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finding tender is not required where a plaintiff seeks to enjoin a trustee sale for failure to comply with a condition precedent to the sale
Summary of this case from Rios v. Bank of Am.Opinion
NO. CIV. S-12-2860 LKK/DAD
05-21-2013
KOSAL VONG, an individual, Plaintiff, v. BANK OF AMERICA, N.A., (for itself and as the successor to COUNTRYWIDE HOME LOANS, INC., d/b/a America's Wholesale Lender, Inc., and as successor to BAC Home Loans Servicing, LP); and DOES 1 through 100, inclusive, Defendants.
ORDER
This is a foreclosure case. For the reasons set forth below: defendant's motion to dismiss the federal claim will be granted; and the motion to dismiss the state claims will be granted in part, and denied in part.
Although the sole federal claim will be dismissed, the court will retain diversity jurisdiction.
I. THE FACTS
A. The Promissory Note and Deed of Trust.
Plaintiff financed the purchase of his home with a "negotiable promissory note" ("note") for $364,000 from non-party Countrywide Home Loans ("Countrywide"), aka "America's Wholesale Lender." Complaint at 5 ¶ 15; Request for Judicial Notice ("RfJN") Exh. F ("State Complaint") (ECF No. 9-1, pp. 32-45) ¶ 5. Defendant Bank of America ("defendant") is the successor in interest to Countrywide. Complaint at 3 ¶ 8. The original servicer on the loan was non-party BAC Home Loans Servicing, LP. Id. Defendant Bank of America is the successor in interest to BAC Home Loans. Id.
The note has not been submitted to the court by either party.
Defendant has filed a Request for Judicial Notice ("RfJN") of the following documents recorded in the official records of San Joaquin County:
To secure repayment of the note to Countrywide, plaintiff executed a Deed of Trust. Complaint at 5 ¶¶ 16-17; Deed of Trust, RfJN Exh. A ("Trust Deed" or "Security Instrument") (ECF No. 9-1, pp. 2-17) at 3. ReconTrust Co., N.A., is listed as the "Trustee." Complaint at 5 ¶ 17; Trust Deed at 3 ¶ (D). The Trust Deed secures the repayment of the note by transferring title of the property, in trust, to the Trustee. Trust Deed at 4. The Trustee is also granted the "power of sale," which enables the Trustee to sell the property in satisfaction of the debt, in the event of a default. Id.
The Trust Deed lists Countrywide as the "Lender." Trust Deed at 3 ¶ (C). An entity called the Mortgage Electronic Registration Systems, Inc. ("MERS"), is listed as the "Beneficiary" of the Trust Deed. Trust Deed at 3 ¶ (C) & (F).
The Trust Deed goes on to set forth the relationship between the Lender and the Beneficiary. Specifically, MERS (the Beneficiary), acts "solely as a nominee for Lender." Id. at 3 ¶ (E). The Trust Deed goes on to state that "MERS (as nominee for Lender ...) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and cancelling this Security Instrument." Id. at 4-5.
As discussed further below, a deed of trust "typically secures a debt owed the beneficiary," which is typically the same entity as the Lender. Monterey S. P. Partnership v. W. L. Bangham, Inc.. 49 Cal. 3d 454, 461 (1989) (emphasis added). Here, the Beneficiary and the Lender are separate entities (although the Beneficiary is stated to be a "nominee" of the Lender), and the Trust Deed secures a debt owed to the Lender (Countrywide), not to the Beneficiary (MERS). Complaint at 4 ("This Security Instrument secures to Lender ... the repayment of the loan ...").
A "nominee" is "a person or entity designated to act for another in a limited role — in effect, an agent." Fontenot v. Wells Fargo Bank, N.A., 198 Cal. App. 4th 256, 270-271 (1st Dist. 2011). As an agent, the nominee, in general, "can be authorized to do any act the principal may do." Id., at 480 n.9, citing Cal. Civ. Code §§ 2304 & 2305.
B. Sale and Assignment of the Note and Trust Deed.
Soon after the loan was executed, Countrywide sold its interest in the note to "the FANNIE MAE Guaranteed REMIC Pass-Through Certificates, FANNIE MAE REMIC Trust 2005-123 (the "REMIC Trust"). Complaint at 5 ¶ 18. Plaintiff alleges in some detail that the sale to the REMIC Trust was beset with problems: that there are no documents to prove that this sale occurred; that the transfer of interests to the REMIC Trust are "void" under "New York trust law" and a certain "Pooling and Servicing Agreement ('PSA');" that the sale to the REMIC Trust was not a "true sale;" that the security interest in the note was never "perfected;" and that the note was never actually transferred to the REMIC Trust entities. Complaint at 5-8 ¶¶ 18-28.
In August 2011, MERS executed an assignment of "all beneficial interest" under the Trust Deed, together with the promissory note it secured, to defendant Bank of America. Complaint at 9 ¶ 32; Assignment, RfJN Exh. B (ECF No. 9-1, p. 19) at 19. Defendant recorded the Assignment. Assignment at 19.
