William B. Butler, Butler Liberty Law, LLC, for Plaintiffs.
John L. Krenn and Kelly W. Hoversten, Gray, Plant, Mooty, Mooty & Bennett, P.A.and Lucia Nale, Thomas V. Panoff, and Maritoni D. Kane, Mayer Brown LLP, for Defendants Federal Home Loan Mortgage Corporation and CitiMortgage, Inc.
MEMORANDUM OPINION AND ORDER
SUSAN RICHARD NELSON, District Judge.
This matter is before the Court on Plaintiffs' Objection [Doc. No. 27] to United States Chief Magistrate Judge Arthur J. Boylan's October 25, 2013, Report and Recommendation ("R & R") [Doc. No. 26]. The Chief Magistrate Judge recommended that Defendants' Motion to Dismiss [Doc. No. 11] be granted. (Report and Recommendation on Defendants' Motion to Dismiss, dated October 25, 2013 ("R & R"), at 10 [Doc. No. 26].) For the reasons set forth below, Plaintiffs' objections are overruled and the Court adopts the R & R in its entirety.
The factual and procedural background of Plaintiffs' case is well documented in the
Chief Magistrate Judge's R & R and is incorporated herein by reference. In this lawsuit, Plaintiffs are challenging the foreclosure of the mortgage on their home. Plaintiffs currently reside in and are in possession of real property located in Brooklyn Center, Minnesota ("Property"). (Compl. ¶ 1 [Doc. No. 1-1].) Plaintiffs executed a note and a mortgage on that property ("Mortgage") in favor of ABN AMRO Mortgage Group, Inc. ("ABN AMRO"), in September 2006. (See id. ¶ 5 & Ex. 1; Hoversten Decl. dated May 29, 2013, ¶ 2 & Ex. 1 [Doc. No. 13].) Plaintiffs allege that, "[u]pon information and belief, ABN AMRO... originated the loan for delivery to [Defendant] Federal Home Loan Mortgage Corporation (Freddie Mac'), " (Compl. ¶ 8 [Doc. No. 1-1]), and that Defendant Freddie Mac's Custodial Agreement requires the seller to deliver an executed assignment of the security instrument in recordable form but not recorded, (id. ¶ 10). In 2007, ABN AMRO merged with Defendant CitiMortgage, Inc. (Id. ¶ 7 & Ex. 2.)
Plaintiffs do not allege in their Complaint that they defaulted on the note, but the Complaint does allege that Defendant CitiMortgage, through its attorneys, instituted foreclosure proceedings against Plaintiffs on two separate occasions. The first foreclosure was declared null and void by the Hennepin County District Court based on an agreement entered into by the parties during the statutory redemption period, and the Mortgage was reinstated. (Id. ¶ 17 & Ex. 6.) As for the second foreclosure, Plaintiffs allege that Defendant CitiMortgage, through the law firm of Shapiro & Zielke, LLP, recorded in Hennepin County in July 2012 a Notice of Pendency and Power of Attorney to Foreclose ("POA"). (Id. ¶ 18.) Julie Leise, as Document Control Officer of CitiMortgage, Inc., had executed the POA on behalf of Defendant CitiMortgage in June 2012. (Id. ¶ 18 & Ex. 7.) A sheriff's sale was held on September 7, 2012, and Shapiro & Zielke appeared on behalf of Defendant CitiMortgage and bid on the Property. (Id. ¶ 20.) Defendant CitiMortgage purchased the Property for $223, 484.09, and the Sheriff's Certificate of Sale was recorded in Hennepin County on September 12, 2012. (Id. ¶ 20 & Ex. 8.) On October 23, 2012,  Rhonda Berblinger, on behalf of Defendant CitiMortgage, executed an Assignment of Sheriff's Certificate of Sale conveying the Property to Defendant Freddie Mac. (Id. ¶ 21 & Ex. 9.) The assignment was recorded in Hennepin County on November 1, 2012. (Id.)
Plaintiffs allege that, pursuant to Defendant Freddie Mac's Custodial Agreement, Defendant CitiMortgage's predecessor-in-interest assigned the Mortgage to Freddie Mac prior to commencement of the foreclosure proceedings but did not record the assignment. (See id. ¶ 11.) As alleged by Plaintiffs, no assignment of the Mortgage to Defendant Freddie Mac appears in the public record. (Id.) Therefore, Plaintiffs allege "[u]pon information and belief, " Ms. Leise did not have legal authority to execute the POA because Defendant CitiMortgage's interest in the Property had already been assigned. (Id. ¶ 19.) For the same reasons, Plaintiffs allege that Shapiro & Zielke did not have legal authority to bid on the Property at the sheriff's sale. (See id. at 20.) Finally, Plaintiffs allege that Shapiro & Zielke had constructive notice that Defendant CitiMortgage's parent company "had engaged in unsafe and unsound' banking practice in conducting foreclosures" by virtue of an Order and Consent Decree entered into by the parent company, and that the Order and Consent Decree required the parent company to comply with Freddie Mac's agreements. (Id. ¶¶ 23-24.)
Plaintiffs' Complaint raises three causes of action. In Count I, Plaintiffs seek a determination of adverse claims under Minnesota's quiet title statute, Minn. Stat. § 559.01. (Id. ¶¶ 29-35.) Plaintiffs allege that Defendants' claim to an interest in Plaintiffs' Property is void because there was an unrecorded assignment of the Mortgage prior to the foreclosure, Defendant CitiMortgage did not have the power of sale on the date of the sheriff's sale, the individuals who executed the foreclosure documents did so without legal authority, and Defendants did not record the POA authorizing the foreclosure. (Id. at 34.) Count II seeks a declaratory judgment that the POA and sheriff's certificate are void and that Plaintiffs remain the owners of the Property. (Id. ¶¶ 36-38.) Count III alleges slander of title against Defendants based on the recording of allegedly false documents. (Id. ¶¶ 39-44.)
Defendants filed a motion to dismiss Plaintiffs' Complaint [Doc. No. 11], along with a supporting memorandum [Doc. No. 12] and declaration [Doc. No. 13]. Plaintiffs filed an opposition memorandum [Doc. No. 20], and Defendants filed a reply brief [Doc. No. 22]. The motion was referred to the Chief Magistrate Judge pursuant to 28 U.S.C. § 636 and Local Rule 72.1, and the matter was heard on the papers [Doc. No. 24].
The Chief Magistrate Judge issued his R & R on October 25, 2013. He determined that all three of Plaintiffs' claims fail. (See R & R at 1 [Doc. No. 26].) First, the Chief Magistrate Judge found that Plaintiffs' quiet title claim fails because: (1) Plaintiffs' allegations that Defendant Freddie Mac acquired an unrecorded assignment prior to commencement of the foreclosure proceedings, rendering the foreclosure void, are based "upon information and belief" and fail to satisfy federal pleading requirements; (2) the Custodial Agreement is insufficient to support Plaintiffs' claim because it is an unexecuted form contract that is not for the benefit of any borrower; (3) it is inappropriate to draw an inference from the Consent Decree and Order that all foreclosure proceedings are faulty; (4) Plaintiffs' allegations that the individuals who signed the notices of pendency and powers of attorney lacked legal authority to do so merely re-state the invalid argument that Defendant CitiMortgage had no interest in the Property due to the alleged unrecorded assignment; and (5) Plaintiffs cannot state an equitable quiet title claim when they have come to court with unclean hands. (See id. at 5-8.) Second, the Chief Magistrate Judge determined that Plaintiffs' declaratory judgment claim fails because it is based upon the same insufficient allegations as the quiet title claim. (See id. at 8.) Third, he found that ...