Judge: Michael E. Whitaker, Case: 24SMCV00820, Date: 2024-02-29 Tentative Ruling

Case Number: 24SMCV00820    Hearing Date: March 4, 2024    Dept: 207

TENTATIVE RULING

EX PARTE MOTION

This case arises from a dispute concerning Plaintiff Christian Taylor’s (“Plaintiff”) failure to make certain payments and ultimate default on the mortgage on his property located at 311 Market Street.  Plaintiff contends he relied on his then-live-in boyfriend to make the payments (using Plaintiff’s money), including the final payoff payment, but later discovered the payments were not actually sent to pay the mortgage.

Plaintiff challenges many of the amounts itemized in the outstanding balance statement, but offered to pay the balance of the amounts.  Defendants did not accept Plaintiff’s offer to tender payment.

Plaintiff moved ex parte for a temporary restraining order (TRO) to enjoin the nonjudicial foreclosure sale of his property, currently scheduled for March 12, 2024, and for an order to show cause why a preliminary injunction should not issue.  Defendants Investment Management Company LLC and Brian Boren oppose the TRO. 

The Court continued the hearing to March 4, to further analyze the parties’ arguments and legal authority.  Subsequently, both parties filed supplemental declarations, which the Court has also reviewed.

LEGAL STANDARDS – TRO AND PRELIMINARY INJUNCTION

A party seeking a TRO must establish “(1) irreparable injury to the moving party without the TRO; (2) no harm to the public interest; (3) no substantial harm to other interested parties;  and (4) a likelihood of prevailing on the merits.”  (Sarale v. Pacific Gas & Electric Co. (2010) 189 Cal.App.4th 225, 243.)

Pursuant to Code of Civil Procedure section 527, subdivision (a), “[a] preliminary injunction may be granted at any time before judgment upon a verified complaint, or upon affidavits if the complaint in the one case, or the affidavits in the other, show satisfactorily that sufficient grounds exist therefor.” (Code Civ. Proc., § 527, subd. (a).) “The purpose of a preliminary injunction is to preserve the status quo pending final resolution upon a trial.” (Grothe v. Cortlandt Corp. (1992) 11 Cal.App.4th 1313, 1316.) The status quo has been defined to mean the last actual peaceable, uncontested status which preceded the pending controversy. (14859 Moorpark Homeowner’s Assn. v. VRT Corp. (1998) 63 Cal.App.4th 1396. 1402.) Preliminary injunctive relief requires the use of competent evidence to create a sufficient factual showing on the grounds for relief. (See, e.g., ReadyLink Healthcare v. Cotton (2005) 126 Cal.App.4th 1006, 1016; Ancora-Citronelle Corp. v. Green (1974) 41 Cal.App.3d 146, 150.)

The trial court considers two factors in determining whether to issue a preliminary injunction: (1) the likelihood the plaintiff will prevail on the merits of its case at trial, and (2) the interim harm the plaintiff is likely to sustain if the injunction is denied as compared to the harm the defendant is likely to suffer if the court grants a preliminary injunction. (Code Civ. Proc., § 526, subd. (a).) The balancing of harm between the parties “involves consideration of such things as the inadequacy of other remedies, the degree of irreparable harm, and the necessity of preserving the status quo.” (Husain v. McDonald’s Corp. (2012) 205 Cal.App.4th 860, 866-67.)

“The decision to grant a preliminary injunction rests in the sound discretion of the trial court ... before the trial court can exercise its discretion the applicant must make a prima facie showing of entitlement to injunctive relief. The applicant must demonstrate a real threat of immediate and irreparable injury.” (Triple A Machine Shop, Inc. v. State of Cal. (1989) 213 Cal.App.3d 131, 138.) “[A]n injunction is an unusual or extraordinary equitable remedy which will not be granted if the remedy at law (usually damages) will adequately compensate the injured plaintiff,” and the party seeking injunctive relief bears the burden to prove its absence. (Department of Fish & Game v. Anderson-Cottonwood Irrigation Dist. (1992) 8 Cal.App.4th 1554, 1564-1565.)

ANALYSIS

A.    PROBABILITY OF SUCCESS ON THE MERITS

A TRO or preliminary injunction may not issue unless it is “reasonably probable that the moving party will prevail on the merits. (San Francisco Newspaper Printing Co., Inc. v. Superior Court (1985) 170 Cal.App.3d 438, 442; see Costa Mesa City Employees’ Association v. City of Costa Mesa (2012) 209 Cal.App.4th 298, 309 [no injunction may issue unless there is at least “some possibility” of success].)