On September 15, 2011, MERS executed a second assignment of the Trust Deed to defendant, which was also recorded by defendant. ECF No. 9-1 at 28. Neither side discusses this or explains what to make of it.
In September 2011, ReconTrust, the Trustee on the Deed of Trust, recorded a Notice of Default. Complaint at 9 ¶ 33; RfJN Exh. C ("Default") (ECF No. 9-1, pp. 21-23). In December 2011, ReconTrust recorded a Notice of Sale. Complaint at 9 ¶ 34; RfJN Exh. D (ECF No. 9-1, p. 26).
Plaintiff does not allege that the property has been sold, nor that a sale is imminent.
II. MOTION TO DISMISS STANDARDS
A dismissal motion under Fed. R. Civ. P. 12(b)(6) challenges a complaint's compliance with the federal pleading requirements. Under Fed. R. Civ. P. 8(a)(2), a pleading must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." The complaint must give the defendant "'fair notice of what the ... claim is and the grounds upon which it rests.'" Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007), quoting Conley v. Gibson, 355 U.S. 41, 47 (1957).
To meet this requirement, the complaint must be supported by factual allegations. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937 (2009). Moreover, this court "must accept as true all of the factual allegations contained in the complaint." Erickson v. Pardus, 551 U.S. 89, 94 (2007).
Citing Twombly, 556 U.S. at 555-56, Neitzke v. Williams, 490 U.S. 319, 327 (1989) ("[w]hat Rule 12(b)(6) does not countenance are dismissals based on a judge's disbelief of a complaint's factual allegations"), and Scheuer v. Rhodes, 416 U.S. 232, 236 (1974) ("it may appear on the face of the pleadings that a recovery is very remote and unlikely but that is not the test" under Rule 12(b)(6)).
"While legal conclusions can provide the framework of a complaint," neither legal conclusions nor conclusory statements are themselves sufficient, and such statements are not entitled to a presumption of truth. Iqbal, 556 U.S. at 678. Iqbal and Twombly therefore prescribe a two step process for evaluation of motions to dismiss. The court first identifies the non-conclusory factual allegations, and then determines whether these allegations, taken as true and construed in the light most favorable to the plaintiff, "plausibly give rise to an entitlement to relief." Iqbal, 556 U.S. at 664.
"Plausibility," as it is used in Twombly and Iqbal, does not refer to the likelihood that a pleader will succeed in proving the allegations. Instead, it refers to whether the non-conclusory factual allegations, when assumed to be true, "allow[ ] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 663. "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (quoting Twombly, 550 U.S. at 557). A complaint may fail to show a right to relief either by lacking a cognizable legal theory or by lacking sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990).
Twombly imposed an apparently new "plausibility" gloss on the previously well-known Rule 8(a) standard, and retired the long-established "no set of facts" standard of Conley v. Gibson, 355 U.S. 41 (1957), although it did not overrule that case outright. See Moss v. U.S. Secret Service, 572 F.3d 962, 968 (9th Cir. 2009) (the Twombly Court "cautioned that it was not outright overruling Conley ...," although it was retiring the "no set of facts" language from Conley). The Ninth Circuit has acknowledged the difficulty of applying the resulting standard, given the "perplexing" mix of standards the Supreme Court has applied in recent cases. See Starr v. Baca, 652 F.3d 1202, 1215 (9th Cir. 2011) (comparing the Court's application of the "original, more lenient version of Rule 8(a)" in Swierkiewicz v. Sorema N.A., 534 U.S. 506 (2002) and Erickson v. Pardus, 551 U.S. 89 (2007) (per curiam), with the seemingly "higher pleading standard" in Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005), Twombly and Iqbal), cert. denied, 132 S. Ct. 2101 (2012). See also Cook v. Brewer, 637 F.3d 1002, 1004 (9th Cir. 2011) (applying the "no set of facts" standard to a Section 1983 case).
III. ANALYSIS
A. First Cause of Action: Slander of Title.
Plaintiff alleges "slander of title" based on the recording of the Assignment by MERS to defendant, and the subsequent recording of the Notice of Default and the Notice of Sale.
The elements of a cause of action for slander of title are (1) a publication, which is (2) without privilege or justification, (3) false, and (4) causes pecuniary loss.La Jolla Group II v. Bruce, 211 Cal. App. 4th 461, 472 (5th Dist. 2012). "False" in this context means "without legal foundation." Gudger v. Manton, 21 Cal. 2d 537, 54 (1943) ("in order that the elements of that tort may exist, the lien must be false, that is without legal foundation"). The basis for plaintiff's claim is his assertion that MERS did not have the authority to transfer the "beneficial interest" in the Deed of Trust to defendant. He then asserts that the subsequent recordings of the Notice of Default and Sale were also false, because they are based upon the allegedly false Assignment.
