REFinBlog

March 26, 2013

District Court of Arizona Rejects Homeowners’ Motion to Remand, Grants Lender’s Motion to Dismiss, Without Prejudice

In Kane v. Bosco, 10-CV-01787-PHX-JAT, 2010 WL 4879177 (D. Ariz. Nov. 23, 2010) the court denied plaintiffs’ motion to remand, and granted defendants’ motions to dismiss, without prejudice.

In 2005 plaintiffs/homeowners, Peter and Diane Kane, refinanced their residential loan for $120,000. The corresponding deed of trust named Downey Savings and Loan Association, F.A. (“Downey”) as beneficiary. Several months later Downey executed a corporate assignment which assigned all of its interest in the deed of trust to defendant MERS, as nominee for defendant Central Mortgage Company (“Central”). In 2010, MERS assigned the deed of trust to Central. A substitution of trustee was also recorded appointing defendant Michael A. Bosco, Jr. (“Bosco”) as successor trustee under the deed of trust. At the same time a notice of trustee’s sale was recorded.

While the trustee’s sale was pending, plaintiffs hired a forensic examiner to review their loan documents. They also hired a certified banking expert witness to investigate which entity had the right to foreclose. Plaintiffs filed this complaint and sought an emergency temporary restraining order, alleging defendants violated the Truth In Lending Act (“TILA”) and the Real Estate Settlement Procedures Act (“RESPA”), and that MERS lacked authority to transfer any interest in property or to initiate foreclosure proceedings. The court denied this order and a subsequent order. In this decision the court addressed plaintiffs’ motion to remand and various defendants’ motions to dismiss.

Plaintiffs’ Motion to Remand

The court denied plaintiffs’ motion to remand. Plaintiffs argued that because defendants committed crimes and felonious acts against the State of Arizona; and that state law claims and issues predominated over the federal claims; and that defendants did not properly appear in state court so as to have the authority to remove, remanding was proper. First, the court rejected plaintiffs’ argument that crimes against the State of Arizona warranted removal to the U.S. Supreme Court, concluding “plaintiffs misunderstand the jurisdiction of the federal courts.” Since the state of Arizona is not a party to the action, and there were no allegations of crimes against the state in the complaint, removal to the U.S. Supreme Court was inappropriate. Second, the court rejected plaintiffs’ supplemental jurisdiction argument, finding their claims of fraud and invalidity of the loan did not predominate over the federal law claims as they all arose from the same transaction or series of transactions. Finally, the court clarified that defendants’ counsel did not have to file a motion or notice of appearance before seeking to remove the case pursuant to a notice of removal.

Defendants’ Motion to Dismiss

The court granted defendants’ three separate motions to dismiss.

First, the court found plaintiffs’ complaint lacked “specific, clearly defined allegations as to each defendant.” Accordingly, plaintiffs’ complaint failed to satisfy the pleading requirements in Federal Rules of Civil Procedure 8 and 9.

Second, the court agreed that plaintiffs’ complaint failed to make any allegations related to a breach of Bosco’s obligations as successor trustee. Since they did not allege any violations of his obligations under the deed of trust or the statutes governing deeds of trust, Bosco was entitled to immediate dismissal.

Third, the court dismissed the individual defendants from the action as plaintiffs’ complaint failed to allege defendants were personally involved in the origination or servicing of plaintiffs’ loan.

Fourth, the court found plaintiffs’ TILA and RESPA claims were both insufficient as they didn’t allege any specific conduct by defendants that constituted a violation. Further, both claims were barred by the statute of limitations. Additionally, plaintiffs’ claims under the FTCA were barred as private litigants cannot maintain a claim for unfair trade practices. Finally, plaintiffs’ claims that defendants violated the Federal Deposit Insurance Act were also dismissed as they did not identify any provision of the act defendants allegedly violated.

Fifth, plaintiffs’ claims of fraud were dismissed as they were not made with particularity as required by F.R.C.P. 9(b).

Sixth, defendants’ authority to foreclose was not diminished by their mistitled assignment. The court concluded “MERS’s failure to title the document as a Corporate Assignment of Deed of Trust, instead of Mortgage, does not invalidate the…assignment…and subsequent transactions.”

Seventh, the court rejected plaintiffs’ allegations that MERS lacked the authority to assign security instruments or initiate foreclosure processes. It concluded it “fail[ed] to see how the MERS system lacks authority as a nominee of lenders to assign deeds of trust, and how, in assigning deeds of trust, commits fraud or records forged of false documents.”

Eighth, the court rejected plaintiffs’ claims that defendants failed to produce the original note before the commencement of a trustee’s sale. It quoted Mansour v. Cal W. Reconveyance Corp., 618 F.Supp.2d 1178, 1181 (D. Ariz. 2009) for the proposition that courts “have routinely held that [the] ‘show me the note’ argument lacks merit.”

Ninth, while plaintiffs alleged defendants filed forged and fraudulent documents, they did not specify which documents they were referring to.

Tenth, the court rejected plaintiffs’ claims regarding the splitting of the note and deed of trust as this is not a requisite to foreclosure under Arizona case law.

Accordingly, the court granted defendants’ motions to dismiss, but allowed plaintiffs 21 days to amend their complaint on their claims of fraud, Arizona’s deed of trust statutes, the Federal Deposit Insurance Act, forgery, and any specific declaratory relief.

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