SoCal Tentative Rulings Ovf - What the Wordy Judges Are Saying

For the week of 10/17/2011 --

* TENTATIVE RULING: *

The court sustains defendant Bank of America, N.A.’s demurrer to all eight causes of action in plaintiff’s second amended complaint, without leave to amend.

Second Amended Complaint (SAC)

Plaintiff is the owner of real property located in Carpinteria. Defendant Bank of America, N.A. (BOA) is the originator and current servicer of a loan secured by a first deed of trust (DOT) on the property. Defendant Chase Home Finance, LLC, is the originated and current servicer of a loan secured by second deed of trust. Defendant Recontrust Company is the trustee under the 1st DOT. It is unclear why plaintiff continues to name Chase as a defendant in the SAC. Plaintiff dismissed Chase on June 26, 2011, and has not filed any proof of service indicating that the court has regained personal jurisdiction over Chase. There is not a single substantive allegation in the SAC regarding any conduct by Chase.

The causes of action in the SAC are 1) fraud, 2) unfair business practices, 3) breach of contract – DOT/Note, 4) breach of the implied covenant of good faith and fair dealing, 5) quiet title, 6) declaratory relief, 7) lack of standing, and 8) violations of the Rostenthal Fair Debt Collection Practices Act. Plaintiff alleges that the DOT was improperly assigned to a nominee called Mortgage Electronic Registration Systems, Inc. (MERS). [SAC ¶ 9] In her individual causes of action, plaintiff alleges:

1) Fraud: BOA concealed from plaintiff the disastrous terms of the loan it recommended, lured plaintiff into a loan she could not afford, “under variable terms that are nothing less than loan sharking,” and on more unfavorable terms than should have been required for a conforming loan. BOA made sub-prime, “no doc, stated income loans,” that no borrower, including plaintiff, would hold through maturity. BOA engaged in this practice because high-yielding loans were actively sought on the secondary market. [SAC 14-16]

Plaintiff was placed in a subprime loan despite credit scores that would have qualified her for a higher loan. The predatory nature of the loan forced plaintiff to attempt to refinance or face very large adjusted payments. [SAC ¶ 17] Plaintiff was told the loan could be easily refinanced by the originator but that turned out to be false. [SAC ¶ 19] The originator lured plaintiff into the loan with false assurances that she could afford the loan payments for 30 years. [SAC ¶ 20] BOA knew plaintiff’s income would be insufficient to pay the loan payments after the “fixed” period of the loan expired. [SAC ¶ 22] The lender engaged in this activity so as to supply a steady pool of mortgages that could be securitized and sold. [SAC ¶ 21] BOA engaged in a scheme to acquire servicing rights to predatory loans of borrowers, including plaintiff. [SAC ¶ 22] Plaintiff has attempted to obtain a permanent loan modification from BOA but BOA claimed to have lost information she sent. .BOA told her to stop making payments because she would receive attention once she was behind in payments. [SAC ¶ 26] She was not late with a payment until BOA’s representations caused her to miss a payment. [SAC ¶ 27] Plaintiff vaguely refers to a trial plan but does not describe it. [SAC ¶ 29] BOA’s “fraud and predatory servicing” have harmed plaintiff in that she has been making unfair mortgage payments. Had BOA acted promptly in responding to the permanent loan modification request, this would not have been necessary. [SAC ¶ 30]

2) Unfair Business Practices: In addition to the fraud allegations, Defendants have engaged in unfair business practices and unfair competition. They have failed to perform loss mitigation efforts, forced homeowners into default status to be considered for loan modifications, refused to recognize authorized agents, failed to process modification submissions, provided inaccurate information about options open to homeowners, refused to send written requests for information, failed to provide written notification of denial and reasons for denial, “dual tracked” by proceeding with foreclosure while a loan modification application was pending, provided contradictory and confusing information regarding the status of the foreclosure, misrepresented “the legal importance of documents regarding foreclosure,” engaged the services of “robo-signers” and “default management providers,” prioritizing speed over accuracy in the foreclosure process.” [SAC ¶ 39]

3) Breach of Contract: Defendants breached the Note and DOT by failing to properly apply plaintiff’s payments to her account, refusing to accept payments, charging late penalty fees and charges for payments not properly applied and payments defendants efused to accept, initiating and conducting a foreclosure when there was no breach by plaintiff, “pyramiding “ late fees by charging a late fee for each monthly installment subsequent to the first alleged unpaid payment in violation of Civil Code § 2954.4(b). [SAC ¶¶ 49-52]

4) Breach of the Implied Covenant of Good Faith and Fair Dealing: Defendants manufactured a default by misapplying payments and refusing following payments, misrepresenting the importance and effect of correspondence and legal documents, charging fees not allowed under California law, obstructed plaintiff’s ability to perform her obligations, engaged in fraud and predatory lending and servicing. [SAC ¶¶ 62-64]

5) Quiet Title: Based on the foregoing allegations, plaintiff seeks an order quieting her title and holding that defendants have no interest in the property. [SAC ¶ 73]

6) Declaratory Relief: The loan agreement is void for fraud, the trustee’s sale is improper because defendants are not the holders of the original note and trust deed. Defendants failed to provide plaintiff will full disclosure of the terms of the notes, assignment, servicing and securitization of the loan, which made it impossible for plaintiff to refinance, renegotiate or modify the loans. [SAC ¶ 75] Plaintiff seeks a declaration of her rights and duties under the loan agreement, the validity of the loan and the defendants’ right to proceed with the foreclosure. [SAC ¶ 76]

7) Lack of Standing: BOA is not the holder or lawful assignee of the note. [SAC ¶ 80] Therefore, BOA has no “constitutional standing” to foreclose and cannot instruct Recontrust or any trustee to foreclose. [SAC ¶ 83]

8) Rosenthal Fair Debt Collection Practices Act: BOA failed to verify the debt after plaintiff’s written dispute; failed to conduct a proper investigation of disputed payments and determine that there was no missed payment; proceeded to collect a debt that was not owed, using abusive tactics, including excessive phone calls and contacting plaintiff after 9:00 p.m.; demanded payment of invalid debt while refusing to accept payments; illegally charged late penalty charges for timely payments; and threatened foreclosure when defendants had no right to foreclose. [SAC ¶ 88]

Plaintiff seeks a constructive trust over and restitution of monies collected by defendants, disgorgement of fees and profits, preliminary and permanent injunctions against the trustee’s sale and punitive damages.

Demurrer

BOA demurs on the ground that plaintiff has failed to state facts sufficient to constitute any of the alleged causes of action. The fraud claim is barred by the statute of limitation and is not pled with the requisite specificity. The UCL claim fails because plaintiff lacks standing and there is no predicate violation. The breach of contract claim fails because plaintiff admits she is in default. The breach of the covenant of good faith and fair dealing claim fails because plaintiff fails to allege the breach of any contract. The quiet title claim fails because plaintiff has not alleged tender. The declaratory and “lack of standing” claims fail because plaintiff does not state facts supporting any underlying actionable claim against BOA or actual controversy. Plaintiff has no private right of action to determine whether BOA is authorized to initiate foreclosure proceedings. In any event, recorded documents demonstrate that BOA has standing to initiate foreclosure. Plaintiff’s Rosenthal Act claim fails because BOA is not a debt collector and plaintiff fails to allege any improper debt collection activity.

Opposition: None

Analysis:

1. Fraud: Most of plaintiff’s allegations are conclusory and refer to practices of lenders in general without any specific allegation of conduct by this lender vis a vis this borrower.

Plaintiff’s less generalized allegations of representations are: BOA concealed from plaintiff the disastrous terms of the loan it recommended, lured plaintiff into a loan she could not afford, “under variable terms that are nothing less than loan sharking,” and on more unfavorable terms than should have been required for a conforming loan. [SAC ¶ 14] Plaintiff was told the loan could be easily refinanced by the originator but that turned out to be false. [SAC ¶ 19] The originator lured plaintiff into the loan with false assurances that she could afford the loan payments for 30 years. [SAC ¶ 20]

The limitation period for brining an action for fraud is three years. “The cause of action in that case is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.” CCP § 338(d). Plaintiff alleges concealment and/or representations regarding the terms of the loan, that the loan could be easily refinanced and that she could afford the loan. These all date to the origination of the loan in February 2005. The terms of the loan and its affordability were determinable from the loan documents plaintiff executed.

Plaintiff has not alleged that her discovery of the alleged fraud was delayed. She must do so with specificity. “The ‘discovery rule’ assumes that all conditions of accrual of the action -- including harm -- exist, but nevertheless postpones commencement of the limitation period until ‘the plaintiff discovers or should have discovered all facts essential to his cause of action.’” CAMSI IV v. Hunter Technology Corp., 230 Cal.App.3d 1525, 1536 (1991) [citations omitted].

The word discovery as used in the statute is not synonymous with knowledge. And the court must determine, as a matter of law, when, under the facts pleaded, there was a discovery by the plaintiff, in the legal sense of that term. Consequently, an averment of lack of knowledge within the statutory period is not sufficient; a plaintiff must also show that he had no means of knowledge or notice which followed by inquiry would have shown the circumstances upon which the cause of action is founded. Bainbridge v. Stoner, 16 Cal.2d 423, 430 (1940).

The discovery rule only delays accrual until the plaintiff has, or should have, inquiry notice of the cause of action. The discovery rule does not encourage dilatory tactics because plaintiffs are charged with presumptive knowledge of an injury if they have “ ‘ “information of circumstances to put [them] on inquiry” ’ ” or if they have “ ‘ “the opportunity to obtain knowledge from sources open to [their] investigation.” ’ ” [citation] In other words, plaintiffs are required to conduct a reasonable investigation after becoming aware of an injury, and are charged with knowledge of the information that would have been revealed by such an investigation. Fox v. Ethicon Endo-Surgery, Inc., 35 Cal.4th 797, 807-808 (2005). The plaintiffs “must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence.” Id. at 808.

Plaintiff has made no effort to plead delayed discovery. Further, for the second consecutive demurrer, plaintiff has not bothered to oppose the demurrer and inform the court how her pleading might be sufficient or how it might be amended.

If there is a reasonable possibility that the defect in a complaint can be cured by amendment, it is an abuse of discretion to sustain a demurrer without leave to amend.

[Citation.] The burden is on the plaintiff, however, to demonstrate the manner in which the complaint might be amended. [Citation.]” Hendy v. Losse, 54 Cal.3d 723, 742 (1991). “The burden is on the plaintiff to demonstrate how he or she can amend the complaint. It is not up to the judge to figure that out.” Lee v. Los Angeles County Metropolitan Transportation Authority, 107 Cal.App.4th 848, 854 (2003). The court will sustain the demurrer to the fraud cause of action without leave to amend.

