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Taylor v. Ditech Financial, LLC

United States District Court, S.D. Texas, Houston Division

May 31, 2017

DITECH FINANCIAL, LLC, et al., Defendants.


          Lee H. Rosenthal Chief United States District Judge

         The plaintiff, Patrick Taylor, purchased property in Houston, Texas, in 2005 with a mortgage loan secured by a note and deed of trust. The defendants, Ditech Financial, LLC, the Mortgage Electronic Registration System, and The Bank of New York Mellon, initiated foreclosure proceedings on that property in June 2016. Mr. Taylor sued in Texas state court in August 2016, challenging the foreclosure. He obtained a temporary restraining order enjoining the sale. The defendants timely removed on the basis of diversity jurisdiction. On December 9, 2016, the defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6). (Docket Entry No. 12). Mr. Taylor has not responded to the motion.

         Based on the complaint, the motion, and the applicable law, the motion to dismiss is granted, with prejudice as to some claims and without prejudice and with leave to amend as to others. Any amended pleading to follow this opinion must be filed by June 30, 2017.

         The reasons for these rulings are stated below.

         I. Background

         In 2005, Mr. Taylor purchased property located at 5247 Honeywine Drive, Houston, Texas 77048. He signed a mortgage loan for $89, 990.00, secured by a note and deed of trust. The original note holder was Countrywide Home Loans, Inc.

         In June 2016, the defendants filed a Notice of (Substitute) Trustee's Sale. On August 1, 2016, Mr. Taylor sued in state court, claiming deficiencies in the securitization process and asserting causes of action for theft by deception, fraud, unfair and deceptive business practices, unconscionability, and seeking to quiet title. (Docket Entry No. 1, Exhibit D-2 at p. 6). Mr. Taylor also sought a declaratory judgment, injunctive relief, and costs of suit. (Id. at pp. 6, 7).

         The defendants moved to dismiss, arguing that the securitization challenges fail as a matter of law because Mr. Taylor lacks standing to assert them, that Mr. Taylor is unable to assert claims under the Deceptive Trade Practices Act because he is not a consumer, and that Mr. Taylor's quiet title claim fails as a matter of law.

         II. The Legal Standard Under Rule 12(b)(6)

         Rule 12(b)(6) allows dismissal if a plaintiff fails “to state a claim upon which relief can be granted.” In Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007), the Supreme Court confirmed that Rule 12(b)(6) must be read in conjunction with Rule 8(a), which requires “a short and plain statement of the claim showing that the pleader is entitled to relief, ” Fed.R.Civ.P. 8(a)(2). To withstand a Rule 12(b)(6) motion, a complaint must contain “enough facts to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570; see also Elsensohn v. St. Tammany Parish Sheriff's Office, 530 F.3d 368, 372 (5th Cir. 2008). In Ashcroft v. Iqbal, 556 U.S. 662 (2009), the Supreme Court elaborated on the pleading standards discussed in Twombly. The Court explained that “the pleading standard Rule 8 announces does not require ‘detailed factual allegations, ' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Id. at 678 (quoting Twombly, 550 U.S. at 555). Iqbal explained that “[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. (citing Twombly, 550 U.S. at 556). “The plausibility standard is not akin to a ‘probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (citing Twombly, 550 U.S. at 556). When a plaintiff's complaint fails to state a claim, the court should generally give the plaintiff a chance to amend under Rule 15(a) before dismissing the action with prejudice, unless it is clear that to do so would be futile. See Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 329 (5th Cir. 2002). If it would be futile, the court should dismiss with prejudice.

         III. Analysis

         A. The Securitization Claims

         Mr. Taylor claims that the defendants lack standing to foreclose on his property because of deficiencies in the securitization process. (Docket Entry No. 1, Exhibit D-2 at p. 5). Mr. Taylor first asserts deficiencies in the assignment of the note. “Under Texas law, facially valid assignments cannot be challenged for want of authority except by the defrauded assignor.” Reinagel v. Deutsche Bank Nat'l Trust Co., 735 F.3d 220, 228 (5th Cir. 2013). Mr. Taylor is not the defrauded assignor of the note and cannot challenge the note's assignment.

         Mr. Taylor argues that the splitting of the note and deed of trust prevents the defendants from foreclosing. “Texas courts have ‘rejected the argument that a note and its security are inseparable by recognizing that the note and the deed-of-trust lien afford distinct remedies on separate obligations.'” Martins v. BAC Home Loans Servicing, L.P., 722 F.3d 249, 255 (5th Cir. 2013) (quoting Bierwirth v. BAC Home Loans Servicing, L.P., No. 03-11-00644-CV, 2012 WL 3793190, at *3 (Tex. App.-Austin Aug. 30, 2012, no pet.) (mem. op.)). The split-the-note theory is “inapplicable under Texas law where the foreclosing party is a mortgage servicer and the mortgage has been properly assigned.” Id. Here, defendant Ditech Financial, LLC, is the mortgage servicer. (Docket Entry No. 1, Exhibit ...

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