Plaintiff makes the following arguments as to why the requested TRO should issue: (1) Defendants are improperly charging late charges based upon a percentage of the total unpaid balance, in violation of California law; (2) Defendants improperly charge the increased 18% interest from the inception of the loan, instead of from the date the notice of default was recorded; (3) Defendants’ statement balance mischaracterizes foreclosure and other fees as “advances” and charges more than the statutorily-permitted amounts; (4) Defendants improperly seek to foreclose on both of Plaintiff’s properties, 311 Market Street and 313 Market Street, despite the fact that the Deed of Trust granted a power of sale only as to the 311 Market Street property; and (5) when these improper amounts are deducted from the outstanding balance, Plaintiff has tendered payment in full.  The Court analyzes each in turn.

a.     Improper Late Charges

Plaintiff first contends that the late charges Defendant is charging, which amount to an additional 6% interest rate on the full unpaid balance, violates California law.  In support, Plaintiff cites to Honchariw v. FJM Private Mortgage Fund, LLC (2022) 83 Cal.App.5^th 893, 905-906 (hereafter Honchariw); Garrett v. Coast and Southern Federal Savings and Loan Association (1973) 9 Cal.3d 731; and Civil Code section 1671.

Civil Code section 1671 provides, in relevant portion, “a provision in a contract liquidating the damages for the breach of the contract is valid unless the party seeking to invalidate the provision establishes that the provision was unreasonable under the circumstances existing at the time the contract was made.”  (Civ. Code, § 1671, subd. (b).)

Honchariw and Garrett both stand for the proposition that a late fee charged for making a single late payment, as a percentage of the total outstanding loan balance, is unreasonable.  However, Honchariw specifically notes that, “[D]efault interest following note maturity has long been allowed in California without resort to a liquidated damages analysis.”  (Honchariw, supra, 83 Cal.App.5th at p. 905, fn. 8.)

Paragraph 6 of Plaintiff’s mortgage note provides:

IF BORROWER IS IN DEFAULT UNDER THIS NOTE…, AND THE NOTE HOLDER HAS RECORDED A NOTICE OF DEFAULT …, THEN THE ENTIRE UNPAID PRINCIPAL BALANCE SHALL AUTOMATICALLY BEAR AN ANNUAL INTEREST RATE (INSTEAD OF THE RATE SPECIFIED IN PARAGRAPH 3) EQUAL TO THE LESSER OF (A) SIX PERCENTAGE POINTS (6%) PER ANNUM ABOVE THE RATE OF INTEREST OTHERWISE APPLICABLE THEREUNDER, OR (B) THE MAXIMUM INTEREST RATE ALLOWED BY LAW (THE “DEFAULT RATE”).

(Ex. A to Taylor Decl.)

            Thus, the additional 6% being charged is default interest, not a late charge for a single missed payment.  The ledger makes clear that Plaintiff defaulted from the first payment, as such the additional 6% interest is appropriate to apply from the inception.   Honchariw does not bar this additional default interest.  Thus, Plaintiff has not demonstrated a likelihood of success on the merits that the additional 6% interest is prohibited by California law.

            However, Plaintiff also contends that the late charges on the ledger improperly exceed 10% of the installment amount, as required by Business and Professions Code section 10242.5, subdivision (a), because the additional 6% default interest is first applied to each installment amount and then the 10% interest rate is applied.  Moreover, Plaintiff contends the late fees improperly compound the interest on these default payments and late charges.

            The Court finds that Plaintiff has raised a potential issue regarding the amount of late fees charged, which Defendants have not addressed, and therefore the Court is uncertain as to whether the late fees charged are proper.

b.     Charges In Excess of Those Agreed

Plaintiff next contends that the charges exceed those agreed to in the note because Defendants are charging the increased interest on all outstanding payments, from the inception of the loan, not just those payments after the notice of default.

The note provides:

IF BORROWER IS IN DEFAULT UNDER THIS NOTE…, AND THE NOTE HOLDER HAS RECORDED A NOTICE OF DEFAULT…, THEN THE ENTIRE UNPAID PRINCIPAL BALANCE SHALL AUTHOMATICALLY BEAR AN ANNUAL INTEREST RATE (INSTEAD OF THE RATE SPECIFIED IN PARAGRAPH 3) EQUAL TO THE LESSER OF (A) SIX PERCENTAGE POITNS (6%) PER ANNUM ABOVE THE RATE OF INTEREST OTHERWISE APPLICABLE THEREUNDER, OR (B) THE MAXIMUM INTEREST RATE ALLOWED BY LAW (THE “DEFAULT RATE”)

Thus, pursuant to the note, the increased interest rate applies to “the entire unpaid principal balance” not just the payments due after the notice of default is recorded.

