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Firm Commentary:
The attached case is a strong ruling overturning a bankruptcy court's granting of a Motion for Relief of Stay where evidence exists that someone other than Bank of America owns a mortgage loan. http://xa.yimg.com/kq/groups/21961710/1110490775/name/Sardana+v+Bank+of+America.%2C+9th+Cir.+BAP.June.07.2011.pdf
As is typical, BofA attenpted to use a questionable Assignment of Deed of Trust to prove it had "standing" to appear in a homeowner's bankruptcy case as a creditor and try to lift the injunction preventing foreclosure. The BK court, as BK courts faced with large caseloads often do...granted the motion despite evidence that the loan was owned by Fannie Mae. The US Bankruptcy Appellate Panel of the Ninth Circuit [which includes California] REVERSED the decision. The logic behind this case could help a homeowner, facing a Relief of Stay motion, prevent a loan servicer from lifting the automatic stay. For details, contact the office.
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1 This disposition is not appropriate for publication.
Although it may be cited for whatever persuasive value it may
have, FRAP 32.1, it has no precedential value. See 9th Cir. BAP
Rule 8013-1.
2 Hon. Margaret M. Mann, Bankruptcy Judge for the Southern
District of California, sitting by designation.
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: ) BAP No. AZ-10-1368-DMkMa
)
KIRAN SARDANA, ) Bk. No. 08-12830-CGC
)
Debtor. )
______________________________)
)
KIRAN SARDANA, )
)
Appellant, )
)
v. ) MEMORANDUM1
)
BANK OF AMERICA, N.A., )
)
Appellee. )
______________________________)
Argued and Submitted on May 13, 2011
at Phoenix, Arizona
Filed - June 7, 2011
Appeal from the United States Bankruptcy Court
for the District of Arizona
Honorable Charles G. Case, Bankruptcy Judge, Presiding
Appearances: Trucly Pham Swartz of John Joseph Volin, P.C.
argued for Appellant;
Leonard McDonald, Jr. if Tiffany & Bosco, P.A.
argued for Appellee
Before: DUNN, MARKELL and MANN, 2 Bankruptcy Judges.
FILED
JUN 07 2011
SUSAN M SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
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3 Unless otherwise specified, all chapter and section
references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
all "Rule" references are to the Federal Rules of Bankruptcy
Procedure, Rules 1001-9037. The Federal Rules of Civil Procedure
are referred to as "Civil Rules."
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Debtor and appellant Kiran Sardana ("Ms. Sardana") appeals
the bankruptcy court's order granting relief from stay to
appellee Bank of America, N.A. ("Bank of America"). We VACATE
and REMAND to the bankruptcy court to conduct an evidentiary
hearing.
FACTS
On September 23, 2008, Ms. Sardana filed her chapter 13 3
bankruptcy petition. On her Schedule A - Real Property,
Ms. Sardana listed her residence in Chandler, Arizona
("Property"), as having a value of $249,000 and secured claims
against it in the amount of $342,001.12. In her Schedule D,
Ms. Sardana stated that Bank of America had undisputed claims
secured by the Property in the amounts of $288,619.18 and
$53,381.94, respectively. Based on Ms. Sardana's valuation of
the Property, Bank of America had a secured claim on its first
trust deed ("Trust Deed") in the amount of $249,000, with the
balance of $39,619.18 unsecured, and Bank of America's line of
credit second lien on the Property, in the amount of $53,381.94,
was wholly unsecured.
On April 13, 2010, Bank of America filed a motion for relief
from stay ("Motion") requesting an order granting relief from the
stay of § 362(a) to permit Bank of America to foreclose its Trust
Deed and obtain possession and control of the Property. In the
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Motion, Bank of America alleged that Ms. Sardana had signed a
promissory note ("Note") secured by the Trust Deed on the
property. Copies of the Note and Trust Deed were attached as
Exhibits "A" and "B" to the Motion. Bank of America is
identified as the "Lender" in both the Note and the Trust Deed.
In the Trust Deed, Bank of America, as "Lender," is identified as
the "beneficiary under this Security Instrument." Bank of
America alleged that it had a secured claim against Ms. Sardana
and a secured interest in the Property by virtue of the Note and
Trust Deed.
In the Motion, Bank of America further alleged that
Ms. Sardana was in default of her Note obligation in that she had
failed to pay the postpetition maintenance payments to Bank of
America for January through April, 2010, for a total postpetition
default of $6,617.02, after a setoff of funds in suspense.
Ms. Sardana filed a response ("Response") to the Motion on
or about April 27, 2010. In her Response, Ms. Sardana did not
dispute that she was in postpetition default of her payment
obligations under the Note and Trust Deed. Her sole defense was
her argument that Bank of America did not hold the original Note
and thus was not a real party in interest, lacking standing to
file the Motion. Ms. Sardana alleged that, as opposed to being
the current "owner and holder" of the Note, "Bank of America is
only a servicer, a sub-servicer or a default servicer of the debt
pursuant to a pooling and servicing agreement with the actual
holder. . . ."
The bankruptcy court held a preliminary hearing
("Preliminary Hearing") on the Motion on May 27, 2010. At the
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Preliminary Hearing, counsel for Ms. Sardana advised the
bankruptcy court that based on a preliminary investigation, it
appeared that the Note had been assigned to Fannie Mae, and
counsel assumed that Bank of America just retained servicing
rights. Counsel for Ms. Sardana requested about 60 days to
investigate the situation further and offered that Ms. Sardana
was prepared to make an adequate protection payment to Bank of
America.
The bankruptcy court noted that,
There are a number of cases from the Arizona - from the
District of Arizona - district judges who say Arizona
is not a quote, "Show me the note state." A conclusion
with which I happen to agree.
May 27, 2010 Hrg. Tr. at 10: 17-20. However, the bankruptcy
court further stated its willingness to grant a short continuance
based upon Ms. Sardana making adequate protection payments. The
bankruptcy court also stated that during the time before a final
hearing, the ownership of the Note could be explored, but its
greater concern was who was the beneficiary under the Trust Deed.
Ms. Sardana submitted discovery requests to Bank of America,
Fannie Mae and the chapter 13 trustee. In the Appendix to
Appellant's Reply Brief, Ms. Sardana included a copy of a Motion
to Compel Discovery ("Motion to Compel") and attached exhibits
prepared and served on or about August 20, 2010, alleging that
Bank of America had not responded to Ms. Sardana's
Interrogatories and Requests for Production of Documents.
Nothing in the record on appeal informs us of the disposition of
the Motion to Compel.
A further hearing ("Final Hearing") on the Motion was held
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4 In Appellant's Opening Brief, Ms. Sardana states that,
"In compliance with the court's order, Appellant made the
required adequate payment to Appellee." Appellant's Opening
(continued...)
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on September 14, 2010. At the Final Hearing, counsel for Bank of
America argued that Bank of America was the originator of the
Note and Trust Deed and that they had not been transferred. Bank
of America's counsel further reported that Ms. Sardana had made
some discovery requests "demanding to see the original note and
deed of trust." Bank of America had refused to provide access to
the original Note and Trust Deed but had provided copies on three
separate occasions. Counsel for Bank of America confirmed that
the Trust Deed had been recorded. Bank of America's counsel
concluded, "Again, they're parked in this 13 and not making
payments. And we'd like relief from stay." September 14, 2010
Hrg. Tr. at 3: 12-13.
Counsel for Ms. Sardana confirmed that Ms. Sardana did not
dispute that Bank of America was the original holder of the Note,
but argued there was conflicting evidence as to whether Bank of
America or Fannie Mae was the current holder of the Note.
However, counsel for Ms. Sardana confirmed that there was no
record of transfer of the Trust Deed. Ultimately, counsel for
Ms. Sardana offered to present evidence that Fannie Mae was the
current owner of the Note. The bankruptcy court did not receive
that evidence because, "It doesn't sound like there's any dispute
as to that." September 14, 2010 Hrg. Tr. at 4: 13-14. Counsel
for Ms. Sardana did not dispute that she was behind on her
payments for the Property postpetition. 4
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4 (...continued)
Brief at 6. However, there is no evidence in the record before
us of any payment(s) made by Ms. Sardana postpetition, except for
one payment that Ms. Sardana's husband advised the bankruptcy
court at the Preliminary Hearing had been made to Bank of
America's counsel. Bank of America's counsel confirmed receipt
of one payment in the amount of $1,938.50.
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After hearing the arguments of counsel, the bankruptcy court
stated its findings and conclusions orally on the record. After
noting that a motion for relief from stay is an "interim
proceeding," the bankruptcy court stated that the beneficiary
under a recorded deed of trust is entitled to proceed with
foreclosure under Arizona state law.
It is my view that the production of the original note
is not necessary. Even if the note has been
transferred the right to foreclose the deed of trust,
among other people, remains with the beneficiary of
record.
September 14, 2010 Hrg. Tr. at 5: 13-16. Since Bank of America
was "indisputably the beneficiary of record it seems to me that
they are entitled to bring this motion for relief from stay."
Id. at 5: 17-19. Accordingly, the bankruptcy court overruled
Ms. Sardana's argument that Bank of America was not the real
party in interest and lacked standing to prosecute the Motion.
The bankruptcy court then determined that since there was no
dispute that Ms. Sardana was behind on her postpetition payments
under the Trust Deed obligation, there was "cause" to grant
relief from stay. The bankruptcy court concluded by ordering
that the stay was lifted.
An order ("Order") granting the Motion was entered by the
bankruptcy court on September 20, 2010. Ms. Sardana timely
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5 Ms. Sardana's argument that because Bank of America has
no standing to prosecute the Motion, the bankruptcy court has no
jurisdiction to consider the Motion, is derived from
Ms. Sardana's base argument that Bank of America has no standing
to begin with.
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appealed the Order.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C.
§§ 1334 and 157(b)(2)(A) and (G). We have jurisdiction under
28 U.S.C. § 158.
ISSUE
Did the bankruptcy court err when it determined that Bank of
America had standing to pursue the Motion?
STANDARDS OF REVIEW
Standing is a legal issue that we review de novo. Loyd v.
Paine Webber, Inc., 208 F.3d 755, 758 (9th Cir. 2000); Kronemyer
v. Am. Contractors Indem. Co. (In re Kronemyer), 405 B.R. 915,
919 (9th Cir. BAP 2009). De novo review requires that we
consider a matter anew, as if it had not been heard before, and
as if no decision had been rendered previously. United States v.
Silverman, 861 F.2d 571, 576 (9th Cir. 1988); B-Real, LLC v.
Chaussee (In re Chaussee), 399 B.R. 225, 229 (9th Cir. BAP 2008).
DISCUSSION
Although Ms. Sardana divides her argument into two parts,
the only issue before us in this appeal is whether Bank of
America has standing to file and prosecute the Motion. 5
I. General Standing Principles
Standing considerations involve both "constitutional
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limitations on federal court jurisdiction and prudential
limitations on its exercise." Warth v. Seldin, 422 U.S. 490, 498
(1975). Constitutional standing concerns whether a claimant's
stake in a matter is sufficient to create a "case or controversy"
to which the federal judicial power under Article III of the
Constitution may extend. Id. at 498-99; Pershing Park Villas
Homeowners Assoc. v. Unified Pac. Ins. Co., 219 F.3d 895, 899
(9th Cir. 2000); Lujan v. Defenders of Wildlife, 504 U.S. 555,
559-60 (1992).
In Appellant's Opening Brief, Ms. Sardana admits that Bank
of America has constitutional standing because the Note "is
payable to Appellee," and Ms. Sardana was in default of her
postpetition payment obligations under the Note when the Motion
was filed. Appellant's Opening Brief at 10.
However, Ms. Sardana asserts that Bank of America does not
have prudential standing because it is not the "real party in
interest" to prosecute the Motion. In analyzing prudential
standing requirements, the Supreme Court has held:
"[T]he plaintiff generally must assert his own legal
rights and interests, and cannot rest his claim to
relief on the legal rights or interests of third
parties." Warth v. Seldin, 422 U.S. [at 499].
Valley Forge Christian College v. Americans United for Separation
of Church and State, Inc., 454 U.S. 464, 474 (1982). Ms. Sardana
argues that "[t]he real party in interest in a Motion for Relief
is a party entitled to enforce the right being asserted under
applicable substantive law." Appellant's Opening Brief at 11.
The moving party bears the burden of proof to establish its
standing to prosecute a motion for relief from stay. See In re
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Wilhelm, 407 B.R. 392, 399-400 (Bankr. D. Id. 2009), citing Lujan
v. Defenders of Wildlife, 504 U.S. at 561.
II. Standing to File a Motion for Relief from Stay
When a bankruptcy petition is filed, § 362(a) automatically
imposes a very broad injunction, the "automatic stay," on
collection and enforcement activities against the debtor, the
debtor's property, and property of the estate. § 362(a)(3)
specifically stays "any act to obtain possession of property of
the estate or of property from the estate or to exercise control
over property of the estate."
Under § 362(d), a "party in interest" may request relief
from the automatic stay. Section 362(d)(1) authorizes relief
from stay "for cause, including the lack of adequate protection
of an interest in property of such party in interest."
Because the term "party in interest" is not defined in the
Bankruptcy Code, whether a moving party, such as Bank of America,
has the status of a party in interest under § 362(d) is a fact
intensive matter to be determined on a case-by-case basis, taking
into account the claimed interest and the impact of the stay on
that interest. In re Kronemyer, 405 B.R. at 919. A "party in
interest" can include any party that has a pecuniary interest in
the case, a practical stake in the resolution of the matter, or
is impacted by the stay." Brown v. Sobczak (In re Sobczak),
369 B.R. 512, 517-18 (9th Cir. BAP 2007).
Motions for relief from the stay are contested matters. See
Rules 4001(a) and 9014(a). Rule 9014(c) provides that Rule 7017
is applicable in contested matters. Rule 7017, in turn,
incorporates Civil Rule 17. Civil Rule 17(a) provides that "[a]n
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action must be prosecuted in the name of the real party in
interest. . . ." Given the application of these various rules,
proceedings to decide motions for relief from stay are
nonetheless very circumscribed matters.
Given the limited grounds for obtaining a motion for
relief from stay, read in conjunction with the
expedited schedule for a hearing on the motion, most
courts hold that motion for relief from stay hearings
should not involve an adjudication on the merits of
claims, defenses, or counterclaims, but simply
determine whether the creditor has a colorable claim to
the property of the estate.
Biggs v. Stovin (In re Luz Int'l), 219 B.R. 837, 842 (9th Cir.
BAP 1998) (emphasis added). See, e.g., Johnson v. Righetti
(In re Johnson), 756 F.2d 738, 740-41 (9th Cir. 1985).
Cornell University Law School's Legal Information Institute
defines a "colorable claim" in a straightforward manner as:
A plausible legal claim. In other words, a claim
strong enough to have a reasonable chance of being
valid if the legal basis is generally correct and the
facts can be proven in court. The claim need not
actually result in a win.
http://topics.law.cornell.edu/wex/colorable_claim.
Resolving a motion for relief from stay involves
consideration of the specific grounds for granting relief from
stay set forth in § 362(d), i.e., generally whether "cause,"
including a lack of adequate protection of the moving party's
interest, is established; whether the debtor has any equity in
the subject property; and/or whether the subject property is
necessary to an effective reorganization of the debtor's affairs.
It generally is not an appropriate context for a definitive
ruling on the merits of the underlying claims between the
parties. In re Johnson, 756 F.2d at 740-41 ("Hearings on relief
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from the automatic stay are . . . handled in a summary fashion.
[citation omitted] The validity of the claim or contract
underlying the claim is not litigated during the hearing.").
[I]t is analogous to a preliminary injunction hearing,
requiring a speedy and necessarily cursory
determination of the reasonable likelihood that a
creditor has a legitimate claim or lien as to a
debtor's property. If a court finds that likelihood to
exist, this is not a determination of the validity of
those claims, but merely a grant of permission from the
court allowing that creditor to litigate its
substantive claims elsewhere without violating the
automatic stay.
Grella v. Salem Five Cent Sav. Bank, 42 F.3d 26, 33-34 (1st Cir.
1994). See In re Vitreous Steel Prod. Co., 911 F.2d 1223, 1234
(7th Cir. 1990) ("Questions of the validity of liens are not
generally at issue in a § 362 hearing, but only whether there is
a colorable claim of a lien on property of the estate.")
(Emphasis in original.)
The Eleventh Circuit has concluded that "[a] servicer is a
party in interest in proceedings involving loans which it
services." Greer v. O'Dell (In re O'Dell), 305 F.3d 1297, 1302
(11th Cir. 2002). In her Reply Brief, Ms. Sardana agrees that in
some circumstances, loan servicers may have standing to prosecute
a motion for relief from stay. Appellant's Reply Brief at 5-6.
III. The Record Before the Bankruptcy Court
In this case, Ms. Sardana raised questions as to Bank of
America's ownership of the Note, and indeed established to the
bankruptcy court's satisfaction that Fannie Mae owned the Note.
However, the bankruptcy court focused on who was the beneficiary
under the Trust Deed. The Trust Deed was before the bankruptcy
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6 Unauthenticated copies of the Note and Trust Deed were
attached as exhibits to the Motion. On remand, for their
admission as evidence, copies or originals of the Note and Trust
Deed will need to be properly authenticated as required by the
Federal Rules of Evidence. See Rule 901, Federal Rules of
Evidence.
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court as an exhibit to the Motion. 6 The Trust Deed identified
Bank of America as the "Lender" and further defined the "Lender"
as the beneficiary under the Trust Deed. At the Final Hearing,
the bankruptcy court confirmed that the Trust Deed had been
recorded properly, and counsel for Ms. Sardana admitted that
there had been no change of record to the Trust Deed.
As noted by the bankruptcy court, under Arizona state law,
the beneficiary of a trust deed is entitled to proceed with
foreclosure. Arizona Revised Statutes ("A.R.S") § 33-807, in
relevant part, provides:
A. . . . At the option of the beneficiary, a trust deed
may be foreclosed in the manner provided by law for the
foreclosure of mortgages on real property in which
event chapter 6 of this title governs the proceedings.
