Judge Michael E. Whitaker, Case Number: 24SMCV04308, Date: 2025-01-16 Tentative Ruling

Judge: Michael E. Whitaker, Case: 24SMCV04308, Date: 2025-01-16 Tentative Ruling

This case arises over a dispute concerning the foreclosure of Plaintiff Maya Grushansky’s (“Plaintiff”) real property. On September 6, 2024, Plaintiff filed suit against Defendants FCI Lender Services, Inc. (“FCI”) and Coastal Capital Group, LLC (“Coastal”) (together, “Defendants”) alleging five causes of action for (1) Violation of Civil Code section 2923.5; (2) Violation of Civil Code section 2924.9; (3) Wrongful Foreclosure: (4) Unfair Business Practices; and (5) Cancellation of Written Instruments.

Defendants now demur to all five causes of action on the grounds that they fail to state facts sufficient to constitute a cause of action under Code of Civil Procedure section 430.10, subdivision (e).

1. A Deed of Trust recorded February 22, 2023, as Document No. 20230112294 of the Official Records of the Los Angeles County Recorder’s Office, State of California a true and correct copy of which is attached hereto and incorporated herein by reference as Exhibit “1.”

2. A Deed of Reconveyance recorded June 30, 2023 as Document No. 20230429466 of the Official Records of the Los Angeles County Recorder’s Office, State of California, a true and correct copy of which is attached hereto and incorporated herein by reference as Exhibit “2.”

3. A Trustee’s Deed Upon Sale recorded March 3, 2017 as Document No. 20170253859 of the Official Records of the Los Angeles County Recorder’s Office, State of California, a true and correct copy of which is attached hereto and incorporated herein by reference as Exhibit “3.”

4. A Notice of Rescission of Trustee’s Deed Upon Sale recorded January 11, 2019 as Document No. 20190033014 of the Official Records of the Los Angeles County Recorder’s Office, State of California, a true and correct copy of which is attached hereto and incorporated herein by reference as Exhibit “4.”

5. A Notice of Default and Election to Sell recorded March 8, 2024 as Document No. 20240155371 of the Official Records of the Los Angeles County Recorder’s Office, State of California, a true and correct copy of which is attached hereto and incorporated herein by reference as Exhibit “5.”

6. A Notice of Trustee’s Sale recorded June 10, 2024 as Document No. 2024000142989 of the Official Records of the Orange County Recorder’s Office, State of California, a true and correct copy of which is attached hereto and incorporated herein by reference as Exhibit “6.”

7. A Trustee’s Deed Upon Sale recorded August 21, 2024 as Document No. 20240561618 of the Official Records of the Los Angeles County Recorder’s Office, State of California, a true and correct copy of which is attached hereto and incorporated herein by reference as Exhibit “7.”

Courts can take judicial notice of the existence and recordation of real property records, including deeds, if authenticity is not reasonably disputed. (Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264-265.) “The official act of recordation and the common use of a notary public in the execution of such documents assure their reliability, and the maintenance of the documents in the recorder’s office makes their existence and text capable of ready confirmation, thereby placing such documents beyond reasonable dispute.” (Ibid.) Moreover, courts can take judicial notice not only of the existence and recordation of recorded documents but also matters that can be deduced from the documents, including the parties, dates, and legal consequences of recorded documents relating to real estate transactions. (Ibid.)

“It is black letter law that a demurrer tests the legal sufficiency of the allegations in a complaint.” (Lewis v. Safeway, Inc. (2015) 235 Cal.App.4th 385, 388.) In testing the sufficiency of a cause of action, a court accepts “[a]s true all material facts properly pled and matters which may be judicially noticed but disregard contentions, deductions or conclusions of fact or law. [A court also gives] the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (290 Division (EAT), LLC v. City & County of San Francisco (2022) 86 Cal.App.5th 439, 450 [cleaned up]; Hacker v. Homeward Residential, Inc. (2018) 26 Cal.App.5th 270, 280 [“in considering the merits of a demurrer, however, “the facts alleged in the pleading are deemed to be true, however improbable they may be”].)

Further, in ruling on a demurrer, a court must “liberally construe” the allegations of the complaint “with a view to substantial justice between the parties.” (See Code Civ. Proc., § 452.) “This rule of liberal construction means that the reviewing court draws inferences favorable to the plaintiff, not the defendant.” (Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th 1228, 1238.)

