Judge: Lee W. Tsao, Case: 23NWCV03923, Date: 2024-08-14 Tentative Ruling
Case Number: 23NWCV03923 Hearing Date: August 14, 2024 Dept: C
JOSEPH HERNANDEZ, ET AL. VS.
SPECIALIZED LOAN SERVICING, LLC, ET AL.
CASE NO.: 23NWCV03923
HEARING: 8/14/24 @ 9:30 A.M.
#5
TENTATIVE ORDER
Defendants’ demurrer to plaintiff’s complaint
is OVERRULED in part and SUSTAINED in part as set forth below.
Moving Party to give NOTICE.
Background
On March 15, 2006,
Plaintiffs obtained a mortgage loan on their property known as 5423 Gondar
Avenue, Lakewood, California 90713 from First Franklin, a division of the
National City Bank of Indiana. (Compl., ¶ 10.) On November 15, 2007, the deed
of trust to the property was assigned to Deutsche Bank National Trust Company
as Trustee for First Franklin Mortgage Trust 2006-FF9, Mortgage Pass-Through
Certificates, Series 2006-FF9. (Compl., ¶ 11.) On February 21, 2023, a Notice
of Default and Election to Sell Under a Deed of Trust was recorded. (Compl., ¶ 12.)
On May 25, 2023, a Notice of Trustee’s Sale was recorded. (Compl., ¶ 13.) The
sale was set for June 26, 2023; it was continued to November 26, 2023, and the
subject property was sold on that date. (Compl., ¶ 13.) On November 20, 2023,
Plaintiffs filed for bankruptcy. (Compl., ¶ 18.)
Plaintiffs allege that Specialized
Loan Servicing, LLC did not offer them alternatives to foreclosure. (Compl., ¶
15.) They further allege that Specialized Loan Servicing, LLC did not send them
written correspondence stating that Plaintiffs were behind on their payments,
and that they needed to contact Plaintiffs to see what assistance program would
help Plaintiffs. (Compl., ¶ 16.) They also allege that they did not receive a
statement in months, and they believed they were still in forbearance. (Compl.,
¶ 16.)
Plaintiffs sue for the
following: (1) violation of Civil Code section 2923.5; (2) violation of Civil
Code section 2924, subd. (a)(1); (3) violation of Civil Code section 2924.9;
(4) wrongful foreclosure; (5) violation of Business and Professions Code section
17200, et seq.; (6) cancellation of written instruments.
Defendants demur to all
causes of action in the complaint on the grounds that they do not state facts
sufficient to constitute a cause of action.
Legal Standard
The party against whom
a complaint has been filed may object to the pleading, by demurrer, on several
grounds, including that the pleading does not state facts sufficient to
constitute a cause of action. (Code Civ. Proc., § 430.10, subd. (e).) A party
may demur to an entire complaint, or to any causes of action stated therein. (Code
Civ. Proc., § 430.50, subd. (a).) The complaint must be construed liberally by drawing
reasonable inferences from the facts pleaded. (Flynn v. Higham
(1983) 149 Cal.App.3d 677, 679.)
Meet-and-Confer
Defendants satisfied
the meet-and-confer requirements. (Decl. Howard; Code Civ. Proc., § 430.41,
subd. (a)(3).)
Requests for Judicial
Notice
Defendants request
judicial notice of the following: (1) substitution of trustee recorded; (2)
court docket for United States Bankruptcy Court Docket, Central District of
California, Case Number 2:13-bk-32985-VZ; (3) court docket for United States
Bankruptcy Court Docket, Central District of California, Case Number
2:17-bk-14288-VZ; (4) court docket for United States Bankruptcy Court Docket,
Central District of California, Case Number 2:18-bk-24525-WB; and (5) trustee’s
deed upon sale dated November 16, 2023 and recorded.
Courts properly take
judicial notice of facts in legal, operative documents, where the complainant
alleges no facts inferring a contrary conclusion, or where the existence and
effect is not the subject of a reasonable dispute. (Intengan v. Bac Home
Loans Servicing LP (2013) 214 Cal.App.4th 1047, 1054.) Thus, the Court grants the first and fifth
request.
A court may take
judicial notice that certain documents were filed in prior litigation, or that
certain factual findings were made, but generally may not take judicial notice
of the contents of those filings, or of the factual findings themselves. (See, e.g.,
Arce v. Kaiser Foundation Health Plan, Inc. (2010) 181
Cal.App.4th 471, 483-484.) Thus, the Court takes judicial notice of the fact of
the filings in the second, third, and fourth request, but not its contents.
First Cause of Action –
Violation of Civil Code section 2923.5
Under California law,
there is a private right of action under Civil Code section 2923.5, which
requires a mortgage
servicer, mortgagee, trustee, beneficiary, or authorized agent to
first contact homeowners about a possible loan modification before issuing a
notice of default. (Mabry v. Super. Ct. (2010) 185 Cal.App.4th 208,
225.)