Plaintiff sufficiently alleges "publication" by alleging that the documents were "recorded" at the County Recorder's office. Accord, Albertson v. Raboff, 46 Cal. 2d 375 (1956) (recording a lis pendens is a "publication"). In any event, defendant does not challenge "publication" for purposes of this motion. Defendant's Motion To Dismiss ("Motion") (ECF No. 8) at 14. Also, plaintiff sufficiently alleges "pecuniary loss" when he alleges that the slander of title "impairs the vendibility of Plaintiff's Subject Property on the open market," and caused him "to retain attorneys to bring this action to cancel the instruments casting doubt on Plaintiff's title." Complaint at 10-11 ¶¶ 4-5. See Davis v. Wood, 61 Cal. App. 2d 788, 798, 143 P.2d 740, 745 (3rd Dist. 1943) ("From the foregoing statements of the law relating to damages for slander of title ... it is apparent that the elements of damages are the loss caused by the impairment of vendibility and the cost of clearing the title").
1. Falsity.
(a) The "Assignment."
(i) MERS is a mere "nominee."
Plaintiff alleges that MERS, although named as the beneficiary on the Trust Deed, is authorized to act "solely as nominee" for Lender. Complaint at 10 ¶ 3. "[A]s such," plaintiff alleges, "MERS did not have the requisite authority to make a valid assignment of the beneficial interest in the Plaintiff's Deed of Trust to Defendant Bank of America." Id.
This claim is precluded by Fontenot v. Wells Fargo Bank, N.A., 198 Cal. App. 4th 256, 270-271 (1st Dist. 2011). Fontenot involved a deed of trust which listed MERS as the "beneficiary," and also as the "nominee" of the Lender, using language identical to the Trust Deed at issue here. Id., at 262-63. The plaintiff in Fontenot asserted, as plaintiff does here, that "MERS lacked the authority to assign the note because it was merely a nominee of the lender and had no interest in the note." Id., at 270. The Court of Appeal rejected the claim, explaining that MERS did not purport to assign the beneficial interest in its own right, but rather "as nominee for the lender," which did have an assignable interest. Id. As nominee, or agent, for the lender, MERS had as much authority to make an assignment as its principal gave it, as determined by the agency agreement between them. Id., at 270-71. There is no allegation here (and apparently none in Fontenot), that the agency agreement precluded the assignment. The court concluded:
the allegation that MERS was merely a nominee is insufficient to demonstrate that MERS lacked authority to make a valid assignment of the note on behalf of the original lender.Id., at 271.
(ii) Other possible bases for MERS's lack of authority.
Plaintiff asserts that additional bases for MERS's lack of authority to make the assignment are "for the reasons set forth in [sic] herein above." Complaint at 10 ¶ 3. Although plaintiff does not explain what those reasons are, it appears likely that plaintiff is complaining that there is something about MERS itself that precludes it from making the assignment. Plaintiff's description of MERS in the complaint (at 10 ¶ 2), is consistent with the description given that entity by the Ninth Circuit, and by California appellate courts:
If plaintiff has some other reason for alleging this lack of authority, the court does not know what it is. Although plaintiff is only required to provide a "short and plain statement" of his claim, the court is not required to guess which factual allegations plaintiff believes support his claim.
As case law explains, "MERS is a private corporation that administers the MERS System, a national electronic registry that tracks the transfer of ownership interests and servicing rights in mortgage loans. Through the MERS System, MERS becomes the mortgagee of record for participating members through assignment of the members' interests to MERS. MERS is listed as the grantee in the official records maintained at county register of deeds offices. The lenders retain the promissory notes, as well as the servicing rights to the mortgages. The lenders can then sell these interests to investors without having to record the transaction in the public record. MERS is compensated for its services through fees charged to participating MERS members."Gomes v. Countrywide Home Loans, Inc., 192 Cal. App. 4th 1149, 1151 (4th Dist.) (citations omitted), cert. denied, 132 S. Ct. 419 (2011); Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034, 1038-40 (9th Cir. 2011).
The point of using MERS is to avoid the "cumbersome" process of recording each assignment of the beneficial interest under the deed of trust, and the note it secures. See Cervantes, 656 F.3d at 1039 ("This recording process became cumbersome to the mortgage industry, particularly as the trading of loans increased"); Gomes, 192 Cal. App. 4th at 1151 ("A side effect of the MERS system is that a transfer of an interest in a mortgage loan between two MERS members is unknown to those outside the MERS system"). This enables the securitization of the underlying mortgages, and facilities their sale for investment - and speculation - on Wall Street. See Herrera v. Federal Nat. Mortg. Assn., 205 Cal. App. 4th 1495, 1503 (4th Dist. 2012) ("As explained in Fontenot, the 'MERS System' is 'a method devised by the mortgage banking industry to facilitate the securitization of real property debt instruments'").
Another "side-effect" of the MERS system is that participants do not have to pay recording taxes each time the promissory note is traded and the deed of trust is transferred. See Cal. Gov't Code § 27201(a) (County Recorder shall accept documents for recording "upon payment of proper fees and taxes").
