Summary
discussing California law regarding preemptive challenges to nonjudicial foreclosures
Summary of this case from Homeward Opportunities Fund I Tr. 2019-2 v. TaptelisOpinion
No. 18-16584 No. 18-17230
05-11-2020
Bella PEREZ; Enrique Perez, Plaintiffs-Appellants, v. MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.; U.S. Bank, N.A., as trustee for the Lehman XS Trust 2006-14N Mortgage Pass-Through Certificates, Series 2006-14N, Defendants-Appellees. Bella Perez; Enrique Perez, Plaintiffs-Appellants, v. Mortgage Electronic Registration Systems, Inc.; The Bank of New York Mellon, Defendants-Appellees.
Mark W. Lapham, Law Offices of Mark W. Lapham, Danville, California, for Plaintiffs-Appellants. Jan T. Chilton, Severson & Werson, San Francisco, California; Kerry W. Franich, Severson & Werson, Irvine, California; Ian A. Rambarran, Betsy S. Kimball, and Lindsey N. Casillas, Klinedinst PC, Sacramento, California; for Defendants-Appellees.
Mark W. Lapham, Law Offices of Mark W. Lapham, Danville, California, for Plaintiffs-Appellants.
Jan T. Chilton, Severson & Werson, San Francisco, California; Kerry W. Franich, Severson & Werson, Irvine, California; Ian A. Rambarran, Betsy S. Kimball, and Lindsey N. Casillas, Klinedinst PC, Sacramento, California; for Defendants-Appellees.
Before: Ronald M. Gould and Mary H. Murguia, Circuit Judges, and Gary Feinerman, District Judge.
The Honorable Gary Feinerman, United States District Judge for the Northern District of Illinois, sitting by designation.
GOULD, Circuit Judge: These cases, in which we apply California law because of our diversity jurisdiction, present the question of whether California law permits borrowers to bring judicial actions to challenge a foreclosing party's authority to foreclose on the borrower's property before a foreclosure has taken place.
Plaintiffs-Appellants Bella and Enrique Perez ("Appellants") filed two such pre-foreclosure actions here. In both actions, Appellants sued Mortgage Electronic Registration Systems, Inc. ("MERS") and the banks holding their two mortgages—U.S. Bank, National Association ("U.S. Bank") in No. 18-16584, and Bank of New York Mellon in No. 18-17230. Appellants brought these actions to challenge the banks' authority to foreclose on their properties. The district courts dismissed the complaints for failure to state plausible claims for relief under California law. We have jurisdiction under 28 U.S.C. § 1291, and we affirm.
MERS is a subscription-based service that tracks changes in mortgage servicing rights and beneficial ownership interests in loans secured by residential properties.
I.
Appellants own two California properties that are at issue in these appeals: a West Sacramento property (Perez v. MERS & U.S. Bank, N.A. , No. 18-16584 ["Perez I "] ) and a San Pablo property (Perez v. MERS & Bank of New York Mellon , No. 18-17230 ["Perez II "] ).
A.
In Perez I , Appellants executed a deed of trust in 2006 to secure a note for $399,000 on their property in West Sacramento. The deed of trust identified Dollar Mortgage Corporation ("Dollar") as the lender and Defendant-Appellee MERS as the beneficiary for Dollar and Dollar's "successors and assigns." The mortgage loan was sold four times between 2005 and 2006; Defendant-Appellee U.S. Bank has owned the loan since 2006.
In 2009, a notice of default and a notice of trustee's sale were issued against Appellants for failure to make payments on their loan. A sale was scheduled, but it did not take place, and the complaint did not allege any subsequent actions taken to foreclose on the property.
After briefing concluded during the motion to dismiss stage, Appellants filed a case notification to inform the district court they had received a new notice of default less than a month after filing their original complaint. There are no allegations that this notice of default resulted in a foreclosure or that any further action was taken to foreclose on the property.
B.
In Perez II , Appellants executed a deed of trust in 2006 to secure a note for $440,000 on their property in San Pablo. The deed of trust identified American Mortgage Express Corporation ("American Mortgage Express") as the original lender and Defendant-Appellee MERS as the beneficiary for American Mortgage Express and American Mortgage Express's "successors and assigns." The loan was sold three times; Defendant-Appellee Bank of New York Mellon currently owns the loan.
