Tentative Rulings for Department 403
3 Tentative Ruling
Re: Burt v. Bank of New York Mellon
Case No. 14CECG00641
Hearing Date: June 4th, 2014 (Dept. 403)
Motion: Defendants’ Demurrer to Complaint
Tentative Ruling:
To overrule the demurrer to the complaint, in its entirety. (Code Civ. Proc. §
430.10(e).) Defendants shall serve and file their answer within ten days of the date of
service of this order.
Explanation:
Defendants have demurred to the entire complaint on the ground that it fails to
state facts sufficient to constitute a cause of action. Their first argument is that plaintiffs
are required to allege that they are ready, willing and able to tender the entire amount
they owe under the loan in order to state a claim for wrongful foreclosure, or related
causes of action.
In Arnolds Management Corp. v. Eischen (1984) 158 Cal.App.3d 575, the Court of
Appeal stated, “It is settled that an action to set aside a trustee’s sale for irregularities in
sale notice or procedure should be accompanied by an offer to pay the full amount of
the debt for which the property was security.” (Arnolds Management Corp. v. Eischen
(1984) 158 Cal.App.3d 575, 578-579, emphasis added.)
Here, however, plaintiffs are not attempting to set aside a completed trustee’s
sale. They are instead trying to prevent the foreclosure sale from happening at all.
Thus, the rule stated in Arnolds Management does not apply here, because the
trustee’s sale has not yet taken place.
Also, in Glaski v. Bank of America, N.A. (2013) 218 Cal.App.4th 1079, the Fifth
District Court of Appeal held that a plaintiff who challenges a pending foreclosure
proceeding based on alleged defects in the assignment of the note and deed of trust
that render the assignment void does not have to allege tender in order to state a valid
claim for wrongful foreclosure and related claims.
“Tender is not required where the foreclosure sale is void, rather than voidable,
such as when a plaintiff proves that the entity lacked the authority to foreclose on the
property. [¶] Accordingly, we cannot uphold the demurrer to the wrongful foreclosure
claim based on the absence of an allegation that Glaski tendered the amount due
under his loan.” (Id. at 1100, internal citations omitted.)
Here, plaintiffs have alleged that the assignment of the note and deed of trust is
void because it was completed after the closing date of the trust. (Complaint, ¶¶ 21-
26.) Thus, plaintiffs are not required to allege tender of the full amount due under the
loan in order to support their claims. The court declines to sustain the demurrer to the
extent it is based on the tender rule.
Next, defendants argue that plaintiffs have not stated a claim under Civil Code
section 2923.6 because the statute only applies to “owner-occupied residential”
properties (Civil Code § 2924.15(a)), and plaintiffs have admitted that their property is
not residential. Plaintiffs have alleged that the County of Fresno refused to recognize
their property as residential, and County records only show a “mobile home” on the
property. (Complaint, ¶ 29.)
Section 2924.15(a) does not define what “residential” property is, but it does
state that “‘owner-occupied’ means that the property is the principal residence of the
borrower and is security for a loan made for personal, family, or household purposes.”
(Civ. Code, § 2924.15(a).) Here, the plaintiffs have alleged that the property is their
principal residence, and that it was security for the loan made for the personal, family
or household purposes. (Complaint, ¶¶ 28, 62.) While the property may not be
recognized as containing a residence in the County’s records, the plaintiffs have
adequately alleged that they are actually residing on the property, and that the loan
was made to purchase their family home. Therefore, plaintiffs have sufficiently alleged
that the property is “owner-occupied residential real property” for the purpose of
section 2923.6(a).
Defendants also argue that plaintiffs have not alleged any actual violation of
section 2923.6, because section 2923.6 only bars foreclosure proceedings when a loan
modification application is pending, and here the plaintiffs admit that they did not
submit their loan modification application until after the notice of default was issued.
Civil Code section 2923.6(c) states, in part, “If a borrower submits a complete
application for a first lien loan modification offered by, or through, the borrower’s
mortgage servicer, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized
agent shall not record a notice of default or notice of sale, or conduct a trustee’s sale,
while the complete first lien loan modification application is pending. A mortgage
servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice
of default or notice of sale or conduct a trustee’s sale until any of the following occurs:
(1) The mortgage servicer makes a written determination that the borrower is not
eligible for a first lien loan modification, and any appeal period pursuant to subdivision
(d) has expired.”
Here, plaintiffs allege that they were attempting to obtain a loan modification
application in June of 2013, but they did not actually receive the application until July
3rd, 2013. (Complaint, ¶¶ 38, 40.) They completed and submitted the loan modification
application on July 24th, 2013 by Federal Express. (Id. at ¶ 40.) However, the notice of
default was issued on June 21st, 2013, before the loan modification application was
completed or sent out. (Request for Judicial Notice, Exhibit 3. The court intends to take
judicial notice of the notice of default and the other documents attached to the
request for judicial notice as officially recorded documents.) Thus, plaintiffs cannot
show that the notice of default was issued in violation of section 2923.6.
