Freeman, et al v. Select Portfolio Servicing, Inc. et al

Filing 10

ORDER signed by Senior Judge William B. Shubb on 6/29/2015 DENYING 2 Motion for TRO. (Donati, J)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 FRANK E. FREEMAN and ARLENE F. FREEMAN, CIV. No. 2:15-1359 WBS EFB 13 Plaintiffs, 14 MEMORANDUM AND ORDER RE: MOTION FOR TEMPORARY RESTRAINING ORDER v. 15 16 17 18 19 20 SELECT PORTFOLIO SERVICING, INC.; NATIONAL DEFAULT SERVICING CORPORATION; THE BANK OF NEW YORK MELLON FKA THE BANK OF NEW YORK AS TRUSTEE FOR THE CERTIFICATEHOLDERS OF THE CWABS, INC., ASSET-BACKED CERTIFICATES, SERIES 2005-IM-3; and DOES 1-20, Defendants. 21 22 23 24 25 26 27 ----oo0oo---On Friday, June 26, 2015, plaintiffs Frank Freeman and Arlene Freeman filed an ex parte application for a temporary restraining order enjoining defendants Select Portfolio Servicing, Inc. (“SPS”), National Default Servicing Corporation (“National Default”), and the Bank of New York Mellon (“BNY 28 1 1 Mellon”) from foreclosing on plaintiffs’ residence at 410 Trotter 2 Drive, Vallejo, California 94591 (the “residence”). 3 foreclosure sale is scheduled for Monday, June 29, 2015, at 2:30 4 p.m. 5 opposition to plaintiffs’ motion. 6 The court heard arguments at 10:30 a.m. on June 29, 2015. 7 I. (Pls.’ Mot. ¶ 6 (Docket No. 2).) Defendants submitted an (Defs.’ Opp’n (Docket No. 5).) Factual Background 8 9 The Plaintiffs’ case arises from a loan of $535,000 they received from Finance America, LLC to purchase the residence. 10 (Compl. ¶ 14 (Docket No. 1).) 11 Promissory Note and Deed of Trust that were recorded in Solano 12 County, California, on August 8, 2005. 13 original Deed of Trust listed plaintiffs as the “borrowers,” 14 Finance America, LLC as the “Lender,” Julia L. Greenfield, Esq. 15 as “Trustee,” and the Mortgage Electronic Registration System 16 (“MERS”) as “beneficiary” under the security agreement as nominee 17 for the lender. (Compl. ¶ 15, Ex. A.) 18 The loan was secured by a (See Compl. Ex. A.) The Finance America, LLC allegedly ceased operations on or 19 before August 7, 2006. 20 defendants say plaintiffs stopped making payments on their 21 mortgage. 22 Loans Servicing, LP issued a Notice of Intent to Accelerate on 23 February 10, 2010. 24 Ex. A (Docket No. 5-1).) 25 for loan servicing. (Compl. ¶ 5.) (Defs.’ Opp’n at 2.) Sometime in 2009, Then-loan servicer BAC Home (Decl. of Joseph A. Aguilar (“Aguilar Decl.”) The loan was later transferred to SPS (See Aguilar Decl. Ex. A.) 26 Two years later, MERS assigned a beneficial interest in 27 the Deed of Trust along with the Promissory Note to BNY Mellon by 28 an Assignment of Deed of Trust recorded in Solano County on March 2 1 29, 2012. 2 Assignment of Trust, recorded March 30, 2012, conveying its 3 beneficial interest in the Deed of Trust and Promissory Note to 4 BNY Mellon. 5 (Compl. Ex. B.) MERS also executed a Corporate (Compl. Ex. C.) On January 2, 2015, a Substitution of Trustee was 6 recorded appointing National Default as trustee. 7 National Default then filed a Notice of Default on January 7, 8 2015. 9 their payments in an amount of $264,415.65 and warned that their (Compl. Ex. D.) (Compl. Ex. E.) It stated that plaintiffs were behind on 10 residence may be sold at foreclosure approximately ninety days 11 from the date the notice was recorded. 12 (Id.) National Default attached a “California Declaration of 13 Compliance” to the Notice of Default. 14 contained several options with checkboxes to one side. 15 checkbox is marked, next to a statement certifying that, on July 16 14, 2014, contact was made with the borrower to assess the 17 borrower’s financial situation and explore options to avoid 18 foreclosure as required by California Civil Code section 19 2923.55(b)(2). 20 (Id.) That declaration The first (Id.) A foreclosure sale for the residence was originally 21 scheduled for June 3, 2015, but that sale was cancelled. 