Case Name: Lawrence J. Hoffart, et al. v. U.S. Bank, N.A., et al.
Case No.: 2014-1-CV-264279

Currently before the Court is defendants U.S. Bank, N.A. (“US Bank”) and JPMorgan Chase Bank, N.A.’s (“Chase”) (collectively, “Defendants”) motion for summary judgment or, in the alternative, summary adjudication of each cause of action in the first amended complaint (“FAC”) of plaintiffs Lawrence J. Hoffart and Sandra M. Hoffart (collectively, “Plaintiffs”).

I. Factual and Procedural Background

On April 24, 2014, Plaintiffs filed this action, asserting claims against Defendants for: (1) cancellation of instruments pursuant to Civil Code section 3412; (2) violation of Business and Professions Code section 17200, et seq.; (3) violation of Civil Code section 2924, subdivisions (a)(6) and (f)(3); (4) declaratory relief; (5) negligence; (6) violation of Civil Code sections 2924.17; and (7) violation of Civil Code sections 2923.5 and 2923.55.

On June 17, 2014, Defendants demurred to each cause of action in the complaint on the ground of failure to state sufficient facts to constitute a cause of action. The demurrer was overruled as to the first through fourth and seventh causes of action and otherwise sustained.

On September 8, 2014, Plaintiffs filed the operative FAC against Defendants, asserting five causes of action for: (1) cancellation of instruments; (2) violation of Business and Professions Code section 17200 (the “UCL”); (3) violation of Civil Code sections 2923, subdivisions (a)(6) and (f)(3); (4) declaratory relief; and (5) violation of Civil Code sections 2923.5 and 2923.55.

In the FAC, Plaintiffs allege the following: Plaintiffs are the owners of certain real property located at 15318 Elm Park, Monte Sereno, CA 95030 (the “Property”). (FAC, ¶ 2.) In August 2005, Plaintiffs refinanced a residential loan with non-party Washington Mutual (“WaMu”). (FAC, ¶ 12.) In connection with the refinance, Plaintiffs executed a note and deed of trust (“DOT”), identifying WAMU as the lender and beneficiary of the agreements. (FAC, ¶¶ 15-16.) Sometime thereafter, the note was sold to an investment trust subject to a pooling and servicing agreement. (FAC, ¶ 17.) As a result, WaMu relinquished its interest in the note. (FAC, ¶ 17.) Though Chase purchased many of WaMu’s assets after they were seized by the Federal Deposit Insurance Corporation (“FDIC”), the instant loan was not transferred because WaMu previously relinquished its interest in the note. (FAC, ¶ 30.)

In May 2012, Chase recorded a corporate assignment of deed of trust executed by its Vice-President, Melissa Riley (“Riley”), which transferred the DOT to US Bank. (FAC, ¶ 43.) The assignment is invalid because: (1) Chase had no interest in the underlying note; (2) Riley is not an officer of Chase and her signature is forged; and (3) the FDIC did not record an assignment of the note to Chase. (FAC, ¶ 44.) On June 15, 2012, Chase caused a notice of default (“NOD”) to be recorded. (FAC, ¶ 20.) The NOD is void because Chase never contacted Plaintiffs to explore options to avoid foreclosure. (FAC, ¶21.)

On February 18, 2016, Defendants filed the instant motion for summary judgment or, in the alternative, summary adjudication of each cause of action in the FAC. Plaintiffs filed their opposition on April 21, 2016. On April 28, 2016, Defendants filed their reply.

II. Summary of Evidence Submitted

A. Defendants’ Evidence

In support of its motion, Defendants principally rely on the declaration Chase employee, Joseph G. Devine, Jr. (“Devine”) as well as the attachments thereto.

