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Wood v. Greenberry Financial Services, Inc.

United States District Court, D. Hawai'i

October 30, 2012

Richard M. WOOD and Miriam C. Wood, Plaintiffs,
GREENBERRY FINANCIAL SERVICES, INC. dba Franklin Financial; Wells Fargo Home Mortgage of Hawaii, LLC; EMC Mortgage Corporation; John Does 1-10; Jane Does 1-10; and Doe Corporations and Partnerships and Other Entities 1-10, Defendants.

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Robin R. Horner, RRH & Associates, Honolulu, HI, for Plaintiffs.

David E. McAllister, Pite Duncan, LLP, San Diego, CA, David B. Rosen, The Law Office of David B. Rosen, ALC, Robin R. Horner, Rrh & Associates, Honolulu, HI, for Defendants.


LESLIE E. KOBAYASHI, District Judge.

Before the Court is Intervenor Defendant Wells Fargo Bank, N.A., as Trustee of the Structured Asset Mortgage Investments II Inc. Bear Stearns Mortgage Funding Trust 2007-AR2, Mortgage Pass-Through Certificates, Series 2007-AR2 (" Wells Fargo" ), and Defendant EMC Mortgage Corporation's (" EMC," collectively " Defendants" [1]) Motion for Summary

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Judgment on Plaintiffs' First Amended Complaint (" Motion" ), filed on July 5, 2012. Plaintiffs Richard M. Wood and Miriam C. Wood (" Plaintiffs" ) filed their memorandum in opposition on September 10, 2012, and Defendants filed their reply on September 17, 2012. The Court finds this matter suitable for disposition without a hearing pursuant to Rule LR7.2(d) of the Local Rules of Practice of the United States District Court for the District of Hawai'i (" Local Rules" ). After careful consideration of the Motion, supporting and opposing memoranda, and the relevant legal authority, Defendants' Motion is HEREBY GRANTED for the reasons set forth below.


I. Factual Background

Plaintiffs filed their original Complaint on March 9, 2011, and their First Amended Complaint on July 25, 2011, against Wells Fargo Home Mortgage of Hawaii, LLC; EMC, the loan servicer; and Greenberry Financial Services, Inc. doing business as Franklin Financial (" Franklin Financial" ).[2] Plaintiffs are the record owners of the subject property located at 77-301 Noelani Way # 23, Kailua-Kona, Hawai'i, 96778, designated as TMK (3) 7-7-015-079-0009 (the " Property" ). Plaintiffs executed and delivered an adjustable rate promissory note (" Note" ) in the amount of $280,000.00 on December 8, 2006 to Franklin Financial.[3] The Note is secured by a mortgage dated December 8, 2006 (" Mortgage" ), executed by Plaintiffs as mortgagors, in favor of Mortgage Electronic Registration Systems, Inc. (" MERS" ) as nominee for Franklin Financial. The Note secured by the Mortgage was recorded on December 8, 2006 in the Bureau of Conveyances, State of Hawai'i (" Bureau" ), as Document No. 2006-231280.[4] The Mortgage was assigned by MERS, as nominee for Franklin Financial, to Wells Fargo pursuant to an assignment of Mortgage (" Assignment" ), recorded on July 20, 2010 in the Bureau as Document No. 2010-102884.[5]

Plaintiffs' First Amended Complaint alleges that they applied for and were promised a thirty-year, fixed-rate loan, but that Franklin Financial actually obtained two sub prime loans. They allege that the loan application was completed by agents or employees of Franklin Financial, and that Plaintiffs were not provided with a completed, signed and dated copy of the application. Plaintiffs claim that the November 18, 2006 loan application included inflated income amounts, inserted by Franklin Financial, without Plaintiffs' knowledge. They allege that Franklin Financial did not provide signed and dated copies of the following documents, inter alia: Truth in Lending Act Statement, Good Faith Estimate, HUD-1 Settlement Statement, Servicing Disclosure Statement, Notice of Assignment, and Disclosure of Credit Scores. Plaintiffs also claim that Franklin Financial did not disclose the material terms of the loan, including relevant rates and Plaintiffs' right to rescind or cancel.

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[First Amended Complaint at ¶¶ 18-31, 40-45.]

