TENTATIVE RULING

Calendar:    6

Date:          8/12/2022

Case No: 22 GDCV00368

Case Name: Salem v. Axos Financial, Inc., et al.

MOTION FOR PRELIMINARY INJUNCTION

Moving Party: Plaintiff Ayman M. Salem 

Responding Party: Defendant Axos Financial, Inc. dba Axos Bank  

Defendant First American Title Insurance Company (Disclaimer)

RELIEF REQUESTED:

Preliminary injunction enjoining during the pendency of this matter defendants from holding a trustee’s sale or attempting to evict plaintiff or attempting to sell the subject property or otherwise transfer title.   

FACTUAL AND PROCEDURAL BACKGROUND:

Plaintiff Ayman M. Salem alleges that plaintiff is the owner of real property in La Canada, and that plaintiff refinanced the original loan used to purchase the subject property when plaintiff borrowed funds from defendant BOFI Federal Bank, with the promissory note regarding the loan secured by a deed of trust recorded on February 12, 2015.   Plaintiff alleges that in 2018 defendant Axos Financial, Inc. announced it had re-branded BOFI Federal Bank as Axos Bank.   Defendant First American Title Insurance Company became the trustee of the deed of trust pursuant to an Assignment of Deed of Trust recorded in March of 2020.  

The complaint alleges that in March of 2020, defendants caused a Notice of Default and Election to Sell to be sent to plaintiff and recorded, and in July of 2020, and again in March of 2022, defendants caused a Notice of Trustee’s Sale to be sent to plaintiff and recorded, with the latest notice scheduling the trustee’s sale to take place on July 5, 2022.  

Plaintiff alleges that by initiating foreclosure proceedings against plaintiff’s property, defendant has violated the Homeowners Bill of Rights by failing to provide notices to plaintiff in violation of Civil Code section 2924(a)(5), failing to verify foreclosure documents for accuracy, in violation of Civil Code section 2924.17, failing to provide notices advising plaintiff of foreclosure alternatives in violation of Civil Code section 2924.9, failing to contact or exercise diligence to attempt to contact plaintiff in order to assess plaintiff’s financial situation and explore options to foreclosure in violation of Civil Code sections 2923.55(b) and 2923.55(f), and recording a notice of default and notice of sale while plaintiff’s complete short-sale package was pending in violation of Civil Code section 2923.6. 

The complaint alleges causes of action for violation of the Homeowners Bill of Rights, Wrongful Foreclosure, Promissory Estoppel, and Injunctive Relief.   

The file shows that on July 1, 2022, the court heard plaintiff’s ex parte application for a TRO enjoining defendants from holding a trustee’s sale of the subject property, which was granted.  The OSC re preliminary injunction was scheduled for this date.  

ANALYSIS:

Under CCP § 526, an injunction may be granted in cases (a):

“(1) When it appears by the complaint that the plaintiff is entitled to the relief demanded, and the relief, or any part thereof, consists in restraining the commission or continuance of the act complained of, either for a limited period or perpetually.

(2) “When it appears by the complaint or affidavits that the commission or continuance  of some act during the litigation would produce waste, or great or irreparable injury, to a party to the action.  

(3) When it appears, during the litigation, that a party to the action is doing, or threatens, or is about to do, or is procuring or suffering to be done, some act in violation of the rights of another party to the action respecting the subject of the action and tending to render the judgment ineffectual.

(4) When pecuniary compensation would not afford adequate relief.

(5) Where it would be extremely difficult to ascertain the amount of compensation which would afford adequate relief….”

An application for a preliminary injunction is considered a motion procedure and must be supported by affidavits or declarations which provide evidentiary facts under CCP § 2009.  CCP section 527(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.”)  See also Ancora-Citronelle Corp. v. Green (1974) 41 Cal.App.3d 146, 149-150.  The burden is on the party seeking injunctive relief “to show all elements necessary to support issuance of a preliminary injunction.” O’Connell v. Superior Court (2006) 141 Cal.App.4th 1452, 1481, citing Weil & Brown, Civil Procedure Before Trial, at 9:632.1.   

