Opinion
A142814
02-17-2017
HANNEKE C. AND GARY R. LOHSE, Plaintiffs and Appellants, v. NATIONSTAR MORTGAGE LLC. 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Solano County Super. Ct. No. FCS043010)
I. INTRODUCTION
Plaintiffs Hanneke and Gary Lohse sued defendants to prevent them from following through on their threats to foreclose on the Lohses' home. The Lohses claimed that defendants lacked the authority to foreclose because the assignment of the Lohses' loan to a securitized trust contravened the terms of the agreement governing the trust. Following a clear trend among appellate courts, we hold that the Lohses lacked standing to sue, and affirm the trial court's order sustaining defendants' demurrer without leave to amend.
II. FACTUAL AND PROCEDURAL BACKGROUND
This case comes to us on appeal from the trial court's sustaining of a demurrer. "For purposes of reviewing a demurrer, we accept the truth of material facts properly pleaded in the operative complaint, but not contentions, deductions, or conclusions of fact or law. We may also consider matters subject to judicial notice. [Citation.] To determine whether the trial court should, in sustaining the demurrer, have granted plaintiff leave to amend, we consider whether on the pleaded and noticeable facts there is a reasonable possibility of an amendment that would cure the complaint's legal defect or defects. [Citation.]" (Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, 924.)
In February 2006, the Lohses refinanced their mortgage with a $692,000 adjustable-rate loan from Homecomings Financial Network ("Homecomings"). The loan was evidenced by a promissory note secured by a deed of trust on real property located on North Meridian Road in Vacaville. The deed of trust designated Mortgage Electronic Registration Systems, Inc. ("MERS") as the beneficiary acting "solely as a nominee for Lender and Lender's successor's and assigns."
" 'MERS is a private corporation that administers a national registry of real estate debt interest transactions. Members of the MERS System assign limited interests in the real property to MERS, which is listed as a grantee in the official records of local governments, but the members retain the promissory notes and mortgage servicing rights. The notes may thereafter be transferred among members without requiring recordation in the public records. [Citation.] [¶] Ordinarily, the owner of a promissory note secured by a deed of trust is designated as the beneficiary of the deed of trust. [Citation.] Under the MERS System, however, MERS is designated as the beneficiary in deeds of trust, acting as "nominee" for the lender, and granted the authority to exercise legal rights of the lender.' [Citation.]" (Saterbak v. JPMorgan Chase Bank, N.A. (2016) 245 Cal.App.4th 808, 816, fn.6 (Saterbak).)
Plaintiffs allege that on a later unknown date, Homecomings "purportedly took steps to sell the Subject Loan (including the Note and/or Deed of Trust) to an entity that purportedly intended to pool the Subject Loan with other residential mortgage loans, securitize the pool, and sell the securities on the open market." The entity into which the loan was intended to be pooled and securitized was called the Residential Accredit Loans, Inc., Mortgage Asset-Backed Pass-Through Certificates, Series 2006-QO3 (the "trust pool"). The trust pool was formed pursuant to a pooling and servicing agreement ("PSA"). The PSA stated it was governed by New York law and listed the trust pool closing date as March 20, 2006.
The PSA required that promissory notes pass through various entities known as special-purpose vehicles ("SPV") prior to reaching the trust pool. The PSA also required that transfers from SPV to SPV be reflected by an endorsement on the face of the note. As to their loan, the Lohses alleged that the PSA required the following chain of title to be reflected by an endorsement on their promissory note: (1) Homecomings (the lender) to defendant Residential Funding Corporation ("RFC"); (2) RFC to defendant Residential Accredit Loans, Inc. ("RAL"); and (3) RAL to the trust pool via its trustee, defendant Deutsche Bank Trust Company Americas ("Deutsche Bank"). The note, however, did not contain an endorsement showing a transfer to or from RAL. Instead, the endorsements showed RFC transferred the note directly to Deutsche Bank.
