Ross v. Deutsche Bank National Trust Co.

Citations: 933 F. Supp. 2d 225; 2013 WL 1225621; 2013 U.S. Dist. LEXIS 47056Docket: Civil Action No. 12-10586-WGY

Court: District Court, D. Massachusetts; March 27, 2013; Federal District Court

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Plaintiffs Alan J. Ross and Ruth Ross filed a lawsuit against Deutsche Bank National Trust Company and Deutsche Bank National Bank Company, seeking a stop to the foreclosure of their residence in Newton, Massachusetts. The case was initially filed in the Massachusetts Superior Court, where a preliminary injunction was granted to the Rosses. Deutsche Bank subsequently removed the case to the U.S. District Court for the District of Massachusetts and moved to dismiss the complaint on two grounds: lack of subject matter jurisdiction (Federal Rule of Civil Procedure 12(b)(1)) and failure to state a claim (Federal Rule of Civil Procedure 12(b)(6)). 

The Rosses owned the property at 974 Dedham Street since September 10, 1986, and executed an adjustable-rate note and mortgage with New Century Mortgage Corporation on June 24, 2005. New Century Financial Corporation, the parent of New Century Mortgage, filed for Chapter 11 bankruptcy on April 2, 2007. Following the bankruptcy, New Century Mortgage granted Carrington Mortgage Services a limited power of attorney to manage mortgage assignments. A Liquidating Trust was established, and its liquidation plan was confirmed by the Bankruptcy Court on July 15, 2008, vesting all assets in the trust and removing any rights of the debtors to those assets post-liquidation. The parties submitted supplemental briefs addressing the bankruptcy developments as part of the court proceedings.

New Century Mortgage held the mortgage prior to July 15, 2008. On August 7, 2008, Carrington, on behalf of Deutsche Bank, sent a notice of default to the Rosses, who contest its receipt. The Rosses entered a loan modification agreement with Carrington on January 15, 2010, which they assert was not intended to address a default, and they continued making monthly payments as required. On December 1, 2010, a second notice of intent to foreclose was issued, followed by a third notice on June 8, 2011, from the Marinosci Law Group for Deutsche Bank. On that same day, Deutsche Bank sought a declaration from the Massachusetts Land Court denying the Rosses protections under the Servicemembers Civil Relief Act. An assignment of mortgage, executed by Carrington on behalf of New Century Mortgage, was recorded on August 1, 2011, transferring the mortgage to Deutsche Bank as Trustee for New Century Home Loan Trust 2005-4. Deutsche Bank notified the Rosses of a scheduled foreclosure sale on February 17, 2012, but the Rosses obtained a preliminary injunction on March 12, 2012, to prevent the sale. 

The court has federal-question jurisdiction under 28 U.S.C. § 1331, as the Rosses' claims arise under the Bankruptcy Code, with supplemental jurisdiction under 28 U.S.C. § 1367. When addressing a motion to dismiss under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), the court typically considers the 12(b)(1) motion first unless it relates to prudential standing, in which case it will be treated under 12(b)(6). This case involves prudential standing regarding the Rosses' challenge to the validity of the mortgage assignment. For a complaint to survive a 12(b)(6) motion to dismiss, it must present sufficient factual matter to establish a plausible claim for relief, not merely legal elements or conclusory statements. The court may review the complaint, exhibits, referenced documents, and public records, but not affidavits or unrelated documents. The Rosses’ complaint alleges violations of the Massachusetts statutory foreclosure scheme across all three counts.

Count I asserts that Deutsche Bank lacks valid title to the Note and Mortgage, thereby lacking legal authority to conduct a foreclosure sale on the property. It also claims that the second foreclosure notice was deficient per the Mortgage's terms. Count II states that Deutsche Bank failed to notify the Rosses of their right to cure the default. Count III seeks a declaratory judgment regarding Deutsche Bank's standing to foreclose. 

Under Massachusetts law, a mortgage with a power of sale incorporates statutory provisions allowing foreclosure without prior judicial approval, but this privilege is limited to authorized mortgagees. Courts mandate strict compliance with standing requirements for foreclosure, making any foreclosure by unauthorized parties void. The Rosses argue that the 2011 assignment of the Mortgage from New Century Mortgage to Deutsche Bank is invalid, while Deutsche Bank contends the Rosses lack standing to challenge the assignment. However, the First Circuit allows mortgagors to challenge mortgage assignments that are invalid or void to contest a foreclosing entity's status. 