Granting or denying a preliminary injunction is within the sound discretion of the trial court and will be upheld on appeal absent an abuse of discretion.  Jessen v. Keystone Savings & Loan Assn.  (1983) 142 Cal.App.3d 454, 458.  Such a remedy is intended to preserve the status quo until a full trial on a permanent injunction may be conducted.      

Plaintiff indicates in plaintiff’s declaration that the subject property is plaintiff’s “primary residence,” which plaintiff has owned since September of 2007.   [Salem Decl., para.  2].  This would give rise to an inference that the loss of the property would be irreparable, as real property is considered to be unique. See Jessen v. Keystone Savings & Loan Assn.  (1983) 142 Cal.App.3d 454, 457-458.  However, the moving papers also include a handwritten hardship letter from Ayman Salem stating, “The house itself has been deteriorating because of water leaks that I was unable to fix that led to accumulation of mold and I had to move my whole family to a condo at Newport.”  [Ex. 9, Hardship Letter, attached to Residential Purchase Agreement, p. 90 of moving papers].  This raises some concern that the loss plaintiff is facing here is not in the nature of the usual irreparable loss of a primary residence.  

Plaintiff seeks relief on the ground plaintiff is likely to prevail in this case on its merits, as plaintiff argues that defendants are attempting to foreclose on the subject property without having given plaintiff the notices and followed all procedures under the Homeowners Bill of Rights.   

In Butt v. State of California, (1992) 4 Cal.4th 668, the California Supreme Court set the following criteria in connection with preliminary injunction applications under subdivision (a) (1):

“In deciding whether to issue a preliminary injunction, a court must weigh two ‘interrelated’ factors: (1) the likelihood that the moving party will ultimately prevail on the merits and (2) the relative interim harm to the parties from issuance or nonissuance of the injunction.”

Butt, at 677-678.

The moving papers include a declaration of plaintiff in which the following statements are made in support of the claims that defendants have violated the HBOR:

“11. I applied to AXOS BANK for a loan modification in 2020 which was subsequently denied. 

12. In approximately early November 2021, Edward Rostamian of SOUTH STATE REAL ESTATE MANAGEMENT, INC. assisted me in preparing a "short-sale" package in an effort to sell the subject property to avoid foreclosure. The package was submitted to AXOS BANK which included an offer to purchase the property for $3,500,000.00. AXOS BANK turned down the offer and made no effort to negotiate. 

13. During the "short-sale" process AXOS BANK continued to proceed with their foreclosure, eventually recording the NOTICE OF TRUSTEE'S SALE on March 11, 2022. 

14. The short-sale application was made in good faith, and I was willing to further negotiate with AXOS BANK after they turned down the initial offer. However, AXOS BANK was unwilling to negotiate further. 

15. Throughout the foreclosure process initiated by BOFI 5 FEDERAL BANK and AXOS BANK I never received any notices from them regarding foreclosure alternatives. 

16. My desire is to keep my home.

[Salem Decl., paras.  11-16].

The motion attaches the Notice of Default, recorded on March 16, 2020, which attaches a California Contact or Due Diligence Declaration, which is signed by the Director of Credit of Axos Bank and states, “The mortgage servicer was not required to comply with CIV. CODE section 2923.5 because the entity does not complete more than the quantitative amount of foreclosure stated under CIV. CODE section 2924.18(b).” 

[Ex. 4, Notice of Default, Ex. 8].  This suggests that plaintiff’s statement that plaintiff never received any notices from defendant regarding foreclosure alternatives is irrelevant, as there was no obligation on the part of this particular lender to provide such notices.  The declaration also appears to itself call into question the statement that no notices were received, as the declaration also states that plaintiff in fact applied for a loan modification, which was denied, and has been in negotiations concerning a short sale alternative.   [Salem Decl., paras. 11-15].   

Under Civil Code section 2924.12, homeowners are now provided a statutory private right of action, as follows:

“(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 of Section 2923.55, 2923.6, 2923.7, 2924.9, 2924.10, 2924.11, or 2924.17.

 (2) Any injunction shall remain in place and any trustee's sale shall be enjoined until the court determines that the mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent has corrected and remedied the violation or violations giving rise to the action for injunctive relief. An enjoined entity may move to dissolve an injunction based on a showing that the material violation has been corrected and remedied.”

