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noting that there is no requirement in the Texas Property Code that either the mortgagee or mortgage servicer produce the original note or deed of trust before conducting a non-judicial foreclosure
Summary of this case from Wiley v. U.S. Bank, N.A.Opinion
CASE NO. 4:11-CV-458
11-16-2011
STEVEN RANDOLPH CANNON and FARAHNAZ K. CANNON v. JPMORGAN CHASE BANK, N.A.
Judge Schneider/Judge Mazzant REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
Pending before the Court is Defendant JPMorgan Chase Bank, N.A's ("Chase") Motion to Dismiss Plaintiffs' First Amended Complaint (Dkt. #10). The Court, having considered the relevant pleadings, finds that Defendant's motion should be granted.
Background
On October 20, 2000, Plaintiff Steven Cannon purchased the residential property located at 1509 Pagewynne Dr., Plano, Texas 75093 for the amount of $ 196,860 (the "Property"). On March 3, 2009, Plaintiffs refinanced the Property. In order to refinance the Property, Plaintiffs made a promissory note to Amerigroup Mortgage Corporation, a Division of Mortgage Investors Corporation, ("Amerigroup") an Ohio Corporation, in the original principal amount of $ 213,650. To secure payment of the Note, on March 3, 2009, Plaintiffs executed a Deed of Trust which was filed and recorded in the Official Public Records of Collin County, Texas, on March 12, 2009. The Deed of Trust states that the Lender is Amerigroup. The Deed of Trust states that the Trustee is TransContinental Title Company, 2605 Enterprise Road East, Suite 200, Clearwater, Florida 33759. The Deed of Trust states that Mortgage Electronic Registration Systems, Inc. ("MERS") is a separate corporation that is acting solely as a nominee for Lender and Lender's successors and assigns, and that MERS is the beneficiary under the Deed of Trust.
By October 2009, Plaintiffs had received written communication from Chase claiming to be the current beneficiary/mortgagee of the Deed of Trust, or claiming that it was representing the current mortgagee under a servicing agreement with the current mortgagee. Based on these claims, Plaintiffs sent their monthly payments on the Note to Chase.
JPMorgan Chase Bank, N.A. is the successor by merger with Chase Home Finance LLC. The Court will refer to both entities as Chase for purposes of this motion.
Plaintiffs made five monthly payments, in the total amount of $9,150.00, to Chase for the purpose of making payments claimed by Chase under the terms of the Note. However, after making these payments, Plaintiffs were notified by the Bank of America that, in fact, these five monthly payments had been rejected by Chase and were not credited to the Note. Despite repeated requests, Plaintiffs did not receive an explanation from Chase about why these five monthly payments were rejected and not credited to the Note.
On December 6, 2010, an individual by the name of Nicole Krisley ("Krisley"), purporting to be Assistant Secretary of Chase, executed on behalf of Chase a purported Appointment of Substitute Trustee stating that Chase was the current beneficiary/mortgagee of the Deed of Trust, or Chase was representing the current mortgagee under a servicing agreement with the current mortgagee. This purported appointment removed the original trustee of the Deed of Trust, TransContinental Title Company, and appointed Cathy Lee or Robert Lee or Robin Weldon or Cole D. Patton or Melissa A. McKinney or Karl Terwilliger, McCarthy, Holthus & Ackerman, LLP, as Substitute Trustee under the Deed of Trust.
Plaintiffs assert that the purported Appointment of Substitute Trustee executed by Krisley makes undocumented and unverified claims about the Note made by Plaintiffs to Amerigroup; it does not explain or describe how or when the Note made by Plaintiffs was indorsed, transferred, and assigned by Amerigroup, to Chase, or any other entity. The purported Appointment of Substitute Trustee executed by Krisley makes undocumented and unverified claims about the Deed of Trust executed by Plaintiffs for the benefit of MERS solely as nominee for Amerigroup, and its successors and assigns; it does not explain or describe how, when, or by what authority the Deed of Trust executed by Plaintiffs was assigned by MERS as nominee for Amerigroup, and its successors and assigns, to Chase, or any other entity.
On February 10, 2010, Cathy Lee, purporting to be a duly authorized Substitute Trustee under the Deed of Trust, executed a purported Substitute Trustee's Deed, describing a non-judicial foreclosure sale on February 1, 2011, stating that Chase was the current beneficiary/mortgagee of the Deed of Trust. The purported Substitute Trustee's Deed executed by Cathy Lee conveyed the Property to Chase, as the grantee/buyer of the Substitute Trustee's non-judicial foreclosure sale.
