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Tadros v. Wilmington Trust

United States District Court, D. Oregon, Portland Division

April 23, 2018

ASHRAF N. TADROS and SHAUN M. TADROS Plaintiffs,
v.
WILMINGTON TRUST, NATIONAL ASSOCIATION AS SUCCESSOR TRUSTEE TO CITIBANK, N.A.; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.; BANK OF AMERICA NA; SPECIALIZED LOAN SERVICING, LLC; QUALITY LOAN SERVICING CORPORATION OF WASHINGTON; ROSE CITY VENTURES, INC.; and RAIN CITY CAPITAL OF OREGON, LLC, Defendants.

          OPINION AND ORDER

          Ann Aiken United States District Judge

         Following the sale of their home at a non-judicial foreclosure auction, plaintiffs Ashraf Tadros and Shaun Tadros seek a preliminary injunction, asking this Court to prevent defendant Wilmington Trust, National Association ("Wilmington") from taking action to evict plaintiffs from their home or to transfer of possession of the property to the purchaser at the auction. Plaintiffs contend that the foreclosure sale must be invalidated because Wilmington, on whose behalf the trustee's sale was conducted, did not have a beneficial interest in the Deed of Trust on the date of the sale. For the reasons set forth below, the motion for a preliminary injunction is denied.[1]

         BACKGROUND

         On August 17, 2006, plaintiffs took out a loan from Countrywide Home Loans, Inc, to finance the purchase of real property located at 4671 SW Trail Road in Tualatin, Oregon. Defendant Bank of America, N.A. was the loan servicer. The mortgage was in many ways typical of the type of loan that precipitated the foreclosure crisis. Countrywide loaned plaintiffs $570, 000, to be repaid over thirty years. The initial interest rate was 5.625%. Ordinarily, a thirty-year, $570, 000 loan at that rate would require monthly payments of $3, 281. But, for the first five years, plaintiffs were required to pay only $2, 671.88, an amount exactly equal to the monthly interest on the loan. The interest rate stayed the same for the first five years, with the result that on September 1, 2011, plaintiffs would owe the full $570, 000 principle. Pursuant to the terms of the loan, in September 2011 and once per year thereafter, the mortgage rate was scheduled to adjust (the terms of the contract permit rates between 2.250% and 10.625%) and, with it, the payment amount. As of September 2011, interest-only payments were no longer acceptable and plaintiffs became responsible for paying interest and principle. At oral argument, the parties agreed that the new, adjusted payment amount would have been about $3, 800 per month, an increase of more than forty percent.

         In the years before the financial crisis, many people obtained financing for loans like these when it was a stretch for them to afford the early-year payments, much less the increased payments that kicked in after five years. They agreed to such terms on the assumption (often aggressively encouraged by the broker) that their homes would appreciate in value and they could use that equity to refinance, thereby lowering their payments before the five-year increase happened. Of course, the opposite came to pass; the market crashed and home values plummeted. Many purchasers with adjustable-rate loans found themselves not only without equity but significantly under water on their mortgages.

         In June 2012, Ashraf Tadros filed for Chapter 13 bankruptcy. Bank of America filed a proof of claim on behalf of Citibank, to which Countrywide had by then assigned its secured interest in the property. That proof of claim, dated October 2012, listed a secured claim in the amount of $630, 443.27 and stated that plaintiffs had last made a payment on the loan in March 2011, leading to a pre-petition default of $87, 750.73.

         In 2013, Citibank assigned its secured interest in the property to Wilmington. In June 2017, the bankruptcy court granted Specialized Loan Servicing, LLC ("SLS"), [2] as loan servicer for Wilmington, relief from the automatic stay to permit it to foreclose on the deed of trust. In October 2017, plaintiffs filed this lawsuit, alleging-apparently for the first time-that Wilmington lacked authority to foreclose on the deed of trust. Plaintiffs asserted violations of the Internal Revenue Code, the Federal Debt Collection Practices Act ("FDCPA"), the Consumer Act, the Oregon Trust Deed Act ("OTDA"), fraud, unjust enrichment, and violation of the duty of good faith and fair dealing. In addition to money damages, plaintiffs seek to quiet title to their property and ask for a declaratory judgment as to who actually owns the note and deed of trust.

