Patricia Beverly v. the Bank of New York Mellon ( 2018 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS OCT 17 2018
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
PATRICIA BEVERLY, individually and on No. 17-55557
behalf of all others similarly situated,
D.C. No.
Plaintiff-Appellant, 8:16-cv-01928-DOC-KES
v.
MEMORANDUM*
THE BANK OF NEW YORK MELLON,
FKA The Bank of New York, a New York
corporation, as Trustee for the Certificate-
holders of the The CWABS, Inc. Asset-
Backed Certificates, Series 2005-16;
DITECH FINANCIAL LLC, FKA Green
Tree Servicing; DOES, 1-10,
Defendants-Appellees.
Appeal from the United States District Court
for the Central District of California
David O. Carter, District Judge, Presiding
Submitted October 10, 2018**
Pasadena, California
Before: HURWITZ and OWENS, Circuit Judges, and PRESNELL,*** District Judge.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
***
The Honorable Gregory A. Presnell, United States District Judge for
Patricia Beverly bought a house in 2005, executing a promissory note (the
“Note”) and a deed of trust (the “Deed of Trust”) secured by the property. Her
complaint alleges that in 2011 the Note and Deed of Trust were purportedly
transferred to Defendant Bank of New York Mellon (“BONY”) as trustee for a
Real Estate Mortgage Investment Conduit (“REMIC”) trust. In 2014, she further
alleges, BONY purported to substitute MTC Financial, Inc., d/b/a Trustee Corps
(“Trustee Corps”), for itself as trustee under the Deed of Trust. After Beverly
defaulted, BONY instructed Trustee Corps to initiate foreclosure proceedings,
which resulted in the November 2015 sale of her house (to BONY) at public
auction.
A REMIC trust is defined in the Internal Revenue Code as an entity
“substantially all of the assets of which consist of qualified mortgages and
permitted investments.” 26 U.S.C. § 860D(a)(4). The Code defines “qualified
mortgage” as any obligation principally secured by an interest in real property and
which is transferred to or purchased by the REMIC trust within certain specified
time frames. 26 U.S.C. § 860G(a)(3).
In 2016, Beverly filed a putative class action, arguing that the 2011 transfer
failed because it occurred years too late for the Deed of Trust to meet the
requirements to be a “qualified mortgage,” and therefore its transfer into the
the Middle District of Florida, sitting by designation.
2
REMIC trust was precluded both by the terms of that trust’s Pooling and Servicing
Agreement (“PSA”) and by the Internal Revenue Code. Because the transfer
failed, her argument continues, BONY never had authority to initiate the
foreclosure proceedings. In the alternative, she argues that the foreclosure was
improper because of various problems with foreclosure-related documents, such as
notary signatures and notices of default that (wrongly, in her view) showed BONY
as the beneficiary of the Deed of Trust. She asserted one claim for wrongful
foreclosure and another for violation of California’s Homeowner Bill of Rights,
Cal. Civ. Code §§ 2920-2924 (the “HBOR”).1
BONY and its co-defendant, Ditech Financial LLC, f/k/a Green Tree
Servicing (“Ditech”), filed a Rule 12(b)(6) motion, arguing that Beverly’s claims
were barred by res judicata based on an earlier unlawful detainer action and that
she lacked standing to challenge the 2011 transfer to BONY. The district court
rejected the res judicata argument but found that Beverly lacked standing and
therefore dismissed her claims with prejudice. Beverly timely appealed.
We have jurisdiction under 28 U.S.C. § 1291, and we review a dismissal
pursuant to Fed. R. Civ. P. 12(b)(6) de novo. We affirm.
1
Beverly also asserted claims under the Rosenthal Fair Debt Collection
Practices Act, Cal. Civ. Code §§ 1788-1788.32, and California’s unfair
competition statute, Cal. Bus. & Prof. Code §§ 17200-17210, but she does not
challenge the dismissal of these claims on appeal.
3
After the foreclosure but before the filing of this action, BONY filed an
unlawful detainer action against Beverly. She stipulated to an entry of judgment in
favor of BONY on October 26, 2016. The district court found that res judicata did
not apply because the issues resolved in the unlawful detainer action did not
encompass Beverly’s failed-transfer theory. See Vella v. Hudgins, 572 P.2d 28, 30
(Cal. 1977) (noting that unlawful detainer action “is summary in character,” that
“ordinarily, only claims bearing directly upon the right of immediate possession
are cognizable,” and that, as a result, “judgment in unlawful detainer usually has
very limited res judicata effect”). As an additional ground for affirmance on
appeal, the Defendants argue that res judicata should have applied. However, they
have made no showing that the failed-transfer issue was actually addressed in the
unlawful detainer action. See Vella, 572 P.2d at 31 (finding exception to general
rule of limited res judicata effect where essential issues of later action were “fully
and fairly disposed of” in the unlawful detainer action). We find no error in the
district court’s resolution of the res judicata issue.