By eliminating the practice of recording transfers of deeds of trust, as the note is sold from lender to lender, the MERS system may well undermine the protections afforded debtors by California's comprehensive system of non-judicial foreclosure, Cal. Civ. Code §§ 2924-2928k. Cf. Garfinkle v. Superior Court, 21 Cal. 3d 268, 279 (1978) ("these statutory regulations were enacted primarily for the benefit of the trustor and for the greatest part limit the creditors' otherwise unrestricted exercise of the contractual power of sale upon default by the trustor").
When a promissory note is sold, "any assignment of the beneficial interest under a deed of trust may be recorded." Cal. Civ. Code § 2934. See Cervantes, 656 F.3d at 1039 ("State laws require the lender to record the deed in the county in which the property is located. Any subsequent sale or assignment of the deed must be recorded in the county records, as well") (emphases added); but see Wilson v. Pacific Coast Title Ins. Co.. 106 Cal. App. 2d 599, 602 (4th Dist. 1951) (assignment of beneficial interest of the deed of trust three years prior to recording it "was a valid transfer of title").
For example, by removing any public record of who really owns the promissory note, the MERS system appears to undermine a homeowner's ability to make sound financial decisions. A homeowner, especially one in serious financial distress, may approach a lender who is a community bank or credit union, seeking to work out his financial difficulties. The homeowner might have an entirely different approach if the lender is an overseas multinational bank, or Wall Street investors. On the other hand, it must be acknowledged that these protections are diminished in California by the use of deeds of trust to secure promissory notes, rather than mortgages. When a promissory note is secured by a mortgage, in which the lender has been granted the power of sale, each assignment of the note must be recorded in order to pass along the power of sale to the assignee. See Cal. Civ. Code § 2932.5. This mandatory recording process does not apply to deeds of trust, where the power of sale is vested in a third party, the trustee. See Herrera, 205 Cal. App. 4th at 1509 (Section 2932.5 "does not apply to trust deeds, in which the power of sale is granted to a third party, the trustee").
The participation of MERS also adds complexity to the deed of trust. Normally, the "beneficiary" and the "lender" are the same entity. See Huckell v. Matranga, 99 Cal. App. 3d 471, 481 (1979) ("The deed of trust is an agreement between three parties, to wit, a trustor (usually the debtor), the trustee (a neutral party), and the beneficiary (usually a creditor)"). With MERS, the lender is now a separate entity from the beneficiary (although the beneficiary acts as a "nominee," or agent, for the lender), thus making it more difficult to understand which rights attach to which party.
For example, the Trust Deed cryptically states that "MERS holds only legal title to the interests granted by Borrower in this Security Interest." Trust Deed at 4.
Having said as much, the court recognizes that it is too late in the day for this federal district court, exercising diversity jurisdiction, to find that an assignment of MERS's beneficial interest to a defendant is false based solely upon a general critique of the MERS system. Although it appears that the California Supreme Court has not spoken on the role of MERS, it also appears that the Courts of Appeal have reviewed its role, and approved it. See, e.g., Herrera, 205 Cal. App. 4th at 1498 (4th Dist. 2012) ("The courts in California have universally held that MERS, as nominee beneficiary, has the power to assign its interest under a deed of trust"). Indeed, the specific practice of making MERS the beneficiary and also the nominee for the lender has been specifically approved by a California Court of Appeal:
Where, as here, "the district court sits in diversity, or hears state law claims based on supplemental jurisdiction, the court applies state substantive law to the state law claims." Mason and Dixon Intermodal, Inc. v. Lapmaster Intern. LLC, 632 F.3d 1056, 1060 (9th Cir. 2011). This court is "bound by pronouncements of the California Supreme Court on applicable state law, but in the absence of such pronouncements," this court must "follow decisions of the California Court of Appeal unless there is convincing evidence that the California Supreme Court would hold otherwise." Carvalho v. Equifax Information Services, LLC, 629 F.3d 876, 889 (9th Cir. 2010); Stoner v. New York Life Ins. Co., 311 U.S. 464, 467 (1940) ("in cases where jurisdiction rests on diversity of citizenship, federal courts ... must follow the decisions of intermediate state courts in the absence of convincing evidence that the highest court of the state would decide differently").
There is nothing inconsistent in MERS's being designated both as the beneficiary and as a nominee, i.e., agent, for the lender. The legal implication of the designation is that MERS may exercise the rights and obligations of a beneficiary of the deed of trust, a role ordinarily afforded the lender, but it will exercise those rights and obligations only as an agent for the lender, not for its own interests. ... [T]here is nothing ambiguous or unusual about the legal arrangement.Fontenot, 198 Cal. App. 4th at 273.
The "slander of title" claim regarding the Assignment, will be dismissed for failure to successfully allege falsity.
(b) The Notices of Default and Sale.
As for the Notice of Default and the Notice of Sale, plaintiff does not explain what was false about them, except that they are based upon the Assignment, and therefore "any subsequent documents relying on such assignment would be invalid." Complaint at 10 ¶¶ 3 & 4. The problem with this allegation, is that there is nothing in the Complaint to support the assertion that the Assignment is false, as discussed above, and so the allegedly consequent falsity of the Notices has no basis.
