Case Number: KC066303    Hearing Date: July 09, 2014    Dept: O

Melstrom, et al. v. Green Tree Servicing, LLC, et al. (KC066303)

Defendants Greentree Servicing LLC and Federal National Mortgage Association’s DEMURRER TO SECOND AMENDED COMPLAINT

Respondent: Plaintiffs M. and P. Melstrom

TENTATIVE RULING

Defendant Greentree Servicing LLC’s demurrer to second amended complaint is SUSTAINED. As this is plaintiff’s 3rd attempt the court is inclined to sustain without further leave to amend.

JUDICIAL NOTICE is taken of Exhibits A-N. (Ev. Code 451(f) and 452(c), (g) and (h).)

1st CAUSE OF ACTION: PROMISSORY ESTOPPEL:
The elements are: 1) promise; 2) which the promisor should reasonably expect to induce action or forbearance; 3) of a definite and substantial character; 4) on the part of the promisee; 5) induces such action or forbearance; and 5) injustice can be avoided only by enforcement of the promise. (Lange v. Tig Ins. Co. (1998) 68 Cal. App. 4th 1179, 1185; C&K Eng’g Contractors v. Amber Steel Co. (1978) 23 Cal. 3d 1, 6.)

Par. 30 alleges that Defendants “LED PLAINTIFFS TO BELIEVE that their house would not be sold at a foreclosure sale.” Par. 31 alleges that Plaintiffs were promised that they “could move forward” with the short sale if they came out of bankruptcy or got a court order to move forward with the short sale. Par. 32 alleges that “Plaintiffs chose to come out of Bankruptcy in order to receive the approval for the short sale, but Defendants… never review[ed] the short sale documents… and then sold the property.” Par. 35 then alleges that “Green Tree should have reasonably expected PLAINTIFFS TO BELIEVE their home would not be sold.”

Once again, the SAC does not allege that Defendants made the clear promise or specific agreement that they would not sell the home at a foreclosure sale. What is alleged is conduct which “led Plaintiffs to believe” in a certain action. What Plaintiffs subjectively believed, and what was actually promised, are not one and the same. Demurrer is SUSTAINED.

2nd CAUSE OF ACTION: NEGLIGENT MISREPRESENTATION:
The elements of a cause of action for negligent misrepresentation are: (1)The defendant must have made a representation as to a past or existing material fact; (2) the representation must have been untrue; (3) regardless of his actual belief the defendant must have made the representation without any reasonable ground for believing it to be true; (4) the representation must have been made with the intent to induce plaintiff to rely upon it; (5) the plaintiff must have been unaware of the falsity of the representation; he must have acted in reliance upon the truth of the representation and he must have been justified in relying upon the representation; (6) and, finally, as a result of his reliance upon the truth of the representation, the plaintiff must have sustained damage. (Continental Airlines, Inc. v. McDonnell Douglas Corp. (1989) 216 Cal. App. 3d 388, 402.) A plaintiff must allege what was said, by whom, in what manner (i.e. oral or in writing), when, and, in the case of a corporate defendant, under what authority to bind the corporation. (See Goldrich v. Natural Y Surgical Specialties, Inc. (1994) 25 Cal.App.4th 772, 782.)

Par. 37 alleges that “one way in which Defendants made the representation was by repeatedly postponing the schedules sale date of the property, and informing Plaintiffs … that their file was being reviewed.” Such is not a representation, but conduct. Par. 39 alleges that Defendant represented that “in order to go forward with the Short Sale Plaintiff would either have to get a court order approving the sale, or come out of Bankruptcy.” Par. 38 alleges that the representation was not true because Defendant conducted a sale. However, the fact that a sale was conducted does not mean the representation in Par. 37 was untrue. Plaintiff does not allege that Defendant promised “not” to conduct a sale. Further, the claim fails for lack of specificity. Demurrer is SUSTAINED.

3rd – 7th CAUSES OF ACTION:

TENDER:
Tender applies to any cause of action that is based on allegations of wrongful foreclosure or that seeks redress from foreclosure. (Abdallah v. United Sav. Bank (1996) 43 Cal.App.4th 1101, 1109; Arnolds Mgmt. Corp., 158 Cal.App.3d 579; Karlsen v. Gibralter Sav. & Loan Assn. (1974) 15 Cal.App.3d 112, 117.)

