Opinion
A144018
06-30-2017
MASAZUMI INOUE ET AL., Plaintiffs and Appellants, v. BAYVIEW LOAN SERVICING ET AL., Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (San Mateo County Super. Ct. No. CIV528671)
Plaintiffs Masazumi Inoue and Mie Inoue appeal after the trial court sustained without leave to amend the demurrer of defendants Bayview Loan Servicing, LLC (Bayview), E*Trade Financial Corporation (E*Trade), Seaside Trustee Inc. (Seaside), and Mortgage Electronic Registration Systems, Inc. (MERS), and dismissed the action. We shall affirm the judgment.
I. BACKGROUND
Plaintiffs brought this action alleging claims for wrongful foreclosure, violation of Civil Code section 2924, subdivision (a)(6), declaratory relief, violation of the covenant of good faith and fair dealing, violation of Business and Professions Code section 17200, and equitable estoppel. Defendants demurred, but before their demurrer was heard, plaintiffs filed a first amended complaint, which added a cause of action for violation of Civil Code section 2934a. Plaintiffs sought damages, an order enjoining defendants from carrying out the foreclosure sale, and declaratory relief.
All undesignated statutory references are to the Civil Code. The first amended complaint mistakenly referred to "Civil Code of Procedure" rather than the Civil Code.
The first amended complaint mistakenly referred to section 2934, subdivision (a), rather than 2934a.
The first amended complaint alleged plaintiffs executed a promissory note in 2005 in the amount of $1,000,000 in favor of Preferred Financial Group (Preferred), secured by a deed of trust against their home in San Mateo (the Property). The note was thereafter transferred to E*Trade in 2010 through an assignment of deed of trust signed by MERS's assistant secretary. The loan was later transferred to Bayview, but plaintiffs were not notified of the transfer.
The note was securitized and transferred into a trust formed pursuant to New York law, the ETRD 2006-5A Trust (the Trust). This occurred after the 2006 closing date of the Trust. Plaintiffs did not receive any notice of their new creditor.
Seaside, acting as the foreclosure trustee under the deed of trust, caused a notice of default to be recorded on the Property in 2012, and in 2014 caused a notice of trustee sale to be served.
Defendants demurred to the first amended complaint. The trial court sustained the demurrer without leave to amend and dismissed the case with prejudice.
II. DISCUSSION
1. Standard of Review
In reviewing a trial court's ruling sustaining a demurrer without leave to amend, we " 'first review the complaint de novo to determine whether or not the . . . complaint alleges facts sufficient to state a cause of action under any legal theory, [citation], or in other words, to determine whether or not the trial court erroneously sustained the demurrer as a matter of law. [Citation.]' [Citation.]" (Total Call Internat., Inc. v. Peerless Ins. Co. (2010) 181 Cal.App.4th 161, 166.) In doing so, " 'we examine the complaint's factual allegations to determine whether they state a cause of action on any available legal theory. [Citation.] We treat the demurrer as admitting all material facts which were properly pleaded. [Citation.] However, we will not assume the truth of contentions, deductions, or conclusions of fact or law [citation], and we may disregard any allegations that are contrary to the law or to a fact of which judicial notice may be taken. [Citation.]' [Citation.]" (Ibid.) We then determine whether the plaintiff could amend the complaint to state a cause of action. "[T]he burden falls upon the plaintiff to show what facts he or she could plead to cure the existing defects in the complaint. [Citation.] 'To meet this burden, a plaintiff must submit a proposed amended complaint or, on appeal, enumerate the facts and demonstrate how those facts establish a cause of action.' [Citation.]" (Ibid.)
2. The Nonjudicial Foreclosure Process
"We begin with a general overview of the applicable law. A nonjudicial foreclosure sale is a 'quick, inexpensive[,] and efficient remedy against a defaulting debtor/trustor.' [Citation.] To preserve this remedy for beneficiaries while protecting the rights of borrowers, 'Civil Code sections 2924 through 2924k provide a comprehensive framework for the regulation of a nonjudicial foreclosure sale pursuant to a power of sale contained in a deed of trust.' [Citation.] Under a deed of trust, the trustee holds title and has the authority to sell the property in the event of a default on the mortgage. [Citation.] To initiate the foreclosure process, '[t]he trustee, mortgagee, or beneficiary, or any of their authorized agents' must first record a notice of default. (Civ. Code, § 2924, subd. (a)(1).) The notice of default must identify the deed of trust 'by stating the name or names of the trustor or trustors' and provide a 'statement that a breach of the obligation for which the mortgage or transfer in trust is security has occurred' and a 'statement setting forth 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 [the] obligation . . . that is in default.' (§ 2924, subd. (a)(1)(A)-(C).) After three months, a notice of sale must then be published, posted, mailed, and recorded in accordance with the time limits prescribed by the statute. (§§ 2924, subd. (a)(3), 2924f.)" (Ram v. OneWest Bank, FSB (2015) 234 Cal.App.4th 1, 10, fn. omitted (Ram).)
