Summary
In Burgest v. HSBC Bank, USA, N.A., 91 Va. Cir. 266, 2015 WL 13050053 at *4-8, (City of Norfolk Cir. Ct. Feb. 26, 2016), a trial court, in dicta, concluded that a borrower had standing to challenge the appointment of a substitute trustee.
Summary of this case from Flinn v. Deutsche BankOpinion
Docket No.: CL14008747-00
02-26-2016
TONISA D. BURGEST, Plaintiff, v. HSBC BANK, USA, NATIONAL ASSOCIATION AS TRUSTEE FOR HOLDERS OF GSAA HOME EQUITY TRUST 2005-15, and COMMONWEALTH TRUSTEES, LLC, Defendants.
OPINION AND ORDER SUSTAINING DEMURRERS
The Court has previously sustained Defendants' demurrers to Plaintiff's complaint and granted her leave to amend only to allege any other factual basis for her legal conclusion that HSBC was not the holder of her deed of trust note when it appointed a substitute trustee and directed the foreclosure sale of her home. The matter is now back before the Court on demurrers to Plaintiff's Amended Complaint. Because the Amended Complaint lacks a factual basis to support Plaintiff's legal conclusions and requested relief, and for the reasons stated herein, the demurrers are SUSTAINED.
Factual Background
The Complaint and the Amended Complaint are quite detailed in the description of the various transactions that led to the foreclosure sale that Plaintiff now challenges, and those details are not restated here. Briefly, Plaintiff obtained a mortgage loan from Countrywide Home Loans, Inc. in 2005, which loan was secured by a deed of trust against her Norfolk residence. The beneficiary of that deed of trust was Mortgage Electronic Registrations Systems, Inc. ("MERS"), a nominee for the lender. Plaintiff acknowledges that as of November 27, 2007, the mortgage loan was in "arrears." The following are the key dates relating to the instant controversy:
• November 30, 2007 (Exhibit B to the Amended Complaint): MERS assigned its beneficial interest in Plaintiff's deed of trust to HSBC, which the Complaint describes as the trustee for a securitized trust operating under New York law.
• August 1, 2011 (Exhibit D to the Complaint): HSBC transferred to Bank of America its claims to the note and deed of trust.
• July 23, 2013 (Exhibit C to the Amended Complaint): Bank of America assigned its interest in the note and deed of trust to Nationstar Mortgage, LLC.
• December 16, 2013 (Exhibit D to the Amended Complaint): HSBC appointed Defendant Commonwealth Trustees, LLC as a substitute trustee in a document signed by "Nationstar Mortgage LLC as Attorney in Fact for HSBC Bank USA."
• February 11, 2014: Commonwealth Trustees conducted a foreclosure sale of Plaintiff's home, which HSBC purchased via a credit bid against Plaintiff's indebtedness under the Note.
In the present action, Plaintiff attacks the validity of the foreclosure sale on the basis that HSBC was not the holder of the Note when it purported to appoint Commonwealth as substitute trustee. If the appointment of Commonwealth was unauthorized and of no effect, then Commonwealth had no authority under the Deed of Trust to initiate foreclosure proceedings.
The Court rejected Plaintiff's primary legal theory supporting its conclusion that HSBC was not the holder of the Note at the time it appointed the substitute trustee. The Court, however, granted leave to amend as to the claims for fraud and breach of contract so that Plaintiff could allege any other factual basis to challenge HSBC's claimed status as holder of the Note.
Plaintiff filed her Amended Complaint on October 30, 2015, in which she reasserts her original claims for fraud and breach of contract. Defendants demurred to the Amended Complaint on a number of grounds, including (1) Plaintiff lacks standing to challenge any of the transactions and transfers to which she was not a party, such as the appointment of the substitute trustee; and (2) Plaintiff has not alleged facts to support its legal conclusion that HSBC was not the holder of the Note when it appointed a substitute trustee.
Commonwealth demurs on the basis that the Amended Complaint seeks no affirmative relief against it.
Standard of Review
In reviewing a demurrer, the court must "determine whether a motion for judgment states a cause of action upon which the requested relief may be granted." Dunn, McCormack & MacPherson v. Connolly, 281 Va. 553, 557, 708 S.E.2d 867, 869 (2011) (quoting Abi-Najm v. Concord Condo., LLC, 280 Va. 350, 356-57, 699 S.E.2d 483, 486 (2010)). "A demurrer tests the legal sufficiency of a motion for judgment," Harris v. Kreutzer, 271 Va. 188, 195, 624 S.E.2d 24, 28 (2006), and "admits the truth of all material facts that are properly pleaded, facts which are impliedly alleged, and facts which may be fairly and justly inferred from alleged facts." Cox Cable Hampton Rds., Inc. v. City of Norfolk, 242 Va. 394, 397, 410 S.E.2d 652, 653 (1991) (citing Palumbo v. Bennett, 242 Va. 248, 249, 409 S.E.2d 152 (1991)). A demurrer does not, however, "admit the correctness of the pleader's conclusions of law." Lewis v. Kei, 281 Va. 715, 723, 708 S.E.2d 884, 890 (2011) (quoting Dodge v. Trs. of Randolph-Macon Woman's College, 276 Va. 1, 5, 661 S.E.2d 801, 803 (2008)).