Plaintiff makes no other allegation of falsity attaching to the Notice of Default, either. However, an independent look at the Notice of Default reveals that it includes a sworn declaration that Bank of America Home Loan "tried with due diligence to contact the borrower in accordance with California Civil Code Section 2923.5." Trust Deed at 24. This declaration is required by law to be attached to the Notice of Default. Cal. Civ. Code § 2923.5(b). Plaintiff elsewhere in the complaint adequately alleges that this declaration is "false." Complaint at 13 ¶ 14. If the declaration is false - and defendant did not actually use the required "due diligence" in trying to contact plaintiff - then the Notice of Default itself is false, since the declaration must be attached to the Notice. Cal. Civ. Code § 2923.5(b). Moreover, the Notice is invalid, since "due diligence" is a statutory prerequisite to filing the Notice of Default. Cal. Civ. Code § 2923.5(a), (e).
The Notice of Trustee's Sale asserts that the Trustee will sell the property at auction on a specified date. Trust Deed at 26. It is sufficiently alleged to be false, because - accepting as true plaintiff's allegation regarding the falsity of the Notice of Default and defendant's failure to use "due diligence" - the Trustee could not sell the property at auction. Id., §§ 2923.5(a) (cannot record notice of default prior to performing due diligence) & 2924 (cannot exercise power of sale prior to filing the notice of default).
2. Privilege.
Defendant argues that the filing of the Notice of Default and the Notice of Sale, even if they are false, are "privileged" pursuant to Cal. Civ. Code § 2924(d)(1). That section provides that the "mailing, publication, and delivery" of any notice "required by this section" is privileged. As discussed above, the recording of a Notice of Default and a Notice of Sale are "required" by Section 2924 before a non-judicial foreclosure can proceed. Id., § 2924(a)(1) & (3).
The problem for defendant is that the recording of the Notice of Default and the Notice of Sale are not required - indeed they are prohibited - if defendant has not first completed its "due diligence" under Section 2923.5. Since plaintiff has adequately alleged that defendant did not do the required "due diligence," the privilege cannot apply.
The court notes that the Notices of Default and Sale appear to have been recorded at the request of the Trustee, not the defendant. See Default at 21; Sale at 26. However, defendant's motion does not assert that it did not record these documents, and since the Trustee presumably did not act independently and on its own behalf, the court will not consider the matter further.
B. Second Cause of Action: Wrongful Foreclosure.
"California recognizes a cause of action for wrongful foreclosure under equitable principles." Barroso v. Ocwen Loan Servicing, LLC, 208 Cal. App. 4th 1001, 1016 (2nd Dist. 2012). The elements of this claim are:
(1) the trustee or mortgagee caused an illegal, fraudulent, or willfully oppressive sale of real property pursuant to a power of sale in a mortgage or deed of trust; (2) the party attacking the sale (usually but not always the trustor or mortgagor) was prejudiced or harmed; and (3) in cases where the trustor or mortgagor challenges the sale, the trustor or mortgagor tendered the amount of the secured indebtedness or was excused from tendering.Lona v. Citibank, N.A., 202 Cal. App. 4th 89, 104 (6th Dist. 2011). Defendant argues that plaintiff's claim fails because: (1) the Complaint fails to establish that the defendants lacked the authority to foreclose, presumably an attack on the first element; (2) plaintiff does not allege a sale occurred, and therefore he alleges no "prejudice" or "harm;" and (3) plaintiff does not allege a "credible tender."
Because plaintiff adequately pleads a claim for wrongful foreclosure, defendant's motion to dismiss this claim will be denied.
1. Authority to foreclose; illegality of foreclosure.
Defendant's attack on the first element fails because plaintiff adequately alleges that defendant lacks the authority to foreclose, and that foreclosure at this point would be illegal for failure to comply with a statutory condition precedent, namely Cal. Civ. Code § 2923.5. Hidden away in his Third Cause of Action (and completely missing from the "wrongful foreclosure" allegations), is plaintiff's allegation that defendant "violated California Civil Code Section 2923.5 by failing to contact Plaintiff, in person or by telephone, at least thirty (30) days prior to causing ReconTrust to record the Notice of Default." Complaint at 12 ¶ 14. This allegation is plainly sufficient to state "a cause of action for wrongful foreclosure based on the purported failure to comply with Civil Code section 2923.5 before recordation of the notice of default." Intengan v. BAC Home Loans Servicing LP, 214 Cal. App. 4th 1047, 1058 (1st Dist. 2013).
The allegations found in the "wrongful foreclosure" claim itself do not support the claim. Plaintiff alleges that the foreclosure is wrongful because defendant failed to comply with Cal. Civ. Code § 2932.5. However, Section 2932.5 is not applicable to this case, as "It is well established that section 2932.5 does not apply to trust deeds, in which the power of sale is granted to a third party, the trustee." Herrera, 205 Cal. App. 4th at 1509.
