In a recent California appellate case, a plaintiff sued multiple parties after the nonjudicial foreclosure of his home. The court sustained the defendants’ demurrer without providing leave to amend.
The plaintiff challenged the judgment against the bank that instituted the foreclosure sale and one of the entities that serviced the plaintiff’s secured loan. He argued that it was a mistake for the court to determine he hadn’t stated a cause of action against these two defendants and couldn’t amend his complaint to state a cause of action. The court affirmed the judgement.
The case arose in 2007, when the plaintiff borrowed $528 to refinance the loan on his home. The loan was reflected in a note that both parties signed, and it was secured by a deed of trust on his home. The deed of trust identified him as the borrower and also identified the lender, trustee, and beneficiary. It stated that the borrower understood the beneficiary held legal title to the interests specified in the deed of trust but had the right to foreclose and sell the property and take any action required of the lender, if necessary to comply with law or custom. It also allowed the note to be sold multiple times without giving the plaintiff notice.
The beneficiary entity assigned the note to Mellon Bank, which was a trustee for a securitized investment trust and one of the defendants. The assignment was signed by an assistant secretary and recorded. The trust was organized under New York laws and was governed by a servicing agreement that required a servicer to make certain advances on delinquent loans. One day after the assignment was executed, another entity recorded a notice of default, stating an owed amount of $35,254.26.
Four years later, the original beneficiary executed a second assignment, transferring all beneficial interest to the bank under the deed of trust. This was also recorded. In the next month, the bank recorded a substitution of trustee, substituting an insurance company for the prior trustee. In 2014, the Assistant VP for the bank signed the document.
A notice of default was recorded and stated that $203,118.60 was owed and would increase until the amount became current. The notice told the plaintiff to contact Mellon Bank through the insurance company to stop the foreclosure. Attached to the notice was a statement claiming that a servicer had tried to contact the borrower to talk about the delinquency but couldn’t.
The insurer recorded a Notice of Trustee’s Sale, specifying that the plaintiff was still in default and that his home would be sold at auction in 2014. The notice said that the total amount of what was unpaid was $741,005.45. The sale was postponed. Soon afterward, the plaintiff sued to try to prevent the foreclosure sale.
Months later, the insurance company foreclosed and sold the home for $436,700 to the highest bidder. A week later, a Trustee’s Deed Upon Sale was recorded, and the property was conveyed.
Six weeks after that, the plaintiff sued several parties, including the bank and the servicer. He claimed wrongful foreclosure, cancellation of instruments, fraud, violation of the California Homeowners’ Bill of Rights, and unlawful competition violations. He sued the servicer for the same things, except fraud, and added a claim for intentional interference with contract.
He amended the complaint to state that the wrong parties foreclosed on his home. He claimed the bank didn’t lawfully own the secured debt because the beneficiary that had made the assignment didn’t have the authority to make assignments to the bank. He also claimed he wasn’t in default because a third party had made advances on his loan under the PSA.
He attached a copy of the agreement that provided for a master servicer to make advances on delinquent loans in some circumstances. He also attached a document that he claimed showed he wasn’t in default or what he owed was less than what the notices stated.
The bank and servicer demurred. They argued the plaintiff didn’t have standing to challenge the securitization of the loan, the recorded documents were valid, and he didn’t allege prejudice resulting from their actions. They also argued that the claim that a third party was paying down the loan wasn’t a valid ground for a wrongful foreclosure claim. The court sustained their demurrer and made specific findings.
The appellate court explained that a demurrer can’t be sustained if a plaintiff states a cause of action under any possible legal theory. It further explained that a plaintiff pleads wrongful foreclosure appropriately if they plead facts to show: (1) a trustee caused a fraudulent, willfully oppressive, or illegal sale of real property under a power of sale in a mortgage or deed of trust, (2) the person attacking the sale was harmed, and (3) the trustor or mortgagor who challenges the sale had tendered the amount of what they owed or was excused from tendering that amount.
The plaintiff claimed that he’d pled a viable basis for recovering on the wrongful foreclosure claim because the assignments were void, his loan wasn’t in default, the notices were void, and the substitution of trustee document was void. The appellate court found that the deed of trust permitted the lender to transfer the note and deed of trust multiple times without notifying the borrower. It allowed the beneficiary to act on behalf of the lender.
The plaintiff argued that the beneficiary was required to identify the principal on the assignment document, but there was no legal authority to support this argument. He also had no authority for his argument that the person who signed on behalf of the beneficiary had to have written authorization to do so or that he couldn’t also be employed by someone else. The court found that the absence of written authority would only make the assignment voidable, rather than void, and wouldn’t support a wrongful foreclosure claim.
The plaintiff also argued it was an error for the court to sustain the demurrer on the wrongful foreclosure claim because an unidentified third party had reduced the outstanding balance. The appellate court found that the report he attached conflicted with his assertions, in that it showed the loan was delinquent for 54 months, and $525,732.15 was owed.
This didn’t show the notices were inaccurate. The appellate court also found that the borrower wasn’t entitled to a claimed reduced balance if a master servicer or another third party paid down some of the loan under a PSA. The payments were made for the sole benefit of parties to the agreement, rather than the borrower. Nothing showed the plaintiff could add facts to his pleading that would support any cause of action. For these and other reasons, the judgment was affirmed.
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