Tadehara v. Ace Securities Corp. Home Equity Loan Trust Series 2007-HE4

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT July 5, 2012
Elisabeth A. Shumaker
Clerk of Court
LARI KEI TADEHARA;
JULIA KAY TADEHARA,
Plaintiffs-Appellants,
v. No. 11-4176
(D.C. No. 2:11-CV-00436-DS)
ACE SECURITIES CORP. HOME (D. Utah)
EQUITY LOAN TRUST SERIES
2007-HE4; OCWEN LOAN
SERVICING; HSBC BANK USA, N.A.;
MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS, INC.,
Defendants-Appellees,
and
DB STRUCTURED PRODUCTS;
DB HOME LENDING,
Defendants.
ORDER AND JUDGMENT*
*
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of this
appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral
estoppel. It may be cited, however, for its persuasive value consistent with
Fed. R App. P. 32.1 and 10th Cir. R. 32.1.
Before BRISCOE, Chief Judge, PORFILIO, Senior Circuit Judge, and MURPHY,
Circuit Judge.
In the underlying action, Lari Kei Tadehara and Julia Kay Tadehara sought to
quiet title to property on which they had given a mortgage to secure a loan. They
also brought a claim seeking rescission of the loan based on alleged violations of the
Truth in Lending Act (TILA), 15 U.S.C. §§ 1601-1667f, and they asserted state-law
claims for fraud and wrongful disclosure. The district court dismissed their action,
and the Tadeharas appealed. We have jurisdiction under 28 U.S.C. § 1291 and
affirm.
I. Background
On February 8, 2007, the Tadeharas obtained a loan secured by a mortgage on
their house in Murray, Utah. They gave a promissory note secured by a Deed of
Trust to defendant DB Home Lending. The beneficiary of the Deed of Trust was
identified as defendant Mortgage Electronic Registration Systems, Inc. (MERS),
“(solely as nominee for Lender and Lender’s successors and assigns) and the
successors and assigns of MERS.” R. at 141. The Deed of Trust gave MERS the
power to foreclose and sell the property.
Thereafter, two separate assignments of the Deed of Trust were recorded in the
Salt Lake County Recorder’s Office. The assignments transferred MERS’s interest to
materially identical assignees. In the first, which had an execution date of
February 5, 2009, and a recordation date of August 5, 2009, MERS assigned the
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Deed of Trust to “HSBC Bank USA, N.A. [(HSBC)], as trustee on behalf of Ace
Securities Corp. Home Equity Loan Trust, Series 2007-HE4 [(Ace Loan Trust)], and
for the registered holders of Ace Securities Corp. Home Equity Loan Trust, Series
2007-HE4, Asset Backed Pass-Through.” Id. at 43 (capitalization omitted). HSBC
and the Ace Loan Trust are defendants here. The second assignment had an
execution date of November 17, 2009 (although it stated in the body that it was
entered into on April 30, 2007). It was recorded on November 30, 2009, and
assigned the Deed of Trust from MERS, as nominee for DB Home Lending, to HSBC
“as trustee on behalf of [ACE Loan Trust] and for the registered holders of Ace
Securities Corp. Home Equity Loan Trust, Series 2007-HE4, Asset Backed
Pass-Through Certificates.” Id. at 45 (capitalization omitted).
With regard to the loan, the Tadeharas alleged that prior to April 30, 2007,
DB Home Lending sold its interest in the promissory note to either DB Structured
Products, (a defendant here), or another buyer that sold the note to DB Structured
Products. The Tadeharas also alleged that DB Structured Products then sold its rights
in the loan to defendant Ace Securities Corp.,1 as evidenced by a Mortgage Loan
Purchase Agreement executed on April 30, 2007. Further, the Tadeharas alleged that
Ace Securities Corp. transferred all of its interest in the note to HSBC, as trustee for
1
In their complaint, the Tadeharas listed Ace Securities Corp. as a defendant.
However, Ace Securities Corp. is not listed in the district court’s docket as a
defendant, so we have omitted it from the caption of this case. In any event, the
omission appears immaterial to the issues we decide on appeal.
