Thompson v. Bank of Am., N.A.

• Citation: 773 F.3d 741
• Decision Date: 05 December 2014
• Docket Number: No. 14–5561.,14–5561.
• Parties: Lorrie THOMPSON, Plaintiff–Appellant, v. BANK OF AMERICA, N.A., et al., Defendants–Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

773 F.3d 741

Lorrie THOMPSON, Plaintiff–Appellant

v.BANK OF AMERICA, N.A., et al., Defendants–Appellees.

No. 14–5561.

United States Court of Appeals, Sixth Circuit.

Decided and Filed: Dec. 5, 2014.

Rehearing Denied Dec. 24, 2014.

ON BRIEF:Carol A. Molloy, Lynnville, Tennessee, for Appellant. Edmund S. Sauer, Frankie N. Spero, Bradley Arant Boult Cummings LLP, Nashville, Tennessee, for Appellees.

Before: SILER, SUTTON, and STRANCH, Circuit Judges.

OPINION

SILER, Circuit Judge.

This appeal concerns the extent to which the securitization of a mortgage note might affect the borrower's obligations to repay the loan or cloud the property's title. Lorrie Thompson was facing foreclosure. She asked Bank of America (BOA) to modify her repayment plan under the federal Home Affordable Modification Program (HAMP). BOA denied the modification on the grounds of insufficient documentation, even though she sent BOA the requested documents several times. She filed suit, seeking to quiet title and alleging, among other things, various theories of fraud. She claims that because her mortgage note was immediately “securitized” (sold to a pool of anonymous investors through a mortgage trust), BOA falsely induced her into signing the mortgage by pretending it was an actual lender. She alleges her title has become clouded on account of the transfer and securitization of the note. She also alleges that BOA fraudulently induced her to seek modification of her repayment plan while either knowing it lacked authority to modify her repayment terms or else intending to drive her into foreclosure by giving her the run-around. The district court dismissed Thompson's claims under Fed.R.Civ.P. 9(b) and 12(b)(6). For the reasons explained below, we AFFIRM.

I.

In 2006, Thompson signed a $354,800 mortgage note, with American Mortgage Express Corp. (AME) as the lender. Section 1 of the note states: “I understand that the Lender may transfer the Note.” The “Prepayment Addendum” to the note states, “Borrower understands that Lender may transfer the Note, the related Mortgage, Deed of Trust, or Security Deed (‘Security Instrument’) and this Addendum.” Similar language appears on the “Prepayment Rider.”

The “uniform covenants” section of the deed of trust also states:

The Note or a partial interest in the Note (together with this Security Instrument) can be sold one or more times without prior notice to Borrower. A sale might result in a change in the entity (known as the “Loan Servicer”) that collects Periodic Payments ... and performs other mortgage loan servicing obligations.... There might also be one or more changes of the Loan Servicer unrelated to a sale of the Note.

The deed also authorizes the lender to appoint a successor or substitute trustee.

The signature page of the note contains a signed, undated stamp memorializing AME's transfer of the note to Countrywide Bank, NA. The third page of the note is a blank allonge¹ bearing a signed, undated stamp whereby Countrywide Bank, NA transferred the note to Countrywide Home Loans, Inc., and another signed, undated stamp endorsed from Countrywide Home Loans to blank. BOA purchased Countrywide in 2008 and has possession of the note.

In 2012, Thompson received notice from BOA offering to short-sell her house in lieu of foreclosure. Thompson responded that she would rather pursue a modification of her repayment terms under the HAMP program. HAMP is a federal program enacted pursuant to the Emergency Economic Stabilization Act, 12 U.S.C. §§ 5201 –61, that gives lenders incentives to offer loan modifications to borrowers who have a mortgage payment-to-income ratio of over 31%. See Olson v. Merrill Lynch Credit Corp., 576 Fed.Appx. 506, 511 (6th Cir.2014). The goal of HAMP is to encourage mortgage holders to renegotiate qualifying loans to reduce the homeowner's mortgage payments to a sustainable level. Wilson v. HSBC Mortg. Servs., Inc., 744 F.3d 1, 6 n. 3 (1st Cir.2014).

Thompson states that over the next several months she received and complied with numerous, often redundant, document requests related to her modification application. BOA never granted her request for HAMP relief. She filed suit against BOA, Mortgage Electronic Registration Systems, Inc. (MERS), and other defendants, including unidentified persons she believes to be anonymous investors who are the true owners of her note. The district court dismissed her claims for failure to comply with the applicable pleading standards.

II.

