Williams v. Fed. Nat'l Mortg. Ass'n, CIVIL ACTION NO. 1:18-CV-199-JB-MU

Decision Date02 December 2020
Docket NumberCIVIL ACTION NO. 1:18-CV-199-JB-MU
CourtU.S. District Court — Southern District of Alabama

This matter is before the Court on Defendant First National Mortgage Association's ("FNMA") Motion to Dismiss Plaintiffs' First Amended Complaint. (Doc. 56). The parties have briefed the Motion, and the Court conducted oral argument. The Motion is ripe for resolution.


This is an action arising from the foreclosure sale of Plaintiffs' real property. Plaintiffs filed their First Amended Complaint ("FAC") on April 7, 2020, seeking declaratory and equitable relief, cancellation of related instruments, and money damages. (Doc. 55, ¶ 1, 4 - 5, PageID.364 - 365, 381).1 The thrust of Plaintiffs' claims rests on their contention that the originator of themortgage and note on the property did not properly assign and/or "endors[e]" the note. (Doc. 55, PageID.365). Due to this failure, any subsequent assignment, sale, or transfer of the note and mortgage was "void" and the foreclosure on their property was unlawful.


Plaintiffs are a married couple. On October 16, 2006, they executed a mortgage and a promissory note in favor of Countrywide Home Loans, Inc. ("Countrywide") to purchase the property at 27514 Hobby Horse Lane in Daphne, Alabama for $247,900. (Doc. 55, ¶ 11, PageID.366; Doc.55-1, PageID.388).3 The mortgage and note were recorded with the Baldwin County Probate Court under Instrument Number 1009449. (Id.). Sometime in February 2009, Plaintiffs defaulted on their mortgage. (Id. at ¶ 15, PageID.367). On May 20, 2009, Nicole Williams filed for Chapter 13 bankruptcy. (Id. at ¶ 16, PageID.368).

Plaintiffs contend Mortgage Electronic Registration System, Inc. ("MERS"), acting as nominee for Countrywide, assigned Plaintiffs' note and mortgage to BAC Home Loan Servicing, L.P. ("BAC") on December 3, 2009. (Id. at ¶ 17, PageID.368).4 Plaintiffs allege, however, "MERScould not have acted as a nominee for Countrywide [on December 3, 2009] because [Countrywide] [ceased to legally exist] on August 9, 2009." (Id. at ¶ 18, PageID.368). Plaintiffs further allege MERS could not have assigned Plaintiffs' note and mortgage because MERS "possessed no right or interest to assign the note." (Id.). BAC filed a Motion for Relief from the Automatic Stay in Plaintiff Williams' bankruptcy proceedings on January 26, 2010, in which (Plaintiffs note) BAC "alleged 'its principal . . . successors, and/or assigns, if any were entitled to enforce the note and mortgage.'" (Id.). Plaintiffs contend the certified copy of the promissory note attached to that motion demonstrated BAC lacked an "endorsement" from Countrywide. (Id. at ¶ 22, PageID.369; but see Doc. 55-1).

Plaintiffs contend FNMA offered Plaintiffs a loan modification agreement on September 1, 2012, which increased the principal balance on their mortgage to $363,142.06. (Doc. 55, ¶ 32, PageID.371; Doc. 55-2). Only Williams signed the modification.

Plaintiffs contend their note and mortgage were assigned to Green Tree Servicing, LLC ("Green Tree") on April 4, 2013, and recorded in the Baldwin County Probate Records as Instrument Number 1419292. (Doc. 55, ¶ 39, PageID.372).5 On February 14, 2014, Green Treefound Plaintiff in default and scheduled a foreclosure sale for March 18, 2014. (Id. at ¶ 41, PageID.372). FNMA purchased the property at the foreclosure sale for $395,437.01.

Plaintiffs contend Green Tree was never truly "assigned" the note and mortgage, and that it operated only as FNMA's foreclosure servicer. (Doc. 55, ¶ 43, PageID.372). Plaintiffs also argue "the foreclosure sale is void because neither Green Tree nor Fannie Mae [FNMA] have ever been a holder in due course entitled to enforce the note and mortgage." (Id. at ¶ 44, PageID.372).

Plaintiffs filed this action on March 26, 2018, more than four years after the date of the foreclosure sale. Plaintiff Sledge filed for Chapter 7 bankruptcy on September 28, 2018. In their FAC, Plaintiffs assert the following causes of action:

1. Illegal / Void Foreclosure

2. Breach of Contract - Failure to Satisfy Conditions Precedent

3. Breach of Contract - Failure to Remit Surplus Proceeds

4. Breach of Contract - Illegal Modification

5. Money Had [sic] Received

6. Breach of Fiduciary Duty

(Doc. 55, PageID.374 - 381).