" 'The purposes of this comprehensive scheme are threefold: (1) to provide the creditor/beneficiary with a quick, inexpensive and efficient remedy against a defaulting debtor/trustor; (2) to protect the debtor/trustor from wrongful loss of the property; and (3) to ensure that a properly conducted sale is final between the parties and conclusive as to a bona fide purchaser.' [Citation.] 'Because of the exhaustive nature of this scheme, California appellate courts have refused to read any additional requirements into the non-judicial foreclosure statute.' [Citations.]" (Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1154 (Gomes).)
3. Cause of Action for Wrongful Foreclosure
Plaintiffs' first cause of action is for wrongful foreclosure. They appear to allege that the note and deed of trust were not transferred to the Trust before the Trust's closing date, that the 2010 assignment to E*Trade occurred after the closing date of the Trust, and that the transactions were void.
The elements of a cause of action for wrongful foreclosure are "(1) the defendants caused an illegal, fraudulent, or willfully oppressive sale of the property pursuant to a power of sale in a mortgage or deed of trust; (2) the plaintiff suffered prejudice or harm; and (3) the plaintiff tendered the amount of the secured indebtedness or was excused from tendering." (Chavez v. Indymac Mortgage Services (2013) 219 Cal.App.4th 1052, 1062 (Chavez).) This action, however, is a preforeclosure action, and as a result, the first element of the cause of action is not satisfied.
Several courts have held that preemptive actions for wrongful foreclosure are not permitted because they are inconsistent with the nonjudicial foreclosure scheme. For instance, in Saterbak v. JPMorgan Chase Bank, N.A. (2016) 245 Cal.App.4th 808, 814 (Saterbak), the court noted that the crux of the plaintiff's argument was that she could bring a preemptive action to determine whether a trust could initiate a nonjudicial foreclosure. The court rejected this argument: "California courts do not allow such preemptive suits because they 'would result in the impermissible interjection of the courts into a nonjudicial scheme enacted by the California Legislature.' (Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 513 (Jenkins), disapproved on other grounds in Yvanova[ v. New Century Mortgage Corp. (2016) 62 Cal.4th 919,] 939, fn. 13 [(Yvanova)]; see Gomes[, supra,] 192 Cal.App.4th [at p.] 1156 . . . ['California's nonjudicial foreclosure law does not provide for the filing of a lawsuit to determine whether MERS has been authorized by the holder of the Note to initiate a foreclosure.'].) As the court reasoned in Gomes: '[The borrower] is not seeking a remedy for misconduct. He is seeking to impose the additional requirement that MERS demonstrate in court that it is authorized to initiate a foreclosure. . . . [S]uch a requirement would be inconsistent with the policy behind nonjudicial foreclosure of providing a quick, inexpensive and efficient remedy.' (Gomes, supra, at p. 1154, fn. 5.)" (Saterbak, at pp. 814-815, fn. omitted.) The court in Robinson v. Countrywide Home Loans, Inc. (2011) 199 Cal.App.4th 42, 46, reached the same conclusion, stating, "We agree with the Gomes court that the statutory scheme (§§ 2924-2924k) does not provide for a preemptive suit challenging standing. Consequently, plaintiffs' claims for damages for wrongful initiation of foreclosure and for declaratory relief based on plaintiffs' interpretation of section 2924, subdivision (a), do not state a cause of action as a matter of law. [Citation.]" (Fn. omitted.) We reach the same conclusion here.
Furthermore, plaintiffs lack standing to challenge the assignment of the note to the Trust. The facts before us are similar to those in Saterbak. In Saterbak, as here, the plaintiff brought a preforeclosure action contending the assignment of a note to a trust was void because it took place after the trust's closing date. (Saterbak, supra, 245 Cal.App.4th at pp. 811-812 & fn. 1, 815.) On those facts, the appellate court concluded the borrower lacked standing to challenge the assignment. (Id. at pp. 814-815.) Saterbak noted that the California Supreme Court had recently held that a borrower had standing to sue for wrongful foreclosure where an alleged defect in an assignment rendered the assignment void. (Id. at p. 815, citing Yvanova, supra, 62 Cal.4th at pp. 942-943.) However, as the court in Saterbak noted, Yvanova's ruling was expressly limited to post-foreclosure actions. (Saterbak, 245 Cal.App.4th at p. 815.) Moreover, as Saterbak explained, even in the post-foreclosure context, Yvanova recognizes borrower standing to challenge an assignment "only where the defect in the assignment renders the assignment void, rather than voidable." (Saterbak, supra, 245 Cal.App.4th at p. 815, citing Yvanova, supra, 62 Cal.4th at pp. 942-943.)
