Case Name: Legary v. Nationstar Mortgage, LLC
Case No.: 16CV298935

Defendant Nationstar Mortgage, LLC (“Defendant” or “Nationstar”) moves for judgment on the pleading as to the complaint (“Complaint”) filed by plaintiff Bruce Legary (“Plaintiff”).

I. Factual and Procedural Background

This action arises out of the alleged mishandling of a loan modification application. According to the allegations of the operative complaint (“Complaint”), in 1994, plaintiff Bruce Legary (“Plaintiff”) and his wife purchased a residential property at 7868 McClellan Road in Cupertino (the “Property”). (Complaint, ¶¶ 8-9.) In June 2006, Plaintiff obtained a new loan on the Property and executed a Deed of Trust and Promissory Note in favor of Countrywide Home Loans. (Id., ¶ 9.) After a series of subsequent assignments, defendant Nationstar Mortgage LLC (“Defendant” or “Nationstar”) became the loan’s servicer in 2016. (Id.)

In January 2016, Plaintiff authorized his wife, Cindy Legary (“Ms. Legary”), to speak with Nationstar on his behalf. (Complaint, ¶ 10.) Ms. Legary contacted Nationstar and explained that, because of an unforeseen loss of income, Plaintiff could not easily make the regular monthly payment on the loan. (Id.) Defendant advised Ms. Legary that Plaintiff should fill out and submit a completed loan modification application to Nationstar and that a single point of contact named Gi-Hann El-Bourini (“El-Bourini”) would be established on the loan who would assist them with any questions they had regarding the modification process. (Id.) On January 26, 2016, Plaintiff submitted a complete loan modification application to Defendant. (Id.)

On February 16, 2016, after not receiving any communications from Nationstar, Ms. Legary contacted the company to follow up on the status of the loan modification application. (Complaint, ¶ 11.) Ms. Legary spoke with an individual named Jeanne Akarini who informed her that the application was under review and that nothing additional was needed from Plaintiff. (Id.) Having still received no word from Defendant, Ms. Legary again contacted Nationstar on March 24, 2016 to inquire about the status of Plaintiff’s application. (Id., ¶ 12.) Ms. Legary spoke with an individual named Tiffany, who informed her that the loan application had been denied. (Complaint, ¶ 12.) Ms. Legary was directed to contact El-Bourini with any further questions about why the application was denied. (Id.) Ms. Legary informed Tiffany that Plaintiff’s income had increased since the initial application was submitted. (Id.) Tiffany advised her to fax documents demonstrating this increase, which she did on April 2, 2016. (Id.)

After this communication, Plaintiff and his wife sought clarification regarding their modification denial since they never received a denial letter. (Complaint, ¶ 13.) In April 2016, Ms. Legary spoke with an individual at Nationstar who informed her that the loan modification had been denied based on insufficient income and that an appeal would need to be submitted no later than April 2, 2016. (Id.) On April 20, 2016, Plaintiff sent an appeal letter to Defendant. (Id.) On May 1, 2016, Ms. Legary spoke to an individual named Niam about the loan modification application who confirmed that it had been denied in March 2016 because of Plaintiff’s income. (Id., ¶ 14.) Ms. Legary informed Niam that Plaintiff had never received a denial letter, but had sent an appeal at Defendant’s instruction. (Id.) Niam was unable to confirm the status of Plaintiff’s appeal. (Id.)

The next correspondence Plaintiff received from Nationstar was a Notice of Default (“NOD”) recorded on May 27, 2016. (Complaint, ¶ 15.) Ms. Legary contacted Nationstar on June 7, 2016, inquiring about the NOD and informing Defendant that they still had not received a denial letter, nor a response regarding Plaintiff’s appeal. (Id.) Later that day, Defendant sent Plaintiff a denial letter dated March 26, 2016. (Id.) Plaintiff alleges, based on information and belief, that the denial letter was not created until June 7, 2016 and that the first time the letter was sent was that same day. (Id.)

Based on the foregoing allegations, Plaintiff filed the Complaint on August 23, 2016, asserting claims for: (1) violation of Civil Code section 2923.6; (2) violation of Civil Code section 2923.7; and (3) negligence. Nationstar subsequently demurred, unsuccessfully, to each of the foregoing claims in December 2016. On March 26, 2018, Nationstar filed a motion for summary judgment, or in the alternative, summary adjudication. On May 15, 2018, the Court granted the motion as to the second cause of action and denied it as to the first and third causes of action. On June 8, 2018, Nationstar filed the instant motion for judgment on the pleadings. Plaintiff opposes the motion.

II. Nationstar’s Request for Judicial Notice

In support of its motion, Nationstar requests that the Court take judicial notice of numerous documents related to the Property, including the Deed of Trust, assignments of the Deed of Trust, several NODs, several Notices of Trustee’s Sale, a copy of a loan modification agreement dated September 10, 2012 and a copy of the Notice of Rescission of the Notice of Default, dated May 24, 2018. (See Exhibits 1-10, 12.) The Court may properly take judicial notice of recorded property records. (See Evid. Code, § 452, subd. (h); see Alfaro v. Committee Housing Imp. System & Planning Assn., Inc. (2009) 171 Cal.App.4th1356, 1382; Evans v. Cal. Trailer Court, Inc. (1994) 28 Cal.App.4th 540, 549; see also Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th256, 264-265 [stating that “a court may take Judicial Notice of the fact of a document’s recordation, the date the document was recorded and executed, the parties to the transaction reflected in the recorded document, and the document’s legally operative language … [and,f]rom this, the court may deduce and rely upon the legal effect of the recorded document”].)

