Judge: David A. Hoffer, Case: 30-2022-1253142, Date: 2022-10-07 Tentative Ruling
Defendant Select Portfolio Servicing, Inc.’s demurrer to all ten causes of action of plaintiff Anh Tuyet Troung Nguyen’s complaint is SUSTAINED in part and OVERRULED in part, as discussed more fully below.
Defendant Select Portfolio Servicing, Inc.’s request for judicial notice is GRANTED.
1st cause of action for violation of Civ. Code § 2923.5
The 1st cause of action alleges: (1) under Civil Code § 2923.5(a)(2), a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default until it contacts the borrower in person or by telephone to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure; (2) on April 20, 2009, Defendants Select and Bank recorded a Notice of Default; (3) Plaintiff was staying in the Property but did not receive any mail or messages; and (4) Plaintiff requests an injunction and damages. [Complaint, ¶¶ 30-33]
The statute of limitation on an action upon a liability created by statute is three years. (Code Civ. Proc., § 338, subd. (a); Benefield v. Bryco Funding, Inc. (N.D. Cal.) 2014 WL 2604362, *3 [section 338(a) applies to a cause of action under Civ. Code § 2923.5].)
Here, “Civil Code section 2923.5 requires, before a notice of default may be filed, that a lender contact the borrower in person or by phone to ‘assess’ the 214 borrower's financial situation and ‘explore’ options to prevent foreclosure.” (Mabry v. Superior Court (2010) 185 Cal.App.4th 208, 213-214.) The 1st cause of action alleges that Defendants violated section 2923.5 by recording the Notice of Default without complying with the statute. The Notice of Default was recorded on April 20, 2009. However, the complaint was not filed until April 4, 2022, well past the three-year statute of limitations. Plaintiff did not present any argument to contend that a different statute of limitations applies. Because the 1st cause of action is barred on the face of the complaint, the demurrer is SUSTAINED WITHOUT LEAVE TO AMEND.
2nd cause of action for violation of Civ. Code § 2924(a)(1)
The 2nd cause of action alleges: (1) on April 30, 2009 Defendants Select and Bank recorded a Notice of Default on the Property; (2) on September 3, 2021, Defendants Select and Bank recorded a Notice of Trustee’s Sale; (3) Civil Code § 2924(a)(1) requires the trust deed beneficiary or its agent be the one that authorizes the foreclosure proceeding by filing the notice of default and related procedures; (4) the beneficiary of record on the Notice of Default was a company known as the Wamu Trust; (5) however, Defendant Bank was subsequently made the beneficiary via an assignment; (6) as such the notice of default and subsequent Notice of Trustee’s Sale were void because they do not have the party with authority to foreclose; and (7) the purported trustee, Quality Loan Service Corporation, failed to record a substitution of trustee, which rendered the Notice of Default and Notice of Trustee’s Sale void. [Complaint, ¶¶ 36-41]
Under Civil Code § 2924, subdivision (a)(1) the power of sale shall not be exercised unless the trustee, mortgagee, or beneficiary, or any of their authorized agents first records a notice of default. The complaint attached copy of the $1.63M Deed of Trust. [Complaint, Exh. A] The Trustee was California Reconveyance Company. [Id.] The Complaint also attached the Notice of Default, recorded on April 30, 2009. [Complaint, Exh. G.] The Notice of Default was recorded by California Reconveyance Company. [Id.]
Here, the complaint and its exhibits show there was no violation of section 2924(a)(1) because the Notice of Default was recorded by the trustee of the $1.63M DOT. Plaintiff’s opposition entirely ignores this cause of action, effectively conceding to Defendant’s argument that the Notice of Default was accurate at the time it was recorded and that the 2nd cause of action fails to state a cause of action. Therefore, the demurrer to the 2nd cause of action for violation of Civ. Code § 2924(a)(1) is SUSTAINED WITHOUT LEAVE TO AMEND.
3rd cause of action for violation of Civ. Code § 2923.6(c)
The 3rd cause of action alleges: (1) on April 30, 2009, Defendants recorded a Notice of Default on the Property; (2) on September 3, 2021, Defendants recorded a Notice of Trustee’s Sale; (3) on October 16, 2021, Plaintiff submitted a complete loan modification application to Defendants and requested the appointment of a single point of contact; (4) Defendants violated § 2923.6(c) by failing to rescind all foreclosure efforts against Plaintiff, including the notice of default and the notice of trustee’s sale; and (5) Plaintiff requests an injunction prior to foreclosure, or civil and statutory penalties post foreclosure against Defendants in an amount to be determined. [Complaint, ¶¶ 45-50]
Under Civil Code § 2923.6(c), “If a borrower submits a complete application for a first lien loan modification offered by, or through, the borrower's mortgage servicer at least five business days before a scheduled foreclosure sale, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or notice of sale, or conduct a trustee's sale, while the complete first lien loan modification application is pending. A mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or notice of sale or conduct a trustee's sale until any of the following occurs:
(1) The mortgage servicer makes a written determination that the borrower is not eligible for a first lien loan modification, and any appeal period pursuant to subdivision (d) has expired.
