Case Number: SC120856    Hearing Date: September 12, 2014    Dept: O

SC120856
EDMAN v. NATIONSTAR MORTGAGE

DISCLOSURE
The Court hereby discloses that Nationstar is the holder of the mortgage on its home. The loan was secured in the regular course of business by a different entity, later assigned to Nationstar, and is maintained on the same terms and in the same amount generally available to persons who are not judges. This relationship would not affect the ability of the Court to be fair and impartial in any way.

DEMURRER
Defendant Quality’s Demurrer is SUSTAINED W/O LEAVE TO AMEND as to the 5th c/a for negligence and OVERRULED as to the remaining. Plaintiff alleges that he is not in default, that no valid notice of default has been recorded to support the 5/23/13 notice of trustee’s sale, that the chain of title to the deed of trust is invalid and that the invalid assignments are void and have prejudiced Plaintiff’s rights and obligations under the deed of trust and the note. Based on these facts, Plaintiff sufficiently pleads each cause of action except negligence. Plaintiff fails to allege any facts that would impose a duty of care on Defendant Quality as to Plaintiff. Defendant Quality is the agent of the lender/holder of the note, who owes no duty of care to the borrower under established law.

ANALYSIS: Defendant Quality Loan Service Corporation demurs to the complaint on several grounds. Defendant argues Plaintiff’s entire complaint is based on the alleged invalidity of assignments from SCME, the original lender, to Aurora Loan Servicing and from Aurora Loan Servicing to Nationstar Mortgage. Defendant argues Plaintiff cannot challenge the Defendants standing to foreclose by filing this action and Plaintiff cannot challenge the validity of the assignments, as he was not a party to them. Defendant also asserts immunity from liability arising from their good faith recordation of the Notice of Trustee’s Sale. In addition, Defendant demurs to the complaint on grounds that Plaintiff seeks to set aside a default but does not allege tender of the amount of indebtedness. Defendant also argues there is no duty to support a negligence claim. Finally, Defendant argues the exhibits to the complaint demonstrate full compliance with CC 2923.5.

Plaintiff opposes on grounds that the complaint pleads specific facts establishing that Aurora and Nationstar are not the beneficiaries of the deed of trust, and as such, they could not substitute in Quality Loan Service Corporation as the trustee. Plaintiff specifically alleges that at the time SCME purportedly assigned the deed of trust to Aurora, SCME was a defunct corporation whose license had been revoked by the state. As such, SCME did not have the legal capacity to effectuate any assignment to Aurora.

Plaintiff alleges he is not in default and no valid Notice of Default to support the 5/23/13 Notice of Trustee’s Sale:

Both parties neglect to mention a key allegation in Plaintiff’s complaint. According to Plaintiff, “The attempted foreclosure of Plaintiff’s home is illegal and the Notice of Trustee Sale is void because Plaintiff cured the default in 2010 and there has been no subsequent NOD recorded and issued by any of the Defendants or their agents.” See FAC, ¶55. Based on this allegation, Plaintiff is not merely attacking the foreclosure based on the chain of title to the deed of trust, but on the fundamental fact of his default. Unless Plaintiff is actually in default and a proper Notice of Default has been recorded, Defendants have no right to foreclose, even if the chain of title is sound. See FAC, Ex. A, p. 3; see CC §2924(a)(1). Not more than three months may elapse from the time of the recording of the notice of default and the exercise of the power of sale. See CC §2924(a)(2).

Defendant’s demurrer does not address these allegations and their truth must be accepted. See Picton v. Anderson Union High School District (1996) 50 Cal.App.4th 726, 732-733. Regardless of the validity of the chain of title, these allegations are incorporated into all causes of action except the 3rd c/a, which realleges these allegations. These allegations alone are sufficient to plead the 1st c/a for cancellation of instruments under CC §3412, 2nd c/a for violation of Bus & Prof C. 17200, 3rd c/a for violation of CC §2924c, 4th c/a for declaratory relief and 5th c/a for wrongful foreclosure. An allegation that Plaintiff was not in fact in default would also relieve Plaintiff of any requirement to tender the alleged indebtedness.

Plaintiff’s allegations regarding the validity of assignments and Quality Loan Service Corporation:

Plaintiff alleges that the Notice of Trustee’s Sale and Notice of Default are invalid because none of the named Defendants are the holder of a beneficial interest in the deed of trust or a properly substituted trustee and any assignments were invalid. Defendant argues that Plaintiff cannot challenge the validity of the assignments and asserts in a conclusory manner that the assignments were valid.

