Orvin v. Nat'l City Mortg.

669 F.Supp.3d 1160

Samantha ORVIN (fka Samantha B. Bost) and Lorin J. Orvin,Trustees of the Lorin J. and Samantha Orvin Revocable Trust Dated February 26, 2021,Samantha Orvin (fka Samantha B. Bost), Plaintiffs, v. NATIONAL CITY MORTGAGE a Division of National City Bank of Indiana,National City Mortgage Co., a subsidiary of National City Bank, E*Trade Bank,Gulf Harbour Investments Corporation, Specialized Loan Servicing LLC,and John Does I through X, Defendants.

Case No. 4:22-cv-00064-DN-PK

United States District Court, D. Utah

Signed April 18, 2023

James Linden Spendlove, Gurr Brande & Spendlove PLLC, Saint George, UT, for Plaintiffs.

MEMORANDUM DECISION AND ORDER GRANTING MOTION TO DISMISS AND ORDER TO SHOW CAUSE REGARDING DISMISSAL OF REMAINING DEFENDANTS

David Nuffer, United States District Judge

This action concerns the enforceability of a trust deed securing real property. Plaintiffs assert claims against Defendants (1) for declaratory judgment that the statute of limitations for enforcing the trust deed to foreclose on the property has run; (2) to quiet title in the property; and (3) for attorney's fees.¹ Defendants Gulf Harbour Investments Corporation ("GHI") and Specialized Loan Servicing LLC ("SLS") seek dismissal of Plaintiffs' Complaint for failure to state a claim.²

Because the facts Plaintiffs allege demonstrate that the relevant statute of limitations for enforcing the trust deed has not run, Plaintiffs' Complaint fails to state a plausible claim for relief. Therefore, GHI and SLS's Motion to Dismiss³ is GRANTED.

Contents

BACKGROUND . . . 1162

DISCUSSION . . . 1163

UTAH CODE ANN. § 70A-3-118(1) is the applicable six-year statute of limitations for enforcing the Trust Deed . . . 1163

The six-year statute of limitations to enforce the Trust Deed began to run on June 1, 2021, when the underlying obligation became due . . . 1165

The date on which Samantha made her last payment on the Note is not a triggering event for the six-year limitations period . . . 1165

Samantha's bankruptcy discharge is not a triggering event for the six-year limitations period . . . 1166

Plaintiffs' Complaint fails to state a plausible claim for relief against GHI and SLS . . . 1166

Plaintiffs must show cause as to why their Complaint should not be dismissed without prejudice regarding the remaining Defendants . . . 1167

ORDER . . . 1167

BACKGROUND

On March 4, 2006, Samantha Orvin ("Samantha") obtained title to real property located in Washington County, State of Utah, at Lot 59, Bloomington Hills No. 1 Subdivision (the "Property").⁴ On May 10, 2006, Samantha executed a Note in favor of National City Mortgage in the amount of $193,250.00.⁵ That same day, Samantha executed a Trust Deed, identifying National City Mortgage as the beneficiary and pledging the Property as security for the Note.⁶ Under the terms of the Trust Deed, the debt on the Note became due on June 1, 2021, unless otherwise accelerated.⁷

The Trust Deed was subsequently transferred between several entities, including National City Mortgage Co. on March 13, 2007;⁸ E*Trade Bank on March 13, 2007;⁹ and GHI on February 19, 2019.¹⁰ And servicing of the debt transferred to SLS on February 17, 2015.¹¹

Samantha last made a payment on the Note on March 26, 2008.¹² On May 27, 2011, Samantha filed a Chapter 7 bankruptcy petition.¹³ The bankruptcy court ordered a discharge of Samantha's debt, including her personal obligation for the debt under the Note and secured by the Trust Deed, on September 2, 2011.¹⁴ On April 6, 2022, SLS sent a letter to Samantha titled "Notice of Default and Notice of Intent to Foreclose."¹⁵ No notice of default regarding the Trust Deed had been filed or recorded at any time prior to SLS's letter.¹⁶

DISCUSSION

Plaintiffs brought suit against Defendants seeking declaratory judgment that the statute of limitations for enforcing the Trust Deed by foreclosing on the Property has run.¹⁷ Plaintiffs also seek to quiet title in the Property because the Trust Deed is unenforceable.¹⁸ And Plaintiffs seek an award of attorney's fees under UTAH CODE ANN. § 78B-5-826 based on the Trust Deed's attorney's fees provision.¹⁹ GHI and SLS seek dismissal of Plaintiffs' Complaint under FED. R. CIV. P. 12(b)(6) for failure to state a claim.²⁰

Dismissal is appropriate under Rule 12(b)(6) when the complaint, standing alone, is legally insufficient to state a claim on which relief may be granted.²¹ Each cause of action must be supported by enough sufficient, well-pleaded facts to be plausible on its face.²² In reviewing the complaint, factual allegations are accepted as true and all reasonable inferences are drawn in a light most favorable to the plaintiff.²³ However, "assertions devoid of factual allegations" that are nothing more than "conclusory" or "formulaic recitation" of the law are disregarded.²⁴

UTAH CODE ANN. § 70A-3-118(1) is the applicable six-year statute of limitations for enforcing the Trust Deed

The parties agree that the applicable limitations period for enforcing of the Trust Deed to foreclose on the Property is six years. However, the parties disagree regarding the applicable statute of limitations and when the six-year limitations period began to run.

