Judge: Mark H. Epstein, Case: 21SMCV01371, Date: 2024-08-05 Tentative Ruling

Case Number: 21SMCV01371    Hearing Date: August 5, 2024    Dept: I

The matter is here on a motion for judgment on the pleadings.  This is a wrongful foreclosure action.  Comstock filed this action against the Rama Fund (Rama) and California TD Specialists (TD).  On March 30, 2023, PC6 Associates (PC6) entered the case as the real party in interest.  The operative complaint alleges that Comstock obtained a loan of $3,587,500 from Athas Capital Group on July 3, 2018.  The loan was secured by the property in question.  Athas assigned the loan to Rama on July 5, 2018.  The loan was to mature on August 1, 2019, but Comstock did not repay the loan on that date.  (Note that it quitclaimed the property to PC6 the next day.)  Rama then filed a Notice of Default and Election to Sell pursuant to a deed of trust signed when the loan was taken out.  This was to be recorded on November 14, 2019, and a Notice of Trustee’s Sale was recorded on February 21, 2020.  On March 31, 2020, Rama and Comstock entered into an agreement to postpone the sale until November 24, 2020.  On November 16, 2020, Comstock entered into a Loan Extension Agreement (LEA) with Rama.  The LEA had a different principal balance than the original loan and had a new maturity date.  The later maturity was contingent on Comstock making an initial payment, which it did.  But when the time came to make the second payment, Comstock contacted Rama and said it would be a few days late.  Comstock claims it got no response.  Comstock claims that it never received a subsequent notice of default or notice of sale under the LEA.  Apparently a trustee’s sale occurred on January 6, 2021, and Rama was the successful bidder, thereby obtaining a deed.  Comstock says it was unaware of the sale, and wired the second payment installment to Rama on January 8, 2021, but it was rejected without explanation on January 11, 2021.  Comstock says that it told Rama that the amount was miscalculated and Comstock attempted to wire the correct amount to Rama on January 12, 2021.  Later that day, Rama told plaintiff of the January 6 sale.  The wire was rejected on January 13, 2021.  Plaintiff contends that the lack of notice of the new notice of default and notice of sale to either Comstock (the borrower) or PC6 (the owner) makes the foreclosure sale invalid and requires that the deed be returned to PC6.

Rama asks that judicial notice be taken of various recorded documents.  The request is GRANTED.  Rama also asks, in reply, that the court take judicial notice of a minute order in the related UD case as well as the unpublished appellate decision in that case.  That request is DENIED.  That evidence would be new material submitted in reply to support a new argument—res judicata.  But such an argument cannot be raised in reply.  It must be raised by a separate motion so that plaintiff can have an opportunity to oppose.  This is especially troubling because the appellate decision was rendered on September 7, 2023—long before this motion was filed.

The court GRANTS the MJOP as to the declaratory relief cause of action.  Plaintiff concedes that declaratory relief is not appropriate here.

Turning to the real heart of the motion, Rama asserts that PC6 lacks standing because it was not the borrower.  Comstock was the borrower.  Civil Code section 2953 requires that notice of default be given to the “borrower.”  Because PC6 is not the borrower, Rama contends, ipso facto no notice of default need be sent to it, and it cannot be heard to complain on that basis.  It is a cute argument, but hard to buy.  Generally, the borrower and the owner are one and the same.  Accordingly, there generally would be no standing issue.  After all, it is hard to conceive of a situation generally where the borrower takes out a secured loan and is able to transfer (legitimately) the property but not the debt (or at least make the new owner also liable).  Yet that seems to be the alleged situation here.

