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Hunt v. MTC Financial, Inc.

United States District Court, District of Nevada

March 20, 2015





Before the Court is Defendant MTC Financial, Inc. dba Trustee Corps’ (“Trustee Corps”) Motion to Dismiss (“Motion”). (Dkt. no. 9.) For the reasons discussed below, the Motion is granted in part and denied in part.


Plaintiffs Malcolm and Suzy Hunt purchased real property located at 42 North A Street in Virginia City, Nevada. (Dkt. no. 10-1.)[1] The Deed of Trust, which named Washington Mutual Bank as the lender, was recorded on June 21, 2006. (Id.) A Corporate Assignment of the Deed of Trust was recorded on September 9, 2013, memorializing the assignment of the Deed of Trust from the Federal Deposit Insurance Corporation, as receiver of Washington Mutual Bank, to JP Morgan Chase Bank, N.A. (Dkt. no. 10-4.) On December 5, 2013, a Substitution of Trustee was recorded substituting Trustee Corps as foreclosure trustee to the beneficiary of the Deed of Trust. (Dkt. no. 10-5.)

Trustee Corps executed a Notice of Breach of Default and Election to Cause Sale of Real Property Under Deed of Trust (“Notice of Default”), which was recorded on April 3, 2014. (Dkt. no. 1-2 at 3; dkt. no. 10-6.) The Notice of Default stated that Plaintiffs failed to make payments that became due on June 1, 2010. Attached to the Notice of Default was an “Affidavit of Authority in Support of Notice of Default and Election to Sell [N.R.S. § 107.080]” (“the Affidavit”) sworn by Susanna M. Forehlich, Vice President of JPMorgan Chase Bank. (Dkt. no 10-6.) It is unclear to the Court whether a notice of sale under NRS § 107.080(4) was subsequently recorded and whether the property sold in a non-judicial foreclosure sale.

Plaintiffs filed the instant action on June 3, 2014, in the First Judicial District Court of the State of Nevada in and for the County of Storey. (Dkt. no 1-2.) Defendants removed this action on July 10, 2014. (Dkt. no. 1.)

Plaintiffs named JPMorgan Chase Bank and Trustee Corps as Defendants, and allege three claims for wrongful foreclosure and a fourth claim for fraud. Trustee Corps seek to dismissal of all four claims.


A court may dismiss a plaintiff’s complaint for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). A properly pleaded complaint must provide “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). The Rule 8 notice pleading standard requires Plaintiff to “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.” Twombly, 550 U.S. at 555 (internal quotation marks and citation omitted). While Rule 8 does not require detailed factual allegations, it demands more than “labels and conclusions” or a “formulaic recitation of the elements of a cause of action.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555). “Factual allegations must be enough to rise above the speculative level.” Twombly, 550 U.S. at 555. When determining the sufficiency of a claim, “[w]e accept factual allegations in the complaint as true and construe the pleadings in the light most favorable to the non-moving party[; however, this tenet does not apply to] . . . legal conclusions . . . cast in the form of factual allegations.” Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th Cir. 2011) (citation and internal quotation marks omitted). Thus, to survive a motion to dismiss, a complaint must contain sufficient factual matter to “state a claim to relief that is plausible on its face.” Iqbal, 556 U.S. at 678 (internal quotation marks omitted).

In Iqbal, the Supreme Court clarified the two-step approach district courts are to apply when considering motions to dismiss. First, a district court must accept as true all well-pleaded factual allegations in the complaint; however, legal conclusions are not entitled to the assumption of truth. Iqbal, 556 U.S. at 679. Mere recitals of the elements of a cause of action, supported only by conclusory statements, do not suffice. Id. at 678. Second, a district court must consider whether the factual allegations in the complaint allege a plausible claim for relief. Id. at 679. A claim is facially plausible when the plaintiff’s complaint alleges facts that allow a court to draw a reasonable inference that the defendant is liable for the alleged misconduct. Id. at 678. Where the complaint does not permit the court to infer more than the mere possibility of misconduct, the complaint has “alleged ― but not shown ― that the pleader is entitled to relief.” Id. at 679 (internal quotation marks omitted). When the claims in a complaint have not crossed the line from conceivable to plausible, the complaint must be dismissed. Twombly, 550 U.S. at 570. A complaint must contain either direct or inferential allegations concerning “all the material /// elements necessary to sustain recovery under some viable legal theory.” Id. at 562 (quoting Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir. 1989)).


