California Court Pierces the Curtain of Secrecy on WAMU Deals

DEBORAH BURKE and SEAN K. BURKE, Plaintiffs,
v.
JPMORGAN CHASE BANK, N.A; WELLS FARGO BANK, N.A. AS TRUSTEE FOR JPMORGAN MORTGAGE TRUST MORTGAGE PASS-THROUGH CERTIFICATE SERIES Defendants.

Case No. 13-4249 SC.United States District Court, N.D. California.May 11, 2015.

ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS

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FAC ¶ 12. Plaintiffs provide significant detail regarding the process through which
WaMu allegedly sold their loan. See id. ¶¶ 12-19.

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II. BACKGROUND

Plaintiffs allege that on or before August 22, 2008, their mortgage loan was contributed to a mortgage backed security (“MBS”) identified as JPMorgan Mortgage Trust 2008 R-2 Pass-through Certificates Series 2008-R2 (“JPMMT 2008–R2″), of which Wells Fargo is the trustee. Id. ¶ 12. Plaintiffs allege that WaMu sold their mortgage loan temporarily to the depositor of the JPMMT 2008-R2, but that the sale failed to assign the DOT. Id. ¶ 16. As Plaintiffs, put it, “[t] his was the first sale of the Plaintiff’s mortgage loan, but without effectively assigning the [DOT] and indorsing the underlying original Promissory Note to the interim loan purchaser. . . .” Id. Next, JP Morgan Acceptance Corporation “sold and securitized the pooled mortgages (including Plaintiffs’ mortgage loan) into the JPMMT 2008-R2 Trust” on or before the trust’s “closing date” on August 22, 2008. Id. Plaintiffs allege that this sale, too, failed to properly assign the DOT or original note. Id.
. . . . .

IV. DISCUSSION

Though Plaintiffs’ FAC is verbose, unclear, and at times appears internally inconsistent, Plaintiffs now allege, at the very least, that:

WAMU irrevocably sold all right, title and interest in Plaintiffs’ mortgage loan, for value received, to the JPMorgan Mortgage Trust 2008-R2 Mortgage Pass-through Certificates Series 2008-R2 (“JPMMT 2008-R2”), a private label mortgage-backed securities trust with a Real Estate Mortgage Investment Conduit election and continuing qualification.

FAC ¶ 12. Plaintiffs provide significant detail regarding the process through which WaMu allegedly sold their loan. See id. ¶¶ 12-19.

Plaintiffs now sufficiently allege that WaMu not only had no beneficial interest in the Loan, but that it was no longer the mortgagee when JPMorgan purchased its assets. Because Plaintiffs now allege that WaMu sold its entire interest in the Loan, the facts render plausible the possibility that Defendants lack standing to foreclose on the mortgage. See, e.g., Subramani, 2013 WL 5913789, at *4; Javaheri v. JPMorgan Chase Bank, N.A., No. CV10-08185 ODW FFMX, 2011 WL 2173786, at *5 (C.D. Cal. June 2, 2011) (“the above mentioned [similar] facts regarding the transfer of Plaintiff’s Note prior to JPMorgan’s acquisition of WaMu’s assets raise Plaintiff’s right to relief above a speculative level”).  . . . .

. . . . It is true that “[t]here is no stated requirement in California’s non-judicial foreclosure scheme that requires a beneficial interest in the Note to foreclose. Rather, the statute broadly allows a trustee, mortgagee, beneficiary, or any of their agents to initiate non-judicial foreclosure.” Lane v. Vitek Real Estate Indus. Grp., 713 F. Supp. 2d 1092, 1099 (E.D. Cal. 2010). However, Plaintiffs now sufficiently allege that WaMu not only had no beneficial interest in the Loan, but that it was no longer the mortgagee when JPMorgan purchased its assets. Because Plaintiffs now allege that WaMu sold its entire interest in the Loan, the facts render plausible the possibility that Defendants lack standing to foreclose on the mortgage. See, e.g., Subramani, 2013 WL 5913789, at *4; Javaheri v. JPMorgan Chase Bank, N.A., No. CV10-08185 ODW FFMX, 2011 WL 2173786, at *5 (C.D. Cal. June 2, 2011) (“the abovementioned [similar] facts regarding the transfer of Plaintiff’s Note prior to JPMorgan’s acquisition of WaMu’s assets raise Plaintiff’s right to relief above a speculative level”). The Court proceeds to discuss the effect of this finding on each of Plaintiffs’ claims in turn.