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the Ace Loan Trust, via a pooling and service agreement created on or about
April 30, 2007, among Ace Securities Corp.; defendant Ocwen Loan Servicing;
HSBC; DB Structured Products; and other, unidentified parties.
On August 27, 2009, the Tadeharas sent a notice of rescission to all
defendants, claiming that DB Lending failed to provide required disclosures under
TILA. Defendants took no action. The Tadeharas apparently stopped paying their
mortgage, and the trustee sent them a Notice of Default, which was recorded on
March 18, 2010, and an Amended Notice of Default, which was recorded on June 4,
2010.
Through counsel, the Tadeharas filed an action in federal court on
September 16, 2010, raising a number of claims against some of these same
defendants, including a request for declaratory judgment that they had a right to
rescind under TILA and properly exercised that right.2 Defendants filed a motion to
dismiss. The court scheduled a hearing on the motion for May 3, 2011. The
Tadeharas fired their attorney and appeared at the hearing pro se. At the hearing, the
district court orally dismissed the action without prejudice, and a written order of
dismissal was filed on May 16, 2011, stating that the action was dismissed for the
reasons stated in the defendants’ motion.
2
According to the complaint in that action, the Tadeharas filed for Chapter 13
bankruptcy four days after sending the notice of rescission.
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On May 9, 2011, less than a week after the hearing in the first case, the
Tadeharas filed the present suit in Utah state court through new counsel. Defendants
removed the action to the United States District Court for the District of Utah. The
Tadeharas raised four claims: quiet title/declaratory judgment; fraud; wrongful
foreclosure; and TILA rescission/monetary damages. Defendants filed a motion to
dismiss, which the district court granted. Because the Tadeharas have appealed only
the district court’s dismissal of their quiet title and TILA claims, we limit our
discussion to those claims.
In their quiet title/declaratory judgment claim, the Tadeharas asserted that
none of the defendants had any right in the note, the Deed of Trust, or their property.
According to the Tadeharas, MERS and DB Home Lending had no interest in the
property to assign to HSBC in 2009 because HSBC claimed that it acquired “such
interest,” id. at 18, from Ace Securities Corp., not DB Home Lending, on April 30,
2007, and at that time no agency existed between Ace Securities Corp. and MERS.
Further, the Tadeharas maintained that no written assignment was ever executed from
DB Home Lending to DB Structured Products or an intervening buyer, or from an
intervening buyer to DB Structured Products. Also, they asserted that no written
assignment from DB Structured Products to Ace Securities Corp. was ever executed
and recorded prior to either of the assignments from MERS to HSBC in 2009.
In their TILA claim, the Tadeharas asserted that their loan was a consumer
credit transaction subject to TILA’s rescission remedy, 15 U.S.C. § 1635, and that
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they had timely asserted their right to rescission when they sent their notice of
rescission on August 27, 2009.
For relief, the Tadeharas asked for a declaration “that none of the Defendants
have a claim on the Real Estate, that none of the Defendants are creditors of
Defendants [sic] under the Note, and that Title to the Real Estate is quieted against
defendants in favor of Plaintiffs, and that the 1st Trust Deed is a nullity.” Id.
at 22-23. They also sought an order voiding the Deed of Trust, an injunction
directing defendant to take actions necessary for rescission under § 1635, and
damages, penalties, and costs.
In their motion to dismiss, defendants argued that the quiet title/declaratory
judgment claim should be dismissed because the Tadeharas had failed to allege they
held title to the property, instead focusing on alleged weaknesses in defendants’ title
interests. Defendants also claimed that the Tadeharas’ argument that MERS lacked
standing to authorize the assignment of the Deed of Trust and the resulting
foreclosure had been consistently rejected in the Utah federal district court. On the
TILA claim, defendants advanced four reasons for dismissal: (1) rescission was
time-barred because the property had been sold in foreclosure on May 24, 2011, and
under 15 U.S.C. § 1635(f), when a lender fails to provide the required TILA
disclosures, the right to rescind extends for three years from the date the transaction
was completed or until the sale of the property, whichever occurs first; (2) rescission
was time-barred by § 1635(f)’s three-year limitations period because the loan closed
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on February 8, 2007, but the Tadeharas did not file this action until May 9, 2011;
(3) damages were barred by a one-year statute of limitations, 15 U.S.C. § 1640(e),
which defendants claimed ran from the date that the first payment of principal was
due in March 2007; and (4) rescission was improper under the reasoning of
Yamamoto v. Bank of New York, 329 F.3d 1167, 1171 (9th Cir. 2003), because the
Tadeharas did not allege their willingness or ability to tender amounts owed under
the loan.
