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Espeland v. OneWest Bank, FSB

Supreme Court of Alaska

March 28, 2014

MAX and PEGGY ESPELAND, Appellants,

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Appeal from the Superior Court of the State of Alaska, Third Judicial District, Anchorage, Eric A. Aarseth, Judge. Superior Court No. 3AN-09-10994 CI.

Max, Appellant, Pro se, Anchorage.

Peggy Espeland, Appellant, Pro se, Anchorage.

Scott J. Gerlach, Delaney Wiles, Inc., Anchorage, for Appellees OneWest Bank FSB and IndyMac Mortgage Services.

Richard N. Ullstrom, Routh Crabtree Olsen-Alaska, Inc., Anchorage, for Appellee Alaska Trustee, LLC.

Before: Fabe, Chief Justice, Winfree, Stowers, Maassen, and Bolger, Justices.


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STOWERS, Justice.


In 2005 Max and Peggy Espeland refinanced their home with E-Loan, Inc. Shortly thereafter, their loan was purchased by another bank and securitized. The Espelands eventually defaulted on the loan and their home was sold in a non-judicial deed of trust foreclosure. The Espelands brought an action in the superior court to void the sale, arguing mainly that inconsistencies in and multiple transfers of the loan and security documents caused defects in the chain of title. The superior court disagreed and granted summary judgment against the Espelands. The Espelands filed an appeal. Thereafter, the Espelands moved for relief from judgment, citing fraud by the defendants. The superior court denied this motion. The Espelands filed a second appeal, and we consolidated the two appeals for decision. Because the Espelands have not produced any evidence of defects with the chain of title or with the foreclosure, we affirm the superior court's grant of summary judgment. Because after reviewing the record we see no evidence of fraud or malfeasance, we affirm the superior court's denial of the motion for relief from judgment.


In 2004 Max and Peggy Espeland purchased an 8,000 square foot, eight bedroom, ten bathroom home for $775,000. The previous owners, the Schefers, had been using the property as a bed and breakfast, and the Espelands intended to do the same. Neither Max nor Peggy had any experience running a small business or working in the hospitality industry, but they were hoping to " jump in there and . . . make it happen." Max ran a directional drill for Norcon, and Peggy did not work apart from her duties caring for the bed and breakfast. Max's work was intermittent and entailed frequent stretches of unemployment, but he believed he was earning about $70,000 annually when they purchased the property.

The Espelands originally financed the purchase with a loan from Bridge Capital. To obtain the loan, they aggregated Max's salary and the $80,000 a year that the Schefers told them the property earned. They made this choice even though Max testified he understood that the Schefers meant $80,000 before expenses, not after. To make the down payment, the Espelands borrowed $50,000 from Peggy's parents, which they mischaracterized in their loan application to Bridge Capital as a gift.

By 2005 the Espelands were having trouble meeting their payments and wanted to refinance their loan. After looking at options, they chose E-Loan, Inc. In the loan application, Max stated that he had a monthly

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salary of $10,000 without mentioning that his yearly salary was much less than $120,000 due to his frequent periods of unemployment. E-Loan agreed to refinance $790,000 at a lower interest rate, which dropped the Espelands' monthly payment from $7,172 to $5,088.

The Espelands signed a Promissory Note creating an obligation to repay their loan and a Deed of Trust giving the lender, through the trustee under the Deed of Trust, the right to sell the property if the Espelands failed to repay the loan. The reference date on the Deed of Trust was September 15, 2005, and it was notarized four days later on September 19, 2005. The Deed of Trust lists E-Loan, Inc. as the lender, Pacific Northwest Title as the trustee under the Deed of Trust, and Mortgage Electronic Registration Systems, Inc. (MERS)[1] as the " nominee for Lender and Lender's successors and assigns." [2] As nominee, " MERS was listed in the public record as the holder, nominally, of the beneficial interest in the property [under the Deed of Trust]." The actual beneficial interest in the property was held by the lender, E-Loan.

A. Transfer Of The Rights Connected To The Loan

In October 2005, one month after the origination of the loan, E-Loan transferred all of its rights -- both its servicing rights [3] and its beneficial interest [4] -- to IndyMac Bank. E-Loan endorsed the Promissory Note in blank,[5] and IndyMac Bank later added its name to the endorsement. MERS internally recorded the transfer of the Deed of Trust and remained the nominal beneficiary of record, but was now the nominee for IndyMac Bank, not E-Loan.

