Judge Bruce G. Iwasaki, Case 22STCV08428 2022-09-15 Tentative Ruling

Tentative Ruling: The demurrer is sustained in its entirety without leave to amend. The complaint is dismissed with prejudice. The motion to be relieved as counsel is granted.

This action arises under the Homeowner Bill of Rights (HBOR). Kevin Kelley and Ryan Kelley (Plaintiffs) obtained a mortgage from Amtrust Bank, which was then assigned to New Rez LLC (Defendant). In September 2021, Defendant recorded a Notice of Default against the property; in January 2022, Defendant recorded a Notice of Trustee’s Sale. Plaintiff alleges that on February 18, 2022, they submitted a loan modification application to Defendant.

On March 9, 2022, Plaintiffs sued Defendant alleging six violations of the HBOR (Civil Code sections 2923.5, 2924(a)(1), 2923.6(c), 2923.7, 2924.9, and 2924.10), unfair business practices, and cancellation of written instruments under Civil Code section 3412. Plaintiffs aver that Defendant failed to comply with its statutory obligations, such as not communicating with them about foreclosure alternatives before recording a notice of default, failure to rescind foreclosure efforts after a loan modification was filed, and failure to assign a single point of contact for the loan modification review.

Defendant demurs to each cause of action for insufficient facts. Defendant also broadly argues that Plaintiffs are not entitled to any relief because they subsequently paid off their loan and a “Full Reconveyance” was issued. In opposition, Plaintiffs agreed to dismiss the second cause of action for violation of Civil Code section 2924(a)(1), but otherwise argue that their claims are viable. Defendant replied, reiterating its arguments in the demurrer.

Ms. Jindal’s declaration satisfies the meet and confer requirement. (Jindal Decl., ¶¶ 4-5.) Defendant’s request for judicial notice is granted as to the Substitution of Trustee and Full Reconveyance documents. (Evid. Code, § 452, subd. (c).)

Defendant first contends that Plaintiff’s opposition should not be considered because Plaintiff failed to serve a copy to Defendant. The opposition was timely filed with the Court, but the attached proof of service indicates service on “Yu Mohandesi LLP,” while Defendant’s counsel is “Klinedinst PC.” Nevertheless, because Defendant has filed a substantive reply to the opposition, Defendant has waived any procedural defects and there is no prejudice. (See Carlton v. Quint (2000) 77 Cal.App.4th 690, 697.) Thus, the Court will consider the opposition.

After consideration of the moving papers, the Court sustains the demurrer without leave to amend. Plaintiffs’ counsel’s motion to be relieved as counsel is granted.

Plaintiffs have no remedy under the Homeowner Bill of Rights because they paid off the loan and the property has been reconveyed back to them.

The Homeowner Bill of Rights sets forth the remedies for statutory violations: “For ‘material violation’ of any one of a list of nine statutory provisions within its scheme, it authorizes preforeclosure injunctive relief (§§ 2924.12, subd. (a)(1), 2924.19, subd. (a)(1)); [and] postforeclosure claims for ‘actual economic damages pursuant to Section 3281’ (§§ 2924.12, subd. (b), 2924.19, subd. (b)).” (Morris v. JPMorgan Chase Bank, N.A. (2022) 78 Cal.App.5th 279, 295.)

If the borrower’s home has not been sold, the only remedy is injunctive relief, and no damages may be obtained. (See Civ. Code, § 2924.12, subds. (a)(1), (b); Galindo v. BSI Financial Services (N.D.Cal., Mar. 17, 2017, No. 17-CV-00021-LHK) 2017 U.S. Dist. Lexis 39079, *10; McKinley v. CitiMortgage, Inc. (E.D.Cal., June 14, 2016, No. 2:13-cv-01057-TLN-CKD) 2016 U.S. Dist. Lexis 77413, *10.) Thus, injunctive relief is only available “to enjoin a material violation of Section 2923.55, 2923.6, 2923.7, 2924.10, 2924.11, or 2924.17.” (Civ. Code, § 2924.12, subd. (a)(1).)