The beneficiary or trustee shall constitute the proper
and complete party plaintiff in any action to foreclose
a deed of trust. . . .
B. The trustee or beneficiary may file and maintain an
action to foreclose a deed of trust at any time before
the trust property has been sold under the power of
sale. . . .
(Emphasis added.) Accordingly, under Arizona law, a trust deed
beneficiary, whether it is the holder of the related promissory
note or the agent for such holder, along with the trustee under
the deed of trust, is generally a party with standing to
prosecute a foreclosure action.
In addition to, and as a complement to, the statutory
authority of the Trust Deed beneficiary under A.R.S. § 33-807 to
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7 Section 22 of the Trust Deed provides, in relevant part,
as follows:
Acceleration; Remedies. Lender shall give notice to
Borrower prior to acceleration following Borrower's breach of any
covenant or agreement in the Security Instrument (but not prior
to acceleration under Section 18 unless Applicable Law provides
otherwise). The notice shall specify: (a) the default; (b) the
action required to cure the default; (c) the date, not less than
30 days from the date the notice is given to the Borrower, by
which the default must be cured; and (d) that failure to cure the
default on or before the date specified in the notice may result
in acceleration of the sums secured by the Security Instrument
and sale of the Property. The notice shall further inform
Borrower of the right to reinstate after acceleration and the
right to bring a court action to assert the non-existence of a
default or any other defense of Borrower to acceleration and
sale. If the default is not cured on or before the date
specified in the notice, Lender at its option may require
immediate payment in full of all sums secured by this Security
Instrument without further demand and may invoke the power of
sale and any other remedies permitted by Applicable Law. Lender
shall be entitled to collect all expenses incurred in pursuing
the remedies provided in this Section 22, including, but not
limited to, reasonable attorneys' fees and cost of title
evidence.
If Lender invokes the power of sale, Lender shall give
written notice to Trustee of the occurrence of an event of
default and of Lender's election to cause the Property to be
sold. Trustee shall record a notice of sale in each county in
which any part of the Property is located and shall mail copies
of the notice as prescribed by applicable law to Borrower and to
the other persons prescribed by Applicable Law. After the time
required by applicable law and after publication and posting of
(continued...)
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initiate a foreclosure action with respect to the Property, the
Trust Deed by its terms provides that the Lender/beneficiary has
authority to initiate a nonjudicial foreclosure sale in the event
of Ms. Sardana's default of her obligations secured by the Trust
Deed. 7
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7 (...continued)
the notice of sale, Trustee, without demand on Borrower, shall
sell the Property at public auction to the highest bidder for
cash at the time and place designated in the notice of sale.
Trustee may postpone sale of the Property by public announcement
at the time and place of any previously scheduled sale. Lender
or its designee may purchase the Property at any sale.
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But that is not all that is required under Arizona law in
this context. A.R.S. § 33-801(1) defines "Beneficiary" under a
trust deed as "the person named or otherwise designated in a
trust deed as the person for whose benefit a trust deed is given,
or the person's successor in interest." A.R.S. § 33-817 further
provides that, "The transfer of any contract or contracts secured
by a trust deed shall operate as a transfer of the security for
such contract or contracts." Accordingly, if the holder of the
beneficial interest in the Note changes, even if the named
beneficiary under the Trust Deed remains the same, the
beneficiary's right to enforce the Note obligation and foreclose
the Trust Deed must be based on some further agreement with the
new owner or holder of the Note. See Hill v. Favour, 52 Ariz
561, 568, 84 P.2d 575, 578 (1938):
The law seems to be well settled that the mortgage is a
mere incident to the debt and that its transfer or
assignment does not transfer or assign the debt or the
note. The mortgage goes with the note. If the latter
is assigned, the mortgage automatically goes along with
the assignment or transfer.
Ms. Sardana relies on Arizona UCC law, particularly on
A.R.S. § 47-3301, to argue that the "person entitled to enforce"
instruments, such as the Note, under Arizona law is the holder of
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8 Ms. Sardana's argument (see Appellant's Opening Brief at
13) that because she was prepared to present evidence that Fannie
Mae had purchased the Note, the "power of sale" may have been
exercised and the Trust Deed beneficiary changed for purposes of
§ 33-807(b), is disingenuous. No suggestion was made by either
party at the Preliminary Hearing or the Final Hearing that a
nonjudicial foreclosure sale of the Property had occurred.
Indeed, it is logical to assume from this record that Ms. Sardana
opposed the Motion in order to prevent a nonjudicial foreclosure
sale of the Property from taking place.
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the Note. 8 See Appellant's Opening Brief at 11. However, A.R.S.
§ 47-3301 provides:
"Person entitled to enforce" an instrument means the
holder of an instrument, a nonholder in possession of
the instrument who has the rights of a holder or a
person not in possession of the instrument who is
entitled to enforce the instrument pursuant to
§ 47-3309 or § 47-3418, subsection D. A person may be
a person entitled to enforce the instrument even though
the person is not the owner of the instrument or is in
wrongful possession of the instrument. (Emphasis
added.)
Accordingly, based on the highlighted language of § 47-3301
alone, the statute does not say what Ms. Sardana wants it to say:
Under Arizona law, a party entitled to enforce the Note
obligation is not necessarily required to be the "holder" of the
Note. Indeed, the Arizona district court rejected Ms. Sardana's
argument, albeit in a different context, in Mansour v. Cal-
Western Reconveyance Corp., 318 F. Supp. 2d 1178, 1181 (D. Ariz.
2009), citing A.R.S. § 47-3301. In fact, as noted by the
bankruptcy court at the Preliminary Hearing, there are a number
of decisions from federal district courts in Arizona determining
that Arizona is not a "show me the note" state. See, e.g.,
Levine v. Downey Sav. & Loan F.A., 2009 WL 4282471 (D.Ariz. Nov.
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25, 2009); Garcia v. GMAC Mortgage, LLC, 2009 WL 2782791 (Aug.
31, 2009) (unpublished); Diessner v. Mortgage Elec. Registration
Systems, 618 F. Supp. 2d 1184, 1187 and n.16 (D. Ariz. 2009)
(citing A.R.S. § 33-807); and Mansour v. Cal-Western Reconveyance
Corp., 318 F. Supp. 2d at 1181.
Even so, as counsel for Bank of America admitted at oral
argument, to be a "real party in interest" for standing purposes
to prosecute a motion for relief from stay, the moving party must
have a right to enforce the subject obligation under Arizona law.
See, e.g., BAC Home Loans Servicing, L.P. v. Zitta (In re Zitta),
2011 WL 677289 (Bankr. D. Ariz. Jan. 25, 2011); In re Weisband,
427 B.R. 13 (Bankr. D. Ariz. 2010); and In re Hill, 2009 WL
1956174 (Bankr. D. Ariz. July 6, 2009). With Ms. Sardana having
made an offer of proof, which the bankruptcy court apparently
accepted but disregarded, that the Note had been assigned to
Fannie Mae, Bank of America needed to establish that it retained
the right to enforce the Note obligation in order to establish
its standing to prosecute the Motion. It did not meet its burden
of proof to make that showing. Accordingly, we determine that it
is appropriate to vacate the Order and remand to the bankruptcy
court to conduct an evidentiary hearing on the issue of Bank of
America's standing as a real party in interest to prosecute the
Motion and on such other matters as the bankruptcy court
determines to be appropriate.
CONCLUSION
For the foregoing reasons, we VACATE the Order and REMAND to
the bankruptcy court to conduct an evidentiary hearing.
Firm commentary: The firm has filed four lawsuits against loan servicers for their failure to comply with HAMP loan mods. Three cases were settled and loan mods were obtained by borrowers. In the fourth case, the bankruptcy court ruled that borrowers lacked the right to sue and were not third party beneficiaries entitled to enforce the terms of HAMP.
While the majority o courts have ruled that one cannot sue for HAMP violations, a Superior Court judge in Boston recently ruled otherwise: Denial of third-party beneficiary status to persons aggrieved by violations such as are alleged here would be - borrowing the words of the [Supreme Judicial Court] when considering a different claim by beneficiaries of a federal government contract - to 'mock the very goals of' the program that the contract was intended to further, placing its 'legitimacy ... in grave doubt,'"
This remains the minority view, but give the egregious behavior of banks, this case may represent a break through for consumers in financial distress.
A homeowner whose lender attempted to foreclose on her property after allegedly delaying and obstructing her efforts to receive a loan modification under the federal Home Affordable Modification Program could sue the lender as a third-party beneficiary of its agreement with the government to participate in HAMP, a Superior Court judge has found.
The homeowner argued that borrowers such as herself were intended beneficiaries of HAMP "servicer participation agreements," or SPAs, between lenders and the government even though the SPA only expressly identifies parties to the contract and their "successors-in-interest" as beneficiaries.
"Particularly when viewed against the backdrop of three decades that saw medium-sized banks acquiring small banks, only to be taken over by larger banks, which were then absorbed into megabanks, it is apparent that [the language in question] is just a straightforward successor clause, to be taken at face value and no more," Judge Thomas P. Billings wrote in denying the lender's motion to dismiss.
"Denial of third-party beneficiary status to persons aggrieved by violations such as are alleged here would be - borrowing the words of the [Supreme Judicial Court] when considering a different claim by beneficiaries of a federal government contract - to 'mock the very goals of' the program that the contract was intended to further, placing its 'legitimacy ... in grave doubt,'" the judge said, quoting the SJC's 1989 decision in Ayala v. Boston Hous. Auth.
The judge also left open the possibility that the lender's alleged foot-dragging could result in Chapter 93A liability, recognizing the claim on its merits but dismissing it on procedural grounds.
The 24-page decision is Parker v. Bank of America, NA, et al., Lawyers Weekly No. 12-268-11. The full text of the ruling can be ordered by clicking here.<https://marketplace.masslawyersweekly.com/opinions/1226811-024-pdf.html>
Encouraging compliance?
John F. Skinner III of Manchester, N.H., who represented the homeowner, said he was "elated, shocked, surprised and happy" by the ruling because several other Massachusetts courts had said homeowners did not have standing to bring third-party beneficiary claims under HAMP.
"The ruling sends a message to banks that if they don't comply with federal guidelines [regarding the handling of HAMP modification requests], they'll be held accountable," he said. "This encourages banks to comply and gives more potential help to homeowners and consumer advocates."
Skinner said the decision also serves as a reminder that lawyers should not automatically reject cases that do not look like winners at first blush. The only other court to recognize the cause of action his client was asserting was a federal District Court in California, he pointed out.
"If you have a minority opinion and you believe in it, don't be afraid to fight for it if you think it's the right reasoning and a better reasoning for society," he said. "Hopefully, this signals a change in tide and gives other state court judges across the country who might want to rule in this matter something else to hold onto. You have to take persuasive precedent where you can find it, and Massachusetts is certainly leading the way [regarding] foreclosure defense."
Framingham lawyer Richard D. Vetstein, who has written extensively about the foreclosure crisis on his real estate blog, said the ruling in Parker breaks new ground.
"The vast majority of courts have shot down borrowers who try to bootstrap onto the HAMP program because it's a federal program and the regulations are supposed to be enforced by the federal government, not by a state court judge," he said. "But [Billings] basically said, 'I just feel like [other judges] are wrong and I'm right.'"
Vetstein added that Billings' reasoning has "some intrinsic appeal."
"I hear these stories all the time - Bank of America, Wells Fargo and others losing paperwork, borrowers having to resubmit 10 times, and then the mortgage being shipped off to foreclosure, forcing the borrower to start from square one while interest and attorneys' fees are ticking away," said Vetstein, who was not involved in Parker. "It looks like the judge is finally throwing his hands up and siding with the little guy more and more."
Vetstein also noted that a claim like the plaintiff's is the last recourse borrowers have when nobody else is doing anything for them.
"Federal regulators and banks aren't doing anything, and the buck has to stop somewhere," he said. "So it's falling to ... state court judges putting their foot down and saying, 'We're not going to let banks roll over helpless borrowers.' Maybe they're trying to get them to do the right thing out of court and saying, 'This is what can happen if you don't treat the borrower fairly. You can be subjected to liability and even triple damages under Chapter 93A. So go out in the hall and work it out with the borrower or it will cost you a lot of money.'"
Lender's counsel Neil D. Raphael of Boston declined to comment.
Obstruction and delay?
Plaintiff Valerie Parker took out first and second mortgages on her Lowell home with defendant Bank of America in 2007.
For two years, Parker made her payments on time. But as the economy worsened, she anticipated difficulty making future payments and, in October 2009, called the bank for advice.
Bank of America allegedly told her that, because she was not in default, it could not help her and that she should stop making payments if she wanted its assistance.
After seeking advice from a community agency, Parker submitted materials to the bank in support of a loan modification.
By December 2009, she could no longer make her payments. The bank allegedly assured her that it would help, but later told her that no program to assist her existed.
However, in early 2010, Bank of America implemented a loan modification program under HAMP. That July, the bank apparently told the plaintiff she qualified for relief under the program, but it never sent her the appropriate forms and repeatedly lost her paperwork.
When Parker complied with the bank's demand for more paperwork, the bank reportedly lost it again. Meanwhile, according to Parker, the bank made false promises of relief and gave conflicting messages as to whether she should make loan payments in the interim and in what amount.
Ultimately, Bank of America commenced foreclosure proceedings against Parker's home.
Parker subsequently sued Bank of America in Superior Court, bringing allegations of fraud, negligence, breach of contract and violation of Chapter 93A, among other claims.
The bank filed a motion to dismiss.
Viable cause of action
Billings found that Parker could indeed bring a third-party beneficiary claim stemming from Bank of America's alleged breach of its SPA with the federal government.
In doing so, Billings followed Marques v. Wells Fargo Home Mortgage, Inc., a 2010 decision by the U.S. District Court for the Southern District of California, which deemed such a claim to be a viable cause of action.
"Since then ... every court in the District of Massachusetts (and as far as I now, elsewhere) to consider the issue has rejected the Marques holding," Billings said. "This has also been the consensus in the decisions of [other Superior Court judges] of which I am aware. With the utmost respect for those in the majority, I believe ... that the court in Marques had it right."
According to Billings, the question came down to whether a borrower like Parker was an "intended beneficiary" under Bank of America's SPA with the government."It seems undeniable that the performance required of servicers who entered into SPAs was intended for the direct benefit of borrowers struggling to pay first mortgages on their residences, with the hope of additional but incidental benefits accruing to the economy as a whole," the judge said.
Billings also rejected the notion that paragraph 11(E) of the standard form SPA, which provides that the agreement "shall inure to the benefit of ... the parties to the Agreement and their permitted successors-in-interest," disqualifies a borrower as a third-party beneficiary.
Rather, he said, paragraph 11(E) is simply a successor clause to be taken at no more than face value.
Meanwhile, borrowers were intended to benefit from the contractual commitments made by lenders and servicers in exchange for receiving billions of dollars under the Troubled Asset Relief Program, the judge said, and nothing in the standard form SPA suggests that borrowers should not be allowed to enforce those commitments.
"They have no other forum in which their claims may be heard and adjudicated," he said.
Having recognized the general viability of third-party beneficiary claims by borrowers, Billings also found that the plaintiff in Parker had adequately alleged a violation of the SPA.
Lenders are expected to respond to a HAMP application within a certain period of time and cease all foreclosure activity during the evaluation process, the judge said, denying the bank's motion to dismiss. "Inertia is not an option."
Finally, Billings found that the plaintiff stated a viable Chapter 93A claim, but dismissed the claim without prejudice based on her failure to serve the statutorily mandated demand letter.
For more information about the judge mentioned in this story, visit the Judge Center at www.judgecenter.com<http://www.judgecenter.com/>.
Eric T. Berkman, an attorney and formerly a reporter for Massachusetts Lawyers Weekly, is a freelance writer.
Firm commentary: in the last 3 months, the Firm has filed 4 class action law suits based on the folling theory: A recorded assignment constitutes a transfer of a mortgage loan to a new creditor, when such a transfer occurs, the new creditor is obligated to provide a statutory TILA Transfer Notice within 30 days...loan servicers have systemically failed to provide these notices despite filing tens of thousands of assignments prior to foreclosure.
Now an Alabama federal court has affirmed the validity of this cause of action, here:
https://docs.google.com/a/jarlegal.com/viewer?a=v&pid=gmail&attid=0.1&thid=134a1356e41ff6f4&mt=application/pdf&url=https://mail.google.com/mail/?ui%3D2%26ik%3D3334e094c5%26view%3Datt%26th%3D134a1356e41ff6f4%26attid%3D0.1%26disp%3Dsafe%26zw&sig=AHIEtbS8v3WdOXA50qo7wz94zBmghATm8g
This case provides the proper framework for California courts to analyze this cause of action and validates the need for a trial to determine the merits of these cases....even where no actual damages have been suffered.
Contact the firm for information about how this decision will affect your case.
https://docs.google.com/a/jarlegal.com/viewer?a=v&pid=gmail&attid=0.1&thid=134a1356e41ff6f4&mt=application/pdf&url=https://mail.google.com/mail/?ui%3D2%26ik%3D3334e094c5%26view%3Datt%26th%3D134a1356e41ff6f4%26attid%3D0.1%26disp%3Dsafe%26zw&sig=AHIEtbS8v3WdOXA50qo7wz94zBmghATm8g
This firm has filed a Class Action lawsuit against Aurora Loan Services LLC seeking damages and equitable relief from Aurora's business practice utilizing photo-shopped Assignment's of Deeds of Trust and false declarations in thousands of California bankruptcy cases. Though the use of phony documents, AURORA creates the ILLUSION of TRANSFERS of MORTGAGE LOANS from loan originators directly to AURORA. AURORA uses the fabricated evidence to win in thousands of bankruptcy matters and earn millions in attorney fee awards.
Only a true "party in interest" has standing to seek remedies and relief from the bankruptcy courts. As many loans were never properly transferred to MORTGAGE BACKED SECURITY TRUSTS and the cost of actually proving up the chain of title to a given loan is substantial, AURORA has employed this business practice primarily as a cost savings measure.