A. Wrongful Foreclosure Claims

Plaintiffs bring three distinct statutory wrongful foreclosure claims alleging violations of NRS § 107.087 (first claim), NRS § 107.500 (second claim), and NRS § 107.510 (third claim). However, Plaintiffs’ response to the Motion only addresses the third claim. Plaintiffs are deemed to have consented to granting the Motion with respect to the first two claims. L.R. 7-2(d); see Abbott v. United Venture Capital, Inc., 718 F.Supp. 828, 831 (D. Nev. 1989). Accordingly, the Court will only address the third claim for wrongful foreclosure in violation of NRS § 107.510.

Plaintiffs allege that Trustee Corps violated two provisions of NRS § 107.510 contained within Nevada’s Homeowners Bill of Rights (S.B. 321), codified at NRS §§ 400-560 (2013). First, Plaintiffs contend that Trustee Corps violated NRS § 107.510(1)(a) by improperly recording the Notice of Default. NRS § 107.510(1)(a) states, in pertinent, that:

A mortgage servicer, mortgagee, trustee, beneficiary of the deed of trust, or an authorized agent of such a person may not record a notice of default and election to sell pursuant to subsection 2 of NRS 107.080 … until … (a) [t]he mortgage servicer, mortgagee or beneficiary of the deed of trust has satisfied the requirements of subsection 1 of NRS 107.500.

NRS § 107.500(1) in turn requires that, at least thirty (30) days before commencing a foreclosure, the mortgage servicer, mortgagee, or beneficiary of the deed of trust must mail the borrower a statement that contains a summary of the account, explains the right of the beneficiary of the deed of trust to cause the trustee to exercise the power of sale, and discusses available foreclosure prevention alternatives. NRS § 107.500(1).

Second, Plaintiffs allege that Trustee Corps violated Nevada’s prohibition against “dual tracking, ” which occurs when the lender pursues both foreclosure prevention alternatives and foreclosure consecutively. This prohibition is established at NRS § 107.510(1)(c):

A mortgage servicer, mortgagee, trustee, beneficiary of the deed of trust, or an authorized agent of such person may not record a notice of default and election to sell pursuant to subsection 2 of NRS 107.080 … until … (c) [t]he mortgage servicer, mortgagee or beneficiary of the deed of trust complies with NRS 107.520 and 107.530, if the borrower submits an application for a foreclosure prevention alternative offered by, or through, the mortgage servicer, mortgagee or beneficiary.

In the situation where a borrower submits an application for a foreclosure prevention alternative through the borrower’s mortgage servicer, mortgagee, or beneficiary of the deed of trust, NRS § 107.530 prohibits these entities from recording a notice of default and election to sell until certain conditions are fulfilled that bring the foreclosure prevention process to a conclusion. NRS § 107.530(1).

Here, Plaintiffs assert that they never received a “30 day letter.” (Dkt. no. 1-2 at 7.) Plaintiffs also allege that Trustee Corps engaged in “dual tracking” because Plaintiffs had an “active loan modification application under review as outlined in NRS 107.520 and 107.530” at the time Trustee Corps recorded the Notice of Default. (Dkt. no. 1-2 at 9.) Construing the facts in the light most favorable to Plaintiffs, these allegations support the inference that (1) the statement required under NRS § 107.500 was not mailed to Plaintiffs before Trustee Corps recorded the Notice of Default and (2) Plaintiffs’ loan modification was “active” in the sense that Plaintiffs submitted an application for a foreclosure alternative and the process had not yet reached a conclusion under NRS § 107.530.

Trustee Corps argues that it is the loan servicer’s and trust deed beneficiary’s duty to comply with NRS §§ 107.500 and 107.530 since they would be involved in the loan modification process while the foreclosure trustee has no involvement or responsibility in that process. Trustee Corps’ argument is contrary to the express language of the statute. NRS § 107.510, the statute that forms the basis of Plaintiff’s claim, expressly includes “trustee” as well as the servicer and the deed of trust beneficiary among covered entities. In the context of mortgage foreclosure, “trustee” can only mean the foreclosure trustee. Thus, NRS § 107.510 unambiguously covers the foreclosure trustee. See Diamond v. Swick, 28 P.3d 1087, 1089 (Nev. 2001) (holding that when a statute is unambiguous effect must be given to the plain meaning of its words).

