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Lynch v. Federal National Mortgage Association

United States District Court, D. Hawaii

September 6, 2017

DONNA LYNCH, Plaintiff,


          Derrick K. Watson, United States District Judge.


         Plaintiff Donna Lynch, proceeding pro se, brings unspecified claims against the lender, loan servicer, and assignee of a 2007 mortgage on her real property in Maui that was sold at a 2010 non-judicial foreclosure sale. Although her First Amended Complaint lacks specific claims, Lynch appears to seek rescission of the mortgage and invalidation of the foreclosure sale, due to fraud in the origination of the loan and during the foreclosure proceeding. The First Amended Complaint, however, suffers from several of the same deficiencies as Lynch's original Complaint, as described in the Court's November 15, 2016 Order Granting Defendants' Motion To Dismiss With Leave To Amend. See Dkt. No. 40 (11/15/16 Order). Because Lynch's indeterminate claims did not cure the deficiencies previously identified by the Court, are not alleged with the particularity required by Federal Rule of Civil Procedure 9(b), are time-barred, or otherwise fail to state a claim for relief, Defendants' Motion to Dismiss is granted. For a second time, Lynch is granted leave to file an amended complaint- no later than October 6, 2017-limited by and consistent with the instructions below. The Court denies Lynch's requests for a further extension of time in which to file additional briefing.


         Lynch brings claims against Defendants Federal National Mortgage Association (“Fannie Mae”), Countrywide Home Loans, Inc. (“Countrywide”), and Bank of America, N.A. (“BANA”), in an effort to set aside the non-judicial foreclosure sale of her real property located at 66 Haku Hale Place, Lahaina, Hawaii 96761 (“Property”), which took place on June 17, 2010 under a power of sale from a 2007 Mortgage. First Amended Complaint (“FAC”) ¶¶ 29-31, Dkt. No. 46; Defs.' Ex. A (2007 Mortgage), Dkt. No. 50-1.[1] Fannie Mae gained title to the Property through the foreclosure sale, and thereafter initiated a Complaint for Ejectment in the Circuit Court of the Second Circuit in the State of Hawaii to obtain possession of the Property. Defs.' Ex. B (Quitclaim Deed) and Ex. C (Complaint for Ejectment); Dkt. Nos. 50-2 and 50-3.

         According to Lynch, the 2010 foreclosure sale was “illegal and fraudulent, ” due in part to a “forged Assignment made in 2009 from MERS to BAC and a notice of Foreclosure naming solely BAC Home Loans and [which] never mentioned Fannie Mae who was the original investor from the inception of the loan.” FAC ¶¶ 29, 35. Lynch alleges that-

47. The Lynch loan was sold by [Countrywide] to [Fannie Mae] who had its own securitization pools not necessarily listed in the Securities and Exchange Commission (“SEC”).
48. Fannie was the investor and real party in interest from the loan application process [in] 2007 forward.
49. However, Fannie was concealed during the foreclosure process and did not appear in the Assignment of Mortgage, Intent to Foreclose Notices, the Non-Judicial Foreclosure or the Foreclosure Affidavit that were all filed and remain in the Hawaii Bureau of Conveyances.
51. It appears that Fannie and BAC executed a scheme that concealed the real party in interest owner/investor from Lynch.

FAC ¶¶ 47-49, 51.

         The FAC further alleges that the 2007 Mortgage was improperly procured by employees of Countrywide and that she is a victim of a nationwide mortgage fraud conspiracy known as the “Hustle.” See FAC ¶¶ 43-179. According to Lynch, Countrywide employees contacted her in 2007 to inform her that she needed to refinance her 2005 mortgage, also with Countrywide, because “an internal [Countrywide] audit found that the 2005 loan was ‘invalid and/or illegal.'” FAC ¶ 68. Lynch alleges that the 2007 loan application was “crafted in Ventura, California by Steven Gillespie at Countrywide, ” who was “Lynch's sole contact via phone throughout the refinance process, ” and that he “convinced Lynch that her 2005 loan was no longer valid and without a refinance she would no longer own her home or have homeowner's insurance.” FAC ¶¶ 76-78. According to Lynch, “[i]n addition to escalating the appraisal market value again this time to $850, 000, the first mortgage amount terms and interest rates, [Countrywide] added a $77, 000 2nd mortgage in an 80/20 deal that Lynch was not expecting.” FAC ¶ 74. Moreover, “[o]n the day of signing, since Lynch had a medical disability and could not drive, a representative from CHL came to her house.” FAC ¶ 82.

         Lynch alleges that the following improper lending practices by Countrywide were part of a larger scheme to defraud-

83. Gillespie informed Lynch that the property market value had allegedly increased to $850, 000 which became a central part of Gillespie's sale pitch.
84. Countrywide would later become well known for requiring inflated appraisals to meet the parameters of the loan amount.
85. Treating the inflated equity like stocks, Lynch was encouraged to increase her mortgaged amount, roll in some debt and take some cash out.
86. It was the standard [Countrywide] sales operating procedure.
87. No documentation needed, as the previous loan information would suffice.
88. This was a high speed, fast and easy “Hustle” loan. **** 91. The Lynch first mortgage loan dated May 1, 2007 was sold to Fannie upon origination.
92. It appears the 2007 2nd line of credit mortgage may not have been fully disclosed to Fannie; specifically, loans sold to Fannie must comply with its Single Family Selling Guide and purchase contracts.
93. [Countrywide] was known for failing to follow the Fannie Guidelines. . . .
94. By 2008 and the onset of the financial crisis it became painfully obvious that these Adjustable Rate Mortgage loans were intended to create defaults and not designed for long term 30 year loans.

