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Dias v. Federal National Mortgage Association

United States District Court, D. Hawaii

December 31, 2013

BRIDGET DIAS, an individual, Plaintiff,
FEDERAL NATIONAL MORTGAGE ASSOCIATION, a congressionally-chartered government-sponsored entity of the United States; FNMA ACT/ACT DEFAULTS & PICONS, an assumed business name of Federal Mortgage Association other Federal National Mortgage Association; BANK OF AMERICA, N.A., a National Banking Association formerly known as Countrywide Bank FSB; BAC HOME LOAN SERVICING, LP, formerly known as Countrywide Home Loan, Inc.; DOES 1-100, inclusive; FEDERAL HOUSING FINANCE AGENCY, in its capacity as conservator of Federal National Mortgage Association; BANK OF AMERICA CORPORATION, Defendants

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[Copyrighted Material Omitted]

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For Bridget Dias, an individual, Plaintiff: Paul J. Sulla, Jr., LEAD ATTORNEY, Hilo, HI.

For Federal National Mortgage Association, a congressionally-chartered government-sponsored entity of the United States, Bank of America Corporation, BAC Home Loan Servicing, LP, formerly known as Countrywide Home Loan, Inc. formerly known as Countrywide Home Loan, Inc., Bank of America, N.A., a National Banking Association formerly known as Countrywide Bank FSB formerly known as Countrywide Bank FSB, Defendants: Patricia J. McHenry, LEAD ATTORNEY, Cades Schutte, Honolulu, HI.

For Federal Housing Finance Agency, in its capacity as conservator of Federal National Mortgage Association, Defendant: Michael A.F. Johnson, LEAD ATTORNEY, Arnold & Porter, LLP, Washington, DC; Patricia J. McHenry, LEAD ATTORNEY, Cades Schutte, Honolulu, HI.


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Derrick K. Watson, United States District Judge.


Before the Court are the following motions: (1) Defendant Federal Housing Finance

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Agency's (" FHFA" ) Motion to Dismiss the Amended Complaint, filed on May 31, 2013 (" FHFA Motion" ); and (2) Defendants Federal National Mortgage Association (" Fannie Mae" ), Bank of America, N.A. formerly known as Countrywide Bank, FSB and successor by merger to BAC Home Loans Servicing, LP formerly known as Countrywide Home Loans Servicing, LP (" BANA" ), and Bank of America Corporation's (" BAC" ) Motion to Dismiss Amended Complaint, filed on May 31, 2013 (" Fannie Mae Motion" ). The Court held a hearing on the motions on September 20, 2013. After careful consideration of the supporting and opposing memoranda, the arguments of counsel, and the relevant legal authority, the FHFA Motion is GRANTED and the Fannie Mae Motion is GRANTED IN PART and DENIED IN PART. Plaintiff is permitted leave to amend specific claims as set forth in this Order.


Plaintiff Bridget Dias filed her Amended Complaint to Set Aside Foreclosure Sale and Monetary Damages on October 23, 2012 (" Complaint" ). The Complaint alleges that, on December 9, 2005, Plaintiff entered into a transaction with Quicken Loans, Inc. (" Quicken" ), obtaining a $282,400 loan secured by a mortgage on her principal residence at 206B East Kinai Place, Hilo, Hawaii 96720 (the " property" ). According to Plaintiff, documentation of the loan in favor of Quicken utilized an FNMA form (" First Loan" ). Complaint ¶ 13. On February 1, 2006, Plaintiff received notice of the assignment of servicing rights to her loan to Countrywide Home Loans, Inc. (" Countrywide" ). Id. On October 13, 2006, Plaintiff entered into a second loan repayment and security agreement on the property with Countrywide (" Second Loan" ). Complaint ¶ 14. Plaintiff made all mortgage payments through January 2009. Complaint ¶ 22. Plaintiff modified the Second Loan with BAC in June 2009. Complaint ¶ 23.

