Judge William A. Crowfoot, Case 22AHCV00694 2023-04-11 Tentative Ruling

Judge: William A. Crowfoot, Case: 22AHCV00694, Date: 2023-04-11 Tentative Ruling

On September 19, 2022, plaintiff Elizabeth Gonzalez (“Plaintiff”) filed this action against defendant U.S. Bank National Association (“Defendant”) (erroneously sued as “U.S. Bank, N.A.”). On February 10, 2023, Plaintiff filed the operative First Amended Complaint (“FAC”). Plaintiff is suing for damages relating violations of the Homeowner Bill of Rights Act (“HBOR”) and other statutes arising from a loan modification review and foreclosure proceedings relating to the real property located at 23540 Cherry Street, Newhall, CA 91321 (the “Subject Property”).

Plaintiff allegedly obtained a mortgage loan on the Subject Property in the amount of $296,874 on or about April 17, 2015. (FAC, ¶ 9.) This loan was memorialized in a deed of trust, a copy of which is attached as Exhibit A to the FAC (“Deed of Trust”). The Deed of Trust named North American Title Company as the trustee and Mortgage Electronic Registration Systems, Inc. (“MERS”) as the beneficiary. (FAC, Ex. A.) An assignment of the Deed of Trust was recorded on September 16, 2018 memorializing the assignment from MERS to Defendant. (FAC, ¶ 10, Ex. B.) From 2019 to 2022, Defendant has substituted in different entities as the trustee, including Clear Recon Corp and Prestige Default Services, LLC (“Prestige”).

On July 29, 2019, a Notice of Default and Election to Sell Under a Deed of Trust (“Notice of Default”) was recorded by the trustee at the time, Clear Recon Corp. (FAC, ¶ 11, Ex. C.) Several years later, on July 5, 2022, a Notice of Trustee’s Sale (“Notice of Sale”) was recorded by Prestige, which was the trustee at the time. (FAC, ¶ 12, Ex. D.) A sale date was set for August 25, 2022. (FAC, ¶ 12, Ex. D.) On August 23, 2022, Plaintiff submitted a complete loan modification application (“LMA”) to Defendant. (FAC, ¶ 13.)

Plaintiff alleges various violations including failure to notify her of a possible foreclosure and to wait 30 days after notice to record a notice of default, failure to rescind the allegedly improper notice of default and notice of sale, failure to assign a single point of contact (“SPOC”), failure to provide foreclosure alternatives, and unfair business practices. Plaintiff also seeks the cancellation of the Notice of Default and Notice of Sale as voidable or void pursuant to Civil Code section 3412.

Defendant demurs to Plaintiff’s third and eighth causes of action for violation of Civil Code sections 2923.6(c) (failure to rescind) and 3412 (cancellation). These causes of action are numbered on the caption of the FAC as the second and sixth causes of action and were the subject of Defendant’s previous demurrer to the original complaint which was sustained by the Honorable Colin P. Leis on January 12, 2023.

- “For compensatory, special, and general damages…” FAC, Prayer for Relief, ¶ 1.

- “For civil penalties pursuant to Civ. Code § 2924.12(b) for the greater of treble damages or $50,000.” (FAC, Prayer for Relief, ¶ 2.)

- “For the disbursement of all surplus funds from the Trustee’s Sale.” FAC, Prayer for Relief, ¶ 10.

- “For recompense of damages and arrears. . .” (FAC, Prayer for Relief, ¶ 13.)

A demurrer tests the legal sufficiency of the pleadings and will be sustained only where the pleading is defective on its face. (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 459.) “We treat the demurrer as admitting all material facts properly pleaded but not contentions, deductions or conclusions of fact or law. We accept the factual allegations of the complaint as true and also consider matters which may be judicially noticed. [Citation.]” (Mitchell v. California Department of Public Health (2016) 1 Cal.App.5th 1000, 1007; Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604 [“the facts alleged in the pleading are deemed to be true, however improbable they may be”].) Allegations are to be liberally construed. (Code Civ. Proc., § 452.) A demurrer may be brought if insufficient facts are stated to support the cause of action asserted. (Code Civ. Proc., § 430.10, subd. (e).)

Any party, within the time allowed to respond to a pleading may serve and file a notice of motion to strike the whole or any part thereof. (Code Civ. Proc., § 435, subd. (b)(1).) The court may, upon a motion, or at any time in its discretion, and upon terms it deems proper, strike any irrelevant, false, or improper matter inserted in any pleading. (Code Civ. Proc., § 436, subd. (a); Stafford v. Shultz (1954) 42 Cal.2d 767, 782 [“Matter in a pleading which is not essential to the claim is surplusage; probative facts are surplusage and may be stricken out or disregarded”].) The court may also strike all or any part of any pleading not drawn or filed in conformity with California law, a court rule, or an order of the court. (Code Civ. Proc., § 436, subd. (b).) An immaterial or irrelevant allegation is one that is not essential to the statement of a claim or defense; is neither pertinent to nor supported by an otherwise sufficient claim or defense; or a demand for judgment requesting relief not supported by the allegations of the complaint. (Code Civ. Proc., § 431.10, subd. (b).) The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. (Code Civ. Proc., § 437.)