In their response to defendants’ motion to dismiss their quiet title claim, the
Tadeharas relied on Utah Code Ann. § 57-1-35, which provides, “The transfer of any
debt secured by a trust deed shall operate as a transfer of the security therefor.”
Based on that statute, they argued that defendants were not holders of the note and
therefore were not beneficiaries of the Deed of Trust. They also claimed that they
had “alleged facts calling into question the validity of the recorded assignments
statements [sic] purporting to transfer beneficial interest in the trust deed. Only the
beneficiary, or its agent can transfer its interests. Therefore, pursuant to . . .
§ 57-1-35, only the Note holder, or its agent can transfer the beneficial interest.”
R. at 214-15. The Tadeharas further claimed that even if MERS had authority from
the members of the Ace Loan Trust (which they contested), there was still a problem
with the assignments of the Deed of Trust from MERS to HSBC in 2009; in the
assignments, MERS purported to assign as nominee for DB Home Lending, but by
the time of the assignments, there had already been at least two intervening owners of
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the promissory note, and DB Home Lending had nothing to assign, even if MERS
was acting as its agent. On the TILA claim, the Tadeharas argued that they exercised
their right of rescission by filing their notice of rescission within the three-year
limitations period of § 1635(f) and prior to the foreclosure sale of their house. They
also asserted that it was unnecessary to plead tender or the ability to tender amounts
they owed under the note.
In reply to the Tadeharas’ quiet-title arguments, defendants pointed to a case
that was filed on the same day they filed their motion to dismiss, Commonwealth
Property Advocates, LLC v. Mortgage Electronics Registration System, Inc.,
263 P.3d 397 (Utah Ct. App.), cert. denied, 268 P.3d 192 (Utah 2011), in which the
Utah Court of Appeals rejected arguments similar to those the Tadeharas’ advanced.
Defendants also reiterated their TILA arguments.
In ruling on the state-law quiet title claim, the district court concluded that the
Tadeharas failed to state a claim under the principle that “a plaintiff must prevail on
the strength of his own claim to title and not on the weakness of a defendant’s title or
even its total lack of title.” Church v. Meadow Springs Ranch Corp., 659 P.2d 1045,
1048-49 (Utah 1983). The court observed that the Tadeharas had not alleged that
they held clear title to the property, had not alleged that they were not in default on
the note, and had admitted to conveying their interest in the property for the purpose
of securing the loan. The court also rejected the Tadeharas’ argument that MERS
lacked standing to authorize the assignment of the Deed of Trust and the resulting
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foreclosure, noting that they had agreed in the Deed of Trust that MERS was the
beneficiary and its successors and assigns had foreclosure authority.
Turning to the TILA claim, the district court concluded that the transaction at
issue was a “residential mortgage transaction,” as defined in 15 U.S.C. § 1602(x),
and therefore exempt from TILA’s rescission remedy under 15 U.S.C. § 1635(e)(1)
and 12 C.F.R. § 226.23(f)(1). The court also concluded that the TILA claim failed
because the Tadeharas had not alleged that they tendered or had the ability to tender
the amounts they owed under the note. The court did not address defendants’
arguments that the TILA claim was time-barred by § 1635(f) or § 1640(e).
II. Analysis
Although the Tadeharas were represented by counsel in the district court, they
have proceeded on appeal pro se. Thus, only their appellate filings are entitled to the
liberal construction afforded to pro se litigants. See Celli v. Shoell, 40 F.3d 324, 327
(10th Cir. 1994). We review de novo a dismissal for failure to state a claim. Kan.
Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011). “[I]n ruling on
a motion to dismiss, a court should disregard all conclusory statements of law and
consider whether the remaining specific factual allegations, if assumed to be true,
plausibly suggest the defendant is liable.” Id.A. Quiet title/declaratory judgment claim
We first address the quiet title/declaratory judgment claim. The Tadeharas
take issue with the district court’s conclusion that they failed to allege clear title.
