Source: http://californiafinance.mwbllp.com/
Timestamp: 2019-04-23 02:37:45+00:00

Document:
Accordingly, the Ninth Circuit held that the trial court properly exercised its jurisdiction over the matter where the bank - acting as trustee - was sued in its own name, and along with the other named defendants, was of diverse citizenship with the plaintiff.
The plaintiff borrower (“Borrower”) took out a loan, and the loan was later securitized and the deed of trust was assigned to the bank (“Bank”), which acted as trustee for a trust (“Trust”). The Trust was governed by a pooling and servicing agreement, which provided that all “right, title and interest” in the Trust were conveyed to the Bank “for the use and benefit of the Certificateholders,” and the Bank was given the power to hold the Trust’s assets, sue in its own name, transact the Trust’s business, terminate servicers, and engage in other necessary activities.
In her complaint, the Borrower asserted various causes of action under California law, including wrongful foreclosure. The Borrower named, among others, the Bank.
The defendants removed the matter to the trial court based on diversity jurisdiction. The notice of removal specifically stated that it was filed on behalf of, among others, the Bank as trustee for the Trust. The notice further stated that the Bank was incorrectly sued in its name only, without referencing the Trust.
The notice asserted that the Bank was a national banking association organized under the laws of the United States, with its main office in Virginia, and was therefore a citizen of Virginia for diversity purposes.
Because no defendant was, like the Borrower, a citizen of California, the notice concluded that diversity jurisdiction was established and removal was proper.
The trial court agreed and the matter remained in federal court. The trial court subsequently granted summary judgment in favor of the defendants.
The Borrower appealed. On appeal, she did not contest the trial court’s summary judgment decision, but instead only challenged the court’s subject matter jurisdiction over the action.
The Borrower argued that the defendants failed to establish diversity jurisdiction because, following Americold, they were required to demonstrate the citizenship of the Trust’s investors, and could not simply rely on the citizenship of the Bank as its trustee.
In addressing the argument, the Ninth Circuit first discussed two other pertinent Supreme Court decisions, Navarro and Carden v. Arkoma Associates.
After reaching its ruling, the Ninth Circuit noted in dicta that there was potential conflict between its decision in Johnson that “[a] trust has the citizenship of its trustee or trustees” and Americold where the Supreme Court concluded that the citizenship of nontraditional trusts should be determined based on their members, not trustees.
When the developer failed to pay off the loan, the title company (Trustee) recorded the notice of default and a notice of trustee’s sale. The property was sold at a public auction.
As you may recall, in California, “[a] beneficiary or trustee under a deed of trust who conducts an illegal, fraudulent or willfully oppressive sale of property may be liable to the borrower for wrongful foreclosure.” Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, 929. However, “[t]he trustee of a deed of trust is a not a true trustee with fiduciary obligations, but acts merely as an agent for the borrower-trustor and lender-beneficiary.” Id., at p. 927.
The trustee’s “only duties are: (1) upon default to undertake the steps necessary to foreclose the deed of trust; or (2) upon satisfaction of the secured debt to reconvey the deed of trust.” Heritage Oaks Partners v. First American Title Ins. Co. (2007) 155 Cal. App. 4th 339, 345.
The developer argued in Lupertino v Carbahal (1973) 35 Cal.App.3d 742, the court found that the trustee was equitably estopped from asserting that it complied with the notice requirements of the non-judicial foreclosure statutes. There, the trustee mailed the notice of trustee’s sale to only the borrowers’ address of record, and because the borrowers had moved, they did not receive actual notice in time to cure the default.
Noting that both of these claims were derivative of the wrongful foreclosure claim, and that the developer did not argue how these claims might still be viable even if the wrongful foreclosure cause of action was not, the Appellate Court concluded that Trustee’s demurrer as to the remaining claims was also properly sustained.
The U.S. Supreme Court recently issued its much-anticipated opinion in Obduskey v. McCarthy & Holthus LLP, ruling the federal Fair Debt Collection Practices Act does not cover persons engaged in "non-judicial foreclosures" except with respect to a single provision contained in the FDCPA.
The FDCPA defines a debt collector as persons engaged "in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts." The Colorado borrower alleged this included the law firm and mortgage servicer.
However, the FDCPA's definition of a debt collector also states that "[the] term [debt collector] also includes any person . . . in any business the principal purpose of which is the enforcement of security interests" for purposes of section 1692f(6). The law believed this provision excluded its efforts undertaken in the nonjudicial foreclosure.
The trial court agreed with the law firm and mortgage servicer and granted their motions to dismiss, determining that the mortgage servicer was not a "debt collector" under the FDCPA because the loan was not in default when it began servicing the loan. The trial court also found the law firm's nonjudicial foreclosure activities were "outside the scope of the FDCPA."
The borrower appealed and the U.S. Court of Appeals for the Tenth Circuit affirmed the District Court's decision, explaining that despite findings to the contrary by three other circuits (the Fourth, Fifth, and Sixth) and the Colorado Supreme Court, a nonjudicial foreclosure is not an attempt to collect money. Therefore, the "mere act of enforcing a security interest through a non-judicial foreclosure proceeding does not fall under the FDCPA."
The U.S. Supreme Court granted the borrower's Petition for a Writ of Certiorari on June 28, 2018, and heard oral argument on Jan. 7, 2019.
The Supreme Court first looked to the language of the FDCPA which provides a "general" definition for "debt collector." However, that subsection also provides: "For the purpose of section 808(6) [15 U.S.C. § 1692f(6)], such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests." (emphasis added).
Focusing on the italicized terms above, and particularly the word "also," the Court stated the phrase "strongly suggests that one who does no more than enforce security interests does not fall within the scope of the general definition. Otherwise why add this sentence at all?"
Second, the Court explained that it makes sense to "treat security-interest enforcement differently from ordinary debt collection in order to avoid conflicts with state nonjudicial foreclosure schemes." As an example, the Court noted state nonjudicial foreclosures procedures include consumer protection provisions, some of which are in conflict with the FDCPA, such as the requirement to publicize the sale.
Third, the Court looked to the legislative history which evidenced conflicting proposals regarding the applicability of the entire FDCPA to persons who enforce security interests. "Given these conflicting proposals, the Act's present language has all the earmarks of a compromise: The prohibitions contained in §1692f(6) will cover security-interest enforcers, while the other 'debt collector' provisions of the Act will not."
Accordingly, the Court concluded with the seemingly narrow holding that "but for §1692f(6), those who engage in only nonjudicial foreclosure proceedings are not debt collectors within the meaning of the Act."
 The FDCPA's definition of "debt collector" excludes "any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity concerns a debt which was not in default at the time it was obtained by such person." 15 U.S.C. § 1692a(6)(F)(iii).
 "The term 'debt collector' means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." 15 U.S.C. §1692a(6).
 Section 1692f(6) prohibits: "[t]aking or threatening to take any nonjudicial action to effect dispossession or disablement of property if—(A) there is no present right to possession of the property claimed as collateral through an enforceable security interest; (B) there is no present intention to take possession of the property; or (C) the property is exempt by law from such dispossession or disablement."

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