Butler v. OneWest Bank, FSB

Citations: 550 B.R. 860; 2015 U.S. Dist. LEXIS 171477Docket: C14-1250Z

Court: District Court, W.D. Washington; June 10, 2015; Federal District Court

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Appellant has not made mortgage payments since December 2009 and filed for bankruptcy to halt non-judicial foreclosure proceedings. In bankruptcy court, she claimed that the foreclosure violated the Washington Deed of Trust Act and the Consumer Protection Act, seeking an injunction and damages. The court dismissed her claims with prejudice, affirming that they lack merit. 

Appellant secured a loan from IndyMac Bank in April 2007, evidenced by a promissory note and secured by a Deed of Trust recorded in Snohomish County with Mortgage Electronic Registration Systems, Inc. (MERS) as the beneficiary. In May 2007, the loan was sold to Freddie Mac, and Deutsche Bank became the document custodian. IndyMac continued to service the loan until its receivership in July 2008, after which OneWest Bank took over servicing from March 2009 until August 2013 when the Deed of Trust was assigned to Ocwen Loan Servicing, LLC. 

OneWest was governed by Freddie Mac’s Seller/Servicer Guide, which allowed it to designate Deutsche Bank as the document custodian. In August 2009, appellant defaulted on her loan. OneWest asserted its status as the holder of the Note and appointed Northwest Trustee Services, Inc. as trustee on November 10, 2009, confirming its ownership of the Note and the Deed of Trust.

On December 11, 2009, NWTS issued a Notice of Default to the appellant, indicating that OneWest was the owner and servicer of the loan, and the creditor owed the debt. The notice stated it was sent on behalf of OneWest by NWTS as its authorized agent. A notice of Trustee's Sale was recorded on January 22, 2010, scheduling a sale for April 23, 2010, with OneWest identified as the beneficiary. In April 2010, the appellant discovered on Freddie Mac's website that Freddie Mac owned her loan, which OneWest later confirmed in a letter, stating that IndyMac Mortgage Services, a division of OneWest, was the loan servicer. The scheduled sale did not occur, and the appellant filed for Chapter 13 bankruptcy on July 1, 2010. This case was converted to Chapter 11 bankruptcy and subsequently dismissed on May 25, 2011.

Following the dismissal, NWTS recorded an Amended Notice of Trustee's Sale, rescheduling for July 29, 2011, but this sale was again halted when the appellant filed for Chapter 11 bankruptcy on July 28, 2011, which stayed foreclosure proceedings. On March 8, 2012, the appellant initiated an adversarial proceeding in bankruptcy court, asserting multiple claims, including violations of the Washington Deed of Trust Act (DTA), wrongful foreclosure, and several consumer protection statutes, seeking damages and a permanent injunction against foreclosure actions.

Throughout protracted bankruptcy proceedings, including multiple amended complaints and motions, all of the appellant's claims were dismissed, leading to a judgment in favor of the defendants on August 8, 2014. The appellant then appealed, identifying 46 issues (56 with subparts), but many claims were deemed abandoned for lack of defense against motions for summary judgment. The court found that the remaining claims lacked merit and dismissed them.

Appellant contests the bankruptcy court's consideration of several declarations by defendants, asserting they do not comply with Federal Rule of Civil Procedure 56(c) for admissibility. The challenged declarations belong to Charles Boyle, Barbara Campbell, Nicole Tollefson, and Jeff Stenman. Appellant previously raised similar arguments unsuccessfully. The review standard for the bankruptcy court's ruling is "abuse of discretion." Rule 56(c) mandates that declarations must be based on personal knowledge, state admissible facts, and demonstrate the declarant's competency.

Appellant's challenges include claims of hearsay, lack of personal knowledge, and incompetence of the declarants. The court found these arguments unsubstantiated. The declarations were deemed adequately based on personal knowledge, with each declarant affirming their familiarity with the facts through their positions in their organizations. Appellant's reference to a prior case involving Mr. Boyle is dismissed as inapplicable, as the current declarations do not exhibit the same issues of legal conclusions or inaccuracies noted in that case. 

Additionally, the bankruptcy court found that the declarations fit the hearsay exception for regularly conducted activities under Federal Rule of Evidence 803(6), and appellant failed to provide evidence disputing their accuracy. Lastly, the court rejected appellant's claim of the declarants' incompetence without justification. Therefore, the bankruptcy court acted within its discretion in accepting these declarations.