In Yvanova, our high court declined to consider "whether a postclosing date transfer into a New York securitized trust," such as that at issue here, "is void or merely voidable." (Yvanova, supra, 62 Cal.4th at p. 931.) Since Yvanova was decided, several California appellate cases have considered the question our high court left open. In Saterbak, supra, 245 Cal.App.4th at p. 815, Division One of the Fourth Appellate District concluded, without extended discussion, that an untimely assignment to a securitized trust is merely voidable, rather than void. It relied on Rajamin v. Deutsche Bank National Trust Co. (2d Cir. 2014) 757 F.3d 79, 88-89, which stated, "the weight of New York authority is contrary to plaintiffs' contention that any failure to comply with the terms of the [pooling and service agreements] rendered defendants' acquisition of plaintiffs' loans and mortgages void as a matter of trust law" and "an unauthorized act by the trustee is not void but merely voidable by the beneficiary." (Saterbak, supra, 245 Cal.App.4th at p. 815.) The court in Saterbak noted that a California case holding otherwise, Glaski v. Bank of America (2013) 218 Cal.App.4th 1079, 1097, had relied on a New York case, Wells Fargo Bank, N.A. v. Erobobo (N.Y.Sup.Ct. 2013) 39 Misc.3d 1220(A) (Erobobo I)) that had since been overturned in Wells Fargo Bank, N.A. v. Erobobo (N.Y.App.Div. 2015) 127 A.D.3d 1176, 1178 (Erobobo II). (Saterbak, supra, 245 Cal.App.4th at p. 815, fn. 5.)
Other appellate courts have reached the same conclusion. (Kalnoki v. First American Trustee Servicing Solutions, LLC (2017) 8 Cal.App.5th 23, 42-43 [Third Appellate District]; Mendoza v. JPMorgan Case Bank, N.A. (2016) 6 Cal.App.5th 802, 811-817 [Third Appellate District]; Yhudai v. IMPAC Funding Corp. (2016) 1 Cal.App.5th 1252, 1256-1260 (Yhudai) [Second Appellate District, Division One].) The court in Yhudai explained: "The rejection of Erobobo I is based on sound reasoning. Under New York law, unauthorized acts by trustees may generally be approved, or ratified, by the trust beneficiaries. [Citation.] Under Erobobo I, however, a stranger to the trust would have standing to assert that the unauthorized transaction is void, thereby giving 'the stranger . . . the power to interfere with the beneficiaries' right of ratification.' [Citation.] The stranger's right (under Erobobo I) to declare a transaction void would thus conflict directly with the beneficiaries' right to ratify the transaction. This conflict is avoided by rejecting Erobobo I: Because a trust beneficiary under New York law 'retains the authority to ratify a trustee's ultra vires act, such as a late transfer[,] . . . the act . . . must not be void; it must merely be voidable.' [Citation.]" (Yhudai, supra, 1 Cal.App.5th at p. 1259.)
We too follow this consistent line of authority and conclude the assignment of the note to the Trust was at most voidable, rather than void. Plaintiffs do not have standing to challenge a voidable assignment. (Saterbak, supra, 245 Cal.App.4th at p. 815.) Their cause of action for wrongful foreclosure therefore fails.
Because we reach this conclusion, we need not address the question of whether plaintiffs have alleged the third element of a cause of action for wrongful foreclosure—that they tendered the amount of the indebtedness—or whether they fall within any of the exceptions to the tender requirement. (See Chavez, supra, 219 Cal.App.4th at p. 1062; Lona v. Citibank, N.A. (2011) 202 Cal.App.4th 89, 112-113.) We note, however, that it is not clear that the tender requirement applies at all in a case brought to preempt a foreclosure. (See Pfeifer v. Countrywide Home Loans, Inc. (2012) 211 Cal.App.4th 1250, 1280 ["A number of courts have explicitly held that the tender rule applies only in cases seeking to set aside a completed sale, rather than an action seeking to prevent a sale in the first place"].)