Even if the fraud cause of action were not time-barred, the court would sustain the demurrer. A party must plead fraud specifically; general and conclusory allegations do not suffice. Lazar v. Superior Court, 12 Cal.4th 631, 645 (1996). “This particularity requirement necessitates pleading facts which 'show how, when, where, to whom, and by what means the representations were tendered.” Id. The elements of fraud are: (1) a misrepresentation (false representation, concealment, or nondisclosure) of material fact; (2) knowledge of falsity (or scienter); (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage. Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal.4th 979, 990 (2004).

Plaintiff has not pled fraud with specificity. She generally alleges conduct and representations, often in the passive voice with no identified person making the representation. To the extent she alleges concealment of loan terms, she must allege a duty to make disclosures. Linear Technology Corp. v. Applied Materials, Inc., 152 Cal.App.4th 115, 131 (2007).

There are “four circumstances in which nondisclosure or concealment may constitute actionable fraud: (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts.” [Citation.]

LiMandri v. Judkins, 52 Cal.App.4th 326, 336 (1997) [citations omitted]. A “A lender is under no duty ‘to determine the borrower's ability to repay the loan….’” Perlas v. GMAC Mortgage, LLC, 187 Cal.App.4th 429, 436 (2010).

For failure to plead facts constituting the alleged fraud with sufficient particularity, the court sustains the demurrer. As noted above, plaintiff has made no effort to inform the court how she could amend her pleading to state this claim.

The court will sustain the demurrer to the first cause of action without leave to amend.

2. Unfair Competition (UCL): A cause of action under B&P Code § 17200 must allege a

business practice that is unlawful, unfair or fraudulent. This rule does not “prohibit an action under the unfair competition law merely because some other statute on the subject does not, itself, provide for the action or prohibit the challenged conduct.” Smith v. State Farm Mutual Automobile Ins. Co., 93 Cal.App.4th 700, 720 (2001). The statute is interpreted broadly because “unfair or fraudulent business practices may run the gamut of human ingenuity and chicanery.” Motors, Inc. v. Times Mirror Co., 102 Cal.App.3d 735, 740 (1980). “The test under section 17200 is that a practice merely be unfair.” Allied Grape Growers v. Bronco Wine Co., 203 Cal.App.3d 432, 452 (1988).

The court has discussed the other claims of fraud and statutory violations and found them wanting. Plaintiff has, therefore, failed to plead any underlying wrongful conduct that would support a UCL claim.

A UCL claim can be prosecuted “by a person who has suffered injury in fact and has lost money or property as a result of the unfair competition.” B&P Code § 17204. Therefore, “to have standing to assert a claim under the UCL, a plaintiff must have ‘suffered injury in fact and [have] lost money or property as a result of such unfair competition.’” Aron v. U-Haul Co. of California, 143 Cal.App.4th 796, 802 (2006). Plaintiff has not lost her property as the foreclosure has not been completed. Plaintiff alleges only that she has made payments. But payments on an existing obligation cannot constitute tort damages. Auerbach v. Great Western Bank, 74 Cal.App.4th 1172, 1185 (1999).

The court will sustain the demurrer to the UCL cause of action without leave to amend.

3. Breach of Contract: To plead a cause of action for breach of contract, a plaintiff must plead the contract, his performance of the contract or excuse for nonperformance, defendant’s breach and the resulting damage. Otworth v. Southern Pacific. Transp. Co., 166 Cal.App.3d 452, 458 (1985). If the action is based on an alleged breach of a written contract, the terms must be set out verbatim in the body of the complaint or a copy of the written instrument must be attached and incorporated by reference. Id.

Plaintiff alleges that BOA breached the note and DOT failing to properly apply plaintiff’s payments to her account, refusing to accept payments, charging late penalty fees and charges for payments not properly applied and payments defendants refused to accept, initiating and conducting a foreclosure when there was no breach by plaintiff, “pyramiding “ late fees by charging late fee for each monthly installment subsequent to the first alleged unpaid payment in violation of Civil Code § 2954.4(b). [SAC ¶¶ 49-52] But plaintiff does not set forth the material terms of the agreement. Specifically, she does not set forth the contractual provisions allegedly breached by these actions.

Moreover, plaintiff has admitted that she did not make all payments due under the note. [SAC ¶ 27] As stated above, plaintiff has made no effort to inform the court how, after three tries, she could amend her complaint to state a claim for breach of contract.

The court will sustain the demurrer to the third cause of action without leave to amend.

4. Breach of the Implied Covenant of Good Faith and Fair Dealing: “Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.” Carma Developers (Cal.), Inc. v. Marathon Development California, Inc., 2 Cal.4th 342, 371 (1992), quoting Rest.2d Contracts, § 205. The implied covenant of good faith and fair dealing “is limited to assuring compliance with the express terms of the contract, and cannot be extended to create obligations not contemplated in the contract.” Racine & Laramie v. Dep't of Parks & Rec., 11 Cal.App.4th 1026, 1032 (1992).

“[T]he covenant is implied as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct that frustrates the other party's rights to the benefits of the agreement.” Waller v. Truck Ins. Exchange, Inc., 11 Cal.4^th 1, 36 (1995). Therefore, absent a contractual right, “the implied covenant has nothing upon which to act as a supplement, and ‘should not be endowed with an existence independent of its contractual underpinnings.’” Id., quoting Love v. Fire Ins. Exchange, 221 Cal.App.3d 1136, 1153 (1990).

Since plaintiff has not pled a breach of contract claim, she has not pled a claim for breach of the implied covenant of good faith and fair dealing.

5. Quiet Title: It is an equitable principle “that a mortgagor of real property cannot, without paying his debt, quiet his title against the mortgagee.” Miller v. Provost, 26 Cal.App.4th 1703, 1707 (1994). “The cloud upon his title persists until the debt is paid.” Aguilar v. Bocci, 39 Cal.App.3d 475, 477 (1974). Plaintiff has not alleged tender of the amount owed BOA.

The court will sustain the demurrer to the Quiet Title cause of action without leave to amend.

6. Declaratory Relief: A cause of action for declaratory relief must fail as a matter of law if it depends upon other causes of action and those causes of action fail. Ratcliff Architects v. Vanir Construction Management, Inc., 88 Cal.App.4th 595, 607 (2001). This cause of action, therefore, must go the way of the preceding causes of action and the next one.

The court will sustain the demurrer to the sixth cause of action without leave to amend.

7. Lack of Standing: Plaintiff simply alleges that BOA is not the holder or assignee of the note and has no interest in the note or deed of trust. Plaintiff has alleged that BOA is the lender. [SAC ¶ 2] The recorded DOT, of which BOA asks the court to take judicial notice identifies BOA as the lender and beneficiary of the DOT. [RJN Exh. A] Recontrust executed the recorded notice of default as agent for the beneficiary. [RJN Exh. B] BOA substituted the trustee with Recontrust by a substitution of trustee recorded on April 23, 2010. [RJN Exh. C]

Plaintiff alleges that the trustee was improperly assigned to MERS but alleges no evidentiary facts supporting that conclusion. [SAC ¶ 9] The conclusory allegation is contradicted by the recorded documents. It appears that plaintiff has assumed MERS’s involvement because of its ubiquitous presence in other transactions and litigation.

“Under California Civil Code section 2924(a)(1), ‘a trustee, mortgagee or beneficiary or any of their authorized agents’ may conduct the foreclosure process. Under California Civil Code section 2924b(b)(4), a ‘person authorized to record the notice of default or the notice of sale’ includes ‘an agent for the mortgagee or beneficiary, an agent of the named trustee, any person designated in an executed substitution of trustee, or an agent of that substituted trustee.’ ‘Upon default by the trustor, the beneficiary may declare a default and proceed with a nonjudicial foreclosure sale.’ [Citation] Under Civil Code section 2924, no party needs to physically possess the promissory note.” Gentsch v. Ownit Mortg. Solutions, Inc., supra, 2009 U.S. Dist. LEXIS 45163 at *14-*15 (E.D. Cal. 2009).

“‘[California] 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.’ Moeller v. Lien, 25 Cal.App.4th 822, 830 (1994). In such a sale, no party needs to physically possess the promissory note. See Cal. Civ. Code § 2924(a)(1) (trustee's sale may be conducted by the ‘trustee, mortgagee, or beneficiary or any of their authorized agents’). Because ‘[t]he comprehensive statutory framework established to govern nonjudicial foreclosure sales is intended to be exhaustive,’ the Court cannot ‘incorporate [the UCC's possession rule] into statutory nonjudicial foreclosure proceedings.’ Moeller, 25 Cal.App.4th at 834.” Christopher v. First Franklin Fin. Corp., 2010 U.S. Dist. LEXIS 42932 *7 (S.D. Cal. 2010).

It is clear that BOA has standing to foreclose. The court will sustain the demurrer to the seventh cause of action without leave to amend.

8. Rosenthal Fair Debt Collection Practices Act (RFDCPA): BOA contends that this cause of action fails because plaintiff does not allege that it is a debtor collector and, by law, it is not a debt collector coming within the definition under the Rosenthal Act.

“The term ‘debt collector’ means any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection.” Civil Code § 1788.2(c) [italics added]. The definition is materially different from the definition in the federal FDCPA – 15 U.S.C. § 1692a(6). “Under [the Rosenthal Act] definition, and unlike the federal Fair Debt Collection Practices Act (FDCPA), ‘debt collector’ includes creditors and mortgage servicers.” McGrew v. Countrywide Home Loans, Inc., 628 F.Supp.2d 1237, 1242 (S.D. Cal. 2009). Another court has found that a loan servicer that bills and collects payments on a debtor’s mortgage loan debt is a debt collector. Walters v. Fid. Mortg. of Cal., Inc., 730 F.Supp.2d 1185, 1203 (E.D. Cal. 2010). Cases on which BOA relies deal with the federal FDCPA. (In Ines v. Countrywide Home Loans, Inc., 2008 U.S.Dist.LEXIS 55245 (S.D. Cal. 2008), the court discussed the term “debt collector” under federal law and then summarily stated: “The RFDCPA incorporates many provisions of the FDCPA. Plaintiff has not demonstrated how the RFDCPA affords Plaintiff more protection than the FDCPA.” Id. at *6-*7 n1. The court did not address the Rosenthal definition of “debt collector.” Likewise, the court in Glover v. Fremont Inv. & Loan, 2009 U.S.Dist.LEXIS 117890, *24-*25 (N.D. Cal. 2009), did not address the different definition in the Rosenthal Act.)