Claiming legal ownership of the Property under the purported Substitute Trustee's Deed, Chase has asserted that it is legally entitled to take possession of the Property, has taken possession of the Property, and has removed Plaintiffs from possession of the Property.
Plaintiffs filed this action on June 22, 2011, in state court by filing their Original Petition against JPMorgan Chase Bank, National Association ("Chase"). On July 22, 2011, Defendant removed this action to this Court. On July 25, 2011, the Court entered its Order and Advisory, giving Plaintiffs an opportunity to file an amended complaint. Plaintiffs filed their amended complaint on August 29, 2011 (Dkt. #9). On September 12, 2011, Defendant filed its motion to dismiss (Dkt. #10). On September 26, 2011, Plaintiffs filed a response to the motion to dismiss (Dkt. #12). On October 4, 2011, Defendant filed a reply (Dkt. #14).
Legal Standard
Defendants move for dismissal under Rule 12(b)(6) of the Federal Rules of Civil Procedure, which authorizes certain defenses to be presented via pretrial motions. A Rule 12(b)(6) motion to dismiss argues that, irrespective of jurisdiction, the complaint fails to assert facts that give rise to legal liability of the defendant. The Federal Rules of Civil Procedure require that each claim in a complaint include "a short and plain statement . . . showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). The claims must include enough factual allegations "to raise a right to relief above the speculative level." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Thus, "[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Twombly, 550 U.S. at 570).
Rule 12(b)(6) provides that a party may move for dismissal of an action for failure to state a claim upon which relief can be granted. FED. R. CIV. P. 12(b)(6). The Court must accept as true all well-pleaded facts contained in the plaintiff's complaint and view them in the light most favorable to the plaintiff. Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996). In deciding a Rule 12(b)(6) motion, "[f]actual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555; Gonzalez v. Kay, 577 F.3d 600, 603 (5th Cir. 2009). "The Supreme Court recently expounded upon the Twombly standard, explaining that '[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Gonzalez, 577 F.3d at 603 (quoting Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. "It follows, that 'where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not 'shown' - 'that the pleader is entitled to relief.'" Id.
In Iqbal, the Supreme Court established a two-step approach for assessing the sufficiency of a complaint in the context of a Rule 12(b)(6) motion. First, the Court identifies conclusory allegations and proceeds to disregard them, for they are "not entitled to the assumption of truth." Iqbal, 129 S.Ct. at 1951. Second, the Court "consider[s] the factual allegations in [the complaint] to determine if they plausibly suggest an entitlement to relief." Id. "This standard 'simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of' the necessary claims or elements." Morgan v. Hubert, 335 F. App'x 466, 470 (5th Cir. 2009). This evaluation will "be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 129 S.Ct. at 1950.
In determining whether to grant a motion to dismiss, a district court may generally not "go outside the complaint." Scanlan v. Tex. A&M Univ., 343 F.3d 533, 536 (5th Cir. 2003). When ruling on a motion to dismiss a pro se complaint, however, a district court is "required to look beyond the [plaintiff's] formal complaint and to consider as amendments to the complaint those materials subsequently filed." Howard v. King, 707 F.2d 215, 220 (5th Cir. 1983); Clark v. Huntleigh Corp., 119 F. App'x 666, 667 (5th Cir. 2005) (finding that because of plaintiff's pro se status, "precedent compels us to examine all of his complaint, including the attachments"); Fed. R. Civ. P. 8(e) ("Pleadings must be construed so as to do justice."). Furthermore, a district court may consider documents attached to a motion to dismiss if they are referred to in the plaintiff's complaint and are central to the plaintiff's claim. Scanlan, 343 F.3d at 536.
Analysis
Plaintiffs' claims are based upon the following: (1) "the Note and the security interest embodied in the Deed of Trust were separated, and the security interest in the Property was [therefore] forfeited"; and (2) "the Note and Deed of Trust were not lawfully and timely indorsed, transferred, and assigned to [Chase] as owner and holder of the Note and Deed of Trust." The only claims asserted by Plaintiffs are for actions for trespass to try title and to remove cloud on title and quiet title, request to set aside trustee's foreclosure sale and cancel trustee's foreclosure sale deed, request for declaratory judgment, and violations of Texas Debt Collections Practices Act.
