Case Name: Harry Wong, et al. v. MTC Financial, Inc., et al.
Case No.: 2015-1-CV-282939

Demurrer by Defendant JPMorgan Chase Bank, N.A. to the Second Amended Complaint of Plaintiffs Harry Wong and Maryanne A. Wong

Factual and Procedural Background

This action arises out of a residential mortgage loan. In 1984, plaintiffs Harry Wong and Maryanne A. Wong (collectively, “Plaintiffs”) purchased property located at 753 Folsom Circle, Milpitas, California (“Property”). (Second Amended Complaint (“SAC”), ¶¶ 2, 8.) Many years later, Plaintiffs began to explore refinancing options for their existing home mortgage. (Id., at ¶ 9.) “[R]epresentatives of Washington Mutual Bank, F.A. (‘WaMu’) solicited Plaintiffs to refinance with WaMu,” advising them that “it would be easier and less expensive for WaMu – their existing lender – to refinance their Property ….” (Id., at ¶ 10.) Plaintiffs were further advised by a WaMu loan officer “to add Philip Wong [(‘Philip’)] as a borrower with 1% undivided interest to help get a better deal, although [they] could have qualified without Philip …, who was never expected to make any of the payments and who in fact did not make any of the payments.” (Id., at
¶ 11.)

Subsequently, Plaintiffs “enter[ed] into a loan with a rider, wherein, [they] would be the non-borrower trustors and Philip … would be the Borrower.” (SAC, ¶ 11.) Plaintiffs also executed a Deed of Trust (“DOT”) on the Property in favor of WaMu, as well as an Adjustable Rate Rider (“ARR”) stating that the principal balance of the loan could never increase to over $555,000 or 125 percent of the original principal balance of $444,000. (Id., at ¶ 12, Ex. A.)

Thereafter, defendant JPMorgan Chase Bank, N.A. (“Chase”) acquired WaMu and all of its assets, and became the beneficiary under the loan. (SAC, ¶ 13.)

“From 2005 to 2014, Plaintiffs were making what they understood to be their full mortgage payments by paying approximately $2,600.00 per month. However, when Plaintiffs attempted to make the mortgage payment for December 2014 …, [Chase] refused to accept Plaintiffs’ mortgage payment.” (SAC, ¶ 14.) Chase later informed Plaintiffs that it would not accept their mortgage payment because it “had commenced California’s non-judicial foreclosure process due to the fact that Plaintiffs were allegedly behind on their mortgage payments.” (Ibid.)

On February 19, 2015, Chase recorded a Notice of Default (“NOD”) against the Property. (SAC, ¶ 15.) A few months later, on May 29, 2015, Chase recorded a Notice of Trustee’s Sale (“NTS”) regarding the Property. (Ibid.) Subsequently, a Chase representative informed Plaintiffs that the current loan balance was $574,893.50 “despite the fact that the [DOT] explicitly stated that Plaintiffs’ principal balance of their loan could never increase to over $555,000.00, or 125% of the original principal balance of $444,000.00.” (SAC, ¶ 16.)

Based on the foregoing, Plaintiffs filed the operative SAC against Chase, alleging a single cause of action for declaratory relief. In the SAC, Plaintiffs allege that an actual controversy exists between them and Chase regarding their respective rights and duties pursuant to the DOT, specifically whether Chase can increase the principal balance of the loan to an amount over $555,000. (SAC, ¶ 19.) Plaintiffs “seek a judicial determination as to whether [Chase] can increase [their] principal balance as they have done in order to ascertain the present value of the loan and [their] rights and responsibilities.” (Id., at ¶ 20.) Plaintiffs allege that “[a] judicial declaration is necessary and appropriate at this time … so that the Parties can ascertain their rights and duties under the Agreements in order to avoid [Chase] from increasing Plaintiffs’ principal balance further and then taking title to Plaintiffs’ Property.” (Id., at ¶ 21.) Plaintiffs further allege that “a judicial determination is necessary in order for [them] to exercise their right of reinstatement pursuant to Covenant 19 of the [DOT] and Cal. Civil Code § 2924c.” (Ibid.)

Currently before the Court is the demurrer by Chase to the SAC on the ground that Plaintiffs fail to allege facts sufficient to constitute a cause of action. (See Code Civ. Proc., § 430.10, subd. (e).) Plaintiffs filed papers in opposition to the demurrer on August 10, 2016. Chase filed a reply on August 16, 2016.

Discussion

I. Request for Judicial Notice

Chase’s request for judicial notice of various documents recorded against the Property (Exhibits 1-2(B) and 4-8), a Purchase and Assumption Agreement (“PAA”) (Exhibit 3), and a court order denying Plaintiffs’ request for preliminary injunction is GRANTED. (See Evid. Code, § 452, subd. (d) [permitting judicial notice of court records]; see also Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264 [“[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.”]; Scott v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743, 753-754 [As JPMorgan argues, the FDIC’s official acts of seizing WaMu’s assets and publishing the P&A Agreement are judicially noticeable. Moreover, … the FDIC’s official act of transferring certain WaMu assets (but not certain liabilities) to JPMorgan as of September 25, 2008—as evinced by the P&A Agreement—is an official act subject to judicial notice under section 452, subdivision (c) under the circumstances of this case.”].)

II. Legal Standard

In reviewing the sufficiency of a complaint against a general demurrer, courts are guided by long settled rules. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “ ‘The reviewing court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. [Citations.] The court does not, however, assume the truth of contentions, deductions or conclusions of law. [Citation.]’ ” (Gregory v. Albertson’s, Inc. (2002) 104 Cal.App.4th 845, 850.) If facts appearing in an attached exhibit contradict those expressly pleaded in the complaint, those in the exhibit are given precedence.” (Mead v. Sanwa Bank Cal. (1998) 61 Cal.App.4th 561, 567-568.) The question of the plaintiff’s ability to prove the factual allegations of the complaint, or the possible difficulty in making such proof, does not concern the reviewing court. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213–214.)

