Ortiz-Luis v. Federal Home Loan Mortgage Corporation

• Court: District Court, S.D. California
• Decided: August 11, 2021
• Docket: 3:21-cv-00989
• Status: Unknown

Opinion

1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 SOUTHERN DISTRICT OF CALIFORNIA 8 9 MARIA S. ORTIZ-LUIS and GLOBAL Case No.: 21-CV-989-CAB-AHG COMMONS, LLC, 10 ORDER GRANTING MOTIONS TO Plaintiffs, 11 DISMISS v. 12 FEDERAL HOME LOAN MORTGAGE [Doc. Nos. 3, 4] 13 CORPORATION; SPECIALIZED LOAN 14 SERVICING LLC; and WELLS FARGO BANK NA, 15 Defendants. 16 17 18 This matter is before the Court on Defendants’ motions to dismiss. The motions 19 have been fully briefed, and the Court deems them suitable for submission without oral 20 argument. For the following reasons, both motions are granted. 21 I. Background 22 On March 24, 2021, Plaintiffs filed this action in state court. The five-page 23 complaint contains few factual allegations. In short, Plaintiffs allege that they purchased 24 real property located at 2707 Box Elder Court, Chula Vista, California 91915 (the 25 “Property”) via a sheriff’s sale on January 29, 2020. [Doc. No. 1-2 at ¶ 11.] The sheriff’s 26 sale had been initiated by Eastlake III Community Association (the “HOA”), which had 27 obtained a writ of sale in its favor for $24,397.28 against the prior owner of the Property. 28 1 [Id. at ¶ 10.] According to the sheriff’s deed, Plaintiff Global Commons, LLC purchased 2 the Property at the sheriff’s sale for $31,575.89. [Doc. No. 4-2 at 92.] 3 In this action, Plaintiffs seek to quiet title in the Property against Defendants Federal 4 Home Loan Mortgage Corporation (“Freddie Mac”), Specialized Loan Servicing LLC 5 (“SLS”), and Wells Fargo Bank NA (“Wells Fargo”). According to Plaintiffs, they own 6 the Property free of any liens or other interests held by these Defendants. The complaint 7 asks the Court: (1) to compel Defendants to release any interest they have in the Property; 8 (2) to declare that Defendants have no estate, right, title or interest in the Property as of 9 January 29, 2020; (3) to enjoin Defendants from claiming any estate, right, title or interest 10 in the Property; and (4) to declare that any interest Defendants had in the Property has been 11 forfeited for failure to perfect the interest during the original debtor’s bankruptcy 12 proceedings. Defendants have filed motions to dismiss that make similar arguments for 13 dismissal. 14 II. Legal Standard 15 The familiar legal standards apply to the motions to dismiss. To survive a motion to 16 dismiss under Rule 12(b)(6), “a complaint must contain sufficient factual matter, accepted 17 as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 18 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Thus, 19 the Court “accept[s] factual allegations in the complaint as true and construe[s] the 20 pleadings in the light most favorable to the nonmoving party.” Manzarek v. St. Paul Fire 21 & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). On the other hand, the Court is 22 “not bound to accept as true a legal conclusion couched as a factual allegation.” Iqbal, 556 23

24 25 1 The plaintiffs are Global Commons LLC, and Maria S. Ortiz-Luis. According to the complaint, Ortiz- Luis is the “fee simple absolute owner” of the Property. [Doc. No. 1-2 at ¶ 2.] The sheriff’s deed submitted 26 with the pending motions, meanwhile, indicates that Global Commons purchased the Property. It is unclear from the complaint whether Global Commons transferred its interest in the Property to Ortiz-Luis 27 after the sheriff’s sale, or why both are plaintiffs. The complaint simply refers to both Ortiz-Luis and Global Commons as “Plaintiff.” Regardless, because either plaintiff’s interest in the Property is subject 28 1 U.S. at 678 (quoting Twombly, 550 U.S. at 555). Nor is the Court “required to accept as 2 true allegations that contradict exhibits attached to the Complaint or matters properly 3 subject to judicial notice, or allegations that are merely conclusory, unwarranted deductions 4 of fact, or unreasonable inferences.” Daniels-Hall v. Nat’l Educ. Ass’n, 629 F.3d 992, 998 5 (9th Cir. 2010). “In sum, for a complaint to survive a motion to dismiss, the non-conclusory 6 factual content, and reasonable inferences from that content, must be plausibly suggestive 7 of a claim entitling the plaintiff to relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 8 (9th Cir. 2009) (internal quotation marks omitted). 9 III. Requests For Judicial Notice 10 “Generally, district courts may not consider material outside the pleadings when 11 assessing the sufficiency of a complaint under Rule 12(b)(6) of the Federal Rules of Civil 12 Procedure.” Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 998 (9th Cir. 2018) (citing 13 Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001)). “When ‘matters outside the 14 pleading are presented to and not excluded by the court,’ the 12(b)(6) motion converts into 15 a motion for summary judgment under Rule 56 . . . [and] both parties must have the 16 opportunity ‘to present all the material that is pertinent to the motion.’” Id. (quoting Lee, 17 250 F.3d at 688). A court may, however, “take judicial notice of matters of public record 18 without converting a motion to dismiss into a motion for summary judgment.” Id. at 999 19 (quoting Lee, 250 F.3d at 689). 20 Here, Defendants ask the Court to take judicial notice of various public records 21 related to the Property and to Chapter 13 bankruptcy proceedings of the prior owner, Donna 22 Sevelius. Plaintiffs did not file any opposition to the requests. “Judicial notice under Rule 23 201 permits a court to notice an adjudicative fact if it is ‘not subject to reasonable 24 dispute.’[] A fact is ‘not subject to reasonable dispute’ if it is ‘generally known,’ or ‘can 25 be accurately and readily determined from sources whose accuracy cannot reasonably be 26 questioned.’” Id. (quoting Fed. R. Evid. 201(b)(1)–(2)). Notwithstanding the foregoing, “a 27 court cannot take judicial notice of disputed facts contained in such public records.” Id. 28 1 All of the documents submitted by Defendants, and the facts on which Defendants 2 rely that are contained in those documents, are properly subject to judicial notice. Public 3 property records may be judicially noticed. See Disabled Rights Action Comm. v. Las 4 Vegas Events, Inc., 375 F.3d 861, 866 n.1 (9th Cir. 2004) (“[W]e may take judicial notice 5 of the records of state agencies . . . .”); see also Farber v. JPMorgan Chase Bank N.A., No. 6 12-CV-2367-GPC-BGS, 2014 WL 68380, at *3 (S.D. Cal. Jan. 8, 2014) (“Federal courts 7 routinely take judicial notice of facts contained in publicly recorded documents, including 8 Deeds of Trust, because they are matters of public record, and are not reasonably in 9 dispute.”). Courts may also take judicial notice of relevant court records such as those 10 related to Sevelius’ bankruptcy proceedings. See United States ex rel. Robinson Rancheria 11 Citizens Council v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir. 1992) (“[W]e ‘may take notice 12 of proceedings in other courts, both within and without the federal judicial system, if those 13 proceedings have a direct relation to matters at issue.’” (citation omitted)). Accordingly, 14 Defendants’ requests for judicial notice are granted. 15 IV. Discussion 16 Based on the judicially noticeable facts derived from the documents Defendants 17 submit with their motions, Plaintiffs do not have a plausible claim for the relief they seek 18 against Defendants. These documents show that the prior owner of the Property, Donna 19 Sevelius, obtained a $350,000 loan secured by a Deed of Trust on the Property that was 20 recorded on May 13, 2005. [Doc. No. 3-4 at 2.] The Deed of Trust named Mortgage 21 Electronic Registration Systems, Inc. (“MERS”) as nominee beneficiary for Taylor, Bean 22 & Whitaker Mortgage Corporation. [Id.] On August 8, 2011, MERS assigned its 23 beneficial interest under the Deed of Trust to Defendant Wells Fargo. [Doc. No. 3-4 at 24 67.] On August 6, 2020, Wells Fargo assigned its interest in the Deed of Trust to SLS. 25 [Doc. No. 4-2 at 25.] 26 In April 2017, Sevelius filed for Chapter 13 Bankruptcy in the United States 27 Bankruptcy Court for the Eastern District of North Carolina. [Doc. No. 3-4 at 30.] Wells 28 Fargo filed a proof of claim in that proceeding for $524,674.38, secured by the Property. 1 [Doc. No. 3-4 at 35.] Sevelius’ Chapter 13 Plan provided that the Property was to be 2 surrendered to Wells Fargo. [Doc. No. 3-4 at 78.] On August 26, 2020, Wells Fargo 3 transferred its claim in the bankruptcy to SLS. [Doc. No. 3-4 at 73.] 4 The HOA, meanwhile, recorded a notice of delinquent assessment (the “Assessment 5 Lien”) on November 13, 2009. [Doc. No. 3-4 at 19.] Because the Deed of Trust was 6 recorded before the Assessment Lien, the Deed of Trust had priority over the HOA’s 7 Assessment Lien. Cal. Civ. Code §§ 2898, 5680. “As a result, [Plaintiffs], who purchased 8 pursuant to the Assessment Lien, bought the property subject to [the] deed of trust, as a 9 matter of law.” Thaler v. Household Fin. Corp., 80 Cal. App. 4th 1093, 1101 (2000). 10 Plaintiffs, therefore, are not entitled to any of the relief they pray for in the complaint. 