Case Name: Homero Oyarce et al. v. Wells Fargo Bank, N.A et al.
Case No.: 16-CV-299371
This is a wrongful foreclosure action brought by Homero and Lorna Oyarce (collectively, “Plaintiffs”) against defendants Wells Fargo Bank, N.A. (“Wells Fargo”) and Northwest Trustee Services, Inc. (“Northwest”) (collectively, “Defendants”).

According to the allegations of the first amended complaint (“FAC”), Plaintiffs sought to obtain a loan from Wells Fargo to purchase property located in Mountain View (“Subject Property”) in 2007. (FAC, ¶10.) At the time, Plaintiffs had significant assets in their bank account and an income of $3,000 a month. (Id. at ¶ 11.) Plaintiffs represented these facts to Wei, a loan representative employed by Wells Fargo, who instead listed their income as $15,000 when filling out their loan application. (Id. at ¶ 12.) She represented to Plaintiffs that stating a higher income on a loan application was a common industry practice and “the way everyone is doing it.” (Id. at ¶ 13.) Plaintiffs trusted Wells Fargo and guessed that Wei relied in part on the liquid assets in their bank account to reach the $15,000 figure. (Id. at ¶ 14.) Accordingly, Plaintiffs eschewed two other loan opportunities they had been pursuing and took out a loan with Wells Fargo on May 22, 2007 in the amount of $1,000,000 (“Subject Loan”). (Id. at ¶¶ 14-15.)

Plaintiffs then executed a Deed of Trust (“DOT”) and Promissory Note (“Note”) to secure the loan. (Id. at ¶ 18.) The DOT listed Wells Fargo as the lender and beneficiary and Fidelity National Title Insurance Company (“Fidelity”) as the trustee. (Ibid.) Plaintiffs then purchased their property located in Mountain View (“Subject Property”) using the loan from Wells Fargo on May 31, 2007. (Id. at ¶ 19.) It was not until a few years ago that Plaintiff discovered Wells Fargo created what is described as a “liar loan,” or a loan supported with little or no documentation, and that the loan terms were highly unfavorable. (Id. at ¶ 17.)

In August 2016, Plaintiffs performed a securitization audit on their loan and found that, shortly after entering into the loan, Wells Fargo sold Plaintiffs’ DOT and Note to the Wells Fargo Alternative Loan 2007-PA4 Trust (“Trust Pool”), a mortgage-backed securitized trust. (Id. at ¶ 20.) The Trust Pool was a real estate mortgage investment conduit (“REMIC”) registered with the Securities and Exchange Commission (“SEC”). (Ibid.) HSBC Bank USA, N.A. was Trustee of the Trust Pool. (Ibid.)

Despite having sold all beneficial interest in Plaintiffs’ DOT to the Trust Pool, on January 29, 2016, Wells Fargo held itself out as the purported beneficiary of Plaintiff’s DOT and recorded a void substitution of trustee naming Northwest as the new trustee. (Id. at ¶ 21.) On February 5, 2016, Northwest recorded a notice of default against the Subject Property and executed a notice of trustee’s sale notwithstanding its lack of authority to do so. (Id. at ¶ 22.) It also executed a notice of trustee’s sale on August 4, 2016. (Id. at ¶ 23.) Plaintiffs challenge the validity of the ongoing foreclosure proceedings.
Plaintiffs assert the following causes of action: (1) intentional misrepresentation (against Wells Fargo); (2) negligent misrepresentation (against Wells Fargo); (3) violation of Civil Code section 2924.17 (against Defendants); (4) wrongful foreclosure (against Defendants); and (5) violations of Business and Professions Code section 17200 (“UCL”) (against Defendants).

Wells Fargo moves for judgment on the pleadings as to the entire Complaint and to each cause of action asserted against it, on the ground of failure to state sufficient facts to constitute a cause of action. Plaintiffs oppose the motion.

As a preliminary matter, the Court previously granted Wells Fargo’s motion for judgment on the pleadings to the original complaint (“Complaint”) with leave to amend. The Complaint only asserted two causes of action against Defendants for violation of Civil Code section 2924.17 and wrongful foreclosure. Plaintiffs now assert three additional causes of action in the operative FAC, particularly intentional misrepresentation, negligent misrepresentation, and violation of the UCL.

