Blum v. Fremont Inv. & Loan
| Decision Date | 12 June 2012 |
| Docket Number | Civil Action No. WMN-12-57 |
| Parties | KAREN BLUM et al. v. FREMONT INVESTMENT AND LOAN et al. |
| Court | U.S. District Court — District of Maryland |
This action relates to Plaintiffs Karen and Michael Blum's purchase of their home in Aberdeen, Maryland in 2004. Plaintiffs engaged Defendant Allied Home Mortgage Capital Corporation (Allied), a mortgage broker, to obtain a suitable mortgage. Allied presented Plaintiffs with a mortgage loan offered by Defendant Fremont Investment and Loan (Fremont) and Plaintiffs applied for and were approved for that loan. Plaintiffs allege that the Good Faith Estimate that was provided to them prior to settlement contained several incorrect fees and thus violated the federal Truth in Lending Act (TILA). Plaintiffs further allege that Fremont improperly used their gross income rather than their net income to qualify them for the loan and that they were pushed into a risky subprime loan with a 5.5% interest rate for the first 24 months, but a 12.5% interest rate thereafter. Plaintiffs argue that, as a result of the actions of "Defendants," they were "force-fed" a mortgagethat Defendants "knew was set to default from the genesis." Compl. ¶ 73.
Plaintiffs entered into the mortgage by executing a Promissory Note (the Note) payable to Fremont and dated October 1, 2004. Compl., Ex. A at 2. To secure the Note, Plaintiffs also executed a Deed of Trust on that same date with Fremont as the beneficiary and the Mortgage Electronic Registration System, Inc. (MERS), as the nominee. Id. at 1. According to the Complaint, Defendant Saxon Mortgage Services, Inc. (Saxon Mortgage) was appointed as a servicer of the loan sometime after closing and Plaintiffs opine that "there is a strong possibility that the Subject Loan was securitized into the Saxon Asset Securities Trust 2005-1." Compl. ¶¶ 30, 32. Plaintiffs also allege that the Note was subsequently securitized into a Real Estate Mortgage Investment Conduit. Plaintiffs defaulted on the Note and received a "Notice of Default" on or about June 24, 2008. Compl. ¶ 37.
Plaintiffs, proceeding pro se, filed this action on January 5, 2012. Although the exact nature and the bases for their claims are less than clear,1 Plaintiffs argue that none of theDefendants are "real parties in interest" and "lack standing to enforce" the Note. Id. at 51. Plaintiffs also seem to argue that the securitization of the Note resulted in its discharge. Id. at ¶¶ 62-64. In addition, Plaintiffs also challenge MERS's authority to appoint a successor trustee. Id. ¶ 72. As relief, Plaintiffs seek an order declaring: the Deed of Trust to be null and void, the Note to be fully discharged, that Plaintiffs are the rightful and sole holders of title to the property, and that Defendants are enjoined from claiming any interest in the property.
Although Plaintiffs have yet to file any proof of service as to any Defendant, they represent in their motion for default that MERS was served on January 27, 2012, Saxon Mortgage and Defendant Deutsche Bank and Trust Co., Inc. (Deutsche Bank), on January 30, 2012, and Fremont on February 3, 2012. See ECF No. 7 at 2. They make no representation as to when or if Defendant Saxon Funding Management, Inc. (Saxon Funding), or Allied were served. While reserving its right to contest that it was properly served, on February 8, 2012, Allied filed a motion to compel arbitration, to dismiss, or in the alternative, to stay this action pending arbitration. ECF No. 4. Saxon Mortgage,Saxon Funding and MERS filed a motion to dismiss on February 23, 2012. ECF No. 5. Without mentioning these pending motions, Plaintiffs moved for default on March 5, 2012, against Fremont, Saxon Mortgage, Deutsche Bank, and MERS. ECF No. 7. Shortly thereafter on March 14, 2012, Deutsche Bank filed a motion for leave to file a responsive pleading explaining that it had failed to timely respond to the Complaint due to some confusion as to how the defense of this matter would be handled. ECF No. 9. With that motion, Deutsche Bank attached a motion to dismiss in which it adopted the arguments made by Saxon Mortgage, Saxon Funding, and MERS. ECF No. 9-2.
The Court turns first to Plaintiffs' motion for default and Deutsche Bank's motion for leave to file. Preliminarily, as noted above, Plaintiffs have yet to file any affidavit of service. Assuming, however, that Defendants were served on the dates provided by Plaintiffs in their motion for default, the Court finds that the entry of default is not warranted. When considering a motion for default that has been opposed, a court will apply the standard for setting aside a default that had been entered. Under Rule 55(c), an entry of default can be set aside "for good cause." In considering whether there is good cause, a court considers "whether the moving party has a meritorious defense, whether it acts with reasonable promptness, [and] the prejudice to the party . . . ." Colleton PreparatoryAcademy, Inc. v. Hoover Universal, Inc., 616 F.3d 413, 417 (4th Cir. 2010). Here, even assuming that Plaintiffs have provided accurate dates of service, Defendants acted with reasonable promptness, have proffered several meritorious defenses as explained, infra, and Plaintiffs suffered no prejudice from the brief delay. In light of the oft expressed "strong preference that, as a general matter, defaults be avoided and that claims and defenses be disposed of on their merits," id., the Court concludes that that Plaintiffs' motion for default should be denied and Deutsche Bank's motion for leave to file a responsive pleading should be granted.
In its motion to compel arbitration or to dismiss, Allied points to an Agreement for the Arbitration of Disputes signed by Plaintiffs in conjunction with their application for a loan. That agreement provides that "any dispute, regardless of when it arose," shall be settled by arbitration. See Attachment to Declaration of Jeanne Stell. "Dispute" is defined in the agreement as "any claim or controversy of any nature whatsoever arising out of or in any way related to the loan." Id. Citing the strong federal policy in support of arbitration agreements, Allied argues that any claims against it must be submitted to arbitration. ECF No. 4 at 6 (citing, inter alia, Dean Witter Reynolds Inc. v. Boyd, 470 U.S. 213 (1985)). Plaintiffs did not oppose this motion and it will be granted.
The motion to dismiss filed by Saxon Mortgage, Saxon Funding, and MERS, in which Deutsche Bank subsequently joined, raises four primary arguments. First, they note that Plaintiffs' failure to distinguish between Defendants renders the Complaint deficient under the federal pleading standard. See Fed. R. Civ. P. 8(a). As to some Defendants, there are few clues as to what it is they are alleged to have done. For example, Deutsche Bank is only mentioned in one paragraph of the Complaint where it is simply identified as the "indentured trustee" of Saxon Asset Securities Trust 2005-1. The only allegation related to MERS beyond its identity as the "Beneficiary of the mortgaged Subject Property" is the inaccurate statement that it did not have the authority to appoint a successor trustee.2
Second, Defendants note that Saxon Mortgage took the Note as a bona fide purchaser for value. While Plaintiffs appear to allege that Saxon Mortgage is the current holder of the Note, there is no allegation that any Defendant subsequent to Fremont took possession of the Note with knowledge of any wrongdoing regarding the underlying loan. As such, Saxon Mortgage isprotected as a bona fide purchaser. See Washington Mutual Bank v. Homan, 974 A.2d 376, 396 (Md. 2009).
Third, Defendants correctly note that, to the extent that Plaintiffs are asserting a claim under TILA, 28 U.S.C. § 1640 et seq., that claim would be time barred. While TILA provides that the failure to accurately make certain disclosures prior to settlement can give rise to a private cause of action and a right to recission, that cause of action must be...
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