17-CIV-04209 ROGELIO CORTEZ, et al. vs. NEW PENN FINANCIAL, LLC, et al.

ROGELIO CORTEZ MARK W. LAPHAM

NEW PENN FINANCIAL, LLC sheri guerami

demurrer

TENTATIVE RULING:

The Demurrer of defendants New Penn Financial, LLC dba Shellpoint Mortgage Servicing (“Shellpoint”) and The Bank of New York Mellon fka The Bank of New York as Trustee for the Certificateholders of CWALT, Inc., Alternative Loan Trust 2005-51, Mortgage Pass-Through Certificates, Series 2005-51 (“Bank of New York”) (collectively, “Defendants”) is sustained as follows:

Without Leave to Amend

· First Cause of Action (Wrongful Foreclosure)

· Second Cause of Action (Declaratory Relief)

· Third Cause of Action (Quiet Title)

With Leave to Amend

· Fourth Cause of Action (Violation of HBOR)

· Fifth Cause of Action (Negligence)

· Sixth Cause of Action (Negligent Infliction of Emotional Distress)

· Seventh Cause of Action (Unfair Competition)

As to those causes of action where leave to amend is granted, Plaintiffs shall have 20 days to file a Second Amended Complaint.

Defendants’ Request for Judicial Notice is granted.

The Securitization-Related Claims (First, Second, and Third Causes of Action). The first, second, and third causes of action are founded on allegations that MERS’s assignment of the deed of trust and the substitution of trustee were void. Plaintiffs allege that the securitization of their loan resulted in MERS no longer possessing any interest as a nominee. Plaintiffs also allege that MERS lost all interest as nominee as a result of the original lender (Heritage) being dissolved. (FAC para. 13, 14, 54.)

Plaintiffs’ legal theory is contrary to law. MERS retains its rights as the lenders’ nominee after the loan is sold or securitized. (See Dancy v. Aurora Loan Servs., LLC, (N.D. Cal. Mar. 4, 2011) No. C 10-2602 SBA, 2011 WL 835787, at *6.) The allegation that Heritage became defunct (FAC para. 54) does not preclude MERS from assigning the Deed of Trust. (Ghuman v. Wells Fargo Bank, NA. (E.D. Cal. 2013) 989 F.Supp.2d 994, 1002 [“Plaintiffs have provided no authority and the Court’s research reveals no authority to suggest this power is affected when a lender becomes defunct”].)

Since the first, second, and third causes of action rely on these allegations and legal theory, they fail to state a claim. Plaintiffs were provided an opportunity to amend to address this deficiency as to their securitization-related claims and failed to do so—resulting in this Court sustaining a demurrer by defendant MERS without leave to amend on March 8, 2017 because, as amended, Plaintiffs’ allegations still did not allege any facts to support the contention that MERS lacked authority to assign the deed of trust to the Bank of New York. This Court finds that the First Amended Complaint still fails to allege that the transfers by MERS were void on their face.

Additionally, as to the first cause of action (wrongful foreclosure), an unlawful or fraudulent sale is a required element of the cause of action. (Lona v. Citibank, N.A. (2011) 202 Cal.App.4th 89, 112.) If the foreclosure sale has not occurred, there is no sale to set aside, and the damages that would have arisen from a sale have not been incurred. No claim for wrongful foreclosure exists unless a foreclosure sale has taken place. (Robinson v. Countrywide Home Loans, Inc. (2011) 199 Cal.App.4th 42, 46; Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1155.) Also, in the absence of a sale, Plaintiffs have not alleged prejudice.

The Homeowner’s Bill of Rights-Related Claims (Fourth, Fifth, and Sixth Causes of Action). Plaintiffs’ fourth cause of action (violation of the Homeowner’s Bill of Rights (HBOR)), fifth cause of action (negligence), and sixth cause of action (negligent infliction of emotional distress) all depend on whether Shellpoint and/or the Bank of New York had an obligation to consider an application for a loan modification. Judicially noticeable documents show that Plaintiffs were previously evaluated and issued a “Loan Modification Agreement,” which was recorded in the chain of title to the property. RJN, Ex. K. Under Civil Code § 2923.6(g):

In order to minimize the risk of borrowers submitting multiple applications for … modifications for the purposes of delay, the mortgage servicer shall not be obligated to evaluate applications from borrowers who have already been evaluated or afforded a fair opportunity to be evaluated…

(Emphasis added.) As Shellpoint and the Bank of New York were under no obligation to conduct a second evaluation of a loan modification application, Plaintiffs fail to state a cause of action for violation of HBOR.

With regard to negligence, the parties appear to agree that a lender owes no general duty of care to a borrower (see Nymark v. Heart Fed. Sav. & Loan Ass’n. (1991) 231 Cal.App.3d 1089, 1095-96; see also Castaneda v. Saxon Mortg. Servcs. Inc. (E.D. Cal. 2009) 687 F.Supp.2d 1191), but argue that there is a split of authority as to whether a lender owes a duty of care when evaluating an application for a loan modification (see Alvarez v. BAC Home Loans Servicing, LP (2014) 228 Cal.App.4th 941, 944-945, citing Biakanja v. Irving (1958) 49 Cal.2d 647, 650). However, in Alvarez, the lender sought a modification under an incentive program—the Home Affordable Mortgage Program (HAMP). Thus, the lender stood to gain by invoking the benefits of the regulatory scheme and was, in turn, required to exercise due care when engaging in the regulatory requirements. Here, as set forth above, the lender and servicer were under no obligation to evaluate Plaintiffs for a second loan modification under HBOR. Civil Code § 2923.6(g). As such, a duty to exercise care did not apply because there was no duty to evaluate in the first place. As duty is a required element of a claim for negligence, Plaintiffs’ negligence claim fails. Additionally, there are no damages alleged for the negligence cause of action.

With regard to negligent infliction of emotional distress, duty remains a required element as with any other negligence claim. (Ess v. Eskaton Properties, Inc. (2002) 97 Cal.App.4th 120, 126.) Therefore, as the duty element has not been established for the reasons set forth above, Plaintiffs’ claim for negligent infliction of emotional distress fails as well. Additionally, there are no damages alleged for the negligent infliction of emotional distress cause of action.

The Seventh Cause of Action (Unfair Competition – Bus. & Prof. § 17200). The seventh cause of action for unfair business practices appears to be based upon both the securitization-related facts and the loan modification facts. As to both of these theories, this cause of action fails for the reasons set forth above as to each. Indeed, Plaintiffs fail to allege any unlawful, fraudulent, or unfair acts that were committed by Shellpoint or the Bank of New York. In addition, for purposes of standing, the injury to (or loss of) property must be caused by the allegedly unfair competition. Since no such wrongful acts occurred, any damage or loss suffered by Plaintiffs did not result from an unfair business practice.

If this cause of action were based solely on the securitization-related facts, the Court would be inclined to deny leave to amend. However, “[a] general demurrer does not lie to only part of a cause of action” (Weil & Brown, Cal. Prac. Guide: Civ. Proc. Before Trial (The Rutter Group, 2017) ¶ 7:42.2, citing Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1167), and the facts underlying this claim appear to potentially involve the loan modification-related facts. For this reason, the Court grants leave to amend this cause of action.