Plaintiffs allege that
Defendants violated Civil Code § 2923.5(a)(2) by failing to communicate with
Plaintiffs as required before recording the Notice of Default. (Complaint,
¶¶21-22.) Plaintiffs contend they “were staying
in their home when the Notice of Default was issued, and received no mail or
messages.” (Complaint, ¶21.)
Defendants demur on the
grounds that the factual allegations lack support, referring to a California
Declaration of Compliance which states that the mortgage servicer contacted the
borrower at least thirty days before the notice of default was issued.
(Complaint, ¶12, Ex. C, California Declaration of Compliance attached to Notice
of Default.) However, Defendants raise factual issues which are not properly
addressed at this stage of the proceedings.
Accordingly,
the demurrer to the first cause of action is OVERRULED.
Second Cause of Action – Violation of Civil Code section 2924, subd. (a)(1)
The notice of default
must contain certain basic information: trustor's name; book and page, or
instrument number (if applicable), where deed of trust is recorded or a
description of the secured real property; statement that the secured obligation
is in default and nature of each default, and election of foreclosure remedy to
satisfy the defaulted obligation. (Civ. Code, §
2924, subd. (a)(1).) The trustee,
mortgage, beneficiary, or any of their authorized agents must file it. (Civ. Code, §
2924, subd. (a)(1).)
Plaintiffs allege that
Defendants used the same declaration as a Notice of Default dated November 15,
2018, which shows that the instrument was robo-signed. (Compl., ¶ 28.) Plaintiffs
allege that this renders the notice of default and notice of trustee’s sale
void. (Compl., ¶ 28.)
First, there is no
private right of action under Civil Code section 2924, subd. (a)(1), and
Plaintiff cites no authority in support of the fact that there is. Second, Plaintiffs
allege evidentiary facts, not ultimate facts, and demurrers need only survive
ultimate facts. (C.A. v. William S. Hart Union High School Dist. (2012)
53 Cal.4th 861, 872.)
Accordingly, the demurrer to the second cause of action is SUSTAINED
without leave to amend.
Third Cause of Action – Violation of Civil Code section 2924.9
The Homeowner Bill of
Rights (Civ. Code, § § 2920.5, 2923.4–2923.7, 2924, 2924.9–2924.12, 2924.15, 2924.17–2924.20) (“HBOR”), effective January 1, 2013, was enacted
to ensure that 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. (Civ.
Code, § 2923.4, subd. (a); Valbuena v. Ocwen Loan
Servicing, LLC (2015) 237 Cal.App.4th 1267, 1272.)
HBOR provides for injunctive relief for statutory violations that occur prior
to foreclosure (Civ. Code, § 2924.12, subd. (a)),
and monetary damages when the borrower seeks relief for violations after the
foreclosure sale has occurred (Civ. Code, § 2924.12, subd. (b)).”
(Ibid.)
If the borrower seeks
monetary damages, the borrower’s claim must allege actual economic damages that
arise from an HBOR violation that is deemed material. (Morris v. JP Morgan
Chase Bank, N.A. (2022) 78 Cal.App.5th 279, 303-305.) A material violation is
one that affected the borrower's loan obligations, disrupted the borrower's
loan-modification process, or otherwise harmed the borrower. (Billesbach v. Specialized Loan Servicing LLC (2021)
63 Cal.App.5th 830, 837.) The “otherwise harmed the borrower” means harm to the
borrower in her efforts to be considered for a loss mitigation option (Morris v. JPMorgan Chase Bank, N.A., supra, 78
Cal.App.5th 279 at pg. 304.)
Under Civil Code
section 2924.9, subdivision (a), within five business days after recording a
notice of default pursuant to Civil Code section 2924, a mortgage servicer that
offers one or more foreclosure prevention alternatives must send a written
communication to the borrower that includes all of the following: (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.
Defendants demur on the grounds that Plaintiffs do not allege how
the failure to send the required notice is a material violation. Plaintiffs
allege that they were living in the subject property when the notice of default
was recorded, and they did not receive any phone calls, phone messages, or mail
that referred to discussions about alternatives to foreclosure before
foreclosure began. (Compl., ¶ 35.) If they did receive contact and
communication, they would have taken action to avoid foreclosure with other
lending sources. (Compl., ¶ 35.) Plaintiffs seek an injunction or penalties.
(Compl., ¶ 36.)
Because foreclosure has
occurred, the Court can no longer award an injunction. Plaintiffs do not allege
economic damages that arise from a material HBOR violation.
Accordingly, the
demurrer to the third cause of action is SUSTAINED with 20 days leave to
amend.
Fourth Cause of Action – Wrongful Foreclosure
The basic elements of a tort cause of action for wrongful
foreclosure track the
elements of an equitable cause of action to set aside a
foreclosure sale. (Daniels v. Select Portfolio Servicing, Inc. (2016)
246 Cal.App.4th 1150, 1184-1185.) They are the following: (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. (Ibid.)
