Case Name: Guillermina Garcia-Barrera, et al. v. Wells Fargo Bank, N.A., et al.
Case No.: 2017-CV-317925

Demurrer to the Second Amended Complaint by Defendant Wells Fargo Bank, N.A.

Factual and Procedural Background

This is a foreclosure action. Plaintiffs Guillermina Garcia-Barrera and Rogelio Barrera (collectively, “Plaintiffs”) are owners of real property located at 826 N. White Road in San Jose, California (“Property”). (Second Amended Complaint [“SAC”] at ¶¶ 3, 7.) In May 2006, Plaintiffs obtained $612,500 in financing secured by the Property, executing a Promissory Note and Deed of Trust in favor of World Savings Bank, F.S.B. (Id. at ¶ 8.) The loan payment included an escrow payment designed to pay taxes and insurance on the Property. (Ibid.) Defendant Wells Fargo Bank, N.A. (“Wells Fargo”) is the current owner of Plaintiffs’ loan and beneficiary of the Deed of Trust securing the mortgage loan. (Id. at ¶ 4.) Wells Fargo is also the current servicer for the loan. (Ibid.)

In January 2011, Plaintiffs received a HAMP modification agreement which modified the terms of their loan, including the principal balance, which was modified to $632,680.46. (SAC at ¶ 9.) Plaintiffs thereafter fell into arrears due to an unexpected financial hardship and eventually filed a Chapter 13 bankruptcy petition on July 22, 2011. (Id. at ¶¶ 10-11.) During the course of the bankruptcy, Plaintiffs made payments toward the loan, including the arrearage and monthly payments. (Id. at ¶ 11.)

Plaintiffs dismissed their Chapter 13 bankruptcy petition on February 29, 2016. (SAC at ¶ 14.) Thereafter, on April 20, 2016, defendant Clear Recon Corp. recorded a Notice of Default for Plaintiffs’ loan indicating a default in the amount of $167,914.08, for non-payment on the loan since August 2011. (Id. at ¶ 15.) Plaintiffs had made substantial payments toward the loan, which they now believe were not applied to the loan and are possibly being held in a suspense account instead of being applied toward the default. (Id. at ¶ 16.) Plaintiffs have since tried to remedy the issue but to no avail. (Id. at ¶ 17.)

On August 31, 2017, defendants caused a Notice of Trustee’s Sale to be recorded for the Property, where the total amount owed on Plaintiffs’ loan is $771,419.05. (SAC at ¶ 18.) Plaintiffs believe the amounts set forth in the Notice of Default and Notice of Trustee’s Sale do not reflect payments they made toward the loan since July 2011. (Ibid.)

On March 14, 2018, Plaintiffs filed a First Amended Complaint (“FAC”) against defendants setting forth causes of action for: (1) Violation of Civil Code Section 2924.17; (2) Violation of Civil Code Section 2924(a); and (3) Declaratory Relief. Defendant Wells Fargo thereafter filed a demurrer to each cause of action in the FAC on the ground that they failed to state a valid claim. The Court overruled the demurrer to the first and third causes of action and sustained the demurrer with leave to amend to the second cause of action.

On August 28, 2018, Plaintiffs filed the operative SAC alleging the same causes of action against defendants.

Demurrer to the SAC

Currently before the Court is the demurrer to the SAC by defendant Wells Fargo on the ground that each claim fails to state a cause of action. (Code Civ. Proc., § 430.10, subd. (e).) Wells Fargo filed a request for judicial notice in conjunction with the motion. Plaintiffs filed written opposition. Wells Fargo filed reply papers.

Untimely Opposition

In reply, defendant Wells Fargo argues that Plaintiffs filed and served an untimely opposition to the demurrer. (See Reply at p. 1, fn. 1.) Code of Civil Procedure 1005, subdivision (b) requires all opposing papers to be filed and served at least nine court days before the hearing. No paper may be rejected for filing on the ground that it was untimely submitted for filing. (Cal. Rules of Court, rule 3.1300(d).) If the Court, in its discretion, refuses to consider a late filed paper, the minutes or order must indicate. (Ibid.)

Here, the demurrer is scheduled for hearing on January 29, 2019. Thus, the opposition papers must be filed and served no later than January 15, 2019. This deadline accounts for the court holiday on January 21, 2019. Plaintiffs’ opposition appears to be filed even a day early as it was filed on January 14, 2019. However, the proof of service indicates service by mail on January 14, 2019. The Code requires that all papers in opposition or reply must be served to insure delivery by the next day, i.e., by some form of overnight delivery or electronic service. (Code of Civ. Proc. 1005(c).) The fact that Wells Fargo did not receive the opposition until January 22, 2019 does not mean it was not timely filed. Even if the papers were not properly served, there appears to be no prejudice as Wells Fargo timely filed and served substantive reply papers. The Court therefore will address the merits of the opposition.

