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New Penn Finanacial, L.L.C. v. State

United States District Court, N.D. Iowa, Cedar Rapids Division

June 21, 2017

NEW PENN FINANACIAL, L.L.C., doing business as SHELLPOINT MORTGAGE SERVICING, Plaintiff,
v.
STATE OF IOWA, IOWA DEPARTMENT OF REVENUE AND FINANCE; CRYSTAL GREINER; CITY OF CEDAR RAPIDS; IOWA SMALL BUSINESS ADMINISTRATION, AN AGENCY OF THE GOVERNMENT OF THE UNITED STATES OF AMERICA; CRESTVIEW ACRES, INC.; AND ALL UNKNOWN CLAIMANTS, et al., Defendants.

          OPINION AND ORDER REGARDING DEFENDANT SMALL BUSINESS ADMINISTRATION'S MOTION TO DISMISS

          MARK W. BENNETT U.S. DISTRICT COURT JUDGE.

         TABLE OF CONTENTS

         I. INTRODUCTION ........................................................................... 2

         II. LEGAL ANALYSIS ........................................................................ 4

         A. Applicable Standards ............................................................... 4

         B. Authority To Reopen The Completed Foreclosure Action .................. 6

         1. Arguments of the parties .................................................. 6

         2. Discussion ................................................................... 7

         C. No Waiver Of Sovereign Immunity ........................................... 11

         1. Arguments of the parties ................................................ 11

         2. Discussion ................................................................. 12

         D. Impropriety Of A Quiet Title Action .......................................... 14

         1. Arguments of the parties ................................................ 14

         2. Discussion ................................................................. 14

         III. CONCLUSION ............................................................................ 15

         Case 1:17-cv-00027-MWB Document 18 Filed 06/21/17 Page 1 of 15 In this case, the plaintiff seeks to reopen a completed foreclosure action-that is, a foreclosure action that went to judgment and sale of the property-to attempt to extinguish the interests of parties inadvertently omitted from the original action. One of those parties, the Small Business Administration (SBA) (through the United States), removed this case to this federal court and has now moved to dismiss the case against it for failure to state claims upon which relief can be granted. At the center of the dispute between the plaintiff and the SBA is a 70-year-old decision of the Iowa Supreme Court, which these parties read very differently.

         I. INTRODUCTION

         Mary P. Armbrecht executed a mortgage (Countrywide Mortgage) and promissory note (Countrywide Note) in favor of Countrywide Home Loans on June 26, 2007, for a property described as “Lot 4, Block 74 O.N. Hulls, Cedar Rapids Addition, ” identified as “Situated in the City of Cedar Rapids, County of Linn and State of Iowa.” Original Petition, Exhibit B (Countrywide Mortgage, Exhibit A, Legal Description). The mortgage was recorded in Book 6829, Page 519, in the Recorder's Office of Linn County, Iowa. The defendant SBA also has a mortgage (SBA Mortgage) dated July 9, 2008, from Mary P. Armbrecht, on what the parties agree is the same property. However, the property is identified in the SBA Mortgage as “LOT 4, BLOCK 74, O.N. HULL'S SEVENTH ADDITION TO CEDAR RAPIDS, LINN COUNTY, IOWA.” See Defendant SBA's Motion To Dismiss, Exhibit 1 (SBA Mortgage). The SBA Mortgage was recorded on July 21, 2008, in Book 7033, Page 567, in the Recorder's Office of Linn County, Iowa.

         Subsequently, on June 25, 2015, Bank of America (BOA) filed a petition to foreclose the Countrywide Mortgage in the Iowa District Court for Linn County, Case No. EQCV083321, alleging, inter alia, that it was the holder of the Countrywide Note or otherwise was authorized by the owner of the loan to foreclose the Countrywide Mortgage. Petition, ¶ 5. The petition alleged that the property at issue was described as “Lot 4, Block 74, O.N. Hull's Addition to Cedar Rapids, Linn County, Iowa.” Petition at ¶ 3. BOA did not name the SBA as a defendant. That foreclosure action was completed by decree on May 10, 2016, and execution on the real property issued on June 16, 2016. The Federal Home Loan Mortgage Corporation (FHLMC) was the purchaser of the property at the foreclosure sale. BOA filed a satisfaction in full on August 26, 2016.

         On December 30, 2016, New Penn Financial, L.L.C., doing business as Shellpoint Mortgage Servicing, (Shellpoint) as the agent of FHLMC, filed a motion to reopen the foreclosure petition, to amend the petition to correct the legal description of the property, and to add a quiet title count. Again, the SBA was not a party to the motion to amend nor a defendant on the proposed amended petition. The state court granted the motion to amend on January 13, 2017. The amended description of the property in the amended petition was “Lot 4, Block 74, in O.N. Hulls Seventh Addition, Cedar Rapids, Linn County, Iowa, ” with underlining showing the amendments. The amended petition continues the paragraph numbering of the original petition, but does not consist of a single pleading incorporating both the original petition and the amendments.

         On January 29, 2017, Shellpoint filed a second motion to amend the foreclosure petition to add the SBA and another party as defendants. The second amended petition, like the first amended petition, does not consist of a single pleading incorporating the preceding petition as amended, but consists simply of two paragraphs continuing the paragraph numbering from the first amended petition. Paragraph 20 states that the SBA was made a party “because they claim some right, title or interest in the property, ” based on the SBA Mortgage, but alleged that “[a]ny right or interest the Defendant [SBA] has in and to the property which is the subject of this action is junior and subordinate to the right and interest of the Plaintiff in and to the property.” The state court granted the motion to amend on February 9, 2017, and the United States was served with the original petition, the first amended petition, and the second amended petition on February 22, 2017.

         On March 22, 2017, the SBA removed this action to this federal court. On April 21, 2017, the SBA filed the Motion to Dismiss Pursuant To Rule 12(b)(6) now before me. On May 17, 2017, Shellpoint filed its Resistance to ...


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