In his declaration, Devine states the following: (1) he is familiar with the manner in which Chase maintains its records in the ordinary course of business; (2) Chase possesses the underlying note memorializing the subject loan as well as the DOT; (3) the note bears a blank endorsement; (4) WaMu entered into a pooling and servicing agreement (“PSA”) whereby WaMu retained the servicing rights of the subject loan; (4) on September 25, 2008, Chase acquired certain assets and loan servicing rights from WaMu, including the servicing rights of the subject loan, via the FDIC; (5) on April 20, 2012, a corporate assignment of deed of trust was executed, evidencing the assignment of the DOT to US Bank; (6) based on his review of Chase’s records, Riley was a Vice-President with Chase and had the authority to sign the Corporate Assignment of Deed of Trust; (7) U.S. Bank is the current beneficiary of the Deed of Trust and Chase is the loan servicer; (8) the NOD was recorded on June 15, 2012, which included a declaration of compliance with Civil Code section 2923.5; (9) prior to recording the NOD, Chase contacted Plaintiffs regarding the failure to make payments as required by the Note and provided resources and options for Plaintiffs to explore in order to avoid foreclosure; (10) Chase has records indicating that it made numerous telephone calls to Plaintiffs prior to the recordation of the NOD, including an in-person interaction with plaintiff Lawrence Hoffart on January 9, 2012; and (11) Plaintiffs’ payment history indicates that Plaintiffs continued making payments until October 2011.

In addition, Devine states that he has attached the following nine exhibits to his declaration: (A) the adjustable rate note memorializing the loan; (B) the DOT; (C) the PSA; (D) the purchase and assumption agreement between Chase and the FDIC; (E) a default document and exception report for the loan; (F) the corporate assignment of deed of trust; (G) the NOD; (H) correspondence between Chase and Plaintiffs; and (I) Chase’s notes relating to the subject loan. However, Exhibits A through I are not attached to Devine’s declaration and a review of the Court’s records indicate that no such exhibits were filed in connection with this motion.

B. Plaintiffs’ Evidence

In opposition to the motion, Plaintiffs submit the information provided by non-party Select Portfolio Servicing, Inc. (“SPS”) in response to a qualified written request. In particular, SPS’s response states that it is Plaintiffs’ current loan servicer and provides a copy of the promissory note. (Estavillo Decl., ¶¶ 4-5.)

III. Evidentiary Objections

Plaintiffs assert several objections to the evidence submitted in support of Defendants’ motion. These objections do not comply with the California Rules of Court because Plaintiffs did not submit a proposed order. (See Cal. Rules of Court, rule 3.1354 (c).) Accordingly, Plaintiffs are not entitled to a ruling on their objections. (See Hodjat v. State Farm Mut. Auto. Ins. Co. (2012) 211 Cal.App.4th 1, 8 [finding that a court has no obligation to rule on written objections that do not comply with California Rules of Court, rule 3.1354].)

IV. Discussion

Defendants move for summary judgment or, in the alternative, summary adjudication of the first, second, third, fourth, and fifth causes of action for cancellation of instruments, violation of the UCL, violation of Civil Code sections 2923, subdivisions (a)(6) and (f)(3), declaratory relief, and violation of Civil Code sections 2923.5 and 2923.55 on the ground that the action has no merit. (Code Civ. Proc., § 437c, subds. (a)(1), (f)(1).)

A. First Cause of Action

The first cause of action is for cancellation of instruments. With respect to this cause of action, Plaintiffs allege that the assignment of the DOT, notice of default, substitution of trustee, and notice of trustee’s sale are void because WaMu never sold the underlying note to Chase; (2) there is no recorded assignment of the DOT from WaMu to Chase; and (3) Riley never had the authority to execute the assignment and/or her signature was forged. (FAC, ¶¶ 44, 47.)

Defendants asserts that the first cause of action for cancellation of instruments fails on the following bases: (1) Chase possesses the blank-endorsed note and original DOT; (2) the instruments at issue are not void because Chase received the servicing rights to the loan from WaMu, Riley had the authority to execute the assignment of the DOT, and no recorded assignment from WaMu to Chase is necessary; and (3) Plaintiffs cannot show any prejudice caused by the allegedly unlawful assignment.

