Barrow v. NewRez LLC ( 2021 )

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 James Barrow, et al., No. CV-20-08064-PCT-SMB 10 Plaintiffs, ORDER 11 v. 12 NewRez LLC, et al., 13 Defendants. 14 15 Pending before the Court is Defendants New Residential Mortgage, LLC’s and 16 NewRez LLC, d/b/a/ Shellpoint Mortgage Servicing’s (hereafter “NewRez”) Motion to 17 Dismiss Plaintiffs’ Amended Complaint for failure to state a claim. (Doc. 21.) Plaintiffs 18 James Barrow and George A. Tacker have filed a response, (Doc. 23.), and NewRez has 19 filed a reply. (Doc. 24.) Having considered the pleadings, applicable statutes, and caselaw, 20 the Court issues the following decision. 21 I. Background 22 This is a dispute over Defendants’ attempt to enforce a Deed of Trust against a 23 parcel of real property located at 12888 East Ponce Drive, Prescott Valley, Arizona 85327 24 (“the Property”). Plaintiffs brought this case seeking a declaratory judgment that 25 Defendants are not legally entitled to claim the real property or to enforce their dead of 26 trust. (Doc. 19 at 10.) Additionally, Plaintiffs seek damages and relief against Defendants 27 for Slander of Title, Wrongful Foreclosure, and alleged violations of Fair Debt Collection 28 Practices Act (“FDCPA”), 15 U.S.C. § 1692 et seq. 1 A. Allegations of the Complaint 2 The factual allegations of Plaintiffs’ Amended Complaint are as follows: On or 3 around September 25, 2007, Rebecca Borrow purchased the Property with a loan secured 4 by a Deed of Trust with Carnegie Mortgage, LLC. (Doc. 19 at 3.) Shortly after this, 5 Rebecca Borrow transferred her interest in the property to an LLC of which she was a 6 member. (Id.) Eventually, in 2009, the Property was transferred a second time to Covey 7 2888, LLC (“the Covey LLC”), of which Rebecca Barrow and Plaintiff James Barrow were 8 members. (Id. at 4.) After the Property was transferred to the Covey LLC, that entity started 9 paying Rebecca Barrows’ monthly mortgage payment on the Property. (Id.) In February 10 2010, Rebecca Barrow filed for Chapter 7 bankruptcy, and listed the Property in her 11 bankruptcy schedule as a debt for which she was seeking relief. (Id.) She also listed the 12 creditor holding the note and deed of trust on the Property in her schedule D filing. (Id.) In 13 June of 2010, Rebecca Barrow was granted a complete discharge in her Chapter 7 14 bankruptcy filing. (Id.) After the bankruptcy, Rebecca Barrows did not reaffirm her debt 15 on the Property, and since “the middle of 2010…no monthly mortgage payments were 16 made by [Rebecca] Barrows, Covey 2888, LLC, or any recorded owner of the real property 17 to any lender...” (Id. at 4-5.) 18 On or around February 9, 2018 the entity holding the Deed of Trust at that time, 19 Ditech Financial, filed a Notice of Trustee Sale advising Plaintiffs that it would foreclose 20 on the Property. (Id. at 6.) Plaintiffs allege that at the time of filing the Notice of Trustee 21 Sale, Defendant the Mortgage Law Firm, and Ditech Financial were aware that no monthly 22 mortgage payments had been made “for the last 2718 days.” (Id. at 6.) Further, Plaintiffs 23 state that “after recording the Notice of Trustee Sale for all to see, Ditech and [the Mortgage 24 Law Firm]…went to the [] Property where a tenant was residing and provided the tenant 25 with a copy of the Notice.” (Id.) As a result, that tenant stopped paying rent to the Plaintiffs. 26 (Id.) After the Notice of Trustee Sale had been filed, on or around September 13, 2019, 27 Defendant NewRez was assigned the Deed of Trust on the Property by Ditech Financial. 28 (Id. at 5.) Allegedly, NewRez has been mailing monthly statements to Rebecca Barrows 1 advising that she still owes on the real property “despite the fact that the obligation to pay 2 the underlying note was discharged in bankruptcy in June 2010.” (Id.) On August 3, 2019 3 the Covey LLC transferred title to the Property to James Barrow and George A. Tacker, 4 the Plaintiffs bringing the present action. (Id. at 9.) 