Judge Mitchell L. Beckloff, Case 22STCV37755 2023-03-29 Tentative Ruling

Judge: Mitchell L. Beckloff, Case: 22STCV37755, Date: 2023-03-29 Tentative Ruling

Plaintiff, Pacific Panorama, LLC, seeks a court order restraining and staying any further action on a nonjudicial foreclosure of the first deed of trust encumbering the real property located at 17000 Sunset Boulevard in Pacific Palisades (the Property). Plaintiff seeks the relief until there is a determination of the proper sums due on the note secured by the deed of trust.

Defendants, KWALA LLC, FCI Lender Services, Inc., and California TD Specialists, oppose the motion.[1]

Defendants’ unopposed request for judicial notice (RJN) of items 1 through 15 is granted.

Defendant’s evidentiary objections to Declaration of Shlomy Weingarten: All objections are sustained except objection number 3 which is overruled. The court notes the declaration is essentially pure argument.

The court has overruled many of Plaintiff’s evidentiary objections based upon Fibreboard Paper Products Corp. v. East Bay Union of Machinists, Local 1304, United Steelworkers . . . (1964) 227 Cal.App.2d 675, 712. Where both objectionable and non-objectionable material is included within the scope of an objection, a general objection is insufficient. Instead, “the inadmissible portion must be specified.” (Ibid.)

Plaintiff’s objections to the Declaration of Alison Clark are all overruled except objection 3 which is sustained.

Plaintiff’s objections to the Declaration of Patrick Pittman are all overruled except objections 4, 8 and 9 which are sustained. Mr. Pittman does not have the necessary foundation to attest to the accuracy of any records created by JPMorgan Chase Bank. Any alleged foundation based upon “training” is insufficient foundation.

The standards governing a preliminary injunction are well known. “[A] court will deny a preliminary injunction unless there is a reasonable probability that the plaintiff will be successful on the merits, but the granting of a preliminary injunction does not amount to an adjudication of the merits.” (Beehan v. Lido Isle Community Assn. (1977) 70 Cal.App.3d 858, 866.) “The function of a preliminary injunction is the preservation of the status quo until a final determination of the merits.” (Ibid.)

As the parties recognize, “Trial courts traditionally consider and weigh two factors in determining whether to issue a preliminary injunction. They are (1) how likely it is that the moving party will prevail on the merits, and (2) the relative harm the parties will suffer in the interim due to the issuance or nonissuance of the injunction.” (Dodge, Warren & Peters Ins. Services, Inc. v. Riley (2003) 105 Cal.App.4th 1414, 1420.) “[T]he greater the . . . showing on one, the less must be shown on the other to support an injunction.” (Ibid. [quoting Butt v. State of California, (1992) 4 Cal.4th 668, 678].) The burden of proof is on the plaintiff as the moving party “to show all elements necessary to support issuance of a preliminary injunction.” (O'Connell v. Superior Court (2006) 141 Cal.App.4th 1452, 1481.)

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.) A plaintiff seeking injunctive relief must also show the absence of adequate damages remedy at law. (Code Civ. Proc., § 526, subd. (a)(4).)

A preliminary injunction ordinarily cannot take effect unless and until the plaintiff provides an undertaking for damages which the enjoined defendant may sustain by reason of the injunction if the court finally decides that the plaintiff was not entitled to the injunction. (See Code Civ. Proc., § 529, subd. (a); City of South San Francisco v. Cypress Lawn Cemetery Assn. (1992) 11 Cal.App.4th 916, 920.)

Plaintiff is the owner of the Property having acquired the Property on October 10, 2008. Defendant KWALA holds two security interests in the Property: a first and second deed of trust, both recorded on April 26, 2007.

On October 3, 2022, Defendants caused a notice of default (NOD) to be recorded on the Property. The NOE recited the default and amount then due under the note as $208,394.55 as of September 30, 2022. (Hoak Decl., ¶¶ 4-5.)

