2013-00146313-CU-OR

Sarah Garlick vs. Deutsche Bank National Trustee Company

Nature of Proceeding: Hearing on Demurrer

Filed By: Graham, Danielle M.

Defendants Deutsche Bank National Trust Company As Trustee For Harborview 2007-
2 and Deutsche Bank Default Management’s demurrer to Plaintiff Sarah Garlick’s
Complaint is ruled upon as follows.

Defendants’ request for judicial notice is granted. (See Poseidon Devel., Inc. v.
Woodland Lane Estates, LLC (2007) 152 Cal.App.4th 1106, 1117-18; see also
Startford Irrig. Dist. v. Empire Water Co. (1941) 44 Cal.App.2d 61, 68 [recorded land
documents, not contracts, are the subject of judicial notice on demurrer].) The court,
however, does not accept the truth of any facts within the judicially noticed documents
except to the extent such facts are beyond reasonable dispute. (See Poseidon Devel.,
152 Cal.App.4th at 1117-18.) see also Fontenot v. Wells Fargo Bank, N.A. (2011) 198
Cal.App.4th 256, 265 (“[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, assuming there is no genuine dispute regarding the document’s
authenticity.”)

In this foreclosure action, Plaintiff alleges causes of action for cancellation of
instruments, for violation of Bus. & Prof. Code § 17200, to set aside trustee’s sale, for
declaratory relief, and slander of title.

Plaintiff obtained the subject loan from Bank United, FSB (“BU FSB”) secured by a
deed of trust in favor of BU FSB. On February 28, 2007, BU FSB, executed a
Corporation Assignment of Real Estate Mortgage (“First Assignment”) to Central
Mortgage Company dba Central Mortgage Loan Servicing Company (“CMC”),
transferring the rights, title and interest under the Deed of Trust to CMC. The First
Assignment was recorded on September 2, 2010. (Comp. Exh. D.) Plaintiff alleges
that in March 2007, BU FSB “transferred” the Loan to Greenwich Capital
(“Greenwich”). (Comp. ¶ 25.) Greenwich allegedly conveyed the Loan as an asset to
the Harborview 2007-2 Trust (“Trust”) pursuant to a pooling and service agreement
(PSA). A Notice of Default was recorded by Old Republic, as agent of CMC on
September 2, 2010. (Comp. Exh. G.) CMC executed a substitution of trustee on
December 9, 2011, naming Old Republic as the trustee. (Id. Exh. F.) Old Republic
recorded a Notice of Sale on December 22, 2011. (RJN Exh. A.) On July 19, 2012,
CMC assigned its interest in the deed of trust to Defendant Deutsche Bank National
Trust by way of an Assignment of Deed of Trust (“Second Assignment”). (Comp. Exh.
E.) Deutsche Bank acquired the property at a trustee’s sale on April 24, 2012. (Comp.
Exh. H.)

Entire Complaint

The demurrer to the entire complaint on the basis that Plaintiff failed to adequately
allege an irregularity in the foreclosure proceeding is sustained with leave to amend.
Indeed, each of the five causes of action alleges that the subject foreclosure was
wrongful.

Plaintiff’s complaint is premised on the theory that the First Assignment from BU FSB
to CMC (from which Defendants trace their interest in the loan/deed of trust) was void
because BU FSB transferred her Loan to Greenwich, a different entity. Plaintiff
reasons that by dint of this transfer, Defendants could never have obtained any
interest in the Loan because BU FSB had already transferred the Loan to Greenwich.
Plaintiff’s theory, however, is negated by her own allegations in the complaint which
show that the Loan was assigned to CMC prior to the alleged transfer to Greenwich .
Indeed, according to the allegations of Plaintiff’s complaint, the First Assignment from
BU FSB to CMC was executed in February 2007 while the alleged transfer to
Greenwich occurred later, in March 2007. (Comp. ¶ 25, Exh. C, D.) Thus, the
allegations of the Complaint demonstrate, contrary to Plaintiff’s theory, that CMC
obtained a beneficial interest in the Loan pursuant to the First Assignment such that it
could thereafter assign the Loan to Defendant by way of the Second Assignment.

In addition, Plaintiff’s allegation that the NOD is defective because CMC was not the
lender at the time it was recorded is insufficient. Indeed, as was just discussed, CMC
had been assigned the Loan by way of the First Assignment. In addition, while Plaintiff
alleges that the NOD is defective because it was prepared by Old Republic, whom she
alleges was not the lender or trustee, Civil Code Section 2924 specifically provides
that any “authorized agent” of a “trustee, mortgagee, or beneficiary” may record an
NOD. (Civ. Code § 2924.) While Plaintiff attacks the Substitution of Trustee
appointing Old Republic as trustee, her attack is based on her deficient theory that
CMC had no beneficial interest in the Loan pursuant to the First Assignment. Further,
no facts are alleged to establish that the NOD is defective in any other way.

