Case Number: KC066791 Hearing Date: June 24, 2014 Dept: J

Re: Jerry Chen, et al. v. Federal National Mortgage Association, etc., et al. (KC066791)

DEMURRER TO COMPLAINT

Moving Party: Defendant Federal National Mortgage Association

Respondents; No timely opposition filed

POS: Moving OK

Plaintiffs, in propria persona, commenced this action of 4/3/14. The Complaint herein asserts causes of action for:

1. Wrongful foreclosure
2. Determine nature, extent and validity of lien under Commercial Code § 9313
3. To set aside foreclosure sale
4. Violation of CA Rosenthal Act
5. Violations of CA B&P Code § 17200

The Case Management Conference is scheduled for 7/29/14.

Plaintiffs Chen and Zhou allege that they are husband and wife and reside at 240 N. Sierra Vista St., Unit B, Monterey Park, CA 91755 (the “Property”); that Zhou obtained a refinance loan from Bank of America (“Lender”) in December of 2007, memorialized by a promissory note (“Note”) and deed of trust (“DOT”) on the Property (¶¶ 16-17); that Lender “under estimated the closing costs more than $100” which Plaintiffs claim violates the Truth in Lending Act (“TILA”) (¶ 22); that Lender never recorded the transfer of the Note or assignment of the DOT (¶ 21); that Zhou rescinded the loan on 9/22/09 pursuant to TILA (¶ 24); that Zhou stopped making payments, and demanded Lender return all the money paid and terminate the DOT (¶ 25); that Lender did not respond within 20 days, resulting in cancellation of the debt under TILA (¶¶ 25-26); that numerous Notices of Trustee’s Sales were recorded before the Property was finally sold to Defendant Fannie Mae (¶¶ 29-33).

Defendant Federal National Mortgage Association demurs to all five causes of action of Plaintiffs Jerry Chen and Xiu Zhen Zhou’s Complaint on the grounds they fail to state facts sufficient to constitute a cause of action under CCP § 430.10(e), and are uncertain pursuant to CCP § 430.10(f).

Judicial Notice:

“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 a recorded document, and the document’s legally operative language, assuming there is no genuine dispute regarding the document’s authenticity. From this, the court may deduce and rely upon the legal effect of the recorded document, when that effect is clear from its face.” (Fontenot v. Wells Fargo Bank, N.A., 198 Cal.App.4th 256, 265).

Under Evidence Code § 453, the court may take judicial notice of recorded documents, but only after a copy has been furnished to the opposing side to permit them the opportunity to object. Evidence Code § 453. Here, Defendant requests judicial notice of the following: (1) Grant Deed recorded 3/04/04; (2) Grant Deed recorded on 3/29/05; (3) Quitclaim Deed recorded on 8/08/07; (4) DOT recorded 12/07/07; (5) Substitution of Trustee recorded 3/12/10; (6) Notice of Default recorded on 3/12/10; (7) Notice of Trustee’s Sale recorded 3/15/11; (8) Notice of Trustee’s Sale recorded 5/29/12; (9) Notice of Trustee’s Sale recorded 8/06/13; (10) Assignment of Deed of Trust recorded 8/16/13; (11) Assignment of Deed of Trust recorded 9/10/13; (12) Trustee’s Deed Upon Sale recorded 9/10/13; (13) Order Granting Motion for Relief from Stay; (14) Summons and Complaint in Case No. 13P08332; (15) Clerks’ Notice of Entry of Judgment in Case No. 13P087332; (16) Zhou’s Voluntary Chapter 7 Bankruptcy Petition; and (17) Zhou’s Bankruptcy Schedules and Statement of Financial Affairs. No opposition was filed, and no objection to the recorded documents was made. Thus, the court takes judicial notice of these documents.

Issues Affecting Entire Complaint:

(Standing to Sue)

A plaintiff must be the “real party in interest with respect to the claim sued upon. CCP §367. Here, Chen transferred his interest in the Property to Zhou on 7/27/07 (Request for Judicial Notice (“RJN”), Ex. B). Thus, Chen has no interest in the Property and does not qualify as a real party in interest. Therefore, the demurrer is sustained in its entirety as against Plaintiff Chen on this basis without leave to amend.

