Filed 12/3/19 De La Cruz v. Mortgage Electronic Registration Systems CA1/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION ONE

ROBERT E. DE LA CRUZ, et al.,

Plaintiffs and Appellants,

v.

MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., et al.,

Defendants and Respondents.

A153728

(San Francisco City & County

Super. Ct. No. CGC-17-561207)

Plaintiffs Robert E. and Francis Rose De La Cruz (borrowers) filed the underlying action for wrongful foreclosure and violation of the Unfair Competition Law (UCL). They appeal from a judgment of dismissal following the trial court’s grant, without leave to amend, of the demurrer filed by defendants Mortgage Electronic Systems, Inc. (MERS) and Deutsche Bank National Trust Company (Deutsche Bank). We affirm.

BACKGROUND

In 2006, Frances De La Cruz borrowed $675,000 from American Brokers Conduit and secured the loan with a deed of trust encumbering a property in San Francisco. The deed of trust identified MERS as “the beneficiary under this Security Instrument” “acting solely as a nominee for Lender and Lender’s successors and assigns.” The deed of trust further provided: “Borrower understands and agrees that 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.”

The following year, Frances transferred the property to herself and Robert as trustees of the De La Cruz Trust.

By 2011, Frances was in default on her loan payments. In July, MERS recorded a “Notice of Default and Election To Sell Under Deed of Trust.” Shortly thereafter, it recorded an “Assignment of Deed of Trust” to Deutsche Bank, as trustee for American Home Mortgage Assets Trust 2006-5. Deutsche Bank then substituted T.D. Service as the trustee under the deed of trust. In October, T.D. Service recorded a notice of trustee’s sale. Deutsche Bank purchased the property at the trustee sale.

Six years later, in September 2017, the borrowers filed the underlying action asserting two causes of action; wrongful foreclosure and violation of the UCL. They asserted MERS “cannot transfer interests in property” because the language of the deed of trust could not create an agency relationship with successive noteholders. MERS and Deutsche Bank demurred.

The court sustained the demurrer without leave to amend and entered a judgment of dismissal. The court stated in its order “Oregon, Washington, and Arkansas authorities cited by [borrower] are not binding and . . . not on point. [Borrower] has not shown that there is a problem with the chain of ownership based on [American Home Mortgage Assets Trust] not being a MERS member and in light of the contractual provision.”

DISCUSSION

Standard of Review

“The rules governing our review of the trial court’s ruling are well settled. ‘We review de novo the trial court’s order sustaining a demurrer.’ [Citation.] In doing so, this court’s only task is to determine whether the complaint states a cause of action. [Citation.] We accept as true all well-pleaded allegations in the operative complaint, and we will reverse the trial court’s order of dismissal if the factual allegations state a cause of action on any available legal theory. [Citation.] We treat defendants’ demurrer as admitting all properly pleaded material facts, but not contentions, deductions, or conclusions of fact or law. [Citation.] We also consider matters that may be judicially noticed, and a ‘ “ ‘complaint otherwise good on its face is subject to demurrer when facts judicially noticed render it defective.’ ” ’ [Citation.] Where, as here, ‘the trial court sustains a demurrer without leave to amend, we review the determination that no amendment could cure the defect in the complaint for an abuse of discretion. [Citation.] The trial court abuses its discretion if there is a reasonable possibility that the plaintiff could cure the defect by amendment. [Citation.] The plaintiff has the burden of proving that amendment would cure the legal defect, and may meet this burden on appeal.’ ” (Brown v. Deutsche Bank National Trust Co. (2016) 247 Cal.App.4th 275, 279.)

Wrongful Foreclosure Cause of Action

“The basic elements of a tort cause of action for wrongful foreclosure track the elements of an equitable cause of action to set aside a foreclosure sale. They 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.’ [Citation.] . . . [M]ere technical violations of the foreclosure process will not give rise to a tort claim; the foreclosure must have been entirely unauthorized on the facts of the case.” (Miles v. Deutsche Bank National Trust Co. (2015) 236 Cal.App.4th 394, 408–409.)

Borrowers assert MERS’s “purported transfer of the beneficial interest in [the deed of trust] without the mortgage note is a legal nullity.” (Capitalization omitted.) They maintain MERS had “no authority to transfer the note, the beneficial interest in the [deed of trust] or foreclose upon property,” and therefore “the 2011 assignment from MERS to [Deutsche Bank] as trustee for the American Home Mortgage Assets Trust 2006-5 is void ab initio.”

