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Edward Yuzon Abubo, and Saranne Kagel Abubo v. the Bank of New York Mellon; Countrywide Home

November 30, 2011

EDWARD YUZON ABUBO, AND SARANNE KAGEL ABUBO, PLAINTIFFS,
v.
THE BANK OF NEW YORK MELLON; COUNTRYWIDE HOME LOANS, INC.; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.; BANK OF AMERICA, N.A.; AND DOES 1-50. DEFENDANTS.



The opinion of the court was delivered by: J. Michael Seabright United States District Judge

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS SECOND AMENDED COMPLAINT, AND GRANTING LEAVE TO AMEND AS TO COUNT FIVE

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS SECOND AMENDED COMPLAINT, AND GRANTING LEAVE TO AMEND AS TO COUNT FIVE

I. INTRODUCTION

This action arises from a January 22, 2007 mortgage refinancing transaction in which Plaintiffs Edward Yuzon Abubo and Saranne Kagel Abubo (collectively, "Plaintiffs") borrowed $1,375,000 from Defendant Countrywide Home Loans, Inc. ("Countrywide"), secured by a promissory note and mortgage on real property located at 7297 Alealea Road, Hanalei, Hawaii 96714 (the "subject property").

On October 12, 2009, the note and mortgage were assigned to Defendant Bank of New York Mellon ("BONYM"), which instituted non-judicial foreclosure proceedings, and subsequently foreclosed on the subject property. Plaintiffs filed this action on December 17, 2010 in the First Circuit Court for the State of Hawaii against Countrywide, BONYM, Mortgage Electronic Registration Systems, Inc. ("MERS"), and Bank of America, N.A. ("BANA") (collectively, "Defendants"), seeking declaratory and injunctive relief, damages, and rescission of the mortgage transaction. The action was then removed to this court on May 12, 2011.

Before the court is Defendants' Motion to Dismiss the Second Amended Complaint ("SAC"). Based on the following, the court GRANTS the Motion with leave to amend as to Count Five.

II. BACKGROUND

A. Factual Background

The SAC alleges the following relevant facts, which the court assumes are true for purposes of this Motion. See, e.g., Savage v. Glendale Union High Sch., 343 F.3d 1036, 1039 n.1 (9th Cir. 2003).

In January 2007, a Countrywide loan officer solicited Plaintiffs to refinance their loan on the subject property. Doc. No. 18, SAC ¶ 10. On January 22, 2007, Countrywide loaned Plaintiffs $1,375,000 for that purpose. The loan was a "subprime," interest-only, adjustable rate loan with an initial annual interest rate of 6.25%, requiring initial monthly payments of $7,161.46. Id. ¶¶ 13-14. According to the loan application, Plaintiffs had no monthly income at that time. Id. ¶ 17. Plaintiffs "were promised by Countrywide that they would be able to afford the loan payments because their property value would increase and they would be able to refinance in a couple of years for a lower rate." Id. ¶ 15. "In the meantime, Plaintiffs were told that they could use some of the loan proceeds to make the monthly payments." Id. (Plaintiffs received approximately $397,500.00 cash out of the transaction. Id. Ex. 3, at 3.)

Plaintiffs allege that they were not provided with two completed and signed copies of the Notice of Right to Cancel form as required under the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq. Id. ¶ 18. Instead, they were given a blank copy of the form. Id. Ex. 4. Plaintiffs were also given a TILA disclosure form that stated the wrong amount financed ($1,370,207.55, rather than $1,375,000). Id. ¶ 19.

The mortgage was assigned on October 12, 2009 by MERS, as nominee for Countrywide, to BONYM, "acting as Trustee of the Alternative Loan Trust 2007-HY3 Mortgage Pass-Through Certificates, Series 2007-HY3" ("2007 Loan Trust"), which is a "mortgage securitization trust and Pooling and Servicing Agreement." Id. ¶ 20. After being assigned the Mortgage, BONYM initiated non-judicial foreclosure proceedings on the subject property. Id. ¶ 23.

