Phillips et al v. First Horizon Home Loan Corp et al, No. 3:2012cv00013 - Document 49 (D. Nev. 2013)

Court Description: ORDER DENYING Plaintiffs' 39 Motion for Partial Summary Judgment; DENYING Defendants' 41 Motion for Summary Judgment. Signed by Chief Judge Robert C. Jones on 03/25/2013. (Copies have been distributed pursuant to the NEF - KR)
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Phillips et al v. First Horizon Home Loan Corp et al Doc. 49 1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 DISTRICT OF NEVADA 8 9 10 11 12 13 14 15 MARK PHILLIPS; REBECCA PHILLIPS, ) ) ) Plaintiff, ) v. ) ) ) ) FIRST HORIZON HOME LOAN ) CORPORATION; MORTGAGE ELECTRONIC REGISTRATION SYSTEM, ) INC.; JAMES WOODALL; THE MORTGAGE ) ) LAW FIRM, PLC; MAX DEFAULT SERVICES CORPORATION; FEDERAL NATIONAL MORTGAGE ASSOCIATION; CARMEN RIVERA, 18 ORDER Defendants. 16 17 3:12-cv-00013-RCJ-WGC ___________________________________ Before the Court is a wrongful foreclosure action alleging deceptive foreclosure 19 practice by parties not authorized to foreclose on Plaintiffs’ property. Plaintiffs now motion 20 the Court for partial summary judgment (ECF No. 39), and Defendants countermotion for 21 summary judgment (ECF No. 41). For the reasons stated herein, the Court denies 22 Plaintiffs’ and Defendants’ Motions for Summary Judgment. 23 I. FACTS AND PROCEDURAL HISTORY 24 On April 11, 2007, Plaintiffs Mark and Rebecca Phillips executed a note in the 25 amount of $266,840 secured by a deed of trust (the “Deed of Trust”) to the property located 26 at 2185 Evergreen Park Drive, Reno, Nevada 89521 (the “Property”). (Deed of Trust, ECF 27 No. 40-4, at 1-2). The Deed of Trust listed First Horizon Home Loan Corporation as lender, 28 Capital Title Company of Nevada as trustee, and MERS as nominee. (Id. at 1-2). Plaintiffs were unable to make the payments due on the loan secured by the Deed of 1 Trust on or about March 2010. (Amended Compl., ECF No. 28, at 5). Max Default Services 2 Corporation (“Max Default”) then recorded a notice of default on July 1, 2010, claiming to 3 be the trustee of the Deed of Trust. (Notice of Default, ECF No. 40-5, at 2-4). On July 8, 4 2010, Federal National Mortgage Association (“Fannie Mae”) substituted Max Default as 5 trustee. (Appt. Successor Trustee, ECF No. 40-5, at 5-6). On July 30, 2010, MERS 6 assigned all beneficial interest in the Deed of Trust to Fannie Mae. (Assignment, ECF No. 7 40-6, at 1-2). However, this assignment was not recorded with the Washoe County 8 Recorder until June 10, 2011. (Id.). 9 On November 1, 2010, a certificate from the State of Nevada Foreclosure Mediation 10 Program was issued. (Certificate, ECF No. 40-7, at 1). This certificate was recorded a year 11 later on November 14, 2011. (Id.). James Woodall executed a notice of trustee’s sale on 12 November 1, 2011, which was recorded on November 14, 2011. (Notice of Sale, ECF No. 13 40-7, at 2-3). On November 7, 2011, Fannie Mae executed a substitution of trustee, 14 formally substituting James Woodall, The Mortgage Law Firm, and Max Default as trustees 15 of the Deed of Trust. (Sub. Trustee, ECF No. 40-6, at 3-4). On November 28, 2011, the 16 Property was sold to Fannie Mae in satisfaction of the unpaid debt on the loan, which 17 amounted to $289,472.56. (Deed Upon Sale, ECF No. 40-8). 18 Plaintiffs filed a pro se complaint in Nevada state court on November 28, 2011 19 against First Horizon Home Loan Corporation, MERS, James Woodall, The Mortgage Law 20 Firm, Max Default, Fannie Mae, and Carmen Rivera. (Compl., ECF No. 1-1, at 1). The 21 complaint asserted two causes of action, the first for quiet title and the second for 22 intentional interference with a prospective economic advantage. (Id. at 8-10). The dispute 23 was then removed to this Court on January 9, 2012 under diversity jurisdiction. (Pet. for 24 Removal, ECF No. 1, at 2). 25 Defendants Fannie Mae and MERS filed a motion to dismiss the complaint for failure 26 to state a claim along with a motion to expunge the lis pendens on the Property on January 27 19, 2012. (Mot. to Dismiss, ECF No. 5; Mot. to Expunge ECF No. 6). Plaintiffs then filed 28 three motions on January 27, 2012: (1) a motion to amend the complaint; (2) a motion for 2 1 partial summary judgment; and (3) a motion to remand the action to state court. (Mot. to 2 Amend, ECF No. 11; Mot. for Partial Summ. J., ECF No. 12; Mot. to Remand, ECF No. 13). 3 The amended complaint alleges four causes of action, including: (1) quiet title; (2) wrongful 4 foreclosure; (3) negligence; and (4) deceit. (Am. Compl., ECF No. 28, at 10-13). The 5 amended complaint further removes First Horizon Home Loan Corporation and Carmen 6 Rivera as defendants. (Id.). 