Borrowers acknowledge the deed of trust provides: “Borrower understands and agrees that 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 cancelling this Security Instrument.”

Borrowers claim, however, this deed of trust “is a classic contract of adhesion” which cannot be enforced. They claim it “is unduly prejudicial and oppressive to allow MERS to act without authority to [borrowers’] extreme detriment merely because [borrowers] had a duty to read this adhesive contract. They may have had a duty to read it . . . but they had no power to change it.”

The term “ ‘contract of adhesion’ ” “ ‘signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.’ [Citation.] If the contract is adhesive, the court must then determine whether ‘other factors are present which, under established legal rules—legislative or judicial—operate to render it [unenforceable].’ ” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 113 (Armendariz), abrogated in part on other grounds in AT&T Mobility, LLC v. Concepcion (2011) 563 U.S. 333, 339–346.)

“ ‘ “To describe a contract as adhesive in character is not to indicate its legal effect . . . . [A] contract of adhesion is fully enforceable according to its terms [Citations] unless certain other factors are present which, under established legal rules—legislative or judicial—operate to render it otherwise.” ’ ” (Morris v. Redwood Empire Bancorp (2005) 128 Cal.App.4th 1305, 1319 (Morris).)

“ ‘Generally speaking, there are two judicially imposed limitations on the enforcement of adhesion contracts or provisions thereof. The first is that such a contract or provision which does not fall within the reasonable expectations of the weaker or “adhering” party will not be enforced against him. [Citations.] The second—a principle of equity applicable to all contracts generally—is that a contract or provision, even if consistent with the reasonable expectations of the parties, will be denied enforcement if, considered in its context, it is unduly oppressive or “unconscionable.” ’ [Citation.] Subsequent cases have referred to both the ‘reasonable expectations’ and the ‘oppressive’ limitations as being aspects of unconscionability.” (Armendariz, supra, 24 Cal.4th at p. 113.)

Borrowers first claim the provision is unenforceable because they “did not expect that MERS . . . would be allowed to initiate foreclosure proceedings by assigning only the beneficial interest in their [deed of trust] to [Deutsche Bank].”

Saterbak v. JPMorgan Chase Bank, N.A. (2016) 245 Cal.App.4th 808 (Saterbak) rejected this claim. In that case, the borrower claimed that the deed of trust was “an adhesion contract, and, therefore, restrictive language that ‘deprives a borrower of the right to argue her loan has been invalidly assigned’ must be ‘conspicuous and clear.’ ” (Id. at p. 817.) The court noted “ ‘contracts of adhesion are generally enforceable according to their terms, [but] a provision contained in such a contract cannot be enforced if it does not fall within the reasonable expectations of the weaker or “adhering” party.’ ” (Ibid.) The court concluded, however, that “ ‘[b]ecause a promissory note is a negotiable instrument, a borrower must anticipate it can and might be transferred to another creditor’ [citation], together with the [deed of trust] securing it. [Borrower] ‘irrevocably grant[ed] and convey[ed]’ the . . . property to the Lender; recognized that MERS (as nominee) had the right ‘to exercise any or all’ of the interests of the Lender; and agreed that the Note, together with the [deed of trust], could be sold one or more times without notice to her. There is no reasonable expectation from this language that the parties intended to allow [borrower] to challenge future assignments made to unrelated third parties.” (Ibid.)

Borrowers also assert the provision at issue is unenforceable because it is “overly harsh,” “onerous and illegal.”

“A provision is substantively unconscionable if it ‘involves contract terms that are so one-sided as to “shock the conscience,” or that impose harsh or oppressive terms.’ [Citation.] The phrases ‘harsh,’ ‘oppressive,’ and ‘shock the conscience’ are not synonymous with ‘unreasonable.’ Basing an unconscionability determination on the reasonableness of a contract provision would inject an inappropriate level of judicial subjectivity into the analysis. ‘With a concept as nebulous as “unconscionability” it is important that courts not be thrust in the paternalistic role of intervening to change contractual terms that the parties have agreed to merely because the court believes the terms are unreasonable. The terms must shock the conscience.’ ” (Morris, supra, 128 Cal.App.4th at pp. 1322–1323.) “[A]dhesiveness ‘is not per se oppressive.’ ” (Id. at p. 1320.)