(2) The borrower does not accept an offered first lien loan modification within 14 days of the offer.
(3) The borrower accepts a written first lien loan modification, but defaults on, or otherwise breaches the borrower's obligations under, the first lien loan modification.”
“After a trustee's deed upon sale has been recorded, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall be liable to a borrower for actual economic damages pursuant to Section 3281, resulting from a material violation of Section …2923.6 by that mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent where the violation was not corrected and remedied prior to the recordation of the trustee's deed upon sale.” (Civ. Code, § 2924.12, subd. (b).)
Defendant contends that the 3rd cause of action fails because when the Notice of Default and Notice of Sale were recorded, Plaintiff had not submitted a loan modification application. There is no requirement to rescind notices already recorded. Furthermore, the foreclosure sale has already occurred and Plaintiff’s only relief for a violation of Civil Code § 2923.6 is for damages. Lastly, the 3rd cause of action is barred by the three-year statute of limitation under Code of Civil Procedure § 338(a) because Plaintiff was aware of the Notice of Default in 2016 when she filed her first suit.
While the cause of action alleges that Plaintiff submitted her loan modification application after the Notice of Default and Notice of Sale were recorded, Civil Code § 2923.6 expressly states that a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not conduct a trustee’s sale until one of three circumstances occur. The allegations in the complaint do not permit the court to find all of these circumstances did not occur. Furthermore, there is no Defendant’s statute of limitations argument lacks merit, as the cause of action would begin when Defendant proceeded with the foreclosure sale in November 2021. Plaintiff filed the complaint in April 2022, within the three-year statute of limitation. Therefore, the demurrer to the 3rd cause of action for violation of Civ. Code § 2923.6(c) is OVERRULED.
4th cause of action for violation of Civ. Code § 2923.7
The 4th cause of action for violation of Civ. Code § 2923.7 against Defendant Select alleges: (1) on October 16, 2021, Plaintiff submitted a complete loan modification application to Defendants and requested the appointment of a single point of contact; (2) Defendant Select failed to assign a single point of contact within a reasonable time after receipt of the application; and (3) Defendant Select’s failure to assign a single point of contract prevented Plaintiff’s chances for a successful submission of the proper papers to complete a loan modification package to save the Property from foreclosure. [Complaint, ¶¶ 52-55]
Civil Code section 2923.7 is part of the California Homeowner Bill of Rights (“HBOR”). (Morris v. JP Morgan Chase Bank, N.A. (2022) 78 Cal.App.5th 279, 286.) It requires a mortgage servicer, upon a borrower’s request, to promptly establish a single point of contact (“SPOC”) who is assigned to the borrower’s account and is responsible for ensuring that the borrower is considered for foreclosure alternatives, informs the borrower of the process, and coordinates receipts of documents. (Id., at pp. 295-296.) There are statutory remedies available for the failure to comply with the SPOC requirement but liability is limited “material violations.” (Id., at pp. 296-297.) “‘A material violation is one that affected the borrower's loan obligations, disrupted the borrower's loan modification process, or otherwise harmed the borrower.’ [Citation.]” (Id., at p. 304.) It is a question of “whether the alleged violation undermined the overall purpose of the HBOR [Citation],” i.e., whether “‘as part of the nonjudicial foreclosure process, borrowers are considered for, and have a meaningful opportunity to obtain, available loss mitigation options, if any, offered by or through the borrower’s mortgage servicer, such as loan modifications or other alternatives to foreclosure.’ [Citation.]” (Id. at pp. 304-305.)
Defendant asserts that the 4th cause of action fails to allege a material violation of section 2923.7 and that Exhibit J of the complaint shows that Plaintiff was able to speak to a representative of Defendant and was informed multiple times that no loss mitigation options were available to her.
As alleged in the complaint, by the time Plaintiff submitted her loan modification application in October 2021, she was 155 months behind on her loan and the notice of default had been on file since April 2009. [Complaint, ¶ 15, 23] Defendant’s notes of its contact history with Plaintiff, attached as Exhibit J to the complaint, showed contacts between December 2016 to October 20, 2021. The notes show that on October 20, 2021, Plaintiff called in regarding her application and was informed that she was “not eligible for loss mitigation options at the time.” [Complaint, Exh. J] The notes also show that, as of October 27, 2021, Plaintiff owed over $1.7M and that there were six attempts between 2017 and 2019 to work out a deal on loan, all of which were denied. [Id.]