(Bankruptcy of Zhou)

Absent abandonment of the asset, the Chapter 7 trustee remains the sole representative of the estate and the only person with the authority to pursue pre-petition causes of action. Harris v. St. Louis Univ. (M.D. Mo. 1990) 114 B.R. 647, 648). Zhou filed her voluntary Chapter 7 bankruptcy petition on 1/22/14. (RJN, Ex. P). The claims herein arose from the pre-petition actions with respect to the Property, so the claims are assets of the bankruptcy estate which only the trustee may bring. Therefore, Zhou lacks standing. The demurrer is sustained in its entirety as against Plaintiff Zhou on this basis without leave to amend.

(Collateral Estoppel)

Also known as issue preclusion, collateral estoppel is an aspect of res judicata that bars a party from re-litigating any issues necessarily included in a prior judgment. Rice v. Crow (2000) 81 Cal.App.4th 725, 734-735. “[S]ubsequent fraud or quiet title suits founded upon allegations of irregularity in a trustee’s sale are barred by the prior unlawful detainer judgment.” Vella v. Hudgins (1977) 20 Cal.3d 251, 256. Here, Defendant claims that these issues were conclusively decided in the Unlawful Detainer case, in which judgment was entered in favor of Fannie Mae, the purchaser at the trustee’s sale. However, Defendant does not present evidence from the record in that case, so the court cannot determine whether the issues in this case were thoroughly litigated there. The demurrer on this basis is overruled.

(Holder of the Note Theory)

The “holder of the note” theory does not apply in California. Nool v. HomeQ Servicing (E.D. Cal. 2009) 653 F.Supp.2d 1047, 1053; Civil Code 2924(a)(1); Moeller v. Lien (1994) 25 Cal.App.4th 822, 834. Here, Plaintiffs allege that Defendant does not hold the Note, so it has no power to foreclose (¶¶52-56). However, that is not a correct statement of the law, and there is no requirement that Defendant be in possession of the Note in order to foreclose on the Property. The demurrer is sustained.

FIRST CAUSE OF ACTION FOR WRONGFUL FORECLOSURE:

Plaintiffs allege violations of California Civil Code § 2932.5 and Commercial Code § 3301: Section 3301 is a negotiable instruments law, but a DOT is not governed by negotiable instruments law, but by the exclusive set of statutes for the conduct of nonjudicial foreclosures. Moeller v. Lien (1994) 25 Cal.App.4th 822, 834. Further, Section 2932.5 applies to mortgages, not deeds of trust. It applies only to mortgages that give a power of sale to the creditor, not to deeds of trust which grant a power of sale to the trustee. Calvo v. HSBC Bank USA, N.A. (2011) 199 Cal.App.4th 118, 122-123 (Second Dist.). Moreover, Plaintiff has failed to tender, i.e., offer to pay the balance of the obligation due. Tender is an offer to pay the balance of the obligation due. “[I]n the context of overcoming a voidable sale, the debtor must tender any amounts due under the deed of trust.” Dimock v. Emerald Properties, LLC (2000) 81 Cal.App.4th 868, 877-878. In addition, there was a foreclosure sale held already. “A properly conducted non-judicial foreclosure sale constitutes a final adjudication of the rights of the borrower and lender.” Moeller v. Lien, 25 Cal.App.4th 822, 831. There is a rebuttable presumption that the foreclosure sale was conducted regularly and properly, “if the trustee’s deed recites that all statutory notice requirements and procedures required by law for the conduct of the foreclosure have been satisfied.” Nguyen v. Calhoun (2003) 105 Cal.App.4th 428, 441. To rebut this presumption, plaintiff must produce substantial evidence of prejudicial procedural irregularity. Melendrez v. D&I Investment, Inc. (2005) 127 Cal.App.4th 1238, 1258. In this case, the Trustee’s Deed Upon Sale gives rise to a rebuttable common law and statutory presumption the trustee’s sale was properly conducted. (RJN, Ex. L). Therefore, the first cause of action fails. The demurrer is sustained.