Shortly after acquiring the rights to the Espelands' loan, IndyMac Bank and Deutsche Bank National Trust Co. signed a pooling [6] and servicing agreement securitizing [7] the mortgage. This agreement sold the Promissory Note and the beneficial interest under the Deed of Trust to Deutsche Bank; the contractual servicing rights remained with IndyMac Bank. The original Promissory Note was transferred from IndyMac Bank to Deutsche Bank at this time, again endorsed in blank. MERS, still the nominee, although now for Deutsche Bank, internally recorded

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the transfer of the beneficial interest in the Deed of Trust. After this transfer, Deutsche Bank held the Promissory Note and the beneficial interest under the Deed of Trust, MERS continued to be listed in the public record as the nominal holder of the beneficial interest under the Deed of Trust, and IndyMac Bank continued to be the servicing agent for the loan.

B. The Espelands Default On Their Loan

Roughly three years later, in December 2008, the Espelands ceased making payments on their loan. IndyMac Bank contacted the Espelands and informed them that they were in default. The Espelands unsuccessfully attempted to negotiate with IndyMac Bank for a reprieve or loan modification. The record suggests that the Espelands were completely unable to make even a portion of their monthly payments; Peggy testified that after they ceased making payments, they were unable to save any money toward curing the default.

In January 2009, a month after stopping payment, the Espelands sent a Qualified Written Request to IndyMac Bank under the Real Estate Settlement Procedures Act (RESPA).[8] They asked for: (1) all documents pertaining to the origination of the loan, including the loan history, fees, and the amount paid out of the escrow account; (2) an explanation of how all the payments were applied; and (3) the names and contact information for any investor or broker that purchased the securitized loan, as well as the agreements signed and the assignments made. IndyMac Bank responded by providing the Espelands with a payment history, the " requested disclosures, [and] copies of requested closing documents." IndyMac Bank refused to provide any of the other information, stating that " [t]hese requests go well beyond what is required to be produced pursuant to a Qualified Written Request and will not be provided." IndyMac Bank explained that " [g]enerally, we will not provide copies of internal documents and notations, guidelines or other information/materials supplied to us by third parties in connection with the organization of this loan." The Espelands received the letter but never responded or followed up.

Meanwhile, IndyMac Bank had been in distress since 2008 and was under control of the Office of Thrift Supervision, becoming IndyMac Federal Bank. The Office of Thrift Supervision appointed the Federal Deposit Insurance Corporation (FDIC) as receiver, and in March 2009 the FDIC sold all of IndyMac Federal Bank's assets to OneWest Bank.[9] For the Espelands, this was only a transfer of the servicing rights for their loan because that was the only interest IndyMac Federal Bank retained. In other words, this was a transfer of the contractual right to perform a service for Deutsche Bank, not a transfer of property. MERS internally recorded the transfer of servicing rights, and on April 15, 2009, IndyMac Federal Bank informed the Espelands that the new servicer of their loan was OneWest Bank.

C. The Non-Judicial Foreclosure

In early April 2009, OneWest Bank referred the foreclosure to Alaska Trustee, LLC, a company that performs non-judicial foreclosures. Foreclosure was ordered in the name of IndyMac Federal Bank, One West Bank's predecessor.[10] Alaska Trustee performed a routine title search and found that, although the foreclosure had been ordered in IndyMac Federal Bank's name, MERS was still the record holder of the beneficial interest under the Deed of Trust -- publicly,

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MERS was the owner of record.[11] First American Title, the insurer for the foreclosure, required that the Deed of Trust be assigned from MERS to IndyMac Federal Bank in order to give clear title in the public record.

On April 22, 2009, MERS assigned its nominal beneficial interest in the Deed of Trust to IndyMac Federal Bank by assigning it the Deed of Trust.[12] As nominal holder of the beneficial interest, IndyMac Federal Bank held only legal title, but this gave it the right to " take any action required by the lender" by " law or custom," including " the right to foreclose and sell the Property." On April 21, 2009, IndyMac Federal Bank used its power as nominal beneficiary to substitute Alaska Trustee for Pacific Northwest Title as the trustee for the Espelands' Deed of Trust. When Alaska Trustee recorded both documents on May 6, 2009, it recorded the assignment of the Deed of Trust from MERS to IndyMac Federal Bank before it recorded the Substitution of Trustee. Alaska Trustee recorded a Notice of Default the same day. In addition, OneWest Bank had a power of attorney granted by Deutsche Bank to facilitate the foreclosure sale.

The foreclosure was postponed three times, but the Espelands were unable to cure their default. On October 13, 2009, one day before the foreclosure sale, the Espelands sought a preliminary injunction barring the sale, which was denied by the superior court. At the sale on October 14, OneWest Bank was the sole bidder and purchased the property for $647,010.68. At the time of the foreclosure, Deutsche Bank held the Promissory Note and the beneficial interest under the Deed of Trust, IndyMac Federal Bank held the nominal beneficial interest ...

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