Plaintiffs approached EMC [6] during 2007 to seek a loan modification. Plaintiffs and EMC entered into a Loan Modification Agreement dated October 2, 2008.[7] [ Id. at ¶¶ 47-48.] EMC notified Plaintiffs by letter several times during 2008 and 2009 that they were in default following the modification, and advised them of the right to reinstate after acceleration (" Notices of Acceleration" ).[8] On July 22, 2010, Wells Fargo recorded a Notice of Mortgagee's Intent to Foreclose Under a Power of Sale (" NOI" ) in the Bureau as Document No. 2010-104410.[9] On August 22, 2010, Plaintiffs sent a purported qualified written request (" QWR" ) to EMC, requesting identification of the holder of the Note and Mortgage. On October 4, 2010, counsel for EMC sent a response to Plaintiffs' counsel, explaining that the purported QWR did not qualify as a QWR. [ Id. at ¶¶ 53-55.] On March 3, 2011, Wells Fargo was the highest bidder at the foreclosure sale of the Property, and, on March 17, 2011, it filed a Mortgagee's Affidavit of Foreclosure Under Power of Sale (" Mortgagee's Affidavit" ) with the Bureau as Document No. 2011-044941, which evidenced completion of the foreclosure sale. [10] On May 1, 2012, a Mortgagee's Quitclaim Deed Pursuant to Power of Sale (" Quitclaim Deed" ) was recorded with the Bureau as Document No. A-40540518.[11]

Plaintiffs assert the following claims in their First Amended Complaint: Count I— violation of the Home Ownership Equity Protection Act, 15 U.S.C. § 1639 et seq. (" HOEPA" ); Count II— violation of the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601 et seq. (" RESPA" ); Count III— violation of the Federal Truth in Lending Act, 15 U.S.C. § 1601 et seq. (" TILA" ); Count IV— violation of the Fair Credit Reporting Act, in violation of 15 U.S.C. § 1681 et seq. (" FCRA" ); Count V— fraudulent misrepresentation; Count VI— breach of fiduciary duty; Count VII— unjust enrichment; Count VIII— civil conspiracy and aiding and abetting; Count IX— quiet title; Count X— fraud; Count XI— violation of Fair Debt Collection Practices Act, 15 U.S.C. § 1692e et seq. (" FDCPA" ); Count XII— mistake; Count XIII— unconscionability; Count XIV— unfair and deceptive acts or practices (" UDAPs" ), in violation of Haw.Rev.Stat. § 480-2 and § 481A-3; Count XV— failure to act in good faith; Count XVIII— negligent infliction of emotional distress (" NIED" ); Count XIX— violation of the Gramm-Leach-Bliley Act, 15 U.S.C. § 6801 et seq. (" GLBA" ); Count XX— violation of the right to privacy under the Hawai'i Constitution; and Count XXI— violation of Haw.Rev.Stat. Chapter 667. [12]

Plaintiffs seek: a judgment of rescission; statutory, actual, treble, and punitive damages; a temporary restraining order or injunctive relief; a judgment of recoupment, reimbursement, and/or indemnification; and any other appropriate relief. [First Amended Complaint at pg. 51.]

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II. Defendants' Motion

Defendants move for summary judgment on all of the claims in Plaintiffs' First Amended Complaint. Defendants present evidence that, as part of the subject loan transaction, on October 25 and 26, 2006, Mr. Wood was provided with: (1) an initial Good Faith Estimate; (2) an initial TILA disclosure statement; (3) an Equal Credit Opportunity Act Disclosure; (4) a Patriot Act Information Disclosure; (5) a Credit Score Information Disclosure; and (6) a Privacy Notice Disclosure. [Pike Decl., Exh. D.] On December 18, 2006, as part of the closing process, Mr. Wood was provided with: (1) a TILA Disclosure Statement; (2) a Loan Servicing Disclosure Statement; (3) a Borrower's Certification and Authorization to Release Information; (4) an Equal Credit Opportunity Act Disclosure; and (5) a Consumer Credit Score Disclosure. [Pike Decl., Exh. F.] On December 18, 2006, Mr. Wood received a final HUD-1 Settlement Statement. [ Id. ] On January 2, 2007, EMC sent Mr. Wood a notice that, effective February 1, 2007, Franklin Financial would no longer service the loan, and that EMC would be the new servicer. [Pike Decl., Exh. H.]