On April 4, 2022, Wells Fargo Bank N.A. as trustee for the Certificate Holders of Structured Asset Mortgage Investment II, Inc. Trust 2007-AR4, Mortgage Pass-Through Certificates, Series 2007-AR-4 (Wells Fargo), assigned the first deed of trust to Defendant KWALA. (RJN No. 12.) Defendant Kwala purchased the debt, including the escrow and expense balances. (Pittman Decl., ¶ 20; Adler Decl., ¶ 4).

On or about January 4, 2023, Defendant KWALA caused Defendant California TD Specialists to record a notice of trustee’s sale. Defendant California TD Specialists scheduled the trustee’s sale for January 31, 2023. (Ex Parte [filed 1-23-23], Ex. F.)

The court issued a temporary restraining order precluding a nonjudicial sale of the Property on January 23, 2023. Plaintiff now seeks a preliminary injunction staying the foreclosure proceeding.

Plaintiff’s first amended complaint contains causes of action for (1) breach of contract, (2) injunctive relief, (3) accounting, (4) declaratory relief, (5) violation of the Rosenthal Act (Civil Code section 1788, et seq., and (6) breach of the covenant of good faith and fair dealing.

Plaintiff asserts it is entitled to a preliminary injunction because Defendants have not provided it with an accurate accounting of the amounts owed on note secured by the first deed of trust. Plaintiff contends Defendant KWALA—as owner of the adjacent real property—is using the power of sale provisions of the first deed of trust “as a pretext to wrongfully procure said real property by sleight of hand tactics by concocting a deficiency in payments, where as here, none exists, as that pretext.” (Ex Parte [filed 1-4-23] 7:2-6.)

Plaintiff provides no evidence to support its pretext theory. In any event, Defendant KWALA’s motive for pursuing nonjudicial foreclosure is irrelevant. Nonetheless, a lender is obligated to provide “accurate” reinstatement information to a borrower trustor upon inquiry. (Anderson v. Heart Federal Sav. & Loan Assn. (1989) 208 Cal.App.3d 202, 216 [emphasis added].) The reinstatement amounts are “in the possession of the beneficiary.” (Id. at 217.) A borrower trustor “is under no obligation to second guess the amount.” (Ibid.) Accordingly, the borrower on a note is entitled to a reasonably accurate accounting of any default to take advantage of its statutory reinstatement rights before a nonjudicial foreclosure sale.

Defendants contend Plaintiff is improperly before the court because it lacks standing.^{^[2]} The court agrees.

Plaintiff acknowledges it is the successor-in-interest to the original borrower, Gregg Corlyn, under the first and second deeds of trust.

Relevant to Defendants’ standing defense, Corlyn acquired the Property in 2001. (Dicecca Decl., ¶ 6, Ex. 1.) On April 6, 2007, Corlyn borrowed $3,697,500 from American Home Mortgage Acceptance, Inc. and signed an adjustable rate note evidencing the loan. (Dicecca Decl., ¶ 5, Ex. 1.) Corlyn also executed a first deed of trust on April 6, 2007 to secure the note. (Dicecca Decl., ¶ 7, Ex. 3.) The first deed of trust named Mortgage Electronic Registration Systems, Inc. (MERS) as the beneficiary under the deed of trust. (Dicecca Decl., ¶ 7, Ex. 3.)

On September 3, 2009, MERS assigned the first deed of trust to Wells Fargo. (Dicecca Decl., ¶ 8, Ex. 4).

On October 8, 2008, Corlyn executed a quitclaim deed transferring his interest in the Property to Plaintiff. The quitclaim deed was not recorded until January 27, 2010. The quitclaim deed reflects the transfer as a gift. (Dicecca Decl., ¶ 9, Ex. 5 [Quitclaim Deed]).^{^[3]}

“Subject to the provisions of Section 18, any Successor in Interest of Borrower who assumes Borrower’s obligations under this Security Instrument in writing, and is approved by Lender, shall obtain all of Borrower's rights and benefits under this Security Instrument.” (Dicecca Decl., Ex. 2; RJN No. 4 [emphasis added]).