FAC ¶¶ 83-88, 91-94.

         Lynch contends that the loan servicer, BAC, and Fannie Mae “committed intrinsic fraud, such as filing materially false [nonjudicial foreclosure] documents . . . in the Hawaii Bureau of Conveyances [and] in Court . . . wherein they knowingly concealed the real party in interest, the actual mortgagee, owner and investor [Fannie Mae], throughout the entire nonjudicial foreclosure process.” FAC ¶ 173. Lynch asserts that “the documents [recorded] in the Bureau of Conveyances [(“BOC”)] since 2007 have been fraudulent and have irreparably harmed [her].” FAC ¶ 31.

         Lynch filed her original Complaint in state court while the ejectment action was pending.[2] Defendants removed the case to this Court on May 3, 2016. The Court dismissed Lynch's original Complaint based on similar allegations of fraud by unspecified agents of Countrywide and BANA and granted her leave to amend. 11/15/16 Order. The FAC, filed on February 2, 2017, eliminated several of the specific causes of action alleged in the original Complaint, but otherwise repeats many of the prior averments, while adding new theories based on Countrywide's broader scheme to defraud. Lynch seeks “an Order to set aside and vacate the June 17, 2010 non-judicial foreclosure and following judgments in this Court, not only to prevent further irreparable harm to her, but as a matter of law to correct any possible fraud, misrepresentation and circumvention used to obtain the judgments and orders.” FAC ¶ 271.

         Defendants move to dismiss the FAC with prejudice for failure to state a claim upon which relief can be granted. Dkt. No. 49. Following several extensions of time from the Court, Lynch filed her opposition to Defendants' Motion on July 25, 2017 (Dkt. Nos. 60 and 61), and Defendants timely filed a reply by the August 14, 2017 deadline (Dkt. No. 63). After the close of briefing, on August 21 and 22, 2017, Lynch filed additional requests to extend the briefing deadlines to allow her to supplement her opposition and for leave to file an amended complaint. See Dkt. Nos. 64 and 65. The Court addresses each of the motions below.


         Federal Rule of Civil Procedure 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 Atlantic Corp. v. Twombly, 550 U.S. 554, 570 (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.

         Because Lynch is proceeding pro se, the Court liberally construes her filings. See Erickson v. Pardus, 551 U.S. 89, 94 (2007); Eldridge v. Block, 832 F.2d 1132, 1137 (9th Cir. 1987) (“The Supreme Court has instructed the federal courts to liberally construe the ‘inartful pleading' of pro se litigants.”) (citing Boag v. MacDougall, 454 U.S. 364, 365 (1982) (per curiam)). The Court recognizes that “[u]nless it is absolutely clear that no amendment can cure the defect . . . a pro se litigant is entitled to notice of the complaint's deficiencies and an opportunity to amend prior to dismissal of the action.” Lucas v. Dep't of Corr., 66 F.3d 245, 248 (9th Cir. 1995); see also Crowley v. Bannister, 734 F.3d 967, 977-78 (9th Cir. 2013). A court may, however, deny leave to amend where further amendment would be futile. See, e.g., Leadsinger, Inc. v. BMG Music Pub., 512 F.3d 522, 532 (9th Cir. 2008) (reiterating that a district court may deny leave to amend for, among other reasons “repeated failure to cure deficiencies by amendments previously allowed . . . [and] futility of amendment”).


         I. Defendants' Motion To Dismiss Is Granted

         Even liberally construed, the allegations in the First Amended Complaint are deficient for several reasons. First, the allegations of fraudulent conduct once again fall short of the particularity required by Federal Rule of Civil Procedure 9(b). Second, the Complaint fails to provide sufficient factual content to permit the Court to draw the reasonable inference that any Defendant is liable for the misconduct alleged. Moreover, many of the claims relating to the 2007 loan origination are time-barred. Defendants' Motion is therefore granted, but with limited leave to amend consistent with the instructions below.

         As a preliminary matter, the FAC does not comply with Rule 8, which mandates that a complaint include a “short and plain statement of the claim, ” Fed.R.Civ.P. 8(a)(2), and that “each allegation must be simple, concise, and direct.” Fed.R.Civ.P. 8(d)(1).[3] Because specific claims are not identified in a coherent manner, the Court is left to guess as to the causes of action that Lynch intended to assert in the FAC. The sole evident remedy sought is an order “set[ting] aside and vacat[ing] the June 17, 2010 non-judicial foreclosure and following judgments in this Court.” FAC ¶ 271. To the extent the Court is able to discern specific claims or causes of action, they are organized below in order to provide guidance on the filing of an amended complaint.

         A. Claims Sounding In Fraud

         The Court first addresses the allegations of fraud throughout the FAC. Lynch primarily alleges that the 2007 Mortgage was fraudulently procured by Countrywide and that its recordation on May 15, 2007 was likewise fraudulent. See FAC ¶¶ 31, 173-84, 226, 290.

         1. Certain Fraud ...

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