There are no allegations that any foreclosure proceedings have been initiated against Appellants relating to this property. The record indicates that Appellants are consistently making their mortgage payments and are not in default.
C.
Appellants filed the underlying actions against MERS and the banks in California state court. Both actions were removed to federal court based on diversity jurisdiction.
In each action, Appellants filed claims seeking declaratory relief and cancellation of instruments as to the banks and MERS, and quiet title as to only the banks. They sought declarations that the banks had no legal rights in the underlying notes or deeds of trust, and that the banks did not have authority to collect mortgage payments or to initiate foreclosure proceedings. Appellants sought unencumbered titles to their properties and permanent injunctions to prevent the banks from collecting mortgage payments or foreclosing on the properties. Appellants base their claims for relief on alleged defects in the assignments of the underlying deeds of trust, such that, Appellants contend, the banks never received any beneficial interest in the loans. The district courts dismissed the complaints for failure to state plausible claims for relief under California law.
In Perez II , the district court dismissed the original complaint with leave to amend. The district court then dismissed the amended complaint without leave to amend because the amended complaint failed to add "any new or different operative facts."
II.
Appellants seek reversal of the district courts' dismissals of their complaints. We review a district court's dismissal of a complaint de novo. Yagman v. Garcetti , 852 F.3d 859, 863 (9th Cir. 2017). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ).
We apply California law to these removed diversity actions. Vestar Dev. II, LLC v. Gen. Dynamics Corp. , 249 F.3d 958, 960 (9th Cir. 2001).
A.
Appellants' claims are premised on the theory that they can preemptively challenge the banks' authority to foreclose on their properties by filing judicial actions before any nonjudicial foreclosure has taken place. The controlling question before us is whether such preemptive, pre-foreclosure actions are viable under California law.
When interpreting California law, we are bound by the decisions of the California Supreme Court, the state's highest court. Vestar , 249 F.3d at 960. If there are no such decisions, and "where there is no convincing evidence that the state supreme court would decide differently, a federal court is obligated to follow the decisions of the state's intermediate appellate courts." Id. (quoting Lewis v. Tel. Emps. Credit Union , 87 F.3d 1537, 1545 (9th Cir. 1996) ).
The California Supreme Court has not directly answered the question of whether preemptive, pre-foreclosure actions are viable under California law. In Yvanova v. New Century Mortg. Corp. , 62 Cal.4th 919, 199 Cal.Rptr.3d 66, 365 P.3d 845, 858–59 (2016), the California Supreme Court held that, in an action for wrongful foreclosure, borrowers have standing to challenge prior assignments of the note if they allege the assignment was void, as compared to voidable. The California Supreme Court expressly limited its holding to post-foreclosure actions for wrongful foreclosure, explaining that the holding did not apply to borrowers who "attempt to preempt a threatened nonjudicial foreclosure by a suit questioning the foreclosing party's right to proceed," id. , 199 Cal.Rptr.3d 66, 365 P.3d at 848, or to borrowers who bring "action[s] for injunctive or declaratory relief to prevent a foreclosure sale from going forward," id. at 855, 365 P.3d at 848.
Before deciding Yvanova , the California Supreme Court granted review of a pre-foreclosure action in Keshtgar v. U.S. Bank , ––– Cal.4th ––––, 178 Cal.Rptr.3d 320, 334 P.3d 686 (2014), but deferred a decision until after the court reached a decision in Yvanova . After Yvanova , the California Supreme Court decided not to reach the underlying question raised in Keshtgar —the viability of preemptive, pre-foreclosure actions—and instead vacated and remanded the decision for the Court of Appeal to reconsider in light of Yvanova . See Keshtgar v. U.S. Bank , ––– Cal.5th ––––, 201 Cal.Rptr.3d 253, 368 P.3d 921 (2016). On remand, the Court of Appeal held that Yvanova did not displace prior California precedent that preemptive actions to prevent foreclosure are not allowed. See Keshtgar v. U.S. Bank , No. B246193, 2016 WL 4183750, at *3 (Cal. Ct. App. Aug. 8, 2016).