Wells Fargo’s Request for Judicial Notice

In support of the motion, Wells Fargo requests judicial notice of various real property documents, records filed in the bankruptcy court, and the loan modification agreement. (See Request for Judicial Notice [“RJN”] at Exhibits A-S.)

“Judicial notice is the recognition and acceptance by the court, for use by the trier of fact or by the court, of the existence of a matter of law or fact that is relevant to an issue in the action without requiring formal proof of the matter.” (Poseidon Development, Inc. v. Woodland Lane Estates, LLC (2007) 152 Cal.App.4th 1106, 1117.)

Here, the Court may take judicial notice of Exhibits A, J, and S as real property documents recorded in Santa Clara County. (See Evid. Code, § 452, subd. (h); see also Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264-265 [disapproved on other grounds in Yvanova v. New Century Morg. Corp. (2016) 62 Cal.4th 919] [court may take judicial notice of the existence and recordation of real property records]; Evans v. California Trailer Court, Inc. (1994) 28 Cal.App.4th 540, 549 [court may take judicial notice of recorded deeds].)

In addition, the Court may take judicial notice of Exhibits C, D, E, F, G, H, I, K, L, M, N, O, P, Q, and R as documents filed in the bankruptcy court. (See Evid. Code, § 452, subd. (d); see also Cloud v. Northrop Grumman Corp. (1988) 67 Cal.App.4th 995, 999, 1018 [judicial notice of bankruptcy filings in considering motion for judgment on the pleadings].)

Finally, with respect to Exhibit B, the loan modification agreement, it has been held that a contract between private parties is not subject to judicial notice. (See Gould v. Maryland Sound Industries, Inc. (1995) 31 Cal.App.4th 1137, 1145.) However, judicial notice of a contract or similar type of private-party document has been allowed where there is no dispute regarding the document’s authenticity and enforceability. (See Ascherman v. Gen. Reinsurance Corp. (1986) 183 Cal.App.3d 307, 310-311.) Here, Plaintiffs do not dispute the authenticity or enforceability of the loan modification agreement. In fact, the loan modification agreement is specifically referenced in the SAC. (See SAC at ¶ 9.) The Court therefore takes judicial notice of the loan modification agreement.

Accordingly, the request for judicial notice is GRANTED.

Legal Standard

“In reviewing the sufficiency of a complaint against a general demurer, we are guided by long settled rules. ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. We also consider matters which may be judicially noticed.’” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “A demurrer tests only the legal sufficiency of the pleading. It admits the truth of all material factual allegations in the complaint; the question of plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213–214.)

“The reviewing court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. The court does not, however, assume the truth of contentions, deductions or conclusions of law. … [I]t is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. And it is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment.” (Gregory v. Albertson’s, Inc. (2002) 104 Cal.App.4th 845, 850.)

First Cause of Action: Violation of Civil Code Section 2924.17

The first cause of action is a claim for violation of Civil Code section 2924.17, subdivision (b). That section provides that, before recording a Notice of Default or Notice of Trustee’s Sale, “a mortgage servicer shall ensure that it has reviewed competent and reliable evidence to substantiate the borrower’s default and the right to foreclose, including the borrower’s loan status and loan information.” (Civ. Code, § 2924.17.)

Plaintiffs allege defendant Wells Fargo failed to review competent and reliable evidence to substantiate the default before recording the Notice of Default and Notice of Trustee’s Sale for the Property. (SAC at ¶ 25.) This is because, since July 2011, Plaintiffs had made payments toward the loan and Wells Fargo failed to apply such payments to the loan balance. (Ibid.) In addition, defendant Wells Fargo charged Plaintiffs for an insurance policy in 2015 when the escrow payments were covering the insurance payments. (Ibid.) Wells Fargo’s position as the owner and servicer of the loan places it in a position with access to the information necessary to ensure that Plaintiffs’ payments are correctly applied to the loan. (Id. at ¶ 26.) Thus, the alleged default in the foreclosure documents recorded for Plaintiffs’ Property along with the mishandling of the insurance demonstrates that Wells Fargo failed to review competent and reliable evidence to substantiate Plaintiffs’ default. (Ibid.)

