McAfee v. Select Portfolio Servicing, Inc.

193 Wash.App. 220

370 P.3d 25

Chettie McAFEE, Appellant,

v.SELECT PORTFOLIO SERVICING, INC., Northwest Trustee Services, Inc., Mortgage Electronic Registration Systems, Inc. a/k/a Merscorp, Inc., JP Morgan Chase Bank, NA, Wells Fargo Bank, NA as Trustee for the Certificateholders of Structured Asset Mortgage Investments II Inc., Bear Stearns Mortgage Funding Trust 2007–AR2 Mortgage Pass-through Certificates Series 2007–AR2, Respondents.

No. 71995–5–I.

Court of Appeals of Washington, Division 1.

March 7, 2016.

Publication Ordered April 18, 2016.

Jill J. Smith, Natural Resource Law Group, PLLC, Seattle, WA, for Appellant.

Renee M. Parker, Wright, Finlay & Zak, LLP, Newport Beach, CA, for Respondents.

LAU, J.

¶ 1 After Chettie McAfee's lender initiated nonjudicial foreclosure proceedings following McAfee's default on her mortgage loan, McAfee filed suit, alleging violations of the deeds of trust act (DTA or act), chapter 61.24 RCW, and Consumer Protection Act (CPA), chapter 19.86 RCW, fraud and misrepresentation, and breach of contract and the covenant of good faith and fair dealing. She appeals the trial court's dismissal under CR 12(b)(6) of her complaint for damages and equitable relief against Select Portfolio Servicing Inc. (SPS), Mortgage Electronic Registration Systems Inc. (MERS), and Wells Fargo Bank, N.A. (Wells Fargo). Because the trial court considered material outside the pleadings, we review the dismissal of McAfee's claims under the summary judgment standard. Because McAfee raises no genuine issue of material fact as to any of her claims, we affirm.

FACTS

¶ 2 In January 2007, Chettie McAfee borrowed $920,000 from Bear Stearns Residential Mortgage Corp. to finance the purchase of real property in Seattle, signing a promissory note and companion deed of trust. The deed of trust lists Bear Stearns as the lender, Ticor Title as the trustee, and MERS, "a separate corporation that is acting solely as a nominee for Lender and Lender's successors and assigns," as beneficiary. Clerk's Papers (CP) at 176–77. The deed includes a trustee's power of sale and provides that the note may be sold one or more times without prior notice to the borrower. The note was endorsed twice, first by Bear Stearns to EMC Mortgage Corporation, and then by EMC Mortgage to Wells Fargo.

¶ 3 Beginning September 1, 2009, McAfee failed to make her monthly loan payments. On June 27, 2012, MERS recorded an assignment of deed of trust, transferring its interest as beneficiary nominee to Wells Fargo. On June 28, 2012, Wells Fargo, by Northwest Trustee Services Inc. (NWTS), "its duly authorized agent," sent McAfee a notice of default. CP at 200–02. The notice identified Wells Fargo as the note owner "as Trustee for the Certificateholders of Structured Asset Mortgage Investments II Inc., Bear Stearns Mortgage Funding Trust 2007–AR2 Mortgage Pass–Through Certificates, Series 2007–AR2." CP at 202. The notice identified JPMorgan Chase Bank (Chase) as the loan servicer and included contact information for Chase and NWTS. On October 16, 2012, Wells Fargo executed a beneficiary declaration by Chase, its attorney in fact, stating that it was the holder of the note securing McAfee's loan.

¶ 4 On January 11, 2013, Wells Fargo recorded an appointment of NWTS as successor trustee. At some point, SPS notified McAfee in a letter that it would replace Chase as servicer of her loan, effective August 1, 2013. An SPS supervisor stated later in a declaration that from the time service was transferred, SPS was in possession of the note securing McAfee's loan.

¶ 5 McAfee did not cure her default, and on January 29, 2013, NWTS recorded a notice of trustee's sale. By this time, McAfee's arrearages exceeded $200,000. The notice set a sale for May 31, 2013. The sale was postponed four times, to September 27, 2013.

¶ 6 On September 3, 2013, McAfee filed a complaint for damages and a motion to restrain the trustee's sale. The complaint named SPS, NWTS, MERS, Chase, and Wells Fargo as defendants and alleged violations of the CPA, the DTA, common law fraud, misrepresentation, breach of contract, and breach of the covenant of good faith and fair dealing.

¶ 7 On September 24, 2013, the trial court granted a temporary order restraining the sale. The court's order directed McAfee to deposit $4,569.24 into the court registry every month beginning October 1, 2013, and to "provide all proof of a valid offer of a trial loan modification from Defendants." CP at 141.

¶ 8 On October 8, all defendants filed a "declaration of non-compliance with temporary restraining order," which stated that McAfee had made no deposit into the court registry. CP at 135–36. The declaration also noted that while McAfee had provided letters from EMC Mortgage Corp. documenting a forbearance payment agreement, she had failed to provide the court with any documents related to a loan modification.

¶ 9 In November, NWTS moved for summary judgment dismissal. SPS, MERS, Wells Fargo, and Chase moved for dismissal under CR 12(b)(6).