The Lohses filed this action in February 2014. They named as defendants Deutsche Bank, RFC, RAL, and MERS, along with the purported servicer of their loan, Nationstar Mortgage, LLC ("Nationstar"), and the current trustee under their deed of trust, Aztec Foreclosure Corporation ("Aztec").
The Lohses alleged three causes of action. First, they sought declaratory relief against all defendants to prevent them from foreclosing on their home. They claimed that defendants could not institute foreclosure proceedings because the deed of trust was not transferred into the trust pool within 90 days following the trust pool's closing date. In addition, the Lohses claimed that because the note did not contain an endorsement reflecting an assignment to or from RAL, the assignment of their loan to the trust pool was void, and "Defendants have never owned the Loan, have never had the right to collect on the Loan, and have never had the right to threaten to foreclose on the Subject Property."
The Lohses asserted that the Internal Revenue Code requires the assignment of a loan into a pooling trust to occur within 90 days of the closing date.
The Lohses' second cause of action was for conversion against Deutsche Bank. The gist of this claim was that Deutsche Bank's collection of mortgage payments from plaintiffs (approximately $220,000) amounted to conversion because Deutsche Bank was not entitled to collect those payments.
The Lohses' third cause of action was against Deutsche Bank, Nationstar, and Aztec for violation of the unfair competition statute (Bus. & Prof. Code, § 17200 et seq.). The cause of action was derivative of the alleged wrongdoing in the first two causes of action.
Nationstar, Deutsche Bank, and MERS demurred to the complaint. The trial court sustained the demurrer without leave to amend. The court concluded that the first cause of action for declaratory relief failed because " 'California courts have refused to delay the nonjudicial foreclosure process by allowing trustor-debtors to pursue preemptive judicial actions to challenge the right, power, and authority of a foreclosing "beneficiary" or beneficiary's "agent" to initiate and pursue foreclosure.' " The court determined that the Lohses' cause of action for conversion failed because they did not allege their "ownership or right to possession of the property at the time of the alleged conversion or damages." The court then ruled that because the Lohses' first two causes of action failed, their claim for violation of the unfair competition statute also failed. The court also denied the Lohses leave to amend, finding they did not show a reasonable possibility of curing the defects by amendment.
RFC and RAL were not served with the complaint in this action. Aztec was served but filed a declaration of nonmonetary status, meaning it disclaimed any involvement in the action other than as trustee, and agreed to be bound by any judgment. (Civ. Code, § 2924, subds. (a) and (b).) --------
The Lohses timely filed this appeal.
III. DISCUSSION
A. Standard of Review
"We review de novo the trial court's order sustaining a demurrer." (Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1468.) We accept as true all well-pleaded allegations in the complaint, and treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. (Evans v. City of Berkeley (2006) 38 Cal.4th 1, 6.) We will also consider facts and documents of which the trial court properly took judicial notice. (Scott v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743, 751-752.)
We review the trial court's denial of leave to amend for abuse of discretion. (Vaca v. Wachovia Mortgage Corp. (2011) 198 Cal.App.4th 737, 743.) "When a demurrer is sustained without leave to amend, ' "we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff." [Citations.]' " (Buller v. Sutter Health (2008) 160 Cal.App.4th 981, 992.) B. First Cause of Action —Declaratory Relief
The Lohses contend the trial court erred by concluding that California law prohibits them from bringing a preemptive action to determine whether defendants have authority to foreclose. This issue was recently addressed in Saterbak, supra, 245 Cal.App.4th 808. The plaintiff in Saterbak sought declaratory relief to prevent a foreclosure sale, claiming that the assignment of her deed of trust to a pooling trust was void because it was not assigned until years after the trust's closing date. (Id. at p. 814.) The plaintiff also claimed the assignment was void because "the assignment document was forged or robo-signed." (Ibid.) The appellate court held that the plaintiff lacked standing to pursue her action, explaining that "California courts do not allow such preemptive suits because they 'would result in the impermissible interjection of the courts into a nonjudicial scheme [i.e. nonjudicial foreclosures] enacted by the California Legislature.' [Citations.]" (Ibid.) Other courts have come to the same conclusion. (See Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 513, [disapproved on other grounds in Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, 939, fn. 13] [concluding nonjudicial foreclosure statutes do not permit preemptive actions "because doing so would result in the impermissible interjection of the courts into a nonjudicial scheme enacted by the California Legislature"]; Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1156 (Gomes) [holding homeowner precluded from bringing declaratory relief action to determine whether note holder is authorized to initiate foreclosure process].) We agree with the holding and rationale of these cases, and conclude the Lohses lacked standing to bring a preemptive action to determine whether defendants have the authority to foreclose.
