2017-00216353-CU-OR

Brian T. Maley vs. Wells Fargo Bank

Nature of Proceeding: Motion for Judgment on the Pleadings

Filed By: Betageri, Chaitra G.

Defendants Wells Fargo Bank, N.A. (“Wells Fargo”) and U.S. Bank National Association, as trustee, successor in interest to Wachovia Bank, National Association, as trustee for Wells Fargo Asset Securities Corporation, mortgage pass-through certificates, series 2004-N’s (“U.S. Bank”) (together, “Defendants”) Motion for Judgment on the Pleadings is DENIED in part and GRANTED with leave to amend in part.

In May 2004, Plaintiffs Brian T. Maley and Terese Weber-Maley (together, “Plaintiffs”)

executed a promissory note (“Note”) in favor of Wells Fargo in the amount of $343,200
secured by a deed of trust (“DOT”) recorded against the property located at 181 Briggs
Ranch Drive, Folsom California (the “Property”). (Compl. ¶9, Ex. 1.) In March 2016,
the DOT was assigned to U.S. Bank, and Wells Fargo remained the servicer of the
loan. (Compl. ¶¶6, 10, Ex. 2.) Plaintiffs went into default on the loan, and on June 18,
2015, a notice of default (“NOD”) was recorded, stating that Plaintiffs were
$109,687.50 in default. (Compl. ¶11, Ex. 3.) On January 12, 2017, a notice of trustee’s
sale was recorded, setting the trustee’s sale for February 9, 2017. (Compl. ¶13, Ex. 4.)
The trustee’s sale was postponed until July 3, 2017, when the Property was foreclosed
on. (Compl. ¶14.)

Plaintiffs allege that the foreclosure was wrongful because Wells Fargo agreed and/or promised to postpone the July 3, 2017 foreclosure sale to July 22, 2017, in order to allow the pending escrow for the sale of the Property to close. (Compl. ¶24.) Specifically, Plaintiffs allege that they had obtained a buyer for the Property who had agreed to purchase the Property at full price (i.e., not a short sale), which would allow Wells Fargo and U.S. Bank to receive the full total balance due on the loan. (Compl. ¶22.) However, Plaintiffs allege that despite informing Wells Fargo of the pending escrow and receiving assurances that the foreclosure sale would be extended, Defendants nonetheless proceeded with the July 3 foreclosure.

In support of their claim that Defendants promised to postpone the foreclosure sale, Plaintiffs allege four separate instances or theories by which Wells Fargo purportedly promised the postponement: (1) in a May 22, 2017 email from Wells’ Fargo’s alleged agent Matthew Rosendahl to Plaintiffs’ real estate broker, Mr. Rosendahl stated: “We calculated a full payoff until 7/21/17. This file has been removed from short sale as the payoff for the next 60 days has been calculated as a full payoff. This file should be a normal sale with the adjustments that were made to the HUD.” (Compl. ¶25, Ex. 6); (2) on May 23, 2017, Mr. Rosendahl verbally stated to Plaintiffs’ broker that the foreclosure date would be automatically extended (id. ¶27, Ex. 7); (3) in a February 23, 2017 letter from Wells Fargo to Plaintiffs regarding a proposed short sale of the Property that was being evaluated at the at that time, Wells Fargo employee Abigail Chapman wrote, “If your loan has been referred to foreclosure we will suspend the next legal action to the foreclosure proceedings in order to evaluate the current purchase contract” (id. ¶28, Ex. 8); and (4) Plaintiffs allege that the postponement stated in the February 23, 2017 letter constituted an “ongoing” promise to postpone the foreclosure sale. (Id. ¶30.) Plaintiffs allege they were harmed when Defendants

prematurely conducted the foreclosure sale.

Plaintiffs allege six causes of action for (1) wrongful foreclosure, (2) negligence, (3) promissory estoppel, (4) violation of Business and Professions Code §17200, (5) set aside trustee’s deed, and (6) intentional infliction of emotional distress.

Defendants filed the instant motion, arguing that Plaintiffs six causes of action all fail to state facts sufficient to constitute a cause of action.

Wrongful Foreclosure (First Cause of Action)

The motion is denied.