“Following an order sustaining a demurrer or a motion for judgment on the pleadings with leave to amend, the plaintiff may amend his or her complaint only as authorized by the court’s order. The plaintiff may not amend the complaint to add a new cause of action without having obtained permission to do so, unless the new cause of action is within the scope of the order granting leave to amend.” (Harris v. Wachovia Mortg., FSB (2010) 185 Cal.App.4th 1018, 1023 [internal citations omitted]; People By and Through Dept. of Public Works v. Clausen (1967) 248 Cal.App.2d 770, 785; see also Patrick v. Alacer Corp. (2008) 167 Cal.App.4th 995, 1015 [plaintiff may add a new cause of action only when it “directly responds to the court’s reason for sustaining the earlier demurrer”].) A court may, in its discretion, strike new causes of action when they are not drawn in conformity with its prior order. (See Code Civ. Proc., § 436, subd. (b); Ferraro v. Camarlinghi, supra, 161 Cal.App.4th at p. 528 [“[Section 436] is commonly invoked to challenge pleadings filed in violation of a deadline, court order, or requirement of prior leave of court”].)

Here, the Court granted Wells Fargo’s prior motion for judgment on the pleadings as to the causes of action for violation of Civil Code section 2924.17 and wrongful foreclosure solely on the basis that Plaintiffs did not allege any facts to support their belief the Subject Loan was sold. The Court only granted leave to amend to cure that particular defect. As such, the addition of the three new causes of action based on entirely new factual allegations regarding purported misrepresentations was neither authorized by nor within the scope of the Court’s prior order. Accordingly, the Court strikes the first, second, and fifth causes of action as not having been filed in conformity with the law. Plaintiffs must obtain leave of court to add these claims to their complaint. (See Code Civ. Proc., §§ 472, 473.)
I. Request for Judicial Notice

In support of its motion, Wells Fargo filed a request for judicial notice of 23 documents. Plaintiffs oppose the request in its entirety.

As a threshold matter, all judicially noticed documents must be relevant to a material issue under review. (People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 422, fn. 2.) As Plaintiffs contend, many of the documents of which Wells Fargo requests judicial notice do not assist the Court in resolving the issues raised by its motion. Exhibits 1, 2 and 7 through 23 simply apprise the Court of irrelevant background information. As such, the Court will not take judicial notice of these exhibits, all of which are recorded real property records for other loans and/or properties not at issue here.

Exhibits 3 through 6, also recorded real property records, do involve the Subject Loan and Subject Property. That being said, the Court also declines to take judicial notice of Exhibits 3 through 6 because they are not necessary or helpful to the resolution of the issues raised in the motion. (Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739, 748, fn. 6 [declining to take judicial notice of materials that are not “necessary, helpful, or relevant”].)
Accordingly, Wells Fargo’s request for judicial notice is DENIED.

II. Motion for Judgment on the Pleadings

Judgment on the pleadings in favor of the defendant is appropriate when a cause of action fails to state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 438, subd. (c)(1)(B)(ii).) In ruling on a motion for judgment on the pleadings, all material facts properly pleaded are deemed true, as well as any matters that may be judicially noticed, but not contentions, deductions or conclusions of fact or law. (Code Civ. Proc., § 438, subd. (d); Smiley v. Citibank (1995) 11 Cal.4th 138, 146; Kapsimallis v. Allstate Ins. Co. (2002) 104 Cal.App.4th 667, 672.)
A. Third Cause of Action for Violation of Civil Code Section 2924.17
Plaintiffs allege Wells Fargo violated Civil Code section 2924.17 (“Section 2924.17.) by recording a void substitution of trustee, and Northwest in turn improperly recorded a notice of default and notice of trustee’s sale.
Section 2924.17, subdivision (a) states that “[a] declaration recorded pursuant to Section 2923.5 or, until January 1, 2018, pursuant to Section 2923.55, a notice of default, notice of sale, assignment of a deed of trust, or substitution of trustee recorded by or on behalf of a mortgage servicer in connection with a foreclosure subject to the requirements of Section 2924, or a declaration or affidavit filed in any court relative to a foreclosure proceeding shall be accurate and complete and supported by competent and reliable evidence.” Section 2924.17, subdivision (b) further requires a mortgage servicer to ensure it has “reviewed competent and reliable evidence to substantiate the borrower’s default and the right to foreclose” before filing such declaration.
Wells Fargo first argues that Plaintiffs’ third cause of action is factually deficient because they do not adequately support their conclusion the Subject Loan was sold. In opposition, Plaintiffs state they adequately allege they conducted a securitization audit which led them to believe their DOT was sold.