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They argue that they held a warranty deed on the property and sought to quiet title as
to the defendants, who allegedly recorded interests hostile to their own. They
continue to rely on Utah Code Ann. § 57-1-35. Again, that statute provides: “The
transfer of any debt secured by a trust deed shall operate as a transfer of the security
therefor.” They claim that under the statute, once the promissory note was
transferred, the benefit of the Deed of Trust was transferred to the holder of the note,
and only the holder of the note or its agent can transfer the beneficial interest in the
Deed of Trust. Thus, they conclude, none of the defendants are beneficiaries of the
Deed of Trust because none of them are holders of the note.
The Tadeharas’ interpretation of § 57-1-35 was squarely rejected by the Utah
Court of Appeals in Commonwealth Property Advocates, 263 P.3d 397, and the
reasoning of that case has been endorsed by this court in a case bearing the same
caption, Commonwealth Property Advocates, LLC v. Mortgage Electronic
Registration Systems, Inc., 680 F.3d 1194 (10th Cir. 2011). In the state case, the
Utah Court of Appeals addressed the argument that a note was separated from its
accompanying deed of trust when it was “securitized,” which the court explained as
“the process of pooling debts, such as mortgage loans, and selling shares in the pool
to investors as a means of infusing the lending markets with more capital.” 263 P.3d
at 399 & n.2. The court interpreted § 57-1-35 as “simply describ[ing] the
long-applied principle in our jurisprudence that when a debt is transferred, the
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underlying security continues to secure the debt.” Id. at 403. The court further
reasoned that the statute
ensur[es] the basic presumption that “a transfer of an obligation secured
by a mortgage also transfers the mortgage unless the parties to the
transfer agree otherwise,” see Restatement (Third) of Prop.: Mortgages
§ 5.4. The plain language of the statute does nothing to prevent MERS
from acting as nominee for Lender and Lender’s successors and assigns
when it is permitted by the Deed of Trust.
Id. (brackets omitted). Even more, the court refused to “interpret the statute as
preventing, implying, or somehow indicating that the original parties to the Note and
Deed of Trust cannot validly contract at the outset to have someone other than the
beneficial owner of the debt act on behalf of that owner to enforce rights granted in
the security instrument.” Id. (quotation and brackets omitted). Finally, the court
noted that “the Deed of Trust explicitly gave MERS the right to foreclose on behalf
of ‘Lender and Lender’s successors and assigns.’ The statute does not prohibit
parties from contracting for these arrangements, and nowhere in the documents
themselves is MERS explicitly prohibited from then assigning its beneficial interest
under the Note . . . .” Id. at 403-04.
In the Tenth Circuit Commonwealth case, we followed the Utah Court of
Appeals’ Commonwealth case, concluding that the Utah Supreme Court would not
reach a different conclusion and noting that the Utah Supreme Court had chosen not
to grant certiorari. See Commonwealth Prop. Advocates, LLC, 680 F.3d at 1203-05.
We also noted that the Utah Court of Appeals “reinforced its decision in an even
more recent appeal by” the same plaintiff. Id. at 1205 (citing Commonwealth Prop.
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Advocates, LLC v. U.S. Bank Nat’l Ass’n, ___ P.3d ___, No. 20110596-CA, 2011 WL
6091684 (Utah Ct. App. Dec. 8, 2011)). We added:
Even assuming Plaintiff is correct that securitization deprives
Defendants of their implicit power to foreclose as holders of the trust
deeds, the trust deeds explicitly granted Defendants the authority to
foreclose. Contrary to Plaintiff’s contention, § 57-1-35 in no way
prohibits such an authorization. The statute merely says the transfer of
a debt operates as the transfer of the security. It says nothing about who
is or is not authorized to foreclose on a trust deed.
Id. at 1204-05.
