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Pena v. HSBC Bank United States
Pena v. HSBC, No. 14-2329 (4th Cir. Dec. 28, 2015) — Per Curiam (Unpublished)
Factual and Procedural Background
The Penas obtained a mortgage from IndyMac to purchase real property in Loudoun County, Virginia, secured by a deed of trust. IndyMac named MERS as nominee and beneficiary. MERS recorded three documents titled "Assignment of Deed of Trust" purporting to assign all beneficial interest to HSBC. HSBC appointed Surety Trustees, LLC as substitute trustee, initiated foreclosure after the Penas defaulted, and purchased the property at the foreclosure sale. The Penas sued, alleging the assignment from MERS to HSBC was invalid and seeking rescission of the sale, removal of a cloud on title, and damages for slander of title (they also asserted a breach-of-contract claim that they do not contest was dismissed). The district court granted HSBC's motion to dismiss for failure to state a claim, holding the Penas lacked standing to challenge the assignment. The Fourth Circuit affirmed.
Legal Issues Presented
- Whether the Penas had standing under Virginia law and federal prudential standing doctrine to challenge MERS's assignment of the deed of trust to HSBC.
- Whether the Penas may, as borrowers and parties to the deed of trust, enforce conditions precedent to foreclosure when their asserted theory necessarily challenges the validity of an assignment to which they were not parties or beneficiaries.
Arguments of the Parties
Appellants' Arguments (Penas)
- Their suit is properly framed as enforcement of conditions precedent to foreclosure under the deed of trust (to which they are parties), relying on Mathews v. PHH Mortgage Corp.'s principle that borrowers may sue to enforce conditions precedent.
- They alleged several conditions precedent were not satisfied (no declaration of default or notice thereof, no acceleration or notice, no appointment of the substitute trustee by the lender, inadequate notice of right to cure, and lack of required notice of the sale under the contract and Virginia law).
- The Penas contend any required notices were provided by the wrong entity (they assert HSBC is not the Lender), making the notices defective.
Appellees' Arguments (HSBC)
- HSBC moved to dismiss, arguing the Penas lack standing to challenge the validity of the assignment from MERS to HSBC.
- The district court's dismissal rested on the principle that one not in privity cannot attack the validity of a contract (assignment) to which they are not a party or beneficiary.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Aziz v. Alcolac, Inc. | The motion-to-dismiss standard: assume all well-pleaded, nonconclusory factual allegations in the complaint to be true. | Used to state the standard of review at the motion-to-dismiss stage and to evaluate the Penas' complaint. |
| Philips v. Pitt Cty. Mem'l Hosp. | Courts may consider documents attached to the complaint or to the motion to dismiss if integral and authentic, and may take judicial notice of matters of public record. | Supported consideration of the complaint's attachments and public-record materials in assessing the complaint. |
| Wells v. Shoosmith | Generally, one who is not in privity of contract cannot attack the validity of the contract. | Applied to conclude Virginia law does not permit the Penas to challenge the assignment when they are not parties or beneficiaries of that assignment. |
| Mich. Mut. Ins. Co. v. Smoot | Under Virginia law, one must be a party to, or a beneficiary of, a contract to sue on that contract. | Reinforced the non-privity principle underlying the court's standing analysis. |
| CGM, LLC v. BellSouth Telecomm., Inc. | Federal prudential standing doctrine contains a general prohibition on a litigant's raising another person's legal rights (quoting Allen v. Wright). | Referenced to note federal prudential standing similarly bars the Penas from challenging the assignment as a contract to which they are not parties. |
| Allen v. Wright | Quoted for the general prohibition on raising another person's legal rights. | Used within the discussion of federal prudential standing cited in CGM. |
| Mathews v. PHH Mortgage Corp. | Under Virginia law, borrowers may sue to enforce conditions precedent to foreclosure. | Recognized the Penas' asserted legal theory but the court explained that the Penas' successful invocation of that principle would still require challenging the assignment, which they lack standing to do. |
Court's Reasoning and Analysis
The court applied the motion-to-dismiss standard (Aziz) and considered complaint attachments and public records (Philips). The complaint's facts show IndyMac lent the Penas money, MERS was the nominee/beneficiary, MERS recorded assignments to HSBC, HSBC appointed Surety Trustees, and HSBC purchased the property at foreclosure. The district court dismissed for lack of standing to challenge the assignment. On appeal, the Penas relied on Virginia law allowing borrowers to enforce conditions precedent (Mathews) and alleged several conditions were unsatisfied. However, the record shows the Penas received notice of default and impending foreclosure; their theory rests on the contention that the notices came from the wrong entity (HSBC was not the Lender), which in turn depends on invalidating the MERS-to-HSBC assignment. Because Virginia law bars non-parties/non-beneficiaries from attacking a contract (Wells; Mich. Mut. Ins. Co.) and federal prudential standing similarly prohibits raising another's rights (CGM citing Allen), the court concluded the Penas' complaint, although styled as enforcement of contractual conditions, in substance sought to challenge an assignment to which they were neither party nor beneficiary. Virginia law provides no avenue for that challenge, so dismissal was appropriate.
