Case Number: BC551129    Hearing Date: August 19, 2014    Dept: 82

Paul Galuppo
v.
PennyMac Loan Services, LLC; NDEX West, LLC; and Does 1 through 100, inclusive.

Tentative Decision on OSC re PI: Denied

Plaintiff Paul Galuppo (“Galuppo”) seeks a preliminary injunction ordering Defendants PennyMac Loan Services, LLC (“PennyMac”) and NDEX West LLC (“NDEX”) to halt and cancel all foreclosure activity against Plaintiff’s property located at 165 N. Swall Drive, Beverly Hills, California 90211 (the “subject property”). After reading and considering the parties’ papers and the case file, the Court renders the following decision:

Request for Judicial Notice

The Court grants Defendant PennyMac’s unopposed request for judicial notice of Exhibits 1, 3, 4, 11, and 12 under Evidence Code section 452(h). The Court also grants Defendant’s unopposed requests for judicial notice of Exhibits 5 through 10 under Evidence Code section 452 (d). The Court denies Defendant’s request for judicial notice of the United States Attorney’s Press Release issued on May 5, 2008.

Statement of the Case

On April 21, 2008, Plaintiff borrowed $417,000 from Wells Fargo Bank, N.A. (“Wells Fargo”). (RJN, Exhibit 1). On May 5, 2008, Plaintiff executed a Deed of Trust, which originated with Wells Fargo, securing a first position mortgage against the subject property. (RJN, Exhibit 1; Galuppo Decl., ¶ 5).

Plaintiff stopped making mortgage payments on November 1, 2010. (Serrano Decl., ¶ 9). On November 26, 2010, a person named Alan Tikal executed, and later recorded, a Substitution of Trustee and Full Reconveyance (“Tikal Reconveyance”), purporting to substitute himself as the beneficiary and trustee under Plaintiff’s Deed of Trust in place of Fidelity National Title Insurance Company. (RJN, Exhibit 3). On the same day, Plaintiff executed a new Deed of Trust in favor of Mr. Tikal (“Tikal Deed of Trust”), through which Plaintiff acknowledged that he was pledging the subject property as security for a purported $104,250 loan issued by Mr. Tikal. (RJN, Exhibit 4). According to PennyMac, after Plaintiff recorded the Tikal Deed of Trust, the public record showed that Mr. Tikal held a first position lien against the subject property, with Wells Fargo no longer holding a lien against the property.

In December 2010, Plaintiff sent Wells Fargo a cease and desist letter, requesting that Wells Fargo no longer communicate with Plaintiff and asserting that Wells Fargo no longer held a secured debt against Plaintiff’s property. (Serrano Decl., ¶ 11, Exhibit C).

On February 2, 2011, Wells Fargo initiated an action against Plaintiff and Mr. Tikal seeking to cancel the November 26, 2010 Tikal Reconveyance and restore Wells Fargo’s lien against Plaintiff’s property. (See RJN, Exhibit 5). On May 21, 2012, the Court entered a default judgment against Plaintiff and Mr. Tikal, which was recorded on June 20, 2012. (RJN, Exhibit 6).

In 2013, Plaintiff began exploring foreclosure alternatives with Wells Fargo. On March 28, 2013, Wells Fargo sent Plaintiff a letter establishing a single point of contact for purposes of discussing foreclosure alternatives. (Serrano Decl., ¶ 16, Exhibit G). That same day, Wells Fargo agreed to review Plaintiff for a potential loan modification and requested that Plaintiff provide the bank with necessary financial information to process Plaintiff’s request. (Id., ¶ 17, Exhibit H).

On April 3, 2013, Plaintiff filed a bankruptcy petition with the United States Bankruptcy Court for the Eastern District of California. (RJN, Exhibit 7).

On April 3, 2013 and April 10, 2013, Wells Fargo sent Plaintiff’s representative letters informing that Plaintiff had yet to provide the necessary information to process Plaintiff’s loan modification request. (Serrano Decl., ¶¶ 18, 20, Exhibits I and J). The April 10, 2013 letter informed Plaintiff’s representative that Wells Fargo was closing its review of Plaintiff’s application until it received the necessary financial information. (Id., ¶ 20, Exhibit J).

