Judge Salvatore Sirna, Case Number: 23PSCV01707, Date: 2023-10-17 Tentative Ruling

Judge: Salvatore Sirna, Case: 23PSCV01707, Date: 2023-10-17 Tentative Ruling

Case Number: 23PSCV01707 Hearing Date: October 17, 2023 Dept: G

Defendants Select Portfolio Servicing, Inc. and HSBC Bank USA National Association’s Demurrer

Respondent: Plaintiff Caroline Garcia

TENTATIVE RULING

Defendants Select Portfolio Servicing, Inc. and HSBC Bank USA National Association’s Demurrer is OVERRULED IN PART, SUSTAINED IN PART with ten (10) days leave to amend as to the second, third, fourth, and sixth causes of action and without leave to amend as to the first cause of action. The Demurrer is OVERRULED IN PART as to the fifth cause of action.

BACKGROUND

This is a wrongful foreclosure action. In November 2006, Plaintiff Caroline Garcia obtained a mortgage loan on real property in Hacienda Heights in the amount of $322,000 from Mega Capital Funding, Inc. (Mega Capital). The mortgage was secured with a deed of trust. In June 2012, Mega Capital assigned the deed of trust to a securitized trust represented by Defendant HSBC Bank USA National Association (HSBC Bank) as trustee of the certificate holders of the Deutsche Alt-A Securities Mortgage Loan Trust, Series 2007-BAR1, Mortgage Pass-Through Certificates Series 2007-BAR1. In July 2022, a notice of default and election to sell under a deed of trust was recorded. A notice of trustee’s sale was recorded in October 2022. In January 2023, the Hacienda Heights property was sold.

On June 7, 2023, Garcia filed a complaint against HSBC Bank, Select Portfolio Servicing, Inc. (SPS), and Does 1-10, alleging the following causes of action: (1) violation of Civil Code section 2923.5; (2) violation of Civil Code section 2924, subdivision (a)(1); (3) violation of Civil Code section 2924.9; (4) wrongful foreclosure; (5) unfair business practices in violation of Business and Professions Code section 17200 et seq.; and (6) cancellation of written instruments.

On September 11, 2023, HSBC Bank and SPS filed the present demurrer. Prior to filing, HSBC Bank and SPS’s counsel met and conferred telephonically with Garcia’s counsel and was unable to reach a resolution.

A hearing on the demurrer is set for October 17, 2023. A case management conference and OSC Re: Failure to File Proof of Service are also set for November 7.

REQUEST FOR JUDICIAL NOTICE

HSBC Bank and SPS’s request for judicial notice of a filing with the Los Angeles County Recorder’s Office is GRANTED pursuant to Evidence Code section 452, subdivision (c).

ANALYSIS

HSBC Bank and SPS demur to Garcia’s entire Complaint. For the following reasons, the court SUSTAINS their demurrer to Garcia’s second, third, fourth, and sixth causes of action with leave to amend and to Garcia’s first cause of action without leave to amend. Furthermore, the court OVERRULES the demurrer to Garcia’s fifth cause of action.

Legal Standard

A party may demur to a complaint on the grounds that it “does not state facts sufficient to constitute a cause of action.” (Code Civ. Proc., § 430.10, subd. (e).) A demurrer tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747 (Hahn).) When considering demurrers, courts accept all well pleaded facts as true. (Fox v. JAMDAT Mobile, Inc. (2010) 185 Cal.App.4th 1068, 1078.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.” (SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905.) “The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.” (Hahn, supra, at p. 747.)

Violation of Civil Code § 2923.5 (First Cause of Action)

HSBC Bank and SPS argue Garcia’s first cause of action for violation of Civil Code section 2923.5 fails to plead sufficient facts to state a claim. The court agrees.

