Case Name: Philip Wells v. JP Morgan Chase Bank, N.A., et al.

Case No.: 1-13-CV-255349

Demurrer by Defendants Select Portfolio Servicing, Inc. and NBS Default Services, LLC to the First Amended Complaint of Plaintiff Philip Wells

This is an action for violations of the Homeowners’ Bill of Rights arising from an application by plaintiff Philip Wells for a mortgage loan modification. The loan servicer, Select Portfolio Servicing, Inc. (“SPS”), and the foreclosing trustee, NBS Default Services, LLC (“NBS”) (collectively, “Defendants”) demur to the third through sixth causes of action on the ground that they fail to state facts sufficient to constitute a cause of action.

Request for Judicial Notice

Defendants’ request for judicial notice, which is unopposed, is GRANTED given that the court may take judicial notice of real property records and their legal import when the authenticity of the documents is not challenged. (See Evid. Code, § 452, subd. (h); Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264.)

Demurrer to the Third Cause of Action for Violation of Civil Code section 2923.6(c)

The third cause of action names both Defendants and is based on Civil Code section 2923.6(c), which provides:

“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 still pending.”

Plaintiff alleges that at an unspecified time “[s]hortly []after” April 22, 2013, he submitted his completed application for a loan modification to defendant JP Morgan Chase Bank, N.A. (“Chase”). (First Amended Complaint (“FAC”), ¶ 52.) Chase instructed NBS to record a notice of trustee’s sale on July 22, 2013. (FAC, ¶ 54.) After being informed that his application to Chase was denied and SPS was now servicing his loan, Plaintiff applied for a loan modification with SPS on September 5, 2013, and was approved the next day. (FAC, ¶¶ 58-62.) On September 10, 2013, NBS postponed the scheduled trustee’s sale for the reason that a decision was pending on a completed application for a loan modification. (FAC, ¶ 63.)

Plaintiff alleges that Defendants violated Civil Code section 2923.6(c) by rescheduling instead of canceling the trustee’s sale until his pending application had been either granted or denied. (FAC, ¶ 64.) By its terms, however, this provision applies only where an entity “record[s] a notice of default or notice of sale, or conduct[s] a trustee’s sale,” not where it reschedules a pending trustee’s sale. (Civ. Code, § 2923.6, subd. (c), italics added; cf. Civ. Code, § 2923.11, subd. (d) [“A mortgagee, beneficiary, or authorized agent shall record a rescission of a notice of default or cancel a pending trustee’s sale, if applicable, upon the borrower executing a permanent foreclosure prevention alternative.”], italics added.) Plaintiff cites unpublished cases not binding on this Court. Young v. Deutsche Bank Nat. Trust Co. (E.D. Cal., Aug. 2, 2013) No. 2:13–cv–00720–JAM–AC, 2013 WL 3992710, *2, is distinguishable because there, the plaintiff alleged that a completed loan modification application was submitted on January 4, 2013, and a notice of trustee’s sale was recorded on January 22, 2013: while the application was pending. The other case Plaintiff cites is an unpublished Superior Court opinion not included with Plaintiff’s opposition papers.

Given that the rescheduling of the trustee’s sale is the only action alleged in support of this claim that is arguably attributable to SPS, the demurrer to the third cause of action is SUSTAINED without leave to amend as to SPS.

Plaintiff alleges that NBS recorded a notice of trustee’s sale on July 22, 2013, in addition to rescheduling the sale, and contends that it is a question of fact when he submitted a “completed application” for a loan modification. However, to withstand demurrer, Plaintiff must at least allege that NBS took some action forbidden by section 2923.6(c) after he submitted an application. (See Civ. Code, § 2923.6(c) [proscribing certain actions were an application is “pending”].) Here, Plaintiff fails to allege that the July 22, 2013 recordation of a notice of trustee’s sale was after he submitted his application to Chase on an unspecified date. Thus, the FAC, like Plaintiff’s original complaint (see April 1, 2014 order (“Order”) at pp. 4-5.), fails to state a claim for violation of Civil Code section 2923.6(c).