While plaintiff does not incorporate the magic words “debt collector,” the substance of the allegation is there. “Defendants are lenders and mortgage servicing companies that are in the business of collecting and processing mortgage payments.” [SAC ¶ 87]

One of the allegations – threatening foreclosure when there is no right to foreclose – appears to be a reiteration of the allegations of improper foreclosure the court found without merit above. BOA did not threaten foreclosure, it did initiate a non-judicial foreclosure. “Foreclosing on a deed of trust does not invoke the statutory protections of the Rosenthal Act.” Quintero Family Trust v. Onewest Bank, F.S.B., 2010 U.S. Dist. LEXIS 63659, *12-*13 (S.D. Cal. 2010); Ricon v. Recontrust Co., 2009 U.S. Dist. LEXIS 67807, *8 (S.D. Cal. 2009). But when a “claim arises out of debt collection activities beyond the scope of the ordinary foreclosure process,” a remedy may be available under the Rosenthal Act. Walters v. Fid. Mortg. of Cal., Inc., supra, 730 F.Supp.2d at 1203.

Otherwise, plaintiff alleges that “Defendants” – she does not say specifically BOA did these things – failed to verify the debt after plaintiff’s written dispute; failed to conduct a proper investigation of disputed payments and determine that there was no missed payment; proceeded to collect a debt that was not owed, using abusive tactics, including excessive phone calls and contacting plaintiff after 9:00 p.m.; demanded payment of invalid debt while refusing to accept payments; and illegally charged late penalty charges for timely payments.

Plaintiff does not set forth the statutes alleged, but the foregoing conduct would be covered by Civil Code § 1788.11 (“Communicating, by telephone or in person, with the debtor with such frequency as to be unreasonable and to constitute an harassment to the debtor under the circumstances.”); 15 U.S.C. § 1692(c)(1) (communicating after 9:00 p.m.) (federal citations are to those statutes incorporated by Civil Code § 1788.17); 15 USCS § 1692d(b) (“engaging any person in telephone conversation repeatedly or continuously with intent to annoy, abuse, or harass any person at the called number”); and 15 U.S.C. § 1692f(1) (“The collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.”).”

The allegations of failure to verify do not apply because they appear to allege violation of 15 U.S.C. § 1692g(b). Civil Code § 1788.17 section provides that 15 U.S.C. § 1692g shall not apply to any person specified in 15 U.S.C. § 1692a(6)(A) & (B). Those sub-subsections provide that “debt collector” does not include: “(A) any officer or employee of a creditor while, in the name of the creditor, collecting debts for such creditor; (B) any person while acting as a debt collector for another person, both of whom are related by common ownership or affiliated by corporate control, if the person acting as a debt collector does so only for persons to whom it is so related or affiliated and if the principal business of such person is not the collection of debts….” So BOA’s employees, officers and affiliates cannot be liable under the Rosenthal Act for any violation of § 1692g. In any event, plaintiff has not even alleged that she communicated any dispute to BOA.

Plaintiff has provided vague and unspecific allegations of violations of the statutes mentioned above. Conclusory statements without factual statements fail to satisfy even liberal pleading standards. Gorman v. Wolpoff & Abramson, LLP, 370 F.Supp.2d 1005, 1013 (N.D. Cal. 2005), finding that the allegation of “‘harassing, threatening, abusive, oppressive, and annoying telephone calls’ is conclusory and insufficient to state a claim based on § 1692d.” Allegations of “(1) ‘endless annoying and minatory phone calls,’ (2) ‘endless letters and minatory notices,’ (3) calls at 4:00 a.m. and ‘ceaseless’ calls at night, and (4) calls at night and outside their household” were too vague to state a claim as found in Arikat v. JP Morgan Chase & Co., 430 F.Supp.2d 1013, 1027 (N.D. Cal. 2006).

The court also notes that plaintiff added this cause of action without leave to amend. She did not assert this cause of action in the first amended complaint (FAC). On July 26, 2011, the court sustained the demurrer to the FAC with leave to amend. A court’s order sustaining a demurrer to a pleading with leave to amend, “must be construed as permission to the pleader to amend the cause of action which he pleaded in the pleading to which the demurrer has been sustained.” People ex rel. Department of Public Works v. Clausen, 248 Cal.App.2d 770, 785 (1967). For this reason, in addition to those addressed above, the court will sustain the demurrer to the Rosenthal Act cause of action. Again, plaintiff has made no effort to describe how she could improve her complaint in this regard.

The court will sustain the demurrer without leave to amend.

Expungement of Lis Pendens. In a single paragraph, BOA states that plaintiff recorded a lis pendens on the property. Since there is no probable validity of plaintiff prevailing on her claims, BOA says that the lis pendens must be expunged pursuant to CCP §§ 405.30 & 405.31.

First, the court is unaware of any such notice. If one was recorded, it was not immediately thereafter filed with the court as required in CCP § 405.22. Second, BOA noticed a demurrer, not a motion to expunge, and there is no prayer for expungement in the demurrer. Besides, the cursory reference to the lis pendens is insufficient for even a properly noticed motion under CCP § 405.30.

The court will not order any lis pendens expunged.

* TENTATIVE RULING: *

This is a demurrer to a complaint for damages following foreclosure of a residence.

Plaintiff, as trustee of a Living Trust under declaration of trust dated July 14, 1999 (“Plaintiff”) was the owner of real property in Santa Barbara, California (the “Property”). (Complaint, at p. 2 [Note: Plaintiff does not use the usual practice of numbering all paragraphs, making more specific citation cumbersome.].) Plaintiff resided at the Property for about 40 years. (Complaint, at p. 5.)

The Property secured two loans obtained from Washington Mutual Bank, whose successor in interest to both loans is defendant JPMorgan Chase Bank, N.A. (“Chase”). (Complaint, at p. 2.) The first loan, secured by a first deed of trust, had a balance of approximately $581,695; the second loan, secured by a second deed of trust, had a balance of approximately $151,011.00. (Ibid.)

In May 2009, Ottoboni was required to evacuate the Property for about one week because of fire raging nearby. (Complaint, at p. 7.) In the resulting confusion, Plaintiff missed the payment on the first loan for May. (Ibid.) At the same time, Plaintiff’s income changed following the death of Plaintiff’s domestic partner and the exhaustion of the life nsurance policy he left. (Ibid.) Plaintiff missed the July 2009 payment and half of the August 2009 payment. (Ibid.)

In August 2009, Chase’s Loss Mitigation Department contacted Plaintiff and inquired whether Plaintiff wished to modify the first loan. (Complaint, at p. 9.) Plaintiff  responded affirmatively and agreed to submit required documentation. (Ibid.) In late August or early September 2009, Chase’s Loss Mitigation Department telephoned Plaintiff, advising her not to make any payments during the negotiation and documentation process and stating that Chase would not accept any payments during this process. (Ibid.) Relying on these instructions, and for that reason alone, Plaintiff stopped making payments after September 2, 2009. (Ibid.)

By October 2009, Plaintiff had received no formal response to her loan modification paperwork and telephoned Chase’s Loan Mitigation Department to inquire concerning the status of the process. (Complaint, at pp. 9-10.) Chase represented that they had been overwhelmed with loan modification requests and would be working on it. (Complaint, at p. 10.) In November 2009, Ottoboni still had received no formal response; she followed up by telephone and received the same response. (Ibid.) On December 1, 2009, Chase’s Loss Mitigation Department notified Plaintiff by telephone that they again needed the same forms already submitted by her; Plaintiff promptly faxed the forms to the same Chase telephone number she had been instructed in the past. (Ibid.) Within several days after providing the fax, Chase’s Loan Mitigation Department telephoned Plaintiff, advising her that Chase had not received the fax; Plaintiff responded by again faxing the documents. (Ibid.)

In February 2010, Chase’s Loss Mitigation Department telephoned Plaintiff and informed her that they were working on modifications and that everything was OK. (Complaint, at pp. 10-11.) On February 17, 2010, without notice to Plaintiff, Chase recorded its Notice of Trustee’s Sale, scheduling the sale of the Property based upon a default in the first loan for May 19, 2010 (the “NOTS”). (Complaint, at p. 11.) In or after February or March 2010, Plaintiff learned of the NOTS from a neighbor who saw a notice in the newspaper. (Ibid.) Plaintiff immediately telephoned Chase’s Loss Mitigation Department; the person who purported to be knowledgeable about the transaction stated that Ottoboni did not need to worry about the NOTS because Plaintiff’s application was being processed. (Ibid.)

On February 26, 2010, Ottoboni and Chase executed a forbearance agreement concerning the second loan. (Complaint, at p. 11.) Following the instructions from Chase’s Loss Mitigation Department, Ottoboni wired $1,500 on to Chase as required for the loan modification process. (Ibid.) While this payment related to the second loan, at about the same time, Plaintiff was told by Chase’s Loss Mitigation Department that all necessary documentation was being prepared for the first loan modification. (Ibid.) During all of this time, Chase’s Loss Mitigation Department was aware that Ottoboni had substantial equity in the Property and intended to keep the Property. (Ibid.) In fact, Plaintiff had substantial funds available in a retirement account available to cure the default. (Complaint, at p. 7.)

In February and March 2010, Plaintiff made several telephone calls to Chase’s Loss Mitigation Department during which she was unable to locate or communicate with any person in charge of her file for the first loan. (Complaint, at pp. 11-12.) Chase incorrectly informed her that she had provided an incorrect social security number; however, Chase itself had misentered the social security number and the number provided by Plaintiff was correct. (Complaint, at p. 12.) In March 2010, a Chase representative named “Johnny” telephoned Plaintiff to notify her that Chase was working on the modification for the first loan. (Ibid.) On April 16, 2010, Plaintiff and Chase executed and delivered a forbearance agreement as to the second loan, by the terms of which Plaintiff wired $3,137.49 to Chase and was to make regular monthly payments thereafter. (Ibid.) Plaintiff made the payments required and otherwise performed under the forbearance agreement. (Complaint, at p. 13.)

On May 3, 2010, a Chase representative telephoned Plaintiff to request an update on her expense information to further process the modification of the first loan. Complaint, at p.14.) On May 11, 2010, without notice to Plaintiff, Chase conducted a trustee’s sale foreclosing on the Property based upon the default in the first loan. (Ibid.) The Property was purchased by a third party at the trustee’s sale for $880,000. (Complaint, at p. 20 & exhibit I.) The Property was later resold in the amount of $1,390,000. (Complaint, at p. 20.)

On June 20, 2011, Plaintiff filed this complaint, asserting six causes of action:

(1) “combination of negligent misrepresentation of facts, concealment, breaches of fiduciary duty”; (2) concealment; (3) affirmative misrepresentation; (4) negligent disclosure by fiduciary; (5) financial elder abuse; and (6) promissory estoppel.

