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McLean v. Federal National Mortgage Association

United States District Court, D. Oregon, Medford Division

January 3, 2019

IAN MCLEAN, as personal representative of the estate of CHARLES Y. MCLEAN, Plaintiff,

          OPINION & ORDER


         Before the Court is Plaintiffs Motion for Partial Summary Judgment (#39) and Defendant's Motion for Summary Judgment (#41). For the reasons set forth below, Defendant's motion is GRANTED and Plaintiffs motion is DENIED.[1]


         In 2008, Charles McLean borrowed approximately $260, 000 from Financial Freedom Senior Funding Corporation ("Financial Freedom") pursuant to a home equity conversion mortgage loan (more commonly referred to as a reverse mortgage). The loan was evidenced by a promissory note that Mr. McLean signed in favor of Financial Freedom and the Note was secured by a Deed of Trust against his home. The Note was indorsed in blank by Financial Freedom and the Deed of Trust was recorded in Jackson County. The Note provided that Financial Freedom and its successors and assigns may require immediate payment in full of the entire amount owing upon (a) Mr. McLean's death; (b) Mr. McLean's sale of the property; or (c) Mr. McLean's failure to perform a loan obligation. The reverse mortgage did not require Mr. McLean to make monthly interest or principal payments, but Mr. McLean was obligated to pay property taxes and maintain hazard insurance. The loan was insured and regulated by HUD, which gives lenders and loan servicers clear mandates when borrowers default on their reverse mortgage loans.

         Approximately two weeks after the origination of Mr. McLean's loan, Financial Freedom sold the loan to defendant, Federal National Mortgage Association ("Fannie Mae"), but Financial Freedom retained the servicing rights. The sale of the loan to Fannie Mae was never recorded. When Fannie Mae purchased the loan, the original Note and collateral file for the loan was deposited with the document custodian Deutsche Bank National Trust Company ("Deutsche Bank"). Deutsche Bank retained physical custody of the Note until October 29, 2015.

         On September 25, 2009, Financial Freedom recorded a document titled "Corporate Assignment of Deed of Trust" to Mortgage Electronic Registration System, Inc. ("MERS") as "nominee" for Financial Freedom Acquisition LLC (the legal entity that succeeded Financial Freedom Senior Funding Corp.). In November 2015, MERS executed and recorded a document also titled "Assignment of Deed of Trust" to CIT Bank. According to various declarations submitted by Defendant, Financial Freedom was a division of CIT Bank that handled reverse mortgage loans, and CIT Bank serviced loans for Fannie-Mae. CIT Bank obtained physical custody of the Note and the collateral file for the loan on October 30, 2015 and maintained physical possession of these documents at all relevant times during the foreclosure. Kala Deck ¶ 7, Ex. G at FNMA001246; Larkins Decl. ¶ 3, Ex. B at 47:24-49: 17.

         Mr. McLean paid his property taxes and insurance from the origination of the loan in 2008 until 2010, when he applied for and received the right to defer his taxes under Oregon's property tax deferral program for low-income seniors and disabled people. However, Mr. McLean did not recertify his eligibility for the deferral program and his property taxes went unpaid thereafter. Additionally, Mr. McLean failed to timely renew his hazard insurance, requiring the loan servicer to place insurance on the property, for which it was never reimbursed. Fannie Mae's loan servicers first notified Mr. McLean that his loan was in jeopardy for failure to pay property charges in July 2015. Approximately one month later, CIT Bank sent Mr. McLean a letter informing him that his reverse mortgage was in default and provided options to cure. In September 2015, CIT Bank submitted a "Due and Payable" package to HUD, as required by regulation, and HUD called the loan due and payable. From October 2015 to February 2016, CIT Bank and Mr. McLean spoke on at least six separate occasions regarding his default and his options to avoid foreclosure.

         On January 29, 2016, CIT Bank appointed Mr. Smith as Successor Trustee. In March, the Successor Trustee issued and recorded the Trustee's Notice of Sale and Notice of Default and Election to Sell. After the issuance of the Notice of Sale, CIT Bank informed Mr. McLean that foreclosure would be avoided if he paid $3, 194.34 before the public auction set for July 22, 2016. Because Mr, McLean did not cure his default, the property was sold at the trustee's sale to Fannie Mae as the only bidder. The Successor Trustee issued a trustee's deed in Fannie Mae's name and it was recorded on October 14, 2016.

         Mr. McLean remained in his home after the sale was completed. In February 2017, Fannie Mae filed a Forcible Entry and Detainer Complaint in Jackson County Circuit Court. Mr. McLean filed the instant action in April 2017, challenging the validity of the foreclosure sale, and Defendant removed the action to this Court. The parties ultimately agreed to dismiss the state court eviction action in favor of resolving their disputes in the instant case. Mr. McLean retained possession of the property and lived there until his death at age 93 in January 2018. Mr. McLean's estate, which replaced him as plaintiff after his passing, now moves this court for partial summary judgment on the narrow issue of whether the foreclosure process was in violation of the Oregon Trust Deed Act. Fannie Mae moves for summary judgment on all claims.


         Summary judgment shall be granted when the record shows that there is no genuine dispute as to any material of fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). The moving party has the initial burden of showing that no genuine issue of material fact exists. Celotex Corp. v. Catrett, 411 U.S. 317, 323 (1986); Devereaux v. Abbey, 263 F.3d 1070, 1076 (9th Cir. 2001) (en banc). The court cannot weigh the evidence or determine the truth but may only determine whether there is a genuine issue of fact. Playboy Enters., Inc. v. Welles, 279 F.3d 796, 800 (9th Cir, 2002). An issue of fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248.

         When a properly supported motion for summary judgment is made, the burden shifts to the opposing party to set forth specific facts showing that there is a genuine issue for trial. Id. at 250. Conclusory allegations, unsupported by factual material, are insufficient to defeat a motion for summary judgment. Taylor v. List, 880 F.2d 1040, 1045 (9th Cir. 1989). Instead, the opposing party must, by affidavit or as otherwise provided by Rule 56, designate specific facts which show there is a genuine issue for trial. Devereaux, 263 F.3d at 1076. In assessing whether a party has met its burden, the court views the evidence in the light most favorable to the non-moving party. Allen v. City of Los Angeles, 66 F.3d 1052, 1056 (9th Cir. 1995).


         Plaintiff moves for partial summary judgment on the issue of whether the foreclosure of Mr. McLean's property was conducted in compliance with the Oregon Trust Deed Act ("OTDA"). On this issue, Plaintiff claims that the trustee's sale and resulting deed are void because (1) there was an unrecorded assignment of the Deed of Trust in violation of the OTDA, ORS 86.752(1), specifically the assignment from Financial Freedom to ...

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