22 Mot. ¶ 6.) 23 apparently sought an ex parte TRO in Solano County Superior 24 Court.1 25 26 27 28 1 (Pls.’ On the day of the original sale, plaintiffs (See Aguilar Decl. ¶ 3, Ex. B.) The state court issued Plaintiffs’ motion does not mention the state court case or offer it as an explanation for why the original sale date was cancelled. However, plaintiffs did file a Notice of Related Cases with their Complaint, informing the court that they had previously filed a related case in Solano County Superior Court, Case No. FCS045431. (Docket No. 1-4.) 3 1 a TRO, conditioned on the four requirements that: (1) plaintiffs 2 make one month’s mortgage payment by June 16, 2015; (2) 3 plaintiffs pay all taxes current on their property by June 16, 4 2015; (3) plaintiffs reimburse defendants for all taxes and 5 insurance that defendants have advanced on the property by June 6 16, 2015; and (4) plaintiff post a $5,000 bond by June 10, 2015. 7 (Id.) 8 June 17, 2015. 9 plaintiffs dismissed the lawsuit without prejudice on June 9, 10 2015. The court then set a hearing for a preliminary junction on (Id.) Instead of proceeding to that hearing, (Id. Ex. C.) 11 Defendants rescheduled the foreclosure sale for June 12 29, 2015. 13 this new sale date. 14 how they learned of the new date. 15 Plaintiffs say they never received written notice of (See Pls.’ Mot. ¶ 6.) They do not explain On June 25, 2015, plaintiffs filed a Complaint in this 16 court asserting five claims: (1) cancellation of instruments 17 under California Civil Code section 3412; (2) violation of 18 California Business and Professions Code sections 17200 et seq.; 19 (3) violation of California Code section 2924(a)(6) and (f)(3); 20 (4) violation of California Civil Code sections 2923.5 and 21 2923.55; and (5) breach of contract. 22 Plaintiffs’ chief argument alleges that MERS’s assignments to BNY 23 Mellon are invalid because Finance America, LLC could not have 24 assigned a beneficial interest in the Deed of Trust after going 25 defunct in 2006. 26 allege that National Default was not validly substituted as 27 trustee. 28 National Default and the resulting foreclosure proceedings are (Compl. ¶¶ 20-22.) (Compl. ¶¶ 23-30.) (Compl. ¶¶ 31-83.) As a result, plaintiffs The Notice of Default filed by 4 1 therefore also allegedly invalid. 2 (Id. ¶¶ 27-29.) Plaintiffs further allege they were not contacted by 3 SPS on July 14, 2014--contrary to the declaration attached to the 4 Notice of Default--and that, in any event, California law 5 requires a more substantial affirmation of contact than the 6 attached “boilerplate” declaration. 7 Defendants also allegedly failed to designate a single point of 8 contract, as required by California law. 9 II. (Id. ¶¶ 28, 30, 64.) (Id. ¶ 65.) Standard for Temporary Restraining Order 10 Federal Rule of Civil Procedure 65 authorizes courts to 11 issue preliminary injunctions and temporary restraining orders. 12 These orders preserve the relative positions of the parties--the 13 status quo--until a full trial on the merits can be conducted. 14 See Univ. of Texas v. Camenisch, 451 U.S. 390, 395 (1981). 15 A temporary restraining order generally requires the 16 same showing as that required for a preliminary injunction. 17 Stuhlbarg Int’l Sales Co. v. John D. Brush & Co., 240 F.3d 832, 18 839 (9th Cir. 2001). 19 likely to succeed on the merits; (2) it is likely to suffer 20 irreparable harm in the absence of preliminary relief; (3) the 21 balance of equities tips in its favor; and (4) an injunction is 22 in the public interest. 23 Inc., 555 U.S. 7, 20 (2008); Perfect 10, Inc. v. Google, Inc., 24 653 F.3d 976, 979 (9th Cir. 2011). 25 III. Discussion 26 A. A plaintiff must establish that (1) it is Winter v. National Res. Def. Counsel, Undue Delay 27 Before turning to the merits of plaintiffs’ motion, the 28 court finds that denial is warranted on procedural grounds alone. 