As stated above, the Court previously overruled the demurrer to the first cause of action in the FAC. California cases disagree on whether a defendant may properly demur to a cause of action as to which a court has previously overruled a demurrer to a prior complaint. For example, in Bennett v. Suncloud (1997) 56 Cal.App.4th 91, the appellate court held that a trial court may not render a new determination of the “viability of those claims unless some new facts or circumstances were brought to [its] attention.” (Id. at p. 97.) Pacific States Enterprises, Inc. v. City of Coachella (1993) 13 Cal.App.4th 1414 reached the opposite conclusion, holding that an objecting party may properly demur on grounds previously overruled in a prior demurrer because the “ ‘interests of all parties are advanced by avoiding a trial and reversal for defect in pleadings.’ ” (Id. at p. 1420, fn. 3; accord Pavicich v. Santucci (2000) 85 Cal.App.4th 382, 389, fn. 3; Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1036.) The Court agrees with this latter position as the interests of both parties are best served by addressing any potential defects in the pleading at the demurrer stage. The Court thus will address the merits of the arguments raised to the first cause of action.

Defendant Wells Fargo first argues that Plaintiffs fail to allege sufficient facts to support relief under section 2924.17. The facts set forth in paragraphs 25 and 26, as stated above, adequately support a cause of action under this code section. No further specificity is required and such facts must be accepted as true for purposes of demurrer. (See Olson v. Toy (1996) 46 Cal.App.4th 818, 823 [for purposes of demurrer, we accept these allegations as true].) Accordingly, this argument is not sustainable on demurrer.

In addition, defendant Wells Fargo argues, referring to judicially noticed documents, that Plaintiffs are estopped from seeking relief under section 2924.17 because of actions taken during the bankruptcy proceedings. This contention however lacks merit as it is not supported by any legal authority. (See Badie v. Bank of America (1998) 67 Cal. App. 4th 779, 784-785 [“[w]hen [a party] fails to raise a point, or asserts it but fails to support it with reasoned argument and citations to authority, we treat the point as waived”]; see also Schaeffer Land Trust v. San Jose City Council (1989) 215 Cal.App.3d 612, 619, fn. 2 [“a point which is merely suggested by a party’s counsel, with no supporting argument or authority, is deemed to be without foundation and requires no discussion”].) Therefore, this argument is not sustainable on demurrer.

Consequently, the demurrer to the first cause of action on the ground that it fails to state a claim is OVERRULED.

Second Cause of Action: Violation of Civil Code Section 2924(a)(1)(C)

The second cause of action is a claim for violation of Civil Code section 2924, subdivision (a)(1)(C). That section requires that the beneficiary of the deed of trust include a statement in the notice of default that describes “the nature of each breach actually known to the beneficiary and of his or her election to sell or cause to be sold the property to satisfy that obligation and any other obligation secured by the deed of trust or mortgage that is in default.” (Civ. Code, § 2924, subd. (a)(1)(C).)

Here, Plaintiffs allege that a Notice of Default was recorded stating they were in default for $167,914.08 for non-payment on the loan since August 2011. (See SAC at ¶ 15.) Consistent with this allegation, defendant Wells Fargo submits a Notice of Default stating that Plaintiffs were in default in the amount of $167,914.08. (See RJN at Exhibit J.) Based on the foregoing, the Court finds that the Notice contains the required statement.

In opposition, Plaintiffs dispute the total amount listed in the Notice of Default. (See OPP at pp. 6-7.) This contention however is not persuasive as the plain language of the statute requires only that the notice include a statement of breaches known to the beneficiary. Since the Notice of Default in this case includes that statement, the demurrer is sustainable on that basis and Plaintiffs provide no grounds for further amendment.

Accordingly, the demurrer to the second cause of action is SUSTAINED WITHOUT LEAVE TO AMEND for failure to state a claim. (See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 [the burden is on plaintiff to show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading].)

Third Cause of Action: Declaratory Relief

The third cause of action is a claim for declaratory relief. As an equitable remedy, declaratory relief is “dependent upon a substantive basis for liability” and has “no separate viability” if all other causes of action are barred. (Glue-Fold, Inc. v. Slautterback Corp. (2003) 82 Cal.App.4th 1018, 1023, fn. 3.) Here, as Wells Fargo argues, the claim for declaratory relief is based on the prior causes of action. Since Plaintiffs’ first cause of action survives demurrer, so too does the claim for declaratory relief.

Therefore, the demurrer to the third cause of action on the ground that it fails to state a claim is OVERRULED.

The Court will prepare the Order.