Garcia alleged HSBC Bank and SPS failed to comply with the requirements of Civil Code section 2923.5, subdivision (a)(2), which require a mortgage servicer to reach out to the borrower to discuss how the borrower can avoid foreclosure prior to the recording of a notice of default. This code section’s only remedy is “a one-time postponement of the foreclosure sale before it happens.” (Lueras v. BAC Home Loans Servicing (2013) 221 Cal.App.4th 49, 77.) Thus, it cannot provide relief once a sale has already taken place. (Stebley v. Litton Loan Servicing, LLP (2011) 202 Cal.App.4th 522, 526.)

In this case, Garcia alleged the Hacienda Heights property was sold on January 12, 2023, and a trustee’s deed upon sale was recorded March 7. (Complaint, ¶ 14-15.) Accordingly, because the Hacienda Heights property was already sold and there is no applicable remedy pursuant to Civil Code section 2923.5, HSBC Bank and SPS’s demurrer to this cause of action is SUSTAINED without leave to amend. (See California Department of Tax and Fee Administration v. Superior Court (2020) 48 Cal.App.5th 922, 938 [denial of leave to amend appropriate where action barred as a matter of law].)

Violation of Civil Code § 2924, subd. (a)(1) (Second Cause of Action)

HSBC Bank and SPS contend Garcia’s second cause of action for violation of Civil Code section 2924, subdivision (a)(1) fails to plead sufficient facts to state a claim. The court agrees.

Garcia alleged HSBC Bank and SPS violated Civil Code section 2924, subdivision (a)(1) by recording a notice of default and notices of trustee’s sale during a COVID-19 forbearance period. (Complaint, ¶ 32.) But Garcia’s allegations are unclear and vague as Garcia does not allege the legal authority for the COVID-19 forbearance. Nor does Garcia allege when or how Garcia obtained a COVID-19 forbearance and for what period of time the forbearance period lasted. Thus, the court finds Garcia insufficiently pled a violation on this ground.

Garcia also alleged HSBC Bank and SPS violated Civil Code section 2924, subdivisions (a)(1) and (a)(6) by failing to record a substitution of trustee pursuant to Civil Code section 2934a, subdivision (a)(1). In this case, the notice of default and notice of trustee’s sale were recorded by the National Default Servicing Corporation (NDSC). (Complaint, Ex. D., E.) NDSC became trustee according to a substitution of trustee that was recorded on March 10, 2020. (RJN, Ex. 1.) Thus, because this substitution of trustee was recorded prior to NDSC’s recording of the notices at issue in this action, this allegation also fails.

Accordingly, HSBC Bank and SPS’s demurrer to this cause of action is SUSTAINED with leave to amend.

Violation of Civil Code § 2924.9 (Third Cause of Action)

HSBC Bank and SPS maintain Garcia’s third cause of action for violation of Civil Code section 2924.9 fails to plead sufficient facts to state a claim. The court agrees.

Garcia alleged HSBC Bank and SPS violated Civil Code section 2924.9 by failing to notify Garcia of foreclosure prevention alternatives within five business days of the notice of default being recorded. (Complaint, ¶ 38.) But as an initial matter, Garcia failed to allege Garcia previously exhausted the first lien loan modification process pursuant to Civil Code section 2924.9, subdivision (a). Furthermore, pursuant to Civil Code section 2924.12, subdivision (b), a mortgage servicer or a beneficiary may be held liable for a material violation of Civil Code section 2924.9 if “the violation was not corrected and remedied prior to the recordation of the trustee’s deed upon sale.”

In this case, Garcia does not specifically allege HSBC Bank and SPS failed to correct and remedy a material violation of Civil Code section 2924.9. Instead, Garcia vaguely alleged Garcia submitted at least one request for mortgage assistance at an unspecified time to SPS. (Complaint, ¶ 16, 18.) Garcia also alleged SPS failed to send a letter of denial, although Garcia does not allege if this denial was communicated through other medium. (Complaint, ¶ 18.) Instead, Garcia alleged that Garcia was in contact with SPS and that they kept requesting the same documents. (Complaint, ¶ 18.)

Accordingly, the third cause of action is insufficiently pled and HSBC Bank and SPS’s demurrer on this cause of action is SUSTAINED with leave to amend.