There is a plethora of law holding that a borrower may not challenge a foreclosing party’s standing based on invalid or defective assignments. The fundamental basis for this rule is that a borrower who is admittedly in default is a stranger to the assignment transactions and has no interest thereto: “Because a promissory note is a negotiable instrument, a borrower must anticipate it can and might be transferred to another creditor. As to plaintiff, an assignment merely substituted one creditor for another, without changing her obligations under the note.'” Jenkins v. JP Morgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 514-515; Siliga v. Mortgage Electronic Registration Systems, Inc. (2013) 219 Cal.App.4th 75, 79. As a corollary, a borrower who is admittedly in default cannot demonstrate prejudice due to the wrong party foreclosing, unless he or she can demonstrate that the true holder of the deed of trust would not have foreclosed based on the circumstances or that he or she will be at risk of claims by the true interest holder.

However, the Court of Appeal in Glaski v. Bank of America, National Association (2013) 218 Cal.App.4th 1079, rejected the idea that a borrower can never challenge the validity of assignments between the lender and subsequent third party acquirers. Glaski examined the right of a borrower to challenge the validity of assignments of his debt and focused on whether the borrower was challenging an assignment based on a defect that rendered the assignments void, as opposed to voidable. Id. at 1095. If the borrower’s challenge is based on a defect rendering the assignment void, then the borrower may assert it despite being a non-party. If the borrower’s challenge is based on a defect rendering the assignment voidable, the borrower may not assert that challenge. Id.

In Plaintiff’s particular case, and given the holding in Glaski, he is alleging several facts that give him standing to attack the validity of the assignments. First, Plaintiff is alleging that any assignment from SCME to Aurora Loans was void, not voidable because SCME was defunct and did not have the legal capacity to assign the deed of trust. Second, Plaintiff is alleging that he is not in default. Third, Plaintiff is alleging that the notices of default and trustee’s sale are defective because he is not in default and the notice of default recorded in 2009 is defunct. Fourth, Plaintiff is alleging that due to the confusion over the holder of the note and the proper loan servicing agency, he made payments to entities that were not entitled to payment and as a result, he may not have received credit for them. Plaintiff also names Deutsch Bank as a potential unknown claimant against his loan.

Given these facts, Plaintiff alleges a void assignment, the validity of which directly affects his rights and obligations under the original note and deed of trust. Plaintiff’s 1st through 4th and 6th causes of action are therefore properly pleaded based on Defendants’ lack of authority to initiate foreclosure.

“Immunity” for Quality Loan Services under CC §2924(b):

“In performing acts required by this article, the trustee shall incur no liability for any good faith error resulting from reliance on information provided in good faith by the beneficiary regarding the nature and the amount of the default under the secured obligation, deed of trust, or mortgage.” See CC §2924(b). At best, this statute is an affirmative defense and there are no allegations indicating that the notices at issue were based on good faith. In fact, the complaint alleges the Defendant recorded a notice of trustee’s sale without a valid notice of default on record. CC 2924(b) is not sufficiently established on the face of the pleading to sustain demurrer.

Negligence:

“[A]s a general rule, a financial institution owes no duty of care to a borrower when the institution’s involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money.” Nymark v. Heart Fed. Sav. & Loan Ass’n (1991) 231 Cal. App. 3d 1089, 1096. Although no case has held that a lender owes a duty of care in performing its duties under HOBR, the Court of Appeals recognized in dicta that such a duty under HOBR would likely exist. See Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 905-906. On that basis, the Court of Appeals held that courts must not automatically assume that a duty of care does not exist between a lender and a borrower. Instead the court must examine the particular circumstances of the case. Jolley, supra, 213 Cal.App.4th at 905-906. Recent appellate authority disagrees with Jolley and holds that no common law duty of care applies to loan modifications because it is within the scope of the conventional role of a money lender. See e.g. Lueras v. BAC Home Loans Servicing, LP (Oct. 31, 2013) 2013 WL 5848859, at *9.

Defendant’s demurrer is properly sustained as to the negligence claim. By virtue of its status as trustee, Defendant Quality is the purported agent of the beneficiary of the trust deed and like the beneficiary who is merely the lender or noteholder, does not owe Plaintiff any legal duty of care absent extraordinary facts.