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Ninth Circuit Agrees Federal Diversity Jurisdiction Appropriate for Foreclosure Lawsuit - Sexton v. NDEX West et al.

April 22, 2013

Vincent Howard and our Corona foreclosure defense lawyers were interested to see a foreclosure defense lawsuit that became an argument about federal jurisdiction. The vast majority of foreclosure lawsuits are in state court, because foreclosures themselves are state-law issues and the defenses to them are usually (though not always) state statutory or common-law arguments. But in Sexton v. NDEX West et al., the defendants in a Reno couple's wrongful foreclosure lawsuit removed the case to federal court, citing the diversity of the parties' state citizenships. Scott and Sonia Sexton sued for wrongful foreclosure and other causes. They did not contest the removal to federal court, but after the federal court granted defendants' motions to dismiss, the couple appealed, arguing that the district court should have sent the case back on two grounds. The Ninth U.S. Circuit Court of Appeals ultimately disagreed.

The Sextons bought their house in 2007 with a loan from IndyMac Bank. They fell behind on payments in 2010 and unsuccessfully went through Nevada's foreclosure mediation process. They then sued in state court, alleging wrongful foreclosure, debt collection violations, unfair lending practices, unfair trade practices, violation of the covenant of good faith and fair dealing, fraud, slander of title and abuse of process. They also filed a lis pendens notice to stop the foreclosure. The defendants, who included original and subsequent note owners and trustees, removed it to federal court on diversity grounds, which the Sextons did not contest. The defendants moved for dismissal for failure to state a claim, which was granted. The relevant defendants also moved to lift the lis pendens notice, which again was granted.

The Sextons' appeal to the Ninth Circuit argued that the district court should have returned the matter to state court without being asked, because of either the prior exclusive jurisdiction doctrine or the Colorado River abstention doctrine. The first doctrine says that if a court system has already taken jurisdiction over property via its procedures, the other court system's jurisdiction is withdrawn. Thus, the Sextons argued, the district court was precluded from exercising jurisdiction over their home because they had already filed a complaint giving jurisdiction to the state courts. The Ninth said this was foreclosed by case law; a proper removal terminates the previous court's jurisdiction. The Ninth next rejected the application of the Colorado River doctrine, which instructs federal courts on how to consider whether to dismiss in favor of a concurrent state proceeding. But in this case, the appeals court said, there is no concurrent state proceeding. It affirmed the dismissal of the case.

This couple made a difficult set of arguments, in part because they alleged that the case should have been sent back to state court even though they didn't argue for it at the time. Vincent Howard and our Newport Beach foreclosure defense attorneys prefer to make this kind of argument in trial court, because it's much easier to preserve the issue for appellate review that way. It's not clear what the underlying wrongful foreclosure allegations in this case are because the Ninth Circuit didn't have to consider them; it was able to end the case on the merits of jurisdiction. It's possible that federal jurisdiction would have been worse for the Sextons, but either jurisdiction is bad when the court declines to hear your case at all. At Howard Law, P.C., our San Diego County foreclosure defense lawyers make sure background issues like jurisdiction don't stand in the way of a court hearing the substance of our clients' cases.

If you're fed up with a foreclosure process that seems designed to push you out of your home without a chance to appeal, don't wait to call Vincent Howard and the team at Howard Law. You can send us a message online or call 1-800-872-5925.

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