Defendants demur on the grounds that Plaintiffs have not alleged
how the sale of the property was illegal, fraudulent, or willfully oppressive;
and Plaintiffs do not allege tender or their excuse for their failure to
tender.
Plaintiffs allege that Defendants wrongfully foreclosed based
upon violations of Civil Code section 2923.6, 2924(a)(1), 2934a(a)(1),
2924a(e), 2924(a)(6) and 2924.9. Foreclosure is illegal where it violates any
of the statutes governing the nonjudicial foreclosure process. (See generally, Moeller
v. Lien (1994) 25 Cal.App.4th 822, 830-831.) Thus, Plaintiffs have
adequately alleged that the sale of the property was illegal.
Where plaintiff seeks to set aside the trustee's sale, tender of
the indebtedness is required unless an exception applies. (Lona v. Citibank, N.A. (2011) 202 Cal.App.4th
89, 112.) Exceptions to the tender requirement include: (1) the
underlying credit transaction is unenforceable (e.g., due to fraud or
unconscionability); (2) the trustor has a set-off against the foreclosing
beneficiary that equals or exceeds the debt; (3) it would be “inequitable” to
impose a tender requirement on the party challenging the sale; and (4) the
trustee's deed is “void on its face.” (Id., at pgs. 112-113.)
Plaintiffs allege that they are excused from the tender
requirement because of Defendants’ violations of Civil Code sections 2923.5;
2924, subdivision (a)(1); 2934a(a)(1); 2934(a)(e); 2924(a)(6) and 2924.9.
Plaintiffs do not allege any of the exceptions to the tender
requirement.
Accordingly, the demurrer to the fourth cause of action is
SUSTAINED with 20 days leave to amend.
Fifth Cause of Action – Unfair Business Practices
To set forth a claim for a violation of Business and Professions Code
section 17200 (“UCL”), Plaintiff must establish Defendant was
engaged in an “unlawful, unfair or fraudulent business act or practice and
unfair, deceptive, untrue or misleading advertising” and certain specific acts.
(Bus. & Prof. Code, § 17200.)
Defendants demur to the fifth cause of
action on that grounds that it is derivative of Plaintiffs’ other claims and
thus fails for that reason; and Plaintiffs do not allege any unfair, unlawful,
or fraudulent act specifically.
Unlawful
Conduct
“Unlawful” conduct claims may borrow
violations of other laws and make those unlawful practices separately
actionable through the UCL. (Klein v. Chevron U.S.A., Inc. (2012) 202
Cal.App.4th 1342, 1383.)
Here, Plaintiffs allege that Defendants
violated the “unfair,” “unlawful,” and “fraudulent” prongs of the Unfair
Competition Law when they violated Civil Code sections 2923.5, 2924, subd.
(a)(1), 2934a(1), 2924a(e), 2924(a)(6) and 2924.9. Thus, the Court determines
that the unlawful prong is sufficiently alleged.
Unfair
Conduct
There is a split in authority about what
constitutes an “unfair” practice in consumer actions in unfair competition law.
Some cases hold an “unfair” practice is one that offends established public
policy, that is immoral, unethical, oppressive, unscrupulous, or substantially
injurious to consumers, or that has an impact on the victim that outweighs
defendant's reasons, justifications, and motives for the practice. (Jolley v. Chase Home Fin., LLC (2013) 213 Cal. App. 4th
872, 907.) Others hold that the public policy, which is a predicate to a claim
under the “unfair” prong of the UCL, must be tethered to specific
constitutional, statutory, or regulatory provisions. (Ibid.) The Court
adopts the latter approach.
Here, as discussed above, Plaintiffs
tethered the conduct to statutes. Thus, the unfair prong is sufficiently
alleged.
Fraudulent Conduct
A defendant violates
the fraudulent business acts or practices prong of the UCL by engaging in
conduct by which “members of the public are likely to be deceived.” (See Committee
on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197,
211.) Courts apply an objective standard to determine whether a business
practice is “likely to deceive,” assessing the potential for deception against
an audience of “reasonable consumers” rather than the least sophisticated
consumer. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th
26, 55.)
Plaintiffs allege that
the information provided to Plaintiffs was misleading and not consistent as to
the status of the loan modification and what she was supposed to do to satisfy
the lender’s demands. (Compl., ¶ 52.) Without more, the Court cannot determine
whether Defendants were fraudulent. Thus, the prong is insufficiently alleged.
Based on all the above, the demurrer to
the fifth cause of action is SUSTAINED with 20 days leave to amend.
Sixth Cause of Action – Cancellation of Written
Instruments
Section 3412 of the Civil Code provides
that 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. A person who does not have an
interest in a parcel of real property cannot bring an action to cancel a deed
or mortgage regarding the property. (Osborne v. Abels (1939) 30
Cal.App.2d 729, 731.)
Because the Plaintiffs no longer have title to the subject
property, they lack standing to cancel a deed or mortgage regarding the
property.
Accordingly, the demurrer to the sixth cause of action is SUSTAINED
without leave to amend.