Morgan v. Ocwen Loan Servicing Llc

• Decision Date: 07 July 2011
• Docket Number: Civil Action No. 1:10–CV–3555–AT.
• Parties: Michael L. MORGAN, Plaintiff,v.OCWEN LOAN SERVICING, LLC, Mortgage Electronic Registration Systems, Inc., and Merscorp, Inc., Defendants.
• Court: U.S. District Court — Northern District of Georgia

795 F.Supp.2d 1370

Michael L. MORGAN, Plaintiff,

v.OCWEN LOAN SERVICING, LLC, Mortgage Electronic Registration Systems, Inc., and Merscorp, Inc., Defendants.

Civil Action No. 1:10–CV–3555–AT.

United States District Court, N.D. Georgia, Atlanta Division.

July 7, 2011.

Michael L. Morgan, pro se.Kent E. Altom and Meredith M. Barnes, McCalla Raymer, LLC, for Defendant.

ORDER

AMY TOTENBERG, District Judge.

The action is presently before the Court on Defendants' motion to dismiss (“motion”) [Doc. 15], filed on November 22, 2010. For the following reasons, the Court GRANTS IN PART and DENIES IN PART the motion.

I. Background ¹

Plaintiff filed his complaint against Ocwen Loan Servicing, LLC (“Ocwen”), Mortgage Electronic Registration Systems, Inc. (“MERS”), and Merscorp, Inc. (“Merscorp”) on November 1, 2010. In the complaint, Plaintiff raises state law claims against Defendants for declaratory judgment, injunctive relief, cancellation of deed to secure debt, slander of title, quiet title, wrongful foreclosure, intentional infliction of emotional distress, and negligence. (Compl. at 1–20.) He also raises a claim under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C.1961–1968. ( Id. at 20–22.)

Plaintiff's claims for declaratory judgment, cancellation of security deed, slander of title, and quiet title rest on the fact that he obtained a residential mortgage loan from Guaranteed Rate, Inc., and in connection with the loan he executed a promissory note to Guaranteed Rate and a deed to secure debt in favor of MERS “as nominee” for Guaranteed Rate. ( Id. ¶¶ 11–13.) He alleges that because MERS had no pecuniary interest in the transaction, and was acting solely as “nominee” for the lender, the security deed to MERS is void. ( Id. ¶¶ 19, 20.)

Plaintiff's claims for injunctive relief, wrongful foreclosure, intentional infliction of emotional distress, and negligence are based on allegations that Ocwen commenced a nonjudicial foreclosure against his property (1) when Ocwen was not the holder of the promissory note, and (2) without sending the statutorily required notice of foreclosure sale to the proper address. ( Id. ¶¶ 24–27.) Plaintiff's RICO claim is based on allegations that Defendants fraudulently used MERS in mortgage transactions, mailed fraudulent notices of foreclosure, and committed other unlawful acts. ( Id. ¶¶ 79–80.)

Defendants filed a motion to dismiss the complaint on November 22, 2010, that contended: (1) Plaintiff failed to effect service of process, (2) Plaintiff's claim for wrongful foreclosure based on Defendant's failure to properly mail the foreclosure notice was moot, because Defendant canceled the November foreclosure sale, and (3) all counts based on allegations that the security deed is void failed to state a claim. (Defs.' Mem. Supp. Mot. Dismiss at 6–15.) Plaintiff filed a response in opposition to the motion to dismiss on December 9, 2010,² and Defendants filed a reply on December 22, 2010.

On December 30, 2011, all Defendants executed the waiver of service of summons, which was filed with the Clerk's office on January 3, 2011. (Waiver of Service of Summons, Jan. 3, 2011.)

II. Motion to Dismiss Standard

In determining whether a complaint states a claim upon which relief can be granted, courts accept the factual allegations in the complaint as true and construe them in the light most favorable to the plaintiff. Hill v. White, 321 F.3d 1334, 1335 (11th Cir.2003). To survive a motion to dismiss, a complaint must allege facts that, if true, “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quotations omitted). A claim is plausible where the plaintiff alleges factual content that “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. The plausibility standard requires that a plaintiff allege sufficient facts “to raise a reasonable expectation that discovery will reveal evidence” that supports the plaintiff's claim. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

The Court recognizes that Plaintiff is appearing pro se. Thus, his complaint is to be liberally construed and “held to less stringent standards than formal pleadings drafted by lawyers.” Erickson v. Pardus, 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007) (citations and internal quotation marks omitted).

III. AnalysisA. Service of Process

As Defendants executed the waiver of service on December 30, 2010, their arguments for dismissal based on insufficient process, insufficient service of process, and lack of jurisdiction are moot. ( See Waiver of Service of Summons, Jan. 3, 2011.) Defendants' sole basis for alleging a lack of personal jurisdiction was the (previously true, but no longer so) assertion that service had not been effected under Rule 4. (Defs.' Mem. Supp. Mot. Dismiss at 6–8.)

