Case Name:   Bautista v. America’s Servicing Company, et al.

Case No.:       1-14-CV-263694

After full consideration of the arguments and authorities submitted by each party, the court makes the following rulings:

This is a wrongful foreclosure action.  In the complaint, plaintiff Salve B. Bautista (“Plaintiff”) alleges the following:  Plaintiff owns real property in Gilroy (“the Property”) and executed a note (“the Note”) secured by a deed of trust (“DOT”) on the Property that names “MortgageIt” as the lender, defendant Mortgage Electronic Registration Systems, Inc. (“MERS”) as the beneficiary, and New Century Title Company as trustee.  (Compl., ¶ 2.)  MortgageIt attempted to transfer its interest in the DOT to a mortgage-backed securitized trust (“DBALT Trust”) which closed on April 13, 2007, and in doing so, slandered the title to the Property and breached the DOT and the pooling and service agreement (“PSA Agreement”).  (Id., ¶¶ 15-16 & 18, & Ex. C.)  On August 6, 2009, defendant NDEX West, LLC (“NDEX”) recorded a notice of default (“NOD”) as trustee under the DOT, but NDEX had not yet been substituted as trustee.  (Id., ¶ 17 & Ex. D.)

On August 31, 2009, almost two years after the DBALT Trust closed, MERS attempted to assign its interest in the DOT to defendant HSBC Bank USA, N.A. (“HSBC”) as trustee of the DBALT Trust, but the attempted assignment was void.  (Id., ¶¶ 10, 16, & 18, & Ex. E.)  NDEX recorded a notice of trustee’s sale (“NOTS”) against the property on September 16, 2010.  (Id., ¶ 21 & Ex. G.)  On November 8, 2010, MERS recorded a second assignment of the DOT in favor of HSBC as trustee of the DBALT Trust, but the assignment violated the PSA Agreement and was void.  (Id., ¶ 22 & Ex. H.)  Sometime before July 19, 2010, HSBC transferred servicing rights to defendant America’s Servicing Company (“ASC”), and around that time, Plaintiff applied for a loan modification with ASC.  (Id., ¶ 23.)  ASC failed to communicate its decision on Plaintiff’s loan modification application for approximately 3 years, and did not notify her of its decision until December 24, 2013.  (Id., ¶ 24 & Ex. I.)  In addition, Plaintiff made payments on her loan to ACS, but those payments were not credited towards her debt.  (Id., ¶¶ 46, 109, & 112.)  To date, the trustee’s sale has not occurred.  (Id., ¶ 21.)

In the complaint, Plaintiff asserts causes of action for (1) wrongful foreclosure, (2) promissory estoppel, (3) negligent misrepresentation, (4) breach of express agreement, (5) breach of implied agreement, (6) slander of title, (7) violation of Civil Code section 2923.5, (8) violation of the Racketeering Influence and Corrupt Organization Act (“RICO”), title 18 United States Code section 1962, and (9) violation of Business & Professions Code section 17200 (“the UCL”).

ASC, HSBC, and MERS (collectively, “Defendants”) demur to each cause of action in the complaint on the ground of failure to allege sufficient facts.  (See Code Civ. Proc. [“CCP”], § 430.10, subd. (e).)  They also make a request for judicial notice in support of their demurrer.

Defendants’ request for judicial notice is GRANTED.[1]  (See Evid. Code, § 452, subds. (c) & (h); see also Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264-265 [“a court may take judicial notice of the fact of a document’s recordation, the date the document was recorded and executed, the parties to the transaction reflected in a recorded document, and the document’s legally operative language”; however, it would be “improper to take judicial notice of the truth of statements of fact recited within the documents”].)

As an initial matter, alleging that a deed of trust or promissory note is void because an assignment of interest in the deed of trust or promissory note is invalid and void does not support any cause of action, because a borrower lacks standing to challenge such an assignment.  (See Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497.)  Plaintiff relies on Glaski v. Bank of America, N.A. (2013) 218 Cal.App.4th 1079 (“Glaski”) for the proposition that a borrower has standing to challenge an allegedly void assignment; however, the Glaski holding is a distinct minority view and most federal district court cases have criticized it or declined to follow it.  (See, e.g., Sporn v. JPMorgan Chase Bank N.A. (Jan. 27, 2014) 2014 Cal. App. Unpub. LEXIS 568 *1, *12-*14 [stating that “Glaski has been called ‘an outlier’” and “most California federal district court cases have criticized it or declined to follow it”] [nonpub. opn.]; Gieseke v. Bank of Am., N.A. (N.D.Cal. Feb. 22, 2014) 2014 U.S. Dist. LEXIS 23794 *1, *9 [“courts in this and other districts have noted that ‘Glaski represents a distinct minority view on the standing of third parties to enforce or assert claims based on alleged violations of a PSA,’ and that ‘courts in… [the Northern] District have expressly rejected Glaski and adhered to the majority view that individuals who are not parties to a PSA cannot base wrongful foreclosure claims on alleged deficiencies in the PSA/securitization process”].)