The district court did not err in finding that Beverly lacked standing to
pursue her wrongful foreclosure claim. In Yvanova v. New Century Mortgage
Corp., 365 P.3d 845, 859 (Cal. 2016), a wrongful foreclosure case, the California
Supreme Court held that where a home loan borrower is not party to a transaction
(such as the transfer of a deed of trust), she has standing to challenge it only where
4
the transaction at issue was void, rather than merely voidable. Relying on
Yvanova, the district court found that Beverly lacked standing because her
allegation that the transfer occurred too late to satisfy both the requirements of the
PSA and the Internal Revenue Code’s definition of a “qualified mortgage” would
result at most in a transaction that was voidable, rather than void. See, e.g.,
Rajamin v. Deutsche Bank Nat’l Trust Co., 757 F.3d 79, 88-89 (2d Cir. 2014)
(holding that under New York law only the intended beneficiaries of a private trust
may enforce its terms and that unauthorized acts by trustees are generally subject
to ratification by its beneficiaries, making them voidable rather than void).2 On
appeal, Beverly has not cited any case law suggesting that the district court
misconstrued New York law. Neither has Beverly, as the district court pointed out,
cited any case law showing that, as a matter of law, only qualified mortgages may
be transferred into a REMIC trust (thereby making such an attempted transfer void
rather than voidable).3 See also Mendoza v. JPMorgan Chase Bank, N.A., 212 Cal.
Rptr. 3d 1, 12-14 (Cal. Ct. App. 2016) (holding that late transfer of loan to REMIC
trust, which might jeopardize trust’s favorable tax treatment, was voidable rather
than void).
2
The PSA for the REMIC trust here was governed by New York law.
3
As noted, the statutory definition of a REMIC trust only requires that it
“substantially” consist of qualified mortgages and permitted investments. 26
U.S.C. § 860D(a)(4).
5
The district court also found that Beverly lacked standing to challenge the
foreclosure based on the alleged forgery of the notary signature on the 2014
document substituting Trustee Corps as trustee on the Deed of Trust, as that also
would result, at most, in a voidable transaction. Beverly offers nothing to
challenge this conclusion on appeal. 4
The plaintiff in Yvanova did not assert any claims under the HBOR.
Nonetheless, after finding that Beverly lacked standing under Yvanova to assert a
wrongful foreclosure claim, the district court dismissed her HBOR claim as well.
The HBOR does not itself provide a private right of action for homeowners to
challenge wrongful foreclosures or failed assignments of their deeds of trust.
However, § 2924.12(b) of the HBOR provides that, after a trustee’s deed upon sale
has been recorded, a mortgage servicer or trustee (among others) shall be liable to
a borrower for actual economic damages resulting from a violation of enumerated
provisions of the HBOR. Among those provisions are § 2924.17(a), which
requires that foreclosure-related documents such as notices of sale “shall be
accurate and complete and supported by competent and reliable evidence,” and
§ 2924.17(b), which obligates mortgage servicers such as Ditech to review
4
Beverly alleged a third basis for the failure of the 2011 transfer – that the
previous beneficiary lacked the authority to transfer beneficial interest in the Note
and the Deed of Trust to BONY. This argument was rejected by the district court,
and Beverly does not challenge that decision on appeal.
6
“competent and reliable evidence to substantiate … the right to foreclose.”
Beverly’s complaint alleged that the notices of default and notices of sale recorded
in connection with her foreclosure were not “accurate, complete, or supported by
competent and reliable evidence” because they identified BONY as the beneficiary
of the Deed of Trust. Beverly based this allegation on her contention that, because
the Deed of Trust was not a “qualified mortgage,” it could not have been
transferred into the REMIC trust, meaning that BONY could not have gained a
beneficial interest in it. Based on this same reasoning, Beverly alleged that Ditech
failed to review competent and reliable evidence to substantiate BONY’s right to
initiate a foreclosure.
The district court did not specify the basis for its dismissal of Beverly’s
HBOR claim. But as the preceding discussion makes clear, the gist of Beverly’s
HBOR claim is that the Deed of Trust and Note were not transferred into the
REMIC trust. She cannot raise these alleged problems with the foreclosure
procedure – or, more precisely, she cannot establish that they caused her to suffer
economic damages – without first challenging the 2011 transfer of the Deed of
Trust and Note. Based on the reasoning of Yvanova, her lack of standing to attack
the transfer in connection with a wrongful foreclosure claim is also fatal to her
ability to attack that transfer in connection with an HBOR claim. As such, the
district court did not err in dismissing the HBOR claim.
7
AFFIRMED.
8