The SAC alleges the assignment from Countrywide to BONYM was improper in several ways. The assignment "was fraudulently signed under oath by an individual named Kevin A. Durham . . . who falsely claimed . . . to be a corporate officer of MERS." Id. "Instead, Mr. Durham is a well-known foreclosure factory robo-signer, and had no authority to transfer the subject Mortgage." Id. Moreover, MERS "had absolutely no legal authority whatsoever to assign or transfer the Mortgage to anyone." Id. ¶ 21. Further, the 2007 Loan Trust purportedly closed on February 28, 2007, two years before the October 12, 2009 assignment, such that BONYM had no authority to accept the Mortgage. Id.

¶ 22. Thus, BONYM "had no standing or contractual authority to foreclose" on the subject property. Id.

To begin foreclosure proceedings, BONYM issued and recorded an October 13, 2009 "Notice of Mortgagee's Intention to Foreclose Under Power of Sale" with the Hawaii Bureau of Conveyances on October 28, 2009. Id. ¶ 23 & Ex. 7. An auction was set for December 18, 2009. Id. ¶ 23. On December 17, 2009, Plaintiffs attempted to cancel the January 22, 2007 loan transaction by sending a cancellation letter from their counsel, Gary Dubin, by certified mail to "all current and former parties to the mortgage loan contract." Id. ¶ 24 & Ex. 10. Although many of the Defendants received the letter after the auction was held, the letter indicates that a copy was hand delivered to the office of David Rosen, counsel for BONYM on December 17, 2009. Id.

Nevertheless, the foreclosure auction proceeded on December 18, 2009. At the auction, BONYM purchased the subject property for $1,021,500.00, id. Ex. 12 at 2, with "a credit bid." Id. ¶ 26. On March 10, 2010, BONYM recorded a quitclaim deed to obtain title to the subject property. Id. ¶ 27. The quitclaim deed was allegedly "fraudulently signed and recorded by a robo-signer." Id. ¶ 28. It was signed by Sandra Williams "who claimed to be the Assistant Vice President of [BONYM]" but "is not and never has been the Assistant Vice President of [BONYM]." Id. BONYM subsequently filed an ejectment action in state court. The SAC alleges that "Plaintiffs have since prevailed in that ejectment action, which was been dismissed," id. ¶ 30, although there are no details in the record regarding the reason for the dismissal.

B. Procedural Background

Plaintiffs initiated this action on December 17, 2010, in the Circuit Court of the First Circuit, State of Hawaii ("State Court"). Doc. No. 15, State Ct. Docket, at 3. On April 11, 2011, Plaintiffs filed a First Amended Complaint ("FAC") in State Court, and Defendants removed the action to this court on May 12, 2011. Doc. No. 1, Notice of Removal. On May 12, 2011, Defendants filed a Motion to Dismiss the FAC, which became moot after the parties stipulated to allow Plaintiffs to file the SAC. See Doc. No. 20 (Entering Order deeming Motion to Dismiss FAC moot).

The SAC alleges six separate counts, entitled: (1) "Wrongful Foreclosure/Quiet Title Against [BONYM]"; (2) "Fraud and Rescission and Common Law Damages"; (3) "HRS Chapter 480 Rescission and Treble Damages";

(4) "Permanent Injunction"; (5) "TILA Cancellation and Rescission"; and

(6) "Punitive Damages." Doc. No. 18. On August 29, 2011, Defendants filed their Motion to Dismiss the SAC. Doc. No. 21. Plaintiffs filed their Opposition on October 17, 2011, and Defendants filed their Reply on October 24, 2011. Doc. Nos. 23 & 24. The Motion was heard on November 7, 2011. Supplemental memoranda were filed on November 10, 2011, and November 16, 2011. Doc. Nos. 26 & 27.

III. STANDARDS OF REVIEW

A. Rule 12(b)(6)

Federal Rule of Civil Procedure 12(b)(6) permits a motion to dismiss a claim for "failure to state a claim upon which relief can be granted[.]"

"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, ---, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also Weber v. Dep't of Veterans Affairs, 521 F.3d 1061, 1065 (9th Cir. 2008). This tenet -- that the court must accept as true all of the allegations contained in the complaint -- "is inapplicable to legal conclusions." Iqbal, 129 S. Ct. at 1949. Accordingly, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. (citing Twombly, 550 U.S.at 555). Rather, "[a] claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable ...


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