Defendant moves to dismiss by asking the Court to answer these two questions: (1) is a security interest in property forfeited if the note and deed of trust are "separated"? And (2) must a mortgage servicer provide proof that it is a holder of the original note or an assignee of the deed of trust before conducting a foreclosure sale? Defendant asserts that because Plaintiffs' claims are based on erroneous legal theories, their claims must be dismissed. The Court agrees.
A good explanation of MERS and Texas law can be found in Richardson v. CitiMortgage, Inc., No. 6:10cv119, 2010 WL 4818556, at *5 (E.D. Tex. Nov. 22, 2010). U.S. Magistrate Judge Judith K. Guthrie explained as follows:
Under Texas law, where a deed of trust, as here, expressly provides for MERS to have the power of sale, then MERS has the power of sale. Athey v. MERS, 314 S.W.3d 161, 166 (Tex. App.-Eastland 2010). MERS was the nominee for Southside Bank and its successors and assigns. MERS had the authority to transfer the rights and interests in the Deed of Trust to CitiMortgage. The Plaintiffs' complaints about the role of MERS in this matter lack merit.
It is further noted that the role of MERS has been the subject of federal multidistrict litigation in In re: Mortgage Electronic Registration Systems (MERS) Litigation, 659 F. Supp.2d 1368 (U.S. Jud. Pan. Mult. Lit. 2009). The MERS system is merely an electronic mortgage registration system and clearinghouse that tracks beneficial ownerships in, and servicing rights to, mortgage loans. Id. at 1370. The system is designed to track transfers and avoid recording and other transfer fees that are otherwise associated with the sale. Id. at 1370 n. 6. MERS is defined in Texas Property Code § 51.0001(1) as a "book entry system," which means a "national book system for registering a beneficial interest in security instrument and its successors and assigns." As noted in Athey, mortgage documents provide for the use of MERS and the provisions are enforceable to the extent provided by the terms of the documents. The role of MERS in this case was consistent with the Note and Deed of Trust.
Under the Texas Property Code, a mortgagee may authorize a mortgage servicer to service a mortgage and conduct a foreclosure sale. See Tex. Prop. Code. Ann. § 51.0025. MERS is a mortgagee under the Texas Property Code. See Tex. Prop. Code Ann. § 51.0001(4). Since the Deed of Trust identifies MERS as the beneficiary and the nominee for the original lender and its successors and assigns, this makes MERS a mortgagee under the Texas Property Code. As a mortgagee, MERS could authorize Chase to service the loan and foreclose, regardless of whether MERS was the true owner of the Note. In addition, Plaintiff points to no provision of the Texas Property Code that requires a mortgagee or mortgage servicer to produce the original note or deed of trust before conducting a non-judicial foreclosure. See Sawyer v. Mortg. Elec. Registration Sys., Inc., No. 3-09-CV-2303-K, 2010 WL 996768, at *3 (N.D. Tex. Feb. 1, 2010). Moreover, Plaintiff fails to plead any facts indicating that the lender or lender's successors and assigns never held the Note, or that the Note has been lost or stolen.
A court recently addressed this issue and found as follows:
Plaintiff has no standing to contest the various assignments as she was not a party to the assignments. Even if she has standing, her allegations are without merit because MERS was given the authority to transfer the documents in the Deed of Trust. The Restatement (3d) of Property offers no support for Plaintiff's claims. As MERS is a beneficiary and nominee for both the originating lender and its successors and assigns by the express language in the Deed of Trust, the situation falls within an exception to the general rule that a party holding only the deed of trust cannot enforce the mortgage. See Comment e to the Restatement (3d) of Property (Mortgages) § 5.4. Section 5.4 additionally notes that a "transfer of an obligation secured by a mortgage also transfers the mortgage unless the parties to the transfer agree otherwise." Plaintiff makes no allegations that the parties in this case agreed otherwise. Finally, while the Note may not specifically mention MERS, the Note and Deed of Trust must be read together in evaluating the terms...thus, the Note and Deed of Trust are construed together as a single instrument.Eskridge v. Fed. Home Loan Mortg. Corp. et al., No. 6:10-CV-00285-WSS, 2011 WL 2163989, at *5 (W.D. Tex. Feb. 24, 2011).
Defendants argue, and the Court agrees, that Plaintiffs do not have standing to challenge the assignment.
