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Portillo v. HSBC Mortgage Services, Inc.

United States District Court, D. Minnesota

March 24, 2014

DARIO PORTILLO and BLANCA PORTILLO, Plaintiffs,
v.
HSBC MORTGAGE SERVICES, INC. MORTGAGE ELECTRONIC REGISTRATION SYSTEM, INC. and MERSCORP HOLDINGS, INC., Defendants.

REPORT AND RECOMMENDATION

JANIE S. MAYERON, Magistrate Judge.

This matter came before the undersigned on defendants' Motion to Dismiss [Docket No. 6]. 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), Local Rule 72.1, and the Amended Administrative Order issued by Chief Judge Michael Davis on October 16, 2013 [Docket No. 12]. Pursuant to this Court's Order of September 6, 2013, this matter was decided on the parties' written submissions.

Plaintiffs seek to invalidate the foreclosure of the mortgage on their home. Plaintiffs assert three claims against defendants HSBC Mortgage Services ("HSBC"); Mortgage Electronic Registration System, Inc. ("MERS") and MERSCORP HOLDINGS, INC. ("MERSCORP"): (1) quiet title to determine adverse claims under Minn. Stat. § 599.01; (2) declaratory judgment; and (3) slander of title. For the reasons below, the Court recommends that defendants'[1] Motion to Dismiss be granted and plaintiffs' claims be dismissed with prejudice.

I. BACKGROUND

On August 12, 2013, plaintiffs sued defendants in state court. Notice of Removal, Ex. 1 (Complaint) [Docket No. 1-1]. Defendants removed the suit to Federal District Court on August 29, 2013, pursuant to 28 U.S.C. § 1332(a). Notice of Removal [Docket No. 1]. The facts bearing on the motion to dismiss are as follows. Plaintiffs entered into a Note and Mortgage with M & I Bank on January 3, 2005, for property located in Farmington, Minnesota ("Property). Complaint, ¶6. MERS was the nominee for M & I Bank. Id . Plaintiffs entered into two trial loan modifications, but the loan modifications were never made permanent. Id., ¶¶7, 8. Plaintiffs specifically denied that any named defendant or predecessor in interest had the legal right to declare a default on the note. Id., ¶9. Plaintiffs pled that they "did not borrow money from any named Defendant." Id.

On March 6, 2012, Paula Johnson, Assistant Secretary of MERS, executed an Assignment of Mortgage, which assigned the mortgage from MERS to HSBC and the Assignment was recorded in the Dakota County Recorder's office on March 7, 2012. Id., ¶14, Ex. 2 (Assignment of Mortgage). Plaintiffs alleged that when Johnson signed the Assignment she was an employee of HSBC, and there was no "of record" evidence of Johnson's authority to execute the Assignment of Mortgage, in violation of Minn. Stat. §§580.05 and 507.413. Id., ¶¶14, 25. On August 16, 2012, the Reiter & Schiller, P.A. law firm ("Reiter & Schiller") filed a Notice of Pendency against the property, which was recorded in the Dakota County Recorder's office. Complaint; Ex. 3 (Notice of Pendency). The Notice of Pendency was signed by attorney Kurt Trisko. Id., ¶15.

On October 2, 2012, HSBC employee, Maria Vadney, executed a Power of Attorney empowering Reiter & Schiller to foreclose on the Property. Id., ¶17. Plaintiffs alleged that Reiter & Schiller prepared this Power of Attorney in Minnesota and Vadney executed the document in Florida. Id., ¶17. According to plaintiffs, Vadney had been identified by the Massachusetts Southern Essex District Register of Deeds as a "robosigner, " or someone who has executed documents without legal authority or knowledge of the contents of the documents. Id., ¶17. Plaintiffs alleged that the Power of Attorney that Vadney had signed was invalid because of this "robo-signing." Id., ¶25. In support of this allegation, plaintiffs submitted the affidavit of John O'Brien, Registrar of Deeds of the Southern Essex District of the Commonwealth of Massachusetts. Id., Ex. 9. In this affidavit, O'Brien stated that as of June, 2011, it was his policy as Registrar to require an independent verification by affidavit of any document sent for recording that was signed by an alleged robo-signer "on record at my registry." Id . The Southern Essex District employed McDonnell Property Analytics to perform a forensic examination of mortgages recorded in 2010 in its district. Id., ¶26. As part of this audit, McDonnell identified robo-signers, including Vadney. Id.