Nationstar additionally requests that the Court take judicial notice of its May 15, 2018 order on the motion for summary judgment/adjudication (Exhibit 9). This item is also a proper subject of judicial notice as a court record pursuant to subdivision (d) of Evidence Code section 452. Based on the foregoing, Nationstar’s request for judicial notice is GRANTED.
III. Nationstar’s Motion for Judgment on the Pleadings

As Nationstar explains, two causes of action remain in Plaintiff’s Complaint after the Court’s ruling on Defendant’s motion for summary judgment/adjudication: the first for violation of Civil Code section 2923.6 (“Section 2923.6”) and the third for negligence. The entire basis of Nationstar’s motion for judgment on the pleadings is that the aforementioned claims are now moot due to the rescission of the NOD on May 29, 2018, as reflected by a Notice of Rescission recorded on that date.

Plaintiff’s first cause of action is entirely predicated on Nationstar’s alleged violation of Section 2923.6, which prevents a mortgage servicer from recording a NOD after a borrower submits a complete application for a first lien loan modification until one of the following occurs: (1) the servicer makes a written determination that the borrower is not eligible for a modification, and any appeal has expired; (2) the borrower does not accept an offered modification within 14 days of the offer; or (3) the borrower accepts the written loan modification, but defaults or otherwise breaches its obligations under that modification. (Civ. Code, § 2923.6, subd. (c).) If the application is denied, the borrower has 30 days from the written date of the denial to appeal and the servicer expressly cannot record an NOD until the later of: (1) thirty-one days after the borrower is notified in writing of the denial; or (2) if the borrower appealed, the later of 15 days after the denial of the appeal or 14 days after a modification is offered after appeal but declined by the borrower, or, if the modification is offered and accepted after appeal, the date on which the borrower fails to timely submit the first payment or otherwise breaches the terms of the offer. (Civ. Code, § 2923.6, subds. (d) and (e).) Plaintiff alleges that Nationstar breached Section 2923.6 by recording an NOD prior to making a written determination on his loan modification application and prior to resolving his appeal. (Complaint, ¶¶ 20-22.)

Nationstar maintains that because there has been no foreclosure sale to date, the only remedy available to for violation of Section 2923.6 is equitable in nature in the form of injunctive relief. Because a foreclosure sale is no longer currently pending due to the rescission of the NOD, it explains, there is no longer any basis for injunctive relief pursuant to the safe harbor provision of Civil Code section 2924.12, subdivision (c), and therefore Plaintiff’s first cause of action is moot.

Nationstar is correct that there have been cases in which courts have concluded that because an NOD was rescinded, the servicer’s conduct implicated the so-called “safe-harbor” provision provided by Civil Code section 2924.12, which precludes liability for “any violation [by a mortgage servicer] … corrected and remedied prior to a trustee’s sale.” This was the case, for example, in Jent v. Northern Trust Corp. (N.D. Cal. 2014) 2014 WL 172542 at *6, where the loan servicer, accused by the plaintiff of dual-tracking, was able to avoid liability for prematurely recording the NOD by rescinding said NOD to make use of the safe harbor provision, thereby correcting the violation. It was also the case in Diamos v. Specialized Loan Servicing, LLC (N.D. Cal. 2014) 2014 WL 3362259, *5 [finding that a dual tracking violation was moot under Section 2924.12, subd. (c), only after the mortgage servicer rescinded the notice of default] and Hestrin v. CitiMortgage, Inc. (C.D. Cal. 2015) 2015 WL 847132, *3 [finding that only rescission of improperly recorded NOD could moot a borrower’s dual tracking claim].)

Of critical importance, however, is the fact that in his Complaint Plaintiff is not only seeking injunctive relief in connection with Nationstar’s alleged violation; he is also seeking attorney’s fees. While there may no longer be a basis for injunctive relief due to the rescission of the NOD, Plaintiff may still be entitled to recover attorney’s fees incurred for having to file suit in the first instance. As explained in Tuan Anh Le v. Bank of New York Mellon (N.D. Cal. 2015) 152 F.Supp.3d 1200, 1215, “[t]o find otherwise, would permit lenders to violate [foreclosure statutes] with impunity only to later correct its violations as a litigation tactic after a lawsuit is filed. While fixing mistakes should be encouraged, it should not be a shield to paying attorney’s fees to plaintiff’s counsel, who filed the meritorious claim, even if an injunction is not formally obtained.” The fact remains that the purportedly prematurely recorded NOD Nationstar prompted this lawsuit by Plaintiff in the first place, and it was only after the lawsuit was filed that it was rescinded. Thus, Plaintiff may still be entitled to recovery attorney’s fees in connection with the first cause of action, and therefore judgment on this claim in Nationstar’s favor is not appropriate at this juncture.

Nationstar contends that Plaintiff’s remaining cause of action for negligence is similarly moot due to the rescission of the NOD. This claim is predicated on allegations that Nationstar owed Plaintiff a duty to use reasonable care in the handing of his loan modification application and to provide him with accurate information to ensure that he was considered for all loss mitigation options, but breached that duty by failing to do so. Thus, as alleged, this claim is predicated on more than just the purported violation of Section 2923.6. As such, the fact that the NOD was rescinded does not necessarily establish that the claim is moot in its entirety. Additionally, as with the first cause of action, the rescission of the NOD does not remedy all damages that may have been causes by Nationstar’s purportedly negligent acts. Here, Plaintiff alleges that he suffered emotional distress damages as a result of Nationstar’s conduct and any subsequent remediation of that conduct does not mean that Plaintiff cannot recover for the emotional distress he allegedly suffered. Therefore, judgment on the third cause of action in Nationstar’s favor is not appropriate.

Based on the foregoing analysis, Nationstar’s motion for judgment on the pleadings is DENIED.