Defendant Chase generally demurs to each of the causes of action of the complaint. Chase argues that the fraud claims (including negligent misrepresentation) all fail because the claims have not been pleaded with requisite specificity, in particular, by not identifying the names of the people with whom Plaintiff spoke and their authority to speak. Chase argues that an oral agreement not to foreclose is not enforceable under the statute of frauds, and that Chase, as a lender, does not owe Plaintiff a fiduciary duty. Chase further asserts that the cause of action for financial elder abuse fails because collecting a debt actually owed cannot be construed as taking property for a wrongful purpose and constitutes privileged action. Chase also argues that the promissory estoppel cause of action fails because Plaintiff has not pleaded a promise clear and unambiguous in its terms. Chase points out that the promissory estoppel claim is also entitled a claim for declaratory relief and declaratory relief is unavailable.

Plaintiff opposes the demurrer. Plaintiff argues that incidents have been pleaded in detail and are sufficient. Plaintiff emphasizes that at all times she was financially able, willing and interested in curing the default and preventing the foreclosure sale, but relied upon Chase’s representations that the loan was being modified and that the sale would not take place during the modification process. In reply, Chase argues that Plaintiff does not effectively respond to the lack of specificity in the complaint.

“We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed. [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.]” (Evans v. City of Berkeley (2006) 38 Cal.4th 1, 6, internal quotation marks omitted.)

            Fraud Claims

“The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) “In California, fraud must be pled specifically; general and conclusory allegations do not suffice. [Citations.] (Id. at p. 645.) “This particularity requirement necessitates pleading facts which ‘show how, when, where, to whom, and by what means the representations were tendered.’ [Citation.]” (Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73, emphasis omitted.) “The idea seems to be that allegations of fraud involve a serious attack on character, and fairness to the defendant demands that he should receive the fullest possible details of the charge in order to prepare his defense.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216.)

Here, Plaintiff alleges numerous communications with Chase. Chase argues that the allegations are not specific because Plaintiff has not alleged the exact names of the persons with whom she communicated or other details. In the complaint, Plaintiff has alleged that Chase contacted her to discuss and to offer a loan modification application process. This is consistent with Chase’s obligation under Civil Code section 2923.5, subdivision (a)(2).  Plaintiff further alleges that documentation for loan modifications to both the first and second loans were submitted as requested and required by Chase. Plaintiff alleges that in late August or early September someone from Chase’s Loss Mitigation Department telephoned Ottoboni and instructed her not to make payments while the loan modification was being processed. Plaintiff followed the instructions. Plaintiff alleges several telephone calls to and from Chase’s Loss Mitigation Department to discuss the loan modifications. Then, just a few days prior to the trustee’s sale, and only a few days after the loan modification was completed on the second loan, Chase’s Loss Mitigation Department requested updated information to complete the loan modification on the first loan. During each of these communications, it is alleged that Chase either affirmatively represented that the loan modification was being processed and not to worry about the trustee’s sale, or failed to tell Plaintiff that the trustee’s sale was actually going forward despite the continuing process to resolve the loan modification on the first loan.

“We observe … certain exceptions which mitigate the rigor of the rule requiring specific pleading of fraud. Less specificity is required when ‘it appears from the nature of the allegations that the defendant must necessarily possess full information concerning the facts of the controversy,’ [citation]; ‘[even] under the strict rules of common law pleading, one of the canons was that less particularity is required when the facts lie more in the knowledge of the opposite party ….’ [Citation.]” (Committee on Children’s Television, Inc. v. General Foods Corp., supra, at p. 217.) “Surely defendants have records of their dealings with the plaintiffs. ‘Those details … are properly the subject of discovery, not demurrer.’ [Citations.]” (Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1384-1385.)

The allegations provided by Plaintiff are sufficient to allege intentional or negligent misrepresentations (first loan modification was being processed and not to worry about the NOTS while that loan modification was being processed) or concealments / nondisclosure where facts are necessary to make representations not misleading (trustee’s sale was going forward notwithstanding representations that the first loan modification was being processed). These are adequate allegations of the elements of misrepresentation or concealment. “Hence, while it seems sound to require specific pleading of the facts of fraud rather than general conclusions, the courts should not look askance at the complaint, and seek to absolve the defendant from liability on highly technical requirements of form in pleading.” (Committee on Children’s Television, Inc. v. General Foods Corp., supra, 35 Cal.3d at p. 216, fn. 17.)

Chase also argues that to the extent Plaintiff asserts that there was an oral agreement not to foreclose, such a claim falls under the statute of frauds. “In the absence of consideration, a gratuitous oral promise to postpone a sale of property pursuant to the terms of a trust deed ordinarily would be unenforceable under section 1698 [the statute of frauds].” (Nguyen v. Calhoun (2003) 105 Cal.App.4th 428, 444, quoting Raedeke v. Gibraltar Sav. & Loan Assn. (1974) 10 Cal.3d 665, 673.) However, the “trustee shall postpone the sale in accordance with any of the following: … (C) By mutual agreement, whether oral or in writing, of any trustor and any beneficiary or any mortgagor and any mortgagee.” (Civ. Code, § 2924g, subd. (c)(1)(C).) Plaintiff has alleged justifiable reliance by not curing the default, as Plaintiff intended to do, by use of her available retirement funds.(Complaint, at p. 2.) Justifiable reliance constitutes sufficient consideration to make enforceable a postponement of a trustee’s sale. (Garcia v. World Savings, FSB (2010) 183 Cal.App.4th 1031, 1041.) Thus, as against the arguments asserted by Chase in this demurrer, plaintiffs have adequately pleaded actions sounding in fraud. Chase’s demurrer to the first, second and third causes of action will be overruled.

             Nondisclosure by Fiduciary

Plaintiff ambiguously pleads breach of fiduciary duties in the first three causes of action.

Because those actions are sufficiently pleaded notwithstanding the existence or absence of a fiduciary duty, there is no basis for sustaining the demurrer to that part of the cause of action relating to the allegations of fiduciary duty. (See Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1047.)

Chase argues that the fourth cause of action, for negligent nondisclosure by a fiduciary, is barred because no fiduciary duty exists between a lender and the debtor. “In order to plead a cause of action for breach of fiduciary duty, a plaintiff must show the existence of a fiduciary relationship, its breach, and damage caused by the breach.” (Apollo Capital Fund LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226, 244.) “A debt is not a trust and there is not a fiduciary relation between debtor and creditor as such.” (Downey v. Humphreys (1951) 102 Cal.App.2d 323, 332.) Here, Plaintiff has alleged only a debtor- creditor relationship between her and Chase. Plaintiff argues that a fiduciary duty should exist in this situation based upon Ottoboni’s repose of trust and confidence in Chase and Chase’s assertions of Chase’s business credo. Plaintiff confuses reposing trust and confidence in a party so as to give rise to a fiduciary duty and relying upon the implied contractual covenant of good faith and fair dealing. A contracting party may rely upon the good faith and fair dealing of the other contracting party without creating a fiduciary duty.

It is established as a matter of law that no fiduciary duty exists between a bank and its loan customers. (Price v. Wells Fargo Bank (1989) 213 Cal.App.3d 465, 476.) All of the allegations of the complaint assert actions by and with Chase only within the lender-debtor relationship. Plaintiff has not explained, and the court does not see, how she could truthfully amend the complaint to allege a fiduciary duty by Chase. The court will sustain Chase’s demurrer to the fourth cause of action of the complaint without leave to amend.

            Financial Elder Abuse

Plaintiff’s fifth cause of action is for financial elder abuse. “‘Financial abuse’ of an elder or dependent adult occurs when a person or entity does any of the following:

            “(1) Takes, secretes, appropriates, obtains, or retains real or personal property of an elder or dependent adult for a wrongful use or with intent to defraud, or both.

            “(2) Assists in taking, secreting, appropriating, obtaining, or retaining real or

personal property of an elder or dependent adult for a wrongful use or with intent to defraud, or both.

            “(3) Takes, secretes, appropriates, obtains, or retains, or assists in taking,

secreting, appropriating, obtaining, or retaining, real or personal property of an elder or

dependent adult by undue influence, as defined in Section 1575 of the Civil Code.” (Welf. & Inst. Code, § 15610.30, subd. (a).) “For purposes of this section, a person or entity takes, secretes, appropriates, obtains, or retains real or personal property when an elder or dependent adult is deprived of any property right, including by means of an agreement, donative transfer, or testamentary bequest, regardless of whether the property is held directly or by a representative of an elder or dependent adult.” (Welf. & Inst. Code, §15610.30, subd. (c).)

Chase argues first that this claim fails because the fraud claims fail. As discussed above, Plaintiff has set forth claims sounding in fraud. Chase next argues that collecting a debt owed cannot be construed as taking property for a wrongful purpose. The problem with Chase’s argument is time. Simply because Ottoboni had an obligation to repay Chase the principal and interest for the first loan does not mean that Plaintiff’s present property rights (see Civ. Code, § 689) could be taken at any time, and, as here alleged, as a result of Chase’s fraudulent representations and nondisclosures. Chase also argues that there are no allegations of Chase’s fraudulent intent. However, “[f]raud consists in intention, and that intention is a fact.” (Woodroof v. Howes (1891) 88 Cal. 184, 190.) Ottoboni has averred the fact of Chase’s intent. (Complaint, at pp. 16, 21.) Chase further argues that its conduct is privileged. “All of the following shall constitute privileged communications pursuant to [Civil Code] Section 47:

        “(1) The mailing, publication, and delivery of notices as required by this section.

        “(2) Performance of the procedures set forth in this article.

        “(3) Performance of the functions and procedures set forth in this article if those functions and procedures are necessary to carry out the duties described in Sections 729.040, 729.050, and 729.080 of the Code of Civil Procedure.” (Civ. Code, § 2924, subd. (d).) The applicable Civil Code section 47 privilege is the qualified common interest privilege of section 47, subdivision (c)(1) rather than the absolute privilege of section 47, subdivision (b). (Kachlon v. Markowitz (2008) 168 Cal.App.4th 316, 341.) The qualified common interest privilege of Civil Code section 47, subdivision (c) applies to “a communication, without malice, to a person interested therein.”

