MaviGer OCS: SSeS Te ei COU ee oe aera MUI APR 20. PH 2:93 REGINA M. MeCREA ; OWENS AND CRANDALL, PLLC 7 q 8596 N. Wayne Drive, #A. fe WH Hayden, ID 83835 ‘Telephone: (208) 667-8989 Facsimile: (208) 667-1939 ISB # 6845 IN THE DISTRICT COURT OF THE FIRST JUDICAL DISTRICT OF THE STATE OF IDAHO, IN AND FOR THE COUNTY OF KOOTENAI MATTHEW L. GRIFFIN and CYNTHIA L. GRIFFIN, a married couple, CASE NO. CV-11-2388 Plaintiffs, v. MEMORANDUM IN SUPPORT OF MOTION TO STAY FORECLOSURE ‘AMERICAN HOME MORTGAGE, a New | AND TRUSTEE SALE York corporation, its successors and assigns or its nominee MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. [“MERS”]; RESIDENTIAL CREDIT SOLUTIONS, INC., a Texas corporation; PIONEER TITLE OF ADA COUNTY, an Idaho corporation d/b/a PIONEER LENDER. TRUSTEE SERVICES; and All Persons in Possession of Claiming any Right to Possession (DOES I—V). Defendants. | INTRODUCTIO: This action was filed initially as one seeking quiet title relief, since upon information and belief, the Griffins’ note and deed of trust had been split and transferred to third parties who were strangers to the original transaction. That transaction took place in the summer of 2007 between the Griffins and American Home Mortgage [hereinafter “AHM”]. See Exhibits A—C to the Affidavit of Cynthia Griffin (hereinafter referred to simply as the “Griffin Aff.”]. The Griffins hhad decided to sell their home and refinanced it in the interim into an adjustable rate note. The payments pursuant to that note fluctuated and consisted of interest payments only, which were rot enough to pay the interest that accrued each month. They believed this route was in their MEMORANDUM IN SUPPORT OF MOTION TO STAY FORECLOSURE AND TRUSTEE SALE -1 ORIGINALMay 08 2011 12:35PM T RECORDS 208-446-1194 best interest atthe time and would enable them to save money while they marketed the property for sale. Regrettably, the market took a turn for the worse soon after the Griffins undertook the ARM, and they soon found themselves underwater. Despite this turn of events, the Griffins persevered and continued dutifully making their mortgage payments. After three years of seeing the debt only continue to mount and the monthly payment skyrocket, the Griffins approached ‘AEIM in the hopes of obtaining a remodification. While in the midst of working on the remodification, the Griffins received correspondence from Residential Credit Solutions (“RCS”) which stated that it would now be processing the loan. Confused by this turn of events, the Griffins attempted to figure out what had happened, but received no response to phone calls placed to AHM. The Griffins then began making payments to RCS, who either could not account for the same or who refused to apply them if they did not conform to the “new” installment schedule, ‘The Griffins made multiple contacts to RCS, first to correct the errors in processing and then to inguire about who owned their Joan and who they could speak with about modifying their loan, RCS largely ignored them and went so far as to tell the Griffins that nothing could be done unless they were over 30 days behind on the loan. With no assistance and seemingly no ability to tum their situation around, the Griffins joined myriads of other homeowners and fell behind on their loan, They initiated this action out of desperation in the hopes that their new lender, whoever that was, would step out of the woodwork and make itself known, That has indeed occurred as RCS has now declared itself the current beneficiary of the Griffins deed of trust, has availed itself of the power of sale contained therein, and has appointed Pioneer Title of Ada County to effectuate the same, See Griffin Aff. DISCUSSION This Court has broad equitable powers, including the ability to enjoin the foreclosure of a deed of trust. See LC. § 45-1506A(1); Scott v. Castle, 104 Idaho 719, 726, 662 P.2d 1163, 1170 (Ct. App. 1983), Sectibn 45-1505 of the Idaho Code sets forth the prerequisites to initiating foreclosure fats deed wink are (1) recondation ‘of the: trust deed; any assignments of the: MEMORANDUM IN SUPPORT OF MOTION TO, STAY FORECLOSURE AND TRUSTEE SALE -2May 09 2011 12 See eee eee ee eee reer e eee eae nant deed; (3) recordation and serVice of a Notice of Default; and (4) the absence of any other suit or proceeding seeking to recoup the debt. 1. _ Assignments Must be Recorded Before Foreclosure CRS, as the foreclosing beneficiary and alleged assignee of AHM’s interest in the loan, must meet the aforementioned requirements for its foreclosure to be valid. Section 45-1505(1) requires that CRS’s status as foreclosing beneficiary appear before the sale in the public records for the Property. The obvious policy behind this necessity is to protect borrowers from confusion as to the ownership of their loans. As illustrated by the Affidavit of Plaintiff Cynthia Griffin, the Plaintiffs herein had been working with AHM to restructure this debt when they received notice that CRS had taken over the "processing" of their Joan. With the bankruptcy of ‘American Home Mortgage nationally knowa, the Plaintiffs had no way of knowing whether their Joan had been sold or simply farmed out to a third party processor during the pendency of AHM's bankruptcy. Phone calls to CRS went unretumed and correspondence completely ignored, Plaintiffs had no idea CRS claimed beneficiary status of its loan until they received a Notice of Default. Idaho's statutory foreclosure scheme is mandatory and cannot be circumvented on the whim of creditors hoping to escape the notice of Idaho courts. See also Katherine Porter, Misbehavior and Mistake in Bankruptcy Mortgage Claims, 87 Tex. L. Rev. 121, 148-49 (2008), cited in Ameriquest Mortg. Co. v. Nosek, 609 F.3d 6, 9 (Ist Cir. 2010) (noting mortgage holders and servicer’s “confusion and lack of knowledge or perhaps sloppiness, as to their roles is not unique in the residential mortgage industry”); Andrew J, Kazakes, Developments in the Law: The Home Mortgage Crisis, 43 :Loy. L.A. L. Rev. 1383 (2010); Office of the Special Inspector General for the Troubled Asset Relief Program, Quarterly Report to Congress 12 (Jan. 26, 2011), available at bttp://www.sigtarp.gow/ (follow link for "Quarterly Report to Congress"). For this, reason alone, the attempted foreclosure is not in accordance with Idaho law and should be preempted by this Court. Il. _ CRS Must Be Entitied To Payment of the Secured Debt and Establish Default Furthermore, section 45-1505(2) ties the foreclosure of a trust deed to those entitled to the performance of the underlying obligation, i, v, Longan, 83 US. 271, 274 (1872) (assignment of the note carries the mortgage with it), Polhemus v. Trainer, 30 Cal. 686, 688 (1866) (the mortgage always abides with the debt). MEMORANDUM IN SUPPORT OF MOTION TO, STAY FORECLOSURE AND TRUSTEE SALE -3May 09 2011 12 GPM DISTRICT COURT RECORDS 208-446-1194 Without a valid and enforceable right to seek recourse and hold a debtor to the obligations of a promissory note, a creditor has-no right to Jook to the security given in exchange. ‘Therefore, this (Céiutt must determine Who has the:right to enforce the underlying promissory rote. The principles enunciated in this portion of the Idaho Code also draw upon the judicial doctrines of standing and real party in interest, which are additional prerequisites to obtaining any form of relief.’ ‘To determine whether a party can enforce a promissory note, one must look to Idaho law governing negotiable instruments. Idaho has enacted the Uniform Commercial Code in Article 3 of Title 28, which defines "negotiable instruments” as unconditional promises "to pay a fixed amount of money, with or without interest " payable to bearer on demand or at a definite time and involving no other undertaking in addition to the payment of money. LC. § 28-3-104(1)? ‘The Plaintiffs' promissory note meets these criteria. These statutes further designate the persons ‘who are entitled to enforce a negotiable instrument, which are limited to (1) a “holder of the instrument,” and (2) “a nonbolder in possession of the instrument who has the rights of a holder.” ‘Yobea “holder,” one must possess the note and the noté must be payable to'the perso’ in.possession os tobemers’I.C. § 28-1-201(b)(21)(A). ‘The Plafitiffs” promissory note is payable to AHM, not Defendant. RCS. Moreover, there has been no ‘showing that Defendant RCS is in possession of the original note or that AHM duly indorsed it, authorizing a transfer. See LC. § 28-3-205, In all likelihood, this Court will be asked to find that CRS is a non-holder in possession with rights to enforce. Persons who acquire physical possession of an unindorsed note ray be a nonholder ih possession with the rights of a hoklen.- See'I-C. §-28-3-203(1), (12).’ However, such noaholders: rust “prove the transaction” by. which they acquired the tote: TK the transferee is not a holder because the transferor did not indorse, the |) transferee is nevertheless a person entitled to enforce the instrument under Section 3.301 if the transferor was a holder at the time of the transfer. Although the transferee is not a holder, . . the transferee [may obtain] the rights of the 2 “The United States Bankruptcy Court forthe District of Kizho recently issued a Memorandum Decision addressing those issues and concluding tha five creditors in separate bankruptcy proceedings had not established aright to ‘enforcement, were not real parties in interes, and lacked standing to seek relief from the cour's automatic stay. The discussion that follows draws heavily from the well-reasoned decision of that Court, * Giving and promising to maintain colateral is allowed pursuant to this section. ‘The statute further recognizes persons with rights pursuant to section 28-3-309 (certified checks, cashier's checks, teller chocks) or section 28-3-418(4) (payment in face of dishonor), neither of which are applicable here. ‘MEMORANDUM IN SUPPORT OF MOTION TO. STAY FORECLOSURE AND TRUSTEE SALE -4