On April 18, 2013, Plaintiff submitted a “Request for Mortgage Assistance” to Wells Fargo, in which Plaintiff listed the subject property as an investment property that was renter occupied. (See Serrano Decl., ¶ 23, Exhibit K). According to a lease agreement obtained by PennyMac, Plaintiff had agreed to lease the subject property for a term of one year in February 2013. (See Id., ¶ 39, Exhibit U). Although Wells Fargo sent Plaintiff verification of its receipt of the “Request for Mortgage Assistance,” PennyMac has no record of how Wells Fargo resolved Plaintiff’s request. (See Id., ¶ 26, Exhibit N).

On May 13, 2013, the bankruptcy court dismissed Plaintiff’s petition. (RJN, Exhibit 8).

On July 1, 2013, PennyMac began servicing Plaintiff’s loan. (Serrano Decl., ¶ 26, Exhibit O). On July 22, 2013, PennyMac sent Plaintiff a letter requesting contact concerning possible alternatives to foreclosure. (Id., ¶ 28, Exhibit Q). That same day, PennyMac sent Plaintiff a pre-foreclosure notice. (Id., ¶ 52, Exhibit W). On August 20, 2013, PennyMac informed Plaintiff that it had established a single point of contact for review of any loss mitigation measures Plaintiff decided to pursue. (Id., ¶ 29, Exhibit R).

Around August 27, 2013, PennyMac agreed to consider Plaintiff for a loan modification. (Serrano Decl., ¶ 30). On September 9, 2013, PennyMac sent a letter informing Plaintiff that he had failed to submit the necessary financial information to process his modification request. (Id., ¶ 32, Exhibit S). On October 10, 2013, PennyMac sent Plaintiff a follow-up letter reiterating its request for Plaintiff’s financial information. (Id., ¶ 33, Exhibit T).

On November 21, 2013, PennyMac denied Plaintiff’s loan modification request. (Serrano Decl., ¶ 40, Exhibit V). PennyMac denied Plaintiff’s request because (1) Plaintiff was not an “owner-occupier” of the subject property, as he had agreed to lease the property to a tenant for one year beginning on February 1, 2013 (Id., ¶¶ 37-38, Exhibit U); and (2) because Plaintiff did not satisfy the financial requirements for obtaining a loan modification. (Id., ¶¶ 39, 40, Exhibit V). PennyMac’s denial letter informed Plaintiff that he had 30 days to challenge the denial. (Id., ¶ 40, Exhibit V). According to PennyMac, its representatives twice attempted to contact Plaintiff by phone on November 21, 2013 to discuss the denial of his loan modification request. (Id., ¶ 42). PennyMac claims that between November 21, 2013, and February 14, 2014, Plaintiff never appealed PennyMac’s denial of his modification request and Plaintiff never returned any of PennyMac’s solicitations to discuss other alternatives to foreclosure. (Id., ¶ 43).

On January 3, 2014, PennyMac sent Plaintiff a second pre-foreclosure notice. (Serrano Decl., ¶ 53, Exhibit X). The January 3, 2014 letter includes the contact information for the United States department of Housing and Urban Development (“HUD”).

Plaintiff contends that he submitted another complete loan modification to PennyMac on February 5, 2014. (Galuppo Decl., ¶ 8, Exhibit A). However, PennyMac has no record of receiving a loan modification application from Plaintiff on or around that date. (Serrano Decl., ¶ 44). Further, the loan modification application attached to Plaintiff’s motion does not indicate that it was submitted on February 5, 2014 because Plaintiff has blacked out most of the dates on the application. (See Galuppo Decl., ¶ 8, Exhibit A). However, there is one date on the section entitled “Information for Government Monitoring Purposes” that shows that Plaintiff had been interviewed about his application on June 11, 2014, more than four months after the date he claims he submitted the application. (See Id., ¶ 8, Exhibit A [p. 5 of 7]). Because Plaintiff has attempted to affirmatively conceal most of the dates written on the application, and because June 11, 2014 is one of the only dates left unaltered on the application, it appears that Plaintiff did not submit his application until at least June 11, 2014 or later. (See Id., ¶ 8, Exhibit A).

On February 19, 2014, PennyMac recorded a Notice of Default against the subject property. (RJN, Exhibit 11). On May 27, 2014, PennyMac recorded a Notice of Trustee’s Sale (“NOTS”) against the subject property. (RJN, Exhibit 12). The NOTS states that the trustee’s sale of Plaintiff’s property was set for June 19, 2014. (RJN, Exhibit 12).

