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Foreclosure challenge properly removed to federal court

Where a homeowner argued the mortgage noteholder lacked standing to initiate foreclosure proceedings because of irregularities in the process by which it was assigned the mortgage, and that claim depended entirely on the interpretation of federal law and federal regulations, federal question jurisdiction allowed removal to federal court


In April 2010, plaintiffs executed a deed of trust which secured a mortgage to purchase real property in Loudoun County. U.S. Mortgage Finance Corporation was the original lender on the mortgage and the trustee on the deed of trust was Palma J. Collins. Using the Mortgage Electronic Registration System, or MERS, to facilitate the transaction, defendant Ocwen Loan Servicing LLC became the mortgage noteholder on plaintiffs’ property. On Oct. 14, 2016, Ocwen appointed a substitute trustee. Several years later, in September 2019, defendants hired BWW Law Group to initiate foreclosure proceedings against the plaintiffs’ property.

Plaintiffs allege that Ocwen did not have standing to initiate foreclosure proceedings because of irregularities in the process by which Ocwen was assigned the mortgage. Plaintiffs also assert that MERS is a necessary party because MERS facilitated the assignment of the mortgage to Ocwen without receiving proper authorization.

This court dismissed plaintiffs’ complaint on Jan. 1, 2020, based on res judicata. The Fourth Circuit reversed that determination, stating that this court must first determine whether it can properly exercise removal jurisdiction. The court now finds that it has jurisdiction over this case based on both diversity and federal question.


Plaintiffs bring MERS into this case by complaining of MERS’s failure to follow the proper procedures for assigning the mortgage to Ocwen. Plaintiffs allege that MERS did not have the requisite authority to assign the mortgage and that MERS has not presented evidence that the mortgage was assigned according to law. Virginia does not recognize a cause of action that allows plaintiffs to come to court and demand that a noteholder prove its authority to foreclose.

In this case, MERS “is merely a pass-through” and plaintiffs do not have a “glimmer of hope” of recovering against MERS in state court. Based on the doctrine of fraudulent joinder, the court disregards MERS’s citizenship for purposes of jurisdiction. The remaining defendant, Ocwen, is a citizen of Florida. Plaintiffs are Virginia citizens. This court has subject-matter jurisdiction over this case based on diversity, since the citizenship of the parties is diverse and the amount in controversy is greater than $75,000.

Federal question

Plaintiffs bring only state causes of action. However, one of plaintiffs’ claims hinges almost entirely on the interpretation of federal regulations and laws.

In Count Two of the complaint, plaintiffs argue that Ocwen did not have standing because “Defendant Ocwen is in violation of . . . Federal laws[.]” Plaintiffs assert that according to 12 C.F.R. § 226.39(a)(1) and 15 U.S.C. § 164l(f)(1), Ocwen did not have the authority to foreclose on plaintiffs’ property.

The declaratory judgment that plaintiffs seek depends entirely on the interpretation of federal law and federal regulations. Without the presence of federal law, plaintiffs do not have a basis for seeking a declaratory judgment. Plaintiffs’ complaint centers on Ocwen’s authority to foreclose, and federal law plays a substantial role in answering that question.


Since the jurisdictional issue is resolved, the court turns to defendants’ motion to dismiss. The plaintiffs first brought an action against Ocwen and MERS in December 2018. The 2018 complaint asserted many of the same causes of action that plaintiffs bring in this case. Any additional causes of action asserted in this case could have been brought at the time the 2018 complaint was filed. All of the issues from 2018 and those currently before the court arise out of the same transaction or occurrence. The court dismissed the 2018 lawsuit on the merits. Since plaintiffs could have brought these claims against these same defendants at the time of the prior suit, res judicata bars plaintiffs from relitigating these claims now.

Plaintiffs’ motion to remand denied. Defendants’ motion to dismiss granted.

Hendiazad v. Ocwen Loan Servicing Inc., Case No. 1:19-cv-1270, May 24, 2021. EDVA at Alexandria (Hilton). VLW 021-3-271. 8 pp.

VLW 021-3-271