William B. Butler, Butler Liberty Law, LLC, Minneapolis, Minnesota for Plaintiffs.
Andre T. Hanson, Brent R. Lindahl, Fullbright & Jaworski LLP, Minneapolis, MN, for Defendants Bank of America, N.A., BAC Home Loan Servicing, LP, BAC GP, LLC, and Federal National Mortgage Association.
Jared M. Goerlitz, Peterson, Fram & Bergman, P.A., Paul, MN 55101, for Defendant Peterson, Fram & Bergman, P.A.
MEMORANDUM OPINION AND ORDER
SUSAN RICHARD NELSON, District Judge.
This matter is before the Court on Motions to Dismiss filed by Defendants Bank of America, N.A., BAC Home Loan Servicing, LP, BAC GP, LLC, and Federal National Mortgage Association [Doc. No. 6] and Defendant Peterson, Fram & Bergman, P.A., [Doc. No. 12], and a Motion to Remand filed by Plaintiffs [Doc. No. 16]. For the reasons stated below, the Court grants the Motions to Dismiss, denies the Motion to Remand, and dismisses the Amended Complaint [Docket No. 20] with prejudice.
I. FACTUAL AND PROCEDURAL BACKGROUND
Plaintiffs Michael and Jill Forseth bought their home in Brooklyn Park, Minnesota, in 2002. (Am. Compl. ¶¶ 1-2.) In 2007, the Forseths took out a mortgage on the property in favor of Mortgage Electronic Registration Systems, Inc. ("MERS"), as nominee for Countrywide Bank, FSB. (Id. ¶ 14.) In 2010, the mortgage was assigned to BAC Home Loans Servicing, LP ("BAC"). (Id. ¶ 17.)
The Forseths deny that Defendants "can prove default in accordance with Article 3 of the UCC." (Id. ¶ 15.) However, it appears from documents attached to the Amended Complaint that the Forseths were in fact behind on their mortgage payments and did default. (Id. Ex. 2 (letter from Bank of America regarding Mr. Forseth's application for Home Affordable Modification Program, or HAMP, and referencing past-due loan payments).) The Amended Complaint does not discuss when foreclosure proceedings on the property commenced, but states that on March 10, 2011, BAC noticed a sheriff's sale for May 11, 2011. (Id. ¶ 8.) The sale was conducted as scheduled with BAC offering the successful bid at the sale. (Id. Ex. 7 (Sheriff's Certificate of Sale) at 16.)
The Amended Complaint contends that, "[u]pon information and belief, " Defendant Federal National Mortgage Association, known as Fannie Mae, acquired an interest in the Forseths' mortgage sometime before the foreclosure process began. (Id. ¶ 18.) No assignment to Fannie Mae is in the public record, however. (Id.) Because this purported assignment was unrecorded, the Forseths contend that the foreclosure process was invalid under Minnesota law. (Id. ¶ 23.) They also contend that the 2010 assignment from MERS to BAC was invalid because the individual who signed the assignment on behalf of MERS was not authorized to do so. (Id. ¶ 24.) In addition, the Forseths maintain that the power of attorney for the foreclosure executed on behalf of BAC was signed by an individual who did not have the legal authority to do so. (Id. ¶¶ 25-26.) According to the Forseths, these allegedly unauthorized signatures rendered the foreclosure invalid.
In December 2011, Bank of America transferred the property via quitclaim deed to Fannie Mae. (Id. ¶ 29.) The Forseths challenge the signing authority of the individual who signed the deed on Bank of America's behalf. (Id. ¶ 31.) The Forseths also allege that the deed is invalid because Bank of America did not have any interest in the mortgage to transfer to Fannie Mae in December 2011. (Id. ¶ 32.) Fannie Mae commenced eviction proceedings in December 2011, but the Amended Complaint does not reveal the outcome of those proceedings. Nor does the Amended Complaint contain any information about the Forseths' bankruptcy petition, filed in July 2012, although this information is certainly germane, if not essential, to the success of their claims here. (Hanson Aff. [Doc. No. 10-1] Ex. 2 (Petition in Bankr. Case 12-44479 (Bankr. D. Minn.).)