Given the length and severity of Plaintiff’s delinquency and the numerous unsuccessful prior attempts to work out a deal on her loan, Plaintiff has not alleged sufficient facts to show that Defendant’s violation of Civil Code § 2923.7 in October 2021 was material, i.e., it affected Plaintiff’s loan obligations, disrupted her loan modification process, or otherwise harmed her. Plaintiff’s opposition does not address the issue. The demurrer to the 4th cause of action for violation of Civ. Code § 2923.7 is SUSTAINED WITH LEAVE TO AMEND.
5th cause of action for violation of Civ. Code § 2924.9
The 5th cause of action for violation of Civ. Code § 2924.9 alleges: (1) on April 30, 2009, Defendants recorded a Notice of Default on the Property; (2) Plaintiff was staying in the Property and received no mail or messages; (3) Defendants failed to notify Plaintiff of all foreclosure prevention alternatives within 5 business days after Notice of Default was recorded. [Complaint, ¶ 58-60]
Under Civil Code § 2924.9(a), “Unless a borrower has previously exhausted the first lien loan modification process offered by, or through, his or her mortgage servicer described in Section 2923.6, within five business days after recording a notice of default pursuant to Section 2924, a mortgage servicer that offers one or more foreclosure prevention alternatives shall send a written communication to the borrower that includes all of the following information:
(1) That the borrower may be evaluated for a foreclosure prevention alternative or, if applicable, foreclosure prevention alternatives.
(2) Whether an application is required to be submitted by the borrower in order to be considered for a foreclosure prevention alternative.
(3) The means and process by which a borrower may obtain an application for a foreclosure prevention alternative.”
Here, the notice of default was recorded in April 2009. Section 2924.9, which was part of HBOR, was not effective until January 1, 2013. (Valbuena v. Ocwen Loan Servicing, LLC (2015) 237 Cal.App.4th 1267, 1272.) Plaintiff did not present authority to show that Defendant can be held retroactively liable for violating section 2924.9. Therefore, the demurrer to the 5th cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.
6th cause of action for violation of Civ. Code § 2924.10
The 6th cause of action for violation of Civ. Code § 2924.10 against Defendant Select alleges: (1) on October 16, 2021, Plaintiff submitted a complete loan modification application to Defendants; and (2) Defendant Select failed to provide written notice to Plaintiff of receipt of her application within five business days of receipt which is a material violation of Civil Code § 2924.10 because it jeopardizes her right to submit a timely loan modification package while a pending foreclosure is in process. [Complaint, ¶ 64-66]
Civil Code § 2924.10(a) requires a mortgage servicer to provide written acknowledgment of receipt of a complete first lien modification application or any document in connection with such application from a borrower.
As with Civil Code § 2923.7, liability for a violation of § 2924.10 requires a material violation. (Civ. Code, § 2924.12, subds. (a),(b).) The demurrer to the 6th cause of action violation of Civ. Code § 2924.10 is SUSTAINED WITH LEAVE TO AMEND for the same reasons as the demurrer to the 4th cause of action for violation of Civil Code § 2923.7.
7th cause of action for negligence
The 7th cause of action for negligence alleges Defendants owe a duty of care not to act negligently in handling a loan modification application once it has undertaken review of the application. [Complaint, ¶ 70]
For a period of time, the California courts of appeal wrangled with whether lenders owed borrowers a duty of care in the handling of mortgage loan modification applications. (Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 915 (Sheen).) However, in March 2022, the California Supreme Court settled the issue in Sheen, holding that lenders do not owe such a duty. (Ibid.) Plaintiff’s opposition entirely ignores Sheen, and only relies on pre-Sheen authorities. Because Plaintiff failed to distinguish Sheen, plaintiff has effectively conceded that it is controlling. Therefore, the demurrer to the 7th cause of action for negligence is SUSTAINED WITHOUT LEAVE TO AMEND.
8th cause of action for wrongful foreclosure
The 8th cause of action alleges that Defendants wrongfully foreclosed on the Property based upon violations of Civ. Code §§ 2923.5, 2924(a)(1), 2923a(a)(1), 2924a(e), 2924(a)(6), 2923.6(c), 2923.7, 2924.9, and 2924.10. [Complaint, ¶ 89]
“The elements of a wrongful foreclosure cause of action are: (1) [T]he 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. [Citation.]” (Citrus El Dorado, LLC v. Chicago Title Co. (2019) 32 Cal.App.5th 943, 948, internal quotation marks omitted.)