5 1 2 3 4 5 6 7 Eastern District Local Rule 231(b) states: In considering a motion for a temporary restraining order, the Court will consider whether the applicant could have sought relief by motion for preliminary injunction at an earlier date without the necessity for seeking last-minute relief by motion for temporary restraining order. Should the Court find that the applicant unduly delayed in seeking injunctive relief, the Court may conclude that the delay constitutes laches or contradicts the applicant’s allegations of irreparable injury and may deny the motion solely on either ground. 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 E.D. Local Rule 231(b). Judges in this district have routinely denied temporary restraining orders in mortgage cases when a borrower waited until just before the foreclosure sale to request emergency injunctive relief. See, e.g., Salazar v. Moynihan, Civ. No. 2:11-03276 GEB, 2011 WL 6179262, at *1 (E.D. Cal. Dec. 12, 2011) (denying TRO motion filed one day before foreclosure sale); Mammoth Specialty Lodging, LLC v. We-Ka-Jassa Inv. Fund, LLC, Civ. No. S10-0864 LKK JFM, 2010 WL 1539811, at *2 (E.D. Cal. Apr. 16, 2010) (denying TRO motion filed four days before foreclosure sale). Here, National Default recorded a Notice of Default on January 7, 2015, that should have alerted plaintiffs to the possibility that their home would be sold within ninety days. (Compl. Ex. D.) Plaintiffs provide no explanation for why they waited more than six months to seek emergency relief. As explained in Local Rule 238(b), plaintiff’s delay is inconsistent with their allegation of irreparable injury. Plaintiffs do argue that defendants did not contact them before filing the Notice of Default and proceeding with foreclosure. Even assuming this to be true, however, plaintiffs 6 1 clearly knew about the Notice of Default and the foreclosure sale 2 when they moved for a temporary restraining order in Solano 3 County Superior Court on June 3, 2015. 4 their decision to wait until June 26, 2015, to request emergency 5 relief in this court. 6 Yet, they fail to justify The record before this court supports a finding of 7 undue delay. 8 the initial foreclosure sale to seek emergency relief in state 9 court. It shows that plaintiffs waited until the day of (See Aguilar Decl. ¶ 3, Ex. B.) Plaintiffs then decided 10 not to fulfill the conditions set by the state court, which 11 conditions this court finds, and counsel for plaintiffs freely 12 admits, were entirely reasonable, nor to pursue a more permanent 13 resolution there. 14 court action and again waited until just before the rescheduled 15 foreclosure sale to request relief from this court. 16 C; Pls.’ Mot. ¶ 6.) Instead, plaintiffs dismissed their state (See id. Ex. 17 Plaintiffs’ decision to refile substantially the same 18 action in this court rather than to follow through in the state 19 court amounts to forum shopping. 20 counsel for plaintiffs candidly acknowledged as much. 21 concludes that plaintiffs deliberately delayed filing both 22 motions in order to frustrate defendants’ legitimate attempts at 23 foreclosure. 24 B. 25 At oral argument on the motion, The court Likelihood of Success on the Merits Even absent a finding of undue delay, plaintiffs have 26 failed to demonstrate their entitlement to emergency relief. 27 Plaintiffs argue that BNY Mellon could not have received a 28 beneficial interest in the Deed of Trust in March 2012 because 7 1 the original lender, Finance America, LLC, allegedly ceased 2 operating in 2006. 3 unclear how MERS could have assigned a beneficial interest in the 4 mortgage six years after Finance America, LLC went out of 5 business. 6 (See Compl. ¶¶ 20-22.) To plaintiffs, it is (Pls.’ Mot ¶ 10; see Compl. Exs. B-C.) Simply reading the Deed of Trust clears up plaintiffs’ 7 so-called confusion. 