4. The Remaining Causes of Action
In their opening brief, appellants do not make any specific arguments to support their second through seventh causes of action. In their reply brief, they offer cursory arguments as to each of them. Although we are not required to consider contentions made for the first time in a reply brief (Sierra Club v. City of Orange (2008) 163 Cal.App.4th 523, 548), we shall discuss briefly the remaining causes of action.
a. Section 2924, subdivision (a)(6)
The second cause of action asserts a claim for violation of section 2924, subdivision (a)(6), which prohibits an entity from recording a notice of default unless it is the holder of the beneficial interest, the original or substituted trustee, or a designated agent, and seeks injunctive relief and damages. In Lucioni v. Bank of America (2016) 3 Cal.App.5th 150, 155, the court held that injunctive relief is not available for a violation of section 2924, subdivision (a)(6). More fundamentally, the California Homeowner Bill of Rights, of which section 2924, subdivision (a)(6) is a part, went into effect on January 1, 2013 and does not apply retroactively. (Id. at p. 158; Saterbak, supra, 245 Cal.App.4th at p. 818.) The notice of default at issue here was recorded in 2012, before the effective date of section 2924. This cause of action therefore fails.
Section 2924, subdivision (a)(6) provides: "No entity shall record or cause a notice of default to be recorded or otherwise initiate the foreclosure process unless it is the holder of the beneficial interest under the mortgage or deed of trust, the original trustee or the substituted trustee under the deed of trust, or the designated agent of the holder of the beneficial interest. No agent of the holder of the beneficial interest under the mortgage or deed of trust, original trustee or substituted trustee under the deed of trust may record a notice of default or otherwise commence the foreclosure process except when acting within the scope of authority designated by the holder of the beneficial interest."
The third cause of action alleges defendants violated section 2934a. In June 2010, MERS, as nominee for Preferred, assigned the deed of trust to E*Trade. In July 2012, Bayview, as servicer for E*Trade, substituted Seaside as Trustee, and the substitution was recorded in September 2012.
Section 2934a, subdivision (a), provides: "The trustee under a trust deed upon real property or an estate for years therein given to secure an obligation to pay money and conferring no other duties upon the trustee than those which are incidental to the exercise of the power of sale therein conferred, may be substituted by the recording in the county in which the property is located of a substitution executed and acknowledged by: (A) all of the beneficiaries under the trust deed, or their successors in interest, and the substitution shall be effective notwithstanding any contrary provision in any trust deed executed on or after January 1, 1968; or (B) the holders of more than 50 percent of the record beneficial interest of a series of notes secured by the same real property or of undivided interests in a note secured by real property equivalent to a series transaction, exclusive of any notes or interests of a licensed real estate broker that is the issuer or servicer of the notes or interests or of any affiliate of that licensed real estate broker." Subdivision (c) provides: "If the substitution is effected after a notice of default has been recorded but prior to the recording of the notice of sale, the beneficiary or beneficiaries or their authorized agents shall cause a copy of the substitution to be mailed, prior to, or concurrently with, the recording thereof, in the manner provided in Section 2924b, to the trustee then of record and to all persons to whom a copy of the notice of default would be required to be mailed by the provisions of Section 2924b. An affidavit shall be attached to the substitution that notice has been given to those persons and in the manner required by this subdivision." --------
Plaintiffs allege that only the original trustee, not Bayview, had authority to make the 2012 substitution of trustee. As we have explained, however, the deed of trust was assigned to E*Trade, for which Bayview acted as servicer.
Plaintiffs claim that when Seaside recorded the notice of default on June 8, 2012, it had not yet been substituted as trustee, and therefore had no authority to initiate foreclosure proceedings. This contention is meritless. Section 2934a, subdivision (c), contemplates that a substitution may be effected after a notice of default has been recorded but before the notice of sale is recorded.
Plaintiffs also allege that defendants violated section 2934a, subdivision (c), by failing to mail a substitution of trustee to them when Seaside was substituted as trustee. However, the Deed of Trust signed by the parties contains a method for substitution of the trustee that does not require mailing of notice. In Ram, this division held that a virtually identical provision superseded the requirement of mailing under section 2934a, subdivision (c), because "[i]t is well settled that parties to a deed of trust may agree to a form of substitution of trustee other than that provided in section 2934a." (Ram, supra, 234 Cal.App.4th at p. 16, citing Jones v. First American Title Ins. Co. (2003) 107 Cal.App.4th 381, 390.)