Plaintiff does not argue he has any writing approved by a lender permitting him to assume Corlyn’s rights under the first deed of trust. In fact, Defendants demonstrate Plaintiff never obtained such approval. (Pittman Decl., ¶ 21.)

“Wells Fargo Bank, knew of Plaintiffs ownership of said real property since at least 2010, accepted significant payments of $4,082,661.04 from Plaintiff as borrower and as successor in interest or on behalf of Plaintiff and never sought to accelerate the obligations under the Deed of Trust based on Plaintiff’s status as a successor in interest, until just weeks before transferring the Deed of Trust to Opposing Parties, and long after being estopped from doing so by both the passage of time and the acceptance of multiple payments from Plaintiff, and Opposing Parties have known of Plaintiff’s ownership of said real property since at least 2013 and by virtue of all the forgoing and the fact that Opposing Parties acquired the Deed of Trust, with that knowledge, are estopped from challenging Plaintiff’s efforts to seek the relief sought herein.” (Supp. Memo 9:10-19.)

Plaintiff supports its position with quite distinguishable cases such as Quan Wye v. Chin Lin Hee (1898) 123 Cal. 185,[4] Don Rose Oil Co. v. Lindsley (1984) 160 Cal.App.3d 752[5] and Wellenkamp v. Bank of America (1978) 21 Cal.3d 943.[6] (Reply 9:20-10:7.) Thus, while Plaintiff cites some legal authority to support its argument it assumed the rights and obligations of the first deed of trust, Plaintiff’s legal authority is inapposite and therefore unpersuasive.

By contrast, Defendants provide more applicable persuasive authority to support their position Plaintiff lacks standing. (Opposition 11:21-12:4 [citing Green v. Central Mortgage Company (N.D. Cal., Sept. 2, 2015, No. 14-CV-04281-LB) 2015 WL 5157479, at *5 [explaining courts have found “a successor in interest does not assume a borrower’s obligations simply upon obtaining title to property when the deed of trust requires an assumption be made in writing and approved by the lender.”]; Anolik v. Bank of America Loans (E.D. Cal., Apr. 21, 2011, No. 2:11-CV-00406-MCE) 2011 WL 1549291, at *1. [“Plaintiff was not the borrower on the loan and had not assumed the obligations under the loan in writing and with lender’s consent, as required by the Deed of Trust.”]) Plaintiff does not address Defendants legal authorities despite having the ability to do so.

Plaintiff also cites Paragraph R of the first deed of trust to support its position. Paragraph R states: “Successor in interest means any party that has taken title to the property, whether or not the party has assumed borrowers’ obligations under the note and/or this security instrument.” Even assuming Plaintiff is a “successor in interest,” Plaintiff does not explain how how such status provides Plaintiff with standing for the claims asserted—such as the breach of a contract to which Plaintiff is not a party. Moreover, the first deed of trust provides: “Any forbearance by Lender in exercising any right or remedy including, without limitation, Lender’s acceptance of payments from third persons, entities or Successors in Interest of Borrower or in amounts less than the amount then due, shall not be a waiver of or preclude the exercise of any right or remedy.” (RJN No. 3.)

Thus, Wells Fargo’s knowledge of Plaintiff—even if true—is of no consequence. That is, the deed of trust expressly permits the lender to accept payments from third parties or Plaintiff without waiving or precluding its rights or remedies. (RJN No. 3). A lender’s acceptance of payments does not give Plaintiff standing or constitute its agreement Plaintiff assumed the loan and succeeded to the borrower’s rights and responsibilities on the first deed of trust.

