on their home in Scottsdale, Arizona. It is undisputed that Plaintiffs haven't paid a nickel toward their mortgage since July 2010. Accordingly, in August 2017, the trustee scheduled an auction on Plaintiffs' home. Two months later, Plaintiffs filed this lawsuit, which names the following four entities as defendants: Morgan Stanley Home Loans, Morgan Stanley Credit Corporation (collectively, “the Morgan Stanley Defendants”), Ocwen Loan Servicing LLC (“Ocwen”), and U.S. Bank National Association (“U.S. Bank”). As relief, Plaintiffs seek a declaration that none of these entities may foreclose on their home because (1) the statute of limitations has expired, (2) no Defendant holds an ownership interest in the property that would allow it to foreclose, (3) the Defendants' ability to foreclose was eliminated when the loan was securitized, and (4) foreclosure would result in impermissible double recovery.

         Now pending before the Court are an array of different motions. First, the Morgan Stanley Defendants contend that although they were the original lenders and servicers on Plaintiffs' loan, they transferred their interests in that loan to other entities many years ago. As a result, they have moved for summary judgment on the ground, inter alia, that Plaintiffs' claims against them don't present a justiciable controversy under Article III. (Doc. 57.) In response, Plaintiffs acknowledge the Morgan Stanley Defendants weren't involved in the 2017 effort to initiate a trustee's sale-Plaintiffs merely contend that “[t]he Morgan Stanley Defendants [were] named in this action for the sake of judicial efficiency” and that “the Morgan Stanley Defendants' presence in the litigation serves a useful purpose in clarifying the legal resolution of the matter if the Court holds that the transfers claimed to have occurred are invalid.” (Doc. 81 at 2, 6.) Given this clarification, the Court will dismiss Plaintiffs' claims against the Morgan Stanley Defendants for lack of subject matter jurisdiction.^[1] The Court will also deny, as moot, the Morgan Stanley Defendants' request for judicial notice (Doc. 58).

         Second, Ocwen and U.S. Bank (Doc. 52) and Plaintiffs (Doc. 62) have separately moved for summary judgment. As explained below, the Court concludes that all four of Plaintiffs' theories for avoiding foreclosure lack merit and will therefore grant Ocwen's and U.S. Bank's motion for summary judgment and deny Plaintiffs' motion. This outcome also makes it unnecessary to resolve Plaintiffs' motion to withdraw admissions (Doc. 77).

         BACKGROUND

         The parties have filed a total of three statements of facts and four controverting statements of facts. (See Docs. 54, 61, 63 [statements]; 75, 76, 80, 82 [controverting statements].) The summary below is derived from the undisputed facts contained therein.

         On November 28, 2005, Plaintiffs obtained a $1, 743, 600 loan from Morgan Stanley Credit Corporation (“MSCC”). (Doc. 54 ¶ 2; Doc. 61 ¶ 1.) The loan was secured by a promissory note and deed of trust recorded against Plaintiffs' Scottsdale home. (Doc. 61 ¶ 2; Doc. 63 ¶ 1.) The note, which was made payable to MSCC, required Plaintiffs to make periodic payments such that the loan would be fully repaid by January 1, 2036. (Doc. 61 ¶¶ 3-4.) The Deed of Trust states that “The Note or partial interest in the Note (together with this Security Instrument) can be sold one or more times without notice to the Borrower.” (Id. ¶ 5.)

         Between November 2005 and April 2012, either Morgan Stanley Home Loans or Saxon Mortgage Services, Inc. (“Saxon”) acted as the loan servicer. (Doc. 61 ¶ 13.)^[2]

         On May 1, 2006, the note was transferred to LaSalle Bank National Association (“LaSalle”) as Trustee for Morgan Stanley Mortgage Loan Trust 2006-8AR Mortgage Pass-Through Certificates, Series 2006-8AR. (Doc. 54 ¶ 4; Doc. 61 ¶ 7.)^[3] LaSalle later merged with Bank of America, effective October 17, 2008. (Doc. 61 ¶ 8.)^[4] And on or about November 11, 2010, U.S. Bank acquired substantially all of Bank of America's corporate trust business, which included the note. (Doc. 54 ¶ 6.)^[5]

         In or around July 2010, Plaintiffs stopped making payments on the loan. (Doc. 61 ¶ 14; Doc. 63 ¶ 3.)

         On or about September 1, 2010, Plaintiffs received a “Notice of Intent to Accelerate” from Saxon. (Doc. 61 ¶ 17; Doc. 63 ¶ 7.) It stated that Plaintiffs were in breach of the note and that failure to pay the delinquent amount ($24, 528.89) by October 4, 2019 “may” result in the loan's acceleration. (Id.; see also Doc. 60 at 38 [actual notice].)^[6]The Notice did not demand the loan's full and immediate repayment. (Doc. 61 ¶ 19.) Nor did anybody initiate a trustee's sale against the property in that timeframe. (Id. ¶ 20.)

         On or about May 31, 2011, MSCC merged with and into Morgan Stanley Private Bank, N.A. (“MSPB”). (Doc. 54 ¶ 7.)

         On April 2, 2012, Ocwen began acting as the servicer of the loan. (Doc. 54 ¶ 8; Doc. 61 ¶ 21; Doc. 63 ¶ 10.)

         On May 18, 2012, Plaintiffs received a “Notice of Default” from Ocwen. (Doc. 54 ¶ 9.) It stated that the loan was in default and that if the default wasn't cured by June 18, 2012, the loan “may” be accelerated, resulting in the total amount being immediately due and payable. (Id.; see also Doc. 55 at 20-23 [actual notice].)^[7]

         On December 18, 2014, the Deed of Trust was assigned to U.S. Bank. (Doc. 54 ¶ 11.)^[8] The following day, the United States District Court for the Southern District of New York entered a final judgment approving the settlement of a class action lawsuit between certain retirement systems and Morgan Stanley entities;^[9] however, there is no indication that Plaintiffs' loan was satisfied as a result of that settlement. (Doc. 54 ¶ 12.)

         On August 31, 2017, an entity called Quality Loan Service Corporation (“Quality”)-which had, by that time, been named the trustee under the deed of trust- recorded a “Notice of Trustee's Sale” concerning the property. (Doc. 54 ¶¶ 13, 16; Doc. 61 ¶ 25.)

         On November 1, 2017, at U.S. Bank's request, MSPB indorsed the note to U.S. Bank via allonge, which is affixed to the note. (Doc. 54 ¶ 17.)^[10]

         On October 25, 2017, Quality recorded a “Cancellation of Trustee's Notice of Sale” concerning the property. (Doc. 61 ¶ 26.) To date, no foreclosure sale has taken place. (Id. ¶ 27.)

         On November 6, 2017, Plaintiffs filed this case in Maricopa County Superior Court, which Ocwen and U.S. Bank later removed to this Court. (Doc. 1.)

         On June 17, 2018, Plaintiffs filed an amended complaint. (Doc. 34.)

         SUMMARY JUDGMENT STANDARD

         A party moving for summary judgment “bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). “In order to carry its burden of production, the moving party must either produce evidence negating an essential element of the nonmoving party's claim or defense or show that the nonmoving party does not have enough evidence of an essential element to carry its ultimate burden of persuasion at trial.” Nissan Fire & Marine Ins. Co. v. Fritz ...