To the extent plaintiff argues that defendants violated section 2924(a)(5) by failing to provide notice of trustee’s sale to Barquq, to which plaintiff recently transferred a 25% interest in the subject property, there is no evidence that such a notice was not given, no declaration from that party so stating, and, in any case, as argued in the opposition, section 2925 (a) is not a statute listed in section 2924.12, giving rise to an action for the remedies sought by plaintiff.   See Civil Code section 2924.12(a)(1). 

To the extent plaintiff relies on plaintiff’s statement that notices were not received, plaintiff relies on Civil Code section 2924.9, which provides:

“(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.

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

2924.15.”

(Emphasis added). 

Civil Code section 2924.18(b) provides:

“(b) This section shall apply only to a depository institution chartered under state or federal law, a person licensed pursuant to Division 9 (commencing with Section 22000) or Division 20 (commencing with Section 50000) of the Financial Code, or a person licensed pursuant to Part 1 (commencing with Section 10000) of Division 4 of the Business and Professions Code, that, during its immediately preceding annual reporting period, as established with its primary regulator, foreclosed on 175 or fewer residential real properties, containing no more than four dwelling units, that are located in California.”

(Emphasis added). 

To the extent plaintiff argues that the Due Diligence declaration was robo-signed and not based on verification of the default and the right to foreclose, plaintiff has failed to submit any evidence supporting such an argument and appears to concede that there was in fact a default and a right to foreclose.  

In any case, as set forth above, the Due Diligence declaration stated that defendant was not obligated to comply with the due diligence requirements because it did not have the requisite foreclosure rate, and defendant has submitted evidence to support that statement.  Defendant has submitted documentation showing that for the reporting years at issue, 2019-2021, Axos did not foreclose on more than 175 residential properties.  [Pelletier Decl., Exs. 2-3].   Plaintiff in reply does not challenge this showing but argues that plaintiff must be permitted to examine the declarant of the Due Diligence declaration to determine the validity of the declaration.  This is not necessary under the circumstances, as the statement has been independently verified to be correct.  

The showing also supports defendant’s argument that statutory provisions relied upon, including Section 2924.9, do not impose the obligations on defendant Axos which plaintiff argues are violated.    

To the extent plaintiff argues that defendants have failed to continue to negotiate a short sale alternative, plaintiff does not cite to any statutory provision which mentions a short sale alternative, but seems to rely on Civil Code § 2923.6, which provides for procedures to be followed in loan modification application processes, and provides, in pertinent part:

“(c) If a borrower submits a complete application for a first lien loan modification offered by, or through, the borrower's mortgage servicer, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or notice of sale, or conduct a trustee's sale, while the complete first lien loan modification application is pending. A mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or notice of sale or conduct a trustee's 

sale until any of the following occurs:

(1) The mortgage servicer makes a written determination that the borrower is not eligible for a first lien loan modification, and any appeal period pursuant to subdivision (d) has expired.”

Plaintiff has conceded that a loan modification application was denied.  [Salem Decl., para. 11].   The statute does not pertain to short sale negotiations.  The statute also provides, at subdivision (i), “(i) Subdivisions (c) to (h), inclusive, shall not apply to entities described in subdivision (b) of Section 2924.18.”  As discussed above, defendant has established that it is an entity described in Section 2924.18(b).   

Moreover, although not mentioned by the parties, the hardship letter plaintiff attached to the moving papers raises some question whether plaintiff can invoke the HBOR under the current circumstances, where plaintiff is evidently no longer occupying the premises, but has moved the family to a condo in Newport.  [Ex. 9, Hardship Letter, attached to Residential Purchase Agreement, p. 90 of moving papers].  

Specifically, under Civil Code § 2924.15:

“(a) Unless otherwise provided, paragraph (5) of subdivision (a) of Section 2924, and Sections 2923.5, 2923.55, 2923.6, 2923.7, 2924.9, 2924.10, 2924.11, and 2924.18 shall apply only to a first lien mortgage or deed of trust that meets either of the following criteria:

(1)(A) The first lien mortgage or deed of trust is secured by owner-occupied residential real property containing no more than four dwelling units.

