Case Number: EC062661    Hearing Date: October 31, 2014    Dept: B

Demurrer and Motion to Strike

The Complaint alleges that the Plaintiff purchased the home with a loan secured by a deed of trust on the property. The Plaintiff has fallen behind on the monthly mortgage payments due to financial hardship and medical expenses. The Plaintiff sought a loan modification, but the first application was denied. While the Plaintiff’s second request was pending, the Defendant sought to sell the Plaintiff’s home.

The Defendant, Seterus, Inc., is the loan servicer and is seeking to sell the Plaintiff’s home in a non-judicial foreclosure.

The First Amended Complaint alleges the following causes of action:
1) Breach of Contract, Third Party Beneficiary
2) Wrongful Foreclosure in Violation of Civil Code section 2923.5
3) Wrongful Foreclosure in Violation of Civil Code section 2923.6
4) Wrongful Foreclosure in Violation of Homeowners’ bill of rights, Civil Code sections 2923.6, 2924.17, and 2924.18
5) Violation of Business and Professions Code section 17200
6) Accounting
7) Declaratory Relief
8) Quiet Title

This hearing concerns Defendant’s demurrer to the complaint.

The Defendant raises a number of arguments before discussing the causes of action.

First, the Defendant argues that the entire Complaint fails because there is a misjoinder of parties. The Defendant argues that Jorge Leal should not be a party. However, Jorge Leal is not a party. He is not named in the caption. He is not named in paragraph 1 of the pleadings, which identify the Plaintiffs. Instead, the caption and the pleadings clearly identify the Plaintiff as the “Jorge T. Leal Trust”, which is appearing through the trustee, Camille Leal. Since Jorge Leal is not a party, this argument does not identify any grounds for a demurrer to any of the causes of action or the entire Complaint.

Second, the Defendant argues that the entire Complaint is defective because the Plaintiffs did not tender the amount due. Under California law, the plaintiff must allege the tender of the amount due to maintain any cause of action for irregularity in the sale procedure. Abdallah v. United Sav. Bank (1996) 43 Cal. App. 4th 1101, 1110 (affirming an order sustaining a demurrer without leave to amend for the failure to plead tender). However, it does not appear that there has been a sale of the property. Accordingly, the tender rule does not apply.

1. First Cause of Action for Breach of Contract, Third Party Beneficiary

The Defendant argues that the Plaintiffs’ lack standing to bring a claim based on the HAMP program. The Plaintiffs’ first cause of action claims that the Defendant breached its servicer participation agreement to provide services under the Home Affordability Modification Program (“HAMP”). The Plaintiffs allege that they qualify for a modification of their home loan and that the Defendant did not conduct a good faith review of their eligibility for HAMP mortgage modification assistance in accordance with the HAMP guidelines. In addition, the Plaintiffs allege that they are third party beneficiaries of the agreement.

As a general rule, parties that benefit from a government contract are assumed to be incidental beneficiaries without standing to sue. Escobedo v. Countrywide Home Loans, Inc., (S.D. Cal. Dec. 15, 2009) 2009 U.S. Dist. LEXIS 117017. Further, the agreement regarding HAMP provides guidelines and do not require to modify all loans that meet the eligibility requirements. Id. Accordingly, qualified borrowers are incidental beneficiaries of HAMP guidelines and do not have standing as third party beneficiaries. Id.

In addition, there is no express or implied private right of action to sue lenders or loan servicers for violation of Home Affordability Modification Program (“HAMP”). Cleveland v. Aurora Loan Servs., LLC (N.D. Cal. May 24, 2011) 2011 U.S. Dist. LEXIS 55168.

The Plaintiffs have no standing to bring a claim that the Defendant breached its government contract to provide HAMP services. The Plaintiffs are incidental beneficiaries of the HAMP guidelines and there is no express or implied cause of action to sue lends for the violation of HAMP.

Therefore, the Court sustains the demurrer to the first cause of action. It is not possible for the Plaintiffs to correct the defect in standing by amendment because they cannot bring a claim against the Defendant for the breach any duties imposed by HAMP. Accordingly, the Court does not grant leave to amend.

