Lake v. MTGLQ Investors, L.P.

LEVI A. LAKE, Plaintiff, v. MTGLQ INVESTORS, L.P., et al., Defendants.

CASE NO. C17-0495JLR

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE

September 1, 2017

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT

I. INTRODUCTION

Before the court are Defendant MTGLQ Investors, L.P.'s ("MTGLQ") motion for summary judgment (Def. Mot. (Dkt. # 33)), and Plaintiff Levi A. Lake's cross-motion for summary judgment (Pltf. Mot. (Dkt. # 37)). Defendant New York Community Bank as Servicer for the Federal Deposit Insurance Corporation ("FDIC") as Receiver for Ohio Savings Bank AKA Amtrust Bank ("NYCB") joins MTGLQ's motion for summary judgment. (Joinder (Dkt. # 36).)

// The court has considered the parties' submissions, the relevant portions of the record, the judicially noticed public records as described in this order, and the applicable law. Being fully advised,¹ the court GRANTS MTGLQ and NYCB's (collectively, "Defendants") motion for summary judgment and DENIES Mr. Lake's cross-motion for summary judgment.

II. BACKGROUND

This case arises from a nonjudicial foreclosure. Mr. Lake seeks to quiet title to the property in question. (SAC (Dkt. # 28) ¶ 37.) On November 7, 2005, Mr. Lake refinanced the existing promissory note on his home with a loan from Premier Financial Services, Inc. ("Premier"). (Id. ¶ 6.) The loan is secured by a deed of trust encumbering Mr. Lake's residence (the "Property"). (1st McIntosh Decl. (Dkt. # 9), Ex. A (attaching the deed of trust).) The deed of trust lists Mr. Lake as the borrower, Premier as the lender, and Fidelity National Title as the trustee. (Id. at 2.)² In addition, the deed of trust lists MERS as the beneficiary, solely as nominee of the lender and the lender's successors and heirs. (Id.)

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// The promissory note was subsequently transferred. (See Sahyers Decl. (Dkt. # 20), Ex. A (attaching Mr. Lake's promissory note).) The note bears two indorsements: (1) from Premier to Ohio Savings Bank, without recourse, dated November 7, 2005, and (2) a blank indorsement, without recourse, executed by Robert Diamond, an Ohio Savings Bank authorized agent. (Id.) The deed of trust was also subsequently assigned. The deed of trust was assigned from MERS to New York Community Bank on October 25, 2010. (SAC ¶ 8; Lake Decl., Ex. C.)) NYCB assigned the deed of trust to Nationstar Mortgage LLC ("Nationstar") on August 25, 2011. (SAC ¶ 9; Lake Decl., Ex. D.) Nationstar assigned the deed of trust to MTGLQ on January 17, 2017. (SAC ¶ 11; Lake Decl., Ex. E.)

Despite occupying the Property, Mr. Lake ceased payments on his loan in 2010. (SAC ¶ 7.) On August 5, 2010, AmTrust Bank, as servicer of the loan, notified Mr. Lake that he was in default and that AmTrust would accelerate the remainder of the amount owed if Mr. Lake did not make a payment within 30 days. (Id. ¶ 14.) Mr. Lake made no payments. (Id.)

In May 2015, Nationstar, which was now the servicer of the loan for Fannie Mae, hired Quality Loan Service Corporation of Washington ("Quality") to advance a non-judicial foreclosure of the Property. (See Herbert-West Decl. (Dkt. # 34) ¶ 4; SAC, Ex. E ("Not. of Default") at 1.) In December 2015, Nationstar appointed Quality as successor trustee and provided Quality with a declaration stating that Nationstar was now the holder of Mr. Lake's promissory note. (See Herbert-West Decl., Ex. A ("Successor Appointment"), Ex. B ("Nationstar Beneficiary Decl.").) On January 29, 2016, Qualityserved a notice of default on the Property. (Not. of Default). The notice identifies Fannie Mae as the owner and Nationstar as the loan servicer. (Id.) In April 2017, Quality obtained a declaration stating that MTGLQ was now the holder of Mr. Lake's note, and issued a notice of trustee's sale identifying MTGLQ as the beneficiary. (See Herbert-West Decl., Ex. C ("MTGQL Beneficiary Decl."); 2nd McIntosh Decl. ¶ 2, Ex. A ("Notice of Tr. Sale").)

Mr. Lake filed this action in King County Superior Court on March 15, 2017. (See Compl. (Dkt. # 1-1).) MTGLQ removed the action to this court and filed a motion to dismiss the complaint. (Not. of Rem. (Dkt. # 1); MTD (Dkt. # 8).) Before the court ruled on that motion, Mr. Lake filed an amended complaint. (See FAC (Dkt. # 13).)³ The court granted MTGLQ's motion to dismiss and dismissed Mr. Lake's first amended complaint with leave to amend. (See 6/12/2017 Order (Dkt. # 25).)

