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Mulcahy v. Federal Home Loan Mortgage Corp.

United States District Court, W.D. Washington, Seattle

February 7, 2014

VINCE M. MULCAHY and BECKY L. MULCAHY, Plaintiffs,
v.
FEDERAL HOME LOAN MORTGAGE CORPORATION, et al., Defendants.

ORDER DENYING DEFENDANTS' MOTION TO DISMISS

ROBERT S. LASNIK, District Judge.

This matter comes before the Court on a motion to dismiss filed by defendants Federal Home Loan Mortgage Corporation ("Freddie Mac"), Mortgage Electronic Registration Systems, Inc. ("MERS"), and Wells Fargo Bank, N.A. ("Wells Fargo"). Dkt. # 9. Having reviewed the memoranda and supplemental authority submitted by the parties, [1] the Court finds as follows:

BACKGROUND

In July 2006, plaintiffs borrowed $417, 000 from Golf Savings Bank to purchase property in Whatcom County. The promissory note was secured by a deed of trust, which lists Golf as "lender, " Whatcom Land Title Insurance Company as "trustee, " and MERS as both "beneficiary" and "nominee" for the lender and the lender's successors and assigns. Dkt. # 8-4 at 9. Plaintiffs ran into financial difficulties in 2009 and defaulted on the loan. At the time, the debt had been purchased by defendant Freddie Mac and defendant Wells Fargo was servicing the loan.[2]

Plaintiffs, who were unaware that Freddie Mac had a beneficial interest in their loan, began communicating and working with Wells Fargo to obtain a modification of the terms of their promissory note. Wells Fargo issued a Notice of Default under the Washington Deeds of Trust Act ("DTA") on November 24, 2009, followed by a Notice of Trustee's Sale setting April 2, 2010, as the sale date. Plaintiffs continued their efforts to negotiate more manageable loan terms and were assured that their home would not be foreclosed upon because they were being evaluated for a modification. In February 2010, the parties agreed to a temporary modification. Plaintiffs set up an automatic withdrawal in Wells Fargo's favor, and the April foreclosure sale was cancelled. Although payments under the modified loan were supposed to last for only three months, Wells Fargo made six automatic withdrawals from plaintiffs' account beginning in February 2010 and ending in July 2010.

Plaintiffs allege that Wells Fargo stopped withdrawing mortgage payments and kicked them out of the loan modification program because plaintiffs failed to submit a monthly profit and loss statement. In August 2010, defendant Northwest Trustee Services, Inc. ("NWTS") issued a second Notice of Default under the DTA. Dkt. # 8-4 at 137.[3] A Foreclosure Loss Mitigation Form accompanied the Notice of Default and declared:

The Beneficiary or beneficiary's authorized agent has exercised due diligence to contact the borrower as required by [RCW 61.24.031(5)] and, after waiting fourteen days after the requirements of [RCW 61.24.031] were satisfied, the Beneficiary or Beneficiary's authorized agent sent to the borrowers(s) [sic], by certified mail, return receipt, the letter required under [RCW 61.24.031].

Dkt. #8-4 at 140. Wells Fargo's declaration that it had diligently but unsuccessfully attempted to contact plaintiffs is made under penalty of perjury. Nevertheless, it is clear that Wells Fargo was in actual contact with plaintiffs at the time, had favorably assessed their ability to pay the underlying debt and made alternative, albeit temporary, arrangements to avoid foreclosure, and was again in the process of negotiating a further modification. In such circumstances, other sections of RCW61.24.031 and the Foreclosure Loss Mitigation Form were applicable: the declaration of due diligence is an anomaly. The declaration appears to have been made by someone with no personal knowledge of Wells Fargo's contacts with plaintiffs and without reviewing the transactional history or current status of the loan.

Plaintiffs attempted to rectify the deficiencies that got them kicked out of the loan modification program, sending in profit and loss statements as requested and repeating paperwork that had previously been submitted. Nevertheless, a Notice of Trustee's Sale was issued on September 20, 2010, setting a sale date of December 27, 2010. As the sale date approached, plaintiffs became increasingly nervous about the lack of a decision regarding their loan modification. Throughout this period, Wells Fargo representatives assured plaintiffs that the foreclosure sale would not go forward because the parties were negotiating a modification. On November 22, 2010, a Wells Fargo employee named Tabitha specifically told plaintiffs that the pending foreclosure sale had been cancelled. Plaintiffs continued to pursue the loan modification, sending in whatever information and forms Wells Fargo requested. When Wells Fargo requested additional information on December 18, 2010 (apparently Mrs. Mulcahy had not signed a financial information statement), it set a compliance deadline of December 28, 2010 (one day after the foreclosure sale had been scheduled to occur). Plaintiffs had sent the requested information in the day before and called on December 20, 2010, to confirm that it had been received: it had. At no point did any Wells Fargo employee mention that the foreclosure sale was still pending on the property.

Plaintiffs' property was sold to Wells Fargo on behalf of Freddie Mac at a foreclosure auction on December 27, 2010. Plaintiffs did not realize that the sale had occurred until they received a notice of eviction in early 2011. Plaintiffs filed this action in state court on December 28, 2012, seeking damages arising from various misrepresentations made to them during the loan modification and foreclosure process, violations of the Deed of Trust Act, and violations of the Consumer Protection Act. Dkt. # 8-1 at 9. The Honorable Deborra E. Garrett, King County Superior Court Judge, dismissed all of plaintiffs' claims as time-barred. Although the damage claims asserted by plaintiffs were expressly exempted from waiver under RCW 61.24.127(1), Judge Garrett dismissed them because plaintiffs filed their lawsuit one day after the statute of limitations expired. RCW 61.24.127(2)(a). Plaintiffs were, however, granted leave to amend their complaint to seek a judicial invalidation of the trustee sale, rather than damages. Judge Garrett also reserved ruling on "whether, in the event the trustee's sale is determined to be void, plaintiffs may be entitled to damages on claims or theories other than those asserted pursuant to RCW 61.24.127." Dkt. # 8-3 at 19. The case was removed shortly after plaintiffs filed their amended complaint.

Neither Wells Fargo nor Freddie Mac have pursued their efforts to evict plaintiffs from the property.

DISCUSSION

A. Standard for Rule 12(b)(6) Motion

Although a complaint challenged by a Rule 12(b)(6) motion to dismiss need not provide detailed factual allegations, it must offer "more than labels and conclusions" and contain more than a "formulaic recitation of the elements of a cause of action." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). The complaint must indicate more than mere speculation of a right to relief. Twombly, 550 U.S. at 555. When a complaint fails to adequately state a claim, such deficiency should be "exposed at the point of minimum expenditure of time and money by the parties and the court." Twombly, 550 at 558. A complaint may be lacking for one of two reasons: (i) absence of a cognizable legal theory or (ii) insufficient facts under a cognizable legal claim. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984). In ruling on a motion to dismiss, the Court must assume the truth of the plaintiff's allegations and draw all reasonable ...


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