Case Number: EC062007 Hearing Date: June 06, 2014 Dept: B

Demurrer and Motion to Strike

The Plaintiff alleges he obtained a loan secured by a deed of trust on his property. The Defendant, Citimortgage, Inc., was the owner and servicer of the Plaintiff’s loan. In June 2013, the Plaintiff submitted a loan modification application to Citimortgage, Inc. The Plaintiff then received a letter confirming that Citimortgage has received the Plaintiff’s loan modification application. The Plaintiff never received a written denial of his loan modification.

On November 12, 2013, Citimortgage, Inc. caused Defendant, Clear Recon, to record a notice of default. On February 1, 2014, Citimortgage, Inc., transferred the servicing of the loan to Defendant, Seterus, Inc.

The Plaintiff filed this Complaint to claim that the Defendants violated Civil Code section 2923.6 because they recorded a notice of default while his application for a loan modification was pending. Further, this was an unfair business practice.

Plaintiff alleges the following causes of action:
1) Violation of Homeowner Bill of Rights
2) Violation of Business and Professions Code section 17200

This hearing concerns the demurrer and motion to strike of the Defendant, Seterus, Inc.

1. Demurrer to First Cause of Action for Violation of Homeowner Bill of Rights

The Defendant argues that the pleadings do not state sufficient facts to demonstrate that it violated Civil Code section 2923.6 of the Homeowner Bill of Rights. The Homeowners Bill of Rights is a collection of statutes that became effective on January 1, 2013 and that add new procedures to California’s non-judicial foreclosure proceedings.

Civil Code section 2924.12 creates a statutory cause of action to enforce these requirements. If a trustee’s deed upon sale has not been recorded, then a borrower may bring an action for injunctive relief to enjoin a material violation of Civil code sections 2923.55, 2923.6, 2923.7, 2924.9, 2924.10, 2924.11, or 2924.17. If a trustee’s deed upon sale has been recorded, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall be liable to a borrower for actual economic damages pursuant to Section 3281, resulting from a material violation of Section 2923.55, 2923.6, 2923.7, 2924.9, 2924.10, 2924.11, or 2924.17 by that mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent where the violation was not corrected and remedied prior to the recordation of the trustee’s deed upon sale. In addition, section 2924.12 permits the Court to award attorney’s fees to a prevailing borrower.

Section 2923.6 regulates the manner in which loan applications are handled. Section 2923.6(c) states that if a borrower makes an application for a loan modification, a notice of default cannot be entered while the application is pending. Since this is a statutory claim, the pleadings must state with reasonable particularity the facts supporting the statutory elements of the violation. Khoury v. Maly’s of California, Inc. (1993) 14 Cal. App. 4th 612, 619.

The Plaintiff alleges in the first cause of action that the Defendants violated Civil Code section 2923.6 because they recorded a notice of default while the Plaintiff’s application for a loan modification was pending. However, there are no allegations that apply to Seterus, Inc.

The Plaintiff alleges in paragraph 31 that the Plaintiff submitted a lien loan modification to Citimortgage, Inc. The Plaintiff alleges in paragraph 33 that Citimortgage caused Clear Recon to record a notice of default on the Plaintiff’s property.

There are no allegations that the Plaintiff submitted a loan application to Seterus, Inc. There are no allegations that Seterus, Inc. recorded a notice of default while a loan application was pending. Since the Plaintiff has not pleaded with reasonable particularity the facts supporting a claim that Seterus, Inc. violated Civil Code section 2923.6, the cause of action lacks sufficient facts.

The Plaintiff alleges in paragraph 35 that Citimortgage, Inc. transferred the servicing rights for the Plaintiff’s loan to Seterus, Inc. and that for all purposes, “Seterus has stepped into the shoes of Citi due to Seterus’ assumption of the servicing rights of the Plaintiff’s loan.” This allegation is a conclusion that Seterus, Inc. is liable for the acts of Citimortgage. It lacks particular allegations that identify the legal theory under which Seterus, Inc. could be found liable for the acts of Citimortgage, Inc.

In his opposition, the Plaintiff argues that Seterus, Inc. is a successor company and that Seterus is a “mere continuation” of Citimortgage, Inc. The Plaintiff claims that it is irrelevant who services the Plaintiff’s loan.

First, under California law, in order to establish that a business entity is a “mere continuation” of its predecessor, a plaintiff must demonstrate the following:

1) no adequate consideration was given for the predecessor corporation’s assets and made available for meeting the claims of its unsecured creditors; and
2) one or more persons were officers, directors, or stockholders of both corporations.
CenterPoint Energy, Inc. v. Superior Court (2007) 157 Cal. App. 4th 1101, 1121.

The Plaintiff did not plead any particular facts to demonstrate that Seterus, Inc. is the “mere continuation” of Citimortgage, Inc. because no adequate consideration was given for Citimortgage, Inc.’s assets and that one or more persons were officers, directors, or stockholders of both corporations.

Second, it is relevant who services the Plaintiff’s loan because statutory liability under Civil Code section 2923.6 is imposed on the servicer who violated the statute. There is no language in section 2923.6 that makes subsequent servicers liable for the acts of predecessor servicers.

As noted above, the Plaintiff pleads facts indicating that Citimortgage, Inc. violated Civil Code section 2923.6 by directing that a notice of default be recorded on the Plaintiff’s property while the Plaintiff’s application for a loan modification to Citimortgage, Inc. was pending before Citimortgage, Inc. The pleadings do not plead any facts to demonstrate that Seterus, Inc. is liable for the acts of Citimortgage, Inc. Accordingly, the Plaintiff does not plead the claim against Seterus, Inc.

Therefore, the Court sustains the demurrer to the first cause of action. Since the Plaintiff argues in his opposition that Seterus, Inc. is liable because it is the “mere continuation” of Citimortgage, Inc., the Court will grant the Plaintiff 10 days leave to amend.

2. Demurrer to Second Cause of Action for Violation of Business and Professions Code section 17200

The Defendant argues that this cause of action does not plead sufficient facts. A plaintiff alleging unfair business practices under Business and Professions Code section 17200 is required to allege with reasonable particularity the facts supporting the statutory elements of the violation. Khoury v. Maly’s of California Inc. (1993) 14 Cal.App.4th 612, 619. This requires the complaint to allege which portion of the statutory scheme was violated and facts regarding the violation. Id.

A review of the Plaintiff’s second cause of action reveals that it is based on allegations that the Defendant engaged in unfair business practices by violating section 2923.6. There are no allegations particular to Seterus, Inc. Further, as discussed above, the First Amended Complaint lacks particular allegations demonstrating that Seterus, Inc. violated Civil Code section 2923.6. Accordingly, this cause of action lacks sufficient facts.

Therefore, the Court sustains the demurrer to the second cause of action. Since the Plaintiff argues in his opposition that Seterus, Inc. is liable because it is the “mere continuation” of Citimortgage, Inc., the Court grants the Plaintiff 10 days leave to amend to plead this theory.

3. Motion to Strike

In light of the recommended ruling to sustain the demurrers to the first and second causes of action, there are no pleadings remaining in the First Amended Complaint directed at the moving party, Seterus, Inc. Accordingly, the Court takes the motion to strike off calendar as moot.