Case Name: Stevens, et al. v. Wells Fargo Bank, N.A., et al.
Case No.: 18CV328607

Defendant Wells Fargo Bank N.A. (“Wells Fargo” or “Defendant”) demurs to the First Amended Complaint (“FAC”) filed by plaintiffs Kelly D. Stevens (“Stevens”) and Michael E. McLaughlin (“McLaughlin”), individually and as trustees of the Kelly Stevens Living Trust Dated August 30, 2006 (collectively, “Plaintiffs”).

I. Factual and Procedural Background

This is an action for wrongful foreclosure. According to the allegations of the FAC, as of December 2017, Plaintiffs were the owners of a residential property located in Sunnyvale (the “Property”), which was subject to a Deed of Trust executed in favor of Wells Fargo. (FAC, ¶ 9.) The month prior, McLaughlin had discussions with an individual named “Jerry” from Wells Fargo who advised him that a loan modification was an option for him and Stevens, and that in order to begin the process, Plaintiffs needed to provide various documents to Defendant. (Id., ¶ 10.) McLaughlin gathered the requested materials and submitted them to Wells Fargo. (Id.)

After the documents were submitted, no one from Wells Fargo contacted Plaintiffs to discuss the status of their modification application. (FAC, ¶ 11.) In January 2018, McLaughlin contacted Defendant to discuss Plaintiffs’ application. (Id.) McLaughlin spoke with an individual named “Juan” who told him that he did not see the loan modification application in Plaintiffs’ records and did not see whether Defendant had the documents that McLaughlin had previously submitted in December 2017. (Id.) Juan instructed McLaughlin to submit additional documents, which he did and confirmed their receipt. (Id.)

McLaughlin subsequently called Wells Fargo several times between January and April 2018 to inquire about the status of the loan modification application. (FAC, ¶ 12.) Each time he called, McLaughlin was advised that the application was “pending,” but never advised whether it was approved or denied. (Id.) When McLaughlin called, he was put in contact with different people including Juan, “Cynthia” and “Ashley.” (Id.)

In late March 2018, Plaintiffs received a Notice of Trustee’s Sale indicating that the Property would be sold on April 18, 2018. (FAC, ¶ 13.) McLaughlin continued to call Wells Fargo and was repeatedly told that the application was pending. (Id.) On April 18, 2018, Stevens filed for Chapter 13 bankruptcy. (Id. at ¶ 14.) McLaughlin then called Wells Fargo and advised it of the bankruptcy filing. (Id., ¶ 15.) McLaughlin spoke to Cynthia Hodges, who told him that the trustee’s sale of the Property would not go through due to Stevens having filed for bankruptcy. (Id.) Despite this assurance, the sale did proceed and the Property was sold to various third parties. (Id., ¶ 16.)

Based on the foregoing allegations, Plaintiffs filed the initial Complaint on May 18, 2018, asserting claims for: (1) violation of Homeowners’ Bill of Rights; (2) wrongful foreclosure; (3) quiet title; (4) unfair competition Business & Professions Code § 17200; and (5) declaratory relief/request for injunction. After Wells Fargo filed a demurrer to the Complaint, Plaintiffs filed the FAC on October 10, 2018, asserting the following causes of action: (1) violation of Homeowners’ Bill of Rights; (2) Wrongful Foreclosure; (4) unfair competition Business & Professions Code § 17200.

On March 4, 2019, Wells Fargo filed the instant demurrer to the FAC and each of the three causes of action asserted therein on the grounds of failure to state facts sufficient to constitute a cause of action and uncertainty. (Code Civ. Proc., § 430.10, subds. (e) and (f).) Plaintiffs oppose the motion.

I. Wells Fargo’s Request for Judicial Notice

In support of its demurrer to the FAC, Wells Fargo requests that the Court take judicial notice of various items, including multiple bankruptcy filings by Plaintiffs and documents and orders relating thereto (including Order Denying Stevens’ Motion to Void Sale filed June 15, 2018), a grant deed dated September 1, 2001 relating to the Property, a Notice of Default on the Property dated July 31, 2017, a Notice of Trustee’s Sale dated March 1, 2018 and Trustee’s Deed Upon Sale dated April 20, 2018 (Exhibits A-Q). These items are all proper subjects of judicial notice as either court records or as facts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy. (See Evid. Code, § 452, subds. (d) and (h); see also Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264-265 [taking judicial notice of property records, including deeds of trust] [disapproved on other grounds in Yvanova v. New Century Mortg. Corp. (2016) 62 Cal.4th 919].) Accordingly, Wells Fargo’s request for judicial notice is GRANTED.