Courts deciding a demurrer may consider the allegations made in the pleadings and in any "documents attached thereto." Mansfield v. Bernabei, 284 Va. 116, 121, 727 S.E.2d 69, 72 (2012) (citing Caudill v. Cnty. of Dinwiddle, 259 Va. 785, 788, 529 S.E.2d 313, 314 (2000)). In performing its analysis, the court "may ignore a party's factual allegations contradicted by the terms of authentic, unambiguous documents that properly are part of the pleadings." Schaecher v. Bouffault, 772 S.E.2d 589, 602 (Va. 2015). Finally, "mere conclusory statement[s]," without adequate factual support, "[do] not satisfy the pleading requirement of alleging facts upon which relief can be granted" and are "insufficient to withstand a demurrer." Dean v. Dearing, 263 Va. 485, 490, 561 S.E.2d 686, 690 (2002).
Discussion
1. Standing
Defendants first contend that Plaintiff lacks standing to challenge the appointment of Commonwealth because she was neither a party to, nor an intended beneficiary of, the Appointment of Substitute Trustee. The Supreme Court of Virginia has explained standing as follows:
The concept of standing concerns itself with the characteristics of the person or entity who files suit. The point of standing is to ensure that the person who asserts a position has a substantial legal right to do so and that his rights will be affected by the disposition of the case.Cupp v. Bd. of Supervisors, 227 Va. 580, 589, 318 S.E.2d 407, 411 (1984) (citation omitted). In Virginia, "[a] party has standing to sue if it has sufficient interest in the subject matter to insure that the parties will be actual adversaries and to insure that the issues will be fully and faithfully developed." Weichert Co. v. First Commercial Bank, 246 Va. 108, 109, 431 S.E.2d 308, 309 (1993) (citing Cupp, 227 Va. at 589, 318 S.E.2d at 411). Further, "a party claiming standing must demonstrate a personal stake in the outcome of the controversy." Goldman v. Landsidle, 262 Va. 364, 371, 552 S.E.2d 67, 71 (2001).
As a general rule under Virginia law, only parties, their privies, and intended third party beneficiaries of a contract have standing to enforce it. See, e.g., Va. Code § 55-22 (1950); Kelley v. Griffin, 252 Va. 26, 29, 471 S.E.2d 475, 477 (1996); Aetna Cas. & Sur. Co. v. Fireguard Corp., 249 Va. 209, 214, 455 S.E.2d 229, 231-32 (1995); Cottrell v. Gen. Sys. Software Corp., 248 Va. 401, 403, 448 S.E.2d 421, 422 (1994) (quoting Cemetery Consultants, Inc. v. Tidewater Funeral Dirs. Ass'n, 219 Va. 1001, 1003, 254 S.E.2d 61, 62 (1979)).
HSBC observes that federal courts in Virginia generally hold that borrowers in default on their loan obligations lack standing to challenge the appointment of a substitute trustee under a deed of trust. See, e.g., Jones v. Fulton Bank, N.A., 565 F. App'x 251, 253 (4th Cir. 2014); Cagle v. CitiMortgage, Inc., No. 3:13CV807, 2015 U.S. Dist. LEXIS 57612, at *27-28 (E.D. Va. May 1, 2015); Lewis v. Nationstar Mortg, LLC, No. 3:13CV00026, 2014 U.S. Dist. LEXIS 11113, at *7-8 (W.D. Va. Jan. 29, 2014); Morrison v. Wells Fargo Bank, N.A., 30 F. Supp. 3d 449, 454 (E.D. Va. 2014); Bennett v. Bank of Am., N.A., 3:12CV34-HEH, 2012 U.S. Dist. LEXIS 54725, at *21-22 (E.D. Va. Apr. 18, 2012).
Importantly, however, standing in federal court is a separate inquiry from standing in state court. See, e.g., Hollingsworth v. Perry, 133 S. Ct. 2652, 2667 (2014) ("standing in federal court is a question of federal law, not state law"). Whether a plaintiff has standing to bring an action in federal court is governed by a three-prong test rooted in the "case or controversy" requirement of Article III of the Constitution of the United States. Home v. Flores, 557 U.S. 433, 445 (2009) (citation omitted). As Article III standing doctrine only applies to actions brought in federal court, the rationale adopted by federal courts who have addressed this issue does not control whether Plaintiff has standing to bring the present action under Virginia law.