In connection with Wells Fargo’s prior motion for judgment on the pleadings, it argued the original complaint was factually deficient because Plaintiffs did not plead any facts supporting their allegation, made upon information and belief, that the Subject Loan was securitized or sold. The Court agreed and granted Wells Fargo’s motion on this basis. (See Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1158 (“Gomes”).) Plaintiffs now allege they conducted a securitization audit which led them to believe the Subject Loan was sold. (FAC, ¶¶ 20, 51.) This is sufficient to support their allegation the Subject Loan was sold.

Wells Fargo additionally argues that Plaintiffs were required to attach the securitization audit to the FAC or plead facts supporting when and how the Subject Loan was sold. They provide no legal authority, and the Court is aware of none, supporting the proposition that a plaintiff is required to attach to a complaint the specific audit he or she purportedly conducted. Wells Fargo also does not provide any legal authority to support its conclusion that Plaintiffs must plead facts establishing how and when the Subject Loan was sold. Contrary to its contention, in order to sufficiently plead on information and belief, a plaintiff need only allege the facts that led him or her to believe the allegations were true. (Gomes, supra, 192 Cal.App.4th at p. 1158.) As such, Plaintiffs do not need to additionally specify how or when the Subject Loan was sold.

Wells Fargo newly argues that Plaintiffs cannot bring a cause of action for violation of Section 2924.17 because this statute does not create a right to challenge a foreclosing entity’s authority to foreclose before a foreclosure occurs, citing to the recent case Lucioni v. Bank of America, N.A. (2016) 3 Cal.App.5th 150 (“Lucioni”) in support. In Lucioni, the court analyzed whether Section 2924.17 requires a foreclosing entity to preemptively show it has the right to foreclose. (Id. at pp. 161-162.) The court concluded “that [S]ection 2924.17 does not impose a preforeclosure duty on foreclosing entities to demonstrate that they have a right to foreclose.” (Id. at p. 162.) Specifically, it found that Section 2924.17 solely “place[s] a burden on the foreclosing party to file a declaration with the notice of default, and provide[s] requirements for the lender’s diligence prior to filing that declaration. . . . [and] do[es] not create a burden on the foreclosing party to prove anything in court, other than that the declaration required by section 2923.55, subdivision (c) was filed, and that necessary steps were taken before filing it.” (Ibid.) A violation of the requirements of Section 2924.17 “under the present statutory scheme . . . precludes injunctive relief.” (Ibid.)

Here, Plaintiffs state Defendants violated Section 2924.17 because they lacked authority to initiate foreclosure proceedings. (FAC, ¶¶ 25, 46-48.) They acknowledge a foreclosure sale has yet to take place and seek injunctive relief to prevent the foreclosure sale from taking place. (Id. at ¶ 55.) Since Section 2924.17 does “not create a right to litigate, preforeclosure, whether the foreclosing party’s conclusion that it had the right to foreclose was correct,” Plaintiffs cannot assert a cause of action for violation of Section 2924.17 to challenge Defendants’ authority to foreclose before a foreclosure sale has taken place. (Lucioni, supra, 3 Cal.App.5th at p. 162.) They otherwise fail to allege any facts establishing that Wells Fargo violated Section 2924.17 by failing to file a declaration with the notice of default or following the requirements regarding the lender’s diligence prior to filing that declaration as required to state a cause of action for Section 2924.17. (See ibid.)
Accordingly, the third cause of action is not viable. With respect to granting leave to amend, it is the plaintiff’s burden to show in what manner it can amend the complaint and how that amendment will change the legal effect of the pleading. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349; see also Medina v. Safe-Guard Products (2008) 164 Cal.App.4th 105, 112, fn. 8.) While Plaintiffs generally request leave to amend, they do not meet their burden of demonstrating in what manner they could amend the FAC to cure any defects. That being said, it is not clear they cannot allege facts to constitute a cause of action for violation of Civil Code section 2924.17. As such, the Court is inclined to give Plaintiffs leave to amend because the FAC does not, on its face, foreclose any reasonable possibility of amendment and they have not yet had an opportunity to amend this cause of action on the basis they fail to allege facts establishing Wells Fargo violated Section 2924.17. (See City of Stockton v. Superior Court (2007) 42 Cal.4th 730, 747.)
Based on the foregoing, the motion for judgment on the pleadings as to the third cause of action on the ground of failure to state sufficient facts is GRANTED with 10 days’ leave to amend.

B. Fourth Cause of Action for Wrongful Foreclosure

Plaintiffs allege Defendants violated Civil Code section 2924, subdivision (a)(6) by wrongfully initiating foreclosure proceedings when they lacked the authority to foreclose upon and sell the Subject Property.
Wells Fargo argues the fourth cause of action fails because Plaintiffs lack standing to force it to preemptively prove its authority to foreclose on the Subject Property. In opposition, Plaintiffs maintain they have standing to bring an action for wrongful foreclosure despite the fact a foreclosure sale has not happened.