II. Wells Fargo’s Demurrer

A. Uncertainty

Wells Fargo demurs to each of the three causes of action asserted in the FAC on the ground of uncertainty. (Code Civ. Proc., § 430.10, subd. (f).) A demurrer on this grounds is disfavored and strictly construed, “even where a [pleading] is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616.) Where the complaint contains substantive factual allegations sufficiently apprising the defendant of the issues he or she is being asked to meet, a demurrer for uncertainty should be overruled. (See Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139, fn. 2; Lickiss v. Financial Industry Regulatory Authority (2012) 208 Cal.App.4th 1125, 1135 [demurrer for uncertainty sustained only where the pleading is so incomprehensible that the opposing party cannot possibly respond].) Here, the allegations of the FAC are clear and it is apparent from Wells Fargo’s moving papers that it understands the nature of the claims being asserted against it. Consequently, Wells Fargo’s demurrer to the FAC on the ground of uncertainty is OVERRULED.

B. Failure to State Sufficient Facts

1. Violation of Homeowners’ Bill of Rights (First Cause of Action)

In the first cause of action, Plaintiffs allege that Defendant violated the Homeowners’ Bill of Rights (the “HBOR” or the “Act”) by failing to provide them a single point of contact as defined within the Act. (FAC, ¶ 19.) Wells Fargo maintains that this claim fails for the following reasons: (1) the claim is preempted under the federal Home Owners’ Loan Act (the “HOLA”); (2) Plaintiffs fail to allege facts sufficient to show that they had a complete loan modification application on file; and (3) they were provided with a single point of contact as required. Each of these arguments will be addressed in turn.

The HBOR is a series of statutes drafted by the California Legislature to “address more pointedly the foreclosure crises in … [the] state” and to place specific limitations on the nonjudicial foreclosures of owner-occupied residential real property, such as Plaintiffs. (Monterossa v. Superior Court (2015) 237 Cal.App.4th 747, 752.) Among other things, and as relevant here, the HBOR requires servicers to provide borrowers with a “single point of contact” to enhance communication (Civ. Code § 2923.7), and prohibits dual tracking, which occurs when a servicer continues with a foreclosure while the borrower’s application for a loan modification is under review, or within 30 days of the application’s denial. (Civ. Code, § 2923.6; Lueras v. BAC Home Loan Servicing, LP (2013) 221 Cal.App.4th49, 86, fn. 14.) The HOLA, in turn, was enacted by Congress to regulate savings associations or banks and was intended to “provide a uniform set of regulations and ensure the stability of federal thrifts by efficiently delivering low-cost credit to the public free from undue regulatory duplication and burden.” (Penermon v. Wells Fargo Bank, N.A. (2014) 47 F.Supp.3d 982, 990 [internal quotations omitted].)

The HOLA granted savings banks express statutory field preemption of state foreclosure laws. (12 U.S.C. §§ 1463, subd. (a) and 1464, subd. (a); 12 C.F.R. § 560.2, subd. (a); see Lopez v. World Savings & Loan Assn. (2003) 105 Cal.App.4th729, 738 [stating that the HOLA was “intended to preempt all state laws purporting to regulate any aspect of the lending operations of a federally chartered savings association].) The HOLA’s “preemptive force does not hinge on the genesis of the loan; rather, the nature of the bank at issue is the defining criterion.” (Avnieli v. Residential Credit Solutions, Inc. (C.D. Cal. 2015) 2015 WL 5923532, * 3.) Stated differently, when the party accused of violating the HBOR is a national bank, the field preemption of the HOLA does not apply, notwithstanding that the originator of the loan may have been a savings bank. Here, Wells Fargo, which is not a federal savings bank, nevertheless argues to the contrary, insisting that successors-in-interest may properly assert preemption under HOLA even if the successor entity is not a federally chartered savings institution. It explains that the original lender on Plaintiffs’ loan was World Savings Bank, FSV, which was a federal savings bank, and thus Plaintiffs’ HBOR claim is now preempted. Although many federal district courts have opined on this issue, ultimately, “[w]hether, and to what extent, HOLA applies to claims against a national bank when that bank has acquired a loan executed by a federal savings association is an open question.” (Campidoglio LLC v. Wells Fargo & Co. (9th Cir. 2017) 870 F.3d 963, 970-971.) The courts that have confronted this question are split, with some concluding that HOLA preemption cannot apply to a national bank such as Wells Fargo, regardless of the character of the bank that originated the subject loan (see, e.g., Penermon v. Wels Fargo Bank, N.A. (N.D. Cal. 2014) 47 F.Supp.3d 982, 989-996) and some concluding to the contrary (see, e.g., Jakstis v. Wells Fargo Bank, N.A. (C.D. Cal. 2018) 2018 WL 2144195, *3.) Courts in the Northern District have primarily reached the former conclusion, and this court finds the reasoning of those decisions to be persuasive. Thus, Plaintiffs’ HBOR claim is not preempted by the HOLA.