Defendants state that they were not involved in the origination of the loan, did not make any misrepresentations, were not responsible for any non-disclosures at the time of origination, and that Wells Fargo is in possession of the original Note. [Mem. in Supp. of Motion at 2-3.]

A. HOEPA and TILA Claims

Defendants first argue that Counts I and III fail to state claims under HOEPA and TILA because: (1) they are timebarred by the applicable statutes of limitations; (2) Plaintiffs were provided with all necessary disclosures; (3) Plaintiffs were not entitled to a Notice of Right to Cancel, because theirs was a purchase money loan, not a refinance; and (4) Plaintiffs are not able to tender funds to effect a rescission. [ Id. at 9-18.]

B. RESPA Claim

Next, Defendants argue that Plaintiffs' Count II RESPA claim fails as a matter of law because it is time-barred and without merit. Defendants note that they could not have been involved with excessive fees provided to the broker, because they were not parties to the loan origination. They also argue that Plaintiffs failed to plead actual, pecuniary damages as required by RESPA, and that the August 22, 2010 letter is not a QWR under RESPA because it did not relate to the servicing of the loan or contain a statement of specific reasons why Plaintiffs' account was in error. [ Id. at 18-21.]

C. FCRA Claim

Defendants claim they are entitled to summary judgment on Count IV because Plaintiffs lack standing to bring a FCRA claim for damages. Plaintiffs have not alleged that Defendants received notification from a credit reporting agency (" CRA" ) regarding the accuracy of information furnished by Defendants. [ Id. at 22.]

D. Fraudulent Misrepresentation, Fraud, and Mistake

According to Defendants, Counts V, X, and XII fail as a matter of law because they did not make any false representations to Plaintiffs. They further argue that the fraud allegations are not alleged with the particularity required by Fed.R.Civ.P. 9(b). As to the claim for mistake, Defendants argue that there are no allegations explaining what facts both Defendants and Plaintiffs misunderstood; rather, Defendants could not have been mistaken about any of the loan terms because

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they were not a party to the consummation. [ Id. at 23-27.]

E. Breach of Fiduciary Duty

Defendants argue that Count XI fails as a matter of law. As lender and mortgage servicer, they assert that they did not owe Plaintiffs a duty with respect to the loan transaction or foreclosure. [ Id. at 27.]

F. Unjust Enrichment

Defendants seek summary judgment on Count VII on the ground that Plaintiffs do not allege that Defendants received and unjustly retained any benefit. [ Id. at 30.]

G. Conspiracy and Aiding and Abetting

Count VIII fails to state a claim, according to Defendants, because it relies on Plaintiffs' meritless HOEPA, RESPA, TILA, FCRA, fraud, UDAP, and GLBA claims. Again, Defendants note that they were not parties to the loan consummation, and it is impossible for them to have made any of the alleged material representations to Plaintiffs. [ Id. at 30-31.]

H. Quiet Title

Defendants argue that, in an action to quiet title, Plaintiffs have the burden to prove that they have paper title to the property or that they hold by adverse possession. Here, Plaintiffs have not effectively rescinded, and they do not have title to the Property pursuant to the Quitclaim Deed. [ Id. at 32-33.]

I. FDCPA Claim

Next, Defendants seek summary judgment on Count XI because Wells Fargo was the holder of the Note and Mortgage at the time of the Foreclosure Sale. They argue that a borrower does not have standing to challenge an indorsement of a note because a borrower is not a party to the indorsement or assignment. Here, the Note was made payable to the order of Franklin Financial, who then properly negotiated the Note by indorsing the Allonge to the Note in blank, thereby converting the Note to a bearer instrument, and transferred it to Wells Fargo. [ Id. at 34-37.]

J. Unconscionability

According to Defendants, Count XIII alleging unconscionability fails to state claim against them because they were not parties to the consummation of the loan, and had no part in explaining the terms of the loan to Plaintiffs or providing them with the necessary disclosures. They also argue that Plaintiffs have not identified any unconscionable term in the various agreements. [ Id. at 38-39.]