1. Possession of Blank-Endorsed Note

Defendants contend that, even if the assignment of the DOT, notice of default, substitution of trustee, and notice of trustee’s sale are void, they could not cause serious injury to Plaintiffs because Chase has the right to enforce the note based on its possession of the original blank-endorsed note and DOT. (See Civ. Code, § 3412 [stating that an element of a cause of action for cancellation of an instrument is “a reasonable apprehension that if left outstanding it may cause serious injury”].)

A promissory note secured by a deed of trust in real property is considered a negotiable instrument enforceable under the California Uniform Commercial Code (“CUCC”). (In re Smith (Bankr. N.D. Cal. 2014) 509 B.R. 260, 265-266; see also Yvanova v. New Century Mortg. Corp. (2016) 62 Cal.4th 919, 927 [stating that a promissory note secured by a deed of trust is a negotiable instrument].) If the holder of a note identifies a person to whom the note is payable by executing a special indorsement, the note may be negotiated only by the endorsement of that person. (CUCC, § 3205, subd. (a).) On the other hand, if the holder indorses the note in blank, the note becomes payable to the possessor of the note. (CUCC, § 3205, subd. (b).) Since a deed of trust is inseparable from the note it secures, the holder of a note or the possessor of a note in blank may initiate a nonjudicial foreclosure. (In re Smith (Bankr. N.D. Cal. 2014) 509 B.R. 260, 269; see also Yvanova v. New Century Mortg. Corp. (2016) 62 Cal.4th 919, 927 [stating that the deed of trust is inseparable from the note it secures and follows it without a separate assignment].)

Defendants, however, fail to submit evidence indicating that they possess the subject note in blank. As previously discussed, Defendants appear to have inadvertently omitted the note from their evidentiary submission in support of this motion. Accordingly, Defendants fail to demonstrate that the assignment of the DOT, notice of default, substitution of trustee, and notice of trustee’s sale could not cause Plaintiffs serious injury on this basis.

2. Instruments Not Void

Defendants argue that the assignment of the DOT, notice of default, substitution of trustee, and notice of trustee’s sale are not void because Riley had the authority to execute the assignment of the DOT, no recorded assignment of the note from WaMu to Chase is necessary, and Chase received the servicing rights to the note from WaMu. (See Civ. Code, § 3412 [stating that an element of a cause of action for cancellation of an instrument is that the instruments are void or voidable].)

With respect to Riley’s authority to execute the assignment of the DOT, Defendants submit evidence that Riley was a Chase Vice-President and, therefore, was authorized to execute the assignment on Chase’s behalf. (Devine Decl., ¶ 9.) Accordingly, Defendants meet their initial burden of demonstrating that the assignment was not void on this basis.

With regard to the absence of a recorded assignment of the note from WaMu to Chase, there is no requirement that an assignment of the beneficial interest in a debt secured by real property must be recorded in order for the assignee to institute a non-judicial foreclosure pursuant to a deed of trust. (Calvo v. HSBC Bank USA, N.A. (2011) 199 Cal.App.4th 118, 122.) Accordingly, Defendants meet their initial burden of demonstrating that the assignment was not void on this basis.

With respect to Defendants’ final argument, that Chase received the servicing rights to the loan from WaMu, Defendants attempt to meet their initial burden by relying on the PSA and the purchase and assumption agreement between Chase and the FDIC. However, as previously discussed, Defendants appear to have inadvertently omitted these two agreements from their evidentiary submission in support of this motion. Accordingly, Defendants fail to demonstrate that Chase received the servicing rights to the loan from WaMu. As such, they likewise fail to demonstrate that the instruments in question are not void. Accordingly, summary judgment is not warranted on this basis.