Under California law, the trustee may not exercise its power of sale until it has first filed a notice of default in the county recorder's office. Cal. Civ. Code § 2924(a)(1). However, the trustee "may not record a notice of default" until it has first contacted the borrower "in person or by telephone in order to assess the borrower's financial situation and explore options for the borrower to avoid foreclosure." Cal. Civ. Code § 2923.5(a)(1)(A), (a)(2).
If the trustee cannot contact the borrower, it may record the notice of default only if it conducts "due diligence," as defined in the statute. Id., § 2923(e). Specifically, the servicer must first send the borrower a letter by first class mail, and it must contain information specified in the statute. Id., § 2923(e)(1). Next, the servicer must call the borrower by phone "at least three times at different hours and on different days." Id, § 2923.5(e)(2)(A). Next, the servicer must send the borrower a certified letter, return receipt requested. Id., § 2923.5(e)(3). Even if all that fails, the servicer still has not satisfied its "due diligence" requirements unless it also has provided "a means for the borrower to contact it in a timely manner" via a toll-free telephone call, id., § 2923.5(e)(4), and also provided on its internet home page, a "prominent link" to certain sources of information as specified in the statute, id., § 2923.5(e)(5).
Plaintiff's allegation that defendant did not comply with this condition precedent is plainly sufficient to state a claim for wrongful foreclosure. Intengan, 214 Cal. App. 4th at 1056 (allegation that respondents "'did not comply with such contact and due diligence requirements pursuant to Civil Code section 2923.5,'" when broadly construed on demurrer, "stated a cause of action for wrongful foreclosure based on respondents' alleged noncompliance with Civil Code section 2923.5").
Defendant argues that plaintiff's allegation is "conclusionary" and should not survive a motion to dismiss. The court disagrees. It is a sufficient allegation under notice pleading standards. See Dumas v. First Northern Bank, 2011 WL 4906412 at *10, 2011 U.S. Dist. LEXIS 119107 at *27-*28 (E.D. Cal. 2011) (Karlton, J.) ("In this case, plaintiff asserts that he was never contacted by the defendants prior to the Notice of Default. Defendant Chase ... argues that plaintiff fails to state a claim under § 2923.5 because plaintiff did not specifically allege that the lender did not practice due diligence in trying to contact the borrower. However, the court concludes that the FAC is adequate under the notice pleading requirements that govern this cause of action").
Defendant argues that the declaration it attached to the Notice of Default - as it was required to do by statute - completely rebuts plaintiff's allegation. The declaration states, in its entirety: "Bank of America Home Loan ... tried with due diligence to contact the borrower in accordance with California Civil Code Section 2923.5." Default at 24. In fact, the declaration - which is itself purely a statement of conclusion - at most creates a factual issue which should not be resolved on this dismissal motion. The declaration sets forth no facts to support its "due diligence" conclusion, even though the defendant is the one in a position to know whether any of the elements of "due diligence" were actually carried out.
"Civil Code section 2923.5 requires not only that a declaration of compliance be attached to the notice of default, but that the bank actually perform the underlying acts (i.e., contacting the borrower or attempting such contact with due diligence) that would constitute compliance. While judicial notice could be properly taken of the existence of Jones' declaration, it could not be taken of the facts of compliance asserted in the declaration, at least where, as here, Intengan has alleged and argued that the declaration is false and the facts asserted in the declaration are reasonably subject to dispute." Intengan, 214 Cal. App. 4th at 1057.
Plaintiff, in any event, rebuts defendant's conclusory declaration with his own conclusory statement that the declaration "is false." See Complaint at 13 ¶ 14.
2. Prejudice or harm.
Defendant attacks the second element of this claim by arguing that plaintiff has not alleged prejudice or harm, since he has failed to allege that the sale has even occurred. However, this is a claim to enjoin the foreclosure, and to avoid the harm that would occur if plaintiff lost his house. See Intengan, 214 Cal. App. 4th (reversing demurrer on a wrongful foreclosure claim that is filed prior to the foreclosure, and collecting state and federal cases permitting the claim prior to foreclosure).
To the degree plaintiff seeks damages arising from a wrongful foreclosure due to an alleged lack of authority to foreclose, such a claim is premature, and not cognizable prior to a foreclosure sale. Robinson v. Countrywide Home Loans, Inc., 199 Cal. App. 4th 42, 46 (4th Dist. 2011) ("We agree with the Gomes court that the statutory scheme (§§ 2924-2924k) does not provide for a preemptive suit challenging standing").