The SAC does not allege that Plaintiffs tendered the debt. Further, Plaintiffs’ tender authorities are distinguishable because Plaintiff has not alleged any “inequitable” circumstance or that the foreclosure sale is “void”. (Cedano v. Aurora Loan Services, LLC (9th Cir. BAP 2012) 470 B.R. 522, 530; Onofrio v. Rice (1997) 55 Cal.App.4th 413, 424 – inequitable if challenging the validity of the underlying debt; Stockton v. Newman (1957) 148 Cal.App.2d 558, 564 – inequitable if Plaintiff claims an offset; Glaski v. Bank of America (2013) 218 Cal. App. 4th 1079 – sale may be void based on New York trust law. [Plaintiffs’ loan is owned by Fannie Mae].)

Further, where a mortgagee or trustee makes an unauthorized sale under a power of sale he and his principal are liable to the mortgagor for the VALUE OF THE PROPERTY AT THE TIME OF THE SALE IN EXCESS OF THE MORTGAGES AND LIENS against said property. (Munger v. Moore (1970) 11 Cal. App. 3d 1, 11.) Here, Plaintiffs admit they have no equity in the property because they were pursuing a short sale. Therefore, the 4th cause of action additionally fails to allege monetary damages.

STANDING:
“Civ. Code, § 2924, subd. (a)(1), states that a trustee, mortgagee, or beneficiary, or any of their authorized agents may initiate the foreclosure process… nowhere does the statute provide for a judicial action to determine whether the person initiating the foreclosure process is indeed authorized, and the court sees no ground for implying such an action.” (Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149.)

Jenkins v. JP Morgan Chase Bank, N.A. held, “Because a promissory note is a negotiable instrument, a borrower must anticipate it can and might be transferred to another creditor. An assignment merely substitutes one creditor for another, without changing the borrower’s obligations under the note…. Because a deed of trust does not convey a power of sale directly to the beneficiary-creditor, it is immaterial whether an assignment of a promissory note was properly acknowledged and recorded when a deed of trust is used to secure a debt… The transferee of a promissory note secured by a deed of trust is not a mortgagee, or other encumbrancer to whom a power of sale is given within the meaning of Civ. Code, § 2932.5, and such a transferee need not have a duly acknowledged and recorded interest in the promissory note before exercising the power of sale. (Jenkins v. JP Morgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 515-519.) “[T]he relevant parties to such a transaction were the holders (transferors) of the promissory note and the third party acquirers (transferees) of the note.” (Id. at 515.) “As an unrelated third party to the alleged securitization, and any other subsequent transfers of the beneficial interest under the promissory note, [plaintiff] lacks standing to enforce any agreements, including the investment trust’s pooling and servicing agreement, relating to such transactions.” (Ibid.) Plaintiffs would not be the victims of such invalid transfers because their obligations under the note remained unchanged. “Instead, the true victim may be an individual or entity that believes it has a present beneficial interest in the promissory note and may suffer the unauthorized loss of its interest in the note. It is also possible to imagine one or many invalid transfers of the promissory note may cause a string of civil lawsuits between transferors and transferees.” (Ibid.) But plaintiff “may not assume the theoretical claims of hypothetical transferors and transferees” to assert causes of action for declaratory relief or wrongful foreclosure. (See also Yvanova v. New Century Mortgage Corp. (2014) 226 Cal. App. 4th 495 and Keshtgar v. U.S. Blank, N.A. (2014) 226 Cal.App.4th 1201.)