Defendants argue they are entitled to summary judgment on Count XIV because the claim is time-barred, Defendants made no misrepresentations, and because Plaintiffs cannot tender funds to effect a rescission. [ Id. at 40-42.]

L. Good Faith

Next, Defendants state that Count XV fails to state claim because: (1) they were not parties to the loan transaction and cannot have breached any agreement before such agreement was formed; (2) Wells Fargo did provide Plaintiffs with a loan modification, which they defaulted on; and (3) subsequent request for a loan modification was not improperly denied or ignored. [ Id. at 43-45.]


As to Count XVIII, Defendants argue that they did not act in an extreme and outrageous manner because they acted within their rights by foreclosing on the Property, nor did they misrepresent any of the terms of the loan because they were

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not a party to its consummation. They also argue that they did not breach any duty to Plaintiffs. [ Id. at 45-47.]

N. GLBA and Constitutional Privacy Claims

Defendants argue that Counts XIX and XX must be dismissed because there exists no private right of action for either of these claims. [ Id. at 48-50.]

O. Haw. Rev. Stat. Chapter 667

Defendants seek summary judgment on Count XXI, arguing that Wells Fargo completed the foreclosure sale in total compliance with Haw.Rev.Stat. Chapter 667, as evidenced by the Mortgagee's Affidavit. They assert that Wells Fargo: (1) was represented by an attorney licensed to practice in Hawai'i; (2) published the required advertisement in The Honolulu Star-Advertiser once in each of three successive weeks, fourteen days before the public auction; (3) timely posted a copy of the NOI on the Property; and (4) recorded the Mortgagee's Affidavit. [ Id. at 51.]

III. Plaintiffs' Memorandum in Opposition

Plaintiffs argue that there are genuine issues of material fact precluding summary judgment, including: (1) Defendants are not the holders of the Note, but that the principal creditor is " Bank of America Trust" ; (2) the foreclosure was not properly conducted because there is a break in the chain of title; and (3) Plaintiffs did not receive proper notice of the foreclosure because they were not personally served with the NOI. [Mem. in Opp. at 2-6.] Plaintiffs also seek time for additional discovery. [ Id. at 5.]

Plaintiffs first argue, without providing evidentiary support, that through " informal discovery Plaintiffs have information that the principal creditor is actually Bank of America Trust." [ Id. ] They contend that Defendants " are unfairly and deceptively attempting to enforce the note and mortgage when they lack legal or beneficial ownership of the underlying note and mortgage. These disputes are genuine issues that still remain and should be addressed at trial." [ Id. ]

Next, Plaintiffs assert that the foreclosure was improperly conducted because Franklin Financial improperly transferred the loan. Further, they argue that Defendants did not have proper legal authority to foreclose because Plaintiffs were not personally served with the NOI. [ Id. at 6.]

Plaintiffs state that they " are in the process of requesting a loan modification and are under the impression that they would qualify." [ Id. at 8.] They also request time " to have movants make required disclosures and that plaintiffs be allowed time to conduct formal discovery." [ Id. ]

In opposition to Defendants' Motion, Plaintiffs submitted the Affidavit of Richard M. Wood (" Wood Aff.), but did not file a concise statement of facts or any supporting documents. Mr. Wood states in his Affidavit:

5. I do not know how Wells Fargo Bank has come to say they are the owner of my note and/or my mortgage as I never had any contract with them, they have not shown me proof that I have a contract with them, and don't believe I have a contract with them.
6. I have applied for a loan modification, and I believe that negotiations regarding a loan modification are still ongoing.
7. I am under the impression that a loan modification is under review and still possible.
8. I believe that the foreclosure sale of the Property was not properly conducted.

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9. I believe that my Property involved the improper transfer or assignment of the Property to undisclosed third-party investors, transferees, successors, or assigns.
10. I believe there is a break in [the] chain of title (by virtue of transfer or assignment to undisclosed third-party investors), thereby invalidating the foreclosure and this ejectment action.
11. I believe that Greenberry Financial Services and/or Wells Fargo Bank improperly transferred or assigned my loan, the undisclosed third-party investors, transferees, successors, or assigns took an interest in my loan with knowledge and notice of problems with ...

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