Here, Plaintiff has not alleged any facts to show that she has been prejudiced or harmed by any irregularities in the non-judicial foreclosure process. (Kalnoki v. First Am. Trustee Servicing Solutions, LLC (2017) 8 Cal.App.5th 23, 48-49 [prejudice is not presumed; the plaintiffs failed to allege prejudice because they did not dispute that they defaulted on their loan, did not have the ability to tender the full amount, and failed to allege facts to show that the foreclosure could have otherwise been averted].) Plaintiff just makes a conclusory allegation of prejudice. [Complaint, ¶ 91] The demurrer to the 8th cause of action for wrongful foreclosure is SUSTAINED WITH LEAVE TO AMEND.
9th cause of action for unfair business practices
The 9th cause of action alleges that Defendants violated the unlawful, unfair, and fraudulent prongs of Bus. & Prof. Code § 17200 when they: (a) implemented a severely flawed loss mitigation review process in which borrowers like Plaintiff are persuaded to rely on Defendants’ loan modification review process; the process is purposefully lengthy so that loss mitigation and loan modification will not be timely provided, causing borrowers to incur interest charges, late fees and foreclosure costs; (b) purposefully impeded timely loss mitigation denial or approval while expressing that Plaintiff is in review, preventing Plaintiff from seeking other external loss mitigation options, including abandoning the property and/or conducting a short sale; (c) ignored Plaintiff’s communications and failed to communicate with her regarding loan repayment; and (d) purposefully violated Civ. Code §§ 2923.5, 2924(a)(1), 2924(a)(1), 2924a(e), 2924(a)(6), 2923.6(c), 2923.7, 2924.9, and 2924.10. [Complaint, ¶ 101] It alleges that Plaintiff suffered the loss of equity in the Property and seeks restitution and disgorgement of illicit profits. [Id., ¶¶ 106, 108]
Business and Professions Code § 17200 et seq (“UCL”) prohibits unfair competition, which is defined “‘any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.’ [Citation.]” (Zhang v. Superior Court (2013) 57 Cal.4th 364, 370.) “The UCL’s unlawful prong borrows violations of other laws ... and makes those unlawful practices actionable under the UCL. [Citation.] [V]irtually any law or regulation—federal or state, statutory or common law—can serve as [a] predicate for [an] ... unlawful [prong] violation. [Citation.]” (Rincon EV Realty LLC v. CP III Rincon Towers, Inc. (2019) 43 Cal.App.5th 988, 994, internal quotation marks omitted.) However, in order for a defendant to be liable under the UCL under the unlawful prong, the defendant must also have violated the predicate statute. (See Ingles v. Westwood One Broadcasting Services, Inc. (2005) 129 Cal.App.4th 1050, 1060.)
Here, Defendant only assert that Plaintiff has not alleged any unlawful, unfair, or fraudulent business practice to support the 9th cause of action. However, the 9th cause of action alleges a violation of Civil Code § 2923.6(c) as a predicate unlawful act. As previously discussed, Defendant’s demurrer to that cause of action is overruled. Because Plaintiff has alleged a predicate act and Defendant has not asserted another ground for demurrer, its demurrer to the 9th cause of action for unfair business practices is OVERRULED.
10th cause of action for cancellation of written instruments
The 10th cause of action for cancellation of written instruments seeks to cancel the Notice of Default and the Notice of Trustee’s Sale. [Complaint, ¶ 110]
“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.” (Civ. Code, § 3412.) “Cancellation of an instrument is essentially a request for rescission of the instrument.” (Deutsche Bank National Trust Co. v. Pyle (2017) 13 Cal.App.5th 513, 523.) To plead a right to cancellation, a plaintiff must allege facts demonstrating the instrument or instruments are “ ‘void or voidable’ ” against him and would cause him “ ‘serious injury’ ” if they are not cancelled. (Ibid.)
Here, Plaintiff seeks to cancel the Notice of Default and Notice of Trustee’s Sale. However, the complaint alleges that the Property has already been sold. [Complaint, ¶ 17] As such, Plaintiff cannot allege a ground to cancel the notices, as there is nothing to remedy. Therefore, the demurrer to the 10th cause of action for cancellation of written instruments is SUSTAINED WITHOUT LEAVE TO AMEND.
Plaintiff is permitted 20 days leave to amend. Without further leave of court, plaintiff may not amend to add new causes of action.
Defendant is ordered to give notice of this ruling.