A wrongful foreclosure cause of action requires allegations that “(1) the defendants causes an illegal, fraudulent, or willfully oppressive sale of the property pursuant to a power of sale in a mortgage or deed of trust; (2) the plaintiff suffered prejudice or harm; and (3) the plaintiff tendered the amount of the secured indebtedness or was excused from tendering.” (Chavez v. IndyMac Mortgage Services (2013) 219 Cal.App.4th 1052, 1062.) Defendants first argue that Plaintiffs’ wrongful foreclosure claim fails because Plaintiffs have not alleged a clear and enforceable promise to postpone the foreclosure sale and thus cannot establish that the sale was illegal, fraudulent or willfully oppressive.

With respect to the alleged May 23, 2017 oral promise by Mr. Rosendahl to extend the trustee’s sale, Defendants contend that the DOT is subject to the statute of frauds and thus the oral promise is barred by the statute of frauds. “In the absence of consideration, a gratuitous oral promise to postpone a sale of property pursuant to the terms of a trust deed ordinarily would be unenforceable under section 1698 [the statute of frauds].” (Nguyen v. Calhoun (2003) 105 Cal. App. 4th 428, 449 [promise to postpone a trustee’s sale is subject to the statute of frauds].)

Plaintiffs argue in opposition that a plaintiff can overcome the statute of frauds by alleging facts establishing that the defendant should be equitably estopped to raise that defense. (Jones v. Wachovia Bank (2014) 230 Cal.App.4th 935, 944 [“To estop a defendant from asserting the statute of frauds, a plaintiff must show unconscionable injury or unjust enrichment if the promise is not enforced”].) “‘The doctrine of estoppel has been applied where an unconscionable injury would result from denying enforcement after one party has been induced to make a serious change of position in reliance on the contract or where unjust enrichment would result if a party who has received the benefits of the other’s performance were allowed to invoke the statute.’ [citation]” (Id.)

Here, Plaintiffs have not alleged that Defendants were unjustly enriched by the foreclosure sale. Additionally, Plaintiffs have not alleged that they were induced to make a serious change in position in reliance on the contract. (Secret v. Security Na. Mortg. Loan Trust 2002-2 (2008) 167 Cal.App. 4th 554, 555.) Plaintiffs only allege that they continued on with the sale of the Property for a few more days, which they had already set into motion prior to the alleged oral promise. Accordingly, the Court cannot find that the statute of frauds may be applicable to the oral promise as alleged.

With respect to the alleged written promises, Defendants argue that the February 23 letter and May 22 email do not clearly state that the trustee’s sale will be postponed.

Indeed, the February 23 letter stated that Wells Fargo would evaluate the currently proposed short sale, and further stated: “If your loan has been referred to foreclosure, we will suspend the next legal action in the foreclosure proceedings in order to evaluate the current purchase contract.” (Compl. ¶28, Ex. 8.) Thus, the letter was applicable to a potential short sale offer at the time that predated the later offer for a full-price purchase. Plaintiffs concede this point, alleging that the foreclosure sale was postponed to April 5, 2017 due to the fact that Wells Fargo was evaluating the short sale offer that was pending at the time. (Id. ¶30.) While Plaintiffs argue that Well Fargo’s promise to postpone the foreclosure while evaluating the short sale offer somehow extends indefinitely, even after the short sale did not proceed, the February 23 letter clearly makes no such promise. Accordingly, the February 23 letter cannot form the basis of a wrongful foreclosure claim on the facts alleged.

However, while the May 22 email does not expressly promise to postpone the foreclosure sale, it is a sufficient promise to form the basis for a wrongful foreclosure claim. Defendants argue that the May 22 email is not a “clear and unambiguous promise” to refrain from foreclosure, but rather, as Plaintiffs concede, an “implied promise.” (Mot. at p. 3:22-27.) Defendants further argue that Plaintiffs incorrectly read the email to extend the foreclosure sale to July 22. Defendants contend that a 60 day closing would have expired on July 6 rather than July 22, because the realtor’s notes attached as Exhibit 7 to the Complaint suggest that the offer was made on May 7, not May 22. The Court cannot weigh and assess the evidence at the pleading stage to make this determination.

The Court has reviewed the May 22 email in connection with the allegations and finds that it is sufficient to support a claim for wrongful foreclosure. In the email exchange, Plaintiffs’ realtor explains that they are “so close” to selling the Property for a “full payoff” and that she would “greatly appreciate WF cooperation in getting this to the end.” (Compl. Ex. 6.) In response, Matthew Rosendahl, using a Wells Fargo email address, responds in relevant part: “We calculated a full payoff until 7/21/17. This file has been removed from Short sale [sic] as the payoff for the next 60 days has been calculated as a full payoff. This file should be a normal sale with the adjustments that were made to the HUD.” (Id.) A plain reading of this email in connection with the allegations in the Complaint is sufficient to allege a promise to postpone the sale, which supports finding that the finding that the sale was illegal, willfully oppressive, or fraudulent.