In opposition, Plaintiff argues that Defendants have failed to prove it is the holder of
the Loan and cites to out of state case law and the California Commercial Code’s
definition of a person entitled to enforce a negotiable instrument. (Comm. Code §
3301.) Such contentions are not persuasive. Indeed, non-judicial foreclosure is
governed solely by Civil Code section 2924 et seq. (Gomes v. Countrywide Home
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Loans Inc. (2011) 192 Cal.App.4 1149, 1154; see also Debrunner v. Deutsche Bank
Nat. Trust Co. (2012) 204 Cal.App.4th 433, 441 [“we are not convinced that the cited
section of the California Uniform Commercial Code (particularly § 3301) displace the
detailed, specific, and comprehensive set of legislative procedures the Legislature has
established for nonjudicial foreclosures”].) Thus, any argument regarding the holder of
the note theory under the Commercial Code is not sufficient to support a cause of
action based on a non-judicial foreclosure. Further, Defendants are not required to
prove they are holders of the Loan as Civil Code section 2924 et seq. does not require
the entity initiating foreclosure to have possession of the note. California law states
that possession of the note is not a precondition to non-judicial foreclosure under a
deed of trust; instead, the trustee has the right to initiate the foreclosure process. (
Hafiz v. Greenpoint Mortg. Funding, Inc. (N.D.Cal. July 16, 2009) 652 F.Supp.2d 1039,
1043.)

Plaintiff also argues that the Note and Deed of Trust were “split.” However, such a
theory has been squarely rejected by relevant authorities. “There is no stated
requirement in California’s non-judicial foreclosure scheme that requires a beneficial
interest in the Note to foreclose. Rather the statute broadly allows a trustee,
mortgagee, beneficiary, or any of their agents to initiate non-judicial foreclosure.
Accordingly, the statute does not require a beneficial interest in both the Note and
Deed of Trust to commence a non-judicial foreclosure sale.” (Debrunner, supra, 204
Cal.App.4th at 441.) Indeed, even if one credits plaintiff’s argument, the “split”
between the note and deed of trust does not prevent the beneficiary of the Deed of
Trust, from assigning its interest. And it is immaterial, under our non-judicial
foreclosure statutes, to the ability to conduct foreclosure proceedings.

Plaintiff also appears to allege that the Second Assignment could not have transferred
any interest to Defendant Deutsche Bank National Trust Company As Trustee For
Harborview 2007-2 Trust because the Trust was closed to future transfers prior to such
time. The Court is aware of recent authority holding that allegations of post-closing
date transfers of a loan into a securitized trust may sufficient to state a basis for
concluding that the attempted transfer is void, thus giving the borrower standing to
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challenge the assignment. (Glaski v. Bank of America (2013) 218 Cal.App.4 1079,
1082.) However, Plaintiff fails to address Defendants’ argument attacking this theory
and the Court agrees with Defendants that Plaintiff has not alleged any facts to
demonstrate that the Second Assignment is void based on a purported assignment to
the Trust after the Trust had closed. (Dem. p. 10:9-28.) Further, even if Plaintiff
adequately alleged a defect in the foreclosure process based upon an alleged invalid
transfer of the Loan to Defendant by way of the Second Assignment because the
assignment took place after the Trust was closed (and she fails to address
Defendants’ contention that she has not), Plaintiff has failed to adequately allege any
facts showing that she was prejudiced by any such defect. Indeed, a defaulting
borrower seeking to invalidate a completed sale, as Plaintiff seeks here, must
demonstrate that the defect caused substantial prejudice. (Knapp v. Doherty (2004)
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123 Cal.App.4 76, 92-93.) Indeed, even if any of the alleged documents were
defective, Plaintiff has failed to allege any facts showing how she was prejudiced. In
similar circumstances where it was alleged that the assignment of a Note was void
because it was purportedly transferred to a securitized trust after the trust’s closing
date, it was held that such “invalid transfers” could not have prejudiced the borrower
because the borrower’s obligations under the subject Note remained unchanged and
the borrower was not the victim of any transfer. The only party that could be
potentially harmed by an invalid transfer is the party who purchased the property at the
foreclosure sale, who could be subject to a claim by a third party “true beneficiary.” (
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Jenkins v. JP Morgan Chase Bank, N.A. (2013) 216 Cal.App.4 497, 510.)