AURORA circumvents the standing issue by creating documents that make it appear that a loan was transferred from the originator directly to AURORA after a bankruptcy is filed.
As a new creditor, AURORA systemically ignores the obligation to provide a statutory transfer notice to borrowers pursuant to TILA section 131g.
The illegal practice allows AURORA to establish "standing" in BK Courts and more easily obtain relief from the automatic stay preventing foreclosure, receive millions in pay-outs from bankruptcy trustees and save millions in attorney fees and processing expenses. The practice chills legal opposition through the use of official looking title documents and affidavits signed under penalty of perjury. The practice provides AURORA with an unfair competitive advantage over its legitimate competitors and degrades the integrity of the bankruptcy system. As a prevailing party, AURORA has been granted millions in attorney fee awards from duped judges based on false evidence. AURORA then passes on the attorney fee costs to borrowers by adding charges to each loan balance.
The deceptive business practice allows AURORA to cheaply and easily prove-up its own "phantom standing" as a new creditor, especially where no evidence exists or the cost of proving "chain of title" is too high.
The practice circumvents the legal requirement that AURORA's network attorneys prove-up "chain of title" of thousands of MORTGAGE LOANS believed by AURORA to be owned by specific MORTGAGE BACKED SECURITY TRUSTS. Typically, a loan is sold THREE TIMES before it is owned by a MORTGAGE BACKED SECURITY TRUST so as to protect TRUST investors if a loan originator becomes insolvent. The estimated cost of legitimately transferring one loan, three times is $1,500.00 and a typical TRUST owns 5,000 loans.
In the name of profit, AURORA hides the identity of the true loan owners from the bankruptcy players, by creating fabricated evidence of thousands loan transfers to AURORA that never occur.
Contact the office to discover how this lawsuit may affect you.
A copy of the lawsuit can be viewed at:
[http://www.scribd.com/doc/77046211/AURORA-Class-Action-Photoshopped-Assignments\
-and-systemic-131g-TILA-violations]
For those California homeowners facing financial distress, demanding that your loan servicer "show you the original note" that you signed years agao as evidence of your debt...is a waste of time. You need to focus on assignment fraud.
Unlike Florida, California is a non-judicial foreclosure state. This means that a Trustee holds "nominal" title pursuant to the Deed of Trust. The standard for completing foreclosure is much lower. Here's what the courts say:
As a preliminary matter, to the extent that Plaintiff's wrongful foreclosure claim is
predicated on the foreclosing parties' failure to physically produce the note, Defendants are correct
that she cannot state a viable claim on the basis of that theory. California law does not require a
foreclosing entity to produce the note.
See, e.g., Wootten v. BAC Home Loans Servicing, LLP, No.
10-4946 LHK, 2011 WL 500067, at *7 (N.D. Cal. Feb. 8, 2011) ("[U]nder California law, there is
no requirement that a trustee produce the original promissory note prior to a non-judicial foreclosure
sale.") (citations omitted).
If you seek to challenge your foreclosure, contact the office for details.
Reversing a foreclosure sale: Avoiding the "Tender Rule"
Firm commentary:
If you are considering suing to reverse a foreclosure sale, consider the LONA case for a better understanding on CA non-judicial sales and exceptions to the requirement that you must offer to pay off the loan to title to your home back in your name.
After a nonjudicial foreclosure sale has been completed, the traditional method by which the sale is challenged is a suit in equity to set aside the trustee's sale. (Anderson v. Heart Federal Sav. & Loan Assn. (1989) 208 Cal.App.3d 202, 209-210.) Generally, a challenge to the validity of a trustee's sale is an attempt to have the sale set aside and to have the title restored. (Onofrio v. Rice (1997) 55 Cal.App.4th 413, 424 (Onofrio), citing 4 Miller & Starr, Cal. Real Estate (2d ed. 1989) Deeds of Trusts & Mortgages, § 9.154, pp. 507-508.)
The burden of proof is on the former owner:
A nonjudicial foreclosure sale is accompanied by a common law presumption that it ‗was conducted regularly and fairly. This presumption may only be rebutted by substantial evidence of prejudicial procedural irregularity. The mere inadequacy of price, absent some procedural irregularity that contributed to the inadequacy of price or otherwise injured the trustor, is insufficient to set aside a nonjudicial foreclosure sale.
It is the burden of the party challenging the trustee's sale to prove such irregularity and thereby overcome the presumption of the sale's regularity.‖ (Melendrez v. D & I Investment, Inc. (2005) 127 Cal. App.4th 1238, 1258 (Melendrez) In addition, under section 2924,6 there is a conclusive statutory presumption created in favor of a bona fide purchaser who receives a trustee's deed that contains a recital that the trustee has fulfilled its statutory notice requirements. (Melendrez, supra, 127 Cal App.4th at p. 1250.)
Case law instructs that the elements of an equitable cause of action to set aside a foreclosure sale 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. (Bank of America etc. Assn. v. Reidy, supra, 15 Cal.2d at p. 248; Saterstrom v. Glick Bros. Sash, Door & Mill Co. (1931) 118 Cal.App. 379, 383 (Saterstrom) [trustee's sale set aside where deed of trust was void because it failed to adequately describe property]; Stockton v. Newman (1957) 148 Cal.App.2d 558, 564 (Stockton) [trustor sought rescission of the contract to purchase the property and the promissory note on grounds of fraud]; Sierra-Bay Fed. Land Bank Ass'n v. Superior Court (1991) 227 Cal.App.3d (1991) 227 Cal.App.3d 318, 337 (Sierra-Bay) [to set aside sale, ―debtor must allege such unfairness or irregularity that, when coupled with the inadequacy of price obtained at the sale, it is appropriate to invalidate the sale‖; ―debtor must offer to do equity by making a tender or otherwise offering to pay his debt‖]; Abadallah v. United Savings Bank (1996) 43 Cal.App.4th 1101, 1109 (Abadallah) [tender element]; Munger v. Moore (1970) 11 Cal.App.3d 1, 7 [damages action for wrongful foreclosure]; see also 1 Bernhardt, Mortgages, Deeds of Trust and Foreclosure Litigation (Cont.Ed.Bar 4th ed. 2011 supp.) § 7.67, pp. 580-581 and cases cited therein summarizing grounds for setting aside trustee sale.)
The Tender requirement
Because the action is in equity, a defaulted borrower who seeks to set aside a trustee's sale is required to do equity before the court will exercise its equitable powers. (MCA, Inc. v. Universal Diversified Enterprises Corp. (1972) 27 Cal.App.3d 170, 177 (MCA).)
Consequently, as a condition precedent to an action by the borrower to set aside the trustee's sale on the ground that the sale is voidable because of irregularities in the sale notice or procedure, the borrower must offer to pay the full amount of the debt for which the property was security. (Abadallah, supra, 43 Cal.App.4th at p. 1109; Onofrio, supra, at p. 424 [the borrower must pay, or offer to pay, the secured debt, or at least all of the delinquencies and costs due for redemption, before commencing the action].)
The rationale behind the rule is that if [the borrower] could not have redeemed the property had the sale procedures been proper, any irregularities in the sale did not result in damages to the [borrower].‖ (FPCI RE-HAB 01 v. E & G Investments, Ltd. (1989) 207 Cal.App.3d 1018, 1022.)
The Exceptions to the Tender requirement under LONA
First, if the borrower's action attacks the validity of the underlying debt, a tender is not required since it would constitute an affirmation of the debt. (Stockton, supra, (1957) 148 Cal.App.2d at p. 564) [trustor sought rescission of the contract to purchase the property and the promissory note on grounds of fraud]; Onofrio, supra, 55 Cal.App.4th at p. 424.)
Second, a tender will not be required when the person who seeks to set aside the trustee's sale has a counter-claim or set-off against the beneficiary. In such cases, it is deemed that the tender and the counter claim offset one another, and if the offset is equal to or greater than the amount due, a tender is not required. (Hauger, supra, (1954) 42 Cal.2d at p. 755.)
Third, a tender may not be required where it would be inequitable to impose such a condition on the party challenging the sale. (Humboldt Savings Bank v. McCleverty (1911) 161 Cal. 285, 291 (Humboldt). In Humboldt, the defendant's deceased husband borrowed $55,300 from the plaintiff bank secured by two pieces of property. The defendant had a $5,000 homestead on one of the properties. (Id. at p. 287.) When the defendant's husband defaulted on the debt, the bank foreclosed on both properties. In response to the bank's argument that the defendant had to tender the entire debt as a condition precedent to having the sale set aside, the court held that it would be inequitable to require the defendant to ―pay, or offer to pay, a debt of $57,000, for which she is in no way liable‖ to attack the sale of her $5,000 homestead.10 (Id. at p. 291.)
Fourth, no tender will be required when the trustor is not required to rely on equity to attack the deed because the trustee's deed is void on its face. (Dimock, supra, 81 Cal.App.4th at p. 878 [beneficiary substituted trustees; trustee's sale void where original trustee completed trustee's sale after being replaced by new trustee because original trustee no longer had power to convey property].)
For a better understanding of how this new case affects your individual situation, contact the Firm and set up an appointment.
http://xa.yimg.com/kq/groups/21961710/2146019722/name/Lona+v.+Citibank.pdf
Firm commentary:
If you wait long enough, some court state will eventually get it. Finally, a California appellate court has rejected the tender rule in Lona v. Citibank, a case from the Sixth District Court of Appeal in San Jose.
The decision reverses a summary judgment granted to Citibank. On pages 24-29, it discusses the tender rule and four exceptions to the tender rule, including the argument that the loan was invalid in the first place because it was procured by fraud or was unconscionable.
Here, the borrower alleged tender was not required either because the loan was based on fraud or was unconscionable. Because the lender did not rebut these exceptions to the tender rule in its motion for summary judgment, summary judgment was reversed.
This is a groundbreaking state court case that contains great language we will use in opposing demurrers, motions to dismiss and motions for summary judgment. You also should use it in drafting complaints, where you should expressly allege one or more of the exceptions to the tender rule.
The offset rule may be lifesaver for homeowners in financial distress. If the borrower is suing for damages, he or she can allege that the potential damages exceed the amount of the tender required. That then invokes the offset exception to the tender rule.
Contact the office to discuss how this case affects you.
Filed 12/21/11
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
|
SIXTH APPELLATE DISTRICT JONAS Z. LONA,
Plaintiff and Appellant,
v.
CITIBANK, N.A., as Trustee, etc. et al.,
Defendants and Respondents. |
H036140
(San Benito County
Super. Ct. No. CU0800167) |
Firm commentary:
On Dec 15, 2011, a Federal District court judge rejected the Tender Rule expressed the Calvo case and made the following determinations in TAMBURRI v. SUNTRUST MORTGAGE, INC :
1. Where a foreclosure sale is void, rather than simply voidable, tender is not required;
2. The tender rule only applies in cases seeking to set aside a completed sale, rather than an action seeking to prevent a sale in the first place;
3. The tender rule is not without exceptions. There is a general equitable exception that "tender may not be required where it would be inequitable to do so.
To understand the implications of how this case affects your efforts to save your home, contact the Firm and set up a confidential discussion.
http://xa.yimg.com/kq/groups/21961710/645058399/name/tamburri+v+suntrust+mortg.pdf
United States District Court
For the Northern District of California
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
DEBORAH TAMBURRI,
Plaintiff,
v.
SUNTRUST MORTGAGE, INC., et al.,
Defendants.
___________________________________/
No. C-11-2899 EMC
ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANTS'
MOTION TO DISMISS; GRANTING
DEFENDANTS' MOTION TO STRIKE;
DENYING PLAINTIFF'S MOTION FOR
DEFAULT JUDGMENT; AND
GRANTING DEFENDANT'S MOTION
TO SET ASIDE DEFAULT
(Docket Nos. 31, 54, 57)
Plaintiff Deborah Tamburri initiated this lawsuit in state court, asserting claims for, inter
alia , violation of California Civil Code § 2923.5, violation of the Real Estate Settlement Procedures
Act ("RESPA"), unfair business practices, and wrongful foreclosure. Defendants are Suntrust
Mortgage, Inc. ("Suntrust"), Wells Fargo Bank, NA ("Wells Fargo"), U.S. Bank National
Association ("US Bank"), Recontrust Company, NA ("Recontrust"), and Mortgage Electronic
Registration Systems, Inc. ("MERS"). Defendant Suntrust removed the case to federal court, and
the next day Ms. Tamburri moved for a temporary restraining order to enjoin the foreclosure sale of
her home. This Court granted the motion and, after holding a hearing on June 28, 2011, granted the
preliminary injunction enjoining Defendants from foreclosing on her home. Docket No. 33. All
Defendants besides Wells Fargo and Recontrust have moved to dismiss Plaintiff's complaint and
Case3:11-cv-02899-EMC Document82 Filed12/15/11 Page1 of 37
1 Recontrust has filed a declaration of non-monetary status and has agreed to abide by any
order or judgment issued by the Court regarding the Deed of Trust at issue in this matter. See
Docket No. 39.
2 For ease of reference, the Court refers to these three defendants simply as "Defendants" for
purposes of the motion to dismiss.
3 The FAC is attached as Ex. A to a filing by Defendants. The FAC was originally filed in
state court.
2
strike her claim for punitive damages. 1 Wells Fargo did not appear in this matter and default was
entered against it on September 6, 2011. Docket No. 45. Plaintiff moved for default judgment
against Wells Fargo, but Wells Fargo subsequently moved to set aside default.
Pending before the Court are Defendants Suntrust, MERS, and US Bank's motion to dismiss
and strike, 2 Plaintiff's motion for default judgment, and Wells Fargo's motion to set aside default.
Docket Nos. 31, 54, 57. After considering the parties' submissions, oral argument, and
supplemental briefing, and for the reasons set forth below, the Court GRANTS IN PART and
DENIES IN PART the motion to dismiss, GRANTS the motion to strike, DENIES the motion for
default judgment, and GRANTS the motion to set aside default.
I. FACTUAL & PROCEDURAL BACKGROUND
Plaintiff's First Amended Complaint, Docket No. 21 ("FAC"), 3 raises nine causes of action
against Defendants:
1. Cal. Civ. Code § 2923.5 (against Suntrust, Wells Fargo, MERS, and Recontrust)
2. 11 U.S.C. § 2605 (RESPA) (against Suntrust, Wells Fargo, MERS, and US Bank)
3. Cal. Bus. & Prof. Code § 17200 (against all Defendants)
4. Fraud (against Suntrust and US Bank)
5. Quiet Title (against all Defendants)
6. Wrongful Foreclosure (against all Defendants)
7. Negligence (against all Defendants)
8. Accounting (against Suntrust, Wells Fargo, and US Bank)
9. Declaratory Relief (against all Defendants)
Case3:11-cv-02899-EMC Document82 Filed12/15/11 Page2 of 37
3
In her FAC, Plaintiff alleges as follows. Ms. Tamburri entered into a refinance mortgage
with Suntrust in December of 2006. FAC ¶ 17. Suntrust has been her loan servicer. Id. ¶ 18. The
Note and Deed of Trust ("DOT") executed in conjunction with that loan, Docket No. 11, Ex. 1,
conveys title and power of sale to Jackie Miller as Trustee. It names Suntrust as the Lender and
MERS as the Beneficiary. As Beneficiary, MERS "holds only legal title to the interests granted by
Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as
nominee for Lender and Lender's successors and assigns) has the right: to exercise any or all of
those interests, including, but not limited to, the right to foreclose and sell the Property; and to take
any action required of Lender including, but not limited to, releasing and canceling this Security
Instrument." DOT at 3.
In August 2008, Plaintiff defaulted on her loan. FAC ¶ 20. Suntrust recorded a Notice of
Default on April 21, 2009, id. ¶ 21, which stated that it had complied with § 2923.5's requirement
that it contact Plaintiff regarding alternatives to foreclosure, id. ¶ 22. However, Suntrust never
contacted Plaintiff. Id. ¶ 23. Plaintiff sent documents to Suntrust numerous times, but she was only
requested to re-send them. Id. ¶ 24. She sent a qualified written request ("QWR") in November
2009, but Suntrust's delayed response referenced the wrong account. Id. ¶¶ 25-26. The Notice of
Default was then rescinded on January 13, 2010. Id. ¶ 27. Plaintiff learned at this time that Wells
Fargo actually held the Note, but Wells Fargo was unable to confirm that information in response to
Plaintiff's QWR. Id. ¶¶ 28-29. Plaintiff's subsequent attempts to contact Suntrust were also
fruitless. Id. ¶¶ 30-31.
Another Notice of Default was filed on June 9, 2010, listing US Bank as the beneficiary and
Recontrust as the Trustee, according to Plaintiff. Id. ¶ 32; Tamburri Decl., Docket No. 11, Ex. 6. It
lists US Bank as the entity to contact regarding questions of payment and how to stop the
foreclosure. On June 21, 2010, an Assignment of the Deed of Trust was recorded naming MERS as
the grantor and US Bank as the grantee. FAC ¶ 33. It also substituted Recontrust as Trustee.
Docket No. 9.
In response to a Notice of Trustee's Sale, Plaintiff filed for bankruptcy to stop the
foreclosure. FAC ¶¶ 34-35. She also submitted additional QWRs to Suntrust, MERS, and US Bank,
Case3:11-cv-02899-EMC Document82 Filed12/15/11 Page3 of 37
4 Suntrust counsel also represented to the Court during the preliminary injunction hearing
that Wells Fargo was the owner of the note. See Transcript, Docket No. 34, at 21.
5 Section 2924l(d) provides: "In the event that no objection is served within the 15-day
objection period, the trustee shall not be required to participate any further in the action or
proceeding, shall not be subject to any monetary awards as and for damages, attorneys' fees or costs,
shall be required to respond to any discovery requests as a nonparty, and shall be bound by any court
order relating to the subject deed of trust that is the subject of the action or proceeding."