5 Plaintiffs assert that the Defendants’ right to foreclose or hold a trustee sale is barred 6 by the applicable statute of limitations. Plaintiffs argue that the Defendants’ right to 7 foreclose is governed by A.R.S. § 33-816 which states that a trustee’s sale of trust property 8 shall be made “within the period prescribed by law for the commencement of an action on 9 the contract secured by the trust deed.” Further, Plaintiffs argue that the applicable statute 10 of limitations for the contract secured by the deed of trust is six years. (Id. at 6 (citing 11 A.R.S. § 12-548(A)(1)).) Plaintiffs contend the statute of limitations in this case began to 12 run after Rebecca Barrow was discharged in June of 2010, and as such, the six-year 13 limitation passed in June of 2016, more than two years before Defendants noticed the 14 Trustee Sale. (Id. at 7.) This forms the basis of each of the Plaintiffs’ claims. Plaintiffs 15 allege that because the statute of limitations had passed, the deed of trust was 16 unenforceable. As such, Plaintiffs argue that by recording a Notice of Trustee Sale, 17 Defendants have slandered Plaintiffs’ title to the Property. (Id. at 11.) Further, Plaintiffs 18 allege that in the absence of an enforceable deed of trust, Defendants’ actions constitute a 19 wrongful foreclosure. (Id. at 12.) Plaintiffs also seek a declaratory judgement from the 20 Court to the effect that the Deed of Trust is unenforceable and that Defendants have no 21 right to the Property. (Id. at 10.) Finally, Plaintiffs bring a claim under the FDCPA, alleging 22 that Defendants have violated federal law by attempting to enforce and collect a debt that 23 is barred by law from being enforced. (Id. at 13-14.) 24 B. Facts Established by Judicially Noticed Documents 25 NewRez has offered several additional documents for the Court’s consideration in 26 deciding this motion.1 (Doc. 21 at 14-75.) The Court takes judicial notice of the documents 27 1 While normally the Court will not look outside the allegations when deciding a motion to 28 dismiss, “[a] court may…consider…documents incorporated by reference in the complaint, or matters of judicial notice.” United States v. Ritchie, 342 F.3d 903, 907-08 1 attached to Defendants’ motion which establish the following facts: The Covey LLC 2 obtained title to the Property by a quitclaim deed recorded on May 21, 2009. (Doc. 21 at 3 Ex. C.) Rebecca Barrow filed for Bankruptcy on January 20, 2010 and received her 4 discharge in Bankruptcy Court on June 7, 2010. (Id. at Ex. E.) On May 11, 2012, the 5 original holder of the Deed of Trust assigned their interest in the deed to CitiMortgage Inc. 6 (Id. at Ex. F.) On July 24, 2012, more than two years after Ms. Barrow obtained her 7 discharge, CitiMortgage Inc. obtained an order from the bankruptcy court lifting the 8 automatic bankruptcy stay on the Property. (Id. at Ex. G.) Subsequently, CitiMortgage Inc. 9 assigned its interest to Ditech Financial, who eventually assigned its interest to New 10 Residential Mortgage on September 5, 2019. (Id. at Ex.’s H, L.) On September 19, 2019, 11 Plaintiffs filed the present suit against Ditech Financial, and on February 5, 2020 the 12 NewRez filed a motion to intervene as the real party in interest. (Doc. 1.) 13 NewRez filed a motion to dismiss Plaintiffs’ claims on May 18, 2020, (Doc. 21), 14 arguing that the bankruptcy code and applicable caselaw demonstrates that the statute of 15 limitations on their claim has not expired. NewRez argues that because their Notice of 16 Trustee Sale was actually brought within the time period set by the applicable statute of 17 limitations, all Plaintiffs’ claims must be dismissed. (Id. at 2.) 18 II. Standard of Review 19 To survive a Rule 12(b)(6) motion for failure to state a claim, a complaint must meet 20 the requirements of Rule 8(a)(2). Rule 8(a)(2) requires a “short and plain statement of the 21 claim showing that the pleader is entitled to relief,” so that the defendant has “fair notice 22 of what the . . . claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 23 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). Dismissal 24 under Rule 12(b)(6) “can be based on the lack of a cognizable legal theory or the absence 25 of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police 26 Dep’t, 901 F.2d 696, 699 (9th Cir. 1988). A complaint that sets forth a cognizable legal 27 (9th Cir. 2003). Defendants have requested the Court take judicial notice of these 28 documents. Plaintiffs do not address the request in their response, and it appears to the Court the documents are property the subject of judicial notice. 