According to Plaintiff, in July 2008, BANA acquired Countrywide, which thereafter changed its name to BAC. BAC is the current servicer of the First Loan. Plaintiff entered into a Forbearance Agreement with BAC beginning September 1, 2009, calling for a deferral period payment for six months, ending February 1, 2010. The Complaint alleges that, under the Forbearance Agreement, BAC promised to suspend any scheduled foreclosure sale provided Plaintiff continued to meet her payment obligations and " at the end of the trial period she would receive a modification of her loan." Complaint ¶ 24. Plaintiff claims that although she complied with the Forbearance Agreement, BAC, on December 9, 2009, sent her a Notice of Mortgagee's Intention to Foreclose Under Power of Sale (" NOI" ), and recorded a copy with the State of Hawaii Bureau of Conveyances as Doc. No. 2009-185138, which had the effect of clouding her title and setting a foreclosure date of February 1, 2010. Complaint ¶ 25.

Plaintiff attempted to negotiate a loan modification with BAC, but was told that she had to wait until the end of the Forbearance Agreement period on or after February 1, 2010. Complaint ¶ 26. On May 22, 2010, she was told by " someone at BAC" that her loan modification application had been lost, and that she would have to apply again. Complaint ¶ 29. Plaintiff tried several times during the summer of 2010 to obtain a loan modification from BAC, without success and with poor communication from BAC. 2 Complaint ¶ ¶ 30-33. On August 2, 2010, Plaintiff received a certified mail notice that a foreclosure sale of the property was set for that same day. Complaint ¶ 34. According to Plaintiff, BAC conducted the foreclosure sale and

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Fannie Mae was the only bidder on the property. Complaint ¶ 35. Plaintiff alleges that BANA then sent her a letter in 2011 attempting to collect on the First Loan, even though Plaintiff had already lost the property to foreclosure. Complaint ¶ 37.

Plaintiff argues that Defendants had a duty under the Home Affordable Modification Program (" HAMP" ) to provide fair loan mitigation prior to holding a foreclosure sale. Complaint ¶ ¶ 38-54. She also claims that the non-judicial foreclosure conducted by BAC was defective because it did not comply with Hawaii Revised Statutes (" HRS" ) § § 667-5-10. Complaint ¶ ¶ 55-57. Last, Plaintiff alleges that BANA and BAC do not hold the Note and lack legal standing to foreclose. Complaint ¶ ¶ 58-61.

Plaintiff's Complaint alleges the following causes of action: (1) violation of HRS Chapter 667 based on lack of standing to foreclose against BAC, BANA, and Fannie Mae; (2) violation of HRS § 667-5 for failure to provide public announcement of continued date of foreclosure and to follow initial terms of sale against BAC, BANA, and Fannie Mae; (3) violation of " Unfair Debt Collection Practices Act" against BAC and BANA for failure to cease collection efforts after debt was paid in full; (4) another violation of " Unfair Debt Collection Practices Act" for collecting a debt they do not own against BAC and BANA; (5) breach of HAMP contract, against BAC and Fannie Mae; (6) unfair and deceptive acts and practices (" UDAP" ) in violation of HRS § 480-2 against BAC and Fannie Mae; (7) wrongful foreclosure against BAC and BANA; (8) promissory estoppel against BAC; (9) fraudulent misrepresentation against BAC and BANA; (10) violation of constitutional right of due process against Fannie Mae and FHFA; and (11) quiet title against any Defendant claiming an interest in the property. [1] Plaintiff requests the following relief: set aside the August 2, 2010 foreclosure sale and transfer of title; determine that Plaintiff is the prevailing party; and award damages and costs, as well as treble damages, punitive damages, attorneys' fees and costs.