Accordingly, the court finds Plaintiff lacks standing on both the contract related claims and the derivative declaratory relief claim. (Hatchwell v. Blue Shield of Cal. (1988) 198 Cal. App. 3d 1027, 1034. [“Someone who is not a party to the contract has no standing to enforce the contract or to recover extra-contract damages for wrongful withholding of benefits to the contracting party.”]; see, e.g., Sherwyn & Handel v. Department of Social Services (1985) 173 Cal.App.3d 52, 58-59 [explaining plaintiffs lacked standing to assert claim for declaratory relief because plaintiffs had not demonstrated they were parties to contract at issue and therefore, no justiciable controversy was presented].)

For this reason, Plaintiff also is not a “borrower” under title 12 Code of Federal Regulations section 1024.41[7] and lacks standing to assert any violation of the regulation. (FAC ¶ 32.)

Second, and in addition to the standing argument, Defendants also argue the amounts in the NOD are accurate. The court cannot make the finding. Defendants position turns on the acceptance of the amounts allegedly owing to JPMorgan Chase Bank, N.A. The evidence provided by Defendants is not authenticated, constitutes hearsay, and appears on its face to be inaccurate.

On November 19, 2021, Select Portfolio Servicing, Inc. (SPS), a loan servicer for Wells Fargo, issued a reinstatement quote for $4,082,661.04. (Pittman Decl., ¶¶ 12-13, Ex. C.) Defendants acknowledge SPS received a payment in the amount of $4,102,661.04 from an account in the name of an unknown third-party Vukota Colorado Springs, LLC on November 23, 2021. (Labarre Decl., ¶ 7; Pittman Decl., ¶ 14.) Plaintiff contends the amount submitted was adequate to reinstatement the loan on its behalf and consistent with SPS’s reinstatement quote.

Defendants contend the reinstatement quote did not include advances made for property taxes and hazard insurance from November 2013 through November 11, 2021. (Pittman Decl., ¶ 10.) Such advances for that period totaled $1,016,433.38. (Pittman Decl., ¶ 10.)

In addition, Defendants claim—without admissible evidence—SPS “inherited” an outstanding balance due for advances of $314,146.32. Plaintiff properly challenges the admissibility of the transition history document and the alleged $314,146.32 property tax and hazard insurance advances balance inherited from JPMorgan Chase Bank.

[As noted, Pittman does not demonstrate sufficient foundation on facts alleged in JPMorgan Chase Bank’s purported history. The court notes many issues with the history causing concern about its accuracy. For example, entry 1 purportedly shows a county tax payment of $13,881.64 with a due date of November 1, 2008. Entries 11, 25, 35, 38, 40, 48, 53, 55, 59 and 62 all purport to show the same due date with different tax payments. Without some testimony explaining the methodology used for the history, the history cannot be deciphered. Additionally, the history appears to suggest other amounts were paid without explanation of those payments. (See, e.g., entries 9, 18-22 and 26-30.) Finally, it is curious to the court the JPMorgan Chase Bank history begins with entry 1 on November 1, 2008 when the loan occurred on April 6, 2007.]

Defendants contend as of November 11, 2021, $1,330,579.70 in advances for property tax and hazard insurance were outstanding. (Pittman Decl., ¶ 10.)[8]

Defendants acknowledge they issued a reinstatement figure that did not include advances for property taxes and hazard insurance because the escrow amounts calculated to be collected over the subsequent months were not due and payment of the entire escrow balance was not required to reinstate the loan. (Pittman Decl., ¶¶ 12-13, Exh. C.) After the reinstatement payment, Defendants claim there remained a negative escrow balance of -$330,348.41

(-$1,277,757.63 [escrow balance] - $52,822.07 [advanced taxes for 11/21] + $1,000,231.29 [escrow payments] = -$330,348.41 [new escrow balance]). (Pittman Decl., ¶ 16.) Additionally, the “loan level advance” balance was $34,948.40 and $95 had been incurred for legal fees and costs. (Pittman Decl., ¶ 18, Ex. G).

