Judge: Elaine W. Mandel, Case: 24SMCV04299, Date: 2025-02-28 Tentative Ruling

Case Number: 24SMCV04299    Hearing Date: February 28, 2025    Dept: P

Tentative Ruling

Geoffery Grossman, et al. v. Loancare, LLC, et al., Case No. 24SMCV04299

Hearing date February 28, 2025

Plaintiffs Grossman’s Motion for Preliminary Injunction  

Plaintiffs Grossman own property, with a first position loan for $2,320,000 from defendant Change Lending, LLC, serviced by defendant LoanCare. On January 10, 2024, defendants recorded a Notice of Default and on April 18, 2024 recorded a Notice of Trustee’s Sale. Plaintiffs applied for foreclosure prevention alternatives, denied by LoanCare. On September 4, 2024, plaintiffs applied again, and on September 30, 2024, they resubmitted their application.

Plaintiffs’ FAC alleges: (1) violation of Civil Code section 2923.6 or 2924.18; (2) violation of Civil Code section 2923.7; (3) violation of Civil Code section 2924.17; (4) violation of 12 C.F.R. 1026.41; and (5) violation of Business and Professions Code section 17200, et seq. They seek injunctive relief and economic damages. Plaintiffs seek a preliminary injunction preventing foreclosure.

A preliminary injunction preserves the status quo pending final resolution upon a trial.  (See Scaringe v. J.C.C. Enterprises, Inc. (1988) 205 Cal.App.3d 1536. Grothe v. Cortlandt Corp., (1992) 11 Cal.App.4th 1313, 1316; Major v. Miraverde Homeowners Assn., (1992) 7 Cal.App.4th 618, 623. Preliminary injunctive relief requires the use of competent evidence to create a sufficient factual showing on the grounds for relief. See e.g. Ancora-Citronelle Corp. v. Green, (1974) 41 Cal.App.3d 146, 150. Injunctive relief may be granted based on a verified complaint only if it contains sufficient evidentiary, not ultimate, facts. See Code Civ. Proc., §527(a). For this reason, a pleading alone rarely suffices. Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2007) ¶ 9:579, 9(ll)-21). The burden of proof is on plaintiff as moving party. O’Connell v. Super. Ct. (2006) 141 Cal.App.4th 1452, 1481. A plaintiff seeking injunctive relief must show no adequate damages remedy exists. Code Civ. Proc., §526(a)(4). 

In determining whether to issue a preliminary injunction, the trial court considers: (1) the reasonable probability plaintiff will prevail on the merits at trial (Code Civ. Proc., § 526, subd. (a)(1)), and (2) a balancing of the “irreparable harm” plaintiff is likely to sustain if the injunction is denied as compared to the harm defendant is likely to suffer if the court grants a preliminary injunction. Code Civ. Proc. §526(a)(2); 14859 Moorpark Homeowner’s Assn. v. VRT Corp. (1998) 63 Cal.App.4th 1396, 1402. The latter factor involves consideration of such things as the inadequacy of other remedies, the degree of irreparable harm, and the necessity of preserving the status quo.” 14859, supra, at 1402. Thus, a preliminary injunction may not issue without some showing of potential entitlement to such relief. Doe v. Wilson, (1997) 57 Cal.App.4th 296, 304. The decision to grant a preliminary injunction generally lies within the sound discretion of the trial court and will not be disturbed on appeal absent an abuse of discretion. Thornton v. Carlson, (1992) 4 Cal.App.4th 1249, 1255.

Likelihood of Success

1.      Violation of Civil Code section 2923.6 or 2924.18

Plaintiffs argue their loan modification application is still pending, so if the foreclosure proceeds, defendants will be violating the prohibition on selling a borrower’s residence while a foreclosure prevention application is pending.

In response, the defendants assert plaintiffs' second loan modification application does not reflect any material changes in their financial circumstances compared to the first, which was denied. They further argue defendant LoanCare reviewed the September 30, 2024 application and offered two loan workout options, but plaintiffs did not accept either and communicated their intention to sell the property.