III. Claim for Declaratory Relief

Code of Civil Procedure section 1060 authorizes actions for declaratory relief. (Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 909.) That statute provides that “[a]ny person interested under a written instrument … or under a contract, or who desires a declaration of his or her rights or duties with respect to another, or in respect to, in, over or upon property, … may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action … in the superior court for a declaration of his or her rights and duties in the premises, including a determination of any question of construction or validity arising under the instrument or contract.” (Code Civ. Proc., § 1060.) Consequently, “[t]o qualify for declaratory relief, [a party] would have to demonstrate its action presented two essential elements: ‘(1) a proper subject of declaratory relief, and (2) an actual controversy involving justiciable questions relating to [the party’s] rights or obligations.’ ” (Wilson & Wilson v. City Council of Redwood City (2011) 191 Cal.App.4th 1559, 1582.) A complaint for declaratory relief is legally sufficient if it sets forth facts showing the existence of an actual controversy relating to the legal rights and duties of the parties under a written instrument or with respect to property and requests that the rights and duties of the parties be adjudged by the court. (Market Lofts Community Association v. 9th Street Market Lofts, LLC (2014) 222 Cal.App.4th 924, 931.)

Chase initially argues that Plaintiffs fail to allege sufficient facts to state a claim for declaratory relief because they lack standing and there is no actual controversy relating to the rights and obligations between it and them. Chase contends that the alleged controversy—whether it can increase the principal balance of the loan to an amount over $555,000 (SAC, ¶ 19)—is not an actual controversy relating to legal rights and/or obligations between it and Plaintiffs because Plaintiffs are only co-signers; Plaintiffs signed the DOT merely to mortgage, grant, and convey their interest in the Property; Plaintiffs have no obligation to pay the sums secured by the DOT; and Plaintiffs do not have any right to make payments on the loan. For these same reasons, Chase contends that Plaintiffs lack standing to bring their claim for declaratory relief.

In opposition, Plaintiffs assert that they have standing and adequately alleged an actual controversy because they signed the DOT and the riders attached thereto; the definition of the term “Borrower,” as set forth in the DOT, includes them as well as Philip; under section 19 of the DOT, the “Borrower” has a right to reinstate the loan; Chase’s demand for payment of a sum above the amount allowed in the DOT “affects [their] ability to reinstate the loan to protect their interest”; the Trustor Rider allows them to make payments on the loan, which can be accepted by Chase at its discretion; and Chase exercised its discretion in the past to accept payments from them and apply those payments to the loan.

The Court finds that Plaintiffs fail to demonstrate that an actual controversy exists with respect to their rights and/or obligations under the written instruments at issue. As Chase persuasively argues, Plaintiffs are merely co-signers and/or guarantors of Philip’s loan obligation and trustors under the DOT, as opposed to borrowers. While the DOT initially defines the term “Borrower” as “Harry Wong and Maryanne A. Wong … and Philip Wong” (RJN, Ex. 2A, p. 1), it further provides that “any Borrower who co-signs this Security Instrument but does not execute the Note (a ‘co-singer’) … is co-signing this Security Instrument only to mortgage, grant and convey the co-signer’s interest in the Property under the terms of this Security Instrument … [and] is not personally obligated to pay the sums secured by this Security Instrument …” (RJN, Ex. 2A, p. 11, ¶ 13). It is undisputed that Plaintiffs did not sign the loan application or Note. Thus, under the terms of the DOT, Plaintiffs are co-singers who do not have any personal obligation to make payments on the loan.

Moreover, even if the terms of the DOT were somehow unclear regarding the relationship between Chase and Plaintiffs, the Trustor Rider makes clear that Plaintiffs are not the “Borrower” on the loan. The Trustor Rider provides that: only Philip is the “Borrower”; Plaintiffs are merely “Trustors”; with or without notice to Plaintiffs, Chase in its sole discretion may apply payments from Philip, or Plaintiffs, in any such manner, order, and priority as it elects; and no exercise or non-exercise by Chase of any right given to it, or dealing with Philip or any other person, shall in any way affect any of Plaintiffs’ obligations or give Plaintiffs any recourse against Chase. (RJN, Ex. 2B, pp. 1-4.) The Trustor Rider also provides that its terms amend and supplement the DOT and govern the obligations, rights, and relationship of Chase, Philip, and Plaintiffs, in the event that the provisions of the DOT differ in any way. (RJN, Ex. 2B, p. 4, ¶ 14.) Thus, terms of the Trustor Rider, which provide that Philip alone is the “Borrower,” control to the extent that the terms of the DOT state otherwise.

Since Plaintiffs are not the “Borrower,” they do not have any right to reinstatement under section 19 of the DOT. (RJN, Ex. 2A, p. 13, 19 [providing that “Borrower” alone shall have the right to reinstatement].) Additionally, Plaintiffs do not have any obligation or right to make payments on the loan. (RJN, Ex. 2A, p. 11, ¶ 13; RJN, Ex. 2B, pp. 1-4.) The fact that Chase previously accepted payments from Plaintiff does not in any way affect Plaintiffs’ obligations under the instruments or give Plaintiffs any recourse against Chase. (RJN, Ex. 2B, p. 3, ¶ 9.) In light of the foregoing, Plaintiffs have not stated any actual controversy relating to the legal rights and obligations between themselves and Chase.

Accordingly, the demurrer to the SAC is SUSTAINED, without leave to amend. (Goodman v. Kennedy (1976) 18 Cal. 3d 335, 349 [“Plaintiff must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading”].)