Here, the Tadeharas have not made a point of the fact that the pooling and
servicing agreement into which the promissory note eventually found its way was a
securitization of the note, but that is precisely what happened. Thus, we see no
analytical distinction between this case and the Utah and Tenth Circuit
Commonwealth cases regarding the legal conclusion that § 57-1-35 does not operate
to strip the beneficiary of a Deed of Trust or its assigns of the power to foreclose on
the secured property on behalf of the original lender or any of its assignees. This is
precisely what the Tadeharas agreed to and what happened here: an assignee of the
Deed of Trust foreclosed on behalf of an assignee of the note. Hence, it was entirely
proper for the district court to dismiss the quiet title/declaratory judgment claim
under Fed. R. Civ. P. 12(b)(6). See Commonwealth Prop. Advocates, LLC, 680 F.3d
at 1202 (explaining that “[d]ismissal is appropriate if the law simply affords no
relief”).
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B. TILA claim
The Tadeharas also take issue with the dismissal of their TILA claim. They
argue that the district court erroneously characterized their loan transaction as a
residential mortgage transaction exempt from TILA rescission and that the court
erred in requiring them to plead the ability to tender the amounts owed under the
note. We need not resolve these issues because a recent decision of this court leads
us to exercise our discretion to affirm the district court’s judgment on another ground
supported by the record, namely, that the Tadeharas’ right to TILA rescission expired
before they filed this action. In exercising our discretion to affirm on an alternate
ground, we consider whether “the issue was fully briefed and argued in district court,
the issue was raised on appeal, the parties had ample opportunity to present relevant
evidence, and there are no material factual disputes.” Elkins v. Comfort, 392 F.3d
1159, 1162 (10th Cir. 2004). These factors are sufficiently satisfied here.
TILA provides an obligor with the right to rescind a consumer credit
transaction that involves a security interest in the obligor’s principal dwelling. See
15 U.S.C. § 1635(a). When a creditor fails to make the notice or material disclosures
required under TILA, the “right of rescission shall expire three years after the date of
consummation of the transaction or upon the sale of the property, whichever occurs
first.” Id. § 1635(f); see also 12 C.F.R. § 226.23(a)(3) (“If the required notice or
material disclosures are not delivered, the right to rescind shall expire 3 years after
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consummation, upon transfer of all of the consumer’s interest in the property, or
upon sale of the property, whichever occurs first.”).
The Tadeharas argue that giving notice to their lender of their intent to rescind
in August 2009, less than three years after consummating their loan transaction on
February 8, 2007, was all that was required to timely exercise their right under TILA.
This court has recently rejected this argument. In Rosenfield v. HSBC Bank, USA,
___ F.3d ___, No. 10-1442, 2012 WL 2087193, at *6 (10th Cir. June 11, 2012), we
considered whether a plaintiff’s written notice of rescission within the three-year
period was sufficient to invoke the right of rescission where the plaintiff did not file
her action until after the three-year period had expired. We concluded that it was not
enough “where a creditor fails to respond,” id., holding “that the mere invocation of
the right to rescission via a written letter, without more, is not enough to preserve a
court’s ability to effectuate (or recognize) a rescission claim after the three-year
period has run,” id. at *7. As we explained, § 1635(f) is a statute of repose which
limits the ability to file an action or assert a defense:
TILA establishes a right of action that is generally redressable only
when a party seeks recognition of it by invoking the power of the courts.
Indeed, we believe that it is the filing of an action in a court (or perhaps
a defensive assertion of the rescission right in a court) that is required to
invoke the right limited by the TILA statute of repose; the concept of
repose itself (especially in the context here) fundamentally limits the
ability to file an action.
Id. (footnote omitted). Based on this understanding, we concluded that the district
court correctly dismissed the plaintiff’s action, which was filed after the three-year
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period had elapsed, stating that “[t]he commencement of a lawsuit within the
three-year TILA repose period was required.” Id. at *11.
Like the plaintiff in Rosenfield, the Tadeharas filed only a written notice of
rescission within the three-year TILA repose period. Their action was filed on
May 9, 2011, more than three years after they consummated their loan transaction on
February 8, 2007. Their right of rescission, therefore, expired before they filed suit.
Thus, they are not entitled judicial effectuation of a rescission remedy.
The judgment of the district court is AFFIRMED.
Entered for the Court
Michael R. Murphy
Circuit Judge
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