Singh v. IndyMac Bank, F.S.B.

Background

Tejindar P. Singh, Rajinder K. Singh, and The Singh Family Properties, L.P. sued IndyMac Bank, F.S.B., Specialized Loan Servicing, LLC, and Affinia Default Services, LLC. The plaintiffs sought to stop a planned nonjudicial foreclosure, obtain declaratory and injunctive relief, and quiet title by removing the deed of trust from the property. Affinia was a nominal defendant and filed a statement that it had no monetary interest in the case.

Tejindar P. Singh and Rajinder K. Singh signed the loan agreement on December 23, 2005. The Singh Family Properties was not a party to that agreement. IndyMac assigned the deed of trust to Deutsche Bank on December 28, 2005; the assignment was recorded on April 13, 2018. In February 2019, Affinia, acting as successor trustee, recorded a substitution of trustee and a notice of default and election to sell the property.

The plaintiffs had filed an earlier state-court lawsuit in 2015 to quiet title and remove the mortgage encumbrance. The defendants answered but did not file a cross-complaint. The plaintiffs later requested dismissal without prejudice, and the state court apparently dismissed the case. In the current lawsuit, the plaintiffs argued that the defendants’ failure to file a compulsory cross-complaint prevented them from later pursuing foreclosure. They also alleged that the assignment and loan were invalid or unenforceable, that the defendants could not reconvey the deed of trust, and that the statute of limitations barred foreclosure.

Motion and Standards

The defendants moved to dismiss for failure to state a claim under Rule 12(b)(6) and argued under Rule 12(b)(1), which addresses subject-matter jurisdiction, that the plaintiffs lacked standing to challenge the loan assignment. The court treated the jurisdictional challenge as a facial challenge, meaning it accepted the complaint’s factual allegations as true for purposes of that issue and viewed them favorably to the plaintiffs.

Analysis

The court held that the compulsory-cross-complaint rule did not bar the defendants’ later nonjudicial foreclosure. California’s rule generally requires a defendant to bring related claims in a cross-complaint, but the court explained that a nonjudicial foreclosure is not a judicial action under California law. The court also said the rule would not bar claims acquired after the earlier answer was filed. It therefore dismissed the claims to the extent they depended on the defendants’ failure to bring cross-claims in the 2015 quiet-title lawsuit.

The court next addressed the plaintiffs’ argument that the defendants could not enforce the deed of trust because IndyMac had assigned it to Deutsche Bank. The court understood the plaintiffs to be challenging the assignment, including because the assignment was recorded after the 2015 lawsuit. It held that even if the assignment was recorded late, it was voidable rather than void. As a result, the plaintiffs lacked standing to attack it in a wrongful-foreclosure claim.

The court also found no other viable basis for the quiet-title claim. It explained that a borrower seeking to quiet title and set aside instruments such as a notice of default generally must allege a present ability to pay the full debt, subject to exceptions. The plaintiffs’ allegations about tender and the illegality of the debt were conclusory and did not plausibly challenge the underlying debt. The court dismissed that claim.

The court separately dismissed the claims against IndyMac because IndyMac had assigned the loan to Deutsche Bank in 2005 and, under the circumstances described, had no association with the loan. Finally, the court held that the statute of limitations might bar a judicial foreclosure but did not bar a nonjudicial foreclosure.

Disposition

The court granted the motion to dismiss. The dismissal was with prejudice to the extent the claims were based on the estoppel, assignment, and statute-of-limitations arguments. The dismissal of the claims against IndyMac was also with prejudice because the court concluded that additional factual allegations could not cure those legal deficiencies. The plaintiffs were allowed to file an amended complaint within 21 days and were required to attach a blackline comparing it with the current complaint. If they did not amend within that period, the court stated that it would enter judgment for the defendants.