“The malice necessary to defeat a qualified privilege is ‘actual malice’ which is established by a showing that the publication was motivated by hatred or ill will towards the plaintiff or by a showing that the defendant lacked reasonable grounds for belief in the truth of the publication and therefore acted in reckless disregard of the plaintiff’s rights ….’” (Noel v. River Hills Wilsons, Inc. (2003) 113 Cal.App.4th 1363, 1370.) Plaintiff has alleged that Chase acted intentionally to her injury and knowing that Chase had misled Ottoboni into believing that the trustee’s sale would not go forward. Plaintiff has thus sufficiently alleged malice within the meaning of the qualified privilege. So, whether or not the qualified privilege applies as to all of Chase’s conduct, Plaintiff has adequately alleged malice. “[I]f malice is shown, the privilege is not merely overcome; it never arises in the first instance.” (Brown v. Kelly Broadcasting Co. (1989) 48 Cal.3d 711, 723, fn. 7.)

Defendant Chase’s demurrer to the fifth cause of action, for financial elder abuse, will be overruled.

            Promissory Estoppel

Plaintiff’s sixth cause of action is entitled “Promissory Estoppel-Declaratory Relief.” (Complaint, at p. 26.) “The doctrine of promissory estoppel ‘make[s] a promise binding, under certain circumstances, without consideration in the usual sense of something bargained for and given in exchange.’ [Citations.] ‘Under this doctrine a promisor is bound when he should reasonably expect a substantial change of position, either by act or forbearance, in reliance on his promise, if injustice can be avoided only by its enforcement.’ [Citation.] ‘“The vital principle is that he who by his language or conduct leads another to do what he would not otherwise have done shall not subject such person to loss or injury by disappointing the expectations upon which he acted.”’ [Citations.] ‘“In such a case, although no consideration or benefit accrues to the person making the promise, he is the author or promoter of the very condition of affairs which stands in his way; and when this plainly appears, it is most equitable that the court should say that they shall so stand. [Citations.]”’ [Citation.]” (Garcia v. World Savings, FSB, supra, 183 Cal.App.4th at pp. 1040-1041.)

Chase argues that Plaintiff has not alleged the promise in clear and unambiguous terms.

(See Thomson v. International Alliance of Theatrical Stage Employees & Moving Picture Machine Operators (1965) 232 Cal.App.2d 446, 454.) However, “[t]o be enforceable, a promise need only be ‘“definite enough that a court can determine the scope of the duty[,] and the limits of performance must be sufficiently defined to provide a rational basis for the assessment of damages.”’ [Citation.]” (Garcia v. World Savings, FSB, supra, 183 Cal.App.4th at p. 1045.) The promise alleged here is that the foreclosure would not take place while the loan modification was in process. Chase argues that a promise not to foreclose is unenforceable because it is not in writing. However, as discussed above, promissory estoppel itself provides the consideration that makes the promise not to foreclose enforceable. As a result, the elements of promissory estoppel are adequately pleaded for the same reasons that Plaintiff’s claims for fraud have been pleaded.

Plaintiff has therefore adequately pleaded an action for damages based upon promissory estoppel because of the promise not to foreclose. A further issue is the availability of declaratory relief. The title of the cause of action includes “declaratory relief.” Chase argues that declaratory relief is improper because there is no issue affecting future rights between the parties. Whether or not this is so, the court notes that Plaintiff does not request a declaration of rights in the sixth cause of action or in the prayer to the complaint, but seeks only damages. “If the complaint states a cause of action under any theory, regardless of the title under which the factual basis for relief is stated, that aspect of the complaint is good against a demurrer.” (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38.) Moreover, “a demurrer cannot rightfully be sustained to part of a cause of action or to a particular type of damage or remedy.” (Kong v. City of Hawaiian Gardens Redevelopment Agency, supra, 108 Cal.App.4th at p. 1047.) Consequently, Chase’s demurrer to the sixth cause of action will be overruled.

             Request for Judicial Notice and Procedural Matters

Chase requests that the court take judicial notice of nine documents recorded in the Santa Barbara real estate records regarding the Property, including the deeds of trust, notice of default and NOTS. The court will take judicial notice of these documents, but judicial notice does not extend to the truth of the matters stated therein. (Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1375.)

The demurrer of defendant JPMorgan Chase Bank, N.A., is overruled as to the first, second, third, fifth and sixth causes of action and is sustained without leave to amend as to the fourth cause of action of the complaint. Defendant shall file and serve its answer to the remaining causes of action in the complaint on or before October 31, 2011.

 * TENTATIVE RULING: *

First Amended Complaint (FAC): Plaintiff owns real property located in Lompoc. On April 25, 2005, plaintiff executed a promissory note in the amount of $600,000 in favor of Countrywide Home Loans, Inc. and a deed of trust (DOT) on the property. Plaintiff alleges:

Countrywide caused defendant Mortgage Electronic Registration Systems, Inc. (MERS) to go on title as “nominee beneficiary” in order to hide the true identity of successive beneficiaries. [FAC ¶ 14] On August 25, 2010, ReconTrust Company, N.A., on behalf of defendants BAC Home Loans Servicing, LP, and Bank of New York Mellon (BNY), recorded a notice of default and election to sell (NOD). [FAC ¶ 16] On September 3, 2010, MERS recorded a corporate assignment of DOT to BNY. [FAC ¶ 17] On December 6, 2010, ReconTrust recorded a notice of trustee’s sale (NOS). [FAC ¶ 18]

1. Wrongful Foreclosure (BNY, Recontrust, BAC and MERS): When Recontrust initiated foreclosure on August 25, 2010, BNY had no interest in the DOT as the assignment was not executed before a notary until September 1, 2010. [FAC ¶¶ 20-21] On August 25, 2010, MERS was the beneficiary, as nominee for Countrywide, not BNY. Therefore, the foreclosure process is defective. [FAC ¶¶ 22-23] Recontrust, BAC, BNY and MERS backdated the assignment by stamping August 25, 2010 on it. [FAC ¶ 25] BAC did not comply with Civil Code § 2923.5(b). [FAC ¶¶ 26-28]

2. Fraud (BNY, Recontrust, BAC and MERS): The recording of the NOD constitutes an affirmative representation of BNY’s authority/interest in the property that was known not to be true. [FAC ¶ 31] The assignment of the DOT was excecuted by a “T. Sevillano,” who is not an “assistant secretary” for MERS and is not otherwise an employee or agent of MERS. [FAC ¶ 32] The misrepresentations by defendants induced plaintiff into believing that a proper foreclosure was commenced and that was a substantial consideration in her decision not to utilize the property as her permanent California residence or to secure a long-term tenant. [FAC ¶¶ 33 & 37] Defendants knew that they did not have authority or an interest in the property when they caused recordation of the NOD. [FAC ¶ 34] Defendants intended to induce plaintiff into believing their actions were lawful so she would not challenge those actions. [FAC ¶ 35]

3. Negligent Misrepresentation (BAC): BAC employees and agents (most of whom are not known to plaintiff but the conversations were recorded by BAC) represented: a) In

November 2010, plaintiff was told she was eligible for the Making Home Affordable

government loan modification program even though she was not utilizing the property as her primary residence but then, on May 21, 2010 (these are the dates stated in the FAC), plaintiff was told her application was being denied because the property was not her primary residence. b) In June 2010, BAC induced plaintiff to pursue a short sale only to tell her in July 2010 that she does not qualify for a short sale under the Home Affordable Foreclosure Alternative government program. c) On September 7, 2010, BAC employee

Damien asked plaintiff to provide information regarding her financial status and told plaintiff she was “prequalified for a loan modification.” She was induced to apply for a loan modification but BAC declined the application. [FAC ¶¶ 39 & 40] BAC had no reasonable grounds that would support a good faith belief in its representations because it knew the property was not owner occupied and the statement that she was prequalified for a loan modification was “without merit.” [FAC ¶ 41] BAC intended to induce plaintiff’s reliance and she relied on the representations to her detriment by investing her time, labor and money in pursuing each alternative BAC offered her. [FAC ¶¶ 42 & 43]

4. Breach of Contract (BNY): Pursuant to the DOT, BNY was bound to act in accordance with California law when initiating and conducting a non-judicial foreclosure. [FAC ¶¶ 47-50] BNY breached the contract by pursuing a non-judicial foreclosure without a valid NOD and by failing to give the notices required in Civil Code § 2923.5. [FAC ¶¶ 51-53]

5. Violation of B&P Code § 17200 (BNY, Recontrust, BAC and MERS): Plaintiff bases this cause of action on the unauthorized NOD, the backdated assignment and the fraudulent declaration of due diligence regarding the mandates of Civil Code § 2923.5. [FAC ¶¶ 47-59] Defendants performed these acts for the purpose of injuring plaintiff and to facilitate the loss of her home to foreclosure. [FAC ¶ 60]

6. Promissory Estoppel (BAC and BNY): Based on Damien’s statement that she was prequalified for a loan modification, plaintiff, who had the ability to cure her accrued arrearages, abandoned her intent to pursue a cure of her arrearages and a potential bankruptcy filing to pursue the loan modification. [FAC ¶¶ 62-67] The prequalification statement was absolute and led plaintiff to believe that all she had to do was go through a formal application. [FAC ¶ 68] BAC did not “return a decision” on the loan modification application until March 2011. The delay caused plaintiff to incur further arrearages, foreclosing plaintiff’s ability to cure and the likelihood of favorable relief in the bankruptcy courts. [FAC 69]

7. Declaratory Relief (Bank of America): Defendant Bank of America (BOA) succeeded as the servicer of the loan on July 1, 2011. [FAC ¶ 73] Plaintiff anticipates that BOA will engage in similar conduct against her and continue to seek to foreclose on plaintiff’s property. [FAC ¶ 74] The existence of a past controversy and reasonably foreseeable/anticipated continuation of a controversy entitles plaintiff to a declaration as to the rights and obligations owed by BOA, whether BOA is equally liable for the damages caused by BAC’s conduct and whether BOA is equally estopped from pursuing the foreclosure. [FAC ¶ 75]

On August 4, 2011, the court entered an order for a temporary restraining order staying the foreclosure. Through stipulations, this TRO has been continued through the date of the present hearing.

Demurrer: Defendants BOA, BAC, BNY, Recontrust and MERS demur to all causes of action because plaintiff has failed to state facts sufficient to constitute the causes of action. (BOA is now the successor by merger to BAC.) BOA demurs to the wrongful foreclosure cause of action for failure to tender, no basis to challenge the assignment, and plaintiff’s inability to obtain relief under Civil Code § 2923.5, with which defendants complied. The causes of action for fraud and negligent misrepresentation fail because plaintiff has failed to plead the claims with sufficient particularity, a misrepresentation of material fact or damages. There is no action for a negligent false promise. In the breach of contract cause of action, plaintiff pleads failure to follow California statutes but she had failed to plead failure to follow foreclosure statutes. Also, BNY is not a party to the contract.  Plaintiff’s UCL claims fail because she has pled no underlying statutory violations or wrongful conduct. Plaintiff has failed to plead an unambiguous promise or justifiable reliance sufficient to support a cause of action for promissory estoppel. The claim for declaratory relief fails because it is based on the foregoing causes of action, all of which fail.