In summary, “[d]etermining whether the complaint is sufficient as against the demurrer on the ground that it does not state facts sufficient to constitute a cause of action, the rule is that if on consideration of all the facts stated it appears the plaintiff is entitled to any relief at the hands of the court against the defendants the complaint will be held good although the facts may not be clearly stated, or may be intermingled with a statement of other facts irrelevant to the cause of action shown, or although the plaintiff may demand relief to which he is not entitled under the facts alleged.” (Gressley v. Williams (1961) 193 Cal.App.2d 636, 639.)

i. First and Second Causes of Action – based on the Homeowner’s Bill of Rights (“HBOR”)

Plaintiff’s first two causes of action allege violations of Civil Code sections 2923.5 and 2924.9, both of which are part of the “Homeowner’s Bill of Rights” or “HBOR” which is “a complex set of enactments focused specifically on residential mortgages and passed as a legislative response to the ongoing mortgage foreclosure crisis in 2012.” (Morris v. JPMorgan Chase Bank, N.A. (2022) 78 Cal.App.5th 279, 295.) The HBOR encompasses Civil Code sections 2920.5, 2923.4–2923.7, 2924, 2924.9–2924.12, 2924.15, and 2924.17–2924.20. (Ibid.)

(a) (1) A mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default pursuant to Section 2924 until both of the following:

(A) Either 30 days after initial contact is made as required by paragraph (2) or 30 days after satisfying the due diligence requirements as described in subdivision (e).

(B) The mortgage servicer complies with paragraph (1) of subdivision (a) of Section 2924.18, if the borrower has provided a complete application as defined in subdivision (d) of Section 2924.18.

(2) A mortgage servicer shall contact the borrower in person or by telephone in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure. During the initial contact, the mortgage servicer shall advise the borrower that he or she has the right to request a subsequent meeting and, if requested, the mortgage servicer shall schedule the meeting to occur within 14 days. The assessment of the borrower’s financial situation and discussion of options may occur during the first contact, or at the subsequent meeting scheduled for that purpose. In either case, the borrower shall be provided the toll-free telephone number made available by the United States Department of Housing and Urban Development (HUD) to find a HUD-certified housing counseling agency. Any meeting may occur telephonically.

(f) This section shall apply only to mortgages or deeds of trust described in Section 2924.15.

(g) This section shall apply only to entities described in subdivision (b) of Section 2924.18

(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.

(b) This section shall not apply to entities described in subdivision (b) of Section 2924.18.

Section 2924.15 provides that these subdivisions “shall apply only to a first lien mortgage or deed of trust that is secured by owner-occupied residential real property containing no more than four dwelling units.” (Civ. Code, § 2924.15, subd. (a).) The statute defines “owner-occupied” as meaning “that the property is the principal residence of the borrower and is security for a loan made for personal, family, or household purposes.” (Civ. Code., § 2924.15, subd. (b).)

Defendants first argue that Plaintiff fails to allege facts sufficient to constitute a cause of action for violations of the HBOR, because the loan secured by the deed of trust upon which the lender foreclosed on was a commercial loan for an investment property. In support, Defendants point to paragraph 17 of the Complaint, which indicates, “You can only this type of loan for business purposes, and not personal purposes.” (Complaint ¶ 17 [sic].)

Because the grammar of this sentence does not make sense, there appears to be at least one typographical error contained in paragraph 17. In context, the Complaint alleges as follows:

15. On February 22, 2024, CCG DEFENDANT recorded the new loan, and it is in first position. This loan must follow the HBOR rules. The money was not used for any business purposes as PLAINTIFF is a care provider to her mother. She gets a W-2 from the State of California.

16. The Notice of Default as stated was recorded on March 6, 2024. This loan became due in full on March 1, 2024. The Notice of Default declaration was signed was February 23, 2024 before the loan became fully due. It states the homeowner bill of rights statutes do not apply to this loan. However, this is a first deed of trust and owner occupied.

17. This loan was not applied for business purposes. You can only this type of loan for business purposes, and not personal purposes.

18. The Notice of Default declaration is faulty. If the note became due March 1, 2024, PLAINTIFF would have to be delinquent 120 days before the Notice of Default and wait 90 days before they can record a Notice of Trustee Sale. There was no acceleration clause in the Notice of Default, and it would need to be.

19. Since this loan is defined under HBOR, this is a first lien mortgage and must comply with the alternatives to foreclosure. The client stated that they did not offer any assistance or modification as they stated it was a business loan. This is her primary residence.

