Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-3_14-cv-08089/USCOURTS-azd-3_14-cv-08089-1/pdf.json

Nature of Suit Code: 220
Nature of Suit: Foreclosure
Cause of Action: 28:1441 Petition for Removal- Petition to Quiet Title

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WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Judith D. Erickson, an unmarried woman, 

and as Trustee of The Erickson Family 

Trust, 

Plaintiff, 

v. 

Ditech Financial, LLC, a Delaware limited 

liability company, f/k/a Green Tree 

Servicing, LLC, a Delaware Limited 

Liability Company; Federal National 

Mortgage Association, a District of 

Columbia corporation; John and Jane Does 

1-1000; XYZ Corporations 1-1000; ABC 

Limited Liability Companies 1-1000; and 

123 Banking Associations 1-1000, 

Defendants. 

No. CV-14-08089-PCT-NVW

ORDER 

[Not for Publication] 

Ditech Financial, LLC, a Delaware limited 

liability company, 

 Counterclaimant, 

v. 

Judith D. Erickson, an individual; Judith D. 

Erickson, as trustee of the Erickson Family 

Trust, 

 Counterdefendants. 

Case 3:14-cv-08089-NVW Document 189 Filed 07/29/16 Page 1 of 6
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Ditech Financial, LLC, a Delaware limited 

liability company, 

 Third-Party Plaintiff, 

v. 

Holua, LLC, an Arizona limited liability 

company; John Darreld Erickson, an 

individual; Mortgage Electronic Registration 

Systems, Inc., a foreign corporation; The 

Bank of New York Mellon f/k/a The Bank of 

New York as successor Indenture trustee to 

JPMorgan Chase Bank, National Association 

for CWHEQ Revolving Home Equity Loan 

Trust, Series 2006-I; and ROES I through X, 

Inclusive, 

 Third-Party Defendants. 

Before the Court is a Motion to Dismiss Counterclaim (Doc. 158) by Plaintiff and 

Counterdefendant Judith D. Erickson individually and as Trustee of The Erickson Family 

Trust. 

I. RULE 12(b)(6) LEGAL STANDARD 

On a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), all 

allegations of material fact are assumed to be true and construed in the light most 

favorable to the nonmoving party. Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 

2009). Dismissal under Rule 12(b)(6) can be based on “the lack of a cognizable legal 

theory” or “the absence of sufficient facts alleged under a cognizable legal theory.” 

Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). To avoid 

dismissal, a complaint need contain only “enough facts to state a claim for relief that is 

plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The 

principle that a court accepts as true all of the allegations in a complaint does not apply to 

legal conclusions or conclusory factual allegations. Ashcroft v. Iqbal, 566 U.S. 662, 678 

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(2009). “A claim has facial plausibility when the plaintiff pleads factual content that 

allows the court to draw the reasonable inference that the defendant is liable for the 

misconduct alleged.” Id. 

II. FACTUAL ALLEGATIONS ASSUMED TO BE TRUE 

The following facts are assumed to be true for the purpose of deciding the motion 

to dismiss Ditech Financial, LLC’s Counterclaim. The Court makes no determination of 

whether they are in fact true. 

On June 24, 2006, Judith Erickson signed and delivered to Countrywide Home 

Loans, Inc., an Adjustable Rate Note in the original principal amount of $338,000.00 to 

memorialize a loan to Erickson to purchase the Property at 2655 Skyview Way, Sedona, 

Arizona. The Note includes a promise from Erickson to pay the principal amount plus 

interest and her acknowledgement that Countrywide may transfer the Note. The Note 

states, “Lender or anyone who takes this Note by transfer and who is entitled to receive 

payments under this Note is called the ‘Note Holder.’”1

 The Note is in Ditech’s 

possession and is endorsed in blank by Countrywide. 

As security for the amounts due and owing on the Note, Erickson executed and 

delivered a Deed of Trust to Countrywide, which was recorded on July 6, 2006, in the 

Official Records of the Yavapai County Recorder. The Deed of Trust granted a security 

interest in the Property. Federal National Mortgage Association (“Fannie Mae”) owns 

Erickson’s loan, and Ditech services the loan on behalf of Fannie Mae. 

Erickson conveyed the Property to The Erickson Family Trust. In January 2013, 

Erickson failed to make payment pursuant to the terms of the Note and Deed of Trust. 

On February 15, 2013, Ditech commenced representation of Fannie Mae’s interests in 

foreclosure and began to initiate non-judicial foreclosure. On February 15, 2013, 

pursuant to its Single Family Servicing Guide, Fannie Mae automatically transferred 

 1

 Plaintiff incorrectly states that the Note Holder must be entitled to “keep 

payments” under the Note. 

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constructive possession of the Note to Ditech, and Ditech has continuously possessed the 

Note ever since. On April 30, 2015, Ditech received physical possession of the Note. 