(B) For purposes of this paragraph, “owner-occupied” means that the property is the principal residence of the borrower and is security for a loan made for personal, family, or household purposes.

(2) The first lien mortgage or deed of trust is secured by residential real property that is occupied by a tenant, contains no more than four dwelling units, and meets all of the conditions described in subparagraph (B).

(Emphasis added). 

Under the circumstances, plaintiff has failed to establish a probability of prevailing on plaintiff’s claims, and the motion is denied. 

Defendant also argues in opposition that plaintiff lacks overall standing to bring this action, as plaintiff is involved in an ongoing Chapter 7 bankruptcy proceeding, so that the claims in this lawsuit are in fact the property of the bankruptcy trustee. 

  Defendant has presented authority under which the Second District determined that a claim for wrongful foreclosure to set aside a foreclosure sale of a debtor’s residence is property of the bankruptcy estate which only the chapter 7 trustee can pursue.  Bostanian v. Liberty Savings Bank, FSB (1997) 52 Cal.App.4th 1075.  The Second District in Bostanian concluded that plaintiffs, a husband and wife, had no standing to pursue the appeal in the action, and 

granted plaintiffs 30 days in which to secure an abandonment by the trustee of the cause of action in the bankruptcy court.    

In that case, the bankruptcy had originally been a Chapter 11 reorganization which was converted to a Chapter 7.  The Second District noted that different rules apply to each type of proceeding: 

“Defendants contend plaintiffs' cause of action is property of the bankruptcy estate which only the chapter 7 trustee has standing to pursue. There is no dispute that as a chapter 11 debtor in possession, Mr. Bostanian had standing to prosecute this action. (§ 1107(a);  Fed. Rules Bankr. Proc., rule 6009 (11 U.S.C.); J & K Painting Co. v. Bradshaw (1996) 45 Cal. App. 4th 1394, 1402, fn. 8 [53 Cal. Rptr. 2d 496]; California Aviation, Inc. v. Leeds (1991) 233 Cal. App. 3d 724, 729 [284 Cal. Rptr. 687].) As our colleague, Associate Justice Ruben Ortega of Division One of this appellate district, explained in California Aviation, Inc. v. Leeds, supra, 233 Cal. App. 3d at page 729: "[It is undisputed the plaintiff] had standing to pursue its [legal malpractice] case . . . as a chapter 11 debtor in possession.'With or without court approval, the trustee or debtor in possession may prosecute or may enter an appearance and defend any pending action or proceeding by or against the debtor, or commence and prosecute any action or proceeding in behalf of the estate before any tribunal.' ( Fed. Rules Bankr., rule 6009, 11 U.S.C., italics added.)  Chapter 11 debtors in possession have such standing with or without bankruptcy court approval because they retain possession and control of their assets as part of their bankruptcy court-supervised plans to revive their businesses and satisfy their creditors. However, the bankruptcy court supervises the liquidation of failed chapter 7 debtors, who can begin or maintain lawsuits in their own name only with the bankruptcy court's and trustee's approval." (Cf. People v. Kings Point Corp. (1986) 188 Cal. App. 3d 544, 548-549 [233 Cal. Rptr. 227] [applying a contrary rule where a trustee was appointed in a chapter 11 proceeding and assumed all authority in litigation]; and see contra, Tarr v. Merco Construction Engineers, Inc. (1978) 84 Cal. App. 3d 707, 712-713 [148 Cal. Rptr. 813] [holding chapter 11 debtor had no standing to sue].)

However, defendants argue, when the matter was converted to chapter 7, standing to maintain this lawsuit became vested in the bankruptcy trustee. Further, defendants contend, the chapter 7 trustee has not abandoned this cause of action; therefore, the chapter 7 trustee is the only party withstanding to appeal. We agree for the following reasons.

Bostanian, at 1078-1079, italics in original.

The Second District found that in such cases “the debtor must take affirmative steps to comply with section 554 concerning abandonment.  Until the debtor secured an abandonment of the claim, the debtor lacks standing to pursue it.”   Bostanian, at 1083.   