FNMA filed a Motion to Dismiss the FAC on April 17, 2020. (Docs. 56, 57). FNMA contends Plaintiff Sledge lacks standing to pursue any of these claims due to his pending bankruptcy proceedings (Doc. 57, PageID.425), and Plaintiffs (collectively) lack standing to challenge the validity of the assignments which preceded foreclosure. (Id. at PageID.432 - 434). Next, FNMA argues Plaintiffs' FAC constitutes a shotgun pleading warranting dismissal in its entirety. (Id. at PageID.425 - 426). FNMA contends Plaintiffs' claim for "Illegal / Void Foreclosure" is barred by the applicable statute of limitations and laches (Id. at PageID.427 - 428) and Plaintiffs' claims forequitable relief are barred by laches or the "unclean hands" doctrine. (Id. at PageID.429).6 FNMA contends Plaintiffs' "Breach of Contract - Failure to Satisfy Conditions Precedent" claim must be dismissed because Plaintiffs failed to satisfy the heightened pleading requirements of Rule 9. (Id. at PageID.430). FNMA argues Plaintiffs' "Breach of Contract - Void Modification" claim fails as a matter of law because Alabama's alienability statute did not prohibit Plaintiffs' loan modification. (Id. at PageID.433 - 436). FNMA contends Plaintiffs' claim to surplus proceeds fails as a matter of law because Plaintiffs failed to plead facts that plausibly establish a surplus. (Id. at PageID.436 - 437). As for Plaintiffs' "Money Had [sic] Received" claim, FNMA argues Plaintiffs failed to satisfy the pleading standard of Rule 9. (Id. at PageID.437 - 438). Plaintiffs' "Breach of Fiduciary Duty" claim fails as a matter of law, according to FNMA, because Plaintiffs alleged no facts to plausibly establish it received and retained any money. (Id. at PageID.438 - 439). Plaintiffs filed a Response in Opposition to the Motion to Dismiss (Doc. 59) and Defendant filed a Reply (Doc. 61).


Rule 12(b)(6) requires the Court to construe "the complaint in the light most favorable to the plaintiff and accept[] all well-pled facts alleged . . . in the complaint as true." Austin v. Auto Owners Ins. Co., 2012 U.S. Dist. LEXIS 105862, *5 n. 2 (S.D. Ala. 2012); see also Boyd v. Medtronic, PLC, 2018 U.S. Dist. LEXIS 69962, at *7-8 (N.D. Ala. 2018) ( "This Court . . . 'assume[s] the[] veracity' of the complaint's 'well-pleaded factual allegations' and 'determine[s] whether theyplausibly give rise to an entitlement to relief.["]) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). To withstand FNMA's Motion to Dismiss, Plaintiffs must have pled enough facts to state a claim to relief that is plausible on its face, so as to nudge their claims across the line from conceivable to plausible. See Iqbal, 556 U.S. 662, 678 - 680. A claim has facial plausibility when plaintiffs plead factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Iqbal, 556 U.S. 662, 678. Review of the complaint is a context-specific task that requires the Court to draw on its judicial experience and common sense. Iqbal, 556 U.S. at 679.

"[T]he Eleventh Circuit has held that when a plaintiff attaches exhibits to a complaint and the exhibits contradict the allegations of the complaint, the exhibits control." Muhammad v. Ocwen Loan Servicing, No. 2018 U.S. Dist. LEXIS 239403, *30-31 (N.D. Ga. Jan. 23, 2018) (citing Griffin Indus., Inc. v. Irvin, 496 F.3d 1189, 1205-06 (11th Cir. 2007); Associated Builders, Inc. v. Ala. Power Co., 505 F.2d 97, 100 (5th Cir. 1974)).

A. Sledge lacks standing

FNMA contends Plaintiff Sledge lacks standing to pursue his claims because he is presently in Chapter 7 bankruptcy. The proper party to assert Sledge's claims, FNMA argues, is the Bankruptcy Trustee. (Doc. 57, PageID.425). In opposition, Plaintiffs' counsel avers he has permission from the Bankruptcy Court to substitute and represent the Trustee in Sledge's stead should the Court require it. Plaintiffs also contend Sledge was the proper party at the time the suit was filed because he had not yet declared bankruptcy. (Doc. 59, PageID.444). FNMA replies that Sledge's response demonstrates he knows he lacks standing but has failed to properlyrequest leave to cure this defect. Due to this error and the fatal flaws in his Complaint, FNMA contends, the Court should dismiss Sledge's claims. (Doc. 61, PageID.469).

"Generally speaking, a pre-petition cause of action is property of the Chapter 7 bankruptcy estate, and only the trustee in bankruptcy has standing to pursue it." Alvarez v. Royal Atl. Developers, Inc., 854 F.Supp.2d 1219, 1224 - 25 (S.D. Fla. 2011) (citing Parker v. Wendy's Intn'l, Inc., 365 F.3d 1268, 1272 (11th Cir. 2004)); see also Barger v. City of Cartersville, 348 F.3d 1289 (11th Cir. 2003) rev'd on other grounds. It is clear, then, that the Bankruptcy Trustee is the party with standing to pursue Sledge's claims. Thus, the issue before the Court is whether Sledge should be permitted to substitute the Bankruptcy Trustee in his place. The Court finds substitution is inappropriate.

The matter before the Court, as well as Sledge's bankruptcy proceedings, have been pending for over and nearly two years, respectively. Sledge has not substituted the Trustee despite acknowledging this issue in his Opposition. (Doc. 59, PageID.444). Considering the untimeliness of Sledge's offer to substitute (and failure to properly request leave), the lack of reasonable mistake on Sledge's part, the Court's previous grant of leave to Plaintiffs to amend their complaint, and the substantive deficiencies in Plaintif...

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