On June 6, 2014, Plaintiff’s representative contacted PennyMac to request that PennyMac review Plaintiff’s financial information for another loan modification request. (Serrano Decl., ¶ 45). On June 13, 2014, PennyMac denied Plaintiff’s request. (Tritch Decl., ¶ 8).

On June 18, 2014, Plaintiff filed another bankruptcy petition, this time in the Central District of California. (RJN, Exhibit 9).

On July 10, 2014, Plaintiff filed an ex parte application for a temporary restraining order (“TRO”) and an order to show cause regarding a preliminary injunction (“OSC re PI”) seeking to enjoin Defendants from proceeding with the scheduled sale of the subject property. That same day, the matter came on for hearing and the Court granted Plaintiff’s request for a TRO and set a hearing on the OSC re PI for July 31, 2014.

On July 16, 2014, Petitioner’s bankruptcy petition was dismissed. (RJN, Exhibit 10).

At the parties’ request, the Court continued the hearing on the OSC re PI to August 19, 2014. On August 12, 2014, Defendant PennyMac filed an opposition. To date, Plaintiff has not filed a reply.

Summary of Applicable Law

The purpose of a preliminary injunction is to preserve the status quo pending a decision on the merits. Major v. Miraverde Homeowners Ass’n., (1992) 7 Cal.App.4th 618, 623. A plaintiff seeking injunctive relief must show the absence of an adequate damages remedy at law. Code Civ. Pro. §526(a)(4).

In determining whether to issue a preliminary injunction, the trial court is to consider the likelihood that the plaintiff will prevail on the merits at trial and to weigh the interim harm to the plaintiff if the injunction is denied against the harm to the defendant if the injunction is granted. King v. Meese, (1987) 43 Cal. 3d 1217, 1226. A party seeking an injunction must demonstrate a reasonable probability of success on the merits. IT Corp. v. County of Imperial, (1983) 35 Cal.3d 63, 73-74.

“In seeking a preliminary injunction, [the party seeking the injunction] bore the burden of demonstrating both likely success on the merits and the occurrence of irreparable harm.” Savage v. Trammell Crow Co., (1990) 223 Cal.App.3d 1562, 1571; Citizens for Better Streets v. Board of Sup’rs of City and County, (2004) 117 Cal.App.4th 1, 6.

Analysis

Plaintiff contends that Defendant PennyMac should be enjoined from foreclosing on the subject property because it has failed to comply with Civil Code sections 2923.5 and 2923.6 in initiating the foreclosure process. For the reasons discussed below, the Court finds that Plaintiff has failed to show that he is likely to succeed on the merits of these claims.

To invoke the protections of the Homeowners Bill of Rights Act (“HOBR”), specifically Civil Code sections 2923.5 and 2923.6, the underlying debt upon which a borrower bases his claim must be a first lien mortgage or deed of trust that is secured by owner-occupied residential real property. See Civ. Code, § 2924.15(a). Under the HOBR, “owner-occupied” property is defined as property that is the principal residence of the borrower and is security for a loan made for personal, family, or household purposes. Civ. Code, § 2924.15(a).

Plaintiff is not shielded by the HOBR because the subject property was not occupied by him at the time Plaintiff pursued his first loan modification. In February 2013, Plaintiff executed a lease agreement through which he agreed to lease the subject property for a term of one year through the end of February 2014. (See Serrano Decl., ¶ 39, Exhibit U). Plaintiff confirmed as much in his “Request for Mortgage Assistance,” in which he listed the subject property as an “investment property” and “renter occupied.” (Id., ¶ 23, Exhibit K). Plaintiff presents no evidence demonstrating that this status changed at any time before PennyMac recorded the Notice of Default on February 19, 2014. (RJN, Exhibit 11.) Thus, Civil Code sections 2923.5 and 2923.6 do not apply to PennyMac’s foreclosure proceeding. See Civ. Code, § 2924.15(a) (“Unless otherwise provided, . . . Sections 2923.5 . . . [and] 2923.6 . . . shall apply only to first lien mortgages or deeds of trust that are secured by owner-occupied residential real property containing no more than four dwelling units”).

Even assuming the HOBR applies to the pending foreclosure process, the Court finds that Plaintiff has failed to establish that he is likely to succeed on the merits of his claims. Specifically, there is no merit to Plaintiff’s contention that Defendant PennyMac violated Civil Code section 2923.6 because it never properly notified him in writing that his February 5, 2014 loan modification application had been denied prior to filing the Notice of Default.