4
but only Suntrust responded. Id. ¶¶ 36-37. Suntrust's response asserted that Wells Fargo owns the
Note. 4 Id. After Plaintiff was discharged from bankruptcy, she filed this action and, upon removal
to this Court, sought a TRO enjoining the sale. Id. ¶¶38-39. The Court granted the TRO and, after a
hearing, granted a preliminary injunction. Docket No. 33.
Defendants Suntrust, MERS, and US Bank moved the Court to dismiss all causes of action
on July 1, 2011. Docket Nos. 31, 35 (US Bank's notice of joinder). Meanwhile, the Clerk entered
default against Wells Fargo, which had failed to appear. After Plaintiff filed a motion for default
judgment, Docket No. 54, Wells Fargo has now filed a motion to set aside default asserting no
interest at all in the property. Docket No. 57. In addition, Recontrust filed a "Declaration of Non-
Monetary Status" on August 2, 2011. Docket No. 39. Pursuant to Cal. Civ. Code § 2924l(d), 5
Recontrust will not participate in this action and will be bound by any order relating to the deed of
trust.
II. DISCUSSION
A. Motion to Dismiss
1. Legal Standard
Under Federal Rule of Civil Procedure 12(b)(6), a party may move to dismiss based on the
failure to state a claim upon which relief may be granted. See Fed. R. Civ. P. 12(b)(6). A motion to
dismiss based on Rule 12(b)(6) challenges the legal sufficiency of the claims alleged. See Parks
Sch. of Bus. v. Symington , 51 F.3d 1480, 1484 (9th Cir. 1995). In considering such a motion, a court
must take all allegations of material fact as true and construe them in the light most favorable to the
nonmoving party, although "conclusory allegations of law and unwarranted inferences are
insufficient to avoid a Rule 12(b)(6) dismissal." Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir.
2009). While "a complaint need not contain detailed factual allegations . . . it must plead 'enough
Case3:11-cv-02899-EMC Document82 Filed12/15/11 Page4 of 37
5
facts to state a claim to relief that is plausible on its face.'" Id. "A claim has facial plausibility when
the plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009); see
also Bell Atl. Corp. v. Twombly , 550 U.S. 544, 556 (2007). "The plausibility standard is not akin to
a 'probability requirement,' but it asks for more than sheer possibility that a defendant acted
unlawfully." Id.
2. Tender Rule
Defendants argue first that all of the claims should be dismissed because each of them is
based on an alleged wrongful foreclosure and Plaintiff has failed to provide or allege tender of the
indebtedness owed. Mot. to Dismiss at 4-5.
"The California Court of Appeal has held that the tender rule applies in an action to set aside
a trustee's sale for irregularities in the sale notice or procedure and has stated that '[t]he rationale
behind the rule is that if plaintiffs could not have redeemed the property had the sale procedures
been proper, any irregularities in the sale did not result in damages to the plaintiffs.'" Cohn v. Bank
of America , No. 2:10-cv-00865 MCE KJN PS, 2011 WL 98840, at *9 (E.D. Cal. Jan. 12, 2011)
(quoting FPCI RE-HAB 01 v. E & G Invs., Ltd., 207 Cal. App.3d 1018, 1021 (1989)). As explained
in the Miller & Starr legal treatise,
A challenge to the validity of the trustee's sale is an attempt to have
the sale set aside and to have the title restored. The action is in equity,
and a trustor seeking to set the sale aside is required to do equity
before the court will exercise its equitable powers. Therefore, as a
condition precedent to an action by the trustor to set aside the trustee's
sale on grounds that the sale is voidable, the trustor must pay, or offer
to pay, the secured debt, or at least all of the delinquencies and costs
due for redemption, before an action is commenced or in the
complaint. Without an allegation of such a tender in the complaint
that attacks the validity of the sale, the complaint does not state a
cause of action.
Miller & Starr California Real Estate 3d § 10:212; see also Arnolds Mgmt. Corp. v. Eischen, 158
Cal. App. 3d 575, 578-79 (1984) ("It is settled that an action to set aside a trustee's sale for
irregularities in sale notice or procedure should be accompanied by an offer to pay the full amount of
the debt for which the property was security. This rule is premised upon the equitable maxim that a
court of equity will not order that a useless act be performed.").
6
While the tender rule thus has application to the instant case in general terms, the Court
should note that despite Defendants' suggestions, the tender rule is not without exceptions. First,
there is a general equitable exception that "tender may not be required where it would be inequitable
to do so.'" Onofrio v. Rice, 55 Cal. App. 4th 413, 424 (1997); Humboldt Sav. Bank v. McCleverty,
161 Cal. 285, 291 (1911) (recognizing that there are "cases holding that, where a party has the right
to avoid a sale, he is not bound to tender any payment in redemption"; adding that, "[w]hatever may
be the correct rule, viewing the question generally, it is certainly not the law that an offer to pay the
debt must be made, where it would be inequitable to exact such offer of the party complaining of the
sale"); Miller & Starr California Real Estate 3d § 10:212 (same). In the instant case, Plaintiff has a
fairly strong argument that tender - or at least full tender - should not be required because she is
contesting the validity of the foreclosure in the first place. See In re Salazar, 448 B.R. 814, 819
(S.D. Cal. 2011) ("If U.S. Bank was not authorized to foreclose the [Deed of Trust] under Civil
Code section 2932.5, the foreclosure sale may be void, and Salazar would not need to tender the full
amount of the Loan to set aside the sale."); Sacchi v. Mortgage Electronic Registration Systems,
Inc. , No. CV 11-1658 AHM (CWx), 2011 WL 2533029, at *9-10 (C.D. Cal. June 24, 2011)
(declining to require tender in wrongful foreclosure action because it "would permit entities to
foreclose on properties with impunity"). The Court has already required Plaintiff to post a bond of
$2,000 per month pursuant to the Court's preliminary injunction order. Docket No. 33. This
protects Defendants' ongoing interests and thus provides some equity in Plaintiff's favor. Plaintiff
has shown a willingness and ability to pay during the pendency of this action.
Second, at least one federal court has explicitly held that the tender rule only applies in cases
seeking to set aside a completed sale, rather than an action seeking to prevent a sale in the first
place. See, e.g., Vissuet v. Indymac Mortg. Services, No. 09-CV-2321-IEG (CAB), 2010 WL
1031013, at *2 (S.D. Cal. March 19, 2010) ("[T]he California 'tender rule' applies only where the
plaintiff is trying to set aside a foreclosure sale due to some irregularity."). As the court held in
Vissuet , "where a party has the right to avoid a sale, he is not bound to tender any payment in
redemption." Id. at *3. While Vissuet noted an old California Supreme Court case applying the
tender rule to a request to enjoin a foreclosure sale, see Meetz v. Mohr, 141 Cal. 667, 673 (1904),
7
that case is distinguishable on the grounds that the defendants had performed all of their obligations
and the plaintiff's only recourse to avoid a sale was to tender the amount owed. Here Plaintiff
alleges Defendants have not performed all their obligations.
Moreover, the California Court of Appeal noted in Mabry that the tender rule was designed
to apply to "a paradigm where, by definition, there is no way that a foreclosure sale can be avoided
absent payment of all the indebtedness," thus rendering "[a]ny irregularities in the sale [] necessarily
[] harmless to the borrower if there was no full tender." Mabry v. Superior Court, 185 Cal. App. 4th
208, 225 (2010). Such a "harmless error" standard is inapposite in a case brought before the
foreclosure sale has taken place. As the Mabry court noted, where statutes provide for certain
requirements before foreclosure, a prerequisite of full tender before one can initiate an action
challenging a foreclosing party's failure to satisfy those requirements would be nonsensical. See id.
("[T]he whole point of section 2923.5 is to create a new, even if limited right, to be contacted about
the possibility of alternatives to full payment of arrearages. It would be contradictory to thwart the
very operation of the statute if enforcement were predicated on full tender. It is well settled that
statutes can modify common law rules.").
Third, where a sale is void, rather than simply voidable, tender is not required. Miller &
Starr California Real Estate 3d § 10:212 ("When the sale is totally void, a tender usually is not
required."); see also Dimock v. Emerald Properties LLC, 81 Cal. App. 4th 868, 876 (2000) (holding
that where the incorrect trustee had foreclosed on a property and conveyed it to a third party, the
conveyed deed was not merely voidable, but void). "The word void, in its strictest sense, means that
which has no force and effect . . . ." Little v. CFS Serv. Corp., 188 Cal. App. 3d 1354, 1358 (1987)
(internal quotation marks omitted). In contrast, "[v]oidable is defined as [that] which may be
avoided" or set aside as a matter of equity. Id. (internal quotation marks omitted). The requirement
of tender for a voidable sale is "based on the theory that one who is relying upon equity in
overcoming a voidable sale must show that he is able to perform his obligations under the contract
so that equity will not have been employed for an idle purpose." Id. at 878 (emphasis omitted).
The state court's opinion in Little provides guidance as to what constitutes a void sale and
what constitutes a voidable one. According to the court, when a notice defect is at issue, it is not the
8
extent of the defect that is determinative. Rather, "what seems to be determinative" is whether the
deed of trust contains a provision providing for a conclusive presumption of regularity of sale.
Little , 188 Cal. App. 3d at 1359. "Where there has been a notice defect and no conclusive
presumption language in the deed, the sale has been held void." Id. (emphasis in original). In
contrast, "[w]here there has been a notice defect and conclusive presumption language in a deed,
courts have characterized the sales as 'voidable.'" Id. (emphasis added). In the instant case, the
deed of trust provides no conclusive presumption language. See Ottolini v. Bank of America, No.
C-11-0477 EMC, 2011 WL 3652501, at *4 (N.D. Cal. Aug. 19, 2011) (declining to dismiss
complaint on basis of tender with a similar deed of trust where "the Court cannot conclude, at least
at this juncture, that the sale is merely voidable wherein tender would be required").
These exceptions and qualifications counsel against a blanket requirement of the tender rule
at the pleading stage. The Court thus declines to dismiss the complaint on the basis of her failure to
allege tender.
3. Cal. Civ. Code § 2923.5
California Civil Code § 2923.5(a)(1) provides that "[a] mortgagee, trustee, beneficiary, or
authorized agent may not file a notice of default pursuant to Section 2924 until 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 (g)." Cal. Civ. Code § 2923.5(a)(1) (emphasis added).
Under paragraph (2), "[a] mortgagee, beneficiary, or authorized agent 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." Id. § 2923.5(a)(2). Under subdivision (g), "[a] notice of default
may be filed . . . when a mortgagee, beneficiary, or authorized agent has not contacted a borrower as
required by paragraph (2) of subdivision (a) provided that the failure to contact borrower occurred
despite the due diligence of the mortgagee, beneficiary, or authorized agent." Id. § 2923.5(g)
(emphasis added).
In the instant case, Ms. Tamburri asserts that Defendants violated § 2923.5(a)(1) because
they failed to contact her prior to filing the notice of default on June 9, 2010. FAC ¶ 32. Defendants
argue that Ms. Tamburri has failed to state a claim under this cause of action because "SunTrust
6 The Court does not address the argument specific to Wells Fargo since it is not joined to
this motion to dismiss.
9
fully complied with" the statute. Mot. to Dismiss at 5. However, Defendants' motion to dismiss is
foreclosed by this Court's prior ruling granting a preliminary injunction. See Order Granting PI,
Docket No. 33, at 4-6. In its Order, the Court held that "Ms. Tamburri has raised at least a serious
question whether Suntrust violated § 2923.5." Id. at 5. That there are competing declarations on the
merits of whether Defendants complied with § 2923.5, see id. at 5 ("Here, the Court is faced with
two competing declarations - one from Ms. Tamburri and one from Suntrust/Defendants - as to
whether Suntrust in fact contacted Ms. Tamburri as required by § 2923.5."), does not establish that
Plaintiff has failed to state a claim. Id. ("[C]ontrary to what Suntrust contends, the fact of such a
declaration (even one signed under oath), while perhaps fulfilling one of the statutory requirements
under § 2923.5, does not bar the homeowner from disputing the facts asserted in the declaration.").
Rather, under 12(b)(6) standards, taking Plaintiff's allegation as true, Defendants' motion to dismiss
must be denied.
Defendants also argue that Plaintiff's claim cannot succeed because she has failed to tender.
However, as discussed above, this argument fails.
Accordingly, the Court DENIES the motion to dismiss as to the § 2923.5 claim.
4. Real Estate Settlement Procedures Act ("RESPA") - 12 U.S.C. § 2605
Ms. Tamburri alleges that Defendants violated 12 U.S.C. § 2605(e) by either failing to
properly respond to Plaintiff's Qualified Written Requests ("QWRs") (in the case of Suntrust,
MERS, and US Bank), or by denying it has an interest in the loan (in the case of Wells Fargo). 6
FAC ¶¶ 43-48; Opp. At 12-14.
"Congress enacted RESPA in 1974 to protect home buyers from inflated prices in the home
purchasing process." Schuetz v. Banc One Mortg. Corp., 292 F.3d 1004, 1008 (9th Cir. 2002). It
sought to implement significant reforms in the real estate settlement process which "are needed to
insure that consumers throughout the Nation are provided with greater and more timely information
on the nature and costs of the settlement process." 12 U.S.C. § 2601. RESPA applies not only to
10
the actual settlement process, however, but also to the servicing of federally related mortgage loans.
See, e.g. , id. § 2605(e) (imposing requirements on servicers of federally related mortgage loans).
Section 2605(e) is titled "[d]uty of loan servicer to respond to borrower inquiries." It
provides in relevant part as follows.
(1) Notice of receipt of inquiry
(A) In general. If any servicer of a federally related mortgage
loan receives a qualified written request from the borrower (or
an agent of the borrower) for information relating to the
servicing of such loan, the servicer shall provide a written
response acknowledging receipt of the correspondence within
20 days . . . unless the action requested is taken within such
period.
(B) Qualified written request. For purposes of this subsection,
a qualified written request shall be a written correspondence,
other than notice on a payment coupon or other payment
medium supplied by the servicer, that -
(i) includes, or otherwise enables the servicer to
identify, the name and account of the borrower; and
(ii) includes a statement of the reasons for the belief of
the borrower, to the extent applicable, that the account
is in error or provides sufficient detail to the servicer
regarding other information sought by the borrower.
12 U.S.C. § 2605(e). The terms "servicer" and "servicing" are defined in § 2605(i). "The term
'servicer' means the person responsible for servicing of a loan (including the person who makes or
holds a loan if such person also services the loan)." Id. § 2605(i)(2). "The term 'servicing' means
receiving any scheduled periodic payments from a borrower pursuant to the terms of any loan . . .
and making the payments of principal and interest and such other payments with respect to the
amounts received from the borrower as may be required pursuant to the terms of the loan." Id. §
2605(i)(3).
Under § 2605(e), a loan servicer has an obligation to act when it receives a QWR from the
borrower or borrower's agent "for information relating to the servicing of [the] loan." 12 U.S.C. §
2605(e)(1)(A). As noted above, "'servicing' means receiving any scheduled periodic payments from
a borrower . . . and making the payments of principal and interest and such other payments with
respect to the amounts received from the borrower." Id. § 2605(i)(3).
7 Ms. Tamburri's declaration in support of her TRO request, Docket No. 11, attaches her
attorney's letters to Suntrust, MERS, and US Bank in March of 2011. Ex. 7. However, while the
same declaration attaches Suntrust and Wells Fargo's responses to Plaintiff's letters in December
2009 and February 2010, respectively, it does not attach the letters she sent. See Exs. 4 (Suntrust), 5
(Wells Fargo).
11
Defendants argue that Plaintiff's claim should be dismissed for two reasons. First,
Defendants claim that Plaintiff's letters are not QWRs because they do not relate to the servicing of
the loan as required under § 2605; rather, they merely ask for documentation as to who owns the
loan. Mot. to Dismiss at 9; see Consumer Solutions REO, LLC v. Hillery, 658 F. Supp. 2d 1002,
1014 (N.D. Cal. 2009) ("That a QWR must address the servicing of the loan, and not its validity, is
borne out by the fact that § 2605(e) expressly imposes a duty upon the loan servicer, and not the
owner of the loan.") (emphasis added). Second, Defendants assert that Plaintiff fails to allege
damages, and that she cannot have been harmed by failing to learn the identity of the holder of her
note because Defendants are under no obligation to produce the note under California law. See Mot.
to Dismiss at 6. Because RESPA does not provide for injunctive relief, see Rivera v. BAC Home
Loans Serv., L.P. , No. C 10-02439 RS, 2010 U.S. Dist. LEXIS 80294, at *12-13 (concluding that
RESPA claims could not stop a foreclosure because RESPA did not have as a remedy injunctive
relief), actual damages and, in the case of a pattern or practice, statutory damages, are the only
remedy. See 12 U.S.C. § 2605(f)(1).
With respect to the first argument, it is unclear whether each of the purported QWRs indeed
qualify as QWRs. Some of the requirements Defendants seek to impose ( e.g., the need to "attach a
date of receipt", see Mot. to Dismiss at 9), are not required by the statute. See 12 U.S.C. § 2605(e).
In addition, it does not appear that the Court has copies of all of Plaintiff's alleged QWRs. 7
However, with regard to the letters the Court has in its possession, Plaintiff requested "documents
and documentation supporting [] collection and enforcement efforts," including "documents in
support of the enforcement of [Ms. Tamburri's] Promissory Note . . . and the Deed of Trust."
Docket 11-7. The letter also requests a list of all assignments, "as well as any reporting of this
account internally and to credit bureaus." Id. While some of these requests appear to go to the
validity, rather than the servicing, of the loan, they also arguably request information as to how the
8 Defendants cite another case in support of this argument. Pettie v. Saxon Mortg. Services,
No. C08-5089RBL, 2009 WL 1325947, at *2 (W.D. Wash. May 12, 2009) (finding letter not a QWR
where it did not provide "reasons for their dispute of the amount due on the loan"). However, Pettie
appears to rest on a misreading of § 2605(e) insofar as it appears to require both a statement of
reasons the account may be in error and a description of information sought by the borrower.