Appellants ignore this express limitation in Yvanova and dedicate most of their appellate briefing to argue that the assignments of their deeds of trust are void, rather than voidable, premised on the theory that the Yvanova holding applies to their pre-foreclosure cases. But we need not reach the question of whether the assignments were allegedly void or voidable because Yvanova 's holding does not apply to Appellants' pre-foreclosure actions. See 199 Cal.Rptr.3d 66, 365 P.3d at 848.
Because California's highest court has not yet addressed the question of whether preemptive, pre-foreclosure actions are viable under California law, we look to the relevant decisions of the California intermediate appellate courts. See Vestar , 249 F.3d at 960.
In Gomes v. Countrywide Home Loans, Inc. , 192 Cal.App.4th 1149, 121 Cal. Rptr. 3d 819, 822 (2011), a defaulting borrower brought a legal action to challenge whether the defendants were authorized to foreclose on his property. The Court of Appeal held that California's comprehensive statutory scheme for nonjudicial foreclosures did not permit a borrower to bring a judicial action before a foreclosure had taken place to challenge whether a foreclosing party was authorized to foreclose. Id. at 824 ("[N]owhere does the statute provide for a judicial action to determine whether the person initiating the foreclosure process is indeed authorized, and we see no ground for implying such an action."). The intermediate appellate court reasoned that allowing borrowers to bring such pre-foreclosure actions would impermissibly interject courts into California's "comprehensive nonjudicial scheme" of foreclosure and "fundamentally undermine the nonjudicial nature of the process and introduce the possibility of lawsuits filed solely for the purpose of delaying valid foreclosures." Id.
In Jenkins v. JP Morgan Chase Bank, N.A. , 216 Cal.App.4th 497, 156 Cal. Rptr. 3d 912, 923 (2013), a defaulting borrower brought a preemptive judicial action in part to determine whether the defendants had the authority to initiate nonjudicial foreclosure on her property. The Court of Appeal held that the borrower lacked a legal basis to bring her preemptive action under California's statutory scheme for nonjudicial foreclosure. Id. at 925. Reviewing prior California appellate decisions, including Gomes , this second California intermediate appellate court explained: "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." Id. at 924.
In Yvanova , although the California Supreme Court disapproved of Jenkins on some grounds, the court declined to review or address this aspect of the Jenkins opinion. 199 Cal.Rptr.3d 66, 365 P.3d at 854.
In Saterbak v. JPMorgan Chase Bank, N.A. , 245 Cal.App.4th 808, 199 Cal. Rptr. 3d 790, 793 (2016), a defaulting borrower brought an action claiming that the foreclosing party lacked authority to foreclose on her property because the prior assignment of her deed of trust was void. Saterbak was decided shortly after the California Supreme Court decided Yvanova . The Court of Appeal examined the Yvanova decision to determine whether it changed the viability of preemptive, pre-foreclosure actions in California. Id. at 795–96. This intermediate appellate court held that Yvanova did not alter prior California precedent barring pre-foreclosure suits because Yvanova was "expressly limited to the post-foreclosure context." Id. at 796. Accordingly, the court dismissed the action, holding that preemptive, pre-foreclosure actions were still not viable under California law. Id. at 795.
But in Brown v. Deutsche Bank National Trust Co. , 247 Cal.App.4th 275, 201 Cal. Rptr. 3d 892, 896 (2016), the Court of Appeal, although not deciding the question of whether pre-foreclosure actions are viable after Yvanova , noted that the California Supreme Court could decide to extend its limited holding in Yvanova to cover some pre-foreclosure cases. The court explained that the reasoning in Yvanova "raises the distinct possibility that [the California] Supreme Court would conclude that borrowers have a sufficient injury [from the initiation of foreclosure proceedings], even if less severe [than the injury from wrongful foreclosure], to confer standing to bring similar allegations before the [foreclosure] sale." Id.