Under the Homeowner Bill of Rights, dual tracking is prohibited when a borrower submits a complete application for a first lien loan modification. Civ. Code §2923.6(c). While the application is pending, a mortgage servicer, trustee, or other authorized agent cannot conduct a trustee’s sale. Civ. Code §2923.6(c). However, if the borrower does not accept a modification offer within 14 days, the sale may proceed. Civ. Code §2923.6(c)(2). Additionally, Civil Code section 2924.18 mandates suspension of a trustee’s sale under these conditions.

Plaintiffs have not shown a trustee’s sale has occurred. If no sale has taken place, defendants could not have violated the law regarding the trustee’s sale.

Defendants submitted evidence that plaintiffs' second loan modification application is no longer pending; plaintiffs were presented with loan modification options they rejected. Decl. Scott, ¶¶ 40-47, 51-52, Ex. 27, 28. Under the Homeowner Bill of Rights, damages are only available for material violations not corrected before recording of the trustee’s deed upon sale Civ. Code §2924.12(b). Loan servicers and mortgagees are not liable for violations corrected before the trustee’s deed is recorded. Civ. Code §2924.19(c). Plaintiffs do not meet their burden of showing a reasonable probability of prevailing on the merits at trial.

2.      Violation of Civil Code section 2923.7

Plaintiffs argue upon submitting their September 4, 2024 loan modification application, defendants failed to promptly assign them a single point of contact, despite intending to proceed with the foreclosure sale on September 11, 2024. They contend defendants did not contact them and lacked sufficient personnel to provide timely, accurate, and adequate information regarding the status of their application and deadlines for any further required submissions.

Defendants assert they were not required to assign a single point of contact because they already reviewed and denied a prior loan modification application. Defendants argue any violation was cured when LoanCare reviewed the second loan modification application on September 30, 2024, and offered two loan workout options, both of which the plaintiffs rejected.

Under the Homeowners Bill of Rights, when a borrower submits a request for a foreclosure prevention alternative, the mortgage servicer must promptly assign a single point of contact and provide the borrower with one or more direct means of communication with this contact. Civ. Code §2923.7(a). The single point of contact must have access to current information and sufficient personnel to timely, accurately, and adequately inform the borrower of the status of the foreclosure prevention alternative. Civ. Code §2923.7(b)(3).

Plaintiffs Gregory Grossman states he received no response to the application prior to the September 11, 2024 foreclosure sale. Later, he received correspondence from LoanCare indicating it would not review the September 4, 2024 application. Decl. Grossman, ¶¶ 13, 15. Defendants submitted evidence that LoanCare reviewed the second loan modification application and offered two modification options, but plaintiffs accepted neither. Decl. Scott, ¶¶ 40-47, 51-51, Exs. 27, 28.

The Homeowners' Bill of Rights provides for damages only for material violations not corrected by the time the trustee’s deed upon sale is recorded. Civ. Code §2924.12(b). Moreover, loan servicers and mortgagees are not liable for violations they correct before recording the trustee’s deed upon sale. Civ. Code §2924.19(c). Plaintiffs have not met their burden of proving a reasonable probability of prevailing on the merits at trial.

3.      Violation of Civil Code section 2924.17

Plaintiffs argue defendants could not have reviewed competent or reliable evidence to substantiate the default underlying the foreclosure before recording the Notice of Default. Specifically, they contend the Notice identifies a default amount of $131,807.38, which contradicts their mortgage payment of approximately $20,000 per month.

Defendants argue the amount in the Notice of Default is correct, as LoanCare’s servicing records confirm no payments received since July 2023. As of January 8, 2024, the loan delinquency was $131,807.38. Defendants argue the pleading, which is more appropriately addressed in a demurrer or motion for judgment on the pleadings.

Gregory Grossman states: “...on information and belief, the Notice of Default contains an inaccurate statement of the amount due. Our loan is escrowed so that taxes and insurance are paid through our lender. The payment is approximately $20,000 per month. While we fell behind in or around August 2023, the Notice of Default identifies the default as $131,807.38, which is too high.” Decl. Grossman, ¶ 17.