1 theory will survive a motion to dismiss if it contains sufficient factual matter, which, if 2 accepted as true, states a claim to relief that is “plausible on its face.” Ashcroft v. Iqbal, 3 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). Facial plausibility exists if 4 the pleader sets forth “factual content that allows the court to draw the reasonable inference 5 that the defendant is liable for the misconduct alleged.” Id. 6 Although a complaint attacked for failure to state a claim does not need detailed 7 factual allegations, the pleader’s obligation to provide the grounds for relief requires “more 8 than labels and conclusions, and a formulaic recitation of the elements of a cause of action 9 will not do.” Twombly, 550 U.S. at 555 (internal citations omitted). Rule 8(a)(2) “requires 10 a ‘showing,’ rather than a blanket assertion, of entitlement to relief,” as “[w]ithout some 11 factual allegation in the complaint, it is hard to see how a claimant could satisfy the 12 requirement of providing not only ‘fair notice’ of the nature of the claim, but also ‘grounds’ 13 on which the claim rests.” Id. at 555 n.3 (citing 5 Charles A. Wright & Arthur R. Miller, 14 Federal Practice & Procedure § 1202, at 94–95 (3d ed. 2004)). Thus, Rule 8’s pleading 15 standard demands more than “an unadorned, the-defendant-unlawfully-harmed-me 16 accusation.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 555). 17 III. Analysis 18 A. Applicable Statute of Limitations 19 Defendants filed their Notice of Trustee Sale within the six-year statute of 20 limitations because the statute of limitations was tolled by the bankruptcy stay against the 21 Property until July 24, 2012. 22 Under Arizona law, “any action to foreclose a trust deed as provided by law for the 23 foreclosure of mortgages on real property shall be commenced, within the period 24 prescribed by law for the commencement of an action on the contract secured by the trust 25 deed.” A.R.S. § 33-816. The applicable “period prescribed by law” in this case is six years. 26 A.R.S. § 12-548. However, the statute of limitations is tolled by a bankruptcy stay, and 27 will not run until the stay is lifted. Mlynarczyk v. Wilmington Sav. Fund Soc'y FSB, No. 28 CV-15-08235-PCT-SPL, 2016 U.S. Dist. LEXIS 87462, at *14 (D. Ariz. Apr. 29, 2016) 1 (citing In re Smith, 209 Ariz. 343, 345 (Ariz. 2004)); see also U.S. Bank NA v. Va Bene 2 Trist, LLC (Va Bene Trist, LLC), Nos. Chapter 12 Proceedings, 2:17-bk-00993-DPC, 2017 3 Bankr. LEXIS 3726 (Bankr. D. Ariz. Oct. 26, 2017). “[T]he stay of an act against property 4 of the estate…continues until such property is no longer property of the estate.” 11 U.S.C. 5 § 362(c)(1) (emphasis added). In chapter 7 proceedings concerning an individual, “[T]he 6 stay of any other act…continues until…a discharge is granted.” 11 U.S.C. § 362(c)(2) 7 (emphasis added). Filing a Notice of Trustee Sale is considered “an act against the property 8 of the estate.” Mlynarczyk, 2016 U.S. Dist. LEXIS 87462, at *15-16 (citing 11 U.S.C. § 9 362(a)(3), (5)). 10 Here, because filing of a Notice of Trustee Sale is an act against the property of the 11 estate, the termination of the bankruptcy stay is governed by 11 U.S.C. § 362(c)(1). This 12 means the bankruptcy stay remained in place, and the statute of limitations remained tolled, 13 until the bankruptcy court lifted the stay as to the Property on July 24, 2012. (Doc. 21 at 14 Ex. G.) Defendants filed their Notice of Trustee Sale with the Yavapai County Recorder’s 15 Office on February 9, 2018. (Doc. 19 at 6.) As such, Defendants’ efforts to enforce the 16 Deed of Trust commenced more than five months prior the expiration of the statute of 17 limitations. 