. . . . .

A. Wrongful Foreclosure

Defendants argue that Plaintiffs’ first cause of action must be dismissed because Plaintiffs do not allege any irregularity or illegality in the foreclosure process. As discussed above, however, the Court finds that Plaintiffs now sufficiently allege that WaMu ceded any interest upon which it might foreclose when it sold the Loan in 2008. To the extent that Plaintiffs allege wrongful foreclosure because Defendants were not the “trustee, mortgagee or beneficiary or any of their authorized agents,” Plaintiffs state a claim and Defendants’ motion is DENIED. See Cal. Civ. Code § 2924(a)(1).

B. Quiet Title

Defendants argue that Plaintiffs’ claim for wrongful foreclosure must be dismissed because “the allegations concerning the `holder of the note’ have been invalidated.” Mot at 5. Because the Court finds that Plaintiffs have sufficiently alleged that Defendants are not the holders of the note, this argument fails. The motion is DENIED as to Plaintiffs’ second claim, to the extent that claim is premised on the allegations that Defendants do not have any interest in the note as a result of WaMu’s sale of the Loan.

. . . . .

E. Cancellation of Instruments

Defendants’ argument that Plaintiffs’ cancellation of instruments claim should be dismissed is again premised on the assumption that Plaintiffs fail to allege WaMu’s sale of the loan. See Opp’n at 8-9. Because the Court finds that Plaintiffs now adequately allege that their loan was sold, this argument fails. Defendants’ motion is DENIED as to the cancellation of instruments claim.

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V. CONCLUSION

For the foregoing reasons, Defendants JPMorgan Chase Bank, N.A and Wells Fargo Bank, N.A.’s Motion to Dismiss is GRANTED in part and DENIED in part. All of Plaintiffs’ claims are DISMISSED with prejudice to the extent they are premised on deficiencies in the securitization process. Plaintiffs’ claim for violation of the Fair Credit Reporting Act is DISMISSED with prejudice. Plaintiffs’ claims for breach of contract and violation of the Equal Credit Opportunity Act are DISMISSED without prejudice. Plaintiffs’ claims for wrongful foreclosure, quiet title, cancelation of instruments, violation of Section 2923.5, and unjust enrichment survive to the extent that they are premised on the theory that WaMu sold its entire interest in the Loan in 2008.

Plaintiffs’ claims for slander of title, fraud, and unfair competition are DISMISSED with leave to amend. Plaintiffs may amend those claims to add allegations sufficient to allege fraud under the standards set out by Federal Rule of Civil Procedure 9(b). If plaintiffs choose to amend their complaint to add such allegations, they must do so within thirty (30) days of the signature date of this Order. Failure to amend within thirty days may result in dismissal of those claims with prejudice.

IT IS SO ORDERED.

[1] Plaintiffs also allege that Washington Mutual Bank, FA changed its name to Washington Mutual Bank in April of 2005. See id. Plaintiffs apparently assert that WaMu therefore ceased to exist as a legal entity and that JPMorgan knew it could not buy any assets (including Plaintiffs’ loan) from WaMu. Plaintiffs in foreclosure cases like this one have repeatedly advanced that theory, and courts have repeatedly rejected it. See, e.g., Lanini v. JPMorgan Chase Bank, No. 2:13-CV-00027 KJM, 2014 WL 1347365, at *3 (E.D. Cal. Apr. 4, 2014) (“Plaintiffs have cited nothing to support their claim that the bank’s change of name means the bank itself ceased to exist.”). The Court agrees with the numerous other judges who have rejected this theory and holds that Plaintiffs’ claims regarding JPMorgan’s chain of title to the mortgage and Defendants’ knowledge of their lack of interest in the Loan may not be premised on WaMu’s name change in 2005.
[2] It is unclear why Defendants make this argument only in opposition to Plaintiffs’ Section 2923.5 claim and not all of Plaintiffs’ claims. Regardless, some of the Court’s reasons for rejecting Defendants’ argument apply to all of Plaintiffs’ claims.