That there is no admissible evidence of a balance due for advances by JPMorgan Chase Bank of $314,146.32 and Defendants have included the amount as necessary for reinstatement, the court cannot find Defendants’ reinstatement quote is accurate.

SPS advanced $52,822.06 on March 11, 2022 to pay taxes and received two payments on July 17, 2022 for $21,092.68 each. Of that amount, SPS used $17,897.12 to pay advances (negative escrow), leaving a negative escrow balance of -$365,273.35 at the time of the transfer to the new loan servicer FCI Lender Services, Inc. (FCI). (Pittman Decl., ¶ 16.)

Therefore, SPS posted $4,097,322.49 to payments/escrow advances and only $5,338.55 to loan level advances, leaving an outstanding balance after the reinstatement of $34,948.40 representing a loan level advance balance then transferred to FCI. (Labarre Decl., ¶ 8, Ex. 2.)

On July 21, 2022, FCI received a wire transfer in the amount of $113,303.33 from third party VCM. (Clark Decl., ¶ 9; Dicecca Decl., ¶ 15, Ex. 11.) FCI applied the $113,303.33 payment toward the unpaid principal, interest, and escrow owed by the borrower for the months of March 1, 2022 to May 31, 2022; as a result, the negative escrow balance was reduced to $311,581.99. (Clark Decl., ¶ 9, Ex. 5.)

After the NOD was recorded on October 2022, FCI received three wire transfers of $24,870.78 from VCM on November 2, 2022. (Clark Decl., ¶ 15; Dicecca Decl., ¶ 15.) Defendant KWALA rejected the payments as insufficient to bring the loan current and the payments returned the payments to VCM.[9] (Dicecca Decl., ¶ 7, Ex. 3 [1st Deed of Trust, at p. 5, ¶ 1]; Clark Decl., ¶ 15).

On November 8, 2022, FCI paid $68,978.60 for the first half of the 2022-2023 property taxes, which increased the negative escrow balance to $380,560.59. FCI closed the escrow account on November 9, 2022. (Clark Decl., ¶¶ 13, 16, Ex. 8, 10; Adler Decl., ¶ 6).

Despite the detail in the evidence (without regard to the lack of evidence concerning JPMorgan Chase Bank), Plaintiff argues it “belies credibility to believe that . . . reinstatement quote did not include all advances up to November 19, 2021 and as such there should have left a zero-escrow balance.” (Reply 5:7-10.)

Despite the evidentiary issues surrounding the amount needed to reinstate the loan, the court cannot find Plaintiff has demonstrated any probability of prevailing on the merits of its claims based on a lack of standing.

The court cannot find on the evidence presented, however, Defendants have demonstrated the claimed default amount is reasonably accurate.

The second part of the preliminary injunction analysis requires the court to evaluate the harm the plaintiff is likely to sustain if the preliminary injunction is denied compared to the harm the defendant is likely to suffer if the injunction is issued. (IT Corp. v. County of Imperial (1983) 35 Cal.3d 63, 69-70.) “However, ‘[a] trial court may not grant a preliminary injunction, regardless of the balance of interim harm, unless there is some possibility that the plaintiff would ultimately prevail on the merits of the claim.’ ” (Law School Admission Council, Inc. v. State of California (2014) 222 Cal.App.4th 1265, 1280 [quoting Butt v. State of California (1992) 4 Cal.4th at 678].)

Neither party discusses the balances of harm. Plaintiff merely advises: “Plaintiff would be irrevocably and irreparably harmed by the loss of said real property.” (Weingarten Decl., ¶ 22.)

Defendants appear to concede the harm weighs in Plaintiff’s favor by omitting any discussion of harm whatsoever.

The court is inclined to find, in the circumstances of a nonjudicial foreclosure, there is an obvious harm to Plaintiff and that such a harm is irreparable and significant: “loss of a home can constitute irreparable harm.” (Diaz v. Wells Fargo Bank, N.A. (N.D. Cal., Nov. 25, 2013, No. 13-CV-04915-LHK) 2013 WL 6172648, at *3; see also Sundance Land Corp. v. Community First Federal Sav. and Loan Ass'n (9th Cir. 1988) 840 F.2d 653, 661 [recognizing real property loss of may result in irreparable harm in some circumstances].)