Construing NRS § 107.510 to cover the foreclosure trustee is also consistent with the legislative intent. The Nevada legislature enacted the Homeowner’s Bill of Rights in response to “predatory and illegal practices by mortgage servicers and outside firms hired by mortgage servicers” for the purpose of providing Nevada homeowners with “fair and honest treatment in the servicing of mortgage loans in default.” S.B. 321, Nev. 77th Reg. Sess. (2013). By expressly including “trustee” in NRS § 107.510, the legislature demonstrated an intent to place an affirmative responsibility on the trustee to ensure that the requirements of NRS §§ 107.500 and 107.530 have been satisfied before the trustee records the notice of default and election to sell pursuant to NRS § 107.080(2). See id. (“Section 13 of this bill prohibits . . . ‘dual-tracking’ by prohibiting a mortgage servicer, trustee, mortgagee or beneficiary of a deed to trust from continuing the foreclosure process while an application for a foreclosure prevention alternative is pending or while the borrower is current on his or her obligation under a foreclosure prevention alternative"); see also We the People Nev. Ex rel. Angle v. Miller, 192 P.3d 1166, 1170-71 (Nev. 2008) (“When the Legislature’s intent is clear from the plain language, this court will give effect to such intention and construe the statute’s language to effectuate rather than nullify its manifest purpose.”)

Plaintiffs have stated a plausible claim for relief under NRS § 107.510 against Trustee Corps. Trustee Corps’ request to dismiss the third claim is denied.

Trustee Corps also argues that Plaintiffs’ remedy should be limited to injunctive relief under NRS § 170.560 and that Plaintiffs should not be entitled to attorney’s fees. Because it is unclear whether a non-judicial foreclosure sale occurred, the Court declines to address these arguments at this time.

B. Fraud

The Court construes Plaintiffs’ fourth claim entitled “fraud” as an allegation of fraudulent misrepresentation. To state a claim for fraudulent misrepresentation, a plaintiff must allege five elements: (1) the defendant made a false representation; (2) the defendant knew or believed that the representation was false; (3) the defendant intended to induce the plaintiff to act or to refrain from acting in reliance on the misrepresentation; (4) the plaintiff justifiably relied on the misrepresentation; and (5) the plaintiff suffered damages from the reliance. Bulbman, Inc. v. Nev. Bell, 825 P.2d 588, 592 (1992).

Federal Rule of Civil Procedure 9(b) requires parties to “state with particularity the circumstances constituting fraud or mistake.” To satisfy this standard, a plaintiff must plead “an account of the ‘time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentations.’” Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (quoting Edwards v. Marin Park, Inc., 356 F.3d 1058, 1066 (9th Cir. 2004)). “Rule 9(b) does not allow a complaint to merely lump multiple defendants together but requires plaintiffs to differentiate their allegations when suing more than one defendant and inform each defendant separately of the allegations surrounding his alleged participation in the fraud.” Id. at 764-65 (internal quotation marks and alterations omitted). “In the context of a fraud suit involving multiple defendants, a plaintiff must, at a minimum, identify the role of each defendant in the alleged fraudulent scheme.” Id. (internal quotations and alterations omitted).

The Complaint alleges that the Affidavit of JPMorgan Chase Bank’s Vice President contains several false statements relating to JPMorgan Chase Bank’s authority to authorize the sale. (Dkt. no. 1-2 at 10.) An obvious deficiency is Plaintiffs’ lumping of all the Defendants together. Plaintiffs have failed to adequately notify Trustee Corps of its alleged role in the fraud. For example, Plaintiffs have provided insufficient facts to establish Trustee Corps’ role in making the alleged false representations or even how Trustee Corps knew or believed the Affidavit contained false representations. Moreover, Plaintiffs have not adequately pleaded each element of the fraud claim. Specifically, Plaintiffs have failed to allege that Trustee Corps intended to induce Plaintiffs to act or refrain from acting or that Plaintiffs justifiably relied on the alleged false statements. Accordingly, Plaintiffs have failed to state a claim upon which relief can be granted and this claim is dismissed. However, because the Court cannot find that amendment would be futile, the Court will grant leave to amend. Fed.R.Civ.P. 15(a); Forman v. Davis, 371 U.S. 178, 182 (1962).


The Court notes that the parties made several arguments and cited to several cases not discussed above. The Court has reviewed these arguments and cases and determines that they do not warrant discussion as they do not affect the outcome of the Motions.

It is therefore ordered that Defendant's Motion to Dismiss (dkt. no. 9) is granted in part and denied in part, as follows:

(1) granted as to the first and second claims;

(2) denied as to the third claim; and

(3) granted as to the fourth claim. Dismissal of the fourth claim is without prejudice and with leave to amend. Plaintiffs must submit an amended complaint within fifteen (15) days of this order. Failure to submit an amended complaint by this deadline will result in dismissal of this claim with prejudice.

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