         In November 2017, defendant Quality Loan Servicing Corporation filed and recorded a notice of trustee's sale. Although the parties dispute whether they had reached any form of agreement, it is apparent that settlement offers were exchanged up to the date of the foreclosure sale. When negotiations fell through, the property was sold at auction on March 20, 2018, and plaintiffs filed their motion for a temporary restraining order and preliminary injunction on March 22, 2018.

         The parties' dispute focuses on whether Countrywide's transfer of its beneficial interest in the note to Wilmington complied with Oregon law. Plaintiffs' mortgage loan was secured by a deed of trust, which listed Countrywide as the "lender" and Mortgage Electronic Registration Systems, Inc. ("MERS") as Countrywide's "nominee." Wallace Decl. Ex. 2. In their response to the motion for a preliminary injunction, defendants submitted a copy of the promissory note that appears to be endorsed in blank by Michele Sjolander, Executive Vice President of Countrywide Home Loans, Inc. Cynthia Wallace, Second Assistant Vice President for SLS, submitted a declaration stating that she reviewed Wilmington's records and confirmed that it has had a copy of the endorsed-in-blank promissory note in its possession since at least 2013. The record also contains two assignments of the beneficial interest in the note: one, recorded December 19, 2011, assigning the interest to Citibank and a second, recorded June 5, 2017, assigning the interest to Wilmington.

         Plaintiffs submitted an expert declaration from William J. Paatalo opining that the endorsement in blank is likely a forgery, and that it was placed on an imaged copy of the promissory note in June 2017 for the sole purpose of seeking relief from the automatic stay. Mr, Paatalo bases that opinion on trial and deposition testimony from other cases in which, he alleges, (1) Bank of America employee Linda DeMartini testified that it was not the practice of Bank of America to endorse Countrywide promissory notes in blank on their face between 2006 and 2009; rather, Ms. DeMartini stated that the company used an allonge (a separate piece of paper) when it needed to endorse a promissory note in blank and (2) Ms. Sjolander, the purported endorsee of the promissory note in this case, testified that she did not perform the endorsements herself (even though they bore her name), she did not know who performed the endorsements, and she did not know when the endorsements were placed on notes.

         Plaintiffs further argue that, even if the promissory note was in fact endorsed in blank and was in Wilmington's possession on the date of the trustee's sale, the sale was nonetheless invalid because it did not comply with the Oregon Trust Deed Act, which requires any assignments of the deed of trust by the trustee or the beneficiary to be properly recorded in order for the trustee to conduct a non-judicial foreclosure sale. Or. Rev. Stat. § 86.752(1); see also Staton v. BAC Home Loans Servicing, L.P., 2012 WL 1624296, *4 (D. Or. 2012) ("[A] creditor's failure to strictly comply with the statutory process outlined in the OTDA is fatal to any nonjudicial foreclosure proceeding."). In the recorded assignments, both Citibank and Wilmington are identified as successor trustees to the Bear Stearns ARM Trust, Mortgage Pass-Through Certificates, Series 2006-4. Mr. Paatalo states that the Prospectus and Pooling and Servicing Agreement for that trust is unexecuted and contains no loan schedule that identified plaintiffs' loan as being in the trust pool. He further relies on a research abstract, submitted as an attachment to his declaration, which concludes it is impossible to trace an individual mortgage loan through such trust pools.

         STANDARDS

         The Ninth Circuit recognizes two variants of the preliminary injunction standard. Under the traditional formulation, a plaintiff seeking a preliminary injunction must establish (1) a likelihood of success on the merits; (2) a likelihood of irreparable harm in the absence of preliminary relief; (3) the balance of equities tips in the plaintiffs favor; and (4) a preliminary injunction is in the public interest. Winter v. Nat'l Resources Def. Council, 555 U.S. 7, 21 (2008). Alternatively, a plaintiff can obtain a preliminary injunction "if there are serious questions going to the merits; there is a likelihood of irreparable injury to the plaintiff; the balance of hardships tips sharply in favor of the plaintiff; and the injunction is in the public interest." Lopez v. Brewer, 680 F.3d 1068, 1072 (9th Cir. 2012). A court may not enter a preliminary injunction ...


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