2. Demurrers based on Preemption by HOLA

The Defendant argues that the Plaintiff’s claims in the second, third, fourth, and fifth causes of action are preempted by the Home Owners’ Loan Act (“HOLA”).

Congress enacted HOLA to charter savings associations under federal law, at a time when record numbers of home loans were in default and a staggering number of state-chartered savings associations were insolvent. Silvas v. E*Trade Mortg. Corp. (9th Cir. Cal. 2008) 514 F.3d 1001, 1004-1005. HOLA and its following agency regulations are a “radical and comprehensive response to the inadequacies of the existing state system,” and “so pervasive as to leave no room for state regulatory control.” Id. Accordingly, HOLA preempts state laws regulating the lending of federal savings associations. Id.

However, before deciding whether HOLA preempts a claim, the Court must determine whether the Defendant may assert the defense. Marquez v. Wells Fargo Bank, N.A. (N.D., Cal. Sept. 13, 2013) 2013 U.S. Dist. LEXIS 131364. A federally chartered institution or its successor in interest may assert the defense of preemption by HOLA. Id.

The Defendant does not direct the Court to any allegation in the pleadings or to any facts of which the Court may take judicial notice to demonstrate that it is regulated by HOLA or that it may assert the defense of preemption. On page 6, the Defendant asserts that the claim is preempted by HOLA, which is intended to govern “all facets of the operation of financial entities like those sued her by Plaintiff.” The Defendant offers no citations to the pleadings or to any other facts to support this conclusion that HOLA applies to the Defendant.

The Defendant is identified in the pleadings as a loan servicer. There is no manner to determine from the pleadings that the Defendant is regulated by HOLA or that it may assert a defense based on HOLA.

Accordingly, this argument is not grounds for a demurrer to any cause of action in the First Amended Complaint.

3. Demurrer to Second Cause of Action for Wrongful Foreclosure in Violation of Civil Code section 2923.5

The Defendant argues that this cause of action cannot be pleaded because the Plaintiffs’ Complaint discloses that the Plaintiffs engaged in the loan modification process with the Defendant. Civil Code Section 2923.5 requires the mortgagee, beneficiary, or authorized agent to contact the borrower in person or by telephone to assess the borrower’s financial situation and explore options to avoid foreclosure at least 30 days before the filing of a Notice of Default. The requirements of section 2923.5 are narrow, and do not require the lender to have much more than minimal contact with a debtor to assess the debtor’s position and inform them of various options. Mabry v. Superior Court (2010) 185 Cal.App.4th 208, 232.

In the pending case, the Plaintiffs allege in paragraphs 44 that the Plaintiffs have been in contact with the Defendant since May 2012 to explore alternatives to avoid foreclosure, e.g., to seek mortgage loan assistance or work out. Further, the Plaintiffs obtained a trial period plan, but were not able to obtain a permanent loan assistance program. The Plaintiffs allege that they were in communication with the Defendant through this time period to discuss the Trial Period Plan and a forbearance program. These allegations indicate that the Defendant had been in communications with the Plaintiffs to assess the Plaintiffs’ financial situation and to avoid foreclosure.

These allegations contradict the Plaintiffs’ claim that the Defendant violated Civil code section 2923.5. The Plaintiffs admit that they engaged in loan modification discussions with the Defendant. A review of the allegations regarding the entire course of conduct, communications, and contact between the Plaintiffs and the Defendants reveals that the pleadings lack sufficient allegations to demonstrate that the Defendant violated Civil Code section 2923.5.

Therefore, the Court sustains the demurrer to the second cause of action. It does not appear reasonably possible to correct this defect because the Plaintiffs admit that they have been in contact with the Defendant for two years in an effort to avoid foreclosure. Accordingly, the Court does not grant leave to amend.

4. Demurrer to Third Cause of Action for Wrongful Foreclosure in Violation of Civil Code section 2923.6

The Defendant argues that the cause of action does not plead that it violated section 2923.6 because it has no duty to modify the Plaintiff’s loan. Under Civil 2923.6, the Legislature found that a mortgage loan servicer acts in the best interests of all parties in the loan pool or investors in the pooling agreement if the loan servicer offers a loan modification or workout plan. Section 2923.6 imposes no obligations on lenders to modify existing loans; instead, it merely expresses the hope that lenders will offer loan modifications on certain terms. Morrison v. Wachovia Mortg. Corp. (2012) 2012 U.S. Dist. LEXIS 38847, 27-28.