Contrary to Pettie, the statute does not appear to require both by its plain language; rather, the
statute defines a QWR as a letter that either includes a statement of reasons the borrower thinks the
account is in error, or provides sufficient detail regarding the information sought by the borrower.
12
servicer has handled her account. Cf. Harris v. Am. Gen. Finance, Inc., No. Civ.A. 02-1395-MLB,
2005 WL 1593673, at *3 (D. Kan. July 6, 2005) (finding letter not a QWR where it provided "no
statement that the account is in error, nor does the letter request any information from the lender,"
but rather simply complained about collection practices); MorEquity, Inc. v. Naeem, 118 F.Supp.2d
885, 901 (N.D. Ill. 2000) (finding letter not a QWR where "the letter sought information about the
validity of the loan and mortgage documents, but made no inquiry as to the status of the [] account
balance"); Consumer Solutions REO, LLC v. Hillery, 658 F.Supp.2d 1002, 1014 (N.D. Cal. 2009)
(Chen, J.) (finding a letter not a QWR where plaintiff had "simply disputed the validity of the loan
and not its servicing ( e.g., not whether Saxon had failed to credit her for payments she made
pursuant to the loan)"). 8 Given the relatively broad language included in the statute (providing that
one can make an inquiry describing the "information sought by the borrower" if it is "relating to the
service of the loan"), Plaintiff's letter may suffice, at least for purposes of Rule 12(b)(6).
Even construing Plaintiff's letters as QWRs, however, Plaintiff has not alleged any actual
damages resulting from Defendants' failure to respond to them. Cf. Hutchinson v. Delaware Sav.
Bank FSB , 410 F. Supp.2d 374, 383 (D.N.J. 2006 (finding harm alleged where plaintiff could not
obtain loan due to wrongful reporting of delinquent loan to credit bureaus). Her statement that she
was harmed by not knowing the true owner of Note and "whether her payments have been properly
applied," FAC ¶ 47, is insufficient to allege the pecuniary harm required by the statute. See Allen v.
United Financial Mortg. Corp. , 660 F. Supp. 2d 1089, 1097 (N.D. Cal. 2009) (dismissing RESPA
claim with prejudice where plaintiff alleged only harm as a result of foreclosure and did not directly
"attempt[] to show that the alleged RESPA violations caused any kind of pecuniary loss"); Lal v.
American Home Servicing, Inc. , 680 F. Supp. 2d 1218, 1223 (E.D. Cal. 2010) ("[T]he Court rejects,
as a matter of law, Plaintiffs' argument that they were harmed by not being able to name the real
13
party of interest in this suit. Under RESPA, a borrower may not recover actual damages for
nonpecuniary losses."). Plaintiff has not alleged that she attempted to make a payment that was not
properly credited, thus leading to Plaintiff's default. Therefore, the Court finds that dismissal of the
RESPA claim is appropriate on this ground.
The Court also notes some Defendants, including US Bank, do not appear to be the servicers
of her loan. See Joinder at 1; 12 U.S.C. § 2605(e)(1) (imposing duty only on servicers of loan); FAC
¶ 18 (asserting that Suntrust has been the servicer since 2006).
Accordingly, the Court GRANTS the motion to dismiss the RESPA cause of action. The
dismissal is without prejudice.
5. Fraud
Defendants Suntrust and US Bank argue that Plaintiff has failed to satisfy the Rule 9(b)
requirement that "a party must state with particularity the circumstances constituting fraud or
mistake." Specifically, Defendants argue that Plaintiff "pleads almost no facts in support of her
fraud claim," including the specifics of dates, times, content of alleged misrepresentations, and other
details. Mot. to Dismiss at 12. In addition, they argue that Plaintiff provides no allegations of
damages, id., no allegations of justifiable reliance, id. at 13, and no allegations of exclusive
knowledge by Suntrust of material facts not known to Plaintiff, id.
"[T]he required elements for claims for fraud [are]: (a) misrepresentation (false
representation, concealment, or nondisclosure); (b) knowledge of falsity (or scienter); (c) intent to
defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage." In re Estate of
Young , 160 Cal. App. 4th 62, 79 (2008) (internal quotation marks omitted).
Plaintiff's FAC falls well short of this mark. The FAC includes only two substantive
paragraphs regarding the fraud allegations. It points only to general assertions the Suntrust has
made in "numerous documents" regarding its purported ownership of Plaintiff's Note, and later
Wells Fargo's purported ownership of the loan, which seem at odds with other information in
Plaintiff's possession regarding the latest assignment of the loan to US Bank. FAC ¶ 56. The only
other allegations in the fraud section of the FAC relate to Plaintiff's claimed detrimental reliance,
FAC ¶ 57 (alleging reliance based on Plaintiff continuing to contact Suntrust with questions about
9 In addition, Plaintiff has not named Wells Fargo as a defendant in her fraud claim, so any
misconduct by it could not form the basis of her claim to harm.
14
her loan, rather than contacting Wells Fargo and/or US Bank), and harm, id. (alleging harm if Wells
Fargo or US Bank holds the Note because Plaintiff has been unable to speak with them about her
options to avoid foreclosure).
This is insufficient to describe any elements of fraud. While some portions of Plaintiff's
FAC provide some of the dates and details presumably at issue, e.g., FAC ¶ 32 (Notice of Default
names US Bank as beneficiary); ¶ 33 (describing assignment of Deed of Trust naming US Bank as
grantee); ¶ 37 (Suntrust's letter naming Wells Fargo as the holder of the Note), many of the other
allegations in the FAC are too general to support a fraud claim, e.g., FAC ¶ 28 ("Around this time,
the plaintiff was informed the Wells Fargo was the actual holder of the Note."); ¶ 30 (describing
numerous unsuccessful attempts to contact Suntrust). See Kearns v. Ford Motor Co., 567 F.3d
1120, 1124 (9th Cir. 2009) ("Averments of fraud must be accompanied by 'the who, what, when,
where, and how' of the misconduct charged.") (quotations omitted); Vess v. Ciba-Geigy Corp. USA,
317 F.3d 1097, 1106 (9th Cir. 2003) ("The plaintiff must set forth what is false or misleading about
a statement, and why it is false.") (quotations omitted); Kelley v. Mortgage Electronic Registration
Systems, Inc. , 642 F. Supp. 2d 1048, 1056 (N.D. Cal. 2009) ("Plaintiffs' fraud claims are not
sufficiently specific. Plaintiffs must allege each of the elements of fraud. In particular, they must
allege what the misrepresentations were, who made them, when, where, and why plaintiffs' reliance
on these statements was reasonable."); U.S. Concord, Inc. v. Harris Graphics Corp., 757 F. Supp.
1053, 1056 (N.D. Cal. 1991) ("[P]laintiff must allege the time, place, and contents of the alleged
fraud.").
Moreover, Plaintiff has not pled facts establishing reliance on such fraud. If anything, it
appears that Plaintiff has not relied on Defendants' statements, as she has contacted all parties
requesting information as to who owns her loan and has challenged foreclosure on this basis. As for
the harm, that a particular defendant may hold the note does not cause Plaintiff harm if the servicer
is available to discuss options to avoid foreclosure. 9 Finally, even assuming any of the
misrepresentation, reliance, or damages elements are adequately pled, Plaintiff provides no
15
allegations, to any level of specificity, regarding scienter or intent. See Rule 9(b) ("Malice, intent,
knowledge, and other conditions of a person's mind may be alleged generally."). Accordingly, the
Court GRANTS the motion to dismiss the fraud claim without prejudice.
6. Wrongful Foreclosure
In the instant case, Ms. Tamburri alleges a cause of action for wrongful foreclosure because,
although Suntrust has identified Wells Fargo as the owner of her loan, Wells Fargo has no right to
foreclose on the real property at issue because the last recorded assignment of the deed of trust
reflects that US Bank is the beneficiary, and not Wells Fargo. See FAC ¶¶62-63. More specifically,
she alleges that Defendants violated Cal. Civ. Code § 2932.5 because they do not have the power of
sale and have not demonstrated "legal standing to foreclose upon the subject property." FAC ¶ 64.
In addition, Plaintiff alleges that US Bank, the entity that issued the Notice of Default to Plaintiff on
June 9, 2010, acted before it had legal authority to do so pursuant to an assignment of the deed of
trust. FAC ¶ 65.
As a preliminary matter, to the extent that Plaintiff's wrongful foreclosure claim is
predicated on the foreclosing parties' failure to physically produce the note, Defendants are correct
that she cannot state a viable claim on the basis of that theory. California law does not require a
foreclosing entity to produce the note. See, e.g., Wootten v. BAC Home Loans Servicing, LLP, No.
10-4946 LHK, 2011 WL 500067, at *7 (N.D. Cal. Feb. 8, 2011) ("[U]nder California law, there is
no requirement that a trustee produce the original promissory note prior to a non-judicial foreclosure
sale.") (citations omitted).
Defendants next argue that Plaintiff has failed to state a claim for wrongful foreclosure under
§ 2932.5 because it is not applicable to her loan as the "deed of trust gives the power of sale not to a
'mortgagee or other encumbrancer,' but to the trustee." Mot. to Dismiss at 15. Section 2932.5
provides as follows:
Where a power to sell real property is given to a mortgagee, or other
encumbrancer, in an instrument intended to secure the payment of
money, the power is part of the security and vests in any person who
by assignment becomes entitled to payment of the money secured by
the instrument. The power of sale may be exercised by the assignee if
the assignment is acknowledged and recorded.
10 Defendants also cite to Ferguson v. Avelo, 195 Cal. App. 4th 1618 (2011), and US Bank
discusses it extensively in its joinder to the motion to dismiss. However, it was ordered depublished
by the California Supreme Court, and is not citable under the California Rules of Court.
The same is true of Robinson v. Onewest Bank, 2011 Cal. App. Unpub. LEXIS 6048 (Aug. 11,
2011), on which Defendants also attempt to rely.
11 Cal. Civ. Code § 2924(a)(1) allows a "trustee, mortgagee, or beneficiary, or any of their
authorized agents" to initiate the foreclosure process.
16
Cal. Civ. Code § 2932.5 (emphasis added).
As the Court already foreshadowed in its Preliminary Injunction Order, there is an ongoing
debate among courts as to whether 2932.5 applies to deeds of trust and not just mortgages. As the
Court previously noted, multiple courts have held that § 2932.5 applies only to mortgages and not to
deeds of trust. See, e.g., Selby v. Bank of Am., Inc., No. 09cv2079 BTM (JMA), 2010 U.S. Dist.
LEXIS 139966 (S.D. Cal. Oct. 27, 2010); Parcray v. Shea Mortg., Inc., No. CV-F-09-1942
OWW/GSA, 2010 U.S. Dist. LEXIS 40377 (E.D. Cal. Apr. 23, 2010); Roque v. Suntrust Mortg.,
Inc. , No. C-09-00040 RMW, 2010 WL 54896 (N.D. Cal. Feb. 10, 2010); Gomes v. Countrywide
Home Loans, Inc. , 192 Cal. App. 4th 1149 (2011). Furthermore, Stockwell v. Barnum, 7 Cal. App.
413 (1908), supports Defendants' position. And most recently, a California Court of Appeal opinion
reaffirmed Stockwell, holding that § 2932.5 does not apply to deeds of trust. In Calvo v. HSBC, 199
Cal. App. 4th 118 (2011), the Second District Court of Appeal held that "[t]he holding of Stockwell
has never been reversed or modified in any reported California decision in the more than 100 years
since the case was decided." Id. at 123. The court found "no merit" to Plaintiff's argument that her
"foreclosure sale was void and should be set aside because HSBC Bank invoked the power of sale
without complying with the requirement of section 2932.5 to record the assignment of the deed of
trust from the original lender to HSBC Bank." Id. at 121.10
Defendants also cite in support of their position Gomes v. Countrywide Home Loans, Inc.,
192 Cal. App. 4th 1149 (2011), which merits more complete analysis. Gomes held that California
Civil Code § 2924(a)(1) 11 does not "provide for a judicial action to determine whether the person
initiating the foreclosure process is indeed authorized." Id. at *1155. But the issue in Gomes was
not whether the wrong entity had initiated foreclosure; rather, the issue was whether the company
selling the property in the nonjudicial foreclosure sale (MERS) was authorized to do so by the owner
of the promissory note. See id. at 1155 (rejecting the argument that a plaintiff may test whether the
person initiating the foreclosure has the authority to do so; "[t]he recognition of the right to bring a
lawsuit to determine a nominee's authorization to proceed with foreclosure on behalf of the
noteholder would fundamentally undermine the nonjudicial nature of the process and introduce the
possibility of lawsuits filed solely for the purpose of delaying valid foreclosures"). Notably, the
Gomes court distinguished a case cited by the plaintiff precisely because, in that case, "the plaintiff
alleged wrongful foreclosure on the ground that assignments of the deed of trust had been
improperly backdated, and thus the wrong party had initiated the foreclosure process. No such
infirmity is alleged here." Id. Thus, Gomes explicitly avoided the scenario pled here, in which "the
plaintiff's complaint identified a specific factual basis for alleging that the foreclosure was not
initiated by the correct party." Id. at 1156. Gomes is therefore inapposite.
As this Court noted in its previous Order, there is also authority that favors Ms. Tamburri.
For example, in In re Salazar, 448 B.R. 814 (S.D. Cal. 2011), a federal bankruptcy court disagreed
with the above authority based on state cases, indicating that formal distinctions between mortgages
and deeds of trust were "outdated" and that trustors were deserving of the same protection as
mortgagors under California law. Id. at 821. Moreover, as this Court previously stated, "given its
age, Stockwell is arguably an "outdated" opinion that improperly credits the formal distinctions
between mortgages and deeds of trust, and Strike v. Trans-West Discount Corp., 92 Cal. App. 3d 735
(1979), a case of more recent vintage, suggests to the contrary." Order at 7 (citing Strike, 92 Cal.
App. 3d at 743 (stating that "[a] recorded assignment of note and deed of trust vests in the assignee
all of the rights and interests of the beneficiary, including authority to exercise any power of sale
given the beneficiary"; citing in support the predecessor statute to § 2932.5)).
Most recently, the Bankruptcy Court in In re Cruz, No. 11-1133-MM13, 2011 WL 3583115
(S.D. Cal. Aug. 11, 2011), held that § 2932.5 requires an assignee trust deed beneficiary to record its
interest before it non-judicially forecloses. Id. at *5. The court thoroughly distinguished the
California Court of Appeal decisions holding to the contrary, reasoning that the plain language and
legislative history of the statute applied to deeds of trust, id. at *5, and the authority on which those
cases relied ( Stockwell) was outdated, id. at *6. Moreover, the court explained that California law
has abrogated the distinction between mortgages and deeds of trust where necessary to "protect a
borrower's rights." Id. at *7 (citing Bank of Italy v. Bentley, 217 Cal. 644, 657-58 (1933) ("The
economic function of the two instruments [mortgages and deeds of trust] would seem to be identical.
Where there is one and the same object to be accomplished, important rights and duties of the parties
should not be made to depend on the more or less accidental form of the security."). Thus, the court
concluded that to shelter beneficiaries, who are the real parties in interest under a deed of trust, from
the recording requirements of 2932.5, would be to "elevate[] form over substance." Id.
Accordingly, the fact that the beneficiary of record was not the foreclosing beneficiary gave "rise to
suspicion that the sale was not authorized," which was "the very risk that § 2932.5 was intended to
safeguard." Id. at *8 (citing Stockwell, 7 Cal. App. At 416-17 ("[T]he record should correctly show
the authority of a mortgagee or his assigns to sell.")).
Other courts have allowed wrongful foreclosure actions to proceed under similar reasoning,
but without relying on § 2932.5. Regardless of whether § 2932.5 applies, Plaintiff may still assert
that only an authorized entity may initiate foreclosure. See Cal. Civ. Code § 2924(a)(1) (requiring
the notice of default to be issued by the "trustee, mortgagee, or beneficiary, or any of their
authorized agents"). For example, the court in Sacchi v. Mortgage Electronic Registration Systems,
Inc., No. CV 11-1658 AHM (CWx), 2011 WL 2533029, at *9-10 (C.D. Cal. June 24, 2011), held
Plaintiff had stated a wrongful foreclosure claim against an entity that had "no beneficial interest in
the Deed of Trust when it acted to foreclose on Plaintiffs' home." The court expressed incredulity
when confronted with counsel's arguments--similar to those made here--suggesting that "someone
. . . can seek and obtain foreclosure regardless whether he has established the authority to do so." Id.
at *7. The court asked, if defendants' argument that "the recording and execution date is
inconsequential and in no way connotes that the DOT's beneficial interest was transferred at that
precise time" was accepted, "how is one to determine whether (and when) the purported assignment
was consummated? How could one ever confirm whether the entity seeking to throw a homeowner
out of his residence had the legal authority to do so?" Id. at *6. The court thus distinguished Gomes
and held that, since the plaintiffs had alleged facts suggesting the foreclosing party had no legal
interest in the deed at the appropriate time, there was a valid cause of action. Id. at *8. Hence, the
12 Section 2934 provides, in relevant part: "Any assignment of a mortgage and any
assignment of the beneficial interest under a deed of trust may be recorded, and from the time the
same is filed for record operates as constructive notice of the contents thereof to all persons."
19
failure to record an assignment of the deed of trust, even if it were not fatal under § 2932.5, opens
the door (as an evidentiary matter) to the claim that there is no valid assignment held by the
foreclosing party.
In Ohlendorf v. Am. Home Mortg., No. Civ. S-09-2081 LKK/EFB, 2010 U.S. Dist. LEXIS
31098, at *21-24 (E.D. Cal. March 31, 2010), the court held that, while "proof of possession of the
note" is not necessary to "legally institute non-judicial foreclosure proceedings against plaintiff,"
Plaintiff still had a viable claim for wrongful foreclosure insofar as he argued that defendants "are
not the proper parties to foreclose." Id. at *22. The Court noted that because the assignments of
interest were recorded after the new beneficiary had already issued the Notice of Default, and were
simply backdated to be effective before the Notice of Default was issued, Plaintiff could argue the
backdated assignments were not valid. Id. at *23. While the Court stated that "California law does
not require beneficiaries to record assignments, see California Civil Code section 2934,12 the process
of recording assignments with backdated effective dates may be improper, and thereby taint the
notice of default." Id.