The attacks on MERS have been repeatedly rejected by this Court as well as others. See Wigginton v. Bank of New York Mellon, No. 3:10-CV-2128-G, 2011 WL 2669071, at *2 (N.D. Tex. July 7, 2011); Anderson v. CitiMortgage, Inc., No. 4:10-CV-398, 2011 WL 1113494, at *4 (E.D. Tex. Mar. 24, 2011); Richardson, 2010 WL 4818556, at *5; Eskridge, 2011 WL 2163989, at *5; Williams v. Bank of New York Mellon, No. 3:09-CV-1622-BH, 2010 WL 3929007, at *1 (N.D. Tex. Oct. 7, 2010); Santarose v. Aurora Bank FSB, No. H-10-720, 2010 WL 2232819, at *5 (S.D. Tex. June 2, 2010); Athey v. Mortg. Elec. Registration Sys., Inc., 314 S.W.3d 161, 162 (Tex. App.-Eastland 2010, pet. denied); Hornbuckle v. Countrywide Home Loans, Inc., No. 02-09-00330-CV, 2011 WL 1901975, at *4 (Tex. App.-Fort Worth May 19, 2011, no pet.).
"In other words, a transfer of an obligation secured by a note also transfers the note because the deed of trust and note are read together to evaluate their provisions." DeFranchesci v. Wells Fargo Bank, N.A., No. 4:10-cv-455, 2011 WL 3875338, at *4 (N.D. Tex. Aug. 31, 2011). "Because the deed of trust specifically provided that MERS would have the power of sale, MERS had the power of sale that was passed to [BAC] upon MERS's assignment." Id. (quoting Richardson, 2010 WL 4818556, at *5). In short, there is no merit to Plaintiffs' argument that the Deed of Trust and Note were 'split,' rendering any attempted foreclosure defective.
Courts in Texas have repeatedly recognized that Texas law allows either a mortgagee or a mortgage servicer to administer a deed of trust foreclosure without production of the original note. See Wells v. BAC Home Loans Servicing, L.P., No. W-10-CA-00350, 2011 WL 2163987, at *3 (W.D. Tex. Apr. 26, 2011); Coleman v. Bank of America, N.A., No. 3-11-CV-0430-GBD, 2011 WL 2516169, at *2 (N.D. Tex. May 27, 2011), rec. adopted, 2011 WL 2516668 (N.D. Tex. June. 22, 2011); Dillard v. Mortgage Electronic Registration Systems, Inc., No. 3-10-CV-0091-N, slip op. at 4 n.1 (N.D. Tex. Apr. 16, 2010), appeal dismissed, No. 11-10069 (5th Cir. Apr. 21, 2011); Sawyer, 2010 WL 996768, at *3; Athey, 314 S.W.3d at 165-66; Tex. Prop. Code § 51.002(a)-(h) (setting forth requirements for non-judicial foreclosure in Texas, which do not include producing original note).
Plaintiffs assert a claim for suit to quiet title. Defendant moves to dismiss this claim because Plaintiff cannot plead sufficient facts to prevail on a trespass-to-try-title case. "To prevail in a trespass-to-try-title action, Plaintiff must usually (1) prove a regular chain of conveyances from the sovereign, (2) establish superior title out of a common source, (3) prove title by limitations, or (4) prove title by prior possession coupled with proof that possession was not abandoned." Martin v. Amerman, 133 S.W.3d 262, 265 (Tex. 2004)(citation omitted). "The pleading rules are detailed and formal, and require a plaintiff to prevail on the superiority of his title, not on the weakness of a defendant's title." Id. (citation omitted).
Defendant asserts that the only way Plaintiffs can extinguish Defendant's interest in the Property is to plead and prove a trespass-to-try-title action based upon Plaintiffs' superior title to the Property. The Court agrees. Plaintiffs do not assert a superior title, and they allege no facts that would support this claim. Plaintiffs merely assert legal conclusions, and until Plaintiffs plead a proper claim to a superior title, Plaintiffs' claim is not plausible.
Defendant also moves to dismiss Plaintiffs' claim for violation of the TDCA. Plaintiffs allege that by rejecting certain payments, Defendant misrepresented the character, extent, or amount of a debt against a consumer. Defendant asserts that a lender does not violate the TDCA simply by rejecting payments, and Plaintiffs are apparently attempting to indirectly imply that they were current on the loan. Defendant argues that Plaintiffs' own allegations demonstrate that they could not honestly make such an allegation, as they plainly missed multiple payments. Moreover, Plaintiffs fail to allege how they were injured by Defendant's alleged TDCA violation. The Court agrees. Plaintiffs have left the Court to speculate as to why Defendant's alleged rejection of five payments should entitle the Plaintiffs to any relief, and their TDCA claim should be dismissed as not plausible.