Further, Plaintiffs’ reliance on Glaski v. Bank of America (2013) 218 Cal. App. 4th 1079 is misplaced. Glaski has been routinely rejected by California courts. “Glaski’s reasoning relies on two federal Court of Appeals cases interpreting the law of other jurisdictions and an unpublished federal district court case. California cases hold, however, that even in postforeclosure actions a borrower lacks standing to challenge an assignment absent a showing of prejudice. (Siliga v. Mortgage Electronic Registration Systems, Inc. (2013) 219 Cal.App.4th 75, 86; Herrera v. Federal National Mortgage Assn. (2012) 205 Cal.App.4th 1495, 1507; Fontenot v. Wells Fargo Bank, N.A., supra, 198 Cal.App.4th at p. 271.) Siliga states: “[T]he Siligas fail to allege any facts showing that they suffered prejudice as a result of any lack of authority of the parties participating in the foreclosure process. The Siligas do not dispute that they are in default under the note. The assignment of the deed of trust and the note did not change the Siligas’ obligations under the note, and there is no reason to believe that Accredited as the original lender would have refrained from foreclose in these circumstances. Absent any prejudice, the Siligas have no standing to complain about any alleged lack of authority or defective assignment.” (Keshtgar v. U.S. Blank, N.A. (2014) 226 Cal.App.4th 1201 citing Siliga, supra, at p. 85.) Borrowers must allege and show prejudice as to claims of the lack of authority to transfer a promissory note. (Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 272 – noting that it is difficult to conceive how borrowers could show prejudice from an unauthorized transfer, because borrowers must anticipate the legal possibility of note transfers to different creditors, defaults in payments on the note cause any prejudice via foreclosure, and original lenders would be the ones prejudiced by an unauthorized loss.)

Plaintiffs did not suffer any prejudice resulting from any alleged defective transfer. Plaintiffs are not attacking the validity of the debt and admit that they defaulted on their loan. Instead, they attack the securitization process and lack of Defendants’ authority to foreclose. However, based on the authorities above, Plaintiffs lack standing to challenge the securitization process, and the SAC fails to allege any prejudice.

Additionally, the 3rd cause of action for Quiet Title claim fails because Green Tree does not claim any interest, let alone an adverse interest in the property. (See CCP 761.020(c) – The adverse claims to the title of the plaintiff against which a determination is sought.)

Demurrer is SUSTAINED.

8th CAUSE OF ACTION: VIOLATION OF B&P 17200:
The Unfair Business Practices Act shall include “any unlawful, unfair, or fraudulent business act or practice.” (B&P Code 17200.) A plaintiff alleging unfair business practices under these statutes 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.)

“To satisfy the narrower STANDING requirements imposed by Proposition 64, a party must now (1) establish a loss or deprivation of money or property sufficient to qualify as injury in fact, i.e., economic injury, and (2) show that the economic injury was the result of, i.e., caused by, the unfair business practice or false advertising that is the gravamen of the claim.… A plaintiff fails to satisfy the causation prong of the statute if he or she would have suffered “the same harm whether or not a defendant complied with the law.” … Jenkins’s third cause of action must also satisfy the second prong of the standing requirements under Business and Professions Code section 17204 (i.e., causation), which REQUIRED HER TO PLEAD A CAUSAL LINK BETWEEN HER ECONOMIC INJURY, THE IMPENDING NONJUDICIAL FORECLOSURE OF HER HOME, and the six unfair or unlawful acts allegedly committed by Defendants. (Bus. & Prof. Code, § 17204.) Importantly, Jenkins admits in both her SAC and opening brief that she defaulted on her loan. IT IS ALSO INDISPUTABLE JENKINS’S DEFAULT TRIGGERED THE LAWFUL ENFORCEMENT OF THE POWER OF SALE CLAUSE in the deed of trust, and it was the triggering of the power of sale clause that subjected Jenkins’s home to nonjudicial foreclosure…. As Jenkins’s home was subject to nonjudicial foreclosure because of Jenkins’s default on her loan, which occurred before Defendants’ alleged wrongful acts, Jenkins cannot assert the impending foreclosure of her home (i.e., her alleged economic injury) was caused by Defendants’ wrongful actions. Thus, even if we assume Jenkins’s third cause of action alleges facts indicating Defendants’ actions violated at least one of the UCL’s three unfair competition prongs (unlawful, unfair, or fraudulent), Jenkins’s SAC cannot show any of the alleged violations have a causal link to her economic injury.” (Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal. App. 4th 497, 521.)

Plaintiffs lack standing to pursue a B&P 17200 claim because they admit they defaulted on their loan, which triggered foreclosure proceedings. Any wrongful conduct on the part of Defendant occurred after the default. Thus, Plaintiffs cannot show the unfair business practice has a causal link to Plaintiffs’ economic injury. Demurrer is SUSTAINED.