Civil Code section 2923.6 provides in relevant part:

(c) If a borrower submits a complete application for a first lien loan modification offered by, or through, the borrower’s mortgage servicer, a 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. A 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 until any of the following occurs:

(1) The mortgage servicer makes a written determination that the borrower is not eligible for a first lien loan modification, and any appeal period pursuant to subdivision (d) has expired.

(2) The borrower does not accept an offered first lien loan modification within 14 days of the offer.

(3) The borrower accepts a written first lien loan modification, but defaults on, or otherwise breaches the borrower’s obligations under, the first lien loan modification.

(d) 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.

Plaintiff has not shown that he submitted a loan modification application on February 5, 2014. As noted above, most of the dates on the application Plaintiff submits to the Court have been blacked out. (See Galuppo Decl., ¶ 8, Exhibit A). However, Plaintiff did not black out one date under Section 8 of the application which shows that that portion of the application was executed on June 11, 2014, more than four months after Plaintiff claims he submitted the application. (See Id., ¶ 8, Exhibit A [p. 5 of 7]). PennyMac’s evidence demonstrates that it properly denied one of Plaintiff’s loan modification applications in November 2013 and properly informed Plaintiff that he had 30 days to appeal PennyMac’s denial. (See Serrano Decl., ¶ 40, Exhibit V). Plaintiff submits no evidence that shows he appealed the denial. Thus, PennyMac was authorized to record the Notice of Default on February 19, 2014. See Civ. Code section 2923.6
Plaintiff next contends that Defendant PennyMac violated Civil Code section 2923.5 because it did not properly contact him prior to recording the February 19, 2014 Notice of Default. This contention also lacks merit.

Civil Code section 2923.5(a)(1) provides:

A mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent may not record a notice of default pursuant to Section 2924 until both of the following:

(A) Either 30 days after initial contact is made as required by paragraph (2) or 30 days after satisfying the due diligence requirements as described in subdivision (e).

(B) The mortgage servicer complies with paragraph (1) of subdivision (a) of Section 2924.18, if the borrower has provided a complete application as defined in subdivision (d) of Section 2924.18.

Civil Code section 2923.5(a)(2) goes on to provide that: “[a] mortgage servicer shall contact the borrower in person or by telephone in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure.” In addition, “the borrower shall be provided the toll-free telephone number made available by the United States Department of Housing and Urban Development (HUD) to find a HUD-certified housing counseling agency. Any meeting may occur telephonically.” Id. Finally, Civil Code section 2923.5(b) provides that “[a] notice of default recorded pursuant to Section 2924 shall include a declaration that the mortgage servicer has contacted the borrower, has tried with due diligence to contact the borrower as required by this section, or that no contact was required because the individual did not meet the definition of “borrower” pursuant to subdivision (c) of Section 2920.5.”

Plaintiff has failed to demonstrate that he is likely to prevail on his claim that Defendant PennyMac violated Civil Code section 2923.5. On February 19, 2014, PennyMac recorded a Notice of Default against Plaintiff’s property. (RJN, Exhibit 11). Attached to the Notice of Default is a due-diligence declaration in which a PennyMac representative declares that “[t]he mortgage servicer has tried with due diligence to contact the borrower as required by California Civil Code Section 2923.55(i) but has not made contact despite such due diligence. Thirty days or more have passed since these due diligence efforts were satisfied.” (RJN, Exhibit 11). It is well settled that a declaration in a notice of default that tracks the language of Civil Code section 2923.5(b) complies with the statute. Mabry v. Superior Court, (2010) 185 Cal.App.4th 208, 235. Indeed, Defendant PennyMac’s supporting evidence demonstrates that its representatives repeatedly contacted Plaintiff in the months leading up to the recording of the Notice of Default to discuss Plaintiff’s default status, his attempts to obtain a loan modification, and the alternatives available to Plaintiff to avoid foreclosure. (See Serrano Decl., ¶¶ 40, 42, Exhibit V). Without credible evidence to counter PennyMac’s opposition evidence and rebut the validity of the due diligence declaration attached to the February 19, 2014 Notice of Default, Plaintiff has failed to establish that PennyMac violated Civil Code section 2923.5.

Disposition

Plaintiff’s request for injunctive relief is DENIED because he has not shown a likelihood of success on the merits. The temporary restraining order is dissolved and the order to show cause is discharged.

IT IS SO ORDERED.