2018-00225041-CU-OR

Bryan Broome vs. Fay Servicing, LLC

Nature of Proceeding: Hearing on Demurrer to Complaint

Filed By: Logan, Jana

Defendant Fay Servicing LLC’s demurrer to Plaintiffs Bryan and Mary Broome’s complaint is sustained with leave to amend.

Defendant’s unopposed request for judicial notice is granted.

In this foreclosure action Plaintiffs allege causes of action for violation of Civil Code §§ 2923.6(c), 2924.11(a), and 2924.18(a). Plaintiffs allege that they purchased the subject home in 2004. They allege that they suffered financial difficulties which rendered them unable to pay their mortgage. They allege that they submitted loan modification applications to previous loan servicers which were never determined. They allege that when Defendant became the new servicer they reached out to Defendant for foreclosure avoidance assistance. They allege that they attempted to obtain a loan modification and on September 29, 2017, Defendant sent them a Trial Period Plan which required a first monthly payment of $125,899.22 followed by two additional monthly payments of $1,759.14. Plaintiffs allege that the TPP was not really a true offer given the “unconscionable” amount of the first payment which was in reality closer to the amount of the loan arrears. (Comp. ¶ 30.) Plaintiffs allege that Defendant instructed the trustee to record a Notice of Trustee’s Sale (“NOTS”) on December 18, 2017. (Id. ¶ 31.)

Plaintiffs allege that Defendant’s agent Yvette Bates ultimately agreed that the first TPP payment was closer to a reinstatement as opposed to a modification. (Id. ¶ 32.) Bates allegedly instructed Plaintiffs to submit another loan modification application demonstrating a material change of financial circumstances. Plaintiffs allege that they submitted a new loan modification application on December 26, 2017. (Id. ¶¶ 33-34.) Defendant allegedly confirmed it received a complete application on December 28, 2017 and indicated it would provide a determination within 30 days. (Id. ¶ 38.)

Plaintiffs allege that Defendant has engaged in dual tracking based on the fact that a

Trustee’s Sale was set for January 19, 2018, which was less than 30 days from the date Defendant confirmed receipt of the loan modification application and therefore prior to the date Defendant was to render a determination.

The Court previously denied Plaintiffs’ motion for preliminary injunction and specifically found that Defendant had not recorded a NOTS or conducted a Trustee Sale while any loan modification was pending and that the refusal to cancel a future sale was not “conducting a foreclosure sale.” (ROA 32). That analysis is equally applicable here as the complaint does not allege that Defendant either recorded a NOTS or conducted a trustee’s sale while their loan modification was pending.

Both the 2013 and 2018 versions of the California’s Homeowner Bill of Rights (“HBOR”) prohibit a borrower’s mortgage servicer and foreclosing trustee from conducting a trustee’s sale when the borrower has submitted a “complete application” for a loan modification and to which the servicer has yet to return a written determination either granting or denying the borrower’s application. (See Cal. Civ. Code § 2924.12, et seq. (2013) and (2018). Cal. Civ. Code § 2923.6(c) (2013) provides in relevant part: If a borrower submits a complete application for a first lien loan modification offered by, or through, the borrower’s mortgage servicer, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or notice of sale, or conduct a trustee’s sale, while the complete first lien loan modification application is pending

As of January 1, 2018, the HBOR II went into effect. The corresponding statute protecting the same Primary Right is found under Cal. Civ. Code § 2924.11(a) [2018], providing: If a borrower submits a complete application for a foreclosure prevention alternative offered by, or through, the borrower’s mortgage servicer, a mortgage servicer, trustee, mortgagee, beneficiary, or authorized agent shall not record a notice of sale or conduct a trustee’s sale while the complete foreclosure prevention alternative application is pending. A mortgage servicer…shall not record a notice of default or notice of sale or conduct a trustee sale until any of the following occurs:

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

(d) has expired.

(2) The borrower does not accept an offered first lien loan modification within 14 days of the offer.

(3) The borrower accepts a written first lien loan modification, but defaults on, or otherwise breaches the borrower’s obligations under the first lien loan modification.

Parenthetically, new Civil Code section 2924.11(a) is essentially a restatement of the prior Civil Code section 2923.6(c). Section 2924.11 applies where the Defendant forecloses on more than 175 residential real properties. By contrast, section 2924.18 only applies where the defendant foreclosed on less than 175 residential real properties. (Civ. Code § 2924.18(b).) Section 2924.18 was repealed effective January 1, 2018.

At the outset, Defendant argues that Plaintiffs cannot proceed simultaneously under Sections §§ 2924.11 and 2924.18 on the basis that the sections cannot simultaneously

apply because only deals with lenders that foreclose on more than 175 residential properties and the other applies where the lender forecloses on less than 175 properties. Plaintiffs have alleged that they are not aware at this time as to whether Defendant has foreclosed on more or less than 175 residential real properties. (Comp.

¶ 84.) Plaintiffs have therefore pled their claims under the two statutes in the alternative. A plaintiff is allowed to plead alternate and even inconsistent theories. ( Rader Co. v. Stone (1986) 178 Cal.App.3d 10, 29.) This is no basis to sustain the demurrer.