A statement "on information and belief" is not based on declarant's firsthand knowledge, but rather on what the declarant believes to be true. City of Santa Cruz v. Mun. Ct. (Kennedy) (1989) 49 Cal.3d 74, 93. This statement is inadmissible. Evid. Code §702(a). While "information and belief" declarations can sometimes be sufficient where the facts are difficult or impossible to establish, such circumstances do not apply here because the default amount can be verified through the plaintiffs' loan documents. See, e.g., Doe v. City of L.A. (2007) 42 Cal.4th 531, 550.

Defendants submitted competent evidence to counter plaintiffs' claims, including the declaration of LoanCare’s corporate representative, Steven Scott, who includes the payment history (Exhibit 3) and a calculation of the delinquency amount (Exhibit 4). Decl. Scott, ¶¶ 13, 16, Exs. 3, 4. Plaintiffs have not met their burden. There is no reasonable probability that they will prevail on the merits at trial.

4.      Violation of 12 C.F.R. § 1026.41—Loss Mitigation Procedures

Plaintiffs argue they have not received acknowledgment of their September 30, 2024 application.

LoanCare’s records confirm on October 1, 2024, it sent a written acknowledgment receipt to the plaintiffs. Defendants assert LoanCare took additional actions to communicate with plaintiffs. On October 2, 2024, LoanCare informed plaintiffs of the assigned single point of contact by letter and sent a letter listing missing documents. LoanCare sent another letter on October 17, 2024, and a third on December 3, 2024, listing additional missing documents. On January 14, 2025, LoanCare approved plaintiffs for two workout options and provided them two trial period plans.

Under federal law, if a mortgage servicer receives a loss mitigation application at least 45 days before a foreclosure sale, it must notify the borrower within five days that it has acknowledged receipt of the application and whether the application is complete or incomplete. 12 C.F.R. §1024.41(b)(2)(i).

Plaintiffs offer no evidence to support their claim. Defendants provided competent evidence demonstrating the required acknowledgments and communications occurred. Plaintiffs have not met their burden, and there is no reasonable probability they will prevail on the merits at trial.

5.      Violation of Business and Professions Code section 17200, et seq.

Plaintiffs argue defendants’ violations of Civil Code sections 2923.6, 2923.7, and 2924.17 constitute unlawful business practices and defendants are ignoring plaintiffs’ efforts to prevent foreclosure, amounting to unfair business practices. Plaintiffs assert they have standing to sue, alleging their interests in the property are in jeopardy due to the foreclosure process. They also argue monetary harm from late fees, penalties, and costs.

Defendants argue that since plaintiffs’ substantive claims fail, the 17200 claim fails and plaintiffs lack standing because the loan was already in default before the alleged violations occurred. They also contend plaintiffs are not entitled to restitution because they do not allege they made any payments under the loan nor were they induced to transfer anything of value to LoanCare.

Plaintiffs lack standing under 17200 because none of the alleged violations caused the injury. A borrower does not have standing to sue for unfair business practices if the alleged practices did not cause the injury—in this case, the threatened foreclosure. See Jenkins v. JP Morgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 523. Instead, the foreclosure was caused by plaintiffs’ default, which occurred before the alleged violations.

A cause of action for a violation of Business and Professions Code section 17200 cannot stand if it is based on a violation of predatory lending laws that also fails. Wolski v. Fremont Investment & Loan (2005) 127 Cal.App.4th 347, 357.

Since the plaintiffs lack standing, the Court will not address the arguments concerning restitution. There is no reasonable probability plaintiffs will prevail on the merits.

Balancing of Harms

Plaintiffs argue the balance of harms favors them because they will lose their property, while the defendants face minimal hardship beyond the inability to foreclose.

In response, the defendants argue that the balance of harms does not favor the plaintiffs. They assert plaintiffs admit to defaulting on the loan and have not provided any facts suggesting they have the financial capacity to cure the default. Furthermore, after LoanCare offered plaintiffs two workout options, plaintiffs rejected both and listed the property for sale. Defendants assert plaintiffs would continue residing in a $3 million property for free, while the defendants continue to incur fees and costs for a non-performing loan.

While real property is generally deemed unique, the balance of harms does not favor plaintiffs. Defendants presented evidence they complied with the law, offering foreclosure prevention alternatives, which plaintiffs rejected. Plaintiffs filed no reply, so did not refute defendant’s arguments in opposition to the motion.

The balance strongly favors defendants. The motion is DENIED.