Given the above, the Court need not and does not reach the argument that the entire
complaint fails because Plaintiff failed to allege tender.

The Court next addresses Defendants’ arguments directed to the individual causes of
action.

First Cause of Action (Cancellation of Instruments)

Defendants’ demurrer is sustained with leave to amend for failure to state facts
sufficient to constitute a cause of action. This cause of action is premised on the
theory that all of the foreclosure documents (e.g. Second Assignment, Notice of
Default, Notice of Sale) were void because the First Assignment itself was void.
However, as discussed above, Plaintiff has failed to allege facts that any of the subject
documents are void and in any event failed to allege any prejudice suffered as a result
thereof and thus the instant cause of action is deficient.

Second Cause of Action (Bus. & Prof. Code § 17200)

Defendants’ demurrer is sustained with leave to amend for failure to state facts
sufficient to constitute a cause of action. Plaintiff alleges that Defendants engaged in
conduct violating Bus. & Prof. Code § 17200 when they recorded false documents
indicating that they had been assigned Plaintiff’s loan and deed of trust in violation of
Penal Code §§ 115 and 532f(a)(4). However, as discussed above, the Court found
that Plaintiff failed to allege facts showing that the subject documents were invalid.

Third Cause of Action (Set Aside Trustee’s Sale)

Defendants’ demurrer is sustained with leave to amend for failure to state facts
sufficient to constitute a cause of action. First, Plaintiff was required to allege tender in
order to assert a cause of action seeking to set aside the foreclosure sale. (Arnolds
Management Corp. v. Eischen (1984) 158 Cal.App.3d 575, 577.) While Plaintiff may
be correct that a tender would not be required to the extent there is a dispute with
respect to Defendants’ rights under the loan documents, as extensively set forth
above, Plaintiff has not yet alleged any facts showing a dispute regarding Defendants’
rights, or any other facts showing an exception to the tender rule. Further, the cause
of action is deficient because, again, Plaintiff has not alleged facts showing any
irregularity in the foreclosure proceeding.

Fourth Cause of Action (Declaratory Relief)
Defendants’ demurrer is sustained with leave to amend for failure to state facts
sufficient to constitute a cause of action. Declaratory relief pursuant to CCP § 1060
“operates prospectively, and not merely for the redress of past wrongs.” ( Travers v.
Louden (1967) 254 Cal.App.2d 926, 931.) Here, Plaintiff fails to allege facts
demonstrating the existence of an actual present controversy and instead alleges facts
regarding past wrongs related to the completed foreclosure sale. The Court need not
address the additional arguments set forth in support of the demurrer to this cause of
action.

Fifth Cause of Action (Slander of Title)

Defendants’ demurrer is sustained with leave to amend for failure to state facts
sufficient to constitute a cause of action. Plaintiff was required to allege that
Defendants, without privilege to do so, published a false statement that disparaged title
to her property and caused pecuniary damage. ( Truck Ins. Exch. v. Bennett (1997) 53
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Cal.App.4 75, 84.) For the reasons discussed above in connection with the
foreclosure documents, Plaintiff has failed to allege facts demonstrating that
Defendants published any false statement without privilege or facts logically explaining
how she suffered a pecuniary loss as a result of any of the documents being recorded.
Further, based on the facts alleged, Plaintiffs have failed to adequately allege
absence of privilege. Indeed, recording of notice of default is a privileged act. (Civil
Code § § 47, 2924.) Documents recorded with the Count Recorder’s office are
privileged documents pursuant to Civil Code 47. The privilege applies to foreclosures
conducted pursuant to statutes governing procedures for exercising a power of sale. (
Wilton v Mountan Wood Homeowners Association, Inc. (1993) 18 Cal.App.4th 565,
569.) The mailing, publication, and delivery of notices as required, and the
performance of the procedures set forth in this article, are privileged communications
within Civil Code section 47. (Civil Code 2924(d).)

Given this is the first challenge to the complaint, leave to amend is given. Plaintiff may
file and serve an amended complaint no later than April 1, 2014. Defendants shall file
and serve their responses within 10 days thereafter, 15 days if the amended complaint
is served by mail. (Although not required by any statute or rule of court, Plaintiff is
requested to attach a copy of the instant minute order to the amended complaint to
facilitate the filing of the pleading.)

The minute order is effective immediately. No formal order pursuant to CRC 3.1312 or
other notice is required.