Defendants seek the dismissal of all claims. The Fannie Mae Motion notes that the recorded Mortgagee's Affidavit of Foreclosure Under Power of Sale (" Affidavit of Foreclosure" ) states that each postponement of the sale was publicly announced " by crying out the postponement date at the time and place of the scheduled auction," and that BANA, not Fannie Mae, purchased the property. Mem. in Supp. of Fannie Mae Motion at 6 (quoting Decl. of Counsel, Ex. 3). Defendants note that Plaintiff alleges that she entered into a Forbearance Agreement with BANA on September 1, 2009, but does not allege that the Forbearance Agreement required Defendants to provide Plaintiff with a HAMP loan modification. Rather, Plaintiff claimed that she was told that she could not apply for a HAMP loan modification until after the forbearance plan ended on February 1, 2010. Fannie Mae Reply at 8 n.4 (citing Complaint ¶ 26).

FHFA moves to dismiss with prejudice Plaintiff's lone constitutional claim, on the ground that Fannie Mae is not a government actor. Rather, it asserts that Fannie Mae is a private corporation presently in the temporary conservatorship of the FHFA.


Defendants bring their respective motions pursuant to Federal Rule of Civil Procedure 12(b)(6).

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Rule 12(b)(6) permits a motion to dismiss for failure to state a claim upon which relief can be granted. Pursuant to Ashcroft v. Iqbal, " [t]o 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.'" 555 U.S. 662, 678 (2009) (quoting Bell A. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). " [T]he tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions." Id. 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 for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556). Factual allegations that only permit the court to infer " the mere possibility of misconduct" do not constitute a short and plain statement of the claim showing that the pleader is entitled to relief as required by Rule 8(a)(2). Id. at 679.


I. Fannie Mae Motion

A. HRS Chapter 667 Claims (Counts 1 and 2)

Plaintiff's first two counts allege violations of HRS § 667-5. The statute provides in pertinent part:

(a) When a power of sale is contained in a mortgage, and where the mortgagee, the mortgagee's successor in interest, or any person authorized by the power to act in the premises, desires to foreclose under power of sale upon breach of a condition of the mortgage, the mortgagee, successor, or person shall be represented by an attorney who is licensed to practice law in the State and is physically located in the State. The attorney shall:
(1) Give notice of the mortgagee's, successor's, or person's intention to foreclose the mortgage and of the sale of the mortgaged property as follows:
(A) By serving, not less than twenty-one days before the date of sale, written notice of intent to foreclose on all persons entitled to notice under this part in the same manner as service of a civil complaint under chapter 634 of the Hawaii rules of civil procedure; provided that in the case of nonjudicial foreclosure of a lien by an association against a mortgagor who is not an owner-occupant, the association shall mail the notice by certified or registered mail, not less than twenty-one days before the date of sale, to:
(i) The unit owner at the address shown in the records of the association and, if different, at the address of the unit being foreclosed; and
(ii) All mortgage creditors whose names are known or can be discovered by the association; and
(B) By publication of the notice once in each of three successive weeks, constituting three publications with the last publication to be not less than fourteen days before the day of sale, in a daily newspaper having the largest general circulation in the specific county in which the mortgaged property lies; provided that for property located in a county with a population of more than one hundred thousand but less than three hundred thousand, the public notice shall be published in the newspaper having the largest circulation

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expressly in the eastern or western half of the county, corresponding to the location of the subject property;
(2) Give notice of the mortgagor's right to elect to participate in the mortgage foreclosure dispute resolution program pursuant to section 667-75 or to convert the nonjudicial power of sale foreclosure to a judicial foreclosure pursuant to section 667-53; and
(3) Give any notices and do all acts as authorized or required by the power contained in the mortgage.