Further, “[a] mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not be liable for any violation that it has corrected and remedied prior to the recordation of a trustee's deed upon sale.” (Civ. Code, §2924.12, subd. (c).)

Here, the Court has taken judicial notice that on April 14, 2022, the “Substitution of Trustee and Full Reconveyance” document was recorded in Los Angeles County. (Request for Judicial Notice, Ex. 2.) The document operates to extinguish the underlying lien on which the deed of trust is based upon because the borrowers have paid off the mortgage. (5 Miller & Starr, Cal. Real Estate (4th ed. 2022) § 13:140 [“On recordation [of a deed of reconveyance], the lien is extinguished”].) It follows then that this document supersedes the previously recorded notice of default and notice of trustee’s sale.

For their first cause of action, Plaintiffs allege a violation of Civil Code section 2923.5. This section prohibits a lender from filing a notice of default until 30 days after it contacts the borrower to assess foreclosure alternatives. While not specifically listed under section 2924.12, this statute nevertheless “does not provide for damages.” (Stebley v. Litton Loan Servicing, LLP (2011) 202 Cal.App.4th 522, 526.) The “sole available remedy” for this violation is “ ‘more time’ before a foreclosure sale occurs.” (Ibid.; see also Intengan v. BAC Home Loans Servicing, LP (2013) 214 Cal.App.4th 1047, 1058, fn. 4 [“We note, however, the well-established rule that there is no remedy for violation of Civil Code section 2923.5 except a delay of the foreclosure sale pending compliance with the statute”].)

Plaintiffs’ four other alleged violations – for Civil Code sections 2923.6, 2923.7, 2924.9, and 2924.10 explicitly fall under the injunctive relief provisions of section 2924.12, subdivision (a)(1). Thus, the only available remedy for Plaintiffs on all five remaining claims for HBOR violations is injunctive relief to delay or block the foreclosure sale. However, there never was a trustee’s sale nor will there ever be one because the loan has been satisfied in full. (Request for Judicial Notice, Ex. 2.) Because the reconveyance constituted a satisfaction of the deed of trust, Plaintiffs no longer hold a mortgage as defined by Civil Code section 2920, subdivision (b).

Since Plaintiffs are no longer entitled to any injunctive relief, the case is now moot. (Wilson & Wilson v. City Council of Redwood City (2011) 191 Cal.App.4th 1559, 1574 [“The pivotal question in determining if a case is moot is therefore whether the court can grant the plaintiff any effectual relief . . . [and] [i]f events have made such relief impracticable, the controversy has become ‘overripe’ and is therefore moot”]; see also City of Erie v. Pap’s A.M. (2000) 529 U.S. 277, 287.) Therefore, even if Plaintiffs adequately pled violations of HBOR, their claims still fail because there are no violations for an injunction to remedy. Accordingly, all of Plaintiffs’ HBOR claims fail and the demurrer is sustained as to all five causes of action.

Seventh Cause of Action – Violation of Business & Professions Code section 17200 et seq

California Business and Professions Code section 17200 prohibits “any unlawful, unfair or fraudulent business act or practice.” (Bus. & Prof. Code § 17200; see Clark v. Superior Court (2010) 50 Cal.4th 605, 610.) “A plaintiff alleging unfair business practices under these statutes must state with reasonable particularity the facts supporting the statutory elements of the violation. [Citations.]” (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 619.)

This cause of action is predicated on the HBOR claims. (Complaint, ¶¶ 62-65.) Because the Court sustains the demurrer without leave to amend as to those causes of action, this claim also fails.

In addition, the only remedies available under Business and Professions Code section 17200 are injunctive relief and restitution. (See Zhang v. Superior Court (2013) 57 Cal.4th 364, 371.) As discussed above, injunctive relief is unavailable. And Plaintiffs have not pled or identified any money that they paid to Defendant that would be subject to restitution. (Ibid.)