B. Alleged Failure to Send Notice of Foreclosure

Defendants argue that Plaintiff's claims arising out of failure to send the foreclosure notice to the proper address are moot because the foreclosure did not go forward on November 2, 2010. However, a court may refuse to dismiss as moot claims in which the former controversy is one “capable of repetition, yet evading review.” United Steelworkers of America v. Bishop, 598 F.2d 408, 412 (5th Cir.1979) (internal citations omitted). ³ Claims will be preserved for review on this basis when they meet the following criteria: (1) “the challenged action was too brief in duration to be fully litigated prior to its cessation or expiration,” and (2) there is a reasonable likelihood that the plaintiff will face the same challenged conduct again. Id.

As Plaintiff is still in default on his mortgage, and the Court's predecessor judge terminated the injunction barring foreclosure on January 3, 2011, it is very likely that Defendants will again attempt a nonjudicial foreclosure. Since the statutorily required notice of foreclosure sale is only required to be sent 30 days prior to the sale date, there would not likely be time to adjudicate this issue should it arise again by virtue of another foreclosure sale notice mailed to the incorrect address. See O.C.G.A. § 44–14–162.2. Plaintiff contends that Defendant failed to send proper notice, despite his written provision of an updated address. (Compl. ¶ 16.) Under these circumstances, the Court declines to dismiss as moot Plaintiff's claims for wrongful foreclosure arising out of failure to give the required foreclosure notice.

C. Validity of the Security Deed and Wrongful Foreclosure

The issues presented here regarding ownership of the note and the effectiveness of an assignment executed by MERS have been the subject of much litigation, in this district and throughout the country. Therefore, the Court takes this opportunity to carefully address the complex issues presented.

The following are the facts relevant to these claims that must be presumed true for purposes of the instant motion. Plaintiff obtained a residential mortgage loan from Guaranteed Rate. (Compl. ¶ 9.) Like most residential mortgages in Georgia, this transaction was memorialized by two documents: a promissory note and a deed to secure debt (or “security deed”). The original grantee of the promissory note was Guaranteed Rate. ( Id. ¶ 11.) The original grantee of the security deed was MERS “as nominee” for Guaranteed Rate and its successors and assigns. ( Id. ¶¶ 12–13.) Guaranteed Rate later transferred the note to Taylor, Bean & Whitaker. ( Id. ¶ 14.) Subsequently, MERS executed a purported assignment of the security deed to Ocwen. ( Id. ¶ 64.) Ocwen is not now and has never been the holder of the note.⁴ ( Id. ¶ 25.)

1. Validity of the Security Deed

A promissory note and a security deed are two separate, but interrelated, instruments. See Frank S. Alexander, Georgia Real Estate Finance and Foreclosure Law, § 3:7 (2010–11 ed.). The security deed arises from the indebtedness memorialized in the promissory note, and “the deed's power of sale depend[s] on default under the note.” Boaz v. Latson, 260 Ga.App. 752, 580 S.E.2d 572, 578 (2003), rev'd on other grounds, 278 Ga. 113, 598 S.E.2d 485, 487 (2004). Historically, the note and security deed have traveled together. If an originating lender decided to sell a mortgage loan, that lender would endorse and physically transfer the note (a negotiable instrument) to a new holder, and assign the security deed to that holder as well. See Bowen v. Tucker Fed. Sav. & Loan Assoc., 210 Ga.App. 764, 438 S.E.2d 121, 122 (1993) (“the holder of a note who is also the grantee of a security deed has the right to exercise the power of sale in the security deed upon default”). The parties would then record the assignment in the county deed room, giving record notice to the homeowner and all the world of who held the mortgage. Christopher L. Peterson, Foreclosure, Subprime Mortgage Lending, and the Mortgage Electronic Registration System, 78 U. Cin. L.Rev. 1359, 1362 (2009–10).

With the rise of securitization of mortgage loans, the financial services industry sought to maximize profitability by developing shortcuts to these cumbersome paperwork requirements. Peterson, 78 U. Cin. L.Rev. at 1368–69. One such cost-saving method was to have the original lender endorse the note in blank, so that it would not have to be specifically endorsed to every holder in the chain of ownership. In the securitization process, ownership of a note might be transferred four or five times, from the original lender to the issuer of the securities, through one or more special purpose entities, and finally to the trustee bank, which holds the legal interest in the note for the benefit of the securities holders. Id. at 1367; Adam Ashcraft and Til Schuermann, Understanding the Securitization of Subprime Mortgage Credit, 318 Federal Reserve Bank of New York Staff Report at 5 (2008...