YAAMBEE YANG and YEE X. YANG, Plaintiffs,
FEDERAL NATIONAL MORTGAGE ASSOCIATION, Defendant.
REPORT AND RECOMMENDATION
JANIE S. MAYERON, Magistrate Judge.
This matter came before the undersigned on defendant Federal National Mortgage Association's Motion to Dismiss [Docket No. 9]. This matter has been referred to the undersigned Magistrate Judge for a Report and Recommendation by the District Court pursuant to 28 U.S.C. § 636(b)(1)(A), (B) and Local Rule 72.1(c). Pursuant to this Court's Order dated September 6, 2013 [Docket No. 15], this Report and Recommendation is being issued based on the parties' written submissions.
Plaintiffs seek to invalidate the foreclosure of the mortgage on their home. Plaintiffs assert three claims against defendant: (1) quiet-title, to determine adverse claims under Minn. Stat. § 559.01; (2) declaratory judgment; and (3) slander of title. For the reasons stated below, the Court recommends that defendant's Motion to Dismiss be granted and plaintiffs' claims be dismissed with prejudice.
A. Plaintiffs' Complaint
The facts bearing on the motion to dismiss are as follows: On December 21, 2005, plaintiffs executed and delivered a note to Countrywide Home Loans, Inc. ("Countrywide") on property located in Saint Paul, Minnesota ("Property"). See Complaint [Docket No. 1], ¶ 4. On the same day, plaintiffs executed a mortgage in favor Countrywide. Id., Ex. 1 (Mortgage). The mortgage was recorded with the Ramsey County Recorder on January 13, 2006. Id . Countrywide identified MERS as its nominee of the mortgage. Id.
The law firm of Shapiro & Zielke ("Shapiro") drafted an Assignment of Mortgage from Countrywide to BAC Home Loan Servicing, LP ("BAC") f/k/a Countrywide Home Loans Servicing. Id., ¶ 17, Ex. 4 (Assignment of Mortgage). Michelle Johnson, as the Assistant Vice-President of Countrywide, executed the Assignment of Mortgage on June 30, 2011. Id . The Assignment of Mortgage was recorded with the Ramsey County Recorder on July 7, 2011. Id.
On October 11, 2012, Shapiro drafted a Notice of Pendency of Proceeding and Power of Attorney to Foreclose Mortgage. Id., ¶ 18, Ex. 5 (Notice of Pendency of Proceeding and Power of Attorney to Foreclose Mortgage). Michelle Reese, Assistant Vice President, Bank of America, N.A. ("BOA"), successor by merger to BAC, f/k/a Countrywide Home Loans Servicing LP, executed this document and it was recorded with the Ramsey County Recorder on October 23, 2012. Id.
On December 20, 2012, Shapiro, on behalf of BOA, appeared at the sheriff's sale for the Property. Id., ¶ 19, Ex. 6 (Sheriff's Certificate and Foreclosure Record). Shapiro represented in the Sheriff's Certificate that BOA had legal authority to make a bid at the sale. Id . Plaintiffs deny that BOA had any right to exercise the power of sale by bidding in debt due on the note, and deny that it had the right to enforce the note. Id., ¶ 19.
On March 8, 2013, BOA assigned its interest to Fannie Mae through an Assignment of Sheriff's Certificate. Id., ¶ 20, Ex. 7 (Assignment of Sheriff's Certificate). Bradley Frank Catalano executed the assignment, as the Vice President of BOA, and the assignment was recorded on March 14, 2013, with the Ramsey County Recorder. Id.
Plaintiffs alleged that Fannie Mae acquired its interest in the mortgage close to time of the origination of the loan and prior to foreclosure of the Property, as evidenced by the MERS look-up sheet that lists Fannie Mae as an investor and Bank of America, N.A. as the servicer of the mortgage, and by Fannie Mae's Custodial Agreement. Id., ¶¶ 7, 11, Ex. 2 (screen shot dated July 25, 2013),  Ex. 3 (form Custodial Agreement). Therefore, because no assignment to Fannie Mae appears in the records of the Ramsey County Recorder, BOA conducted an invalid foreclosure on behalf of Fannie Mae. Id., ¶¶ 11, 19.
According to plaintiffs, Fannie Mae is a government-sponsored enterprise that purchases mortgages on the secondary market, pools the mortgages, and sells them as mortgage-backed securities to investors. Id., ¶ 8. Fannie Mae's Custodial Agreement requires that the lender deliver to the custodian a completed and executed assignment to Fannie Mae of the mortgage in a recordable but not recorded format, and an executed power of attorney to Fannie Mae to assign the mortgage. Id., ¶, 9, Ex. 3 (Form Custodial Agreement). Plaintiffs claimed that per the Custodial Agreement, Fannie Mae's alleged predecessor in interest prepared and delivered an assignment of the Mortgage to Fannie Mae, which conferred the power of sale to Fannie Mae. Id., ¶ 12. The failure to record the assignment to Fannie Mae violated Minn. Stat. § 580.02, and precludes the commencement of a foreclosure by advertisement. Id., ¶ 16.
Plaintiffs also alleged that on or about April 13, 2011, Fannie Mae received constructive notice of a Consent Order with the Officer of Comptroller of the Currency ("OCC") identifying "unsafe and unsound" banking practices by BOA in connection with certain foreclosures in its mortgage service portfolio. Id., ¶¶ 21, 22, Ex. 8 (Consent Decree).
Plaintiffs asserted that the foreclosure of the Property is void because Fannie Mae and its agent, BOA, failed to record the executed assignment of mortgage to Fannie Mae prior to the foreclosure; the June 30, 2011 Assignment of Mortgage is void, as it claims that BAC is the attorney-in-fact of Countrywide and there is no record of this power being recorded in violation of Minn. Stat. § 580.05; and the October 11, 2012 Notice of Pendency of Proceeding and Power of Attorney to Foreclose Mortgage is void because BOA did not hold the power of sale. Id., ¶ 24.
Plaintiffs also alleged that Fannie Mae at all times knew, or had reason to know, that it was in full possession of an executed assignment of mortgage, the June 30, 2011 Assignment of Mortgage and the October 11, 2012 Notice of Pendency of Proceeding and Power of Attorney to Foreclose Mortgage were void, and that the foreclosure violated Chapter 580 of the Minnesota Statutes. Id., ¶ 25.
Plaintiffs asserted the following causes of action:
In Count I, Determination of Adverse Claims, Minn. Stat. § 559.01, plaintiffs plead a quiet title action seeking a determination regarding Fannie Mae' adverse interests in the Property. Id., ¶¶ 26-36. According to plaintiffs, in a quiet title action, where they are in possession of the Property, pursuant to state law, the burden of proof is on the defendant asserting an adverse interest in the property to prove its title to the mortgage by a preponderance of the evidence. Id., ¶¶ 28-35.
In Count II, plaintiffs seek a declaratory judgment under Minn. Stat. § 555.02 that the Assignment of Mortgage, Notice of Pendency of Proceeding and Power of Attorney to Foreclose Mortgage, Fannie Mae's interest in the Property and the Sheriff's Certificate of Sale are all void, and that plaintiffs remain the owner of the Property in fee title. Id., ¶¶ 38, 39.
In Count III, alleging slander of title, plaintiffs asserted that Fannie Mae drafted and recorded documents that are false, and that as Fannie Mae knew or should have known that the documents were false, this conduct ...