As noted by Defendants, Plaintiff also alleges that “Defendants recorded a Notice of Default and/or Notice of Sale prior to Plaintiff’s application for a loan modification” (FAC, ¶ 94, italics added). This ambiguous compound allegation could be read to mean that the notice of trustee’s sale had in fact already been recorded by the time Plaintiff submitted his application. Nevertheless, this allegation could be clarified to state whether the notice of sale was recorded while his application was pending.

Therefore, as to NBS the demurrer to the third cause of action is SUSTAINED with 10 days’ leave to amend.

Demurrer to the Fourth Cause of Action for Violation of Civil Code section 2923.6(f)

The fourth cause of action, asserted against SPS but not NBS, is based on Civil Code section 2923.6(f), which provides that, following the denial of a first lien loan modification application, the mortgage servicer shall send a written notice to the borrower identifying the reasons for denial.

Plaintiff alleges, inconsistently, that (1) his September 5, 2013 application to SPS was reported to be approved on September 6, 2013 (FAC, ¶ 62); (2) the application was still being considered as of the time his FAC was filed on April 8, 2014 (FAC, ¶ 86); and (3) the application was denied, as evidenced by the fact that it was pending for over six months and by the continuous resetting of the trustee’s sale (FAC, ¶¶ 102 and 103). Defendants argue that Plaintiff admits by these allegations that there had been no denial. While inconsistent allegations are not always improper, each version of the facts should be pleaded in a separate cause of action. Campbell v. Rayburn (1954) 129 Cal.App.2d 232, 235. Inconsistent allegations in a single cause of action can make the pleading subject to a demurrer for uncertainty or, in the proper case, a general demurrer. O’Hare v. Marine Elec. Co. (1964) 229 Cal.App.2d 33, 36. Here, plaintiff used the disfavored “chain letter” style of incorporation, with the result that all three versions of the facts are pled in the fourth cause of action.

Defendants also contend that SPS was not required to process Plaintiff’s application at all, since Chase had already denied it and Plaintiff does not allege that he submitted evidence of a material change in financial condition, citing Code of Civil Procedure section 2923.6(g). However, as Defendants acknowledge, Plaintiff does allege that he submitted additional information to SPS in connection with his September 5, 2013 application, and it is not clear from the face of the FAC that this information was inadequate to satisfy subdivision (g)’s requirements that a borrower “document” financial changes and “submit” them to his or her mortgage servicer. The case cited by Defendants for the proposition that “substantial documentary evidence” is required to satisfy subdivision (g) does not use this language or purport to elaborate on the standard under this provision. (See Winterbower v. Wells Fargo Bank, N.A. (C.D. Cal., March 27, 2013) No. SA CV 13–0360–DOC–MLGx, 2013 WL 1232997, *3-4 [finding in evaluating likelihood of success on the merits upon an application for a temporary restraining order that “Defendants make a credible argument that to ‘document’ and ‘submit’ a material change in circumstance means more than simply stating one’s expenses decreased and then providing two numbers”; noting that the court did not intend to “weigh[] in definitively” on this issue].)

The demurrer to the fourth cause of action is thus OVERRULED.

Demurrer to the Fifth Cause of Action for Violation of Civil Code section 2923.7

The fifth cause of action, alleged against SPS, is based on Civil Code section 2923.7, which states that, upon request from a borrower seeking a foreclosure prevention alternative, a mortgage servicer will promptly establish a single point of contact and provide the borrower with one or more direct means of communication with the single point of contact. (See Civ. Code, § 2923.7(a).) Section 2923.7 defines “single point of contact” as an individual or team of personnel, each of whom has the ability and authority to perform the responsibilities stated under section 2923.7(b). (See Civ. Code, § 2923.7(e).)