The Plaintiff alleges in paragraph 82 that the Defendant violated section 2923.6 when it incorrectly determined that the Plaintiffs were ineligible for HAMP, i.e., refused to provide them with a loan modification. As noted above, section 2923.6 does not impose a duty on the Defendant to provide a loan modification. The Plaintiffs do not plead sufficient facts to state a claim for violation of section 2923.6.

Therefore, the Court sustains the demurrer to the third cause of action. It does not appear reasonably possible to correct this defect by amendment because Civil Code section 2923.6 does not impose an obligation to modify loans. Accordingly, the Court does not grant leave to amend.

5. Demurrer to Fourth Cause of Action for Wrongful Foreclosure in Violation of Homeowners’ bill of rights, Civil Code sections 2923.6, 2924.17, and 2924.18

The Defendant argues that this cause of action lacks sufficient facts to plead that it violated Civil Code sections 2923.6, 2924.17, and 2924.18.

The Plaintiff seeks relief under the Homeowners Bill of Rights, which is a collection of statutes that became effective on January 1, 2013 and that added new procedures to California’s non-judicial foreclosure proceedings. Civil Code section 2924.12 creates a statutory cause of action to enforce these requirements. If a trustee’s deed upon sale has not been recorded, then a borrower may bring an action for injunctive relief to enjoin a material violation of Civil code sections 2923.55, 2923.6, 2923.7, 2924.9, 2924.10, 2924.11, or 2924.17. If a trustee’s deed upon sale has been recorded, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall be liable to a borrower for actual economic damages pursuant to Section 3281, resulting from a material violation of Section 2923.55, 2923.6, 2923.7, 2924.9, 2924.10, 2924.11, or 2924.17 by that mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent where the violation was not corrected and remedied prior to the recordation of the trustee’s deed upon sale. In addition, section 2924.12 permits the Court to award attorney’s fees to a prevailing borrower. Since this is a statutory claim, the pleadings must state with reasonable particularity the facts supporting the statutory elements of the violation. Khoury v. Maly’s of California, Inc. (1993) 14 Cal. App. 4th 612, 619.

The Plaintiff alleges in paragraph 90 that the Defendant violated section 2923.6 by proceeding with a foreclosure sale while the Plaintiff’s application for a loan modification was under review. Section 2923.6(c) states that if a borrower submits a complete application for a first lien loan modification, the mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or notice of sale, or conduct a trustee’s sale, while the complete first lien loan modification application is pending.

The Plaintiff alleges in paragraph 90 that they submitted complete “financial packages” on June 3, 2013 and March 13, 2014 and that the Defendant proceeded with foreclosure proceedings while the packages were under review. However, a review of the pleadings in the First Amended Complaint reveals that the Plaintiff alleged in another portion of their complaint facts demonstrating that their loan applications were not pending.

In paragraph 91, the Plaintiff alleges that there was an April 18, 2014 letter that denied them of a HAMP consideration. A review of the pleadings reveals that in paragraph 57, the Plaintiff alleges that the Defendant sent them a denial letter on April 18, 2014 and that this letter is attached as untabbed exhibit 5 to their pleadings. A review of the letter in exhibit 5 reveals that the Defendant advised the Plaintiff that the Plaintiff does not qualify for assistance with their loan. Since this indicates that the Plaintiff’s application had been denied and was no longer pending, the allegations in paragraph 57 and the denial letter in exhibit 5 demonstrate that the Defendant did not violated Civil Code section 2923.6 by proceeding with a foreclosure sale.

The Plaintiff then alleges in paragraph 91 that the Defendant violated section 2923.6 by failing to provide them with a full 30-day period to appeal the denial of their application. Section 2923.6(d) states that if the borrower’s application for a first lien loan modification is denied, the borrower shall have at least 30 days from the date of the written denial to appeal the denial and to provide evidence that the mortgage servicer’s determination was in error.