However, the Court agrees that under all three causes of action, all of which are premised on the same theory that Defendant has engaged in dual tracking by refusing to postpone, cancel or suspend the Trustee’s Sale scheduled for January 18, 2018 are defectively pled. As set forth above, the Court already essentially reached this conclusion when it denied Plaintiffs’ motion for preliminary injunction. Plaintiffs allege that after the NOTS was recorded on December 18, 2017, they submitted a complete loan modification application on December 26, 2017 which was acknowledged by Defendant and that Defendant refuses to cancel or postpone the trustee’s sale. The relevant statutes all provide that the loan servicer shall not record a NOTS or conduct a foreclosure sale while the complete foreclosure prevention alternative application is pending. (Civ. Code §§ 2924.11(a), 2924.18(a)(1), 2923.6(c).) There are no allegations that Defendant either recorded a NOTS or conducted a foreclosure sale while their loan modification was pending. Rather, they allege that Defendant’s failure to cancel or postpone the January 19, 2018 sale constitutes dual tracking. The Court already rejected this argument in denying the motion for preliminary injunction when it found that the refusal to cancel a future sale was not “conducting a foreclosure sale.”

The relevant statutes only prevent recording a NOTS or actually conducting a sale while the loan modification application is pending. The statutes do not prevent a loan servicer from keeping a foreclosure sale date (based on a NOTS recorded before a loan modification application was submitted) pending while the loan modification is under review.

Plaintiffs allege that Defendant refused to postpone the trustee’s sale on the erroneous ground that the loan modification application was submitted within 37 days of the January 19, 2018 sale date. (Comp. ¶ 58.) But this allegation is contradicted by their allegation that Defendant expressly acknowledged receipt of a complete application on December 28, 2017. (Comp. ¶ 38.) There are no allegations that Defendant has refused to review the application, only that Plaintiffs have not yet received a determination.

There is no binding California authority indicating that a failure to postpone or cancel a pending sale constitutes a violation of the relevant statutes. There are however, numerous unpublished federal cases finding that there is no violation where the loan service simply schedules or reschedules the sale but did not record a NOTS while the application was pending. (Sheng v. Select Portfolio Servicing, Inc. (E.D.Cal. July 24, 2015) 2015 U.S.Dist. LEXIS 97077, *6; see also Johnson v. SunTrust Mortg., Inc. (C.D.Cal. Aug. 4, 2014) 2014 U.S.Dist. LEXIS 110257, *5 [“Plaintiffs allege only that a sale remained scheduled, but this is not barred by Section 2923.6(c)”]; McLaughlin v. Aurora Loan Servs., LLC (C.D.Cal. Apr. 28, 2014) 2014 U.S.Dist. LEXIS 62142, *6.) These cases while not binding on this Court simply reinforce the Court’s conclusion regarding the statutory language.

In opposition, Plaintiffs provide the identical argument that they presented in connection with the preliminary injunction and cite the identical non-binding superior court and federal court cases which the Court stated were distinguishable. Indeed, Foronda v. Wells Fargo Home Mortgage, Inc. (N.D.Cal. Nov. 26, 2014) 2014 U.S.Dist. LEXIS 165676 involved a trustee sale that was scheduled after the complete loan application was pending and the sale was only stopped when the borrower filed for bankruptcy on the day of the sale. Foronda made clear, however, that “had Defendant scheduled the sale before Plaintiffs had resubmitted their pending loan application and then postponed the sale indefinitely while that application was pending, there would be no colorable claim that section 2923.6(c) was violated.” (Id., *19, fn. 6.) Here, the NOTS was recorded on December 18, 2017 setting a sale date of January 19, 2018. Plaintiffs submitted their complete application on December 26, 2017, after the sale date was set. There are no allegations that Defendant set a sale date after receipt of Plaintiffs’ loan modification application. Foronda actually supports Defendant here. Further, Nardolillo v. JPMorgan Chase Bank, N.A. (N.D.Cal. Apr. 26, 2017) 2017 U.S.Dist. LEXIS 63526) involved allegations regarding defendants noticing new trustee’s sale dates as evidence of a continuing attempt to pursue foreclosure while a modification application was pending. Here, the allegations are that Defendant recorded a NOTS before the loan application was submitted which set a date for January 19, 2018. There are no allegations of Defendant noticing new trustee sale dates set after the loan modification application was submitted.

In short, there are no allegations that Defendant either recorded a NOTS or conducted a trustee’s sale while the loan modification application was pending. As a result, there are facts demonstrating any violation of the subject statutes.

The demurrer to the three causes of action in the compliant is sustained for failure to state facts sufficient to constitute a cause of action. While the Court is unclear as to how Plaintiffs could remedy the defects, and Plaintiffs themselves do not request leave to amend, given this is the first challenge to the complaint, leave to amend is granted.

Plaintiffs may file and serve a First Amended Complaint on or before April 6, 2018. Defendant shall file and serve its response within 30 days thereafter, 35 days if the amended complaint is served by mail as modified by the CCP § 430.41 extension as necessary.