Case Name:   Kim Thu Vu, et al. v. America’s Wholesale Lender, et al.

Case No.:       1-14-CV-263590

 

Currently before the Court is the demurrer of defendants Countrywide Home Loans, Inc., dba America’s Wholesale Lender (“Countrywide”), The Bank of New York Mellon (“BONYM”), and Mortgage Electronic Registration Systems, Inc. (“MERS”) (collectively, “Defendants”) to the first amended complaint (“FAC”) of plaintiffs Kim Thu Vu and Tom Cao (collectively, “Plaintiffs”). Defendants demur to each cause of action in the FAC on the grounds of failure to allege sufficient facts to constitute a cause of action. (See Code Civ. Proc., § 430.10, subd. (e).)

 

Request for Judicial Notice

 

In support of their demurrer, Defendants ask the Court to take judicial notice of a number of court records. The request for judicial notice is GRANTED. (See Evid. Code, § 452, subd. (d).)

 

Lack of Standing Due to Bankruptcy

 

Defendants contend that Plaintiffs lack standing to bring each cause of action because they failed to schedule these claims in their chapter 7 bankruptcy. Under Code of Civil Procedure section 367, every action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute. After a person files for bankruptcy protection, any causes of action previously possessed by that person become the property of the bankrupt estate. (See Cloud v. Northrup Grumman Corp. (1998) 67 Cal.App.4th 995, 1001.) Any property that is neither abandoned nor administered by the bankruptcy trustee remains property of the bankruptcy estate. (Id. at p. 1003.) A chapter 7 debtor may not prosecute a cause of action belonging to the bankruptcy estate unless the claim has been abandoned by the trustee. (See Bostonian v. Liberty Savings Bank (1997) 52 Cal.App.4th 1075, 1081.)

 

Here, the judicially noticed records reveal that Plaintiffs’ claims against Defendants were not listed on the asset schedules they filed with the bankruptcy court. Thus, unless the bankruptcy trustee abandons these claims, they remain the property of the bankruptcy trustee. Accordingly, Plaintiffs lack standing to prosecute this action unless the trustee of the bankruptcy estate abandons the claims.[1]

 

Failure to State Sufficient Facts with Regard to the First Cause of Action

 

Defendants contend that Plaintiffs cannot plead that Defendants are indebted to them in a certain sum. Their argument is persuasive. Plaintiffs do not allege any facts indicating that Defendants are in their debt. (See Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 460 [to allege a cause of action for money had and received, plaintiff must state facts indicating that the defendant is indebted to the plaintiff in a certain sum for money had and received by the defendant for the use of plaintiff].) Instead, Plaintiffs acknowledge that they were in Defendants’ debt and now allege that their debt to Defendants is fully paid. (See FAC, ¶ 9 [Defendants “have received all, if not substantially all of the proceeds that they claim are due and owing to them, and there is no deficiency, except in that they have failed to properly account for those monies and sums they have received to date.”].) Thus, as Plaintiffs do not allege that Defendants owe them any money at all, they fail to allege sufficient facts to state a cause of action for money had and received.

 

Plaintiffs provide no indication in their opposing papers, nor is it readily apparent, how the foregoing deficiency can be remedied by amendment. (See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 [burden on plaintiff to establish he can amend pleading and how amendment changes legal effect of pleading].) Accordingly, the demurrer to the first cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.

 

Failure to State Sufficient Facts with Regard to the Second Cause of Action

 

Defendants contend that Plaintiffs’ cause of action fails because it is premised on the recordation of the allegedly “robo-signed” assignment of the deed of trust in September 2011. As the Homeowner’s Bill of Rights (the “HBOR”) did not take effect until January 1, 2013 and does not apply retroactively, Defendants conclude that the assignment cannot serve as a basis for the cause of action.

 

In opposition, Plaintiffs acknowledge that the HBOR only applies prospectively and thus Defendants are not liable under the statute for the purportedly “robosigned” assignment. In this regard, they allege that “the original execution and recording of this document, in and of itself is not a violation of Civil Code section 2924.17 (due to the execution and recording being prior to the statute’s effective date)….” (FAC, ¶ 41.)

 

Instead, Plaintiffs argue that all future foreclosure actions, such as the recordation of a notice of any future sale, must be “accurate and complete and supported by competent and reliable evidence.” (Civ. Code, § 2924.17.) Plaintiffs allege that the September 2011 assignment to BONYM is improper, independent of the HBOR. Based on this allegation, they assert that any future notice of sale could not be accurate, complete and supported by competent and reliable evidence. Thus, they contend that they allege sufficient facts to state a claim for an injunction to prohibit the recording of a notice of sale. (Opp’n., p. 8:18-21.) Plaintiffs’ argument is not persuasive.

 

First, with regard to the assignment of the deed of trust, as both parties acknowledge, the HBOR took effect after the recordation of the assignment of the deed of trust and the HBOR is not retroactive. (See Rockridge Trust v. Wells Fargo, N.A. (N.D.Cal. 2013) 985 F.Supp.2d 1110, 1152.) Thus, the assignment of the deed of trust does not provide a basis for this cause of action.

