Armacost v. HSBC Bank USA, Case No. 10-CV-274-EJL-LMB
United States District Court for the District of Idaho
Report and Recommendation
February 9, 2011
Honorable Larry M. Boyle, United States Magistrate Judge
Whether mere compliance with the Idaho Trust Deed Act’s procedural requirements is sufficient to establish a party’s substantive right to institute non-judicial foreclosure proceedings.
Summary of Ruling:
The plaintiff, an alleged property owner, asserted a claim under the Fair Debt Collection Practices Act (“FDCPA”), against several defendants, including the trustee of a Deed of Trust on the property. The trust beneficiary had appointed the trustee as successor trustee after the borrowers had defaulted on the note secured by the Deed of Trust. As explained in a separate summary available here, the Court held that instituting non-judicial foreclosure proceedings without the “present right to possession of the property claimed as collateral through an enforceable security interest” is potentially actionable under § 1692f(6)(A) of the FDCPA.
The Court then turned to the trustee’s contention that this claim should be dismissed because the trustee had complied with the procedural requirements in Idaho’s non-judicial foreclosure statute, the Idaho Trust Deed Act. Declining to follow courts in California and Nevada that have dismissed claims on a similar basis, the Court held that mere compliance with the Idaho Trust Deed Act’s procedural requirements does not establish a party’s substantive right to initiate non-judicial foreclosure proceedings:
This Court does not believe, however, that the inquiry ends with Defendant’s compliance with the Idaho non-judicial foreclosure statute. Liberally construing Plaintiff’s complaint, as this Court must, Plaintiff is not challenging Defendant’s procedure – he is challenging Defendant’s right to initiate the procedure. One could not reasonably contend that compliance with a procedure gives substantive rights not otherwise possessed. The question remains whether Defendant’s right or authority to foreclose on the Property remains.
Turning to the issue of how to determine whether a party has the substantive right to institute non-judicial foreclosure proceedings, the Court declined to rule on the appropriate test, noting that the trustee had not briefed this issue in its motion to dismiss. The Court did, however, identify two issues that might be dispositive at a later stage of the case.
The first issue is whether “Idaho requires that a foreclosing entity be in possession of the Note in order to have the right to enforce the Deed of Trust.” Relevant to the resolution of this issue will be whether I.C. § 28-3-301, which delineates who is a “person entitled to enforce” a negotiable instrument, requires the foreclosing entity to be in possession of the note before instituting non-judicial foreclosure proceedings.
The second issue is whether the assignment of a deed of trust operates as an assignment of the accompanying note, so as to transfer authority to institute non-judicial foreclosure proceedings. The Court cited authority for opposing views: (1) under the first view, “without the assignment of the debt, the assignment of the security is a nullity;” and (2) under the second view, “the assignment of the security also assigns the debt unless there is an indication of the parties’ intent” otherwise. The Court noted that “[t]here does not appear to be any Idaho state court case law on this point of assignment.”
Therefore, the Court denied the trustee’s motion to dismiss the § 1692f(6)(A) claim because the “record is insufficient at this time” to determine as a matter of law whether the trustee had the substantive right to institute non-judicial foreclosure proceedings.
No party filed objections to the Court’s Report and Recommendation, and thus the Honorable Edward J. Lodge, United States District Judge, adopted the Report and Recommendation without conducting a de novo review.
Link to Opinions:
Report and Recommendation
Order Adopting Report and Recommendation
Link to Court:
Wendy Gerwick Couture