Finally, in Castillo v. Skoba, the court granted a preliminary injunction where it concluded
that "Plaintiff is likely to succeed on the merits of his claim that neither Aurora nor Cal-Western had
authority to initiate the foreclosure sale at the time the Notice of Default was entered." No.
10cv1838 BTM, 2010 WL 3986953, at*2 (S.D. Cal. Oct. 8, 2010). The Court concluded that
because the assignments appeared to have been backdated, the "[d]ocuments do not support a
finding that either Cal-Western was the trustee or Aurora was the beneficiary on May 20, 2010 when
the Notice of Default was recorded." Id. The court thus concluded that "the Notice of Default
appears to be void ab initio." Id.
13 Defendants argue in their supplemental briefing that Plaintiff does not allege any
backdating. However, Plaintiff does allege that "US Bank recorded a Notice of Default . . . before it
had the legal right to do so." FAC ¶ 65. Plaintiff alleges that the Notice is consequently invalid.
This is sufficient to raise a question as to the validity of the assignment and the notion that the
foreclosing parties did not have authority to issue the Notice.
14 In addition, Suntrust's subsequent representations to both Plaintiff and the Court that
Wells Fargo owns her Note, see Docket No. 11, Ex. 8 (Suntrust's March 30, 2011 letter to Plaintiff),
coupled with US Bank's alleged representations to Plaintiff that it did not own her loan, see FAC ¶
63; Tamburri Decl., Docket No. 11, ¶ 13, despite the fact that it is recorded as the assignee and listed
on the Notice of Default as the entity to contact to avoid foreclosure, raise questions as to whether
the current recorded Substitution of Trustee and Assignment of Deed is up-to-date.
20
As in Sacchi, Ohlendorf, and Castillo, in the instant case, there is a backdating issue.13
While MERS' Substitution of Trustee (Recontrust) and Assignment of Deed (US Bank) is dated
June 8, 2010, see Docket No. 9, the notary public signature date is June 10, 2010, the day after
Recontrust recorded the notice of default, and the assignment was not recorded until June 21, 2010.
The Notice of Default, by contrast, was dated June 8, 2010, and recorded June 9, 2010. Thus,
insofar as Plaintiff contends that the Notice of Default (NOD) is invalid due to a lack of authority to
foreclose, Plaintiff's claim is similar to those in Sacchi and Ohlendorf.14 At the time of the NOD,
there had been no assignment.
Similar to Ohlendorf, Defendants in this case respond that a recorded assignment is
unnecessary. See Def's Supp. Memo at 5. Nevertheless, in the instant case, the assignment itself
still took place after the Notice of Default was issued, and Plaintiff alleges the foreclosing parties
had no actual authority to foreclose. See Robinson v. Countrywide Home Loans, Inc., 199
Cal.App.4th 42, 46 (2011) (holding that while a borrower may not preemptively challenge the
standing of a foreclosing entity, "a borrower who believes that the foreclosing entity lacks standing
to do so . . . can seek to enjoin the trustee's sale or to set the sale aside"); Cf. Selby v. Bank of
America, Inc. , No. 09cv2079 BTM(JMA), 2010 WL 4347629, at *4 (S.D. Cal. Oct. 27, 2010)
(granting motion to dismiss where the plaintiff's only claim was that the foreclosing party did not
have a recorded assignment in place under § 2932.5, which the court found inapplicable, but where
the plaintiff "does not allege that the Bank of New York was not actually the beneficiary, nor does
the FAC allege that Aztec was not an authorized agent of the beneficiary or trustee.").
15 As noted above, US Bank's chronology appears to be incorrect because the documents
indicate that the Notice of Default was actually issued before the assignment and substitution, not
after.
21
In its supplemental brief, Defendants now claim that Recontrust, in issuing the Notice of
Default, was merely acting as agent for MERS, the beneficiary at the time the Notice was issued.
Def's Supp. Memo at 1-2. Thus, according to Defendants, Recontrust issued the Notice of Default
in its capacity as agent for MERS rather than as Trustee, and later acted as Trustee after it was so
substituted. Id. However, Defendants' proffered explanation ignores the fact that US Bank appears
to be listed as the beneficiary on the Notice, despite the fact that US Bank did not yet have any
interest in the deed. Indeed, the Notice instructed Plaintiff to contact US Bank to arrange for
payment, despite the fact that US Bank apparently (and as alleged) had no right to such payment.
Thus, assuming Recontrust was acting as an agent, it is unclear on behalf of what entity it was acting
and whether said entity had any interest in the property.
To the extent that it may be plausible that US Bank was a lender or loan servicer, rather than
a beneficiary, US Bank has explicitly denied such a role. See Joinder, Docket No. 35, at 1 ("U.S.
Bank has neither acted as lender or loan servicer with respect to plaintiff's loan."). Indeed, it also
appears to be contrary to US Bank's Joinder to the motion to dismiss which, while not entirely clear,
appears to accept Plaintiff's allegation that it - US Bank - initiated the notice of default. See
Joinder at 2-3.
US Bank takes issue with Plaintiff's contention that MERS could not assign the loan to US
Bank, but it does not dispute her contention that US Bank did in fact act as the beneficiary in issuing
the Notice of Default along with Recontrust. See id. ("On June 8, 2010, MERS substituted
ReconTrust as Trustee . . . [and] assigned beneficial interest in the Deed of Trust to [US Bank]. That
same day, after ReconTrust had been substituted as trustee by MERS, ReconTrust recorded a notice
of default. Here, plaintiff is attacking MERS' ability to assign her loan to U.S. Bank."). 15 In
addition, while the Notice does list MERS, it is unclear whether it lists MERS as the current
beneficiary or merely as the original beneficiary under the Deed of Trust, as a way of describing the
original deed under which the foreclosing parties are acting. The Notice makes no explicit
16 Indeed, as Plaintiff points out, while the second page of the Notice describes MERS as the
beneficiary that was recorded on 12/20/2006, the final page of the Notice refers to a "present
beneficiary," thus arguably implying that the original beneficiary may not be the same entity as the
current beneficiary. See Pl's Supp. Memo at 5-6; see also Docket No. 11, Ex. 6.
22
representation that MERS was still the current beneficiary under which Recontrust acted as agent. 16
Thus, on the basis of the current record, Defendants' new argument fails to render the Notice of
Default sufficiently clear to defeat as a matter of law Plaintiff's claim that the wrong party initiated
foreclosure, and that US Bank wrongfully asserted an interest in the property which it did not have.
Any claim that Recontrust and US Bank were operating as authorized agents of the appropriate
parties would require a factual inquiry not suited for a 12(b)(6) motion. See, e.g., Castillo v. Skoba,
No. 10cv1838 BTM, 2011 WL 92991, at *1 (S.D. Cal. Jan. 7, 2011) (discussing party's claim that it
was an authorized agent pursuant to a master servicing agreement with the lender, but concluding
that "[w]ithout a copy of this agreement, the Court is unwilling to definitively conclude that Aurora
was an authorized agent of the mortgagee and thus had authority to enter the Notice of Default at
issue in this case").
Assuming the wrong party initiated foreclosure, Defendants nonetheless contend that
Plaintiff fails to state a claim because she cannot demonstrate prejudice. See Def's Supp. Memo at
6-8. Defendants' prejudice claim largely amounts to a restatement of its tender arguments, which
the Court has already rejected. In addition, the cases on which Defendants rely involve claims to set
aside a foreclosure that has already occurred. While Defendants challenge the notion that procedural
defects should derail a foreclosure, California law requires strict compliance with non-judicial
foreclosure statutes. Ung v. Koehler, 135 Cal.App.4th 186, at 202-03 (2005) ("The statutory
requirements must be strictly complied with, and a trustee's sale based on statutorily deficient notice
of default is invalid."). California courts have acknowledged that notices of default serve a vital
purpose as the "crucial first step in the foreclosure process." Mabry v. Superior Court, 185
Cal.App.4th 208, 221 (2010). Thus, assuming prejudice is required, the threat of foreclosure by the
wrong party would certainly be sufficient to constitute prejudice to the homeowner because there is
no power of sale without a valid notice of default. Castillo v. Skoba, 2010 WL 3986953 at*2 ("The
power of sale in a nonjudicial foreclosure may only be exercised when a notice of default has first
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been recorded. . . . [A]ny foreclosure sale based on a void notice of default is also void.") (citing
Cal. Civ. Code § 2924; 5-123 California Real Estate Law & Practice § 123.01).
Accordingly, the Court finds that Plaintiff has stated a claim for wrongful foreclosure.
Regardless of whether § 2932.5 applies, a party may not foreclose without the legal power to do so.
Plaintiff alleges that the wrong parties issued the Notice of Default. At the 12(b)(6) stage, given the
factual uncertainties underlying the parties' arguments, Plaintiff's claim is sufficient to withstand a
motion to dismiss.
Accordingly, the Court DENIES the motion to dismiss the wrongful foreclosure claim
insofar as it is based on Plaintiff's allegations that the wrong party initiated foreclosure without any
interest in the subject property. However, the Court GRANTS the motion to dismiss in part insofar
as it is predicated on Defendants' not physically producing the note.
7. Quiet Title - Cal. Code Civ. P. § 761.020
California Code of Civil Procedure § 761.020 provides that a quiet title complaint must be
verified and include each of the following:
(a) A description of the property that is the subject of the
action. . . .
(b) The title of the plaintiff as to which a determination under this
chapter is sought and the basis of the title. . . .
(c) The adverse claims to the title of the plaintiff against which a
determination is sought.
(d) The date as of which the determination is sought. If the
determination is sought as of a date other than the date the complaint
is filed, the complaint shall include a statement of the reasons why a
determination as of that date is sought.
(e) A prayer for the determination of the title of the plaintiff
against the adverse claims.
Cal. Code Civ. Proc. § 761.020. The purpose of a quiet title action is to determine "all conflicting
claims to the property in controversy, and to decree to each such interest or estate therein as he may
be entitled to." Newman v. Cornelius, 3 Cal. App. 3d 279, 284 (1970).
In her complaint, Ms. Tamburri seeks to quiet title in her name "[d]ue to the confusion over
who exactly holds the Note." FAC ¶¶ 58-61. Defendants argue that she fails to state a claim for this
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cause of action because she does not identify which Defendant failed to produce the note, there is no
requirement that a trustee produce the note to foreclose, she has not alleged tender, she has not
alleged the date on which she seeks to quiet title, and the complaint is not verified. Mot. to Dismiss
at 14-15. Defendants appear to have abandoned their arguments regarding the verified complaint
and the date allegation based on Plaintiff's opposition pointing out that these requirements have
been satisfied by the FAC. See Opp. at 19-21.
Defendants' most central argument is that Plaintiff's cause of action fails because she fails to
allege that she has satisfied her payment obligations pursuant to the Deed of Trust, or that she has
the ability to satisfy those obligations. See Kelley, 642 F.Supp.2d at 1057 ("Plaintiffs have not
alleged that they are the rightful owners of the property, i.e. that they have satisfied their obligations
under the Deed of Trust. As such, they have not stated a claim to quiet title."); Lee v. Aurora Loan
Services , No. C 09-4482 JF (HRL), 2010 WL 1999590, at *5 (N.D. Cal. May 18, 2010) ("A basic
requirement of an action to quiet title is an allegation that plaintiffs 'are the rightful owners of the
property, i.e., that they have satisfied their obligations under the Deed of Trust.'") (quotations
omitted); Shimpones v. Stickney, 219 Cal. 637, 649 (1934) ("It is settled in California that a
mortgagor cannot quiet his title against the mortgagee without paying the debt secured."). Plaintiff's
response is that Shimpones did not deal with a problem of a purported mortgagee who actually had
no valid right to the property, whereas here "Wells Fargo has no right to initiate nonjudicial
foreclosure proceedings against the plaintiff." Opp. at 20.
The problem with Plaintiff's argument is that, even if the proper party did not initiate
foreclosure, Plaintiff does not allege that she is the rightful owner as she admits that she is in default.
She also fails to specify what adverse claims, and by which Defendants, she seeks to quiet title
against. Indeed, while she asserts that Wells Fargo (who is not a party to this motion to dismiss) has
no right to her property, and that US Bank initiated foreclosure before it had authority to do so, she
does not allege that US Bank or any other Defendant currently has no valid interest in the property.
Accordingly, the Court GRANTS Defendants' motion to dismiss the quiet title claim with leave to
amend.
8. Negligence
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Ms. Tamburri's negligence claim is predicated on the following allegations: (1) that Suntrust
and Wells Fargo failed to explore options with her to avoid foreclosure as required by California
Civil Code § 2923.5, see FAC ¶ 68; (2) that all Defendants failed to "respond to numerous written
requests made by the plaintiff concerning her loans, see id. ¶ 68; and (4) that Recontrust breached a
duty as trustee to verify that Suntrust or Wells Fargo had complied with § 2923.5. See id. ¶ 69.
In the motion to dismiss, Defendants argue that the negligence claim should be dismissed
because Plaintiff has failed to sufficiently allege a duty or breach, and she has failed entirely to
allege causation or damages. Mot. to Dismiss at 17-18.
As Defendants point out, one of the essential elements of a negligence claim is a duty of
care, see Wiener v. Southcoast Childcare Centers, Inc., 32 Cal. 4th 1138, 1142 (2004) (stating that,
"'[t]o prevail on [an] action in negligence, plaintiff[s] must show that defendants owed [them] a
legal duty, that they breached the duty, and that the breach was a proximate or legal cause of [their]
injuries'"), and it is a general rule that "a financial institution owes no duty of care to a borrower
when the institution's involvement in the loan transaction does not exceed the scope of its
conventional role as a mere lender of money." Nymark v. Heart Fed. Savs. & Loan Ass'n, 231 Cal.
App. 3d 1089, 1096 (1991). "Liability to a borrower for negligence arises only when the lender
'actively participates' in the financed enterprise 'beyond the domain of the usual money lender.'"
Id. ; see also Tina v. Countrywide Home Loans, Inc., No. 08 CV 1233 JM (NLS), 2008 U.S. Dist.
LEXIS 88302, at *10 (S.D. Cal. Oct. 30, 2008) ("Defendant Countrywide, as the mortgage lender,
has no fiduciary duty to Plaintiffs. 'A debt is not a trust and there is not a fiduciary relation between
debtor and creditor as such.' The same principle applies 'to the relationship between a bank and its
loan customers.'") (quoting Price v. Wells Fargo Bank, 213 Cal. App. 3d 465, 476 (1989)). Plaintiff
makes no allegations that would suggest any of Defendants have gone beyond this usual role. Cf.
Ansanelli v. JPMorgan Chase Bank, N.A. , No. C 10-03892 WHA, 2011 U.S. Dist. LEXIS 32350, at
*21-22 (N.D. Cal. Mar. 28, 2011) (concluding that there were allegations that defendant went
beyond the domain of the usual money lender by agreeing to place plaintiffs on a trial modification
plan).
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Plaintiff argues that she can allege a duty of care based on the statutes to which Plaintiff's
allegations refer. As noted above, one of the allegations in the negligence claim is that Defendants
failed to explore options with her to avoid foreclosure as required by California Civil Code § 2923.5.
The other refers to 12 U.S.C. § 2605, Defendants' purported requirement to respond to Plaintiff's
QWRs. Under California law, a duty of care may arise through a statute. See Greystone Homes,
Inc. v. Midtec, Inc. , 168 Cal. App. 4th 1194, 1215 (2008) (noting that "'[a] duty of care may arise
through statute, contract, the general character of the activity, or the relationship between the
parties'").
Nonetheless, to the extent that Ms. Tamburri argues a duty of care based on § 2923.5, she is
really bringing a claim for violation of § 2923.5, and a failure to comply with § 2923.5 does not give
rise to any damages remedy - only a remedy of a delay in foreclosure. See Mabry v. Superior Court,
185 Cal. App. 4th 208, 214 (2010). Thus, it does not appear that Ms. Tamburri can allege damages
under this theory. See Ottolini v. Bank of Am., No. C-11-0477 EMC, 2011 WL 3652501, at *5
(N.D. Cal. Aug. 19, 2011) ("To allow § 2923.5 to serve as a statutory basis for a negligence claim
would circumvent the limited scope of relief provided by the statute."). In addition, even if
permitted, Ms. Tamburri has not alleged any damages resulting from Defendants' purported
violation of § 2923.5. Moreover, with respect to § 2605, for the reasons discussed above, Ms.
Tamburri has not alleged damages stemming from any failure to respond to her QWRs. Finally, to
the extent Plaintiff alleges any damages, as Defendants point out, a negligence claim is generally not
viable in California absent allegations of physical, rather than purely economic, damage. See Yang
v. Sun Trust Mortg., Inc. , No. 1:10-CV-01541 AWI SKO, 2011 WL 902108, at *7 (E.D. Cal. March
15, 2011).
Accordingly, the Court GRANTS the motion to dismiss the negligence claim. The dismissal
is without prejudice.
9. Accounting
"A cause of action for an accounting requires a showing that a relationship exists between
the plaintiff and defendant that requires an accounting, and that some balance is due the plaintiff that
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17 Contrary to what Defendants argue, a fiduciary relationship is not necessarily required.
See 5 Witkin Cal. Proc. Plead § 820 (stating that, "[t]o state a cause of action [for an accounting],
only the simplest pleading is required: (1) The fiduciary relationship or other circumstances
appropriate to the remedy [and] (2) A balance due from the defendant to the plaintiff that can only
be ascertained by an accounting"; adding that "a complaint does not state a cause of action for an
accounting where it shows on its face that none is necessary; i.e., where the plaintiff alleges a right
to recover a sum certain or a sum that can be made certain by calculation").