Accordingly, the court finds the balance of harms weighs in Plaintiff’s favor.

Based on the balance of the likelihood of success on the merits and the parties’ competing harms, the court finds Plaintiff has not demonstrated entitlement to a preliminary injunction during the pendency of the litigation. Despite the balance of harm weighing in Plaintiff’s favor, Plaintiff has not shown a likelihood of success on the merits.

[1] Plaintiff contends Defendants untimely filed their opposition. Plaintiff is correct. Nonetheless, the court overlooks the untimely filing given there appears to be no prejudice. Plaintiff also argues Defendants’ supplemental opposition combined with their original opposition exceed applicable page limitations. For purposes of this request for a preliminary injunction, the court considers only Defendants’ later filed “supplemental” opposition.

[2] On January 23, 2023, Plaintiff filed its first amended complaint and dismissed its statutory claim for an alleged violation of Civil Code section 2943. Defendants contend the Civil Code section 2943 claim served as the only claim for which Plaintiff had standing to pursue as an “entitled person.” Defendants argue none of the claims alleged in the first amended complaint support a preliminary injunction. (Dicecca Decl., ¶ 16.)

[3] In 2014, Corlyn filed a civil action seeking to enjoin the nonjudicial foreclosures of the Property by Wells Fargo. Despite the 2008 quitclaim deed Corlyn asserted he was the borrower in that litigation. (RJN No. 9). Corlyn made similar allegations against Wells Fargo on June 28, 2019 in another action where he asserted: “Mr. Corlyn has standing to sue because, though he does not live at the subject property, he is still the borrower on the loan.” (RJN Nos. 10-11; Dicecca Decl., ¶ 13, Ex. 9 [Corlyn’s FAC ¶ 36].)

[4] Quan Wye v. Chin Lin Hee, supra, 123 Cal. at 185 addressed the authority of an assignee (pursuant to a properly assigned contract) to sue on a contract. Nothing here suggests Plaintiff assumed Corlyn’s rights and obligations under the deed of trust.

[5] Don Rose Oil Co. v. Lindsley, supra, 160 Cal.App.3d at 752 cited Quan Wye v. Chin Lin Hee, supra, 123 Cal. at 185 for the proposition as assignee may prosecute an action. Of course, Quan Wye v. Chin Lin Hee, supra, 123 Cal. at 185 arose in the context of a proper assignment. Don Rose Oil Co. v. Lindsley concerned whether an oil company had improperly withheld consent to an assignment. As there is no evidence Corlyn ever attempted to obtain the lender’s consent, the issue raised in Don Rose Oil Co. v. Lindsley is not relevant here.

[6] The Supreme Court did not address the issue of standing in Wellenkamp v. Bank of America, supra, 21 Cal.3d 943. Thus, the court cannot determine whether there was an assignment prohibition in the deed of trust at issue. Here, there is a provision in the deed of trust requiring the lender to consent to any assumption of Corlyn’s rights and obligations under the deed of trust. Defendants do not address the case.

[7] These regulations implement the Real Estate Settlement Procedures Act (RESPA). (12 U.S.C. 2601 et. seq.) Title 12 C.F.R. section 1024.41, subdivision (f)(1)(i) provides “[a] servicer shall not make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process unless [a] borrower's mortgage loan obligation is more than 120 days delinquent.”

[8] Although SPS made a number of advances for hazard insurance, those amounts were ultimately refunded when satisfactory proof of insurance for the time-periods in question were provided to SPS. Accordingly, any balance due for advances for hazard insurance was eliminated.

[9] Paragraph 1 of the first deed of trust provides “Lender may return any payment or partial payment if the payment or partial payments are insufficient to bring the Loan current.”