Ditech’s Counterclaim alleges that the Note and Deed of Trust are in default 

because of nonpayment and also because Erickson conveyed the Property to The 

Erickson Family Trust. It alleges damages incurred because of Erickson’s default. 

Ditech elects to judicially foreclose the Deed of Trust pursuant to A.R.S. § 33-807(B). 

III. ANALYSIS 

Under the Arizona Deed of Trust Act, a trustee or beneficiary may file and 

maintain an action for judicial foreclosure at any time before the trust property has been 

sold under the power of sale. A.R.S. § 33-807(B); see A.R.S. § 33-721 (foreclosure of 

mortgage by court action). 

Ditech alleges that it is both the Note Holder and the Deed of Trust Beneficiary. 

“‘Negotiation’ means a transfer of possession, whether voluntary or involuntary, of an 

instrument by a person other than the issuer to a person who thereby becomes its holder.” 

A.R.S. § 47-3201(A). “If an instrument is payable to bearer, it may be negotiated by 

transfer of possession alone.” A.R.S. § 47-3201(B). “When indorsed in blank, an 

instrument becomes payable to bearer and may be negotiated by transfer of possession 

alone until specially indorsed.” A.R.S. § 47-3205(B). “Transfer of an instrument, 

whether or not the transfer is a negotiation, vests in the transferee any right of the 

transferor to enforce the instrument, including any right as a holder in due course, but the 

transferee cannot acquire rights of a holder in due course by a transfer, directly or 

indirectly, from a holder in due course if the transferee engaged in fraud or illegality 

affecting the instrument.” A.R.S. § 47-3203(B). 

As alleged, the Note was endorsed in blank by Countrywide, and both constructive 

and physical possession of the Note was transferred to Ditech. Thus, Ditech became the 

Note Holder. As the Note Holder, Ditech is a “person entitled to enforce” the Note: 

“Person entitled to enforce” an instrument means the holder of the 

instrument, a nonholder in possession of the instrument who has the rights 

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of a holder or a person not in possession of the instrument who is entitled to 

enforce the instrument pursuant to § 47-3309 or § 47-3418, subsection D. 

A person may be a person entitled to enforce the instrument even though 

the person is not the owner of the instrument or is in wrongful possession of 

the instrument. 

A.R.S. § 47-3301. Therefore, Ditech has any right to enforce the Note that Countrywide 

held. 

As alleged, Ditech is also the Beneficiary under the Deed of Trust because the 

transfer of a contract secured by a trust deed operates as a transfer of the trust deed. 

A.R.S. § 33-817. A mortgage is a “mere incident” to the debt it secures: 

The law seems to be well settled that the mortgage is a mere incident to the 

debt and that its transfer or assignment does not transfer or assign the debt 

or the note. The mortgage goes with the note. If the latter is transferred or 

assigned, the mortgage automatically goes along with the assignment or 

transfer. . . . The mortgage, being a mere incident of the debt, cannot be 

assigned separately from it, so as to give any beneficial interest. . . . A 

mortgage, as distinct from the debt it secures, is not a thing of value nor a 

fit subject of transfer; hence an assignment of the mortgage alone, without 

the debt, is nugatory, and confers no rights whatever upon the assignee. . . . 

An assignment of the note carries the mortgage with it, while the 

assignment of the latter alone is a nullity. 

Hill v. Favour, 52 Ariz. 561, 568, 84 P.2d 575, 578 (1938); accord Rodney v. Arizona 

Bank, 172 Ariz. 221, 223, 836 P.2d 434, 436 (Ct. App. 1992). Thus, transfer of the Note 

from Countrywide to Ditech operated as a transfer of the Deed of Trust. 

Erickson contends that Ditech is barred from seeking judicial foreclosure because 

it failed to assert that as a compulsory counterclaim in its Answer to the Second 

Amended Complaint. The Arizona Deed of Trust Act explicitly provides that a trustee or 

beneficiary may file and maintain an action for judicial foreclosure at any time before the 

trust property has been sold under the power of sale. A.R.S. § 33-807(B). Without any 

authority, it cannot be concluded that, by seeking declaratory judgment that Ditech was 

not the Note Holder or Beneficiary of the Deed of Trust, Erickson forced Ditech to elect 

judicial foreclosure or forever waive its right to do so. 

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The Court does not consider Erickson’s additional arguments raised for the first 

time in her reply brief. 

IT IS THEREFORE ORDERED that the Motion to Dismiss Counterclaim (Doc. 

158) by Plaintiffs and Counterdefendants Judith D. Erickson individually and as Trustee 

of The Erickson Family Trust is denied. 

Dated this 29th day of July, 2016. 

Case 3:14-cv-08089-NVW Document 189 Filed 07/29/16 Page 6 of 6