With regard to Defendant’s second argument, i.e., its contention that Plaintiffs have failed to plead facts sufficient to show that they had a complete loan modification application on file, the HBOR, particularly Civil Code section 2923.6, subdivision (c), prohibits a mortgage servicer from recording a notice of default, recording a notice of sale, or conducting a trustee’s sale if a borrower has submitted a “complete application for a first lien loan modification.” Thus, the prohibition on pursuing foreclosure in this particular subdivision is expressly conditioned on a borrower’s submission of an application for a first lien loan modification. (Civ. Code, § 2923.6, subd. (c).) Defendant suggests that Plaintiffs never had a completed loan application on file, and maintains that Plaintiffs have conceded as much by pleading in the FAC that Wells Fargo had to ask for additional documents. Further, it asserts that Plaintiffs “wholly fail to allege that Wells Fargo confirmed that [it] had a complete application on file,” the necessary prerequisite for triggering the prohibition against dual tracking by the HBOR.

Wells Fargo’s contentions are easily disposed of as Plaintiffs specifically allege in the FAC that “as of December 2017, [they] had submitted a completed application for a loan modification.” (FAC, ¶ 11.) The mere fact that they have also pleaded that Defendant asked for additional documents does not mean that Plaintiffs had not submitted a complete application to that point, i.e., when the request for them to submit additional documents was made; to conclude otherwise presumes that Defendant was being truthful when it indicated to Plaintiffs that such additional documents were actually needed.

Wells Fargo next insists that Plaintiffs were assigned a competent single point of contact, which can validly include a team of personnel as alleged here, and fail to plead what was insufficient about the communications they had with its representatives.

Civil Code section 2923.7 of the HBOR provides that “[u]pon request from a borrower who requests a foreclosure prevention alternative, the mortgage servicer shall promptly establish a single point of contact [SPOC] and provide to the borrower one or more direct means of communication with the single point of contact.” (Civ. Code § 2923.7, subd. (a).) The section defines “single point of contact” as an individual or team of personnel, each of whom has the ability and authority to perform the responsibilities stated under Section 2923.7, subdivisions (b) through (d). (Civ. Code, § 2923.7, subd. (e).) “The mortgage servicer shall ensure that each member of the team is knowledgeable about the borrower’s situation and current status in the alternatives to foreclosure process.” (Id.) Here, in the FAC, Plaintiffs set forth the foregoing requirements and then generally allege that Wells Fargo “failed to meet [them],” without specifying how it failed to do so. While this lack of specificity is troubling, it does not necessarily render Plaintiffs’ first cause of action deficient. This is because Plaintiffs have otherwise potentially stated a claim for violation of the HBOR by alleging that Wells Fargo wrongfully engaged in dual tracking. Even if Plaintiffs’ allegations pertaining to violations of the HBOR’s SPOC requirements are lacking, if the dual tracking allegations are adequately pleaded, the demurrer is not sustainable because a demurrer does not lie to only part of a cause of action. (See PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682.)

Plaintiffs have alleged that Wells Fargo engaged in dual tracking and have pleaded, contrary to Wells Fargo’s final argument with respect to the first cause of action, a material violation of the HBOR that resulted in actual economic damages. Per the express language of the HBOR, particularly Civil Code section 2924.12, subdivision (b), once a trustee’s deed upon sale has been recorded, a plaintiff is entitled to damages if they plead (1) a material violation of one of the enumerated code sections (which include Civil Code sections 2923.6 and 2923.7); (2) by a mortgage servicer, mortgagee, trustee, beneficiary or authorized agent; (3) that causes actual economic damages. (See Rockridge Trust v. Wells Fargo, N.A. (N.D Cal. 2013) 985 F.Supp.2d 1110, 1149.) In the FAC, Plaintiffs allege that as a result of Defendant’s purported breaches of the HBOR, they suffered harm in the form of the loss of their property and the “destruction of [their] credit.” (FAC, ¶ 20.) Such allegations are sufficient to allege actual economic harm. (See Bushell v. JP Morgan Chase Bank, N.A. (2013) 220 Cal.App.4th 915, 928 [finding that damage to credit and loss of a home to foreclosure sufficient to allege damages].) Consequently, Plaintiffs have adequately pleaded a violation of the HBOR and therefore Defendant’s demurrer to the first cause of action on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED.

2. Wrongful Foreclosure (Second Cause of Action)

In the second cause of action, Plaintiffs allege that the entire non-judicial foreclosure process relating to the Property was invalid and contrary to California law, specifically the HBOR, because Wells Fargo engaged in impermissible dual tracking and failed to provide them with a single point of contact as required. (FAC, ¶¶ 23-24.)