This Court, too, declines to follow Glaski.  A borrower also typically lacks standing to challenge compliance with the guidelines set forth in HAMP.  (See Warner v. Wells Fargo Bank, N.A. (C.D.Cal. 2011) 2011 U.S. Dist. LEXIS 66551 *1, *9-*10; see also Kilaita v. Wells Fargo Home Mortgage, et al. (N.D.Cal. 2011) 2011 U.S. Dist. LEXIS 142524 *1, *26-*27 [stating that “[t]he nature of HAMP does not provide Plaintiffs with a private right of action”; also stating that “[q]ualified borrowers under HAMP “would not be reasonable in relying on the Agreement as manifesting an intention to confer a right on him because the agreement does not require [a loan servicer to] modify eligible loans… [and t]hus, Plaintiffs lack standing to challenge HAMP compliance”]; see also Cleveland v. Aurora Loan Servs., LLC (N.D.Cal. 2011) 2011 U.S. Dist. LEXIS 55168 [stating that “numerous courts have determined that individual borrowers do not have standing to sue under a HAMPSPA because they are not intended third-party beneficiaries of the SPA… [and] have ruled that there is no express or implied private right of action to sue lenders or loan servicers for violation of HAMP”; also stating that since “the alleged HAMP violations are not actionable, [they] thus cannot be used to support a claim under § 17200”].)  With this in mind, the Court turns to the parties’ arguments in connection with each individual cause of action.

Although titled as a wrongful foreclosure claim, the cause of action is actually a claim for cancellation of recorded instruments (see Civ. Code, § 3412), since Plaintiff seeks to cancel the NOD and NOTS and alleges that the foreclosure sale has not occurred (Compl., ¶¶ 21 & 48; see also Munger v. Moore (1970) 11 Cal.App.3d 1, 7 [wrongful foreclosure claim requires that the trustee caused an illegal, fraudulent, or willfully oppressive sale of real property]; see also Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38 [“[i]f the complaint states a cause of action under any theory, regardless of the title under which the factual basis for relief is stated, that aspect of the complaint is good against a demurrer”]).

A party asserting a cancellation cause of action must allege specific facts showing the invalidity of the instrument.  (Wolfe v. Lipsy (1985) 163 Cal.App.3d 633, 638.)  Plaintiff alleges that the NOD and NOTS are invalid and should be cancelled because (1) Defendants lacked the power to foreclose due to invalid assignments of the DOT; (2) the NOD and NOTS are false documents fabricated by Defendants to justify the illegal foreclosure, as evidenced by the fact that these documents were robo-signed by persons who misrepresented their lack of authority to do so; (3) Defendants breached their agreement to provide a loan modification review by dual-tracking in violation of the Home Affordable Modification Program (“HAMP”) guidelines and by ACS’s failure to provide Plaintiff with a decision on her loan modification application until approximately 3 years after she submitted the application; and (4) Plaintiff never defaulted on her loan because she made payments that were not credited to her debt due to the invalid assignments.  (Compl., ¶¶ 41-46.)

As previously stated, the first three bases are without merit and cannot constitute facts supporting the alleged invalidity of the NOD and NOTS.  Nevertheless, since Plaintiff alleges that Defendants lacked the authority to foreclose because she made payments and had not defaulted on her loan, she has sufficiently alleged specific facts to support a claim for cancellation of recorded instruments.  (See Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1047 [“Kong”] [a demurrer cannot be sustained to part of a cause of action].)  The demurrer to the first cause of action is therefore OVERRULED as it relies at least on part on allegations that Plaintiff has not defaulted on the loan.

The demurrer to the second cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.  (See US Ecology, Inc. v. State (2005) 129 Cal.App.4th 887, 901 [a promissory estoppel claim requires: (1) a clear and unambiguous promise; (2) “reliance by the party to whom the promise is made”; (3) the reliance was “reasonable and foreseeable”; and (4) the party asserting the estoppel was injured by his reliance]; see also Bushell v. JPMorgan Chase Bank, N.A. (2013) 220 Cal.App.4th 915, 930 [borrowers sufficiently pleaded a clear and unambiguous promise where they alleged the existence of a trial plan period (“TPP”) contract whereby a permanent modification was to be offered if certain conditions were met].)  Here, Plaintiff alleges that Defendants promised not to foreclose on the Property if she “completed a loan modification application and made monthly payments in a certain amount to Defendants.”  (Compl., ¶ 50.)  Plaintiff further alleges that pursuant to the requirements of HAMP and an agreement between Defendants and the federal government to which Plaintiff was a third party beneficiary, Defendants promised the federal government that they would suspend all pending foreclosure proceedings until they completed a HAMP analysis for all homeowners, including Plaintiff.  (Id., ¶ 53.)  These allegations do not support the first element of a promissory estoppel claim because, as discussed above, Plaintiff lacks standing to allege a breach of the HAMP guidelines, and she does not allege that Defendants offered her a permanent loan modification or promised her (as opposed to the federal government) that they would comply with the HAMP guidelines.