3. Absence of Prejudice

Defendants contend that the instruments in question could not cause Plaintiffs prejudice because they cannot establish that the actual owner of the note would have refrained from instituting a nonjudicial foreclosure. In this respect, they rely exclusively on Fontenot v. Wells Fargo Bank (2011) 198 Cal.App.4th 256, 272. In that case, the Court of Appeal found that a plaintiff could not allege a cause of action for wrongful foreclosure based on irregularities in the assignment of her promissory note. The court found that the plaintiff must allege that the transfer of the note “interfered … with her payment of the note” or that “the original lender would have refrained from foreclosure under the circumstances presented.” (Ibid.) In Yvanova, supra, the California Supreme Court specifically disapproved of this pleading requirement, finding that a borrower has a cognizable interest in the identity of the party enforcing his or her debt because “[t]he borrower owes money to the world at large but to a particular person or institution, and only the person or institution entitled to payment may enforce the debt by foreclosing on the security.” (Yvanova, supra, 62 Cal.4th at pp. 937-938.) Accordingly, Defendants’ reliance on Fontenot, supra, is misplaced.

In any event, Defendants merely assert that Plaintiffs cannot establish the actual owner of the note would have refrained from instituting a nonjudicial foreclosure without presenting any supporting evidence. Therefore, it fails to meet its initial burden of production. (See Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 854 [stating that “[s]ummary judgment law in this state, however, continues to require a defendant moving for summary judgment to present evidence, and not simply point out that the plaintiff does not possess, and cannot reasonably obtain, needed evidence”].)

4. Conclusion

In sum, Defendants do not meet their initial burden of demonstrating that the first cause of action lacks merit.

B. Second through Fourth Causes of Action

The second through fourth causes of action are for violation of the UCL, violation of Civil Code sections 2923, subdivisions (a)(6) and (f)(3) and declaratory relief. Defendants argue that Plaintiffs cannot maintain the second through fourth causes of action because they are derivative of Plaintiffs’ first cause of action for cancellation of instruments, which has no merit. This argument is not well-taken because Defendants fail to demonstrate that summary adjudication of the first cause of action is warranted. Since Defendants do not otherwise contend that these causes of action lack merit, they are not subject to summary adjudication.

C. Fifth Cause of Action

The fifth cause of action is for violation of Civil Code sections 2923.5 and 2923.55, which require a lender to contact, or attempt to contact, a borrower to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure at least 30 days prior to the filing of a notice of default.

Defendants first contend that Plaintiffs did not state sufficient facts to constitute a cause of action for the violation of these sections. The Court previously rejected this same argument in its ruling on the demurrer, and Defendants do not provide any additional argument or authority of their position. Accordingly, Defendants fail to demonstrate that summary adjudication is warranted on this basis.

Next, Defendants argue that Chase complied with Civil Code sections 2923.5 and 2923.55 by sending letters and contacting Plaintiffs via telephone to discuss their financial situation and explore options to avoid foreclosure. In support of this argument, Defendants rely on its notes relating to the loan as well as letters it sent to Plaintiffs. However, as previously indicated, Defendants appear to have inadvertently omitted these notes and letters from their evidentiary submission in support of this motion. As such, Defendants fail to demonstrate compliance with Civil Code sections 2923.5 and 2923.55 on this basis.

Finally, Defendants argue that summary adjudication is warranted because the foreclosure sale was postponed and the parties have subsequently discussed Plaintiffs’ financial situation and explored options to avoid foreclosure. (See Mabry v. Superior Court (2010) 185 Cal.App.4th 208, 235 [stating that the only remedy under Civ. Code, §§ 2923.5 and 2923.55 is the postponement of the sale until the lender complies].) This argument is not well-taken because Defendants submit no evidence indicating that they complied with these statutes or that the foreclosure sale was postponed. (See Aguilar, supra, 25 Cal.4th at p. 854.) Accordingly, Defendants fail to demonstrate compliance with Civil Code sections 2923.5 and 2923.55 on this basis.

D. Conclusion

In light of the foregoing, Defendants’ motion for summary judgment or, in the alternative, summary adjudication of each cause of action in the FAC, is DENIED.