The standard of review for the bankruptcy court’s summary judgment is twofold: findings of fact are reviewed for clear error, while conclusions of law are reviewed de novo. Summary judgment is appropriate under Federal Rule of Civil Procedure 56 when no genuine issue of material fact exists, and the moving party is entitled to judgment as a matter of law. The moving party must initially demonstrate the absence of such issues, with material facts being those that could affect the lawsuit's outcome. All justifiable inferences are drawn in favor of the non-moving party, but if the overall record does not support a rational trier of fact favoring that party, summary judgment is warranted.

The appellant's argument centers on the Washington Deed of Trust Act (DTA), asserting that only a “beneficiary” can declare a default or appoint a successor trustee, and contending that a beneficiary must physically possess the promissory note. The appellant claims OneWest violated the DTA by executing a Beneficiary Declaration and appointing NWTS as the successor trustee without physical possession of the note. Additionally, the appellant argues that NWTS breached its duty of good faith by serving a Notice of Default identifying OneWest as the beneficiary.

The bankruptcy court rejected these arguments, asserting that under the DTA, an entity may qualify as a holder and beneficiary of a note either directly or through an agent. It found that Deutsche Bank, which physically possessed the note, acted as an agent for OneWest. The court's reasoning was based on the agency relationship defined by Washington law, which requires consent and control. OneWest had significant control over Deutsche Bank, including monitoring its actions and the ability to terminate its role as document custodian, thus establishing that OneWest possessed the note through its agent. Consequently, OneWest was deemed a beneficiary of the note, negating the appellant's claim of a violation when it initiated non-judicial foreclosure proceedings.

The bankruptcy court upheld that OneWest did not violate RCW 61.24.010(2) by appointing NWTS as the successor trustee, as OneWest was the beneficiary of the appellant’s Note. Appellant's claims against NWTS regarding violations of the Deed of Trust Act (DTA) were deemed unfounded. Appellant argued that NWTS violated RCW 61.24.030(7) by not proving OneWest was the owner of the promissory note before recording the trustee's sale, but since OneWest was the actual holder, no violation occurred. Additionally, appellant's assertion that NWTS breached its duty of good faith by relying on allegedly false documents was rejected, as the documents were not misleading. Appellant also claimed that NWTS violated RCW 61.24.030(8) regarding the notice of default, but since OneWest was correctly identified as the owner and beneficiary, the notice met statutory requirements. Lastly, appellant alleged NWTS improperly executed foreclosure documents by notarizing them after their effective date, a claim unsupported by evidence; the effective date was clarified by appellees as unrelated to the execution date, and it was confirmed that NWTS's policy was to notarize documents upon execution.

The bankruptcy court determined that the appellees did not violate the Deed of Trust Act (DTA). According to Washington Supreme Court precedent, a plaintiff cannot recover damages under the DTA if no foreclosure sale has occurred, but damages for such violations can be pursued under the Washington Consumer Protection Act (CPA). To succeed in a CPA claim, the plaintiff must demonstrate: 1) an unfair or deceptive act; 2) occurrence in trade or commerce; 3) public interest impact; 4) injury to the plaintiff's business or property; and 5) causation. The appellant argued that actions by OneWest and NWTS constituted unfair and deceptive practices, but the court found no DTA violations, thereby dismissing the CPA claim as the appellant failed to meet the first requirement of unfair or deceptive practices. 

Additionally, the appellant contested the summary judgment by claiming unresolved material facts, such as the ownership of the Note and the sale of the Note from IndyMac to Freddie Mac. However, evidence from Charles Boyle confirmed that IndyMac sold the loan to Freddie Mac in May 2007, contradicting the appellant's assertions. The appellant's argument regarding two versions of the Note was also dismissed, as the court concluded that the documents were merely copies of the same Note without significant differences. Overall, the court found no genuine issues of material fact that would preclude summary judgment.

The bankruptcy court's decision is affirmed, and the appellant's lawsuit is dismissed with prejudice due to the absence of genuine issues of material fact and the correctness of the court's legal and factual rulings. The appellant's claim of not consenting to loan servicer changes is refuted by Section 20 of the Deed of Trust, which allows the sale of the Note and changes in loan servicers without prior notice to the borrower. The bankruptcy court addressed the appellant's concerns regarding Cody Hoesly's declaration, finding them moot due to a supplemental declaration that clarified the issues raised. The appellant did not challenge this declaration on appeal. Similarly, the appellant's argument against Mr. Stenman’s declaration, based on a reversed case, lacked sufficient explanation to deem it inadmissible. The bankruptcy court correctly considered Stenman's declaration. The appellant's citation of Central Washington Bank v. Mendelson-Zelter, Inc. was misapplied, as the referenced section pertains to the definition of a "holder in due course," a legally defined term, and does not support the appellant's position.