 

Second, Plaintiffs do not allege facts that would permit them to enjoin the recording of a future notice of sale. Civil Code section 2924.19, as pertinent here, permits a borrower to bring an action for injunctive relief to enjoin a material violation of section 2924.17. At the present time, the only potential violation of section 2924.17 is the September 2011 assignment. As Plaintiffs acknowledge that this assignment cannot constitute a violation of section 2924.17, it likewise cannot serve as a predicate violation for an injunction pursuant to section 2924.19. As Plaintiffs do not allege any other current violations of section 2924.17, they do not allege sufficient facts to state a claim for an injunction to prohibit the recording of a notice of sale.

 

In light of the foregoing, the demurrer to the second cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

 

Failure to State Sufficient Facts with Regard to the Third Cause of Action

 

Defendants first contend that California law does not recognize a common law action for wrongful foreclosure. This argument lacks merit. “California recognizes a cause of action for wrongful foreclosure under equitable principles.” (Barroso v. Ocwen Loan Servicing, LLC (2012) 208 Cal.App.4th 1001, 1016; see also Munger v. Moore (1970) 11 Cal.App.3d 1, 7.)

 

Second, Defendants argue that Plaintiffs cannot maintain this action because they fail to allege tender of the debt owed. As a general rule, a plaintiff may not challenge the propriety of a foreclosure on his or her property without offering to repay the full amount borrowed against it. (See Karlsen v. American Sav. & Loan Assn. (1971) 15 Cal.App.3d 112, 117; West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 801 [“An allegation of tender of the indebtedness is necessary when the person seeking to set aside the foreclosure sale asserts the sale is voidable due to irregularities in the sale notice or procedure.”].) The tender requirement may also apply to any cause of action that is “implicitly integrated” with an irregular trustee’s sale. (See Arnolds Mgmt. Corp. v. Eischen (1984) 158 Cal.App.3d 575, 579.)

 

Plaintiffs argue that no allegation of tender is necessary at this stage because the requirement to tender the past due amount is limited to an action to set aside a sale. This argument is persuasive. While the tender requirement may apply to causes of action to set aside a foreclosure sale, it does not apply to actions seeking to prevent a foreclosure sale. (See Intengan v. BAC Home Loans Servicing, L.P. (2013) 214 Cal.App.4th 1047, 1053-1054; Pfeifer v. Countrywide Home Loans, Inc. (2012) 211 Cal.App.4th 1250, 1280-1281.) Here, Plaintiffs do not allege that any foreclosure sale has as yet taken place; rather they seek to prevent the defendants from moving forward with a foreclosure sale. (FAC, ¶¶ 18-19.) Thus, as no foreclosure sale has taken place, the failure to allege tender of the underlying debt does not prevent Plaintiffs from bringing the present cause of action.

 

Third, Defendants assert that there is no requirement that a holder in due course conduct foreclosure proceedings. Thus, they argue that they are entitled to conduct foreclosure proceedings even if the September 2011 assignment was “robosigned.” This argument is persuasive.

 

Under Civil Code section 2924, subdivision (a)(1), a “trustee, mortgagee, or beneficiary, or any of their authorized agents” may initiate the foreclosure process. (See Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1155.) “California courts have refused to delay the nonjudicial foreclosure process by allowing trustor-debtors to pursue preemptive judicial actions to challenge the right, power, and authority of a foreclosing ‘beneficiary’ or beneficiary’s ‘agent’ to initiate and pursue foreclosure.” (Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 511.) These courts reason that allowing a debtor to pursue such an action would interject the courts into the comprehensive nonjudicial scheme created by the Legislature. (Id. [citing Gomes v. Countrywide Home Loans, Inc. (2011) 193 Cal.App.4th 1149, 1154-1156].)

 

Here, Plaintiffs allege that Defendants have no authority to initiate a nonjudicial foreclosure sale because they have no beneficial interest in the property due to the allegedly sham assignment of the deed of trust. (FAC, ¶¶ 45-46.) However, the nonjudicial foreclosure scheme does not “require that the foreclosing party have an actual beneficial interest in both the promissory note and deed of trust to commence and execute a nonjudicial foreclosure sale.” (Jenkins, supra, 216 Cal.App.4th at p. 513; see also Haynes v. EMC Mortgage Corp. (2012) 205 Cal.App.4th 329, 336 [holding that trustee may initiate foreclosure even if assignment of beneficial interest not recorded].) Thus, the allegedly sham assignment does not prevent Defendants from foreclosing on the property and therefore, Plaintiffs fail to state facts sufficient to constitute a cause of action for wrongful foreclosure.

 

Accordingly, the demurrer to the third cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

 

In light of the foregoing, the currently-scheduled case management conference
(11-18-14) is CONTINUED to January 20, 2015 at 10:00 a.m. in Department 5.

 

[1] The Court of Appeal explained in Cloud, supra, that a plaintiff’s lack of standing due to failure to schedule claims in a bankruptcy petition is not fatal to his or her causes of action. (See Cloud, supra, 67 Cal.App.4th at p. 1004.) Instead, the proper procedure is to allow the plaintiff leave to amend to reopen the bankruptcy case in order either to substitute the trustee as real party in interest or secure the trustee’s abandonment of the claims. (Id. at p. 1008; see also Bostonian, supra, 52 Cal.App.4th at p. 1087 [“Fairness dictates plaintiffs should be given an opportunity to secure an abandonment by the trustee in the bankruptcy court.”].)