Dobson v. Mort. Elect. Registration Systems

• Decision Date: 18 March 2008
• Docket Number: No. ED 89385.,No. ED 89417.,ED 89385.,ED 89417.
• Court: Missouri Court of Appeals
• Parties: John R. DOBSON and Samatherith T. Dobson, Plaintiffs/Respondents, v. MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC./GMAC MORTGAGE CORPORATION, Defendant, and First National Bank of Arizona, Defendant/Appellant, and Commonwealth Land Title Ins. Company, Doering & Associates, P.C., and Hilton & Hartford, LLC, Defendants.

259 S.W.3d 19

John R. DOBSON and Samatherith T. Dobson, Plaintiffs/Respondents, v. MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC./GMAC MORTGAGE CORPORATION, Defendant, and First National Bank of Arizona, Defendant/Appellant, and Commonwealth Land Title Ins. Company,

Doering & Associates, P.C., and

Hilton & Hartford, LLC, Defendants.

No. ED 89385.

No. ED 89417.

Missouri Court of Appeals, Eastern District, Division One.

March 18, 2008.

Motion for Rehearing and/or Transfer to Supreme Court Denied April 21, 2008.

Application for Transfer Denied August 26, 2008.

Andrew R. Kasnetz, Sandberg, Phoenix & Von Gontard, P.C., Samuel J. Wright, Michael E. Boyd, Kozeny McCubbin, St. Louis, MO, for appellant.

Stanley J. Wallach, Jerome Wallach, The Wallach Law Firm, St. Louis, MO, Gregory P. White, Clayton, MO, for respondents.

KATHIANNE KNAUP CRANE, Presiding Judge.

Defendant, First National Bank of Arizona (FNBA), appeals from the amended judgment of the trial court denying FNBA's motion to set aside a November 6, 2006 default judgment and awarding plaintiffs, John and Samatherith T. Dobson, damages in the amount of $600,000 in their wrongful foreclosure suit against FNBA. FNBA challenges the denial of its motion to set aside the default judgment. We reverse because the trial court lacked subject matter jurisdiction in that the petition failed to state a damage claim for wrongful foreclosure against FNBA. The petition failed to demonstrate that plaintiffs were not in default when the proceedings commenced.

PROCEDURAL BACKGROUND

Plaintiffs filed a petition to recover monetary damages against defendants FNBA, Mortgage Electronic Registration Systems, Inc. (MERS)/GMAC Mortgage Corporation (GMAC), Commonwealth Land Title Ins. Company (Commonwealth), Doering & Associates, P.C., and Hilton & Hartford, LLC. The petition alleged that plaintiffs purchased a property in 2003 in St. Louis County, Missouri; that FNBA provided financing in the amount of $522,000, secured by a Deed of Trust that named Commonwealth as the trustee and provided for the removal and appointment of a successor trustee; that FNBA subsequently sold or transferred the servicing rights to GMAC, which was identified as "Loan Servicer." It further alleged subsequent recordings to reflect the appointment of a successor trustee, the removal of that trustee, and the appointment of another successor trustee. In the spring and summer of 2005, plaintiffs failed to make three mortgage payments, and the property was foreclosed on August 16, 2005. The purchaser at the foreclosure sale was MERS as nominee for GMAC.

The petition concluded that the foreclosure was "wrongful and void" because of defects in the appointment of successor trustees to Commonwealth and in the recording of instruments relating to the appointments; defects in the power of sale; improper invocation of the power of sale by GMAC instead of by the lender; and the successor trustees' lack of power to convey. Plaintiffs sought damages for the loss of their home, public embarrassment, emotional distress, and damage to their creditworthiness.

FNBA was served with the petition, but did not file an answer within thirty days. At the default hearing, plaintiffs introduced evidence on their loss of equity, damage to their creditworthiness, and emotional distress. After the hearing, plaintiffs voluntarily dismissed all defendants except FNBA. The trial court entered a default judgment against FNBA, and awarded damages in the amount of $1.2 million, representing $300,000 for lost equity and appreciation, $600,000 for lost ability to borrow money, and $300,000 for emotional distress.

Ten days later, FNBA filed a motion to set aside the default judgment on the grounds of good cause and meritorious defense. It subsequently filed supplemental motions contending that the trial court lacked subject matter jurisdiction because plaintiffs failed to properly plead a cause of action for wrongful foreclosure in that the petition admitted plaintiffs' defaults in payment, which gave the holder of the Deed of Trust a right to foreclose. After an evidentiary hearing on the motion, the trial court entered a judgment in which it denied the motion to set aside the default judgment for the reason that FNBA failed to establish good cause, but it reduced the damage award to $600,000.

DISCUSSION

FNBA raises three points on appeal. In its first point, it asserts that the trial court lacked subject matter jurisdiction because the petition failed to state a cause of action for wrongful foreclosure against FNBA. It also claims the evidence established its good cause and meritorious defense, and it challenges the sufficiency of the evidence to support the damage award. Because we find the first point dispositive, we do not reach the remaining points.

A default judgment cannot be entered on a petition that fails to state a cause of action. Phillips v. Bradshaw, 859 S.W.2d 232, 234 (Mo.App.1993). If the petition fails to state a cause of action, the trial court has no subject matter jurisdiction, and may take no action except to dismiss it. Id. Because the failure to state a cause of action is a jurisdictional defect, it may be raised at any time during the proceedings. Id.; Harding v. State Farm Mutual Automobile Ins. Co., 448 S.W.2d 5, 7-8 (Mo. banc 1969).

FNBA argues that the petition failed to state a tort claim for wrongful foreclosure because plaintiffs alleged they failed to make mortgage payments, which was a default that gave rise to a right to foreclose, and there can be no tort cause of action for wrongful foreclosure when there is a right to foreclose.¹ We agree. The petition fails to allege that plaintiffs were not in default under the Deed of Trust and therefore fails to state a claim for damages for wrongful foreclosure.

The term "wrongful foreclosure" has been used...