c. Declaratory Relief
In their fourth cause of action, for declaratory relief, plaintiffs plead that an actual controversy exists in that they contend defendants had no right to foreclose their home and that defendants had failed to perfect a security interest and therefore had no power of sale. To maintain a cause of action for declaratory relief, plaintiffs must allege an actual controversy. (City of Cotati v. Cashman (2002) 29 Cal.4th 69, 79.) However, this claim is essentially a restatement of their cause of action for wrongful foreclosure. They cannot avoid the rule against preemptive wrongful foreclosure actions by framing their challenge as a claim for declaratory relief. (See Jenkins, supra, 216 Cal.App.4th at pp. 511-513, overruled on other grounds in Yvanova, supra, 62 Cal.4th at p. 939, fn. 13; see also Gomes, supra, 192 Cal.App.4th at p. 1155 ["The recognition of the right to bring a lawsuit to determine a nominee's authorization to proceed with foreclosure on behalf of the noteholder would fundamentally undermine the nonjudicial nature of the process and introduce the possibility of lawsuits filed solely for the purpose of delaying valid foreclosures"].)
d. Implied Covenant of Good Faith and Fair Dealing
In their fifth cause of action, plaintiffs allege defendants violated the implied covenant of good faith and fair dealing by not informing them that the loan had been assigned, thus depriving plaintiffs of the opportunity to negotiate with their creditor. Defendants contend they are not a party to any contract with plaintiffs and consequently have no contractual obligation to them. (Barroso v. Ocwen Loan Servicing, LLC (2012) 208 Cal.App.4th 1001, 1015 (Barroso) [" 'The implied covenant of good faith and fair dealing rests upon the existence of some specific contractual obligation' "].)
"[E]very contract imposes upon each party a duty of good faith and fair dealing in the performance of the contract such that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. [Citation.]" (Barroso, supra, 208 Cal.App.4th at p. 1014.) However, this covenant does not prohibit actions that are expressly authorized by the contract. (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 374.) Even assuming the deed of trust imposes duties upon defendants, this cause of action fails. Plaintiffs have not pled any facts describing how defendants deprived them of the right to receive any benefits under the deed of trust or "refused to perform a specific act presupposed by the terms of the deed of trust." (Jenkins, supra, 216 Cal.App.4th at p. 525.)
e. Unfair Business Practices
The sixth cause of action, for unfair business practices (Bus. & Prof. Code, § 17200), alleges defendants engaged in unfair competition by collecting on a debt that was void and unenforceable, failing to offer viable options to foreclosure, not offering affordable default resolution, denying them the benefits of the loan agreement and federal programs designed to prevent foreclosure, attempting to foreclose on the Property without proper transfer or endorsement of the promissory note, and deceiving them into believing E*Trade and Bayview were the true owners of the loan. The trial court noted, correctly, that plaintiffs fail to allege specific facts in support of this claim. (See Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1186-1187 [no facts to support conclusory allegation that defendants violated statute]; Ramirez v. Wong (2010) 188 Cal.App.4th 1480, 1488.) To a large extent, this cause of action is an attempt, by another name, to restate their preemptive claim for wrongful foreclosure, and we reject it. (See Daniels, supra, 246 Cal.App.4th at p. 1187 [unfair business practices claim fails to extent predicated on failed claim for wrongful foreclosure]; Jenkins, supra, 216 Cal.App.4th 497, 512-513.)
f. Equitable Estoppel
The seventh cause of action purports to plead a claim for equitable estoppel. Equitable estoppel operates defensively only, and there is no stand-alone cause of action for equitable estoppel. (Behnke v. State Farm General Ins. Co. (2011) 196 Cal.App.4th 1443, 1463.)
5. Denial of Leave to Amend
Plaintiffs also contend they should have been granted leave to amend their first amended complaint. "Where, as here, 'the trial court sustains a demurrer without leave to amend, we review the determination that no amendment could cure the defect in the complaint for an abuse of discretion. [Citation.] The trial court abuses its discretion if there is a reasonable possibility that the plaintiff could cure the defect by amendment. [Citation.] The plaintiff has the burden of proving that amendment would cure the legal defect, and may meet this burden on appeal. [Citations.]' [Citation.]" (Brown v. Deutsche Bank National Trust Co. (2016) 247 Cal.App.4th 275, 279.) Plaintiffs have not met their burden to show how they might amend their complaint to cure the deficiencies we have identified.
III. DISPOSITION
The judgment is affirmed.
/s/_________
Rivera, J. We concur: /s/_________
Ruvolo, P.J. /s/_________
Streeter, J.