The demurrer to the third cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.  (See Charnay v. Cobert (2006) 145 Cal.App.4th 170, 184 [“elements of negligent misrepresentation are similar to intentional fraud except for the requirement of scienter”]; see also Philipson & Simon v. Gulsvig (2007) 154 Cal.App.4th 347, 363 [elements of a fraud claim].)  Defendants persuasively argue that Plaintiff fails to adequately allege damages, since Plaintiff states that she “has suffered, and will continue to suffer, general and specific damages in an amount to be proven at trial.”  (Compl., ¶ 62; see also Furia v. Helm (2003) 111 Cal.App.4th 945, 956 [to plead damages, a plaintiff must allege the manner in which she was harmed].)

With respect to the fourth and fifth causes of action, Defendants maintain that Plaintiff lacks standing to challenge the transfer to a securitized trust and to assert any claim arising from the PSA Agreement, and refer to the arguments proffered in support of their demurrer to the first cause of action.[2]  To the extent that these claims are premised on the allegedly invalid assignments, Plaintiff lacks standing.  Nevertheless, Plaintiff’s breach of contract claims are also based on Defendants alleged breach of the DOT.  (Compl., ¶¶ 64-65, 71-72, & 83.)  Thus, to the extent that these claims are premised on the alleged breach of the DOT, the demurrer to the fourth and fifth causes of action is OVERRULED.

The demurrer to the sixth cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.  The slander of title claim is based on the allegation that the invalid assignments damaged Plaintiff’s title.  As discussed above, Plaintiff lacks standing to challenge the allegedly invalid assignments.

The demurrer to the seventh cause of action is OVERRULED.  Plaintiff alleges that Defendants failed to comply with the notice requirements of Civil Code section 2923.5.  (Compl., ¶ 116.)  Assuming the truth of this allegation, “the issue of compliance cannot be resolved at this stage of the litigation,” and whether Defendants actually performed the acts described in the declaration is the type of fact that is reasonably subject to dispute and not a proper subject of judicial notice. (See Skov, supra, at pp.696-697, citing Fontenot, supra, at p. 266.)

The demurrer to the eighth cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.  Plaintiff alleges that Defendants engaged in mail or wire fraud each time they willfully sent her a fraudulent document, including those related to the NOD and NOTS.  (Compl., ¶¶ 127 & 131; see also 18 U.S.C. §§ 1961 [mail fraud is a racketing activity] & 1341 [mail fraud includes using the U.S. mail system to send an item for the purposes of a scheme to defraud or obtain money or property by means of false pretenses].)  However, according to Plaintiff, these documents were only fraudulent because they relied on the allegedly invalid assignments.  As set forth in detail above, Plaintiff lacks standing to challenge the allegedly invalid assignments.

The demurrer to the ninth cause of action is OVERRULED.  Plaintiff adequately pleaded her fourth and fifth causes of action, and thus, she has sufficiently alleged that Defendants engaged in an unlawful business practice.  (See Pastoria v. Nationwide Ins. (2003) 112 Cal.App.4th 1490, 1496 [the UCL “borrows violations of federal, state, or local law and treats them as unlawful practices that are independently actionable”].)  Defendants assert that Plaintiff lacks standing because she alleges that the Property has not yet been sold.  This argument is not well-taken because Plaintiff alleges that she lost money as a result of Defendants’ unlawful conduct by making payments to ACS that were not credited towards her debt.  (Compl., ¶¶ 109 & 111-112; see Boschma v. Home Loan Center, Inc. (2011) 198 Cal.App.4th 230, 254 [a borrower has standing if he/she alleges the loss of money or property].)  Defendants insist that Plaintiff lacks standing because she cannot adequately allege causation, since—according to Defendants—Plaintiff defaulted.  This contention contradicts facts alleged in the complaint.  (See Compl., ¶¶ 109 & 111-112 [Plaintiff allegedly made payments]; see also Hall, supra, at p. 719, fn.7; see also Kwikset Corp. v. Super. Ct. (2011) 51 Cal.4th 310, 323.)

The Court will prepare the order.