Holding and Implications
AFFIRMED.
Direct effect: The Fourth Circuit affirmed the district court's dismissal of the Penas' complaint for failure to state a claim—the Penas lack standing to challenge the MERS-to-HSBC assignment and thus cannot prevail on the claims that depend on that challenge. The opinion does not establish a binding precedent in this circuit because it is unpublished; no broader new legal rule was announced.
PER CURIAM
UNPUBLISHED Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. James C. Cacheris, Senior District Judge. (1:14-cv-01018-JCC-JFA) Before DUNCAN, KEENAN, and DIAZ, Circuit Judges. Affirmed by unpublished per curiam opinion. Christopher E. Brown, TUCKER & ASSOCIATES PLLC, Vienna, Virginia, for Appellants. John C. Lynch, Maryia Y. Jones, Jennifer E. Bowen, TROUTMAN SANDERS LLP, Virginia Beach, Virginia, for Appellees. Unpublished opinions are not binding precedent in this circuit. PER CURIAM:
This case concerns the efforts of Plaintiffs-Appellants Sostones and Yolanda Pena to retain possession of their real estate in Loudoun County, Virginia, after they defaulted on their mortgage loan and the property was sold at a foreclosure sale. Defendant-Appellee HSBC Bank USA, N.A. ("HSBC"), as Trustee for Deutsche Alt-A Securities Mortgage Loan Trust, Series 2007-OA2, was the beneficiary of the deed of trust associated with the Penas' loan, and purchased the property at the foreclosure sale. After the sale, the Penas sued HSBC, raising several claims premised on their assertion that the assignment of the deed of trust from the Penas' original lender to HSBC was invalid.
The district court granted HSBC's motion to dismiss the Penas' complaint for failure to state a claim, holding that the Penas lack standing to challenge the assignment. For the reasons that follow, we affirm.
I.Because this case arises at the motion-to-dismiss stage, we "assum[e] all well-pleaded, nonconclusory factual allegations in the complaint to be true." Aziz v. Alcolac, Inc., 658 F.3d 388, 391 (4th Cir. 2011). In addition to the complaint itself, we may consider "documents attached to the complaint, . . . as well as those attached to the motion to dismiss, so long as they are integral to the complaint and authentic." Philips v. Pitt Cty. Mem'l Hosp., 572 F.3d 176, 180 (4th Cir. 2009). We may also "take judicial notice of matters of public record." Id.
The Penas' complaint and the associated documents reveal the following facts: The Penas purchased the property at issue on February 5, 2007. To finance their purchase, the Penas obtained a loan from IndyMac Bank, F.S.B. ("IndyMac"). The loan was secured by a deed of trust on the property. Instead of identifying itself as the trust beneficiary, IndyMac appointed a separate company called Mortgage Electronic Registration Systems, Inc. ("MERS") as the "nominee" for IndyMac and IndyMac's "successors and assigns," and MERS became the trust beneficiary. J.A. 31.