Plaintiffs also seek a declaratory judgment, asserting various allegations regarding whether the Note and Deed of Trust were transferred and assigned properly, whether Chase had standing to declare a default, whether the non-judicial foreclosure sale was valid, whether Chase was the lawful owner of the Property, whether the Note and security interest embodied in the Deed of Trust were separated.
When a declaratory judgment action filed in state court is removed to federal court, that action is, in effect, converted into one brought under the federal Declaratory Judgment Act, 28 U.S.C. §§ 2201, 2202. The federal Declaratory Judgment Act states, "[i]n a case of actual controversy within its jurisdiction, ... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." 28 U.S.C. § 2201. Federal courts have broad discretion to grant or refuse declaratory judgment. Torch, Inc. v. LeBlanc, 947 F.2d 193, 194 (5th Cir. 1991). "Since its inception, the Declaratory Judgment Act has been understood to confer on federal courts unique and substantial discretion in deciding whether to declare the rights of litigants." Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995). The Declaratory Judgment Act is "an authorization, not a command." Public Affairs Assocs., Inc. v. Rickover, 369 U.S. 111, 112 (1962). It gives federal courts the competence to declare rights, but does not impose a duty to do so. Id.
The Declaratory Judgment Act is a procedural device that creates no substantive rights and requires the existence of a justiciable controversy. Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 239-241 (1937); Lowe v. Ingalls Shipbuilding, 723 F.2d 1173, 1179 (5th Cir. 1984). Thus, the Act provides no relief unless there is a justiciable controversy between the parties. The Fifth Circuit stated as follows:
In order to demonstrate that a case or controversy exists to meet the Article III standing requirement when a plaintiff is seeking injunctive or declaratory relief, a plaintiff must allege facts from which it appears there is a substantial likelihood that he will suffer injury in the future. Based on the facts alleged, there must be a substantial and continuing controversy between two adverse parties. The plaintiff must allege facts from which the continuation of the dispute may be reasonably inferred. Additionally, the continuing controversy may not be conjectural, hypothetical, or contingent; it must be real and immediate, and create a definite, rather than speculative threat of future injury.Bauer v. Texas, 341 F.3d 352, 358 (5th Cir. 2003) (citations and quotations omitted).
Past exposure to illegal conduct does not in itself show a present case or controversy regarding injunctive relief ... if unaccompanied by any continuing, present adverse effects. To obtain equitable relief for past wrongs, a plaintiff must demonstrate either continuing harm or a real and immediate threat of repeated injury in the future. Similar reasoning has been applied to suits for declaratory judgments.
As Plaintiffs have alleged no facts that would lead to the conclusion that a present controversy exists between them and Defendant, Plaintiffs do not have a right to relief under the Declaratory Judgment Act.
Therefore, since the Court has determined that the basis of all Plaintiffs' claims are meritless, the Court finds that all of their claims are not plausible. After reviewing the claims asserted by Plaintiffs as well as the motion to dismiss, the Court finds that there are insufficient facts asserted to support plausible claims against Defendant. Plaintiffs' petition fails to include sufficient facts to support these claims. Conclusory statements are insufficient to state a claim and are not entitled to an assumption of truth.
RECOMMENDATION
Based upon the findings discussed above, the Court RECOMMENDS that Defendant JPMorgan Chase Bank, N.A's ("Chase") Motion to Dismiss Plaintiffs' First Amended Complaint (Dkt. #10) be GRANTED and all claims should be DISMISSED with prejudice.
Within fourteen (14) days after service of the magistrate judge's report, any party may serve and file written objections to the findings and recommendations of the magistrate judge. 28 U.S.C. § 636(b)(1)(C).
Failure to file written objections to the proposed findings and recommendations contained in this report within fourteen days after service shall bar an aggrieved party from de novo review by the district court of the proposed findings and recommendations and from appellate review of factual findings accepted or adopted by the district court except on grounds of plain error or manifest injustice. Thomas v. Arn, 474 U.S. 140, 148 (1985); Rodriguez v. Bowen, 857 F.2d 275, 276-77 (5th Cir. 1988).
SIGNED this 16th day of November, 2011.
/s/_________
AMOS L. MAZZANT
UNITED STATES MAGISTRATE JUDGE