11 None of Plaintiffs’ arguments have any legal support. Plaintiffs contend that the 12 Assessment Lien had priority because it was pursuant to Covenants, Conditions, and 13 Restrictions (“CC&Rs”) that were recorded in 1999. [Doc. No. 13-3.] The HOA’s 14 Assessment Lien, however, was not created by the CC&Rs; it was created by the notice of 15 delinquent assessment that was recorded in 2009. [Doc. No. 3-4 at 19]; Cal. Civ. Code §§ 16 5675, 5680. Because the HOA’s Assessment Lien was recorded after the Deed of Trust, 17 the Deed of Trust has priority. Cal. Civ. Code §§ 2897, 5680. 18 Plaintiffs then argue that Sevelius’ bankruptcy proceedings somehow resulted in the 19 Deed of Trust being extinguished. A discharge in Chapter 13 bankruptcy, however, only 20 “eliminates the creditor’s ability to proceed in personam against the debtor whether the 21 debt is secured or unsecured; in the case of a secured debt, the creditor retains the ability 22 to foreclose on the property but can no longer proceed against the debtor personally.” In 23 re Blendheim, 803 F.3d 477, 486 (9th Cir. 2015). Thus, “[a] creditor with a lien on a 24 debtor’s property may generally ignore the bankruptcy proceedings and decline to file a 25 claim without imperiling his lien, secure in the in rem right that the lien guarantees him 26 under non-bankruptcy law: the right of foreclosure.” Id. at 485; see also In re Lane, 959 27 F.3d 1226, 1230 (9th Cir. 2020) (“[U]nder a longstanding principle of bankruptcy law, the 28 creditor may ignore the bankruptcy proceeding, in which case its lien will pass through the 1 proceeding unaffected.”). In other words, while Sevelius’ bankruptcy may have limited or 2 eliminated Defendants’ ability to proceed against Sevelius personally, it did not impact the 3 lien created by the Deed of Trust on the Property. 4 Plaintiffs also contend that the Deed of Trust was extinguished by virtue of 5 Defendants’ “lack of diligence” because Defendants failed to assert their rights after during 6 or after the sheriff’s sale. Plaintiffs cite to no authority supporting this proposition. 7 Moreover, the judgment of foreclosure obtained by the HOA makes no mention of the 8 Deed of Trust or any senior lienholders on the Property, holding only that liens subsequent 9 to the HOA’s Assessment Lien would be “barred and foreclosed from all equity of 10 redemption in and claim to the property and every part thereof.” [Doc. No. 3-4 at 84.] 11 Thus, Defendants had no obligation to take any action in response to the sheriff’s sale 12 because that sale did not impact the priority of the Deed of Trust, which had priority over 13 the Assessment Lien. Cf. MTC Fin., Inc. v. Nationstar Mortg., LLC, 19 Cal. App. 5th 811, 14 814, (2018) (“When a junior lienholder forecloses on a second deed of trust at a nonjudicial 15 trustee’s sale, . . . the property is purchased at the sale subject to the first deed of trust.”). 16 Next, Plaintiffs argue that they did not have notice of Defendants’ rights in the 17 Property. Under California law, however, Plaintiffs had constructive notice of the Deed of 18 Trust because it was recorded. Cal. Civ. Code § 1213 (“Every conveyance of real property 19 . . . therein acknowledged or proved and certified and recorded as prescribed by law from 20 the time it is filed with the recorder for record is constructive notice of the contents thereof 21 to subsequent purchasers and mortgagees.”). 22 Finally, Plaintiffs argue that the Court should grant leave to amend so they can assert 23 a claim under California Business and Professions Code § 17200 to recover the amount 24 Plaintiffs have invested in the Property. Plaintiffs fail to explain, however, why any of the 25 Defendants, merely by virtue of a Deed of Trust of which Plaintiffs had constructive if not 26 actual notice when they purchased the Property at the sheriff’s sale, acted fraudulently, 27 unfairly, or unlawfully toward Plaintiffs. Accordingly, any claim under section 17200 28 would be futile. 1 V. Disposition 2 In sum, the Deed of Trust on the Property was not extinguished as a result of 3 ||Sevelius’ bankruptcy. When Plaintiffs purchased the Property (which Sevelius had 4 || purchased in 2005 using a $350,000 mortgage) for less than $32,000 in 2020, the Deed of 5 || Trust was still valid, and Plaintiffs’ purchase was subject to that Deed of Trust. Plaintiffs, 6 || therefore, are not entitled to the windfall they seek in this lawsuit. The motions to dismiss 7 ||are GRANTED, and the complaint is DISMISSED WITH PREJUDICE. 8 It is SO ORDERED. 9 Dated: August 11, 2021 € Z 10 Hon. Cathy Ann Bencivengo United States District Judge 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28