The Plaintiff does not plead any facts to demonstrate that the Defendant did not provide them with a 30-day period to appeal the denial. Instead, the Plaintiff alleges in paragraph 91 that the Defendant offered them a second trial period plan on April 23, 2014. There are no allegations that demonstrate that the Defendant’s offer of a trial period plan barred the Plaintiff from appealing the denial of the application.

Accordingly, there are insufficient allegations in the fourth cause of action to demonstrate that the Defendant had violated Civil Code section 2923.6.

The Plaintiff alleges in paragraph 89 that the Defendant violated Civil Code section 2924.17. Section 2924.17(b) requires a mortgage servicer to ensure that it has reviewed competent and reliable evidence to substantiate the borrower’s default and the right to foreclose, including the borrower’s loan status and loan information.

The Plaintiff alleges in paragraph 89 that the Defendant violated Civil section 2924.17 by failing to inform the Plaintiff about notices of default or trustee’s sales, by seeking additional documents, by intending to proceed with the foreclosure sale, by continuing the trustee’s sale. None of these allegations identify any violation of section 2924.17 because there are no allegations that the Defendant failed to review evidence to substantiate the default and right to foreclosure.

Accordingly, there are insufficient allegations in the fourth cause of action to demonstrate that the Defendant had violated Civil Code section 2923.17.

Civil Code section 2914.18 bars the recording of a notice of default or conducting a trustee’s sale when the borrower’s loan modification is under review or when the borrower is in compliance with the terms of a permanent loan modification or forbearance agreement. As noted above, the Defendant denied the Plaintiff’s application for a loan modification in a letter dated April 18, 2014. The Plaintiff did not plead any facts to demonstrate that the Defendant recorded a notice of default or conducted a trustee’s sale while the application was pending. Further, there are no allegations that demonstrate that the Plaintiff had obtained a permanent loan modification.

Accordingly, there are insufficient allegations in the fourth cause of action to demonstrate that the Defendant had violated Civil Code section 2923.18.

Therefore, the Court sustains the demurrer to the fourth cause of action.

California law imposes the burden on the Plaintiff to demonstrate the manner in which the Plaintiff can amend the pleadings to state the claims against the Defendant. Goodman v. Kennedy (1976) 18 Cal.3d 335, 349. The Plaintiff did not meet this burden because the Plaintiff did not file any opposition to offer any basis to find that the Plaintiff can correct these claims by amendment.

Accordingly, the Court does not grant leave to amend.

6. Demurrer to Fifth Cause of Action for Violation of Business and Professions Code section 17200

The Defendant argues that this cause of action lacks sufficient facts because it relies upon the violation of statutes that were not pleaded in the prior causes of action. The Plaintiff’s fifth cause of action is brought for the violation of Business and Professions Section 17200, which defines unfair competition to be any unlawful, unfair, or fraudulent business practice. In order to plead a claim under Business and Professions Code section 17200, there must be allegations showing an unlawful, unfair, or fraudulent business act or practice. Paulus v. Bob Lynch Ford, Inc. (2006) 139 Cal. App. 4th 659, 676-677. Further, to plead this statutory claim, the pleadings must state with reasonable particularity the facts supporting the statutory elements of the violation. Khoury v. Maly’s of California, Inc. (1993) 14 Cal. App. 4th 612, 619.

Section 17200 “borrows” violations of other laws and treats them as “unlawful” practices independently actionable under the unfair competition law. Smith v. State Farm Mutual Automobile Ins. Co. (2001) 93 Cal. App. 4th 700, 718. When a plaintiff cannot state a claim under the “borrowed” law, the plaintiff cannot state a claim under unfair competition law either. Id.

The Plaintiffs alleges in paragraph 95 that the Defendant violated Civil Code sections 2923.5, 2923.6, 2924.17, and 2924.18. As discussed above, the Plaintiff has not pleaded sufficient facts to demonstrate that the Defendant violated these code sections in the second, third, and fourth causes of action. Accordingly, the Plaintiff does not state a claim for the violation of 17200 based on the claim that the Defendant engaged in unlawful business practices by violating these statutes.

Therefore, the Court sustains the demurrer to the fifth cause of action.