7 The Court denied Defendants’ motions to dismiss and to expunge lis pendens on the 8 basis they were moot as Plaintiffs had amended the Complaint. (Order, ECF No. 27). The 9 Court also denied Plaintiffs’ motions for partial summary judgment and to remand, but 10 11 12 granted their motion to amend the Complaint. (Id.). Before the Court now are Plaintiffs’ Motion for Partial Summary Judgment, and Defendants Motion for Summary Judgment. 13 II. 14 A motion for summary judgment is a procedure that terminates, without a trial, 15 actions in which “there is no genuine issue as to any material fact and that the moving party 16 is entitled to a judgment as a matter of law.” Federal Rule of Civil Procedure 56(a). The 17 party seeking summary judgment always bears the initial burden of persuasion to the court. 18 Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The moving party must identify those 19 parts of the pleadings, depositions, answers to interrogatories, and admissions on file, 20 together with affidavits, if any, which it believes demonstrate the absence of a genuine 21 issue of material fact. Id. “The court need consider only cited material, but it may consider 22 other materials in the record.” Fed. R. Civ. P. 56(c)(3). The principal purpose of summary 23 judgment is “to isolate and dispose of factually unsupported claims.” Id. at 324. Material 24 facts are those which may affect the outcome of the case. See Anderson v. Liberty Lobby, 25 Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is genuine if there is 26 sufficient evidence for a reasonable jury to return a verdict for the nonmoving party. See id. 27 In determining summary judgment, a court uses a burden-shifting scheme: 28 LEGAL STANDARDS When the party moving for summary judgment would bear the burden of proof 3 1 2 at trial, it must come forward with evidence which would entitle it to a directed verdict if the evidence went uncontroverted at trial. In such a case, the moving party has the initial burden of establishing the absence of a genuine issue of fact on each issue material to its case. 3 C.A.R. Transp. Brokerage Co. v. Darden Rests., Inc., 213 F.3d 474, 480 (9th Cir. 2000) 4 (citation and internal quotation marks omitted). In contrast, when the nonmoving party 5 bears the burden of proving the claim or defense at trial, the moving party can meet its 6 burden in two ways: (1) by presenting evidence to negate an essential element of the 7 nonmoving party’s case; or (2) by demonstrating that the nonmoving party failed to make a 8 showing sufficient to establish an element essential to that party’s case on which that party 9 will bear the burden of proof at trial. See Celotex Corp., 477 U.S. at 323–24. If the moving 10 party fails to meet its initial burden, summary judgment must be denied and the court need 11 not consider the nonmoving party’s evidence. See Adickes v. S.H. Kress & Co., 398 U.S. 12 144, 159–60 (1970). 13 If the moving party meets its initial burden, the burden then shifts to the opposing 14 party to establish a genuine issue of material fact. See Matsushita Elec. Indus. Co. v. 15 Zenith Radio Corp., 475 U.S. 574, 586 (1986). To establish the existence of a factual 16 dispute, the opposing party need not establish a material issue of fact conclusively in its 17 favor. It is sufficient that “the claimed factual dispute be shown to require a jury or judge to 18 resolve the parties’ differing versions of the truth at trial.” T.W. Elec. Serv., Inc. v. Pac. Elec. 19 Contractors Ass’n, 809 F.2d 626, 631 (9th Cir. 1987). In other words, the nonmoving party 20 cannot avoid summary judgment by relying solely on conclusory allegations that are 21 unsupported by factual data. See Taylor v. List, 880 F.2d 1040, 1045 (9th Cir. 1989). 22 Instead, the opposition must go beyond the assertions and allegations of the pleadings and 23 set forth specific facts by producing competent evidence that shows a genuine issue for 24 trial. See Fed. R. Civ. P. 56(e); Celotex Corp., 477 U.S. at 324. At the summary judgment 25 stage, a court’s function is not to weigh the evidence and determine the truth, but to 26 determine whether there is a genuine issue for trial. See Anderson, 477 U.S. at 249. The 27 evidence of the nonmovant is “to be believed, and all justifiable inferences are to be drawn 28 in his favor.” Id. at 255. 4 1 III. DISCUSSION 2 In their amended Complaint, the Phillips allege four claims: 1) a wrongful foreclosure 3 claim against Fannie Mae; 2) A quiet title claim against Fannie Mae; 3) a negligence claim 4 against Woodall, the Law Firm, and Max Default; and 4) a Fraud claim against Max Default 5 and MERS. 6 Plaintiffs move for partial summary judgment on their claims of Wrongful Foreclosure 7 and Eviction and Quite Title of Declaration of Rights, “but only where those causes of 8 action rely on the deficiency of status of Max Default Services Corporation as trustee.” 