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Juanita Faye Pualani Lee v. Mortgage Electronic Registration Systems

December 26, 2012

JUANITA FAYE PUALANI LEE,
PLAINTIFF,
v.
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.; COUNTRYWIDE BANK, FSB; AND DOES 1-10,
DEFENDANTS.



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

ORDER (1) GRANTING DEFENDANT MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.'S MOTION TO DISMISS SECOND AMENDED COMPLAINT, DOC. NO. 70; (2) GRANTING DEFENDANT COUNTRYWIDE BANK, FSB'S MOTION TO DISMISS SECOND AMENDED COMPLAINT, DOC. NO. 69; AND (3) GRANTING LIMITED LEAVE TO AMEND

I. INTRODUCTION

Although filed over two years ago, this action is still in the pleadings phase. Plaintiff Juanita Faye Pualani Lee ("Plaintiff") originally filed this action in the First Circuit Court of the State of Hawaii alleging state law claims against Defendants Mortgage Electronic Registration Systems, Inc. ("MERS") and Countrywide Bank, FSB ("Countrywide") (collectively "Defendants") stemming from MERS' non-judicial foreclosure of Plaintiff's home located at 954 Alewa Drive, Honolulu, Hawaii 96817 (the "subject property"). After MERS removed the action to this court, the Judicial Panel on Multidistrict Litigation transferred the lawsuit to the United States District Court for the District of Arizona ("MDL Court") for inclusion in the consolidated MERS proceedings pending there. On October 3, 2011, the MDL Court remanded to this court a claim against Countrywide for "common law contract damages," and a claim against Defendants seeking an "accounting."

These two claims have been the subject of three rounds of motions to dismiss -- Plaintiff filed her First Amended Complaint ("FAC") clarifying these claims after Defendants filed a first set of Motions to Dismiss. On June 27, 2012, the court granted in part MERS' Motion to Dismiss and granted Countrywide's Motion to Dismiss the FAC (the "June 27, 2012 Order"), which left Plaintiff's claim for breach of contract against MERS for failure to give notice of Plaintiff's default prior to seeking to foreclose, and granted Plaintiff leave to amend to assert a claim for breach of contract based on violation of Hawaii Revised Statutes ("HRS") § 667-5.

On July 16, 2012, Plaintiff filed her "Second Amendment to Complaint (1) Reasserting For Purposes of Appeal All Prior Remanded Counts Whether Dismissed or Not, (2) Specifically Restating Count Two, and (3) Specifically Concerning Issues Relating to HRS Section 667-5" ("SAC").*fn1

Currently before the court are Defendants' Motion to Dismiss. Based on the following, the court GRANTS the Motions to Dismiss, with leave for Plaintiff to file a Third Amended Complaint asserting a breach of contract based on section 22 of the mortgage for failure to provide a notice of default.

II. BACKGROUND

A. Factual Background

As alleged in the SAC, on or about July 25, 2007, Plaintiff entered into a mortgage loan transaction with Aegis Wholesale Corporation ("Aegis") for $728,000 to purchase the subject property. Doc. No. 68, SAC ¶ 6.

The mortgage describes that MERS "is a separate corporation that is acting solely as a nominee for Lender and Lender's successors and assigns. MERS is the mortgagee under this Security Instrument." Doc. No. 1-1, Compl. Ex. 2 at 2;*fn2 see also Doc. No. 68, SAC ¶ 7. The mortgage further provides:

Borrower does hereby mortgage, grant and convey to MERS (solely as nominee for Lender and Lender's successors and assigns) and to the successors and assigns of MERS, with power of sale [the subject property]. . . . Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with the law or custom, MERS (as nominee for Lender and Lender's successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take and action required of the Lender. . . .

Doc. No. 1-1, Compl. Ex. 2 at 3-4. Finally, the mortgage notifies Plaintiff that "[t]he Note or a partial interest in the Note (together with this Security Instrument) can be sold one or more times without prior notice to Borrower." Id. at 12.

Aegis subsequently transferred the mortgage loan to Countrywide. Doc. No. 68, SAC ¶¶ 23-25. Some time later, MERS noticed a non-judicial foreclosure to take place on February 6, 2009. Id. ¶ 8. Despite the fact that the mortgage loan had been transferred to Countrywide, the Notice of Intention to Foreclose Under Power of Sale (the "NOI") asserts that MERS, as nominee for Aegis (as opposed to Countrywide), will hold a public auction on February 6, 2009. See Doc. No. 1-1, at Ex. 3. At the non-judicial foreclosure sale, Countrywide was the high bidder with $495,000. Doc. No. 68, SAC ¶ 18.

Plaintiff asserts that MERS and Countrywide breached the terms of the mortgage by conducting the non-judicial foreclosure. Specifically, Plaintiff asserts that MERS breached section 22 of the mortgage, which provides that:

Lender shall give notice to Borrower prior to acceleration following Borrower's breach of any covenant or agreement in this Security Instrument . . . . The notice shall specify: (a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to Borrower, by which date the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by this Security Instrument and sale of the Property. Id. ¶ 32.

The SAC further asserts that MERS and/or Countrywide breached the mortgage by violating HRS § 667-5. Id. ¶ 36. Specifically, the SAC asserts that MERS' incorrect assertion in the NOI that Aegis, as opposed to Countrywide, owned the mortgage loan raised a question as to who owned the mortgage loan and that neither MERS nor Countrywide properly established that it was the mortgagee. Id. ¶ 37. The SAC further asserts that because the mortgage loan was transferred to Countrywide, MERS was no longer a "mortgagee" at the time of the foreclosure and therefore could not conduct the auction. Id. ¶¶ 38-50.

The SAC asserts that as a result of these breaches of contract, Plaintiff "was injured and has suffered extensive monetary damages and incurred extensive attorneys' fees and costs," including that she was deprived of the subject property where she purchased it for $728,000, it was sold to Countrywide at auction for ...


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