Eighth Cause of Action – Cancellation of Written Instruments under Civil Code section 3412

California courts recognize a cause of action for cancellation of instruments. (See, e.g., Best v. Ocwen Loan Servicing, LLC (2021) 64 Cal.App.5th 568 [holding that trial court erred in sustaining demurrer as to the cause of action for cancellation of instruments on res judicata grounds]; Glaski v. Bank of America (2013) 218 Cal.App.4th 1079, 1101 [finding plaintiff sufficiently alleged a claim for wrongful foreclosure and therefore, for cancellation of instruments].)

“ ‘Under Civil Code section 3412, “[a] written instrument, in respect to which there is a reasonable apprehension that if left outstanding it may cause serious injury to a person against whom it is void or voidable, may, upon his application, be so adjudged, and ordered to be delivered up or canceled.” To prevail on a claim to cancel an instrument, a plaintiff must prove (1) the instrument is void or voidable due to, for example, fraud, and (2) there is a reasonable apprehension of serious injury including pecuniary loss or the prejudicial alteration of one’s position. [Citation.]’ ” (Thompson v. Ioane (2017) 11 Cal.App.5th 1180, 1193-94.)

Here, Plaintiffs’ allegation that the Notice of Default and Notice of Trustee’s Sale are “voidable or void ab initio” without any additional facts.[1] This is insufficient and conclusory.

More importantly, the Court took judicial notice of the reconveyance. This document substituted Nationwide Title Clearing, LLC as the Trustee, who reconveyed title back to trustor, who are the Plaintiffs here. This deed “extinguishes the lien on the property created by the deed of trust.” (Siegel v. American Savings & Loan Association (1989) 210 Cal.App.3d 953, 957; see also First Fidelity Thrift & Loan Association v. Alliance Bank (1998) 60 Cal.App.4th 1433, 1441.) Therefore, there is no “reasonable apprehension of serious injury” because Defendant no longer has title or power of sale, and the demurrer is sustained as to the eighth cause of action.

Leave to amend is denied because Plaintiffs do not show how the Complaint may be amended.

The burden is on the plaintiff to show how the complaint can be amended and the legal effect of the amendment on the pleading. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) Rather than address how any of the causes of action may be amended, Plaintiffs merely request leave “to correct any deficiencies.” As Plaintiffs fail to address the reconveyance of the property and the lack of available remedies, the Court denies leave to amend.

Because the Court sustains the demurrer to all causes of action without leave to amend, the Complaint is dismissed with prejudice.

An attorney may withdraw from representation with the consent of the client, or if approved by the court. (Code Civ. Proc., § 284.) In the latter case, counsel must make a motion to be relieved as attorney of record, using forms: Notice of Motion and Motion to be Relieved as Counsel – Civil (MC-051), Declaration (MC-052), and Proposed Order (MC-053). (Cal. Rules of Court, rule 3.1362(a), (b), (e).) The declaration must state generally why a motion is being brought instead of obtaining client consent to withdraw. (Cal. Rules of Court, rule 3.1362(b).)

Notice to the client must be done by personal service, electronically, or mail. If it is done via mail under Code of Civil Procedure section 1013, it must be accompanied by a declaration confirming the service address to be the most current residence or that it is the client’s last known address, and the attorney has been unable to locate a more current address. (Cal. Rules of Court, rule 3.1362(d)(1)(A)-(B).)

Here, Mr. Cara complied with the Rules of Court by filing the proper forms for each client (Kevin Kelley and Ryan Kelley). The supporting declaration indicates that the attorney-client relationship has been compromised. Counsel’s clients were served via mail and their addresses were confirmed by mail, return receipt requested.

There is no trial date scheduled and there is a low degree of prejudice to Plaintiffs in allowing Counsel to withdraw. Thus, the Court grants the motions to be relieved as counsel.

[1] Plaintiffs also seek to cancel a “Trustee’s Deed Upon Sale,” but there appears to be no such document that was recorded, nor do Plaintiffs provide an instrument number.

Judge Bruce G. Iwasaki

Department 58