Finally, Defendants argue that Plaintiffs’ wrongful foreclosure claim fails because they did not allege that they tendered the amount of the secured indebtedness or were excused from doing so as of the July 3 foreclosure sale date. Under California law, the “tender rule” requires that as a precondition to challenging a nonjudicial foreclosure sale, or any cause of action implicitly integrated to the sale, the borrower must make a valid and viable tender of payment of the secured debt. (Karlsen v. American Savings and Loan Ass’n (1971); 15 Cal. App. 3d 112, 117; Arnolds Management Corp. v. Eischen (1984) 158 Cal. App. 3d 575, 578.) Indeed, Plaintiffs do not allege that they tendered the amount of their debt prior to the July 3 sale, but rather allege that they intended to do so after they sold their Property. This is not sufficient to allege tender.

Nonetheless, Plaintiffs have alleged that they are excused from tendering because it would be inequitable to require tender because Wells Fargo had repeatedly promised to postpone the foreclosure sale in order for the sale to the third party to close. (Compl. ¶36.) Plaintiffs further allege in the alternative that tender was not required because

the sale was void due to fraud. (Id. ¶37.) The Court finds these allegations sufficient at the pleading stage. The motion is accordingly denied.

Negligence (Second Cause of Action)

The motion is denied.

Defendants argue that Plaintiffs fail to allege a cause of action for negligence because they fail to allege that Defendants owed Plaintiffs a duty of care as the beneficiary of the DOT (US Bank) and Plaintiffs’ servicer (Wells Fargo). Defendants argue that Plaintiffs are in contractual privity with Defendants according to their aforementioned roles, and thus their rights and duties here are governed by contract, not tort.

Plaintiffs argue that California law allows the imposition of a duty with respect to lenders. Plaintiffs contend that to determine whether a duty exists, courts must consider six factors: (1) the extent to which the transaction was intended to affect the plaintiff, (2) the foreseeability of harm to plaintiff, (3) the degree of certainty that the plaintiff suffered injury, (4) the closeness of the connection between the defendant’s conduct and the injury suffered, (5) the moral blame attached to the defendant’s conduct, and (6) the policy of preventing future harm. ((Nymark v. Heart Federal Sav.
& Loan Assoc. (1991) 231 Cal.App.3d 1089, 1098, citing Biakanja v. Irving (1958) 49 Cal.2d 647, 650.)

Plaintiffs argue that they have sufficiently pled facts showing the Biakanja factors weigh in favor of establishing a duty of care.

The Court notes that there appears to be conflicting appellate court decisions as to whether lenders have a legal duty of care when processing loan modification applications from their borrowers. (Compare the Fourth District opinion in Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal. App. 4th 49, 67 [“a loan modification is the renegotiation of loan terms, which falls squarely within the scope of a lending institution’s conventional role as a lender of money”] with the First District opinion in Alvarez v. BAC Home Loans Servicing, L.P. (2014) 228 Cal.App.4th 941, 948 [because the bank agreed to consider loan modification “the Biakanja factors clearly weigh in favor of a duty. The transaction was intended to affect the plaintiffs and it was entirely foreseeable that failing to timely and carefully process the loan modification applications could result in significant harm.”])

However, Plaintiffs further cite to the very recent decision in Rosetta v. CitiMortgage (2017), 3DCA Case No. C078916, __Cal.App.5th__ (certified for part. Publ. Dec. 18, 2017), in which the Third District Court of Appeal applies the Biakanja analysis to determine that the lender owed the borrower a duty of care when handling her loan modification application. Although Rosetta and Alvarez specifically address a lender’s duty in the context of loan modification applications, the Court is persuaded that they support the conclusion that a lender or servicer may generally owe a borrower a duty of care if the Biakanja factors are met. Accordingly, the Court finds that Plaintiffs have sufficiently alleged facts to support each of the six factors from Biakanja and the motion is accordingly denied.

In reaching this ruling, the Court has not considered Defendants’ argument, made for the first time on reply, that Plaintiffs fail to demonstrate a breach of duty. (Reply at p. 3:20-23.)