On June 30, 2017, Mr. Lake timely filed a second amended complaint, naming MTGLQ and NYCB as defendants.⁴ (See SAC ¶¶ 2-3.)⁵ Mr. Lake seeks to quiet title on the theory that Quality lacked authority to issue the notice of default, and any foreclosure action is now time-barred. (See id.) On July 20, 2017, MTGQL filed a motion forsummary judgement. (See Def. Mot.) On July 28, 2017, NYCB filed a joinder to MTGLQ's motion for summary judgment. (See Joinder.) On August 4, 2017, Mr. Lake filed a cross-motion for summary judgment. (See Pltf. Mot.) The cross-motions for summary judgment and the motion to join are now before the court.⁶

III. ANALYSIS

A. Legal Standards

1. Summary Judgment Standard

Summary judgment is appropriate if the evidence, when viewed in the light most favorable to the non-moving party, demonstrates "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Galen v. Cty. of L.A., 477 F.3d 652, 658 (9th Cir. 2007). The moving party bears the initial burden of showing there is no genuine dispute of material fact and that he or she is entitled to prevail as a matter of law. Celotex, 477 U.S. at 323. A material fact is a fact relevant to the outcome of the pending action. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Ifthe moving party meets his or her burden, then the non-moving party "must make a showing sufficient to establish a genuine dispute of material fact regarding the existence of the essential elements of his case that he must prove at trial" in order to withstand summary judgment. Galen, 477 F.3d at 658. In response to a properly supported summary judgment motion, the nonmoving party may not rest upon mere allegations or denials in the pleadings, but must present significant and probative evidence to support its claim or defense. See Intel Corp. v. Hartford Accident & Indem. Co., 952 F.2d 1551, 1558 (9th Cir. 1991).

"[W]hen parties submit cross-motions for summary judgment, each motion must be considered on its own merits." Fair Hous. Council of Riverside Cty., Inc. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir. 2011) (internal quotation marks and alterations omitted). Thus, "the court must review the evidence submitted in support of each cross-motion." Id.

2. Washington's Deed of Trust Act

The Washington Deed of Trust Act ("DTA"), RCW ch. 61.24, governs statutory deeds of trust in Washington and establishes the procedures required for nonjudicial foreclosure. See Massey v. BAC Home Loans Servicing LP, No. C12-1314JLR, 2012 WL 5295146, at *1 (W.D. Wash. Oct. 26, 2012). Under the DTA, a deed of trust is a form of three-party mortgage, involving not only a lender and a borrower, but also a neutral third-party called a trustee. See Buse v. First Am. Title Ins. Co., No. C08-0510MJP, 2009 WL 1543994, at *1 (W.D. Wash. May 29, 2009). The trustee holds an interest in the title to the borrower's property on behalf of the lender, who is also called the beneficiary. Id.Should the borrower default on his loan, the beneficiary need not petition a court to initiate foreclosure proceedings but may instruct the trustee to conduct a non-judicial foreclosure. RCW § 61.24.010(2), .020, .030. The beneficiary may replace the trustee with a successor trustee to initiate the foreclosure. RCW § 61.24.010(2). Before initiating foreclosure, the trustee confirms that the beneficiary is entitled to enforce the note by obtaining a declaration from the beneficiary that it is "the actual holder of the note." RCW 61.24.030(7)(a); Brown v. Wash. State Dep't of Commerce, 359 P.3d 771, 784 (Wash. 2015).

Traditionally, the beneficiary of a deed of trust was "the lender who has loaned money to the homeowner." Bain v. Metro. Mortg. Grp., Inc., 285 P.3d 34, 36 (Wash. 2012). But lenders "have long been free to sell that secured debt, typically by selling the promissory note signed by the homeowner," and so the DTA defines "beneficiary" more broadly as "'the holder of the instrument or document evidencing the obligations secured by the deed of trust.'" Id. (quoting RCW § 61.24.005(2)). In Bain v. Metropolitan Mortgage Group, Inc., the Washington Supreme Court interpreted the DTA's definition of "beneficiary" and held that a DTA beneficiary must be the "holder of the promissory

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//note." Id. at 36, 43. Thus, the Mortgage Electronic Registration System Inc. ("MERS")⁷ could not lawfully foreclose because MERS was not the holder of the note, even though the deed of trust listed MERS as the "beneficiary" and MERS was purportedly "the holder of the deed of trust." Id. at 42-44.

"Holder" status, and thus DTA beneficiary status, turns on possession of the note, not ownership. In other words, a "holder" does not need to own the note to be the DTA beneficiary. Brown, 359 P.3d at 784. Although the initial lender is both the owner of the note (the party with the beneficial interest who is entitled to the payments on the note and/or the proceeds of a foreclosure sale) and the holder of the note (the statutory beneficiary entitled to enforce the note, foreclose, and negotiate modifications), those rights are often separated when the lender sells the note on the secondary market. See Marts v. U.S. Bank Nat'l Ass'n, 166 F. Supp. 3d 1204, 1209 (W.D. Wash. 2016); Brown, 359 P.3d at 779. In Brown v. Washington State Department of Commerce, the Washington Supreme Court held that a loan servicer was the DTA beneficiary because it was the holder of the note, even though Freddie Mac owned the...