In any event, section 2953 provides that an agreement between a lender and a borrower at the time of a loan or the renewal of the loan cannot waive the provisions and protections conferred on the “borrower” under certain statutes.  In all of those statutes, Rama asserts that the protection runs only to the borrower or trustor.  The “owner” is never listed.  Because PC6 is not a borrower—“merely” an owner—it lacks standing to bring suit according to the defense.  But there are disconnects.  First, the complaint actually presently alleges that Comstock is the owner.  There is no successor-in-interest language that relates to PC6.  As such, right now it is unclear how it is that PC6 is in the case at all if one were merely to read the allegations in the complaint.  But the problem with that argument is that Rama stipulated to amend the complaint to add PC6 as the owner and, at least by implication, to replace “Comstock” with “PC6” wherever it appeared in the complaint.  So the notion that there is nothing about PC6 is not correct.  On the other hand, the complaint has many allegations that plainly pertain to Comstock and not PC6.  That alone warrants granting the motion as to PC6, albeit with leave to amend.  Accordingly, if for no other reason, the motion is GRANTED.

Rama also argues that the case must be dismissed because no one has tendered payment of the debt.  More specifically, courts have held that as a condition to an action to set aside a trustee’s sale due to irregularities in the notice or procedure, the borrower must offer to pay the full amount of the debt for which the property was security.  (Lona v. Citibank, N.A. (2011) 202 Cal.App.4th 89.)  But that said, the complaint could be read (albeit only by squinting) to assert that Comstock offered to tender the debt but Rama refused.  At least it is possible to read paragraph 19-23 that way.  And whether a short extension where the due date was in fact a bank holiday (New Year’s Day) is contemplated in the LEA is hard to say without parol evidence.  To make matters worse, the LEA is not even attached to the complaint.  But as long as plaintiff is being given leave to amend, plaintiff should be clear on the tender issue as well, and plaintiff should also attach the various documents to which it refers.  The court would not grant the motion on that basis alone, though, as this issue has been lurking for 3 years and the court sees no reason why it should suddenly rear its head by way of a pleading motion.

Because the UCL cause of action will stand or fall on the other aspects of the motion, the motion is GRANTED on that cause of action as well, but not based on a separate analysis.

All of that said, the court notes that an MJOP is a very bad way to approach this.  A few questions scream out at the court.  It is hard to imagine that a secured lender can sell real property that secures the debt without telling the owner.  It just makes no sense whatsoever.  Of course, it almost never arises because the owner is almost always going to be the (or at least a) borrower.  Second, it is hard to imagine that the quitclaim was contractually permitted.  Although the court does not have the original loan, one would think that there is a prohibition against transfer of the property to another party, at least without the consent or knowledge of the lender.  The court cannot think of an instance where that kind of thing would be allowed.  (It might well be that the lender cannot reject the transfer, or cannot reject the transfer without cause, but to allow the transfer without even providing notice is strange.)  And the court strongly suspects that there is some kind of relationship between PC6 and Comstock.  Whether the relationship is that they are one and the same, alter egos, or something closer to arms’ length, given that this was a quitclaim and not a sale it would be surprising if it were truly a situation where PC6 happened to close escrow on the day after the loan matured but was unpaid.  Hmmmm.  In that way, notice to Comstock might be the same as notice to PC6.  And one would think that before or while negotiating the LEA, Comstock at a minimum had a duty to disclose the PC6 situation.  Of course, none of that gets around the argument that there was no notice to Comstock either, but that was addressed in prior pleading motions if the court’s memory serves aright.  And finally, there is a res judicata question.  The Court of Appeal did discuss the question whether this was the renewal of a loan or was something different.  To the extent that the decision is now done and final, it will qualify as res judicata and collateral estoppel—maybe.  Or maybe law of the case.  But recall that the case was a UD case, and the res judicata/collateral estoppel effect of such cases is narrower because the issues that can be decided are narrower.  But at least the issue was discussed.

In short, the court believes that the better way to address this is through a summary judgment motion, where undisputed facts can color the motion.  the court would strongly advise Rama to proceed that way.  The court is aware that there is a trial date coming up, but it is not until February of next year.  There remains time to bring a summary judgment or adjudication motion.  Of course, the court is not saying such a motion would be successful; only that the issues raised here are better raised there once the clarifying amendments are made.