Citing Gomes, the Lohses claim they can bring a preemptive action if they allege a " 'specific factual basis' " that the threatened foreclosure was not initiated by the proper party. In distinguishing federal trial court cases, the court in Gomes stated: "It is also significant that in each of these cases, the plaintiff's complaint identified a specific factual basis for alleging that the foreclosure was not initiated by the correct party. Gomes has not asserted any factual basis to suspect that MERS lacks authority to proceed with the foreclosure." (Gomes, supra, 192 Cal.App.4th at p. 1156.) We do not read this passage as allowing the Lohses to preemptively challenge defendant's authority to foreclose. The court's holding in Gomes was that the California statutory foreclosure scheme allows no preemptive action to challenge the authority of the person initiating foreclosure. (Gomes, supra, 192 Cal.App.4th at pp. 1156-1157.) The holding would have little meaning if it could be avoided by any plaintiff who pleads a "specific factual basis" that a foreclosure was not initiated by the correct party.
Even if the Lohses could preemptively challenge defendants' authority to foreclose, they lacked standing for a separate reason: they did not allege that the assignment of their mortgage to the trust pool was void, and not merely voidable. In Yvanova v. New Century Mortgage Corp., supra, 62 Cal.4th 919, our Supreme Court held that in an action for wrongful foreclosure, a borrower has standing to challenge the assignment of the note and trust deed on the basis that the assignment is void, rather than voidable. (Id. at pp. 942-943.) The high court explained that "[w]hen an assignment is merely voidable, the power to ratify or avoid the transaction lies solely with the parties to the assignment; the transaction is not void unless and until one of the parties takes steps to make it so. A borrower who challenges a foreclosure on the ground that an assignment to the foreclosing party bore defects rendering it voidable could thus be said to assert an interest belonging solely to the parties to the assignment rather than to herself." (Id. at p. 936.) Unlike a voidable transaction, the court reasoned that "a void one cannot be ratified or validated by the parties to it even if they so desire." (Ibid.) "Parties to a securitization or other transfer agreement may well wish to ratify the transfer agreement despite any defects, but no ratification is possible if the assignment is void ab initio. In seeking a finding that an assignment agreement was void, therefore, a plaintiff . . . is not asserting the interests of parties to the assignment; she is asserting her own interest in limiting foreclosure on her property to those with legal authority to order a foreclosure sale." (Id. at pp. 936-937.)
The high court did not decide whether assignments that violate the terms of a PSA render the assignments void or voidable. But a number of appellate courts have addressed this specific issue and concluded that such assignments are voidable, meaning a plaintiff lacks standing to challenge the assignments. (See Mendoza v. JPMorgan Chase Bank, N.A. (2016) 6 Cal.App.5th 802, 813 ["an assignment after the publicized closing date is voidable, not void, under New York law"]; Yhudai v. Impac Funding Corporation (2016) 1 Cal.App.5th 1252, 1259 ["a postclosing assignment of a loan to an investment trust that violates the terms of the trust renders the assignment voidable, not void, under New York law"]; Saterbak, supra, 245 Cal.App.4th at p. 815 [untimely assignment after closing date listed in PSA is "merely voidable"].) These cases have relied on the Second Circuit Court of Appeal's opinion in Rajamin v. Deutsche Bank Nat'l Trust Co. (2d Cir.2014) 757 F.3d 79, where the court concluded that under New York trust law, the failure to comply with the terms of a PSA—including a term relating to endorsements on the face of the promissory note—rendered the assignments voidable, not void. (Id. at pp. 83, 90.) We find these cases persuasive and likewise conclude that the alleged assignment defects in this case rendered the assignment voidable. As a result, the Lohses lacked standing to challenge the validity of the assignment.