At least one Virginia court, has found that a borrower in default does have standing to challenge the appointment of a substitute trustee under facts similar to the case at bar. In Williams v. HSBC Finance Corporation, No. CL10-877 (Albemarle Cnty. Cir. Ct. Mar. 30, 2011), Judge Higgins wrote:
[T]here can be no doubt that [plaintiffs] have a sufficient interest in the outcome of the case to insure that [they] will be an actual adversary to HSBC and that the issues will be fully and faithfully developed. The plaintiff stands to lose their home hinging on the outcome of the present case and it is hard to fathom a situation where a party would have a greater interest.Id. at *2. To the same effect, the Supreme Court of California on February 18, 2016 reversed a decision of its state Court of Appeals on a standing issue and announced this holding:
[A] borrower who has suffered a nonjudicial foreclosure does not lack standing to sue for wrongful foreclosure based on an allegedly void assignment merely because he or she was in default on the loan and was not a party to the challenged assignment.Yvanova v. New Century Mortg. Corp. No. S218973, slip op. at 2 (Cal. Feb. 18, 2016). The Court observed, "It is no mere 'procedural nicety,' from a contractual point of view, to insist that only those with authority to foreclose on a borrower be permitted to do so." Id. at 22 (citing Adam J. Levitin, The Paper Chase: Securitization, Foreclosure, and the Uncertainty of Mortgage Title, 63 Duke L.J. 637, 650 (2013)).
The Court finds the decisions of Judge Higgins and the Supreme Court of California to be more persuasive than the contrary authority and concludes that the Amended Complaint contains sufficient facts to establish that Plaintiff has standing to challenge to appointment of Commonwealth as substitute trustee.
2. HSBC's Status as Noteholder
In the Amended Complaint, Plaintiff re-alleges that HSBC's appointment of Commonwealth was ineffective because Nationstar, rather than HSBC, was the noteholder when HSBC executed the Appointment of Substitute Trustee on December 13, 2013. Am. Compl. ¶ 25. To support this allegation, Plaintiff points to the written instrument documenting the July 2013 transfer of the Note from Bank of America to Nationstar and notes the lack of any subsequent instrument transferring it from Nationstar to HSBC. See Am. Compl. Ex. C. Plaintiff urges the Court to conclude from the absence of such a document that Nationstar, and not HSBC, remained the noteholder on December 13, 2013, the date of the Appointment. If Nationstar held the Note, HSBC's attempt to appoint Commonwealth was ineffective.
The Court cannot reach the suggested conclusion merely on the basis of the alleged gap in the documentary record chronicling transfers of the Note. The lack of a recorded document, without more, is insufficient to show that HSBC did not acquire the Note prior to Commonwealth's appointment. Indeed, recordation of an assignment is optional under Virginia law; the nonexistence of a recorded instrument has no bearing on whether an assignment occurred. Va. Code § 55-66.01 (1950) ("Whenever a debt . . . secured by a deed of trust . . . has been assigned, the assignor or the assignee, at its option, may cause the instrument of assignment to be recorded . . .") (emphasis added). In prescribing the procedure by which an assignment of a debt may be recorded, the General Assembly was careful to provide that "[n]othing in this statute shall imply that recordation of the instrument of assignment or a certificate of transfer is necessary in order to transfer to an assignee the benefit of the security provided by the deed of trust . . . ." Id. In view of this statute, the Court concludes that the absence of a recorded writing that documents a transfer of the Note to HSBC after July 2013 does not establish that HSBC did not possess the Note on December 13, 2013.
Further, and more simply, the language of the Appointment of Substitute Trustee itself contradicts Plaintiff's reasoning. The Appointment, which the Court may consider at the demurrer stage as properly part of the pleadings, recites that HSBC was the holder of the Note. Plaintiff conceded at oral argument that HSBC was in fact the holder of the Note on February 11, 2014, the date of the foreclosure sale, because it purchased the property via a credit bid. Thus, all parties agree that at some point between July 13, 2013 (the assignment to Nationstar) and February 11, 2014 (the date of the foreclosure sale), HSBC acquired the Note in a transaction that was unrecorded. Plaintiff has no basis to argue that the acquisition date followed, rather than preceded, the Appointment of Substitute Trustee. The lack of a recorded document sheds no light on the question. The Court therefore relies upon the language of the Appointment of Substitute Trustee in which HSBC recites that it is the Noteholder and rules that Plaintiff has not alleged a sufficient factual basis by which the trier of fact could come to a different conclusion.
In sustaining Defendants' demurrers to the original complaint, the Court granted Plaintiff leave to file an amended complaint alleging some credible basis for its assertion that HSBC was not the holder of the Note when it appointed Commonwealth in December 2013. Plaintiff's Amended Complaint fails to plead specific facts that support that conclusion. Accordingly, the Court concludes that the Amended Complaint fails to adequately allege that Defendants breached the Deed of Trust by directing that Commonwealth conduct a foreclosure sale or engaged in fraud by misrepresenting its authority to foreclose on the home to Plaintiff.
Conclusion
For the foregoing reasons, the Court SUSTAINS Defendants' demurrers to the Amended Complaint without further leave to amend.
Counsel are directed to file any written objections to this Order within ten days. Further endorsements are waived pursuant to Rule 1:13 of the Rules of the Supreme Court of Virginia.
The Clerk is DIRECTED to send a copy of this Order to all counsel of record.
Entered: 26 February 2016
/s/_________
Mary Jane Hall, Judge
See Opinion and Order Sustaining Demurrers (Oct. 9, 2015) (HSBC's reacquisition of the Note from Bank of America was not a void transaction that gave HSBC no right to foreclose but merely a voidable one).