Other than their bald claim that the provision is “overly harsh” and “onerous,” borrowers have provided no explanation or authority to demonstrate the provision “shocks the conscience.”

Borrowers instead assert the provision is illegal, claiming “[m]any courts have held that . . . when [MERS’s] principal transfers its interest in a mortgage loan, MERS [sic] authority to act for that principal is simultaneously terminated.”

As in the trial court, borrowers rely on out-of-state cases to support their claim that, contrary to the language of the deed of trust to which Francis De La Cruz agreed, MERS “lacked the authority to execute the assignment of the beneficial interest” in the loan. As the trial court noted, those “out-of-state cases . . . are not binding on this court.” (US Ecology, Inc. v. State of California (2005) 129 Cal.App.4th 887, 905.)

California courts have held that “a trustor who agreed under the terms of the deed of trust that MERS, as the lender’s nominee, has the authority to exercise all of the rights and interests of the lender, including the right to foreclose, is precluded from maintaining a cause of action based on the allegation that MERS has no authority to exercise those rights. [Citations.] The deed of trust itself, attached to the [borrowers’] complaint, establishes as a factual matter that MERS has the authority to exercise all of the rights and interests of the lender. [Citations.] The authority to exercise all of the rights and interests of the lender necessarily includes the authority to assign the deed of trust.” (Siliga v. Mortgage Electronic Registration Systems, Inc. (2013) 219 Cal.App.4th 75, 83–84, disapproved on other grounds by Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, 939, fn. 13.) Similarly, in Herrera v. Federal National Mortgage Assn. (2012) 205 Cal.App.4th 1495, the court rejected the borrowers’ claim that “MERS lacked authority to assign the [deed of trust] to OneWest because FDIC and IndyMac Federal, the successors and assigns of the original lender, Indymac, did not have an agency agreement with MERS. But this does not necessarily defeat the foreclosure sale because [borrowers] agreed in the [deed of trust] that MERS had the right to exercise all rights of the lender, inclusion foreclosing on and selling [borrowers’] property.” (Herrera, at p. 1505.)

In sum, the allegations of borrowers’ complaint fail to demonstrate the deed of trust provision was unconscionable or illegal.

UCL Cause of Action

Borrowers’ cause of action under the UCL is based on the same underlying allegations as their wrongful foreclosure cause of action. “By proscribing ‘any unlawful’ business practice, ‘section 17200 “borrows” violations of other laws and treats them as unlawful practices’ that the unfair competition law makes independently actionable.” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180.) Because the UCL claim is derivative of the wrongful foreclosure cause of action, it “stands or falls with that underlying claim.” (See Hawran v. Hixson (2012) 209 Cal.App.4th 256, 277.) “To the extent appellants’ UCL cause of action is predicated on an alleged violation of Civil Code section 2924, it fails because we have held appellants failed to state a claim for wrongful foreclosure.” (Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1186–1187.)

Denial of Leave to Amend

Borrowers assert the court abused its discretion in denying them leave to amend their complaint.

Borrowers have the burden to establish how they could amend the complaint to state a cause of action. “ ‘ “The assertion of an abstract right to amend does not satisfy this burden.” [Citation.] The plaintiff[s] must clearly and specifically state “the legal basis for amendment, i.e., the elements of the cause of action,” as well as the “factual allegations that sufficiently state all required elements of that cause of action.” ’ ” (Casiopea Bovet, LLC v. Chiang (2017) 12 Cal.App.5th 656, 664.)

Borrowers neither state the legal basis for any amendment, nor any factual allegations necessary to state a cause of action. Instead, they claim if given the opportunity to amend, they “would have conducted discovery to obtain the unrecorded assignments,” and “would have produced credible evidence to support their contention that the language in the [deed of trust] . . . is an unenforceable adhesive provision.” They cite no authority in support of their claim that the possibility they could discover more facts which would support the allegations already made in their complaint requires leave to amend.

Borrowers have failed to meet their burden. Accordingly, the trial court’s denial of leave to amend was not an abuse of discretion.

DISPOSITION

The judgment is affirmed. Costs on appeal to defendants.

 

_________________________

Banke, J.

We concur:

_________________________

Margulies, Acting P.J.

_________________________

Sanchez, J.

A153728, Cruz et al. v. Mortgage Electronic Reg. System