Opposition: Plaintiff’s opposition to the demurrer exceeds the 15 page limit set forth in CRC 3.1113(d) and does not include a table of contents or table of authorities are required in CRC 3.1113(f).

Plaintiff contends: Tender is not required in a pre-sale challenge to a foreclosure. Plaintiff has standing to challenge the assignment. BNY did not acquire a beneficial interest in the DOT until after the August 25, 2010 NOD and defendants used the “backdating scheme” to fake the validity of the NOD. The NOD is not valid as it indicates that BNY is the beneficiary before any assignment and, therefore, Recontrust had no authority to act as agent for the beneficiary. Plaintiff has alleged violations of Civil Code § 2923.5 in that she received no mailing and the automated calls were made after the NOD was recorded. The representation that BNY was the beneficiary constitutes a fraudulent misrepresentation and the representation that she was prequalified for a loan is an actionable representation.

Plaintiff had the ability to cause a cure of her default but lost that opportunity because of the prequalification representation. Plaintiff pleads that BNY succeeded to and assumed all interests and obligations in the note and DOT. Plaintiff suffered an injury in fact because she now is not able to save her residence and because she did not pursue long term leases for the property that would have provided her with additional income. The requalification promise was clear and unambiguous and BOA must modify plaintiff’s loan. Plaintiff pleads justifiable reliance – her change in position. Plaintiff has sufficiently pled the existence of an actual controversy because she has plead that BOA will deny any liability, rights and obligations.

Reply: Defendants reiterate arguments from the demurrer and also argue: Plaintiff’s own authority establishes that she must plead no valid assignment, not just a defective recorded assignment. Plaintiff was not prejudiced by any defective assignment because she was in default no matter who the creditor was. The certification in the NOD is positive proof of compliance with Civil Code § 2923.5.

1. Wrongful Foreclosure:

A. Tender: To maintain any cause of action for irregularity in a foreclosure sale procedure, a plaintiff must allege tender of the amount of the secured indebtedness. Abdallah v. United Savings Bank, 43 Cal.App.4th 1101, 1109 (1996). “[O]nce the trustor fails to effectively exercise his right to redeem, the sale becomes valid and proper. A cause of action ‘implicitly integrated’ with the irregular sale fails unless the trustor can allege and establish a valid tender.” Arnolds Management Corp. v. Eischen, 158 Cal.App.3d 575, 579 (1984). “[Nothing] short of the full amount due the creditor is sufficient to constitute a valid tender, and the debtor must at his peril offer the full amount.” Gaffney v. Downey Sav. & Loan Ass'n, 200 Cal.App.3d 1154, 1165 (1988). At issue is the debtor’s “ability to tender the amount of the indebtedness or cure the default.” Fpci Re-Hab 01 v. E & G Invs., 207 Cal.App.3d 1018, 1022 (1989). The doctrine of tender is strictly construed. Nguyen v. Calhoun, 105 Cal.App.4th 428, 439 (2003).

Plaintiffs maintains that she is not required to comply with the tender rule because the trustee sale has not yet occurred, citing Vissuet v. Indymac Mortg. Servs., 2010 U.S.Dist.LEXIS 26241 (2010). That court noted that the creditor had failed to cite a case “that would establish a similar bright-line rule requiring tender where the plaintiff is merely attempting to prevent a trustee sale from proceeding.” Id. at *7. But there is such authority.

This argument, however, suffers from two fatal flaws. First, it finds no support in the case law. To the contrary, courts have consistently held that plaintiffs bringing claims for wrongful foreclosure must offer to tender the full amount owed to sustain a cause of action regarding any aspect of the foreclosure sale procedure. See, e.g., Fammilop v. Wells Fargo Bank, N.A., 2011 U.S. Dist. LEXIS 3249, at *8 (C.D. Cal. Jan. 4, 2011). Second, taking as true Plaintiffs' allegation that no sale has been completed, … their claim for wrongful foreclosure fails on the additional ground that it is not yet ripe for review. See Boles v. Merscorp., Inc., U.S. Dist. LEXIS 129655, 2009 WL 734133, at *6 (C.D. Cal. Mar. 18, 2009). Hollins v. Recontrust, N.A., 2011 U.S.Dist.LEXIS 52513, * 12 (C.D. Cal. 2011). “When a debtor is in default of a home mortgage loan, and a foreclosure is either pending or has taken place, the debtor must allege a credible tender of the amount of the secured debt to maintain any cause of action for wrongful foreclosure.” Alicea v. GE Money Bank, 2009 U.S.Dist.LEXIS 60813, *7-*8 (N.D. Cal. 2009).

The court finds that tender is necessary and plaintiff has failed to plead the present ability to cure even the arrearage. In fact, she pleads that she is no longer capable of doing so.

Plaintiff contends that tender may not be required where it would be inequitable to do so, citing Onofrio v. Rice, 55 Cal.App.4th 413, 424 (1997). Plaintiff has not alleged facts that would justify dispensing with the tender requirement.

B. Assignment: The NOD lists BNY in the portion where the form indicates the beneficiary is to go. The NOD is executed on August 25, 2010, by Recontrust “as agent for beneficiary.” MERS was the beneficiary under the DOT. There is an assignment of the DOT bearing a date of August 25, 2010 and executed by an assistant secretary of MERS with a notary acknowledgement indicating it was executed on September 1, 2010. Plaintiff alleges the assignment was “backdated” and, because BNY had no interest in the DOT on August 25, the NOD is void.

Defendants argue that plaintiff cannot assert a claim based on the lack of assignment because it cannot be assumed that the assignee desires to avoid it, quoting a C.J.S. treatise. But that does not appear to address compliance with California nonjudicial foreclosure statutes. (Defendants did not provide a copy of the treatise.)

However, the assignment issue does not appear to afford plaintiff relief.

There is a further, overriding basis for rejecting a claim based solely on the alleged invalidity of the MERS assignment. Plaintiff's cause of action ultimately seeks to demonstrate that the nonjudicial foreclosure sale was invalid because HSBC lacked authority to foreclose, never having received a proper assignment of the debt. In order to allege such a claim, it was not enough for plaintiff to allege that MERS's purported assignment of the note in the assignment of deed of trust was ineffective. Instead, plaintiff was required to allege that HSBC did not receive a valid assignment of the debt in any manner. Plaintiff rests her argument on the documents in the public record, but assignments of debt, as opposed to assignments of the security interest incident to the debt, are commonly not recorded. The lender could readily have assigned the promissory note to HSBC in an unrecorded document that was not disclosed to plaintiff. To state a claim, plaintiff was required to allege not only that the purported MERS assignment was invalid, but also that HSBC did not receive an assignment of the debt in any other manner. There is no such allegation. Fontenot v. Wells Fargo Bank, N.A., 198 Cal.App.4th 256, 271-272 (2011).

Also, even the assignment of a DOT need not be recorded. Civil Code § 2932.5 applies to mortgages, not deeds of trust. Stockwell v. Barnum, 7 Cal.App. 413, 417 (1908), construing former Civil Code § 858, which reads substantially the same as current Civil Code § 2932.5. A bankruptcy court recently determined that Stockwell no longer applies as the historical distinctions between mortgages and deeds of trust are obsolete. U.S. Bank N.A. v. Skelton (In re Salazar), 448 B.R. 814, 822 (Bankr. S.D. Cal. 2011). However, a panel of the Second District Court of Appeal (Div. 8) recently rejected the analysis in Salazar. Calvo v. HSBC Bank USA, N.A., 2011 Cal.App.LEXIS 1184, *8-*9 n2 (2011).

The holding of Stockwell has never been reversed or modified in any reported California decision in the more than 100 years since the case was decided. The rule that section 2932.5 does not apply to deeds of trust is part of the law of real property in California. After 1908, only the federal courts have addressed the question whether section 2932.5 applies to deeds of trust, and only very recently. Every federal district court to consider the question has followed Stockwell.

Id. at *7-*8, citing Roque v. SunTrust Mortgage, Inc., 2010 U.S.Dist.LEXIS 11546, *8 (N.D. Cal. 2010); Parcray v. Shea Mortgage, Inc., 2010 U.S.Dist.LEXIS 40377, *31-*32; Caballero v. Bank of America, 2010 U.S.Dist.LEXIS 122847, *8 (N.D. Cal. 2010). Federal district courts, too, have expressly rejected the holding in Salazar. Pedersen v. Greenpoint Mortg. Funding, Inc., 2011 U.S.Dist.LEXIS 96397, *47-54 (E.D. Cal. 2011). Further, plaintiff has not alleged that any irregularity in the assignment prejudiced her.

We also note a plaintiff in a suit for wrongful foreclosure has generally been required to demonstrate the alleged imperfection in the foreclosure process was prejudicial to the plaintiff's interests. .. Even if MERS lacked authority to transfer the note, it is difficult to conceive how plaintiff was prejudiced by MERS's purported assignment, and there is no allegation to this effect. Because a promissory note is a negotiable instrument, a borrower must anticipate it can and might be transferred to another creditor. As to plaintiff, an assignment merely substituted one creditor for another, without changing her obligations under the note. Plaintiff effectively concedes she was in default, and she does not allege that the transfer to HSBC interfered in any manner with her payment of the note [citation], nor that the original lender would have refrained from foreclosure under the circumstances presented. Fontenot v. Wells Fargo Bank, N.A., supra, 198 Cal.App.4th at 272.

This lack of prejudice is even more obvious in this instance because it is undisputed that Recontrust was, at all times relevant, the trustee under the DOT. Under Civil Code section 2924(a)(1), “a trustee, mortgagee or beneficiary or any of their authorized agents” may conduct the foreclosure process. Under California Civil Code section 2924b(b)(4), a “person authorized to record the notice of default or the notice of sale” includes “an agent for the mortgagee or beneficiary, an agent of the named trustee, any person designated in an executed substitution of trustee, or an agent of that substituted trustee.” Recontrust had authority as trustee to issue the NOD. C. Civil Code § 2923.5: Civil Code § 2923.5(a)(1) provides that a trustee, beneficiary, or authorized agent may not file a NOD “until 30 days after initial contact is made as required by paragraph (2) or 30 days after satisfying the due diligence requirements as described in subdivision (g).” Paragraph 2 provides: “A mortgagee, beneficiary, or authorized agent shall contact the borrower in person or by telephone in order to assess the borrower's financial situation and explore options for the borrower to avoid foreclosure.”