¶ 10 On December 11, 2013, McAfee and NWTS stipulated to dismissal of the action without prejudice as to NWTS. Two days later, the trial court granted Chase's motion to dismiss with prejudice, and the parties later stipulated under CR 54(b) to the entry of partial final judgment dismissing all claims against Chase.

¶ 11 On January 8, 2014, NWTS recorded another notice of trustee's sale, setting a sale for May 9, 2014. The sale occurred as scheduled.

¶ 12 On May 21, 2014, the court entered an order dismissing McAfee's claims against SPS, MERS, and Wells Fargo. McAfee timely appealed.

¶ 13 McAfee moved for a stay of the subsequent unlawful detainer action and on October 22, 2014, the court granted the motion pending appeal.

ANALYSIS

¶ 14 We review a trial court's ruling on a motion to dismiss under CR 12(b)(6) de novo, as a question of law. FutureSelect Portfolio Mgmt., Inc. v. Tremont Grp. Holdings, Inc., 180 Wash.2d 954, 962, 331 P.3d 29 (2014). A CR 12(b)(6) motion challenges the legal sufficiency of the allegations in a complaint. Contreras v. Crown Zellerbach Corp., 88 Wash.2d 735, 742, 565 P.2d 1173 (1977).

¶ 15 Either party may submit documents not included in the original complaint for the court to consider in evaluating a CR 12(b)(6) motion. Bavand v. OneWest Bank, FSB, 176 Wash.App. 475, 485, 309 P.3d 636 (2013) ; Rodriguez v. Loudeye Corp., 144 Wash.App. 709, 726, 189 P.3d 168 (2008). Such submissions generally convert a CR 12(b)(6) motion into a motion for summary judgment. Bavand, 176 Wash.App. at 485, 309 P.3d 636. However, in a motion to dismiss, the trial court may take judicial notice of public documents if their authenticity cannot reasonably be contested, and the court may also consider documents whose contents are alleged in a complaint but not physically attached to the pleadings. Rodriguez, 144 Wash.App. at 725–26, 189 P.3d 168.

¶ 16 Here, SPS, MERS, and Wells Fargo supported their motion to dismiss with a request for judicial notice of McAfee's note and the notice of default. The hearing record and court's orders show that the court considered these materials but do not indicate if the court took judicial notice of them. In its May 21, 2014, order granting SPS's motion to dismiss, the trial court stated that in addition to the pleadings and the defendant's request for judicial notice, it considered the defendant's declaration of SPS supervisor Rebecca Adelman. The court also stated in this order and the order dismissing Chase that it "reviewed the files and records of this case." CP at 344, 421. Accordingly, we review the challenged orders under the summary judgment standard. Summary judgment is appropriate where there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. As in the case of review of an order under CR 12(b)(6), this court reviews an order on summary judgment de novo. Michael v. Mosquera–Lacy, 165 Wash.2d 595, 601, 200 P.3d 695 (2009).

Foreclosure Under the Deeds of Trust Act

¶ 17 The DTA creates a three-party transaction, in which a borrower conveys the mortgaged property to a trustee, who holds the property in trust for the lender as security for the borrower's loan. Bain v. Metro. Mortg. Grp., Inc., 175 Wash.2d 83, 92–93, 285 P.3d 34 (2012) ; Albice v. Premier Mortg. Servs. of Wash., Inc., 174 Wash.2d 560, 567, 276 P.3d 1277 (2012). If a borrower defaults, a lender may nonjudicially foreclose by a trustee's sale. Bain, 175 Wash.2d at 93, 285 P.3d 34 ; Albice, 174 Wash.2d at 567, 276 P.3d 1277. The act furthers three goals: (1) an efficient and inexpensive foreclosure process, (2) adequate opportunity for interested parties to prevent wrongful foreclosure, and (3) stability of land titles. Albice, 174 Wash.2d at 567, 276 P.3d 1277 (citing Cox v. Helenius, 103 Wash.2d 383, 387, 693 P.2d 683 (1985) ). Because the DTA eliminates many of the protections afforded borrowers under judicial foreclosures, "lenders must strictly comply with the statutes and courts must strictly construe the statutes in the borrower's favor." Albice, 174 Wash.2d at 567, 276 P.3d 1277 (citing Udall v. T.D. Escrow Servs., Inc., 159 Wash.2d 903, 915–16, 154 P.3d 882 (2007) ; Koegel v. Prudential Mut. Sav. Bank, 51 Wash.App. 108, 111–12, 752 P.2d 385 (1988) ). A trustee has a duty of good faith to all parties and "is not merely an agent for the lender or the lender's successors." RCW 61.24.010(4) ; Bain, 175 Wash.2d at 93, 285 P.3d 34.

¶ 18 The DTA describes the steps a trustee must take to start a nonjudicial foreclosure. A beneficiary or trustee must transmit a written notice of default to the borrower at least 30 days before a notice of sale is recorded. Among other requirements, a trustee may not schedule a sale before confirming that the beneficiary of the obligation holds the note and thus has authority to enforce the obligation. A trustee may rely on "a party's undisputed declaration submitted under penalty of perjury that it is the...