Although Thompson's memoranda and briefs are not models of clarity, we can summarize the basic theories that underlie her statutory, tort, and property law claims.

Thompson's major claims emerge from the fact that AME sold her debt to a pool of anonymous investors in a series of transactions that she describes as “securitization” of her loan. She claims securitization has severed whatever contractual relationship she might have had with her lender, AME/BOA, with the effect that BOA is incapable of granting her a loan modification. Thompson believes she is entitled to a loan modification under the HAMP program. She claims BOA is only stringing her along, either because BOA lacks authority to grant a modification or because BOA's policy is to avoid granting modifications as BOA would prefer to foreclose.

She also claims to have been victimized by fraud at the time she bought the property. While Thompson admits she received a loan, she describes her entire closing as a sham and claims her mortgage documents were fraudulent. She alleges that because the money that funded her mortgage debt came from a pool of anonymous investors, AME was not a “lender” but “at most an originator.” Thompson's theory is that AME provided no “consideration” for the mortgage contract, so the contract with AME is void and the mortgage note is a nullity. She says the “coincidence of the money being received by the closing date” successfully created “the illusion of a loan transaction” with AME. Her theory is that although she received a loan, her contract to repay the loan was between herself and the anonymous investors who funded the loan via several layers of electronic transactions.

Thompson also argues that as her mortgage note changed owners and ended up as part of an investment pool, the investors who acquired and sold her note through the process of securitization may have paid some or all of her debt. She insists that she does not know how much principal she owes on the loan; she needs discovery to uncover how much of her indebtedness might already have been paid by third parties.

Thompson also draws our attention to the use of MERS in the mortgage transactions. MERS is a company that provides mortgage recording services to lenders and allows lenders to trade the mortgage note and servicing rights on the market, with MERS maintaining electronic recordings of each transaction. See MERS v. Neb. Dep't of Banking and Fin., 270 Neb. 529, 704 N.W.2d 784, 787 (2005). Thompson correctly states that MERS disclaims any ownership interest in the notes that pass through its databanks. She argues that because MERS never held title to the property and never processed funding or payments between herself and the unnamed creditors, any assignment that was processed through MERS was a “sham” that generated a “wild deed.” In fact, Thompson claims that the defendants' use of MERS “is at least circumstantial evidence of the intention to commit fraud” because its only purpose is “to cover and shield illegal transactions.”

Over the past few years, the district courts in this circuit, particularly in Tennessee, have entertained a spate of civil actions that advance legal theories similar to Thompson's.² Like Thompson's, many of these civil actions are scattershot affairs, tossing myriad (sometimes contradictory) legal theories at the court to see what sticks. To assist the district courts in addressing this wave of creative litigation, we will address each of Thompson's theories in detail.

Before we discuss these claims from Thompson's amended complaint, we will consider two new allegations she brings before us. First, Thompson claims “there is a legitimate question of fact as to whether the last page of the note containing the two endorsements ... has anything to do with” her loan. This allonge, she says, “has nothing on it linking the page” to her loan. But Thompson did not raise this argument before the district court.

Second, Thompson challenges the existence of Countrywide Bank FSB in the chain of ownership. Although Countrywide Bank, NA is “named on documents” pertaining to the loan, Countrywide Bank, FSB is not. But we take judicial notice of the fact that Countrywide Bank changed its status from a “national association” bank (NA) to a “federal savings bank” (FSB) on March 5, 2007.³ Thompson herself is aware that Countrywide Bank FSB was purchased by BOA in 2008. This argument is a red herring.

III.

Before addressing Thompson's individual claims, we need to address her background argument that the securitization of her mortgage note altered her obligations under the note. On this broad topic we make several observations relevant to Thompson's claims.

First, under Tennessee law, a promissory note is a negotiable instrument, unless it contains a conspicuous statement that it is not negotiable. Tenn.Code Ann. § 47–3–104. A note can be sold or assigned to another party who then receives the right to enforce the instrument. Id. §§ 47–3–201, 203, 301, 302. An assignment of a note is enforceable regardless of whether it is recorded. W.C. Early Co. v. Williams, 135 Tenn. 249, 186 S.W. 102, 103 (1916). An instrument may be enforced by, among others, the “holder” of the instrument. Tenn.Code Ann. § 47–3–301. When an instrument carries a blank endorsement, it becomes payable to the “bearer,” meaning whoever possesses the note. Tenn.Code Ann. § 47–3–205.

Second, securitizing a note does not sever the note from the deed of trust. Under Tennessee law, the deed of trust follows the...