3. Tender of the amount owed.
Defendant asserts that the wrongful foreclosure claim must be dismissed because plaintiff failed to tender the amount of the secured debt. Motion at 14-15. However, the only cases defendant cites are those in which the borrower is attempting to set aside a foreclosure sale that has already occurred. Plaintiff here seeks to enjoin the trustee's sale, not to set it aside. Moreover, he seeks to enjoin it for failure of the defendant to comply with a condition precedent to the sale, namely, the requirements of Cal. Civ. Code § 2923.5, discussed below. In such a case, tender is not required. See Intengan, 214 Cal. App. 4th at 1053 (collecting cases holding that "[w]hile the tender requirement may apply to causes of action to set aside a foreclosure sale, a number of California and federal courts have held or suggested that it does not apply to actions seeking to enjoin a foreclosure sale—at least where the lenders had allegedly not complied with a condition precedent to foreclosure") (emphasis in text); Pfeifer v. Countrywide Home Loans, Inc., 211 Cal. App. 4th 1250, 1280-1281 (1st Dist. 2012) (plaintiffs "do not need to allege that they will tender or have tendered the full amount due on their note," in line with other courts that "have not required tender when the lender has not yet foreclosed and has allegedly violated laws related to avoiding the necessity for a foreclosure").
Abdallah v. United Savings Bank, 43 Cal. App. 4th 1101, 1105 (1st Dist. 1996) ("The property was sold under the deed of trust," and plaintiffs sued "seeking to set aside the trustee's sale"), cert. denied, 519 U.S. 1081 (1997); Arnolds Management Corp. v. Eischen, 158 Cal. App. 3d 575, 577 (2d Dist. 1984) ("before a junior lienor may set aside a nonjudicial foreclosure of real property under a deed of trust because of irregularities in the sale, the junior lienor must first tender the full amount owing on the senior obligation"); Nguyen v. Calhoun, 105 Cal. App. 4th 428 (6th Dist. 2003) (involving "competing claims of ownership to residential real property. ... The defendants claim their title as a result of purchasing the property ... at the lender's foreclosure sale"); Alicea v. GE Money Bank, 2009 WL 2136969 at *3, 2009 U.S. Dist. LEXIS 60813 (N.D. Cal. 2009) (dismissing plaintiff's claim to "set aside Trustee's sale").
The rationale for not requiring a full tender, specifically in the case where a violation of Section 2923.5 is alleged, is set forth in Mabry v. Superior Court:
The right conferred by section 2923.5 is a right to be contacted to "assess" and "explore" alternatives to foreclosure prior to a notice of default. It is enforced by the postponement of a foreclosure sale. Therefore it would defeat the purpose of the statute to require the borrower to tender the full amount of the indebtedness prior to any enforcement of the right to — and that's the point — the right to be contacted prior to the notice of default.185 Cal. App. 4th 208, 225 (4th Dist. 2010) (emphasis in text).
C. Third Cause of Action: Cal. Civ. Code § 2923.5.
Plaintiff alleges that the Notice of Default and the Notice of Trustee's Sale are void and invalid because defendant failed to contact him, as required by Cal. Civ. Code § 2923.5, 30 days before recording the Notice of Default. As discussed above, plaintiff adequately pleads under Section 2923.5, which in turn, provides plaintiff with a private right of action. Mabry v. Superior Court, 185 Cal. App. 4th at 214 ("May section 2923.5 be enforced by a private right of action? Yes. Otherwise the statute would be a dead letter"). Plaintiff's remedy under that section is limited to a postponement of the foreclosure sale until defendant has complied with the statute. Id. ("The right of action is limited to obtaining a postponement of an impending foreclosure to permit the lender to comply with section 2923.5").
D. Fourth Cause of Action: Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2605.
Plaintiff asserts this claim against "Wells Fargo," Complaint at 13, which is not a defendant. The court presumes that this is a typographical error, as the fact section of the complaint is clear that the request was sent to "Bank of America." The claim also asserts that the RESPA violation is under "1 U.S.C. § 2601 et seq." The presumes that the title plaintiff is referring to "12 U.S.C. § 2601 et seq."
Plaintiff alleges that he sent defendant a "qualified written request" raising "certain issues" about the note and the Deed of Trust. Complaint at 9 ¶ 35. He alleges that defendant failed to provide a meaningful reply.
RESPA provides that if the loan servicer receives a "qualified written request" from the borrower, the servicer "shall provide a written response." 12 U.S.C. § 2605(e)(1)(A). A "qualified written request" is a letter that: (1) requests "information relating to the servicing of" the note, id., § 2605(e)(1)(B); and (2) sets forth the reasons the borrower believes his account is in error, or "provides sufficient detail to the servicer regarding other information sought by the borrower." Id., § 2605(e)(1)(B)(ii).
The request must also properly identify the borrower. 12 U.S.C. § 2605(e)(1)(B)(i).