On October 4, 2012, Schiller & Reiter noticed a sheriff's sale of the Property, which was conducted on December 6, 2012. Id., Ex. 5 (Sheriff's Certificate of Sale and Foreclosure Record). HSBC bid $146, 149.86 and obtained the Property at the foreclosure sale. Id . The Sheriff's Certificate of Sale was recorded in the Dakota County Recorder's Office on December 12, 2012. Id . Plaintiffs alleged that on the date of the sheriff's sale, HSBC was not the holder of the note and as a result, lacked the authority to enforce the Note or exercise the power of sale in the mortgage. Id., ¶18.

The Complaint alleged that the Office of the Comptroller of Currency and HSBC entered into a Consent Order on April 13, 2011, in which HSBC was found to have engaged in "unsafe and unsound" banking practices in conducting foreclosures. Id., ¶20. In connection with the Consent Order, MERS revoked the authority to initiate foreclosures in MERS's name after July 22, 2011. Id., ¶22.

According to plaintiffs, the foreclosure was void because their loan was securitized and "securitization always requires the delivery of executed assignments of mortgage delivered to a trustee." Id., ¶25.

Plaintiffs pled the following causes of action:

Count I sought a determination of adverse claims under Minn. Stat. §599.01, et. seq. This Count alleged that in a quiet title action, defendants have the burden of proof, and consequently, defendants must prove their interest in the Property by a preponderance of evidence. Id., ¶¶30-39.

Count II sought a declaratory judgment pursuant to Minn. Stat. §555.02 that HSBC's interest in the Property or mortgage is void, the foreclosure is void, and that plaintiffs remained the fee owners of the Property. Id., ¶¶41, 42.

Count III alleged slander of title based on the defendants' drafting and recording of documents[2] that plaintiffs claimed were false and not executed by legally authorized persons, which evidenced a reckless disregard for the truth and which created a cloud on plaintiffs' title to the Property. Id., ¶¶43-47.

As relief, plaintiffs sought a determination of the alleged adverse interests in the Property; a declaratory judgment that the mortgage, Sheriff's Certificate of Sale, Assignment of Mortgage, and Notice of Pendency and Power of Attorney were void; and an order that plaintiffs are the fee owners of the Property; and monetary damages. Complaint, Prayer for Relief, ¶¶I, II, III.[3]

Defendants moved to dismiss the Complaint pursuant to Fed.R.Civ.P. 12(b)(6). Defendants' Memorandum of Law in Support of Motion to Dismiss ("Def. Mem."), pp. 6-17 [Docket No. 7]. Defendants submitted that the theories on which the Complaint was based-i.e. Johnson's lack of signing authority because there is no "of record" evidence of her authority-were meritless as it is well-settled law that even if individuals signing documents worked for other organizations, it does not mean that these persons cannot also work for or be hired as agents on behalf of other clients. Id., pp. 7-8. Additionally, the claims regarding Johnson's and Vadney's signing authority were purely speculative and even if true, plaintiffs lacked standing to challenge Johnson's execution of the Assignment or Vadney's execution of the Power of Attorney. Id., pp. 10-13. Further, plaintiffs failed to identify a single item in the Power of Attorney that was outside of Vadney's personal knowledge nor were there any inaccuracies in the Power of Attorney or the Assignment. Therefore, even if Vadney lacked personal knowledge of the contents of the documents, her lack of knowledge was harmless. Id . As to plaintiff's allegations regarding MERS's revocation of the authority to initiate foreclosures in MERS's name after July 22, 2011, (Complaint, ¶22), defendants pointed out that the foreclosure was not initiated in MERS's name, it was initiated in HSBC's name. Id., p. 9.

Regarding plaintiffs' claims that the foreclosure was void because their loan had been securitized, defendants noted that there was a complete lack of factual predicate for that allegation and even if true, dismissal would be appropriate because plaintiffs were not parties to any trust agreement into which the mortgage may have been placed. Id., pp. 13-14. Additionally, whether the loan was securitized did not affect HSBC's right to foreclose. Id., p. 15 (citing Blaylock v. Wells Fargo Bank, N.A ., Civ. No. 12-693 (ADM/LIB), 2012 WL 2529197, at *5 (D. Minn. June 29, 2012), aff'd, 502 Fed.Appx. 623 (8th Cir. 2013)). As to plaintiffs' claims that HSBC was not the holder of the note at the time of the ...


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