California law imposes the burden on the Plaintiff to demonstrate the manner in which the Plaintiff can amend the pleadings to state the claims against the Defendant. Goodman v. Kennedy (1976) 18 Cal.3d 335, 349. The Plaintiff did not meet this burden because the Plaintiff did not file any opposition to offer any basis to find that the Plaintiff can correct these claims by amendment.

Accordingly, the Court does not grant leave to amend.

7. Demurrer to Sixth Cause of Action for Accounting

The Defendant argues that the Plaintiff has not pleaded sufficient facts because there are no allegations that the Defendant owes the Plaintiff any money. A cause of action for an accounting requires a showing that a relationship exists between the plaintiff and defendant that requires an accounting, and that some balance is due the plaintiff that can only be ascertained by an accounting. Teselle v. McLoughlin (2009) 173 Cal. App. 4th 156, 179.

The Plaintiff alleges in paragraph 101 that the amount of money owed to the Defendant is unknown the Plaintiff. There are no allegations that any amount is due to the Plaintiff. This is insufficient to plead a claim for accounting.

Therefore, the Court sustains the demurrer to the sixth cause of action.

California law imposes the burden on the Plaintiff to demonstrate the manner in which the Plaintiff can amend the pleadings to state the claims against the Defendant. Goodman v. Kennedy (1976) 18 Cal.3d 335, 349. The Plaintiff did not meet this burden because the Plaintiff did not file any opposition to offer any basis to find that the Plaintiff can correct these claims by amendment.

Accordingly, the Court does not grant leave to amend.

8. Demurrer to Seventh Cause of Action for Declaratory Relief

The Defendant argues that this cause of action lacks sufficient facts because it is not based on an actual controversy for which declaratory relief is appropriate.

The Plaintiff alleges in paragraphs 104 and 105 that the Defendant has wrongfully initiated foreclosure proceedings, that an actual controversy exists, and that the Defendant is prohibited from enforcing its right to foreclose on the property.

California law finds that a declaratory relief cause of action cannot be used to determine whether a defendant has the right to foreclose. Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal. App. 4th 1149, 1155-1157. The Court found that such a declaration relief action was not permitted under the statutory scheme and that it would fundamentally undermine the nonjudicial nature of the process and introduce the possibility of lawsuits filed solely for the purpose of delaying valid foreclosures. Id.

In the pending case, the Plaintiff is seeking a determination that the Defendant is prohibited from enforcing its right to foreclose. Since California law does not permit the Plaintiff to bring a declaratory relief action to determine whether the Defendant has the right to foreclose on the property, the Plaintiff’s declaratory relief claim does not plead an actual controversy for which declaratory relief can be sought.

Therefore, the Court sustains the demurrer to the seventh cause of action. It is not possible to correct the defect by amendment because a declaratory relief claim cannot be used to determine whether a defendant has the right to foreclose.

Accordingly, the Court does not grant leave to amend.

9. Demurrer to Eighth Cause of Action for Quiet Title

The Defendant argues that the quiet title cause of action lacks sufficient facts because the Plaintiff did not plead that debt has been paid. Case law requires that the Plaintiff plead that the debt has been satisfied in order to obtain quiet title to the property in the Plaintiff’s name. Aguilar v. Bocci (1974) 39 Cal. App. 3d 475, 477-478 (holding that a party cannot quiet title without satisfying a debt because a cloud upon title will persist until the debt is paid).

The Plaintiff do not plead that the debt secured by the deed of trust on the property has been satisfied. This indicates that the cause of action lacks sufficient facts to plead a claim for quiet title.

Therefore, the Court sustains the demurrer to the eighth cause of action.

California law imposes the burden on the Plaintiff to demonstrate the manner in which the Plaintiff can amend the pleadings to state the claims against the Defendant. Goodman v. Kennedy (1976) 18 Cal.3d 335, 349. The Plaintiff did not meet this burden because the Plaintiff did not file any opposition to offer any basis to find that the Plaintiff can correct these claims by amendment.

Accordingly, the Court does not grant leave to amend.

10. Motion to Strike

The Defendant requested that the Court strike five portions from the First Amended Complaint. In light of the tentative ruling to sustain the demurrers to each cause of action in the First Amended Complaint, the motion to strike is moot and is taken off calendar.