Therefore, Plaintiff has not demonstrated a likelihood of prevailing on the merits of his argument that the increased interest rate exceeds the terms of the note.

c.      Advances

Plaintiff next argues that Defendants’ ledger claims $18,758.11 for “Advance[s]” owed on the loan that relate to foreclosure, forbearance, processing, and regulation fees and costs that exceed those allowable pursuant to Civil Code sections 2924c-2924d.

Those sections limit the types of foreclosure costs that can be recovered, and limit the amount of trustee’s or attorney’s fees that may be recovered. 

However, it is unclear whether the requested $18,758.11 includes types of costs that are not allowable or include trustee’s or attorney’s fees in excess of those allowed by statute.

Therefore, Plaintiff has adequately raised concerns regarding whether the $18,758.11 charged for “Advance[s]” are improper.

d.     Foreclosure on Both of Plaintiff’s Properties

Plaintiff contends the Deed of Trust granted Defendants the power of sale with respect to the 311 Market property only, yet Defendants now seek to improperly foreclose on both 311 Market and the adjacent property, 313 Market, which Plaintiff also owns.

The Deed of Trust, dated July 5, 2018, grants a power of sale in the property associated with APN: 4238-009-006 “which has the address of 311 Market Street (Venice area) Los Angeles CA 90291.  (Ex. B to Taylor Decl.)  The Notice of Default and Notice of Trustee’s Sale reference “APN: OLD: 4238-009-006 NEW: 4238-009-024[.]”  (Exs. C-D to Taylor Decl.)  Thus, it appears the parcel number for the property in which Plaintiff granted the power of sale has changed since the Deed of Trust was executed.  But there is nothing on the face of the Notice of Default or Notice of Trustee’s Sale or any other evidence demonstrating that Defendants are improperly foreclosing on property they are not entitled to foreclose upon.

The parties filed supplemental declarations, indicating that subsequent to the Deed of Trust, Plaintiff combined the two lots into the new parcel number 4238-009-024, but is now in the process of decoupling the lots into parcel numbers 4238-009-025 and 4238-009-026, but that decoupling has not yet been finalized.  (Feb. 29, 2024 Fredman Decl. at ¶¶ 8-10.)  Defendants have responded that the coupling of the properties was Plaintiff’s own doing, and in any event, Defendants only intend to foreclose on the 311 Market property.  (

Therefore, Plaintiff has not demonstrated a likelihood of success on the merits that Defendants have improperly noticed a trustee’s sale on a property they are not entitled to foreclose upon.

e.      Plaintiff Tendered the Outstanding Balance

Plaintiff contends that although Defendants demand a payoff amount of $192,440.58, the outstanding amount Defendants may lawfully demand does not exceed $60,000, once the deductions are made in accordance with Plaintiff’s arguments above.  Plaintiff further contends that Plaintiff tendered $60,000 to Defendants, thus Plaintiff has tendered the outstanding balance in full and Defendants may not lawfully foreclose upon the property.

Because the Court finds Plaintiff has not demonstrated a likelihood of success on the merits that the outstanding balance owed exceeds that which Defendants may lawfully collect, Plaintiff has similarly not demonstrated a likelihood of success on the merits that Plaintiff’s tendering of $60,000 paid off the lawfully-allowed outstanding balance in full. 

B.    IRREPARABLE HARM

The impending foreclosure will prejudice Plaintiff, if allowed to go forward, as it will irreparably deprive Plaintiff of right and title to the real property at issue.  However, a delay in the foreclosure sale will not prejudice Defendants.

CONCLUSION AND ORDER

Therefore, because Plaintiff has adequately raised concerns regarding the amount of the late fees and advances that were charged, the Court grants Plaintiff’s request for a temporary restraining order and enjoins Defendants from proceeding with any non-judicial foreclosure sale of Plaintiff’s home at 311 Market Street, Los Angeles (Venice), California 90291 (APN 4238-009-006) and/or his neighboring property at 313 Market Street (APN 4238-009-007) (together as APN 4238-009-024). 

Further, the Court further sets an Order to Show Cause (“OSC”) why a preliminary injunction should not be granted during the pendency of this action on May 13, 2024 at 8:30 A.M. in Department 207.  All papers in opposition to a preliminary injunction shall be filed and served on or before April 19, 2024, and all papers in reply shall be filed and served on or before May 3, 2024. 

Plaintiff shall file a proposed Order in conformance with Court’s ruling on or before March 11, 2024, and Plaintiff shall provide notice of the Court’s ruling and file a proof of service regarding the same. 

DATED:  March 4, 2024                                                        ___________________________

                                                                                    Michael E. Whitaker

                                                                                    Judge of the Superior Court