Case Number: VC063282 Hearing Date: June 24, 2014 Dept: SEC

YOUNG v. WELLS FARGO HOME MORTGAGE, INC.
CASE NO.: VC063282
HEARING: 06/24/14

#3
TENTATIVE ORDER

Defendant WELLS FARGO BANK, N.A.’s demurrer to the First Amended Complaint is SUSTAINED WITHOUT LEAVE TO AMEND as to the 1st (lack of standing), 5th (unjust enrichment), 6th (quiet title), 7th (negligence) and 8th (declaratory relief) causes of action; and SUSTAINED WITH 15 DAYS LEAVE TO AMEND as to the 2nd (negligent misrepresentation), 3rd (violation of section 2923.5), 4th (breach of contract), 9th (unfair business practices) and 10th (violation of HBOR) causes of action. C.C.P. § 430.10(e).

Judicial Notice
Defendant’s Request for Judicial Notice is GRANTED. Evid. Code §§ 452, 453. Plaintiffs’ objection to the request (based on hearsay) is OVERRULED, as defendant is not seeking judicial notice of the truth of the matters stated in the official documents, but simply their existence. Courts properly take judicial notice of legally operative documents (e.g., recorded deed of trust, recorded assignment, and notice of trustee sale), where the complainant alleges no facts inferring a contrary conclusion. Intengan v. BAC Home Loans Servicing, LP (2013) 214 Cal.App.4th 1047, 1054.

Procedural notes
This action, arising out of plaintiff MICHAEL YOUNG and JANICE YOUNG’s mortgage loan and subsequent foreclosure activity, was filed in this Court in July 2013. Defendant Wells Fargo filed a Removal to Federal Court in August 2013. The pleading was the subject of two Motions to Dismiss, the last of which was directed at the Second Amended Complaint and granted with respect to plaintiff’s RESPA claim, the sole cause of action alleged. The matter was thereafter remanded for resolution of the remainder of the causes of action brought under state law.

Generally, an amended pleading supercedes those before it. The SAC, which was filed upon the federal court’s order granting plaintiffs leave to amend, only asserted a RESPA claim. That claim was dismissed. It appears that the parties (and the federal court, by remanding the action) contemplated that the First Amended Complaint remains a viable pleading with respect to the state law claims. The Court here, for purposes of clarity, will deem the FAC the operative pleading (with the 11th cause of action for violation of RESPA stricken). The FAC is attached as Exhibit J to defendant’s Request for Judicial Notice.

The amended pleading, if plaintiffs elect to file one, should be labeled the “Third Amended Complaint,” so as to avoid any confusion with the prior pleadings filed in federal court.

First Amended Complaint
As alleged, in February 2007, plaintiffs obtained a mortgage loan in the amount of $388,000 secured by a Deed of Trust on certain residential real property. FAC, ¶¶8, 9. The loan was obtained through defendant Wells Fargo’s predecessor, and defendant owned the mortgage beginning in March 2010. ¶¶8, 13.

The allegation regarding the first loan modification offer is unclear. See ¶11.

Plaintiffs allege they were again offered a loan modification in June 2009. Although the interest rate was only 4.5-6.5%, they allege the modification was in “bad faith” because the payments were too high based on their income. ¶12.

In March 2012, plaintiffs submitted another loan modification application. FAC, ¶15. They had to resubmit the paperwork a few weeks later and provide additional documents. Ultimately, in June 2012, plaintiffs received notice that the application was denied because of insufficient documentation. ¶19. The next day, plaintiffs received a “Notice of Intent to Foreclose.” ¶20. In December 2012, plaintiffs filed a case against defendant but subsequently dismissed the action without prejudice, in hopes to negotiate a good faith modification. ¶¶23, 24.

In June 2013, defendant offered plaintiffs a loan modification which plaintiffs allege was not within HAMP guidelines. FAC, ¶26. They further allege it was in bad faith because defendant knew plaintiffs could not afford the payments.

The pleading does not contain any facts regarding the current status of the loan and/or defendant’s efforts to foreclose. For that reason, the pleading is fundamentally deficient.

Defendant demurs to each of the causes of action alleged.

Preemption
Defendant demurs on the ground that the claims are preempted by the Home Owners’ Loan Act (“HOLA”). See 12 U.S.C. § 1464(e); Bank of America v. City and County of San Fran. (9th Cir. 2002) 309 F.3d 558. Federal savings banks are regulated by the Office of Thrift Supervision (“OTS”) and its regulations are said to preempt “any state law purporting to address the subject of the operations of a federal savings association.” 12 C.F.R. § 545.2.

The Home Owners Loan Act of 1933 (HOLA) “preempts state laws relating to ‘processing, origination, servicing, sale or purchase of, or investment or participation in mortgages’”, including some nondisclosures and misrepresentations regarding mortgage loans, but does not include general law applied to the particular allegations that fall outside the scope of 12 C.F.R. Section 560.2. Biggins v. Wells Fargo & Co. (N.D.Cal. 2009) 2009 WL 2246199, 15 (quoting 12 C.F.R. §560(b)(10)). As far as can be ascertained from the FAC, plaintiffs’ claims generally fall outside the scope of HOLA and are thus not preempted. See also Akopyan v. Wells Fargo Home Mortgage, Inc. (2013) 215 Cal.App.4th 120. To the extent plaintiffs allege improper securitization and/or assignment of the debt, the claims can be dispensed of under substantive state law.