On the other hand, plaintiffs also allege that defendants issued the notice of
trustee’s sale on February 12th, 2014, while the loan modification process was still
pending. (Complaint, ¶¶ 41-55.) The Bank appears to claim that the notice of trustee’s
sale was sent out after the first application for loan modification had been denied, and
before plaintiffs resubmitted a new application. However, the allegations of the
complaint appear to indicate that the first loan modification application was pending
at the time the notice of trustee’s sale was served on plaintiffs. (Complaint, ¶¶ 51, 55.)
Defendants have not shown that there was a written denial of the application before
the notice of trustee’s sale was issued. Therefore, the plaintiffs have sufficiently alleged
that the defendants violated section 2923.6 by issuing the notice of trustee’s sale while
the loan modification application was pending.
With regard to the second cause of action for wrongful foreclosure, defendants
argue that the plaintiffs cannot show that they were injured by the alleged irregularities
in the assignment process, as there was no change in their obligations under the note.
They also contend that plaintiffs have no standing to allege defects in the assignment,
because they were not parties to the assignment. However, the Fifth District Court of
Appeal rejected these arguments in Glaski v. Bank of America, supra, 218 Cal.App.4th
1079.
In Glaski, the Court of Appeal found that the plaintiff had alleged sufficient facts
to support claims for wrongful foreclosure, quiet title, declaratory relief, cancellation of
instruments, and unfair business practices under Business and Professions Code section
17200 based on alleged defects in the assignment of the note and deed of trust.
(Glaski, supra, at 1101.) The Glaski court found that the allegation that the assignment
was made after the closing date of the trust was sufficient to show that the assignment
was void, and thus the lender had no authority to foreclose on the property. (Id. at
1096-1097.) The Glaski court also rejected the argument that the borrower has no
standing to challenge the assignment because the borrower was not a party to the
assignment. (Id. at 1094-1095.)
Here, plaintiffs’ allegations are similar to those in Glaski, since plaintiffs are
alleging that the deed of trust and note were not transferred or assigned properly
before the closing date for the trust. (Complaint, ¶¶ 23-25.) Therefore, under Glaski, the
plaintiffs have stated a valid claim for wrongful foreclosure, because Bank of America
and Bank of New York allegedly have no standing to foreclose on the note.
Conversely, plaintiffs do have standing to assert the improper assignment, because
they are alleging that the assignment is void, and not just voidable. (Glaski, supra, at
1094-1095.) The court in Glaski did not require any showing that the borrower suffered
actual prejudice from the improper assignment, since the improper assignment
rendered the entire assignment void. (Ibid.) Therefore, the court intends to overrule the
demurrer to the second cause of action for wrongful foreclosure.
Likewise, the third cause of action for cancellation of the notice of default,
assignment of the deed of trust, and notice of trustee’s sale is also sufficiently alleged.
In Glaski, the court specifically found that plaintiff could state a claim for, among other
things, cancellation of the allegedly invalid instruments based on the defects in the
assignment. (Glaski, supra, at 1101.) Here, plaintiffs have made allegations that the
assignment was void, so the court will permit plaintiffs to proceed with their cancellation
of instruments cause of action and overrule the demurrer to the third cause of action.
For the same reasons, plaintiffs have adequately alleged their quiet title claim in
the fourth cause of action. Glaski specifically held that plaintiff could allege a quiet title
claim based on the same theory alleged in the present case. (Glaski, supra, at 1101.)
Defendants argue that plaintiffs cannot state a quiet title claim against them because
plaintiffs have not alleged full payment of the note. However, plaintiffs have alleged
that defendants have no authority to collect payments on the note or foreclose on the
property because of the improper assignment. (Complaint, ¶ 84.) Therefore, plaintiffs
do not have to allege that they paid the note in order to allege a quiet title claim
against defendants.
Finally, defendants demur to the plaintiffs’ fifth cause of action for unfair business
practices under Business and Professions Code section 17200, contending that plaintiffs
have not alleged a predicate violation of any statute, or that they have suffered any
loss of money or property as a result of defendants’ actions. However, as discussed
above, plaintiffs have adequately alleged violations of Civil Code section 2923.6 by
proceeding with the foreclosure while the loan modification application was pending,
as well as falsely claiming that they were entitled to collect on the note when allegedly
the assignment of the note and deed of trust was invalid. Thus, plaintiffs have
sufficiently alleged predicate violations of other laws to support their UCL claim. In
addition, plaintiffs have alleged that they are in danger of losing their home due to
defendants’ unfair business practices. Therefore, plaintiffs have sufficiently alleged their
claim under the UCL, and the court intends to overrule the demurrer to the fifth cause
of action.
Pursuant to CRC 3.1312 and CCP §1019.5(a), no further written order is necessary.
The minute order adopting this tentative ruling will serve as the order of the court and
service by the clerk will constitute notice of the order.
Tentative Ruling
Issued By: KCK on 6/3/2014 .
(Judge’s initials) (Date)