Although federal courts sitting in diversity cases cannot initiate an alteration of California state law, it is possible that the California Supreme Court could conclude that pre-foreclosure suits are to be considered viable in certain circumstances—as a federal district court decision cited by Appellants predicted it might. Lundy v. Selene Finance, L.P. , No. 15-cv-05676, 2016 WL 1059423, at *13 (N.D. Cal. Mar. 17, 2016) (noting that "this Court does conclude that if the California Supreme Court decides to adopt Jenkins 's bar to pre-foreclosure challenges, it will limit that bar only to claims that lack any ‘specific factual basis’ "). But the existing California appellate cases demonstrate that, both before and after Yvanova , California appellate courts have dismissed preemptive, pre-foreclosure actions. There is no convincing evidence the California Supreme Court would break with that precedent. Thus, we follow the decisions of the California appellate courts in holding that California law does not permit preemptive actions to challenge a party's authority to pursue foreclosure before a foreclosure has taken place.
The Ninth Circuit, in unpublished memorandum dispositions, has also regularly held that Yvanova did not alter the existing California precedent barring preemptive, pre-foreclosure suits. See, e.g. , Wasjutin v. Bank of Am., N.A. , 732 F. App'x 513, 516–17 (9th Cir. 2018) ("Nothing about Yvanova suggests that, contrary to longstanding precedent on this point, California now allows an action for wrongful foreclosure before a foreclosure takes place."); Yagman v. Nationstar Mortg., LLC , 699 F. App'x 634, 635 (9th Cir. 2017) ("Yvanova provides no assistance to [a pre-foreclosure borrower]; his property has not been subject to a nonjudicial foreclosure. As we have in the past, we join the majority of courts that have declined to extend Yvanova ."). Because of the number of such similar litigations and appeals, we now write for publication to describe currently applicable California law.
B.
Here, it is undisputed that no foreclosures have taken place. In Perez I , Appellants claim there was an initiation of foreclosure proceedings, as they received a notice of default in 2017 after filing their federal court complaint. But there are no allegations that this notice resulted in a foreclosure. In Perez II , Appellants do not allege any initiation of foreclosure proceedings, and it appears that Appellants are not even in default.
Because no foreclosures have taken place, Appellants' suits are pre-foreclosure judicial actions that preemptively challenge the banks' authority to foreclose on their properties in the future. Such actions are not viable under California law. Appellants do not state any valid claims under California law, and we affirm the district courts' dismissals of Appellants' complaints.
III.
On appeal in Perez I , Appellants seek a determination that the district court abused its discretion by dismissing the complaint without leave to amend. We review for abuse of discretion the district court's decision denying leave to amend. AE ex rel. Hernandez v. Cty. of Tulare , 666 F.3d 631, 636 (9th Cir. 2012). If a complaint does not state a plausible claim for relief, a "district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Lopez v. Smith , 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc) (quoting Doe v. United States , 58 F.3d 494, 497 (9th Cir. 1995) ).
On appeal in Perez II , Appellants did not challenge the district court's denial of their request for leave to amend in their opening appellate brief. We therefore deem this challenge waived. Tri-Valley CAREs v. U.S. Dep't of Energy , 671 F.3d 1113, 1129–30 (9th Cir. 2012).
In Appellants' opposition to the motion to dismiss, they requested leave to amend if the district court determined the complaint was "deficient." The district court granted the motion to dismiss without leave to amend. In Appellants' opening appellate brief in Perez I , they contend that, if they had been given the opportunity to amend their complaint, they would have included additional arguments and explanations as to why MERS lacked authority to execute the assignment of the deed of trust, and they would have attached the 2017 notice of default as an exhibit.
The district court did not abuse its discretion by denying Appellants leave to amend. The proposed amendments would not have changed the determination that the action was a preemptive, pre-foreclosure action seeking to challenge the banks' authority to foreclose, and that such an action is impermissible under California law. The notice of default did not indicate that a foreclosure had taken place, and thus the suit remained preemptive. The additional arguments and explanations relating to MERS's assignment of the deed of trust are irrelevant here because they do not change the fact that Appellants filed their suit preemptively.
The district court properly determined that permitting Appellants leave to amend would be futile. Therefore, we hold that the district court in Perez I did not abuse its discretion by dismissing Appellants' complaint without granting leave to amend.