In its order to Wells Fargo’s prior motion for judgment on the pleadings, the Court observed there may be a limited exception to the general rule that a plaintiff lacks standing to assert a claim for wrongful foreclosure in a pre-foreclosure context when the action “seeks to create the additional requirement that the foreclosing entity must demonstrate in court that it is authorized to initiate a foreclosure before the foreclosure can proceed.” (Jenkins v. JP Morgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 512, disapproved of on other grounds by Yvanova v. New Century Mortg. Corp. (2016) 62 Cal.4th 919 [citations and quotations omitted, emphasis in original]; see also Kan v. Guild Mortgage Company (2014) 230 Cal.App.4th 736, 741-742.) If a party pleads specific facts establishing the foreclosure was not initiated by the correct party, he or she may have standing to bring a claim before a foreclosure sale occurs. (See Gomes, supra, 192 Cal.App.4th at p. 1159 [suggesting a plaintiff may have standing if he or she specifically pled the entity initiating the foreclosure process was not the proper party to do so]; Sacchi v. Mortgage Electronic Registration Systems, Inc. (C.D. Cal. 2011) 2011 WL 2533029, at p. *8 [stating the plaintiffs alleged a specific factual basis as suggested by the Gomes court by pleading the defendant was not yet the beneficiary under the deed of trust when it executed the substitution of trustee]; Lundy v. Selene Finance, LP (N.D. Cal. 2016) 2016 WL 1059423, at p. *10-*13 [applying Yvanova to pre-foreclosure plaintiffs who alleged a specific factual basis to bring their claims].)
Wells Fargo now cites to Lucioni to support the proposition that a party lacks standing to file a pre-foreclosure suit to force a foreclosing party to demonstrate its authority to do so.

As previously stated, Plaintiffs’ wrongful foreclosure claim is based on Defendants’ purported violation of Civil Code section 2924, subdivision (a)(6) (“Section 2924(a)(6)”) (FAC, ¶ 54) which provides that: “No agent of the holder of the beneficial interest under the mortgage or deed of trust, original trustee or substituted trustee under the deed of trust may record a notice of default or otherwise commence the foreclosure process except when acting within the scope of authority designated by the holder of the beneficial interest. No entity shall record or cause a notice of default to be recorded or otherwise initiate the foreclosure process unless it is the holder of the beneficial interest under the mortgage or deed of trust, the original trustee or the substituted trustee under the deed of trust, or the designated agent of the holder of the beneficial interest.”

The court in Lucioni expressly held that a “plaintiff may not seek to enjoin a foreclosure based on a claim that the foreclosing party lacked the necessary authority to foreclose” under Section 2924(a)(6) because the Legislature did not authorize injunctive relief under Section 2924(a)(6) as a remedy for a violation of the statute. (Lucioni, supra, 3 Cal.App.5th at pp. 158-159.) Plaintiffs do not address the Lucioni court’s holding; they merely cite a variety of cases, mostly federal, for the proposition they have standing to challenge a foreclosing entity’s authority to foreclose. None of these cases address whether a plaintiff has standing to pursue a wrongful foreclosure claim based on a violation of Section 2924(a)(6) in particular, prior to a foreclosure sale taking place. In light of the Lucioni court’s holding, Plaintiffs lack standing to pursue their wrongful foreclosure claim based on a violation of Section 2924(a)(6) as a foreclosure sale has yet to take place.

Accordingly, the fourth cause of action is not viable. With respect to granting leave to amend, it is the plaintiff’s burden to show in what manner it can amend the complaint and how that amendment will change the legal effect of the pleading. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349; see also Medina v. Safe-Guard Products (2008) 164 Cal.App.4th 105, 112, fn. 8.) While Plaintiffs request leave to amend, they do not demonstrate any manner they can amend the FAC to cure any defects. That being said, it is not clear they cannot allege facts to constitute a cause of action for wrongful foreclosure. As such, the Court is inclined to give Plaintiffs leave to amend because the FAC does not, on its face, foreclose any reasonable possibility of amendment and they have not yet had an opportunity to amend this cause of action on the basis that they lack standing. (See City of Stockton v. Superior Court (2007) 42 Cal.4th 730, 747.)

Based on the foregoing, the motion for judgment on the pleadings as to the fourth cause of action on the ground of failure to state sufficient facts is GRANTED with 10 days’ leave to amend.