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can only be ascertained by an accounting." 17 Teselle v. McLoughlin, 173 Cal. App. 4th 156, 179
(2009). The main problem with Plaintiff's accounting claim is that she is not asking for an
accounting based on money owed to her. See FAC ¶ 71 (requesting an accounting to determine "the
exact amount of plaintiff's outstanding balance"); Ricon v. Recontrust Co., No. 09cv937 - IEG -
JMA, 2009 U.S. Dist. LEXIS 67807, at *18 (S.D. Cal. Aug. 4, 2009) (noting that, "while Plaintiff
allegedly owes Defendants an amount past due on the underlying mortgage, Defendants do not
allegedly owe Plaintiff any money"; adding that "[t]his failure to plead 'some balance is due the
plaintiff' is fatal to Plaintiff's claim"); Consumer Solutions v. Hillery, 658 F. Supp. 2d 1002, 1020
(N.D. Cal. 2009) (dismissing accounting claim on same basis). Accordingly, the Court GRANTS
the motion to dismiss the accounting claim without prejudice.
10. Declaratory Relief
Plaintiff includes a claim for declaratory relief in her FAC. See FAC ¶¶73-74. However,
Plaintiff's only statement in that section is a request for an injunction, rather than a declaration. In
addition, she requests only a "declaration that Plaintiff is the prevailing party" in her prayer section.
FAC at 14. Thus, Defendants are correct that Plaintiff's cause of action is "duplicative" and
unnecessary, and the GRANTS the motion to dismiss this claim without prejudice.
11. Cal. Bus. & Prof. Code § 17200
California Business & Professions Code § 17200 prohibits unfair competition, which is
defined as, inter alia, "any unlawful, unfair or fraudulent business act or practice." Cal. Bus. & Prof.
Code § 17200. Plaintiff asserts claims under § 17200 for (1) Suntrust and Recontrust's violation of
§ 2923.5; (2) Suntrust, Wells Fargo, MERS, and US Bank's violation of § 2605; (3) Suntrust's
forcing of Plaintiff to "send in a plethora of different documents and speak to countless
representatives, none of whom provided the plaintiff with any helpful information regarding her
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alternatives in avoiding foreclosure"; and (4) Wells Fargo's denial that it is the holder of Plaintiff's
loan. The Court does not consider (4) herein as Wells Fargo has not joined in the motion to dismiss,
and it does not consider any claim against Recontrust pursuant to its unopposed statement of
nonmonetary status. Docket No. 39.
Defendants make two primary challenges to the § 17200 claim as pled in the FAC. As a
preliminary matter, Defendants argue that Ms. Tamburri lacks standing to bring the claim. Mot. to
Dismiss at 11. Under § 17204 of the Code, only "a person who has suffered injury in fact and has
lost money or property as a result of the unfair competition" has standing to bring suit. Id. § 17204.
However, "[i]t is undisputed that foreclosure proceedings were initiated which put Ms. Tamburri's
interest in the property in jeopardy; this fact is sufficient to establish standing as this Court has
previously held." Clemens v. J.P. Morgan Chase Nat. Corporate Services, Inc., No. C-09-3365
EMC, 2009 WL 4507742, at *7 (N.D. Cal. Dec. 1, 2009) (citing Sullivan v. Washington Mut. Bank,
FA , No. C-09-2161 EMC, 2009 U.S. Dist. LEXIS 104074, at *13 (N.D. Cal. Oct. 23, 2009).
Defendants' claim that Plaintiff cannot establish a causal connection between any unlawful activity
and her harm presupposes that Defendants prevail on Plaintiff's substantive claims, which is
inappropriate for purposes of a 12(b)(6) analysis.
Second, Defendants argue that Plaintiff fails to plead facts with the requisite particularity to
state a UCL claim. Mot. to Dismiss at 10-11. "A plaintiff alleging unfair business practices under
[17200] must state with reasonable particularity the facts supporting the statutory elements of the
violation." Khoury v. Maly's of California, Inc., 14 Cal. App. 4th 612, 619 (1993). Indeed, insofar
as the claims sound in fraud, they are subject to the heightened pleading standards of Rule 9(b). See
Kearns v. Ford Motor Co. , 567 F.3d 1120, 1125 (9th Cir. 2009).
To the extent that Plaintiff asserts unlawful claims based on the statutes described above -
claims (1) and (2) above - these claims rise and fall with the substantive causes of action already
discussed. Accordingly, while Plaintiff's claim under § 2923.5 survives, her claim under § 2605
does not. The third potential claim - that Plaintiff was essentially given the run-around from
Suntrust when she attempted to get information about her loan - is insufficient to allege any separate
claim for unfair business practices. See Cel-Tech Comms., Inc. v. Los Angeles Cellular Telephone
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Co. , 20 Cal.4th 163, 186-87 (1999) ("[A]ny finding of unfairness to competitors under section 17200
[must] be tethered to some legislatively declared policy or proof of some actual or threatened impact
on competition."); South Bay Chevrolet v. General Motors Acceptance Corp., 72 Cal. App. 4th 861,
886 (1999) ("The test of whether a business practice is unfair involves an examination of [that
practice's] impact on its alleged victim, balanced against the reasons, justifications and motives of
the alleged wrongdoer.") (internal quotations omitted). With more detail, however, such a claim
may be sufficient if, for example, Plaintiff provided more context as to the number of times she
attempted to contact Suntrust and supplied additional information as to the content of her
communications with them.
In addition, Plaintiff argues that her allegations about US Bank's refusal to communicate
with her and denial that it owned her loan is sufficient to state an "unfair" claim. Opp. at 23. This is
a closer call. If, as noted above, US Bank was not her loan servicer, there does not appear to be any
requirement under § 2605 that it respond to her letters. However, since US Bank is listed on her
Notice of Default as the entity she should contact to avoid foreclosure, and Plaintiff alleges that US
Bank "had denied owning her loan," FAC ¶ 63, such conduct may constitute an unfair business
practice as it misled Plaintiff regarding the status of her loan and precluded her from gaining the
requisite information as to how she could avoid foreclosure. Plaintiff's FAC is currently insufficient
to make out such a claim, however, as she does not provide any context such as when and how US
Bank made such a representation to support a conclusion that, at a minimum, US Bank made such a
representation after it gained an interest in the loan in June of 2010.
Accordingly, the Court DENIES the motion to dismiss Plaintiff's § 17200 claim insofar as it
is predicated on alleged violations of § 2923.5. The Court GRANTS the motion to dismiss without
prejudice insofar as it is predicated on other theories against the moving Defendants.
B. Motion to Strike
Defendants also move to strike Plaintiff's request for punitive damages. Mot. to Dismiss at
20. Under Rule 12(f), a "court may strike from a pleading an insufficient defense or any redundant,
immaterial, impertinent, or scandalous matter." Fed. R. Civ. P. 12(f). "Immaterial matter is that
which has no essential or important relationship to the claim for relief or the defenses being
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pleaded." Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993) (internal quotation marks
omitted), overruled on other grounds, Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994). As indicated
by the language of the rule, "'[t]he function of a 12(f) motion to strike is to avoid the expenditure of
time and money that must arise from litigating spurious issues by dispensing with those issues prior
to trial. . . .'" Id. When ruling on a motion to strike, a court views the pleading under attack in the
light most favorable to the nonmoving party. See RDF Media Ltd. v. Fox Broad. Co., 372 F. Supp.
2d 556, 561 (C.D. Cal. 2005). Courts generally disfavor motions to strike because striking is such a
drastic remedy. See Stanbury Law Firm v. IRS, 221 F.3d 1059, 1063 (8th Cir. 2000) (stating that
"striking a party's pleadings is an extreme measure, and, as a result, we have previously held that
'motions to strike under Fed. R. Civ. P. 12(f) are viewed with disfavor and are infrequently
granted'").
The proper medium for challenging the sufficiency of factual allegations in a complaint is
through Rule 12(b)(6), not Rule 12(f). See Parker v. Fidelity Security Life Ins. Co., No. CIV F 06-
654 AWI DLB, 2006 WL 2190956, at *5 (E.D.Cal. Aug. 1, 2006); Paul v. Gomez, 190 F.R.D. 402,
404 (W.D.Va.2000); Outen v. Baltimore County, 177 F.R.D. 346, 348 (D.Md.1998). However,
where a motion is in substance a Rule 12(b)(6) motion, but is incorrectly denominated as a Rule
12(f) motion, a court may convert the improperly designated Rule 12(f) motion into a Rule 12(b)(6)
motion. See Parker, 2006 WL 2190956, at *5 (converting a 12(f) motion to strike a punitive
damages claim into a 12(b)(6) motion).
Defendants claim Plaintiff has not alleged sufficient facts to support a basis for punitive
damages. In evaluating Defendants' argument, the Court looks first to California Civil Code § 3294,
which defines when punitive damages are available for a violation of state law. The statute states in
relevant part:
(a) In an action for the breach of an obligation not arising from
contract, where it is proven by clear and convincing evidence that the
defendant has been guilty of oppression, fraud, or malice, the plaintiff,
in addition to the actual damages, may recover damages for the sake of
example and by way of punishing the defendant.
(b) An employer shall not be liable for damages pursuant to
subdivision (a), based upon acts of an employee of the employer,
unless the employer had advance knowledge of the unfitness of the
employee and employed him or her with a conscious disregard of the
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rights or safety of others or authorized or ratified the wrongful conduct
for which the damages are awarded or was personally guilty of
oppression, fraud, or malice. With respect to a corporate employer,
the advance knowledge and conscious disregard, authorization,
ratification or act of oppression, fraud, or malice must be on the part of
an officer, director, or managing agent of the corporation.
Cal. Civ. Code § 3294.
In the instant case, Plaintiff includes no specific allegations supporting punitive damages.
While she does assert a fraud claim, as discussed above, that cause of action is severely lacking in
detail. Furthermore, Plaintiff has made no assertions to satisfy (b)'s requirements regarding
employers.
Because the Court has granted the motion to dismiss the fraud claim, the motion to strike is
GRANTED . If Plaintiff files an amended complaint that properly alleges a fraud claim, she may reassert
her claim for punitive damages.
C. Motion to Set Aside Default
In the instant case, default has been entered against Wells Fargo, but there is no default
judgment as of yet. Ms. Tamburri has filed a motion for default judgment; Wells Fargo opposes the
motion and also asks that the Court set aside the entry of default.
Under Federal Rule of Civil Procedure 55(c), a "court may set aside an entry of default for
good cause." Fed. R. Civ. P. 55(c). Under Ninth Circuit case law, a court considers three factors in
determining whether there is good cause: (1) whether the defendant engaged in culpable conduct
that led to the default; (2) whether the defendant had a meritorious defense; or (3) whether reopening
the default judgment would prejudice the plaintiff. See Franchise Holding II, LLC. v. Huntington
Rest.'s Group, Inc. , 375 F.3d 922, 925-26 (9th Cir. 2004). A court may grant or deny a motion to set
aside a default on the basis of any of the three factors. See id. at 926 (emphasizing that the factors
are disjunctive). The defendant bears the burden of showing that any of the factors favors setting
aside the default. See id. Underlying the above analysis is the fact that there is a strong public
policy in favor of resolving a case on its merits. See Pena v. Seguros La Comercial, S.A., 770 F.2d
811, 814 (9th Cir. 1985) (noting that default judgments are generally disfavored so that, "[w]henever
it is reasonably possible, cases should be decided upon their merits").
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1. Culpable Conduct
With respect to the first factor, the Ninth Circuit has emphasized that a defendant's conduct
is culpable, as opposed to excusable, only where is an intentional failure to answer. See TCI Group
Life Ins. Plan v. Knoebber , 244 F.3d 691, 697 (9th Cir. 2001).
"Intentional" in many legal contexts means an act or omission taken
by an actor knowing what the likely consequence will be. So one
might think, reading this standard out of context, that a litigant who
receives a pleading, reads and understands it, and takes no steps to
meet the deadline for filing a responsive pleading acted intentionally
in failing to answer, without more, and therefore cannot meet the
culpability standard.
. . . .
Our cases, however, have not used the term "intentional" in
[the usual] sense [ i.e., resulting from a conscious choice]. Instead,
what we have meant is something more like, in the words of a recent
Second Circuit opinion addressing the same issue, "willful, deliberate,
or evidence of bad faith." Neglectful failure to answer as to which the
defendant offers a credible, good faith explanation negating any
intention to take advantage of the opposing party, interfere with
judicial decisionmaking, or otherwise manipulate the legal process is
not "intentional" under our default cases, and is therefore not
necessarily - although it certainly may be, once the equitable factors
are considered - culpable or inexcusable.
Id. at 697-98 (emphasis in original). The Ninth Circuit has "typically held that a defendant's
conduct was culpable . . . where there is no explanation of the default inconsistent with a devious,
deliberate, willful, or bad faith failure to respond." Id. at 698 (emphasis added).
In the instant case, Plaintiff raises a valid suspicion as to how Wells Fargo could have failed
to learn of this case given that it received both written and telephonic notice numerous times since
the litigation began. See Schabert Decl. ¶¶ 5-6 (declaration of licensed private investigator
describing the two times he personally served Wells Fargo through its registered agent for service of
process); Goodell Decl. ¶¶ 2-9 (describing Plaintiff's counsel's numerous attempts to contact Wells
Fargo regarding the litigation). Notwithstanding Wells Fargo's clear mistake here, however, it has
met its burden of showing that it did not engage in culpable conduct. Wells Fargo admits that it was
in fact served with Plaintiff's complaint and other related documents. Reply at 1-2; Krause Decl. ¶
2. However, pursuant to an agreement with Suntrust as the Servicer-in-Fact of Plaintiff's loan,
Wells Fargo's Corporate Trust Services department had tendered all documents to Suntrust and was
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under the belief that Suntrust was defending the action on its behalf. Reply at 3; Krause Decl. ¶¶ 4-
7; Krause Decl. Ex. A (letter to Suntrust attaching complaint and stating, "Pursuant to the governing
documents of the securitization that contains this loan, your company must provide defense of this
claim and pay all expenses associated with the enclosed claim."). Wells Fargo's legal department
did not learn of the litigation until after default was entered. Krause Decl. ¶ 8.
In light of this explanation, there is nothing to suggest that Wells Fargo's decision not to
answer the complaint, even if conscious, was "designed to obtain strategic advantage in the
litigation." TCI Group Life Ins., 244 F.3d at 698. Plaintiff attempts to conjure a bad faith motive
behind Wells Fargo's conduct by describing the negotiations between counsel regarding a potential
dismissal before Wells Fargo appeared. See Opp. at 5-6. However, this Court has previously held
that an attempt to settle in lieu of appearing in litigation does not constitute culpable conduct. See
Hunter v. TBDC, LLC , No. C-08-4158 EMC, 2009 WL 224958, at *4 (N.D. Cal. Jan. 29, 2009)
("TBDC's nonappearance appears to have been a result of trying to settle the case without having to
engage in litigation. No doubt TBDC's decision to do so entailed a fair amount of risk, but again
there is nothing to show that TBDC was trying to 'manipulate the legal system' to its advantage.")
(quoting TCI Group Life Ins., 244 F.3d at 699). Wells Fargo has provided a credible explanation for
its neglect sufficient to negate Plaintiff's arguments that it has acted in bad faith.
Accordingly, the Court concludes that Wells Fargo has not engaged in culpable conduct.
2. Meritorious Defense
As to the second factor, most courts have indicated that the issue here is "not whether there is
a likelihood that the defaulting party will prevail on the defense, but rather whether a defense is
proposed that is legally cognizable and, if proved at trial, would constitute a complete defense to the
claims." 55 Moore's Fed. Prac. - Civ. § 55.70[2][d]. See, e.g., Enron Oil Corp. v. Diakuhara, 10
F.3d 90, 98 (2d Cir. 1993) ("The test of such a defense is measured not by whether there is a
likelihood that it will carry the day, but whether the evidence submitted, if proven at trial, would
constitute a complete defense."); Berthelsen v. Kane, 907 F.2d 617, 621-22 (6th Cir. 1990)
("Resolving the ambiguous evidence in favor of the defendant, he has stated a meritorious defense.
Likelihood of success on the merits is not the measure of whether the defendant presents a
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meritorious defense. If he 'states a defense good at law, then a meritorious defense has been
advanced.'"); Coon v. Grenier, 867 F.2d 73, 77 (1st Cir. 1989) ("The 'meritorious defense'
component of the test for setting aside a default does not go so far as to require that the movant
demonstrate a likelihood of success on the merits. Rather, a party's averments need only plausibly
suggest the existence of facts which, if proven at trial, would constitute a cognizable defense.");
United States v. $55,518.05 in U.S. Currency , 728 F.2d 192, 195 (3d Cir. 1984) ("The showing of a
meritorious defense is accomplished when 'allegations of defendant's answer, if established on trial,
would constitute a complete defense to the action.'").
Under this standard, this factor weighs in Wells Fargo's favor. Wells Fargo claims it has no
ownership interest in the loan, which would constitute a defense to many of Plaintiff's claims.
Krause Decl. ¶ 7; s ee Hunter, 2009 WL 224958 at *4 ("If the loan were in fact made to Wade
Summers, and not to TBDC, then TBDC would have a complete defense to the action."). Instead,
Wells Fargo claims it is the master servicer of the loan, which may open it up to some liability ( e.g.,
potential liability under § 2605). However, as Wells Fargo points out and the Court's conclusions
above regarding the motion to dismiss indicates, there are numerous weaknesses in Plaintiff's
complaint as alleged, and Wells Fargo would likely prevail on many of Plaintiff's claims. See Mot.
to Set Aside at 7-8 (summarizing defenses against Plaintiff). Accordingly, the Court concludes that
the second factor weighs in favor of setting aside default.
3. Prejudice to Plaintiff
As for the third factor, i.e., prejudice to the plaintiff, the Ninth Circuit has stated that "the
setting aside of a judgment must result in greater harm than simply delaying resolution of the case.