9 (Mot. Partial Summary J., ECF No. 39, at 2). Plaintiffs posit to the Court “whether a non- 10 judicial foreclosure can validly be effectuated by a party who is not trustee, but who is 11 legally a stranger to the note and deed of trust.” (Id.). The applicable statutes on 12 foreclosure in 2010 provide that “The power of sale must not be exercised, however, until: 13 [t]he beneficiary, the successor in interest of the beneficiary or the trustee first executes 14 and causes to be recorded . . . a notice of a breach and the election to sell . . . .” N.R.S. § 15 107.080 (2)(c). Thus, the beneficiary, the trustee, or a successor in interest may 16 commence a non-judicial foreclosure proceeding provided other notice requirements are 17 met. The statutes specifically state “to secure the performance of an obligation or the 18 payment of any debt, a power of sale is hereby conferred upon the trustee to be exercised 19 after a breach of the obligation . . . .” N.R.S. § 107.080 (1). Therefore, it is typically the 20 trustee who executes the NOD and NOS in a non-judicial foreclosure. 21 Plaintiffs correctly assert that a party must first ascend to the position of trustee 22 before it can exercise the rights of a trustee. Because the NOD was filed by Max Default 23 on July 1, 2010, which was arguably prior to the notarized substitution of trustee dated July 24 8, 2010, Plaintiffs argue Max Default had no authority to execute the NOD. Defendants 25 assert the trustee, Max Default, was the properly appointed trustee at the time of the 26 foreclosure proceedings because the substitution was dated June 28, 2010. However, the 27 Court finds conflicting dates in the notarizing and recording of the substitution of trustee in 28 relation to this purported substitution date of June 28, 2010. Defendants assert that the notarization, which occurred more than a week later, is simply a memorial of the actual 5 1 appointment on June 28, 2010. The Court does not agree, and finds that the signature of 2 the beneficiary authorizing the substitution is the legally recognized execution of the 3 substitution that the notary is swearing to have witnessed under penalty of perjury. The 4 signature within the document purporting the authority to appoint a substituted trustee is the 5 effective instrument which provides the rights and powers to that newly appointed entity. 6 Regarding the appointment or substitution of a trustee, the signatures in the document 7 represent the legal authority to its time and contents, and the notary is the legal recognition 8 of the signatures therein. This issue is of no small consequence due to all the recent 9 foreclosures which have and are occurring in an automated fashion in Nevada. The 10 substitutions of trustees and assignments of beneficiaries of deeds often occur several 11 times in the course of a foreclosure. Due to the often conflicting dates of these 12 substitutions, and whether the trustee was in authority to proceed with a non-judicial 13 foreclosure, Nevada legislators recently added a statutes addressing the problem. Nevada 14 Revised Statute § 107.028 details qualifications, limitations on powers, and the required 15 notice of substituted trustees and became effective July 1, 2011. Although not relevant to 16 this first NOD in this action, its language is applicable to the latter substitution which will be 17 analyzed in this Order. Among other requirements, it specifically states that the 18 appointment or substitution of a trustee is not effective until it is recorded in the county in 19 which the real property is located. N.R.S. 107.028(4). 20 Nevada law requires that the beneficiary or trustee first executes and records a 21 Notice of Default and of the Election to Sell prior to a trustee exercising its power of sale. 22 As mentioned above, Defendant, Max Default, filed the NOD on July 1, 2010. (NOD, ECF 23 No. 40-5, at 2-3). The first Appointment of Successor Trustee was executed on July 8, 24 2010. (Appt. Succ. Trustee, ECF No. 40-5, at 4). Thus, Max Default was not legally 25 authorized to execute the NOD, as it was not as yet the trustee. Further, the Court finds 26 even more conflicts regarding the assignment of the deed of trust and who was the actual 27 beneficiary at this time. In both the NOD and the Appointment of Successor Trustee, Max 28 Default is named as the trustee who is acting for the benefit of Fannie Mae. The NOD was executed by Max Default on July 1, 2010. The Appointment of Successor of Trustee was 6 1 executed on July 8, 2010 by