(Complaint ¶¶ 15-19.) Thus, notwithstanding the typographical errors in paragraph 17, Plaintiff has adequately alleged that the loan in question was not a commercial or business loan, and the real property in question was Plaintiff’s primary residence. Whether the loan was in fact a commercial or business loan, and whether the property was in fact Plaintiff’s primary residence are factual questions to be determined at later stages of the litigation.

Defendants also argue that the first two causes of action fail because (1) the foreclosure has already occurred and (2) Plaintiff has not alleged that she was prejudiced.

(a) (1) If a trustee’s deed upon sale has not been recorded, a borrower may bring an action for injunctive relief to enjoin a material violation […]

(b) 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 […]

29. PLAINTIFF is entitled to an injunction prior to foreclosure, or civil and statutory penalties post-foreclosure against FCI DEFENDANT and CCG DEFENDANT in an amount to be proven at trial.

(Complaint ¶¶ 24, 29.) Thus, that the foreclosure sale has already occurred is not grounds to sustain Defendant’s demurrer to the first or second causes of action.

As for Defendants’ second argument, the only case law Defendants cite in support of the argument that Plaintiff must allege prejudice are non-binding unpublished federal district court cases.[1]

Therefore, the Court overrules Defendants’ demurrer to the first and second causes of action.

“The basic elements of a tort cause of action for wrongful foreclosure […] are: (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.” (Miles v. Deutsche Bank National Trust Co. (2015) 236 Cal.App.4th 394, 408.)

Defendants reiterate their arguments above that violations of the HOBR cannot form the basis of a wrongful foreclosure action because the HOBR does not apply as this was a business purpose loan recorded on property that was not owner-occupied or Plaintiff’s principal residence. As discussed above, because these are adequately pleaded and ultimately factual issues to be determined at later stages of the litigation, the Court similarly rejects these arguments as a basis to sustain a demurrer to the third cause of action.

Defendants also argue that the third cause of action fails because Plaintiff did not allege tender. However, the Complaint alleges, “34. PLAINTIFF is excused from the tender requirement because of FCI DEFENDANT and CCG DEFENDANT’s violations of Civ. Code §§2923.5 and 2924.9.” (Complaint ¶ 34.) At the pleadings stage, this satisfies the third “tender” element of a wrongful foreclosure cause of action.

Finally, Defendants argue that Plaintiff failed to allege prejudice. The Complaint alleges:

31. On July 9, 2024, FCI DEFENDANT and CCG DEFENDANT wrongfully foreclosed on the Subject Property based upon violations of Civ. Code §§2923.5 and 2924.9.

32. FCI DEFENDANT and CCG DEFENDANT caused an illegal, fraudulent, or willfully oppressive sale of the Subject Property pursuant to a power of sale in a mortgage or deed of trust.

33. PLAINTIFF suffered prejudice or harm as a result of the wrongful foreclosure trustee sale.

35. PLAINTIFF is entitled to monetary damages for the loss of the Subject Property and her investment in it.

36. PLAINTIFF is entitled to have the wrongful foreclosure vacated, and have the Trustee’s Deed Upon Sale, Notice of Default and Notice of Trustee’s Sale cancelled.

(Complaint ¶¶ 31-33; 35-36.) This is sufficient to allege prejudice at the pleadings stage. Whether Plaintiff was actually prejudiced by the foreclosure sale is a factual question to be determined at later stages of the litigation.

Therefore, the Court overrules Defendants’ demurrer to the third cause of action for wrongful foreclosure.

Business and Professions Code section 17200, known as the Unfair Competition Law, or “UCL,” bars unfair competition, defined as “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code. “An ‘unlawful’ business practice or act within the meaning of the UCL is an act or practice, committed pursuant to business activity, that is at the same time forbidden by law.” (Bernardo v. Planned Parenthood Federation of Am. (2004) 115 Cal.App.4th 322, 351.) “By proscribing ‘any unlawful’ business practice, section 17200 borrows violations of other laws and treats them as unlawful practices that the unfair competition law makes independently actionable.” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180.) Moreover, “a practice may be deemed unfair even if not specifically proscribed by some other law.” (Ibid.)

In order to have standing to bring a UCL claim, a plaintiff must “(1) establish a loss or deprivation of money or property sufficient to qualify as injury in fact, i.e., economic injury, and (2) show that that economic injury was the result of, i.e., caused by, the unfair business practice or false advertising that is the gravamen of the claim.” (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 322.)