Wrongful Foreclosure (Fourth Cause of Action)

HSBC Bank and SPS argue Garcia’s fourth cause of action for wrongful foreclosure fails to plead sufficient facts to state a claim. The court agrees.

The elements of a 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 Co. (2015) 236 Cal.App.4th 394, 408, quoting Lona v. Citibank, N.A. (2011) 202 Cal.App.4th 89, 104.)

In this case, Garcia alleged Garcia is excused from the tendering the amount due because HSBC Bank and SPS violated Civil Code sections 2923.5; 2924, subdivision (a)(1); 2934a, subdivision (a)(1); 2924a, subdivision (e); 2924, subdivision (a)(6); and 2924.9. (Complaint, ¶ 45.) With regards to Civil Code sections 2923.5; 2934a, subdivision (a)(1); 2924, subdivision (a)(1); 2924, subdivision (a)(6); and 2924.9, the court already found Garcia failed to adequately allege these violations. With regards to Civil Code section 2924a, subdivision (e), the court notes this subdivision does not exist. Thus, Garcia’s allegations failed to establish Garcia was excused from the tendering requirements for a wrongful foreclosure claim.

Accordingly, HSBC Bank and SPS’s demurrer on this cause of action is SUSTAINED with leave to amend.

Unfair Business Practices (Fifth Cause of Action)

HSBC Bank and SPS contend Garcia’s fifth cause of action for unfair business practices fails to plead sufficient facts to state a claim. The court disagrees.

To state a cause of action for unfair business practices, a plaintiff must establish defendant engaged in “unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” (Bus. & Prof. Code, § 17200.) This section establishes three types of unfair competition, prohibiting “practices that are either ‘unfair,’ or ‘unlawful,’ or ‘fraudulent.’” (Pastoria v. Nationwide Ins. (2003) 112 Cal.App.4th 1490, 1496.) Thus, “An act or practice may be actionable as “unfair” under the unfair competition law even if it is not ‘unlawful.’” (Chavez v. Whirlpool Corp. (2001) 93 Cal.App.4th 363, 374.)

In this case, HSBC Bank and SPS contend this cause of action fails because it is derivative of Garcia’s other causes of action for alleged violations. But in addition to alleging the above violations, Garcia also alleged HSBC Bank and SPS violated 15 U.S.C. § 1641(g). (Complaint, ¶ 54.) Furthermore, Garcia alleged HSBC Bank and SPS engaged in unfair conduct and made misleading statements. (Complaint, ¶ 55-57.) HSBC Bank and SPS do not address these other allegations in their demurrer and a demurrer cannot “lie to a part of a cause of action.” (Cornejo v. Lightbourne (2013) 220 Cal.App.4th 932, 944.)

Accordingly, HSBC Bank and SPS’s demurrer to this cause of action is OVERRULED.

Cancellation of Written Instruments (Sixth Cause of Action)

HSBC Bank and SPS maintain Garcia’s sixth cause of action for cancellation of written instruments fails to plead sufficient facts to state a claim. The court agrees.

“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.” (U.S. Bank National Assn. v. Naifeh (2016) 1 Cal.App.5th 767, 778.)

Here, Garcia alleged the notice of default, notice of trustee’s sale, and trustee’s deed upon sale are void because they violate Civil Code sections 2923.5; 2924, subdivision (a)(1); 2934a, subdivision (a)(1); 2924a, subdivision (e); 2924, subdivision (a)(6); and 2924.9 (Complaint, ¶ 63.) But as noted above, Garcia failed to sufficiently allege violations of these code sections and failed to allege grounds for the cancellation of instruments.

Accordingly, HSBC Bank and SPS’s demurrer on this cause of action is SUSTAINED with leave to amend.

CONCLUSION

Based on the foregoing, HSBC Bank and SPS’s demurrer to Garcia’s Complaint is SUSTAINED IN PART with ten (10) days leave to amend as to the second, third, fourth, and sixth causes of action and without leave to amend as to the first cause of action. The demurrer is OVERRULED IN PART as to the fifth cause of action.