The Forseths originally filed this lawsuit in Minnesota state court in late November 2012. Defendants thereafter removed it to this Court, and after Defendants filed the instant Motions to Dismiss, the Forseths amended their Complaint. Because the Amended Complaint is substantially the same as the originally filed Complaint, the parties agreed to proceed with the Motions as filed.
The Amended Complaint raises six causes of action. Count 1 seeks a "Determination of Adverse Interests" under Minnesota's quiet title statute, Minn. Stat. § 559.01, and is brought against Fannie Mae "and/or other Defendants whose identity is unknown, claims [sic] an adverse interest, claim or right to the real property.... (Id. ¶ 45.) Count 2 asks for a declaratory judgment that the sheriff's sale and deed are void, that the deed to Fannie Mae is void, that the assignment and power of attorney are void, and that the Forseths "remains [sic] the owner of the property in fee title." (Id. ¶ 49.) Count 3 claims "Penalties for Deceit or Collusion" under Minn. Stat. § 481.07 against all Defendants. (Id. ¶¶ 40-49.) Count 4 claims that Peterson, Fram & Bergman, P.A. (the "law firm") violated Minn. Stat. § 580.05 and Minn. R. Prof. Conduct 3.3, and that these alleged violations constitute negligence per se. (Id. ¶¶ 62-72.) Count 5 claims breach of contract against BAC, for BAC's alleged failure to honor its agreement not to conduct a foreclosure sale of the Forseths' property. (Id. ¶¶ 74-78.) Finally, Count 6 claims slander of title against the law firm. (Id. ¶¶ 80-84.)
Defendants' first argument in support of dismissal of the claims here is that the Forseths have no standing to pursue any of the claims because the claims belong to the bankruptcy estate. In response, the Forseths argue that Minnesota's homestead exemption, which exempts an individual's homestead from the bankruptcy estate, somehow applies to take claims related to that homestead out of the bankruptcy estate as well.
The Forseths' argument regarding the homestead exemption lacks merit. First, the Forseths had no homestead or other rights in the property at the time they filed their bankruptcy petition, so they could not avail themselves of Minnesota's homestead exemption in their bankruptcy proceedings. Moreover, the Forseths' bankruptcy petition did not list their home as an asset, presumably because, at the time they filed the petition, the foreclosure sale had occurred and the six-month statutory redemption period had expired. (Hanson Aff. Ex. 2 at 10 (Bankr. Petition Schedule A - Real Property, stating "None").) Thus, as the Forseths implicitly acknowledged in their petition, they retained no title or interest in the property. See In re Brook Valley VII, Joint Venture , 496 F.3d 892, 900 (8th Cir. 2007) (noting that bankruptcy debtors' "interests in the properties were not extinguished until the foreclosure sales occurred"); see also Johnson v. First Nat'l Bank of Montevideo , 719 F.2d 270, 276 (8th Cir. 1983) ("It is long-settled under Minnesota law that... the purchaser at the foreclosure sale acquires a vested right to become the absolute owner of the property upon expiration of the redemption period, or, in lieu thereof, to receive the payment of the purchase price plus interest."); Geo. Benz & Sons v. Willar , 269 N.W. 840, 841 (Minn. 1936) (holding that fee title vests in foreclosure purchaser upon expiration of redemption period).
The foreclosure sale took place in May 2011, and the six-month redemption period of Minn. Stat. § 580.23, subd. 1 expired in November 2011 with no redemption by the Forseths. At the time of the Forseths' bankruptcy petition in July 2012, Fannie Mae was the fee owner of the property, having received that property via quitclaim deed from BAC, which purchased the property at the May 2011 sheriff's sale. Thus, the Forseths had no property on which to claim Minnesota's homestead exemption. That exemption did not save the Forseths' property from foreclosure and does not save their claims here.
The second reason the Forseths' argument regarding the homestead exemption lacks merit is that the asset at issue is this lawsuit, not the property itself. The Forseths do not dispute that, as of the date they filed a bankruptcy petition, a bankruptcy estate arose that consisted of all of the Forseths' property, including "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). "[T]he property of the bankruptcy estate includes all causes of action that the debtor could have brought at the time of the bankruptcy petition." U.S. ex rel. Gebert v. Transp. Admin. Servs. , 260 F.3d 909, 913 (8th Cir. 2001) (emphasis added); see also Carlock v. Pillsbury Co. , 719 F.Supp. 791, 856 (D. Minn. 1989) ...