The elements of a 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 suffered prejudice or harm; and (3) the trustor or mortgagor tenders the amount of the secured indebtedness or was excused from tendering.” (West v. JPMorgan Chase Bank, N.A.(2013) 214 Cal.App.4th 780, 800.) Wells Fargo contends that Plaintiffs have failed to state a claim for wrongful foreclosure because (1) their allegations and the judicially noticeable documents do not support such a cause of action and (2) Plaintiffs are not prejudiced by any wrongful foreclosure and cannot establish the required element of tender.

Wells Fargo’s first argument is essentially the same as that asserted in connection with the first cause of action, i.e., that Plaintiffs have not pleaded facts sufficient to trigger the dual tracking prohibition in the HBOR, particularly those facts which establish that they submitted a completed loan modification application to Defendant. This argument is without merit because as previously explained, Plaintiffs have expressly pleaded that they submitted a completed application as requested.

As for the issue of prejudice, Plaintiffs allege that the foreclosure procedure was “invalid” because Wells Fargo engaged in dual tracking and unlawfully conducted a foreclosure sale of the Property while it was “actively engaged in loan modification negotiations” with them. (FAC, ¶ 23.) The Court is not aware of any authority which provides that a plaintiff alleging a claim for wrongful foreclosure can adequately allege prejudice by stating that a foreclosure sale was conducted while loan modification negotiations were taking place, when that plaintiff was in default on their loan. Further, many courts have concluded that where a foreclosure sale has already taken place, as it has here, without any allegations that the foreclosure sale would not have occurred, a plaintiff has failed to properly allege prejudice. (See, e.g., Albano v. Cal-W. Reconveyance Corp. (N.D. Cal. 2012) 2012 WL 5389922, *7.) Generally, this takes the form of a plaintiff alleging that he or she did not default on his or her loan obligations. (See, e.g., Rockridge Trust v. Wells Fargo NA (2014) 2014 WL 688124, *19.) Plaintiffs have not pleaded as much here.

Finally, even if Plaintiffs had pleaded facts suggesting that they would not have been foreclosed on in the absence of Defendant’s allegedly wrongful behavior, they have failed to plead tender of their outstanding debt. Under California law, “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 debt for which the property was security.” (Arnolds Mgmt. Corp. v. Eischen (1984) 158 Cal.App.3d 575, 578.) Here, Plaintiffs have not alleged tender of the full amount of the loan due and do not address this issue in their opposing papers. Consequently, they cannot maintain a claim for wrongful foreclosure which seeks to undue the foreclosure sale and the demurrer to the second cause of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

3. Unfair Competition Business & Professions Code § 17200 (Fourth Cause of Action)

Finally, Plaintiffs’ remaining cause of action is predicated on allegations that Defendant engaged in unfair, fraudulent and illegal conduct in violation of Business and Professions Code section 17200 (the “UCL”) by failing to comply with the HBOR. (FAC, ¶ 28.) The UCL “borrows” violations from other laws by making them independently actionable as “unfair” business practices (see Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1143), and Plaintiffs have pleaded underlying violations of the HBOR to serve as predicates for the UCL claim. Wells Fargo argues that Plaintiffs have failed to state a claim for violation of the UCL because they lack standing and fail to allege any wrongful conduct under the Act.

Defendant’s second argument can easily be disposed of because “[v]irtually any law or regulation – federal, state, statutory or common law – can serve as [a] predicate for a … [section] 17200 ‘unlawful’ violation.” (Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1383 [quoting Paulus v. Bob Lynch Ford, Inc. (2006) 139 Cal.App.4th 659, 681]) and Plaintiffs allege that Wells Fargo violated the UCL by failing to comply with various provisions of the HBOR. Thus, Plaintiffs have sufficiently pleaded “wrongful conduct” by Wells Fargo under the UCL.

With regard to the first argument, in order to have standing to assert a UCL claim, a plaintiff must plead facts demonstrating that he or she “has lost money or property as a result” of the purportedly wrongful conduct at issue. (In re Tobacco II Cases (2009) 46 Cal.4th 298, 325, citing Bus. & Prof. § 17204.) Here, Wells Fargo argues that Plaintiffs’ conclusory allegation that “Plaintiffs have suffered injury in fact and have lost money as a result of the violations alleged above” (FAC, ¶ 28) is insufficient because no facts have been pleaded which establish as much. This assertion is unavailing because, as explained above, Plaintiffs have alleged that as a result of Defendant’s purported breaches of the HBOR (and in turn, the UCL), they suffered harm in the form of the loss of their property and the “destruction of [their] credit.” (FAC, ¶ 20.) Accordingly, Wells Fargo’s argument that Plaintiffs’ lack standing to assert this claim is without merit, and its demurrer to the fourth cause of action on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED.

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