In arguing the alleged assignment defects here voided the PSA, the Lohses rely on Glaski v. Bank of America (2013) 218 Cal.App.4th 1079. There, the court concluded that an assignment of a loan occurring after the closing date in a PSA was void. (Id. at p. 1097.) Glaski, however, has received an "avalanche of criticism" for its holding. (Mendoza, supra, at p. 10; see also id. at p. 14 ["We can find no state or federal cases to support the Glaski analysis and will follow the federal lead in rejecting this minority holding on the issue presented in this case"]; Yhudai v. IMPAC Funding Corp., supra, 1 Cal.App.5th at p. 1259 [declining to follow Glaski, noting it relied on authority that has been "soundly and overwhelmingly rejected"].) In fact, the New York case upon which Glaski relied has been overturned. (Wells Fargo Bank, N.A. v. Erobobo (N.Y.App.Div.2015) 127 A.D.3d 1176, 1178, see also Rajamin, supra, 757 F.3d at p. 90 [rejecting Glaski's interpretation of New York law].) We decline to follow Glaski.
Last, the Lohses claim that certain provisions of the California Homeowners Bill of Rights ("HBOR") allow them to ascertain whether defendants have the authority to foreclose. The specific provisions the Lohses cite do not support their contention. The Lohses rely on Civil Code section 2924, subdivision (a)(6), which provides that only the holder of the beneficial interest under a mortgage or deed of trust may foreclose. However, this provision does not authorize a preforeclosure action to enjoin a party from foreclosing. (Lucioni v. Bank of America, N.A. (2016) 3 Cal.App.5th 150, 161.) The Lohses also rely on Civil Code section 2923.55, which imposes various requirements before a mortgage servicer may record a notice of default. Again, nothing in this section authorizes the type of preemptive lawsuit brought by the Lohses. (Lucioni, supra, 3 Cal.App.5th at p. 163. [Section 2923.55] does "not create a right to litigate, preforeclosure, whether the foreclosing party's conclusion that it had the right to foreclose was correct.") C. Second Cause of Action —Conversion
The Lohses appellate brief does not raise any argument relating to their cause of action for conversion. As such, they have abandoned any arguments relating to this cause of action. (Reyes v. Kosha (1998) 65 Cal.App.4th 451, 466, fn. 6.) Even if we considered the merits, we would affirm the trial court's sustaining of the demurrer to this cause of action. To establish conversion, a plaintiff must allege ownership or the right to possession of the property. (Lee v. Hanley (2015) 61 Cal.4th 1225, 1240.) The Lohses have made so such allegation. Instead, they alleged they made mortgage payments to "the wrong party" that had "no legal right to collect on the debt." D. Third Cause of Action —Unfair Business Practices
The Lohses final cause of action for unfair business practices under Business and Professions Code section 17200 was derivative of their first two causes of action. Because the trial court properly sustained the demurrer on the first two causes of action, it properly sustained the demurrer on this cause of action as well. E. Leave to Amend
The Lohses do not provide any argument why the trial court erred in denying leave to amend. Accordingly we will affirm the trial court's decision to deny leave to amend. (See Buller v. Sutter Health (2008) 160 Cal.App.4th 981, 992 ["To show abuse of discretion, plaintiff must show in what manner the complaint could be amended and how the amendment would change the legal effect of the complaint, i.e., state a cause of action"].)]
IV. DISPOSITION
The judgment is affirmed.
/s/_________
REARDON, J. We concur: /s/_________
RUVOLO, P. J. /s/_________
RIVERA, J.