1st—lack of standing
Plaintiff alleges that at the time the Notice of Default was recorded, the promissory note was securitized and split from the Deed of Trust. They contend that defendant did not have a valid assignment and thus lacked standing to issue a NOD. As noted above, none of the facts surrounding default are alleged. None of the relevant documents are attached to the pleading.

The Court notes, however, that plaintiffs’ reliance on Glaski v. Bank of America as providing legal support for their securitization claims is misplaced. See Yvanova v. New Century Mort. Corp. (April 25, 2014) 2014 Cal.App.LEXIS 448; Keshtgar v. U.S. Bank, N.A (June 9, 2014) 2014 Cal.App.LEXIS 498.

As was held in Gomez v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, a borrower cannot properly challenge the authority of the entity initiating foreclosure. The demurrer to the 1st cause of action is sustained without leave to amend.

2nd—negligent misrepresentation
Plaintiffs allege that defendant misrepresented “that they would not qualify for any other loan modification and that they must accept the modification that they (sic) presented.” FAC, ¶35. There are no facts set forth explaining how that statement is untrue, as a defendant lender has no duty to offer a modification at all. Stebley v. Litton Loan Servicing, LLP (2011) 202 Cal.App.4th 522, 526.

Plaintiffs also fail to allege who made the statements, or when and how they were communicated. See Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153 (holding that fraud claims must be pled with specificity).

The Court will allow plaintiff to amend that cause of action, to allege specific facts supporting each element of a misrepresentation claim (including causation).

3rd—violation of C.C. § 2923.5
Plaintiff contends the statute was violated because defendant failed to explore loan modification alternatives prior to initiating foreclosure, in violation of section 2923.5. That claim is uncertain, in light of the allegations that plaintiffs were offered loan modifications.

The Court cannot ascertain whether defendant complied with the statute because the underlying facts are not alleged with clarity. Plaintiffs’ amended pleading should include (at the very least) dates regarding their default, when they contacted the bank and when the NOD was recorded.

4th—breach of contract
A party alleging breach of written contract must attach the agreement or set forth the terms verbatim. Otworth v. Southern Pac. Transportation Co. (1985) 166 Cal.App.3d 452.

Here, plaintiffs do not identify the contract or what specific provision was breached, nor is the document attached to the pleading. None of the facts surrounding plaintiff’s performance are alleged, nor are the specifics of defendant’s alleged breach. Leave to amend is granted.

5th—unjust enrichment
Plaintiffs allege that defendant has been unjustly enriched by its receipt of payments on the Note, and that such enrichment is “unjust” because it has no right or interest in the property. The allegations and the facts which can be gleaned from the documents subject to judicial notice suggest otherwise. It does not appear that plaintiffs will be able to amend the pleading to state an equitable claim for relief. The demurrer is thus sustained without leave to amend.

6th—quiet title
Plaintiffs have not alleged a good faith ability to tender the amount owed, nor any facts implicating an exception to the tender rule. See Mabry v. Aurora Loan Services (2010) 185 Cal.App.4th 208; Lona v. Citibank, N.A. (2011) 202 Cal.App.4th 89. It does not appear that there is any factual basis to quiet title in plaintiffs’ favor, and thus no reasonable possibility that the pleading can be amended.

7th—negligence
Lenders do not have a common-law duty of care in negligence, to offer, consider, or approve a loan modification, to offer foreclosure alternatives, or to handle loans so as to prevent foreclosure. Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal. App. 4th 49, 68; see also Nymark v. Heart Fed. Savings & Loan Ass’n (1991) 231 Cal.App.3d 1089. Notwithstanding plaintiffs’ allegations at paragraph 77, listing the factors to determine the existence of a duty, they have not alleged any facts suggesting that defendant acted in a capacity other than its conventional role as a lender. The demurrer to the negligence cause of action is sustained without leave to amend.
8th—declaratory relief
Plaintiffs seek a declaration that defendants have no right to foreclose. There is no authority providing for a homeowner’s court action seeking a presale determination as to whether the party initiating foreclosure was authorized to do so. Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1154. Plaintiffs have not stated a legal basis for the challenge. The demurrer is sustained without leave to amend.

9th—unfair business practices
Plaintiffs rely on their substantive allegations to support their claim for “unlawful deceit,” in violation of Business and Professions Code section 17200 et seq. FAC, ¶88. It is unclear whether plaintiffs will be able to amend the pleading to allege a recoverable, economic injury caused by defendant’s wrongful actions. See Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 521. Because plaintiffs have been granted leave to amend some of their causes of action, the Court will allow them a chance to re-allege the unfair business practices claim.

10th—violation of HBOR
Plaintiffs allege a laundry list of violations of the statutory scheme, including robo-signing, dual tracking, failing to provide a single point of contact, etc. Some of the claims—such as wrongful assignment and recordation—are invalid as a matter of law. Others, however, may be actionable. As the Court has noted herein, plaintiffs have failed to set forth the underlying facts with respect to their non-performance, their efforts to modify and defendant’s failure to comply with the statutory duty. It is not enough to list the various statutes and recite the language. Plaintiffs are required to allege to specific facts supportive of the alleged violations.

Additionally, as noted by defendant, the HBOR did not become effective until January 1, 2013 and has not been applied retroactively. McGough v. Wells Fargo Bank, N.A. (N.D. Cal. 2012) 2012 U.S. Dist. LEXIS 151737. Any alleged violation must pertain to conduct after the date the statute went into effect.

Leave to amend is granted.