Here, Plaintiff fails to allege that he requested a single point of contact. In his opposition, Plaintiff contends that he was only required to request a foreclosure prevention alternative to trigger the requirements of section 2923.7. (Opp. at pp. 8-9.) However, the statutory language on its face requires a specific request by a borrower for a single point of contact, while the language regarding a request for a foreclosure prevention alternative merely defines the type of borrower eligible to make such a request. Plaintiff cites no authority supporting a contrary interpretation of this language. Further, as in his original complaint, Plaintiff fails to allege that he suffered any damages as a result of SPS’s alleged violation of section 2923.7. (See Rockridge Trust v. Wells Fargo, N.A. (N.D. Cal., Sept. 25, 2013) No. C–13–01457 JCS, 2013 WL 5428722, *27 [dismissing section 2923.7 claim where “Plaintiffs have not pled any damages resulting from this violation].) Plaintiff does not suggest that he can cure either of these deficiencies in an amended pleading.

The demurrer to the fifth cause of action is accordingly SUSTAINED without leave to amend.

Demurrer to the Sixth Cause of Action for Violation of Civil Code section 2924(a)(6)

The sixth cause of action, names both Defendants and is based on Civil Code section 2924(a)(6), which provides that only “the holder of the beneficial interest under the mortgage or deed of trust, the original trustee or the substituted trustee under the deed of trust, or the designated agent of the holder of the beneficial interest” may record a notice of default or otherwise initiate the foreclosure process.

Plaintiff does not allege any actions by SPS that would violate this provision. The Court sustained Defendants’ previous demurrer on this ground as to SPS (see Order at p. 6), and Plaintiff does not address SPS’s actions in his opposition. Accordingly, as to SPS the demurrer to the sixth cause of action is SUSTAINED without leave to amend.

Plaintiff alleges that NBS recorded multiple notices of default against the subject property, although it is not the beneficial interest holder, the original trustee, or an agent of the beneficial interest holder under the deed of trust and has not produced any evidence that it is a substituted trustee. (FAC, ¶¶ 48, 51, and 127.) Plaintiff further alleges that he “is unaware of any Substitution of Trustee executed by the beneficial interest holder replacing [the original trustee] First American Title.” (FAC, ¶ 132.) However, Plaintiff cites no authority supporting the proposition that NBS was required to produce evidence of its status as a substituted trustee to initiate foreclosure. The Court sustained Defendants’ prior demurrer to this claim as to NBS on the basis that Plaintiff merely alleged NBS was not the beneficial interest holder and did not allege that it lacked the authority to foreclose in another capacity. (See Order at p. 6.) The FAC still does not allege that NBS was not in fact a substituted trustee with authorization to foreclose. Consequently, the sixth cause of action fails to state a claim against NBS.

Defendants contend that the substitution of trustee they submit with their demurrer definitively establishes NBS’s authority to foreclose and defeats the sixth cause of action. (Substitution of Trustee, Ex. 5 to Request for Judicial Notice.) In his opposition, Plaintiff contends that the substitution is invalid because it was executed by Chase as attorney-in-fact for The Bank of New York Mellon Trust Co., N.A. as trustee for another entity, “Chase Mortgage Finance Trust Multi-Class Mortgage Pass-Through Certificates Series 2007-A1.” Plaintiff correctly contends that Defendants have submitted no documents evidencing this entity’s authority to execute a substitution of trustee, and the substitution standing alone consequently does not demonstrate that Plaintiff is unable to state a claim by amending his complaint to allege that NBS was not a substituted trustee. (See Herrera v. Deutsche Bank Nat. Trust Co. (2011) 196 Cal.App.4th 1366, 1375-1377 [beneficiary and trustee status of certain entities could not be established through judicial notice of documents where there was an “evidentiary gap” in the chain of title]; cf. Fontenot v. Wells Fargo Bank, N.A., supra, 198 Cal.App.4th at pp. 266-267, fn. 7 [taking judicial notice of entity’s status as beneficiary where entity was so designated by the original deed of trust and distinguishing Herrera on the basis that its record lacked evidence of the entire chain of title].)

The demurrer to the sixth cause of action is SUSTAINED with 10 days’ leave to amend as to NBS.