2013-00143346-CU-FR

Whole Note LLC vs. Standard Insurance Company

Nature of Proceeding: Motion to Expunge Lis Pendens

Filed By: Washburn, Whitney

The motion of defendants Standard Insurance Company (“Standard”) and Stancorp
Mortgage Investors (”StanCorp”) (collectively “Defendants”) to expunge plaintiff While
Note LLC’s (“Whole Note”) second lis pendens is GRANTED.

Both moving and opposing counsel are admonished for failing to comply with CRC
Rule 3.1110(b)(3)-(4).

Opposing counsel is admonished for failing to comply with CRC Rule 2.111(3).

Defendants’ request for judicial notice is unopposed and is granted.

Whole Note’s request for judicial notice found on Page 10 of the opposition is denied
because the request fails to comply with the requirements of CRC Rules 3.1113(l) and
3.1306(c).

Defendants’ Objections to Evidence do not comply with CRC Rule 3.1354 but
nevertheless, objection Nos. 1 and 3 are sustained, while No. 2 is overruled.

This action follows the 2012 non-judicial foreclosure sale of Whole Note’s commercial
property located in the City of Sacramento. Standard is alleged to be the lender and
loan servicer on the subject loan which originated in 2007. Whole Note alleges that its
mortgage broker committed fraud by placing the former in a “predatory” mortgage loan
when it qualified for a loan with “better” terms. Whole Note claims the mortgage broker
was an agent of defendant Standard and thus, Standard is vicariously liable for the
alleged fraud. Whole Note insists the mortgage broker was paid to lure Whole Note to
accept the loan offered by Standard rather than obtain a different loan from other
potential lenders. Whole Note alleges that the fraudulent inducement render both the
note and corresponding deed of trust void ab initio and further that, the current owner
of the property is not a “holder in due course.”

Whole Note admits it ultimately defaulted on its mortgage loan in the fall of 2012 and
claims it attempted to negotiate a loan modification but Standard never actually
intended to offer one despite the latter’s representations to the contrary. Whole Note
maintains that it is currently able to tender payment of all amounts currently due in order to reinstate the loan. Finally, Whole Note alleges that it never bothered to read
the loan documents and to determine the actual loan terms until late 2012, more than
five (5) years after the mortgage loan originated in 2007.

The complaint filed by Whole Note purports to assert causes of action for wrongful
foreclosure, fraud, breach of fiduciary duty, “Setting Aside Sale,” and cancellation of
deeds of trust against various defendants including but not limited to those now
moving to expunge lis pendens.

Whole Note recorded a notice of lis pendens on 5/16/2013 but it was expunged by this
Court’s order on 9/17/2013 because it was determined that Whole Note failed to file
the notice of lis pendens with the Court in compliance with Code of Civil Procedure
§405.22 and §405.23.

Whole Note recorded a second notice of lis pendens on 10/2/2013.

Defendants now move to expunge this second lis pendens on several grounds
including that (1) it was filed without leave of court as required by the express terms of
Code of Civil Procedure §405.36; (2) it fails to comply with the service requirements of
§405.22 and §405.23; (3) the complaint does not state a legitimate “real property
claim” within the meaning of §405.31; and (4) Whole Note cannot establish the
“probable validity” of any legitimate real property claim by a preponderance of the
evidence as required by §405.32. Defendants also request an award of attorney fees
for having to bring this, its second, motion to expunge.

Whole Note opposes, arguing that it did comply with the service requirements of
§405.22; its complaint states a clear claim affecting title to and possession of the
subject property; it can demonstrate a “probability of prevailing” on its real property
claim; the purchaser at the foreclosure sale was not a bona fide purchaser for value
without notice of Whole Note’s claims relating to the property’s title; defendants’ other
claims regarding Whole Note’s bankruptcy filings and inability to reinstate the loan are
“mere red herrings;” and defendants’ request for attorney fees should be denied
because Whole Note acted with “substantial justification.”

The Court holds that Whole Note’s second notice of lis pendens violates the express
terms of Code of Civil Procedure §405.36 and thus, it must be expunged. Code of
Civil Procedure §405.36 states in its entirety:

“Once a notice of pending action has been expunged, the claimant may not
record another notice of pending action as to the affected property without leave
of the court in which the action is pending.”

As noted above, Whole Note’s original lis pendens was expunged on 9/17/2013 and
thus, according to the plain terms of §405.36, Whole Note was required to first obtain
leave of court before filing the second lis pendens on 10/2/2013. It is undisputed that
Whole Note failed to obtain the required leave of court and therefore, this second lis
pendens is void. The fact that the Court’s 9/17/2013 ruling did not specifically advise
Whole Note of the need to comply with §405.36 or to seek leave of court does not
alleviate Whole Note of its obligations under applicable law. For these reasons alone,
the motion to expunge is hereby granted.

Second, while the opposition asserts that Whole Note did in connection with the
second lis pendens comply with the service requirements of Code of Civil Procedure
§405.22, Whole Note has failed to provide competent evidence of code-compliant such
service. Specifically, Exhibit C to the opposition appears to be a copy of a “return
receipt” for an unspecified package delivered to defendants’ attorney of record, there is
no declaration in the present record authenticating Exhibit C and consequently,
defendants’ objection to this document has been sustained. In light of Whole Note’s
failure to competently demonstrate service of the second lis pendens which complies
with the statutory requirements, the Court grants the motion to expunge on this ground
as well.

In light of the foregoing, the Court need not reach defendants’ additional arguments
that Whole Note’s complaint does actually not state a legitimate “real property claim”
within the meaning of Code of Civil Procedure §405.31 and/or that Whole Note cannot
establish by a preponderance of the evidence the “probable validity” of its real property
claim as required by §405.32.

Defendants are awarded attorney fees in the amount of $1,800 only, representing six
(6) hours of attorney time at the $300 hourly rate, plus the $60 filing fee for the present
motion.

This minute order is effective immediately. Pursuant to CRC Rule 3.1312, defendants
to prepare formal order.