The Rosses claim the 2011 assignment is void because New Century Mortgage was bankrupt and had no interest to assign at that time. Deutsche Bank argues that New Century, as a debtor in possession, had the authority to manage its assets and make assignments. However, this presumption is negated if a bankruptcy court confirms a plan that mandates asset dissolution or termination of operations.

In Juarez v. U.S. Bank Nat. Ass’n, the court addressed the validity of a mortgage assignment post-bankruptcy, emphasizing that a confirmed reorganization plan is binding on the debtor under 11 U.S.C. § 1141(a). The case highlighted that New Century Mortgage's assets were transferred to a Liquidating Trust on July 15, 2008, and that both the original and amended reorganization plans precluded New Century Mortgage from retaining any interest in these assets. The Rosses claim that New Century Mortgage held the Note and Mortgage during bankruptcy, suggesting these assets became the property of the Liquidating Trust, thus invalidating any subsequent assignment to Deutsche Bank in 2011.

Deutsche Bank contends that the assignment was valid because the Note and Mortgage were not included in the bankruptcy estate, arguing they are excluded under 11 U.S.C. § 541(d) as securitized mortgage assets. However, the court noted that documentation from the Securities and Exchange Commission did not list the Mortgage among the assets sold to Deutsche Bank. Consequently, the court concluded that the Rosses presented a plausible claim that the Mortgage and Note were part of the bankruptcy estate and that the 2011 assignment was invalid. The court determined it was unnecessary to assess the Rosses' additional claim regarding the adequacy of Deutsche Bank's notice under Massachusetts law, which allows mortgagors a right to cure defaults.

A mortgagor in Massachusetts has the right to a 150-day or a 90-day grace period to cure a mortgage default, exercisable once every three years, provided the mortgagee notifies the mortgagor of this right. This notice requirement is mandatory for mortgagees attempting to foreclose, as established in Silva v. Deutsche Bank Nat’l Trust Co. Deutsche Bank argues that Massachusetts law is preempted by the Home Owners’ Loan Act (HOLA), citing Sovereign Bank v. Sturgis, which pertains to federal savings associations. However, this argument is flawed as Deutsche Bank is a national bank, not subject to HOLA, and thus only governed by the National Banking Act (NBA). Under the NBA, the Office of the Comptroller of the Currency (OCC) decides the applicability of state consumer protection laws to national banks. National banks can make loans secured by real estate without adhering to state law restrictions on loan terms. The court will first assess whether Deutsche Bank, as the assignee of the mortgage, constitutes a lender under the NBA. Based on OCC guidance, Deutsche Bank, acting as a trustee for a securitized trust, did not originate or fund the loan and therefore does not preempt Massachusetts's right-to-cure law under the NBA.

Deutsche Bank contends that the Rosses have already exercised their right to cure under the 2010 loan modification agreement, which would negate their entitlement to notice regarding that right. The Rosses dispute this assertion, not acknowledging that the loan modification was intended to cure a default. The absence of the Rosses’ payment history prior to the modification creates a factual dispute inappropriate for resolution under Rule 12(b)(6). Their complaint sufficiently alleges a plausible claim under Section 35A.

In Count III, the Rosses seek a declaratory judgment regarding Deutsche Bank’s authority to conduct a foreclosure sale as the mortgagee of record and whether its foreclosure notices complied with Massachusetts law. Deutsche Bank argues that the Rosses lack standing for such a judgment. A declaratory judgment requires an actual case or controversy as defined by Article III. The court finds the Rosses have standing to challenge Deutsche Bank’s mortgagee status, affirming a plausible claim of controversy.

The court denies Deutsche Bank's motion to dismiss on all counts. It notes that effective June 22, 2012, a mortgagee in Massachusetts must hold both the note and the mortgage to conduct a foreclosure sale. The court takes judicial notice that Deutsche Bank is a national bank, not a federal savings association, and clarifies that prior cases applying HOLA preemption to national banks are limited to those with ties to federal savings associations, which does not apply here.