Plaintiffs argue that UTAH CODE ANN. § 78B-2-309(1)(b), Utah's general statute of limitations for actions upon a written instrument is the applicable statute of limitations for enforcing the Trust Deed.²⁵ Plaintiffs premise their argument that the statute has run on the September 2, 2011 bankruptcy discharge of Samantha's personal liability on the Note.²⁶ According to Plaintiffs, after the bankruptcy discharge, the Note could no longer serve as the underlying obligation for the Trust Deed.²⁷ Plaintiffs therefore argue that UTAH CODE ANN. § 78B-2-113(1)(c) sets the applicable date on which the six-year limitations period began to run, i.e., the date on which Samantha made her last payment on the Note (March 26, 2008).²⁸

GHI and SLS argue that Article 3 of the Uniform Commercial Code ("UCC"), UTAH CODE ANN. § 70A-3-118(1), sets the applicable six-year limitations period for enforcing the Trust Deed.²⁹ And they argue that Samantha's last payment on the Note and bankruptcy discharge are irrelevant because under UTAH CODE ANN. § 70A-3-118(1), the six-year limitations period did not begin to run until the unaccelerated debt secured by the Trust Deed became due (June 1, 2021).³⁰ GHI and SLS are correct.

In Utah, foreclosure on real property secured by a trust deed is governed by UTAH CODE ANN. § 57-1-34, which states:

A person shall, within the period prescribed by law for the commencement of an action on an obligation secured by a trust deed: (1) commence an action to foreclose the trust deed; or (2) file for record a notice of default under [UTAH CODE ANN. §] 57-1-24.³¹

This statute "plainly requires that a court determine the statute of limitations for foreclosure under a deed of trust by reference to the limitations period on the underlying obligation."³²

"[Utah's] supreme court has stated that 'where the U[CC] sets forth a limitation period for a specific type of action, this limitation controls over an older, more general statute of limitations."³³ Applying this precedent, the Utah Court of Appeals and courts in this District have held that the UCC's more specific statute of limitations, UTAH CODE ANN. § 70A-3-118(1), governs the enforcement of a trust deeds, rather than the general statute of limitations for written instruments found in UTAH CODE ANN. § 78B-2-309(1)(b).³⁴

"[I]t is irrelevant that the UCC does not apply to deeds of trust in other contexts."³⁵ The issue "does not involve a real estate transaction—it involves the use of the Property to secure [a] debt by way of an underlying contractual obligation[.]"³⁶ "[T]hat underlying obligation is the loan[,]" and "the Note is a negotiable instrument within the meaning of the UCC."³⁷ "Because the Note is a negotiable instrument, any lawsuit to enforce the Note is governed by the UCC statute of limitations."³⁸

Plaintiffs point to no legal authority to support their argument that Samantha's bankruptcy discharge somehow severed the Note from serving as the underlying obligation for the Trust Deed. Indeed, the bankruptcy discharge only precluded actions for Samantha's personal liability on the Note, and did not extinguish the Trust Deed securing the obligation or the lien interest on the Property.³⁹ Plaintiffs acknowledge as much in their Response to GHI and SLS's Motion to Dismiss.⁴⁰ Therefore, the applicable six-year statute of limitations to foreclose on the Property secured by the Trust Deed is UTAH CODE ANN. § 70A-3-118(1).

The six-year statute of limitations to enforce the Trust Deed began to run on June 1, 2021, when the underlying obligation became due

Under UTAH CODE ANN. § 70A-3-118(1), "an action to enforce the obligation of a party to pay a note payable at a definite time must be commenced within six years after the due date or dates stated in the note or, if a due date is accelerated, within six years after the accelerated due date."⁴¹

Under the terms of the Trust Deed, the debt on the Note became due on June 1, 2021, unless otherwise accelerated.⁴² Plaintiffs do not allege any facts demonstrating or suggesting that the debt's due date was ever accelerated. Indeed, the only allegations of any actions taken regarding the debt are assignments of the Trust Deed among Defendants,⁴³ and SLS's April 6, 2022 letter to Samantha titled "Notice of Default and Notice of Intent to Foreclose."⁴⁴ No notice of default regarding the Trust Deed was filed or recorded at any time prior to SLS's letter.⁴⁵ Therefore, accepting the allegations in Plaintiffs' Complaint as true, the six-year statute of limitations for enforcing the Trust Deed began to run when the underlying obligation became due on June 1, 2021.⁴⁶

The date on which Samantha made her last payment on the Note is not a triggering event for the six-year limitations period

Plaintiffs argue that the date on which...