SECOND CAUSE OF ACTION TO DETERMINE THE NATURE, EXTENT AND VALIDITY OF LIEN UNDER COMMERCIAL CODE § 9313:

California Commercial Code § 9313(a) states in part, “a secured party may perfect a security interest in tangible negotiable documents, goods, instruments, money, or tangible chattel paper by taking possession of the collateral.” Here, the DOT is not governed by negotiable instrument law, but the exclusive set of statutes for the conduct of nonjudicial foreclosures. Moeller, supra at 834. Therefore, the second cause of action fails. The demurrer is sustained.

THIRD CAUSE OF ACTION TO SET ASIDE FORECLOSURE SALE:

“[F]oreclosure sales are governed by a ‘comprehensive’ statutory scheme. This scheme, which is found in Civil Code sections 2924 through 2924k, evidences a legislative intent that a sale which is properly conducted constitutes a final adjudication of the rights of the borrower and lender.” 6 Angels, Inc. v. Stuart-Wright Mortgage, Inc. (2001) 85 Cal.App.4th 1279, 1283–1284, fn. omitted. In this case, Plaintiffs set forth three laws allegedly violated: Civil Code §§ 2923.5, 2932.5, and Penal Code § 115. None of these laws apply here. Section 2932.5 pertains to mortgages, not deeds of trust. Calvo v. HSBC Bank USA, N.A. (2011) 199 Cal.App.4th 118, 122-123 (Second Dist.). Section 2923.5, establishing pre-foreclosure procedures, does not provide a remedy after a foreclosure sale has occurred, as here. Mabry v. Sup. Ct. (2010) 185 Cal.App.4th 208, 225. Penal Code § 115.5, dealing with the filing of false recorded documents, is not alleged against Fannie Mae but rather a co-Defendant Northwest Trustee Services, Inc. (¶¶ 27, 79-81). The demurrer is sustained.

FOURTH CAUSE OF ACTION FOR VIOLATION OF CALIFORNIA ROSENTHAL ACT (CIVIL CODE §1788 et seq.):

The Rosenthal Fair Debt Collection Practices Act (“RFDCPA”) “prohibit[s] debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts…” (§1788.1). “The term ‘debt collection’ means any act or practice in connection with the collection of consumer debts.” (§1788.2(b)). “The terms ‘consumer debt’ and ‘consumer credit’ mean money, property or their equivalent, due or owing or alleged to be due or owing from a natural person by reason of a consumer credit transaction.” (§1788.2(f)). Thus, residential mortgage loans are not “debts” within the meaning of the Act. California courts have not addressed RFDCPA in relation to deeds of trust. However, one federal court has said, “‘debt collector’ does not include a loan servicer as long as the loan was not in default when it was assigned to the loan servicer.” Natividad v. Wells Fargo (N.D.Cal. 2013) 2013 WL 2299601, 4. Plaintiffs do not allege as much. Therefore, the demurrer is sustained.

FIFTH CAUSE OF ACTION FOR VIOLATIONS OF CA BUSINESS AND PROFESSIONS CODE § 17200:

Section 17200 permits certain public officials, and any person who has suffered injury in fact due to unfair competition or business practices, to bring a claim. Here, Plaintiffs do not allege any unlawful, unfair, or fraudulent business practices. The defective claims regarding the “holder of the note,” Penal and Commercial Code violations are insufficient. In addition, Plaintiffs lack standing because they have not suffered injury in fact (loss of money or property). (B&P § 17204). The demurrer is sustained.

Based upon the foregoing, the court’s tentative ruling is to sustain the demurrer in its entirety without leave to amend. Should Plaintiffs request leave to amend, the court will require an offer of proof as to what additional facts can be alleged to overcome the obstacles discussed above.