(b) Copies of the notice required under subsection (a) shall be:

(1) Filed with the state director of taxation; and
(2) Posted on the premises not less than twenty-one days before the day of sale.
(c) Upon the request of any person entitled to notice pursuant to this section and sections 667-5.5 and 667-6, the attorney, the mortgagee, successor, or person represented by the attorney shall disclose to the requestor the following information:
(1) The amount to cure the default, together with the estimated amount of the foreclosing mortgagee's attorneys' fees and costs, and all other fees and costs estimated to be incurred by the foreclosing mortgagee related to the default prior to the auction within five business days of the request; and
(2) The sale price of the mortgaged property once auctioned.
(d) Any sale, of which notice has been given pursuant to subsections (a) and (b) may be postponed from time to time by public announcement made by the mortgagee or by a person acting on the mortgagee's behalf. Upon request made by any person who is entitled to notice pursuant to section 667-5.5 or 667-6, or this section, the mortgagee or person acting on the mortgagee's behalf shall provide the date and time of a postponed auction, or if the auction is canceled, information that the auction was canceled. The mortgagee, within thirty days after selling the property in pursuance of the power, shall file a copy of the notice of sale and the mortgagee's affidavit, setting forth the mortgagee's acts in the premises fully and particularly, in the bureau of conveyances.

HRS § 667-5 (emphasis added).

The first two causes of action allege that BANA did not have the right to foreclose because the Assignment was defective, [2] and that Plaintiff did not have the required notice of the August 2, 2010 foreclosure sale. See Complaint ¶ ¶ 64-73.

The recorded Assignment states that Mortgage Electronic Registration Systems, Inc. (" MERS" ), as nominee for Quicken Loans, transferred all of its right, title and interest in the Mortgage to BANA on August 31, 2009. Decl. of Counsel, Ex. C (Assignment of Mortgage) at 1. In light of the express disclosures in the

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Mortgage giving MERS the authority to act on behalf of Quicken Loans and the transfer of the Mortgage to BANA, Plaintiff has no basis to challenge the Assignment. Indeed, in numerous instances, courts within this district have rejected similar claims by numerous borrowers challenging MERS's authority to assign a mortgage on behalf of a lender. See, e.g., Fed. Nat'l Mortg. Ass'n v. Kamakau, 2012 WL 622169, at *4 & *5 n. 5 (D. Haw. Feb. 23, 2012) (explaining that a borrower cannot challenge an assignment to which he was not a party, and that plaintiff may not assert claims based on the argument that MERS lacked authority to assign its right to foreclose); Lindsey v.. Meridias Cap., Inc., 2012 WL 488282, at *3 n. 6 (D. Haw. Feb. 14, 2012) (" '[A]ny argument that MERS lacked the authority to assign its right to foreclose and sell the property based on its status as 'nominee' cannot stand in light of [ Cervantes v. Countrywide Home Loans, 656 F.3d 1034 (9th Cir. 2011).]" (quoting Velasco v. Sec. Nat'l Mortg. Co., 823 F.Supp.2d 1061, 2011 WL 4899935, at *11 (D. Haw. 2011)); Teaupa v. U.S. Nat'l Bank N.A., 836 F.Supp.2d 1083, 2011 WL 6749813, at *16 (D. Haw. Dec. 22, 2011) (dismissing without leave to amend claim asserting that MERS lacks standing to foreclose); Abubo v. Bank of New York Mellon, 2011 WL 6011787, at *8 (D. Haw. Nov. 30, 2011) (holding that " the involvement of MERS in the assignment cannot be a basis for voiding the assignment, much less for a claim of fraud" ).

Moreover, courts in this district have routinely rejected claims that the absence of the assignment of a mortgage and the physical delivery of the note somehow nullifies the foreclosure sale. See, e.g., White v. IndyMac Bank, FSB, 2012 WL 966638, at *8 (D. Haw. Mar. 20, 2012) (rejecting a " show me the note" argument for an unfair and deceptive acts or practices claim); Del Piano v. Mortg. Elec. Registration Sys, Inc., 2012 WL 621975, at *10 (D. Haw. Feb. 24, 2012) (rejecting a " show me the note" claim as " baseless" ). Here, Plaintiff has ...

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