18 Plaintiffs’ argument that the stay was lifted on June 7, 2010, when Rebecca Barrow 19 was personally discharged from bankruptcy, is incorrect. Plaintiffs base their argument on 20 11 U.S.C. § 362(c)(2)(C) which lifts the bankruptcy stay as to certain acts at “the time a 21 discharge is granted.” However, § 362(c)(2), clearly states that it only lifts the stay for acts 22 other than “act[s] against property of the estate.” Because filing a Notice of Trustee Sale 23 is an act against the property of the estate, this provision is inapplicable. Rebecca Barrow’s 24 discharge did not lift the stay against the Property and the statute of limitations remained 25 tolled until the bankruptcy court issued an order lifting the stay on July 24, 2012. (Doc. 21 26 at Ex. G.) 27 B. Resolution of the Plaintiffs’ Claims 28 Because the Court finds that the Notice of Trustee Sale was filed within the 1 applicable statute of limitations, the Plaintiffs’ claims must be dismissed. Each of 2 Plaintiffs’ claims depends on the assertion that Defendants are wrongfully seeking to 3 enforce an invalid Deed of Trust. (Doc. 19 at 10-14.) Yet Plaintiffs’ argument that the Deed 4 of Trust is invalid fully depends on the Court finding that the statue of limitations for its 5 enforcement has passed. As the Court details above, the statute of limitations has not passed 6 on the Deed of Trust, and Defendants’ efforts to enforce it are perfectly permissible. Thus, 7 Plaintiffs cannot state a claim for Slander of Title because Defendants’ Notice of Trustee 8 Sale is valid and does not contain the “false” information Plaintiffs’ claim. Plaintiffs’ 9 cannot state a claim for Wrongful Foreclosure because Defendants’ efforts to foreclose are 10 being brought under a valid and enforceable Deed of Trust. For similar reasons, Plaintiffs 11 cannot state a claim for violations of the FDCPA because Defendants’ are legally entitled 12 to foreclose on their Deed of Trust. Finally, Plaintiffs are not entitled to a declaratory 13 judgment that “the Defendants are not legally entitled to claim title to the [Property] or 14 enforce any Deed of Trust,” because Defendants’ Deed of Trust is valid and enforceable 15 within the statute of limitations.2 16 C. Amendment 17 Rule 15 of the Federal Rules of Civil Procedure provides that the Court “should 18 freely give leave [to amend] when justice so requires.” Fed. R. Civ. P. 15(a)(2). When 19 dismissing for failure to state a claim, “a district court should grant leave to amend even if 20 no request to amend the pleading was made, unless it determines that the pleading could 21 not possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1130 22 (9th Cir. 2000) (quoting Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995)); see also 23 24 2 Because of the Court’s finding that the bankruptcy stay tolled the statute of limitations until July 24, 2012, it is unnecessary for the Court to resolve the parties remaining 25 arguments. The Court need not determine a bankruptcy discharge’s effect on accrual of a 26 cause of action or acceleration of the loan. Even if such discharge would normally accelerate a loan, the bankruptcy stay still tolled the statute of limitations for actions against 27 the property until the Bankruptcy Court lifted the stay. The Court also need not determine 28 the scope of the FDCPA’s application to the parties. Even assuming the FDCPA did apply, Defendants’ efforts did not seek to enforce an unenforceable debt as Plaintiffs’ claim. 1|| Carrico v. City & County of San Francisco, 656 F.3d 1002, 1008 (9th Cir. 2011) (“It is || properly denied, however, if amendment would be futile.”’). 3 Here the Court finds that allowing amendment of Plaintiffs’ complaint would be 4|| futile. To quote the Plaintiffs’, “these dates are a simple matter of record.” (Doc. 23 at 7.) 5 || Even if the Court allowed Plaintiffs’ to amend their allegations, they could not overcome 6|| the judicially noticeable facts establishing that Defendants filed their Notice of Trustee Sale within the six-year statute of limitations. For this reason, Plaintiffs’ Amended 8 || Complaint will be dismissed with prejudice. 9 IV. Conclusion 10 Accordingly, 11 IT IS ORDERED that Defendants’ motion to dismiss the Plaintiffs’ amended 12 || complaint (Doc. 21) is granted and the complaint is dismissed with prejudice. 13 Dated this 11th day of March, 2021. 14 15 a . ~P 16 SO 17 Gnted States District lodge 18 19 20 21 22 23 24 25 26 27 28 -8-