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) The burden is on the complainant to show the Court that a pleading can be amended successfully. (Ibid.)

Plaintiff alleges a violation of Civil Code section 2923.6(c) because the Notice of Default and Notice of Sale (collectively, the “Notices”) were not rescinded after she allegedly submitted a complete loan modification application. Civil Code section 2923.6 prohibits “dual tracking” of a foreclosure sale while a loan modification application is pending. The statute states: “If a borrow submits a complete application for a first lien loan modification . . . 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.”

Defendant demurs to this cause of action on the grounds that it had no duty to rescind the Notices because they were both recorded before Plaintiff submitted a loan modification application. Defendant also argues that there is no duty to rescind a previously recorded notice of default or notice of sale. Here, the Notices were recorded on July 29, 2019, and July 5, 2022 whereas Plaintiff alleges that she started the loss mitigation process on August 23, 2022 at the earliest. (FAC, ¶ 13.) Therefore, the Notices were not filed while her loan modification application was pending.

Plaintiff essentially reiterates her arguments in the brief opposing Defendant’s prior demurrer by arguing that the Notices were unlawfully recorded because she was not contacted before the notice of default was recorded. Plaintiff does not cite to any statute establishing a duty to rescind the Notices after she submitted a loan modification application. Instead, as she did before, Plaintiff cites to an inapplicable statute, Civil Code section 2923.6(g) instead of the one at issue in the FAC, which is Civil Code section 2923.6(c).

Based on the foregoing, Defendant’s demurrer to the third cause of action is SUSTAINED.

Plaintiff’s eighth cause of action seeks cancellation of written instruments (i.e., the Notices) pursuant to Civil Code section 3412. Section 3412 states: “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 against whom it is void or voidable, including pecuniary loss or the prejudicial alteration of one's position. [Citation.]” (U.S. Bank National Assn. v. Naifeh (2016) 1 Cal.App.5th 767, 778.)

An action for cancellation cannot be pleaded generally and a plaintiff must specifically allege the facts demonstrating the invalidity of the instrument under attack. (Wolfe v. Lipsy (1985) 163 Cal.App.3d 633, 638.) Defendant points out that, even though Judge Leis previously sustained its demurrer to Plaintiff’s Eighth Cause of Action, Plaintiff has added no new factual allegations. This Court has compared the FAC with the original Complaint and agrees with the Defendant. Plaintiff has not alleged any additional facts and her opposition brief does not raise any new arguments. As discussed above, Plaintiff does not allege that her loan modification application was submitted before the Notices were recorded. Accordingly, the Court SUSTAINS Defendant’s demurrer to the Eighth Cause of Action.

Defendant moves to strike Plaintiff’s requests for monetary damages on the grounds that Plaintiff is not entitled to recover monetary damages in a pre-foreclosure context. (Lucioni v. Bank of AM., N.A. (2016) 3 Cal.App.5th 150, 160.) The Court agrees. Plaintiff does not allege that the Property has been sold at a foreclosure sale and no trustee’s deed upon sale has been recorded. Therefore, Plaintiff’s requests for damages, penalties pursuant to Civil Code section 2924.12(b) and the disbursement of “all surplus finds [sic] from the Trustee’s Sale” are premature. Instead, Plaintiff’s action is limited to one for injunctive relief. (Civ. Code, § 2924.12, subd. (a) [borrower may bring action for injunctive relief to enjoin a material violation of Civil Code sections 2923.7 and 2924.9]; 2924.19, subd. (a) [before trustee’s deed upon sale is recorded, borrower may bring an action for injunctive relief to enjoin a material violation of Civil Code section 2923.5].)

Defendant’s motion to strike is GRANTED in its entirety, except as to paragraph 33, which is mooted by Defendant’s demurrer.

Parties who intend to submit on this tentative must send an email to the Court at ALHDEPT3@lacourt.org indicating intention to submit on the tentative as directed by the instructions provided on the court website at www.lacourt.org. Please be advised that if you submit on the tentative and elect not to appear at the hearing, the opposing party may nevertheless appear at the hearing and argue the matter. Unless you receive a submission from all other parties in the matter, you should assume that others might appear at the hearing to argue. If the Court does not receive emails from the parties indicating submission on this tentative ruling and there are no appearances at the hearing, the Court may, at its discretion, adopt the tentative as the final order or place the motion off calendar.

William A. Crowfoot

Judge of the Superior Court