Promissory Estoppel (Third Cause of Action)

The motion is granted with leave to amend.

To state a claim for promissory estoppel Plaintiffs were required to allege “(1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise was made; (3) his reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.” (Laks v. Coast Fed. Sav. & Loan Ass’n (19760 30 Cal.App.3d 885, 890.) The allegations must establish a promise “definite enough that a court can determine the scope of the duty[,] and the limits of performance must be sufficiently defined to provide a rational basis for the assessment of damages.” (Aceves v. U.S. Bank, N.A. (2011) 192 Cal.App.4th 1031, 1044.)

Defendants argue in part that Plaintiffs fail to allege detrimental reliance, and the Court agrees. In the Complaint, Plaintiffs allege that they relied on Defendants’ promises to postpone the trustee’s sale to their detriment by “continuing to sell the Subject Property to the third party,” and that they were injured in that “their home was foreclosed on and for the reasons stated herein.” (Compl. ¶¶51, 53.)

Plaintiffs do not allege that they took any action in response to Defendants’ alleged promises except to continue pursuing the sale for several more days prior to the foreclosure sale. Although the Property was ultimately foreclosed on, Plaintiffs do not allege that the foreclosure occurred due to any action or inaction resulting from their reliance. (See Jones v. Wachovia Bank (2014) 230 Cal.App.4th 935, 948-49.) Plaintiffs further do not allege any damages aside from the foreclosure sale and the effects thereof, which again, were not alleged to have occurred due to Plaintiffs’ reliance.

Accordingly, the motion is granted with leave to amend.

Business & Professions Code §17200 (Fourth Cause of Action)

The motion is denied. Defendants argue that Plaintiffs’ Unfair Competition Law (“UCL”) claim fails because their underlying claims fail. A UCL claim “stand[s] or fall[s] depending on the fate of the antecedent substantive causes of action.” (Krantz v. BT Visual Images, LLC (2001) 89 Cal.App.4th 164, 178.) As the Court finds that Plaintiffs have alleged sufficient underlying claims for wrongful foreclosure and negligence, the Court rejects Defendants’ argument and the motion is denied.

Set Aside the Trustee’s Deed Upon Sale (Fifth Cause of Action)

The motion is denied. To set aside a foreclosure sale, Plaintiffs must allege a valid cause of action for wrongful foreclosure. As the Court has rejected Defendants’ arguments regarding the purported insufficiency of Plaintiffs’ wrongful foreclosure claim, the motion is denied.

Intentional Infliction of Emotional Distress (Sixth Cause of Action)

The motion is granted with leave to amend. The elements of the tort of intentional infliction of emotional distress are: “(1) extreme and outrageous conduct by the defendant with the intention of causing, or reckless disregard of the probability of

causing, emotional distress; (2) the plaintiff’s suffering severe or extreme emotional distress; and (3) actual and proximate causation of the emotional distress by the defendant’s outrageous conduct. . . .’ Conduct to be outrageous must be so extreme as to exceed all bounds of that usually tolerated in a civilized community.” (Davidson v. City of Westminister (1982) 32 Cal.3d 197, 209.) The defendant must have engaged in “conduct intended to inflict injury or engaged in with the realization that injury will result.” (Id. at p. 210.)

Here, Plaintiffs incorporate all allegations by reference and generally allege that Defendants intentionally engaged in extreme and outrageous conduct. (Compl. ¶¶63-68.) The act of foreclosing on a home (absent other circumstances) is not the kind of extreme conduct that supports an intentional infliction of emotional distress claim.” ( Quinteros v. Aurora Loan Services (E.D.Cal. 2010) 740 F.Supp.2d 1163, 1172; see, also Aguinaldo v. Ocwen Loan Servicing, LLC, 2012 U.S. Dist. LEXIS 125400.) In addition, Plaintiffs fail to allege facts demonstrating that they suffered severe emotional distress. The allegations that they “did, in fact, suffer extreme and/or severe emotional distress” are conclusory and insufficient. (Id. ¶64.) The Court concludes that such assertions are not “beyond all possible bounds of decency,” (See CACI Instr. No.

1602), and therefore were not outrageous as matter of law. Accordingly, the motion is granted with leave to amend.

Plaintiffs are to file their amended complaint no later than January 16, 2018. Defendants are to respond within 10 days if the amended complaint is personally served, 15 days if served by mail.