Fannie Mae. However, contrary to Defendants claims, but 2 according to documentation in exhibits, Fannie Mae was not assigned the deed of trust until 3 July 30, 2010. (Corporate Assign. Deed Trust, ECF No. 40-6, at 1-2). Thus, Max Defaults 4 substitution as trustee was not executed by the beneficiary of the deed. 5 At some point, it appears Fannie Mae began the foreclosure process anew. As 6 mentioned above, the foreclosure statutes have been amended and even some additional 7 requirements are required in a non-judicial foreclosure. On November 7, 2011, Fannie Mae 8 executed another Substitution of Trustee naming Max Default and James Woodall, The 9 Mortgage Law Firm, LLC, as trustee. (Sub. Trustee, ECF No. 40-6, at 3-4). The addition of 10 James Woodall is likely due to NRS 107.028 which mandates “The trustee under a deed of 11 trust must be: An attorney licensed to practice law in this state; . . . .” NRS 107.028(1)(a). 12 On November 14, 2011, Max Default recorded the certificate of the state mediation 13 foreclosure program purporting to indicate that no request for mediation was made by 14 Plaintiffs. (Certificate, ECF No. 40-7, at 1). However, this certificate was more than a year 15 old and dated November 1, 2010. The same day, November 14, 2011, Max Default 16 recorded the Substitution of Trustee and a Notice of Trustees Sale. (Notice of Sale, ECF 17 No. 40-7, at 2-3). The NOS stated that the Property would be sold at public auction on 18 November 28, 2011. The property was sold to Fannie Mae on November 28, 2011. 19 Defendants failed to execute a valid NOD prior to the NOS. The statutes are very 20 clear about required notice prior to foreclosure. “The power of sale shall not be exercised 21 until: the beneficiary, the successor in interest of the beneficiary, or the trustee first 22 executes and causes to be recorded . . . a notice of the breach and of the election to sell . . 23 . .” N.R.S. § 107.080; see also N.R.S. § 107.086 (additional requirements for owner- 24 occupied housing). In other words, the steps in a non-judicial foreclosure sale commence 25 with the execution of a NOD. See Id. Then, depending on whether mediation is requested, 26 the NOS may be executed, followed by the actual auction and sale of the property. The 27 Court finds Defendants did not follow statutory procedures in their attempt to foreclose on 28 Plaintiffs mortgage. Defendants assert there was no wrongful foreclosure. Citing to an order from this Chamber, Defendants claim, “[a]s long as the note is in default and the 7 1 foreclosing trustee is either the original trustee or has been substituted by the holder of the 2 note or the holder’s nominee, there is simply no defect in foreclosure.” Gomez v. 3 Countrywide Bank, FSB, No. 09-1489, 2009 WL 3617650, at *2 (D. Nev. October 26, 4 2009). This is true, but Plaintiffs’ contention is with the unauthorized trustee, not whether 5 the note was in default. 6 The facts support the allegation that Plaintiffs have defaulted on their mortgage note. 7 And, Plaintiffs have not contented otherwise. Plaintiffs have continually remained in 8 possession of the Property since the commencement of these foreclosure proceedings 9 and, apparently, have not made any payments towards the debt on the Property since 10 March of 2010. Clearly there is a note that is in default and a beneficiary that is entitled to 11 the security of the mortgage, or payment of the note. Defendants have failed to provide 12 any evidence to prove they were authorized to proceed with the foreclosure in July of 2010. 13 Yet, the fact remains that Plaintiffs have not disputed the allegations of their default for non 14 payment. A foreclosure is not wrongful if the note was in default. See Gomez, FSB, No. 15 09-1489, 2009 WL 3617650, at *2. The Court finds that at some time during the process 16 Defendants had the authority to foreclose, they just didn’t follow the rules. What remains to 17 be determined is if there are any damages, statutory or otherwise, that Plaintiffs are entitled 18 to for Defendants wrongful actions. If so, are any of those damages offset by Plaintiffs 19 continued possession and use of the Property during the past three years? 20 For the reasons stated above, at this time the Court denies Plaintiffs Motion for 21 Partial Summary Judgment and denies Defendants Countermotion for Summary Judgment. 22 CONCLUSION 23 For the foregoing reasons, IT IS ORDERED Plaintiffs’ Motion for Partial Summary 24 Judgement (ECF No. 39) is DENIED. It is further ORDERED Defendants Countermotion for 25 Summary Judgment (ECF No. 41) is DENIED. 26 Dated: This 25th day of March, 2013. 27 DATED: This day of February, 2013. ____________________________ ROBERT C. JONES 28 8