Defendant moves to dismiss this claim on the grounds that it provided an adequate response to plaintiff's letter. The court will dismiss the claim, but for an entirely different reason. Plaintiff's own allegations reveal that his letter to defendant only made inquiries about the promissory note and the Deed of Trust itself - including its assignment and transfer, its securitization into the REMIC Trust, and alleged "robo-signing" of documents (which he does not identify). Thus, plaintiff's letter is not a "qualified written request" for information about the servicing of the loan, rather it is a request for information about the loan itself. As such, it is not a "qualified written request," and did not trigger defendant's obligation to respond to it, at least not under RESPA. Medrano v. Flagstar Bank, FSB, 704 F.3d 661, 666-67 (9th Cir. 2012) petition for cert. filed, 81 U.S.L.W. 3582 (Apr. 13, 2013) (No. 12-1205), quoting 12 U.S.C.§ 2605(i)(3). Although Medrano dealt with a challenge to a loan's "validity or its terms," its logic applies to all aspects of the loan that are not encompassed within the "servicing" of the loan. Here, those other aspects include securitizing the loan, and transferring or assigning the deed of trust. Those matters relate to who is the Trustee, and who is the beneficial owner of the interest in the note, not anything relating to payment to the loan servicer.
The term "servicing" is defined to be:
receiving any scheduled periodic payments from a borrower pursuant to the terms of any loan, including amounts for escrow accounts described in section 2609 of this title, and making the payments of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the loan.12 U.S.C.A. § 2605(i)(3).
This claim will be dismissed, with prejudice.
E. Fifth Cause of Action: Cal. Bus. & Prof. Code § 17200
Plaintiff asserts a claim under Cal. Bus. & Prof. Code § 17200, et seq., which provides a remedy for "any unlawful ... business act." Defendant moves to dismiss on the ground that plaintiff has not alleged any wrongful conduct.
Defendant is wrong. Plaintiff has properly alleged that defendant violated Cal. Civ. Code § 2923.5. That is enough to survive dismissal. Skov v. U.S. Bank Nat. Assn., 207 Cal. App. 4th 690, 694 (6th Dist. 2012) (reversing demurrer for Section 17200 claim which was based upon the allegation that "U.S. Bank failed to comply with section 2923.5 because it did not contact or attempt to contact her to discuss her options to avoid foreclosure prior to filing the notice of default").
The motion to dismiss the Section 17200 claim will be denied.
IV. CONCLUSION
For the reasons set forth above, IT IS HEREBY ORDERED THAT:
1. Defendant's motion to dismiss the First Claim ("slander of title"), is GRANTED IN PART, WITHOUT PREJUDICE, as it relates to the recording of the Assignment only;
2. Defendant's motion to dismiss the First Claim ("slander of title"), is DENIED IN PART, as it relates to the recording of the Notices of Default and Sale only;
3. Defendant's motion to dismiss the Second Claim ("wrongful foreclosure"), is DENIED;
4. Defendant's motion to dismiss the Third Claim (Cal. Civ. Code § 2923.5), is DENIED
5. Defendant's motion to dismiss the Fourth Claim (federal Real Estate Settlement Procedures Act ("RESPA")), is GRANTED WITH PREJUDICE;
6. Defendant's motion to dismiss the Fifth Claim ("Unfair Competition"), is DENIED; and
7. All dates currently set in this matter are CONFIRMED.
IT IS SO ORDERED.
_________________________
LAWRENCE K. KARLTON
SENIOR JUDGE
UNITED STATES DISTRICT COURT
+-----------------------------------------------------------------------------+ ¦October 19, ¦Deed of Trust (Doc. No. 2005-276606) ¦ ¦2005 ¦ ¦ ¦ ¦(ECF No. 9-1 at 1-17); ¦ +-------------+---------------------------------------------------------------¦ ¦August 26, 2 ¦Assignment (Doc. No. 2011-105328) ¦ ¦011 ¦ ¦ ¦ ¦(ECF No. 9-1 at 18-19); ¦ +-------------+---------------------------------------------------------------¦ ¦September 15,¦Assignment (Doc. No. 2011-112328) ¦ ¦2011 ¦ ¦ ¦ ¦(ECF No. 9-1 at 27-28); ¦ +-------------+---------------------------------------------------------------¦ ¦September 24,¦Notice of Default (Doc. No. 2011-112329) ¦ ¦2011 ¦ ¦ ¦ ¦(ECF No. 9-1 at 20-24); ¦ +-------------+---------------------------------------------------------------¦ ¦ ¦Notice of Trustee's Sale (Doc. No. 2011- ¦ ¦December 22, ¦ ¦ ¦2 011 ¦160722) ¦ ¦ ¦ ¦ ¦ ¦(ECF No. 9-1 at 25-26); and ¦ +-------------+---------------------------------------------------------------¦ ¦ ¦Superior Court Complaint, Vong v. BAC Home Loans Servicing , ¦ ¦ ¦Case No. 39-2012-00278522-CU- ¦ ¦March 26, ¦ ¦ ¦2012 ¦OR-STK (Super. Ct. San Joaquin Cty.) ¦ ¦ ¦ ¦ ¦ ¦(ECF No. 9-1 at 29-79). ¦ +-----------------------------------------------------------------------------+ The documents appear to be properly subject to judicial notice, and plaintiff has not objected to the request. Accordingly, the request is GRANTED, pursuant to Fed. R. Evid. 201(b)(2) & (c)(2).