Defendants argue that the UCL claim fails because Plaintiff does not allege any unfair, unlawful, or fraudulent business practices and Plaintiff does not allege an injury-in-fact for purposes of standing.

Because the Court overrules Defendants’ demurrer to the first two causes of action, Plaintiff adequately alleges unlawful conduct upon which to base the UCL cause of action.

41. PLAINTIFF alleges that FCI DEFENDANT and CCG DEFENDANT violated the “unfair,” “unlawful,” and “fraudulent” prongs of the UCL resulting in injury and economic loss to PLAINTIFF […]

45. PLAINTIFF has suffered an actual, pecuniary injury of the loss of the equity in the value of the Subject Property, and the costs of seeking a remedy for FCI DEFENDANT and CCG DEFENDANT’s wrongful actions.

47. PLAINTIFF demand restitution, and that FCI DEFENDANT and CCG DEFENDANT disgorge their illicit profits and that PLAINTIFF receive all monetary awards statutorily due to them.

(Complaint ¶¶ 41, 45, 47.) Thus, Plaintiff has adequately alleged pecuniary harm sufficient to establish standing to bring a UCL claim.

Therefore, the Court overrules Defendants’ demurrer to the fourth cause of action.

Under Civil Code section 3412, 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.

To prevail on a claim to cancel an instrument, a plaintiff must prove (1) the instrument is void or voidable due to, for example, fraud; and (2) there is a reasonable apprehension of serious injury including pecuniary loss or the prejudicial alteration of one's position.

Defendants argue that Plaintiff’s allegations are too conclusory. Here, in addition to the above allegations, Plaintiff alleges:

49. The Notice of Default declaration is faulty. If the note became due March 1, 2024, PLAINTIFF would have to be delinquent 120 days before the Notice of Default and wait 90 days before they can record a Notice of Trustee Sale. There was no acceleration clause in the Notice of Default, and it would need to be. This renders the Notice of Default and Notice of Trustee’s Sale as void instruments pursuant to Civ. Code §2924(a)(6).

50. PLAINTIFF has a reasonable belief that the Notice of Default, instrument no. 2024- 0081088 and Notice of Trustee’s Sale, instrument no. 20240381884 and Trustee’s Deed Upon Sale are voidable or void ab initio. (Exhibits “C” and “D”)

51. PLAINTIFF has a reasonable apprehension that if these voidable or void ab initio recorded written instruments is/are left outstanding, it/they may cause serious injury to PLAINTIFF because of their violations of Civ. Code §§2923.5 and 2924.9.

52. PLAINTIFF seeks to cancel the hereinabove written instruments pursuant to Civ. Code §3412 due to them being voidable or void, clouds on title and wrongfully recorded.

Thus, Plaintiff has sufficiently alleged “ultimate facts” to state a cause of action for cancellation of written instruments.[2]

For the reasons stated, the Court overrules Defendants’ demurrer to Plaintiff’s Complaint in its entirety.

Further, the Court orders Defendants to file an Answer to the Complaint on or before February 7, 2025.

Defendants shall provide notice of the Court’s ruling and file the notice with a proof of service forthwith.

[1] “Although [a court] may not rely on unpublished California cases, the California Rules of Court do not prohibit citation to unpublished federal cases, which may properly be cited as persuasive, although not binding, authority.” (Landmark Screens, LLC v. Morgan, Lewis & Bockius, LLP (2010) 183 Cal.App.4th 238, 251, fn. 6, citing in part Cal. Rules of Court, rule 8.1115.) Here, the Court does not find the federal cases to be persuasive.

[2] Ultimate facts are those “constituting the cause of action” or those upon which liability depends, e.g., duty of care, breach of the duty and causation (damages). (See Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 550.) “[T]he term ultimate fact generally refers to a core fact, such as an essential element of a claim. Ultimate facts are distinguished from evidentiary facts and from legal conclusions.” (Central Valley General Hosp. v. Smith (2008) 162 Cal.App.4th 501, 513 [cleaned up]; see also Rodriguez v. Parivar, Inc. (2022) 83 Cal.App.5th 739, 750–751 [“The elements of a cause of action constitute the essential or ultimate facts in a civil case”].)

DEPARTMENT	207
HEARING DATE	January 16, 2025
CASE NUMBER	24SMCV04308
MOTION	Demurrer
MOVING PARTIES	Defendants FCI Lender Services, Inc. and Coastal Capital Group, LLC
OPPOSING PARTY	Plaintiff Maya Grushansky