Here, the opposition submits the docket in plaintiff’s August 24, 2020 bankruptcy case, which shows that the matter was converted in February of 2021 to a Chapter 7 case, and is pending, “Awaiting 341 Meeting, Awaiting Discharge.”   [Pelletier Decl., para. 3, Ex. 1].  The docket shows some activity in November of 2021 suggesting that there may have been relief granted from the automatic stay with respect to the subject property, or that the trustee proposed to abandon that asset, but the docket is not clear.   Plaintiff in the reply does not address this argument, suggesting it is possible plaintiff also has little probability of prevailing in this matter until plaintiff can establish standing with respect to the bankruptcy estate.   

The motion for preliminary injunction is denied.   

Bond 

If the court is inclined after the hearing to grant the preliminary injunction, defendant requests that the court require an appropriate bond.   It is not likely that the court will change its tentative ruling denying the plaintiff’s request for a preliminary injunction.  So the issue of the bond most likely will be moot.

Under CCP § 529 (a), if the court grants the injunction it “must require an undertaking on the part of the applicant to the effect that the applicant will pay to the party enjoined any damages, not exceeding an amount to be specified, the party may sustain by reason of the injunction, if the court finally decides that the applicant was not entitled to the injunction.”

Because the bond requirement is mandatory, it is held that defendant’s failure to request a bond does not waive the requirement.   Abba Rubber Co. v. Seaquist (1991) 235 Cal.App.3d 1, 10.

The “damages” to be covered by the statute include both lost profits and the expenses incurred in having the injunction dissolved:

“It is now well settled that reasonable counsel fees and expenses incurred in successfully procuring a final decision dissolving the injunction are recoverable as ‘damages’ within the meaning of the language of the undertaking, to the extent that those fees are for services that relate to such dissolution.”

Russell v. United Pacific Ins. Co. (1963) 214 Cal.App.2d 78, 88-89. 

In determining the appropriate amount of an undertaking:

“the trial court’s function is to estimate the harmful effect which the injunction is likely to have on the restrained party, and to set the undertaking at that sum.”

Abba, at 14. 

 

The standard of review is clear abuse of discretion:

“That estimation is an exercise of the trial court’s sound discretion and will not be disturbed on appeal unless it clearly appears that the trial court abused its discretion by arriving at an estimate that is arbitrary or capricious, or is beyond the bounds of reason.”

Id., citation omitted. 

The court in Abba concluded:

“Thus, in calculating the amount of the undertaking to be required in this case, the trial court should have considered at least (1) the profits to be lost by the defendants from the elimination of the vast majority of their existing customers, and (2) the attorney’s fees and expenses to be incurred in either prosecuting an appeal of the preliminary injunction, or defending at trial against those causes of action upon which the preliminary injunctive relief had been granted.” 

Abba, at 16. 

Here, the opposition requests a bond, but does not set forth the monthly mortgage payments.  It appears from the documentation submitted by plaintiff, “Explanation of Financial Hardship” dated May 12, 2020, that the monthly payment was at that time $24,786.87.  [Ex. 9, p. 100 of moving papers].  

It appears that a reasonable bond would include the monthly payments which defendant Axos would otherwise be receiving during the pendency of this action, in addition to attorney’s fees to defend this claim.    Assuming the matter goes to trial in 12 months, this would include $297,442.44 in monthly payments.  Defendant submits a declaration of counsel estimating that the cost to defend will involve challenges to the pleadings, the completion of discovery, depositions and a motion for summary judgment, and should approximate $50,000.  This showing appears reasonable and is not challenged by the reply. The total bond will accordingly be $347,442.44.  

 

RULING:   

Application for preliminary injunction is DENIED, as plaintiff has failed to establish a likelihood of prevailing on his claims or causes of action in this matter. 

Temporary Restraining Order issued on July 1, 2022 is ordered dissolved.  

 

GIVEN THE CORONAVIRUS CRISIS, AND TO ADHERE TO HEALTH GUIDANCE THAT DICTATES SAFETY MEASURES, DEPARTMENT D IS ENCOURAGING AUDIO OR VIDEO APPEARANCES

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