Although her chronology is a little confusing, it appears that plaintiff alleges that BAC contacted plaintiff well in advance of the 30 days prior to the NOD. Plaintiff alleges that, in November 2010, plaintiff was told she was eligible for the Making Home Affordable government loan modification program and then, on May 21, 2010, plaintiff was told her application was being denied. [FAC ¶ 39.a.] The May 21, 2010 date appears to be accurate, since the events appear to be in chronological order and the next event is June 2010. So the November date must be 2009. Plaintiff alleges that, in June 2010, BAC induced plaintiff to pursue a short sale only to tell her in July 2010 that she does not qualify for a short sale under the Home Affordable Foreclosure Alternative government program. [FAC ¶ 39.b.]  So plaintiff’s own allegations establish that she was contacted at least by May 21, 2010, which is more than 30 days before the NOD was recorded.

Even if BAC, BNY or Recontrust had not complied with Civil Code § 2923.5, the “right of action is limited to obtaining a postponement of an impending foreclosure to permit the lender to comply with section 2923.5.” Mabry v. Superior Court, 185 Cal.App.4th 208, 214 (2010). In addition to the discussions regarding modification and short sale in November 2009 to July 2010, plaintiff alleges that further discussions took place in September 2010 and the exploration of a loan modification lasted until March 2011. Plaintiff’s allegations demonstrate that the trustee’s sale has been postponed and the lender has complied with Civil Code § 2923.5. Plaintiff does not like the results of the contact to assess her financial situation and explore her options to avoid foreclosure, but she has alleged that the contact happened.

The court finds that plaintiff has not stated a cause of action for wrongful foreclosure.

Although plaintiff requests leave to amend, she has not demonstrated how she could do so, particularly in light of her present allegations. “If there is a reasonable possibility that the defect in a complaint can be cured by amendment, it is an abuse of discretion to sustain a demurrer without leave to amend. [Citation.] The burden is on the plaintiff, however, to demonstrate the manner in which the complaint might be amended. [Citation.]” Hendy v. Losse, 54 Cal.3d 723, 742 (1991). “The burden is on the plaintiff to demonstrate how he or she can amend the complaint. It is not up to the judge to figure that out.” Lee v. Los Angeles County Metropolitan Transportation Authority, 107 Cal.App.4th 848, 854 (2003).

The court will sustain the demurrer to the first cause of action without leave to amend.

2. Fraud: A party must plead fraud specifically; general and conclusory allegations do not suffice. Lazar v. Superior Court, 12 Cal.4th 631, 645 (1996). “This particularity requirement necessitates pleading facts which 'show how, when, where, to whom, and by what means the representations were tendered.” Id. The elements of fraud are: (1) a misrepresentation (false representation, concealment, or nondisclosure) of material fact; (2) knowledge of falsity (or scienter); (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage. Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal.4th 979, 990 (2004).

Plaintiff bases her fraud allegation on representations in the NOD that BNY was authority to foreclose and interest in the property. As discussed above, plaintiff has not sufficiently alleged that the NOD was not accurate. Also, although plaintiff refers to the statutorily mandated NOD form indicating that BNY was placed in the portion of the form calling for the name of the beneficiary, BNY is not identified as the beneficiary in the NOD. In any event plaintiff does not allege reliance on this particular representation. She does not state that she contacted BNY to find out the amount she must pay or to arrange for payment to stop the foreclosure and BNY was unable to provide that information. Recontrust is designated at the agent of the beneficiary but there is no affirmative representation of who that beneficiary is.

Plaintiff’s alleged reliance on the NOD in not occupying the property as her residence and not leasing it is unjustifiable. Plaintiff knew she was in default and an NOD could be filed at any time and start the foreclosure process.

The court will sustain the demurrer to the fraud cause of action without leave to amend.

3. Negligent Misrepresentation: Negligent misrepresentation is a form of deceit, the

elements of which consist of (1) a misrepresentation of a past or existing material fact, (2) without reasonable grounds for believing it to be true, (3) with intent to induce another’s reliance on the fact misrepresented, (4) ignorance of the truth and justifiable reliance thereon by the party to whom the misrepresentation was directed, and (5) damages. Fox v. Pollack, 181 Cal.App.3d 954, 962 (1986). “The tort requires a ‘positive assertion.’” Diediker v. Peelle Fin. Corp., 60 Cal.App.4th 288, 297 (1997). “[A]n omission or an implied assertion or representation is not sufficient.” Apollo Capital Fund LLC v. Roth Capital Partners, LLC, 158 Cal.App.4th 226, 243 (2007). “Each element in a cause of action for fraud or negligent misrepresentation must be factually and specifically alleged.” Cadlo v. Owens-Illinois, Inc., 125 Cal.App.4th 513, 519 (2004).

The only specific allegation of a representation in this cause of action is the statement on September 7, 2010 by “Damien” of BAC, who told plaintiff that she was “prequalified for a loan modification.” But plaintiff does not allege how this was an untrue statement. In her opposition, plaintiff further confuses the issue by stating that Damien said she was “qualified for a loan modification.” [Opp. 14:7-9] Even assuming that “qualified” for a loan modification is tantamount to “approved” for a loan modification – and logic and common usage indicate that it is not – “prequalified” is even less of an assurance.

The prefix “pre” means: “a (1) earlier than; prior to; before  ; (2) preparatory or prerequisite to .” http://www.merriam-webster.com/dictionary/pre. In the FHA mortgage context:

While prequalifying for a loan doesn't necessarily guarantee that you will be able to purchase the home of your dreams, it does help you and potential lenders know your borrowing power and what you can afford in terms of a monthly mortgage payment.

Prequalifying for a loan simply means that you have taken an inventory of your income and assets and submitted them to your potential lender. Based on that information you should be able to qualify for a home mortgage loan.

http://www.fha.com/prequalify.cfm.

At best, prequalification is a promise to consider plaintiff for a loan modification. Plaintiff does not allege that defendants did not consider her for a loan modification. In any event, there is no cause of action for negligent representation of a promise to perform. Tarmann v. State Farm Mut. Auto. Ins. Co., 2 Cal.App.4th 153, 159 (1991).

The court will sustain the demurrer to the third cause of action for negligent misrepresentation without leave to amend.

4. Breach of Contract: Plaintiff alleges that, pursuant to the DOT, BNY was bound to act in accordance with California law when initiating and conducting a non-judicial foreclosure. [FAC ¶¶ 47-50] BNY breached the contract by pursuing a non-judicial foreclosure without a valid NOD and by failing to give the notices required in Civil Code § 2923.5. [FAC ¶¶ 51-53]

As discussed above, these allegations do not reflect breaches of the contract as the NOD was not invalid and defendants complied with Civil Code § 2923.5.

5. B&P Code § 17200, et seq.: A cause of action under the unfair competition law (UCL)

must allege a business practice that is unlawful, unfair or fraudulent. This rule does not “prohibit an action under the unfair competition law merely because some other statute on the subject does not, itself, provide for the action or prohibit the challenged conduct.” Smith v. State Farm Mutual Automobile Ins. Co., 93 Cal.App.4th 700, 720 (2001). The statute is interpreted broadly because “unfair or fraudulent business practices may run the gamut of human ingenuity and chicanery.” Motors, Inc. v. Times Mirror Co., 102 Cal.App.3d 735, 740 (1980). “The test under section 17200 is that a practice merely be unfair.” Allied Grape Growers v. Bronco Wine Co., 203 Cal.App.3d 432, 452 (1988).

Again, for reasons discussed above, plaintiff has not alleged business practices that are unlawful, unfair or fraudulent. Further, Plaintiff has not alleged damage in support of her UCL claim. A UCL claim can be prosecuted “by a person who has suffered injury in fact and has lost money or property as a result of the unfair competition.” B&P Code § 17204.

Therefore, “to have standing to assert a claim under the UCL, a plaintiff must have ‘suffered injury in fact and [have] lost money or property as a result of such unfair competition.’” Aron v. U-Haul Co. of California, 143 Cal.App.4th 796, 802 (2006). Plaintiff has not lost her home to foreclosure and has alleged no monetary damages.

The court will sustain the demurrer to the fifth cause of action under the UCL without leave to amend.

6. Promissory Estoppel: “The elements of a promissory estoppel claim are ‘(1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) [the] reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.’” US Ecology, Inc. v. State of California, 129 Cal.App.4th 887, 901 (2005) [citation omitted].

Plaintiff bases this cause of action on Damien’s statement that she was prequalified for a loan modification. She calls this statement “absolute.” But, as discussed above, the statement is not absolute. It is not a clear and unambiguous promise to do anything other than to submit the loan modification application to the next step in the process, which Damien, BAC and/or BOA did. The court will sustain the demurrer to the sixth cause of action for promissory estoppel without leave to amend.

7. Declaratory Relief (Bank of America): CCP § 1060 provides that any person may ask the court for a declaration of its rights or duties “in cases of actual controversy relating to the legal rights and duties of the respective parties.” Plaintiff contends there is an actual controversy based on the allegations of the foregoing causes of action. However, a cause of action for declaratory relief must fail as a matter of law if it depends upon other causes of action and those causes of action fail. Ratcliff Architects v. Vanir Construction Management, Inc., 88 Cal.App.4th 595, 607 (2001). Therefore, the court will sustain the demurrer to the seventh cause of action for declaratory relief without leave to amend.

Preliminary Injunction: Plaintiff seeks a preliminary injunction prohibiting defendants from proceeding with the foreclosure. The court may grant a preliminary injunction when it appears by the complaint that the plaintiff is entitled to the relief demanded or the commission or continuance of some act during the litigation would produce great or irreparable injury to a party to the action. CCP § 526(a). The court has determined that it does not appear by the complaint that plaintiff is entitled to the relief demanded. The court denies the request for a preliminary injunction and dissolves the temporary restraining order issued on August 4, 2011, as continued by stipulation.

The court sustains the demurrer of defendants Recontrust Company, N.A.; BAC Home Loans Servicing, LP; Bank of New York Mellon; Bank of America, N.A.; and Mortgage Electronic Registration Systems, Inc. to the first amended complaint of Plaintiff without leave to amend.

The court denies plaintiff’s request for a preliminary injunction and dissolves the temporary restraining order issued on August 4, 2011, as continued by stipulation.

