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Gharwal v. Federal National Mortgage Association

United States District Court, Eighth Circuit

September 11, 2013

NJYA GHARWAL, Plaintiff,
FEDERAL NATIONAL MORTGAGE ASSOCIATION; MORTGAGE ELECTRONIC REGISTRATION SYSTEM; BANK OF AMERICA, N.A.; MERSCORP, INC.; all other persons, unknown claiming any right, title, estate, interest, or lien in the real estate described in the complaint herein, Defendants.

William B. Butler, BUTLER LIBERTY LAW, LLC, for plaintiff.

Andre T. Hanson and Brent R. Lindahl, FULBRIGHT & JAWORSKI LLP, for defendants Federal National Mortgage Association, Mortgage Electronic Registration System, Bank of America, N.A., and MERSCORP, Inc.


PATRICK J. SCHILTZ, District Judge.

In this action, plaintiff Njya Gharwal[1] seeks to invalidate the foreclosure of the mortgage on her home. Gharwal asserts two claims: (1) a quiet-title claim - i.e., a claim to determine adverse claims under Minn. Stat. § 559.01, and (2) a claim for a declaratory judgment.[2] Defendants Federal National Mortgage Association ("Fannie Mae"), Mortgage Electronic Registration System ("MERS"), Bank of America, N.A. ("BOA"), and MERSCORP, Inc. ("MERSCORP") move to dismiss Gharwal's complaint for failure to state a claim. For the reasons stated below, the motion is granted.


Gharwal resides in and is in possession of real property located at 1731 Crossings Boulevard in Shakopee, Minnesota. Compl. ¶ 1. Gharwal acquired her interest in the property via warranty deed in 2004. Compl. ¶ 2. On February 23, 2007, Gharwal executed and delivered a $239, 200 promissory note to America's Wholesale Lender ("AWL") as well as a mortgage securing the note to MERS (as nominee for AWL). Compl. ¶ 7; Compl. Ex. 1. A printout from a MERS database currently lists Fannie Mae as an "investor" on the loan. Compl. ¶ 9; ECF No. 17.[3]

On December 8, 2011, Amanda Stackhouse executed an assignment of Gharwal's mortgage from MERS to BOA; that assignment was recorded in the Scott County Office of the Recorder the next day. Compl. ¶ 10; Compl. Ex. 2. The assignment indicates that Stackhouse executed the assignment in her capacity as an assistant secretary of MERS. Compl. ¶ 10. Gharwal alleges that Stackhouse did not have the authority to execute the assignment because she was actually an employee of BOA rather than MERS. Compl. ¶ 11; Compl. Ex. 3.

In February 2012, BOA initiated a foreclosure by advertisement, and Gharwal's property was sold at a sheriff's sale on April 24, 2012. Compl. ¶¶ 20, 22; Compl. Ex. 7. Gharwal alleges that the foreclosure was invalid because: (1) at some point before the foreclosure sale, her mortgage was assigned to Fannie Mae; (2) that assignment was not recorded; and therefore (3) the foreclosure failed to comply with Minn. Stat. § 580.02(3), "which requires all assignments of a mortgage to be recorded before a party is entitled to make a foreclosure by advertisement...." Ruiz v. 1st Fid. Loan Servicing, LLC, 829 N.W.2d 53, 59 (Minn. 2013); see Compl. ¶ 23. Gharwal is not clear about who supposedly made this unrecorded assignment to Fannie Mae. In her complaint, Gharwal alleges that BOA made the unrecorded assignment - presumably after MERS purported to assign the mortgage to BOA in December 2011. Compl. ¶ 23. At oral argument, however, Gharwal suggested that it may have been either MERS or AWL who made the unrecorded assignment to Fannie Mae.[4]


A. Standard of Review

In reviewing a motion for failure to state a claim under Fed.R.Civ.P. 12(b)(6), the court must accept as true all of the factual allegations in the complaint and draw all reasonable inferences in the plaintiff's favor. Aten v. Scottsdale Ins. Co., 511 F.3d 818, 820 (8th Cir. 2008). Although the factual allegations in the complaint need not be detailed, they must be sufficient to "raise a right to relief above the speculative level...." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). The complaint must "state a claim to relief that is plausible on its face." Id. at 570. In assessing the sufficiency of the complaint, the court is not required to credit legal conclusions that are couched as factual allegations. See Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009).

Ordinarily, if the parties present, and the court considers, matters outside of the pleadings, the motion must be treated as a motion for summary judgment. Fed.R.Civ.P. 12(d). But the court may consider materials that are necessarily embraced by the complaint, as well as any exhibits attached to the complaint, without converting the motion into one for summary judgment. Mattes v. ABC Plastics, Inc., 323 F.3d 695, 697 n.4 (8th Cir. 2003).

B. Validity of Foreclosure

Gharwal claims that BOA's foreclosure of the mortgage on her home was invalid.[5] Before addressing that claim, however, the Court first must address Gharwal's argument that she does not need to allege any reason why the foreclosure may be invalid in order to sufficiently plead a quiet-title claim under Minnesota law. Specifically, Gharwal argues that, in order to state a quiet-title claim under § 559.01, she need only allege that she is in possession of the property and that the defendants claim an adverse interest. In other words, Gharwal argues that she need not even allege - must less have a reasonable basis for alleging - that the defendants' interest in her property is invalid. Moreover, Gharwal alleges that, once a defendant is sued under § 559.01, the defendant bears the burden of proving that its interest in the property is valid. According to Gharwal, the plaintiff in a quiet-title case does not have to prove anything except that she is in possession of the property. As Gharwal would have it then, a homeowner facing foreclosure can bring a quiet-title action against the mortgagor even if the homeowner knows full well that the mortgagor's interest in the property is valid. The homeowner's quiet-title claim is essentially immune from being dismissed under Rule ...

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