On July 27, 2010, July 29, 2010, and June 11, 2013, respectively, MERS executed and recorded three separate documents, each entitled "Assignment of Deed of Trust." Each document purported to assign to HSBC "all beneficial interest" under the Penas' deed of trust. J.A. 63-66. HSBC, in turn, appointed Surety Trustees, LLC ("Surety Trustees") as a substitute trustee in place of Trust Title Company, which had been named trustee in the original deed of trust. After the Penas defaulted on their loan, HSBC instructed Surety Trustees to initiate foreclosure proceedings. At the foreclosure sale, HSBC purchased the property.
II.In their complaint, the Penas seek various types of relief from the foreclosure sale, asserting that MERS's assignment of the deed of trust to HSBC was invalid, and that HSBC therefore had no authority to appoint Surety Trustees as a substitute trustee and no authority to instruct Surety Trustees to initiate foreclosure proceedings. The district court, in granting HSBC's motion to dismiss, held that the Penas lack standing to challenge MERS's assignment of the deed of trust to HSBC. We review de novo a district court's decision to grant a motion to dismiss for failure to state a claim. Aziz, 658 F.3d at 391.
Specifically, in Count I, the Penas seek rescission of the foreclosure sale; in Count II, they request removal of a cloud on title; and in Count III, they seek damages for slander of title. The Penas also asserted a breach-of-contract claim against HSBC in Count IV, but they do not contest the district court's dismissal of that claim on appeal.
On appeal, the Penas do not dispute the basic principle of Virginia law that "generally, one who is not in privity of contract cannot attack the validity of the contract." Wells v. Shoosmith, 428 S.E.2d 909, 913 (Va. 1993); see Mich. Mut. Ins. Co. v. Smoot, 129 F. Supp. 2d 912, 920 (E.D. Va. 2000) (stating that, under Virginia law, "[o]ne must be a party to, or a beneficiary of, a contract to sue on that contract"). Nor do the Penas claim that they were in fact parties to, or beneficiaries of, the assignment of the deed of trust from MERS to HSBC.
Federal prudential standing doctrine likewise contains a "general prohibition on a litigant's raising another person's legal rights." CGM, LLC v. BellSouth Telecomm., Inc., 664 F.3d 46, 52 (4th Cir. 2011) (quoting Allen v. Wright, 468 U.S. 737, 751 (1984)). --------
Instead, the Penas argue that their complaint seeks only to enforce the conditions precedent to foreclosure contained in the deed of trust (to which they are a party), and point out that under Virginia law, "[b]orrowers may sue to enforce conditions precedent to foreclosure," Mathews v. PHH Mortgage Corp., 724 S.E.2d 196, 200 (Va. 2012). And indeed, the Penas do allege in their first amended complaint that "several conditions precedent" to foreclosure "were not satisfied." J.A. 23. Specifically, the Penas allege that
- The lender . . . did not declare a default, nor give notice thereof
- The Lender did not accelerate the Note, nor give notice thereof
- The Lender did not appoint the substitute trustee
- The Lender did not advise the borrower in the notice of the right to cure . . . that she had the right to file a court action and raise any defense
- Lender provided no notice of the sale as required by the contract and Virginia law.
J.A. 23-24.
The Penas' briefing on appeal makes clear, however, that they are not alleging that they never received notice of their default and of the impending foreclosure. In fact, the record contains several letters that provided the Penas with such notice. See J.A. 112-22. The Penas' only contention is that they were provided such notice by the wrong entity: the deed of trust requires that notice be provided by the Lender (or its agents), and according to the Penas, HSBC is not the Lender. Of course, the Penas' assertion that HSBC is not the Lender is entirely dependent on their challenge to the validity of the assignment from MERS to HSBC--a challenge that they have no standing to raise. Thus, even though the Penas' complaint is styled as a suit to enforce the deed of trust, it is clear that, at bottom, their suit seeks only to challenge a contract to which they are neither parties nor beneficiaries. Virginia law provides no avenue for such a challenge.
III.For the foregoing reasons, the district court's order dismissing the Penas' complaint is
AFFIRMED.
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