* TENTATIVE RULING: *

OSC/TRO

Plaintiff is the owner of real property located at 336 Magna Vista Street in Santa Barbara.  The property is subject to a note and deed of trust in favor of defendant BAC Home Loans Servicing, LP (“BAC”), as beneficiary, and defendant Recon Trust Company, N.A. (“Recon”), as trustee.  According to the complaint, in November 2009, after the note went into default, BAC and plaintiff entered into an oral loan modification greement whereby plaintiff agreed to make three consecutive trial payments of $3,600 per month and supply specified financial information to BAC, and BAC agreed that plaintiff’s application would be processed under one of the loan modification programs and a loan modification would be made.  Plaintiff made the trial payments until October 2010, at which time he complained to BAC that he had not received a permanent loan modification as promised. In response, a BAC representative told plaintiff that the loan modification was being processed, but in the meantime plaintiff should pay what he could.  Since then, plaintiff has continued to send $1,000 per month to BAC, along with additional financial documents requested by BAC.

On April 21, 2011, Recon recorded a notice of default and election to sell under the deed of trust and three months later, on July 20, 2011, it recorded a notice of trustee’s sale.  On August 9, 2011, BAC informed plaintiff that his application for a loan modification was being denied and that a foreclosure sale was going forward on August 12, 2011.  On August 12, 2011, plaintiff filed suit against BAC and Recon for (1) breach of loan modification agreement, (2) breach of forbearance agreement, (3) equitable and promissory estoppel, (4) negligent misrepresentation, and (5) declaratory relief.  At the same time, plaintiff made an ex parte application for temporary restraining order (“TRO”) to enjoin a foreclosure sale of the property.  The court granted the TRO and ordered BAC and Recon to appear on August 24, 2011 to show cause why a preliminary injunction should not issue.  By stipulation and order, the hearing on the OSC re Preliminary Injunction was continued to October 19, 2011.    

Under Code of Civil Procedure Section 526(a)(1), a preliminary injunction may be granted when it appears from the complaint and any supporting affidavits or declarations that the plaintiff is entitled to the relief requested, and the relief consists of restraining the commission or continuance of the act complained of, either for a limited period or perpetually.  In determining whether to grant a preliminary injunction, the court must consider the likelihood that the plaintiff will prevail on the merits of his case at trial.  IT Corporation v. County of Imperial (1983) 35 Cal.3d 63, 69-70.  The court must also consider the interim harm that the plaintiff is likely to sustain if the injunction is denied as compared to the harm that the defendant is likely to suffer if the court grants the injunction.  King v. Meese (1987) 43 Cal.3d 1217, 1226; Abrams v. St. John’s Hospital & Health Center (1994) 25 Cal.App.4th 628, 635-636.  The determination whether to grant a preliminary injunction generally rests in the sound discretion of the trial court.  Cohen v. Board of Supervisors (1985) 40 Cal.3d 277, 286.

Defendants oppose plaintiff’s application for preliminary injunction, claiming that plaintiff lacks standing to challenge the foreclosure sale because he has not alleged that he is able to pay the full amount due under the loan.  In support of their argument, defendants point to the decisions in U.S. Cold Storage of California v. Great Western Savings & Loan Association (1985) 165 Cal.App.3d 1214 and Abdallah v. United Savings Bank (1996) 43 Cal.App.4th 1101, as well as the decision in Pantoja v. Countrywide Home Loans (N.D. Cal. 2009) 640 F.Supp.2d 1177.  However, all three cases are distinguishable from the present case.  In U.S. Cold Storage and in Abdallah, the foreclosure sale had already taken place and the plaintiff was seeking to set aside the sale based on procedural irregularities.  In Pantoja, the court stated that “[u]nder California law, in an action to set aside a trustee’s sale, a plaintiff must demonstrate that he had made a ‘valid and viable tender [offer] of payment of the indebtedness,’” quoting Karlsen v. American Savings & Loan Association (1971) 15 Cal.App.3d 112.  Here, plaintiff has not asserted a claim for wrongful foreclosure and he is not seeking to set aside a trustee’s sale.  Accordingly, there is no requirement that he give proof of his ability to pay the full amount of the debt.

Defendants also challenge plaintiff’s preliminary injunction request on the ground that plaintiff has failed to allege facts sufficient to state a cause of action against BAC or Recon.  Specifically, defendants contend that plaintiff’s breach of contract causes of action fail because plaintiff’s allegations fall short of alleging (1) the existence of an actual agreement between the parties to modify plaintiff’s loan, (2) that plaintiff performed his obligations under the agreement, (3) that defendants breached the agreement, and (4) that plaintiff has suffered actual harm as a result of defendants’ breach.  See, Wall Street Network, Ltd. v. New York Times Company (2008) 164 Cal.App.4th 1171, 1178.  In addition, defendants argue that the statute of frauds requires mortgages and loan modifications to be in writing and because the loan modification agreement alleged in the complaint was oral it is invalid. 

Under Civil Code Section 1624(a)(6), an “agreement by a purchaser of real property to pay an indebtedness secured by a mortgage or deed of trust upon the property purchased” must be in writing.  Likewise, under Civil Code Section 2922, a “mortgage can be created, renewed, or extended, only by writing, executed with the formalities required in the case of a grant of real property.”

The court is not persuaded by defendants’ arguments for several reasons.  First, Civil Code Section 2924g, subdivision (c)(1)(C), specifically provides that there may be a

postponement of a trustee’s sale “[b]y mutual agreement, whether oral or in writing, of any trustor and any beneficiary or any mortgagor and any mortgagee.”  (Emphasis added.) Thus, Section 2924g creates an exception to the statute of frauds where the parties wish to postpone the sale proceedings. 

Second, plaintiff has alleged each of the elements of his breach of contract claims.  Looking at the complaint, plaintiff alleges that in November 2009 it was orally agreed that if plaintiff made all of the trial payments in a timely fashion and provided all of the requested documents to BAC, defendant would execute a loan modification agreement.  (Complaint, ¶12; Salcedo Declaration, ¶3.)  Additionally, plaintiff alleges that he performed all of his obligations under the agreement by making all of the required trial payments, including the $1,000 per month payments that BAC later agreed to.  (Complaint, ¶17; Salcedo Declaration, ¶3.)  Plaintiff further alleges that BAC breached the agreement by refusing to deliver a permanent loan modification agreement and by

instituting an improper foreclosure sale of the property.  (Complaint, ¶¶22 and 24; Salcedo Declaration, ¶ 5.)  Finally, plaintiff alleges that he was damaged by defendants’ sudden decision not to honor the loan modification agreement because he did not have enough time to reinstate the loan or to take other action prior to the scheduled trustee’s sale, including filing for bankruptcy, which would have forced BAC to accept a payment plan, leasing the property, or conducting a short sale of the property.  (Complaint, ¶¶19 and 20; Salcedo Declaration, ¶5.)

Defendants next challenge plaintiff’s third cause of action for promissory estoppel. 

Promissory estoppel is an equitable doctrine “which employs equitable principles to satisfy the requirement that consideration must be given in exchange for the promise sought to be enforced.”  C&K Engineering Contractors v. Amber Steel Company (1978) 23 Cal.3d 1, 6. To prevail on a promissory estoppel cause of action, the plaintiff must prove (1) a promise clear and unambiguous in its terms, (2) reliance by the party to whom the promise is made, (3) the reliance must be both reasonable and foreseeable, and (4) the party asserting the estoppel must be injured by his reliance.  U. S. Ecology, Inc. v. State of California (2005) 129 Cal.App.4th 887, 901.  Defendants claim that plaintiff has not alleged a “clear and unambiguous” promise by BAC, nor has he alleged that he was damaged by his alleged reliance.  The court again disagrees.  Plaintiff alleges that BAC promised that if plaintiff made all of the trial payments, BAC would not conduct a trustee’s sale of the property and BAC would agree to a permanent loan modification.  (Complaint, ¶12; Salcedo Declaration, ¶3.)  In addition, plaintiff alleges that the promises by BAC induced him not to reinstate the loan or to take other action to protect his interest in the property, including filing for bankruptcy or conducting a short sale.  (Complaint, ¶¶19 and 28; Salcedo Declaration, ¶5.)  If proven, these allegations are sufficient to state a claim for promissory estoppel.

Lastly, defendants argue that plaintiff’s fourth cause of action for negligent misrepresentation is unsupported by any factual allegations.  However, defendants are mistaken.  The elements of a claim for negligent misrepresentation are (1) the defendantmade a representation regarding a material fact, (2) the representation was untrue, (3) the defendant made the representation without any reasonable ground for believing it to be true, (4) the defendant intended that the plaintiff rely on the representation, (5) the plaintiff reasonably relied on the representation, and (6) the plaintiff was harmed.  Bily v. Arthur Young & Company (1992) 3 Cal.4th 370, 407-408.  Here, plaintiff has alleged that BAC made the promises set forth above without any reasonable grounds for believing them to be true and that as a result of BAC’s misrepresentations he was induced not to take any action to protect his property from foreclosure.  (Complaint, ¶¶18, 32-33; Salcedo Declaration, ¶¶ 3 and 5.)  These are sufficient allegations to support a claim for negligent misrepresentation.

A balancing of the hardships in the case also weighs in favor of plaintiff and againstdefendants.  The property at issue is plaintiff’s home.  (Complaint, ¶8; Salcedo Declaration, ¶1.)  A denial of plaintiff’s application for preliminary injunction would result in great harm to plaintiff as he would be forced to vacate the property following the foreclosure sale.  Conversely, defendants will suffer little permanent harm if a preliminary injunction is issued since plaintiff has continued to make the $1,000 modified payment to BAC each month.  (Salcedo Declaration, ¶3.)  Further, plaintiff has pledged to make and to tender to BAC the regular trial payment of $3,600 per month during the pendency of the litigation.  (Salcedo Declaration, ¶5.)  Thus, granting the proposed injunction would not afford a “boon” to plaintiff by allowing him to hold onto his property “obligation-free for an indeterminate period,” as defendants allege in their opposition papers.

Based on the foregoing, plaintiff’s application for preliminary injunction is granted. 

Defendants are prohibited from selling, transferring, assigning, or conveying the subject property, or any interest therein, pending trial of the action.  The preliminary injunction isgranted on two conditions, however.  First, plaintiff must continue making the regular trial payment of $3,600 per month to BAC.  Second, plaintiff must post a bond.  Code of Civil Procedure Section 529 provides that in all cases where a preliminary injunction is granted, the court must require a bond.  See, Federal Automotive Services v. Lane Buick Company (1962) 204 Cal.App.2d 689, 695 (an order granting a preliminary injunction that does not provide for a bond is inoperative and of no effect).  The purpose of a bond is to compensate the defendant for any damages that may be sustained by reason of the injunction if the court finally decides that the plaintiff was not entitled to injunctive relief.  Abba Rubber Company v. Seaquist (1991) 235 Cal.App.3d 1, 14.  The amount of the bond shall be $50,000.

Plaintiff’s application for preliminary injunction is granted.  Plaintiff is ordered to post a bond in the amount of $50,000.