Rather, 'the standard is whether [plaintiff's] ability to pursue his claim will be hindered'" -- e.g.,
"'the delay must result in tangible harm such as loss of evidence, increased difficulties of discovery,
or greater opportunity for fraud or collusion.'" Id. at 701. The court explained:
It should be obvious why merely being forced to litigate on the
merits cannot be considered prejudicial for purposes of lifting a
default judgment. For had there been no default, the plaintiff would of
course have had to litigate the merits of the case, incurring the costs of
doing so. A default judgment gives the plaintiff something of a
windfall by sparing her from litigating the merits of her claim because
of her opponent's failure to respond; vacating the default judgment
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merely restores the parties to an even footing in the litigation.
Id. In the instant case, Plaintiff argues that setting aside the default would be prejudicial to her
because of the delay and cost it has imposed. Opp. at 9. But, as noted above, the Ninth Circuit has
expressly held that being forced to litigate on the merits cannot be considered prejudicial. In
addition, the case is still in the early stages.
However, given the cost that Wells Fargo has needlessly caused Plaintiff, the Court does
have the authority to impose certain conditions for the setting aside of a default. In Nilsson,
Robbins, Dalgarn, Berliner, Carson & Wurst v. Louisiana Hydrolec , 854 F.2d 1538 (9th Cir. 1988),
the Ninth Circuit expressly addressed the issue of conditioning, stating as follows:
In discussing the conditioning of defaults, we have noted that other
circuits have held that Fed. R. Civ. P. 60(b) allows district courts to
impose such conditions on relief from judgment of default. .
By conditioning the setting aside of a default, any prejudice
suffered by the non-defaulting party as a result of the default and the
subsequent reopening of the litigation can be rectified. According to
Wright, Miller & Kane, the most common type of prejudice is the
additional expense caused by the delay, the hearing on the Rule 55(c)
motion, and the introduction of new issues. Courts have eased these
burdens by requiring the defaulting party to provide a bond to pay
costs, to pay court costs, or to cover the expenses of the appeal. The
use of imposing conditions can serve to "promote the positive
purposes of the default procedures without subjecting either litigant to
their drastic consequences."
In Thorpe, it was noted that the "philosophy of modern federal
procedure favors trials on the merits, and default judgments should
generally be set aside where the moving party acts with reasonable
promptness, alleges a meritorious defense to the action, and where the
default has not been willful." Moreover, reasonable conditions may be
imposed in granting a motion to vacate a default judgment. The
condition most commonly imposed is that the defendant reimburse the
plaintiff for costs incurred because of the default. In some cases, it
may also be appropriate for the defendant to be required to post bond
to secure the amount of the default judgment pending a trial on the
merits.
By setting aside the default with conditions, the district court
judge in the instant case was attempting to facilitate discovery and was
protecting the non-defaulting party by not requiring the plaintiff to pay
for its costs. We find this behavior appropriate and not an abuse of
discretion. Accordingly, we now hold that it is appropriate to
condition setting aside a default upon the payment of a sanction.
Id. at 1546-47; see also 55 Moore's Fed. Prac. - Civ. § 55.70 ("A court may use [its] inherent power
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[to impose reasonable conditions in order to avoid undue prejudice to the nondefaulting party] to
require a party to post security for payment of all or part of an eventual judgment. Another
condition a court may impose is the payment of reasonable attorney's fees and costs incurred by the
opposing party because of the default.").
In the instant case, Plaintiff's counsel states that he has spent 7.4 hours on this issue and
anticipates an additional 1.5 hours at a billing rate of $200/hour. Goodell Decl. ¶ 11. The Court
finds that these fees are appropriate, and orders Wells Fargo to pay the $1780 in costs Plaintiff has
reasonably incurred as a result of Wells Fargo's default.
With these conditions, the Court GRANTS Wells Fargo's motion to set aside default.
D. Motion for Default Judgment
Because the Court has granted Wells Fargo's motion to set aside default, the motion for
default judgment is DENIED as moot.
III. CONCLUSION
For the foregoing reasons, the Court hereby orders:
(1) Defendants Suntrust and MERS's motion to dismiss Plaintiff's claim under Cal. Civ. Code §
2923.5 is DENIED.
(2) Defendants Suntrust, MERS, and US Bank's motion to dismiss Plaintiff's claim under
RESPA, 12 U.S.C. § 2605, is GRANTED without prejudice.
(3) Defendants Suntrust and US Bank's motion to dismiss Plaintiff's Fraud claim is GRANTED
without prejudice.
(4) Defendants Suntrust, MERS, and US Bank's motion to dismiss Plaintiff's Wrongful
Foreclosure claim is DENIED insofar as it is based on Plaintiff's allegations that the wrong party
initiated foreclosure without any interest in the subject property, and GRANTED with prejudice
insofar as it is predicated on Defendants' not physically producing the note.
(5) Defendants Suntrust, MERS, and US Bank's motion to dismiss Plaintiff's Quiet Title claim
is GRANTED without prejudice.
(6) Defendants Suntrust, MERS, and US Bank's motion to dismiss Plaintiff's Negligence claim
is GRANTED without prejudice.
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(7) Defendants Suntrust and US Bank's motion to dismiss Plaintiff's Accounting claim is
GRANTED without prejudice.
(8) Defendants Suntrust, MERS, and US Bank's motion to dismiss Plaintiff's Declaratory Relief
claim is GRANTED without prejudice.
(9) Defendants Suntrust, MERS, and US Bank's motion to dismiss Plaintiff's claim under Cal.
Bus. & Prof. Code § 17200 claim is DENIED insofar as it is predicated on alleged violations of §
2923.5, and GRANTED without prejudice as to all other theories.
(10) Defendants Suntrust, MERS, and US Bank's motion to strike is GRANTED.
(11) Defendant Wells Fargo's motion to set aside default is GRANTED.
(12) Defendant Wells Fargo is ordered to pay $1780 in legal fees and costs Plaintiff.
(13) Plaintiff's motion for default judgment is DENIED.
This order disposes of Docket Nos. 31, 54, 57.
IT IS SO ORDERED.
Dated: December 15, 2011
_________________________
EDWARD M. CHEN
United States District Judge
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Firm commentary:
In a recent bad decision, the appeals court stretched itself thin for the benefit of banks to rule that the recording of an ASSIGNMENT of DEED of TRUST is not required prior to the initiation of a non-judicial foreclosure. Seemingly, the big banks have been manufacturing phony assignments without need.
However, since many banks DID file phony assignments, they may be estopped from denying the nature of the alleged transfer referenced in the assignment. For a more comphrehensive review of this case, please read Professor Roger Bernhardt below. For a tailor analysis of how the decision affects you, contact our office.
The decision in Calvo v HSBC Bank (2011) 199 CA4th 118, 130 CR3d 815, will certainly affect foreclosure practice--that is, if it survives review by the supreme court and if it is followed by other courts, prospects that I find doubtful. (Calvo's holding that an assignment of a deed of trust is not subject to the preforeclosure recordation requirement of CC §2932.5, on the ground that a deed of trust is not a mortgage, is reported in this issue at p 196.)
The lesson everyone thought they learned in 1933, when the California Supreme Court decided Bank of Italy Nat'l Trust & Sav. Ass'n v Bentley (1933) 217 C 644, 20 P2d 940, was that in mortgage law, form does not control, so that when an instrument functioned like a mortgage it should be treated like a mortgage, regardless of whether it looked like a mortgage (as a deed of trust or sale and leaseback, for example, does not). The court's later language in Monterey S.P. Partnership v W.L. Bangham, Inc. (1989) 49 C3d 454, 460, 261 CR 587, reported at 12 CEB RPLR 250 (Nov. 1989), dealing with deeds of trust in particular ("In practical effect, if not in legal parlance, a deed of trust is a lien on the property.... [M]ortgagees and trust deed beneficiaries alike hold security interests in property encumbered by mortgages and deeds of trust"), seemed to clinch that matter, and makes it extremely unlikely that that conclusion will change, despite what the Calvo court has said to the contrary.
As far as lower court holdings are concerned, Calvo cited In re Salazar (Bankr SD Cal 2011) 448 BR 814 with disapproval but did not mention two other 2011 federal decisions that reached the same conclusion that CC §2932.5 applies to deeds of trust as well as mortgages--namely, In re Cruz (Bankr SD Cal, Aug. 11, 2011, No. 11-01133-MM13) 2011 Bankr Lexis 3080 and Tamburri v Suntrust Mortgage (ND Cal, July 6, 2011, No. C-11-2899 EMC) 2011 US Dist Lexis 72202--or three state court of appeal decisions doing the same: Diamond Heights Village Ass'n, Inc. v Financial Freedom Sr. Funding Corp. (2011) 196 CA4th 290, 126 CR3d 673, Aviel v Ng (2008) 161 CA4th 809, 74 CR3d 200, and Ung v Koelhler (2005) 135 CA4th 186, 37 CR3d 311. (I commented on some of these cases in prior issues of this Reporter. See Editor's Take, 34 CEB RPLR 144 (July 2011) (Diamond Heights); Midcourse Corrections: When First Might Be Worst, 31 CEB RPLR 75 (May 2008) (Aviel); Editor's Take, 29 CEB RPLR 251 (Mar. 2008) (Ung).) Calvo is rather clearly going against the grain of these holdings.
Technically, CC §2932.5 is ambiguous enough to allow a court to go either way on the question of whether deeds of trust fit under it. There are three sections in the Civil Code that deal with assignments, and the other two of them explicitly include deeds of trust as covered instruments. Civil Code §2934 says "Any assignment of a mortgage and any assignment of the beneficial interest under a deed of trust may be recorded, and from the time the same is filed for record operates as constructive notice of the contents thereof to all persons." (Emphasis added.) Civil Code §2935 asserts that
the record of the assignment of the mortgage or of the assignment of the beneficial interest under the deed of trust, is not of itself notice to the debtor, his heirs, or personal representatives, so as to invalidate any payment made by them, or any of them, to the person holding such note, bond, or other instrument. [Emphasis added.]
These sections both stand in contrast to §2932.5, which does not mention deeds of trust but instead provides as follows:
Where a power to sell real property is given to a mortgagee, or other encumbrancer, in an instrument intended to secure the payment of money, the power is part of the security and vests in any person who by assignment becomes entitled to payment of the money secured by the instrument. The power of sale may be exercised by the assignee if the assignment is duly acknowledged and recorded. [Emphasis added.]
It is certainly true that the beneficiary of a deed of trust looks like an "encumbrancer" who could easily fit under §2932.5, but why did the terminology get switched if all three sections were designed to have the same scope? (I have always wondered why the legislature wanted to make recordation appear mandatory, as §2932.5 does in foreclosure situations, if its effect is at the same time made so minimal, as it is in §2935 for payment situations.)
The obviously best way to resolve legislative uncertainties is for the legislature itself to step in, and the real resolution of the question of whether §2932.5 should apply only to mortgages, or to deeds of trust as well, ought to come from a clarifying amendment out of Sacramento. That, however, is unlikely to happen, meaning that the question will have to be settled by courts in lieu, and part of their conclusion might be based on a consideration of what purpose is supposed to be accomplished through such a recording requirement as §2932.5 now contains.
It is evident enough that deeds of trust themselves ought to be recorded, to ensure that subsequent potential purchasers and encumbrancers of the property have notice of them and thereby take their proper place in line when claims against the land need to be ranked: Grantees want to be assured their titles are marketable and lenders to be assured that their liens have priority. A mandatory recording requirement like that contained in CC §1214 had to be imposed for real estate markets to operate sensibly.
But the considerations are not the same when we are considering subsequent transfers of a deed of trust that was itself recorded when it was first executed, by virtue of which the world did receive constructive notice of the fact of its existence. That original recordation does not tell the world much else. It does not give any information, for instance, as to how much is owing on the loan secured by the deed of trust, because that depends on (1) the face amount of the promissory note--which is not recorded--as well as (2) the payments that were thereafter made on that note--facts even less likely to appear anywhere in the records. That essential information is obtained by talking to the right persons, rather than by more diligent record searching.
Nor, more relevantly to the transfer issues being considered here, will the records inform anyone about the identity of the person who is entitled to receive the payments that remain owing on that note. Civil Code §2935, quoted above, says that it protects payments not made to the recorded assignee of a deed of trust only when they were made "to the person holding such note"--which is nowhere in the records. Even when a mortgage or deed of trust is involved, the debtor's obligation is to pay the holder of the note, not the holder of the security instrument; the rules of commercial paper trump the rules on mortgage instruments and the effect or noneffect of their recordation.
The facts that (1) recorded mortgage instruments do not inform anyone of the amounts due under the promissory notes they secure and (2) in mortgage transfer situations, payment and priority issues are decided according to possession of the secured notes, rather than on the record identity of the secured parties, inevitably makes the recording of assignments of deeds of trust irrelevant to most outcomes. It certainly may be important for a borrower/trustor to know, or at least be able to find out, who holds her loan, for her to pay it off or to dispute it, but that problem would be better resolved through sensible rules about the giving (and contents) of notices of default and notices of sale or notices of servicing changes, rather than through rules mandating the recording of assignments. What bona fide dispute between a trustor and beneficiary or between rival beneficiaries actually turns on whether the assignment of a deed of trust was recorded, rather than on whether the underlying note was actually paid or transferred? Especially in today's secondary market, where only MERS's name may appear in the records--despite countless loan transfers--until a final assignment out of the system is made to a lender about to foreclose (see "Challenges to California Foreclosures Based on MERS Transfers" and "More on Mortgage Transfer Mysteries" at RogerBernhardt.com), the value of a requirement that the final transfer be recorded is even more obscure.
The Calvo judges may have had similar misgivings about the impact that the nonrecordation of the deed of trust had on the underlying merits of that case (or instead suspected that that event was being employed opportunistically to trip up an unwary lender more than to provide any meaningful protection to that borrower). If such was the motivation behind the decision, it may constitute more of a better policy than an authoritative precedent, in light of the many contrary decisions holding the other way on the mortgage/deed of trust distinction. For the time being, lawyers for transferees of loans that have gone into default should make sure that their clients have a good chain of recorded assignments before they let the foreclosure sale go forward.
Calvo v HSBC Bank (2011) 199 CA4th 118, 130 CR3d 815
Borrower defaulted on her loan, secured by a deed of trust against her home. The deed of trust granted title to the property and the power to sell on default to the trustee. A new trustee recorded a notice of default and began foreclosure proceedings. There was no notice of an assignment of the deed of trust; only the notice of the substitution of trustee reflected the change, which was recorded on the same day as was the notice of trustee's sale. Borrower sued the successor lender and the Mortgage Electronic Registration Systems, Inc. (MERS) (the lender's agent and nominal beneficiary), seeking to set aside the trustee's sale, alleging a violation of CC §2932.5 (defining mortgagee's power to sell real property). The trial court dismissed the complaint on demurrer and the court of appeal affirmed.
Under CCP §2924(a), a "trustee, mortgagee, or beneficiary, or any of their authorized agents, may initiate the foreclosure process." MERS, as both the nominal beneficiary and agent of the original lender and its successor, had the statutory authority to begin foreclosure proceedings. See Gomes v Countrywide Home Loans, Inc. (2011) 192 CA4th 1149, 121 CR3d 819 (reported at 34 CEB RPLR 66 (Mar. 2011)). Here, CC §2932.5 did not apply because foreclosure proceedings were begun under the authority granted in the deed of trust, not under a mortgage (which merely creates a lien, but does not transfer title, as does a deed of trust). Borrower simply "alleged no legal basis for setting aside the sale in this case."
Firm commentary: Note to California Attorney General Kamala Harris and any California voters: The following complaint provides a roadmap to the deceptive foreclosure practices implemented against homeowners throughout our state: http://www.mass.gov/ago/docs/press/ag-complaint-national-banks.pdf. These practices are occurring on a much greater scale in California. Courts and legislatures in California have taken no action to prevent this widespread attack on basic property rights and the integrity of our legal system.
Things are different back east as evidenced by a recent lawsuit: On Thursday, Massachusetts Attorney General Martha Coakley sued five of the nation's leading lenders over deceptive home loan practices and pursuing illegal foreclosure among its customers. Coakley claims that JPMorgan Chase, Wells, Bank of America, Citigroup and GMAC used fraudulent information during foreclosure proceedings, initiated foreclosure without holding the actual mortgage, and failing to uphold on loan modification promises.
1. Unlawful foreclosure:
The suit acknowledges that these five banks initiated unlawful foreclosure due to the fact they were not the actual mortgage holders. Only the current mortgage holder can begin foreclosure proceedings on a property. Coakley says the banks ignored this law and begun foreclose on homes in which they did not hold the mortgage, and therefore had no right to conduct their foreclosure actions.
2. Deceptive loan modification practices:
No surprise: these banks mislead homeowners pursuing a mortgage modification about the process, requirements, and availability of this government mandated program. The AG claims the banks failed to achieve timely modifications and strung borrowers along for months on temporary trial periods just to be turned down for permanent assistance. This office has seen homeowners stuck on the trial period for 6-20 months that were ultimately rejected.
3. Robo-signing foreclosure:
According to the complaint: "The banks used false documentation in the foreclosure process, including so-called "robo-signing", whereby bank personnel signed affidavits that were untrue, or not based on the signor's actual knowledge. An entity wishing to foreclose on a property must demonstrate it has filed an affidavit in compliance with Massachusetts law." said Coakley. "Evidence also suggests these practices were not confined to the foreclosure process, but also used in the assignment, transfer and modification of mortgages secured by property in Massachusetts."
4. Undermining MERS:
The lawsuit details that the five entities have undermined Massachusetts land record system through the use of MERS. These banks adopted the use of this electronic registry system to help find a way around land registration and recording requirements, including fees for recording and registration, and to simple the process of home loan sales. The AG claims this system has a lack of transparency as to which banks have authority to enforce foreclosure and unfairly hides the true owner of the mortgage.
"The single most important thing we can do to return to a healthy economy is to address this foreclosure crisis," said AG Coakley. "Our suit alleges that the banks have charted a destructive path by cutting corners and rushing to foreclose on homeowners without following the rule of law. Our action today seeks real accountability for the banks illegal behavior and real relief for homeowners."
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