8 the “lender,” the Deed of Trust states--in bolded font--“MERS is 9 the beneficiary under this Security Instrument.” Although it names Finance America, LLC as (Compl. Ex. A 10 at 2.) 11 IN THE PROPERTY,” the document confirms that “[t]he beneficiary 12 of this Security Instrument is MERS (solely as nominee for Lender 13 and Lender’s successors and assigns) and the successors and 14 assigns of MERS.” On the third page under the heading “TRANSFER OF RIGHTS 15 (Id. at 3.) This language conforms to the “MERS system” of managing 16 mortgages. 17 4th 256, 267-68 (1st Dist. 2011) (explaining the MERS system). 2 See Fontenot v. Wells Fargo Bank, N.A., 198 Cal. App. 18 19 20 21 22 23 24 25 26 27 28 2 The “MERS system” has become common practice in the mortgage industry. As the Fontenot court explained, MERS is a private corporation that administers a national registry of real estate debt interest transactions. Members of the MERS System assign limited interests in the real property to MERS, which is listed as a grantee in the official records of local governments, but the members retain the promissory notes and mortgage servicing rights. The notes may thereafter be transferred among members without requiring recordation in the public records. . . . Under the MERS System, however, MERS is designated as the beneficiary in deeds of trust, acting as “nominee” for the lender, and granted the authority to exercise legal rights of the lender. Fontenot, 198 Cal. App. 4th at 267. 8 1 A beneficiary acting as nominee for a lender, such as MERS, “may 2 exercise the rights and obligations of a beneficiary of the deed 3 of trust, a role ordinarily afforded the lender.” 4 California courts have embraced MERS’s ability to assign its 5 interest in a Deed of Trust, even when it acts as a nominal 6 beneficiary on behalf of a lender. 7 Mortgage Assn., 205 Cal. App. 4th 1495, 1502-06 (4th Dist. 2012). 8 Accordingly, MERS likely had the authority to transfer a 9 beneficial interest to BNY Mellon. 10 Id. at 273. See id.; Herrera v. Fed. Nat. Plaintiffs point to two California cases in support of 11 their argument that MERS lacked the authority to transfer its 12 rights in the Deed of Trust: Yvanova v. New Centry Mortg. Corp., 13 226 Cal. App. 4th 495 (2d Dist. 2014); Glaski v. Bank of America, 14 218 Cal.App.4th 1079 (5th Dist. 2013). 15 address whether a plaintiff has standing to challenge an 16 assignment of a note and deed of trust on the basis that defects 17 allegedly render the assignment void. 18 4th at 109-10; Glaski, 218 Cal. App. 4th at 1099. 19 court concludes that MERS likely had the required authority, the 20 issue of plaintiffs’ standing to challenge the assignment is 21 beside the point. 22 However, these cases See Yvanova, 226 Cal. App. Because the Having resolved MERS’s assignment to BNY Mellon, it is 23 clear that plaintiffs are not likely to succeed in this action. 24 California law allows a “trustee, mortgagee, or beneficiary, or 25 any of their authorized agents” to conduct foreclosure. 26 Civ. Code § 2924(a)(1). 27 2924b(4), a “person authorized to record the notice of default or 28 the notice of sale” includes “an agent for the mortgagee or Cal. Under California Civil Code section 9 1 beneficiary, an agent of the named trustee, any person designated 2 in an executed substitution of trustee, or an agent of that 3 substituted trustee.” 4 Id. § 2924b(4). If MERS validly assigned its beneficial interest to BNY 5 Mellon, BNY Mellon had the authority to substitute National 6 Default as trustee. 7 record the Notice of Default and conduct foreclosure. 8 plaintiffs’ claims that rely on the theory that MERS could not 9 assign a beneficial interest in the Deed of Trust must therefore 10 fail. National Default then had the authority to All of (See Compl. ¶¶ 33-34, 39, 41-44, 57, 59, 62-64, 68, 83.) 11 Plaintiffs also allege various violations of 12 California’s Homeowners Bill of Rights (“HBOR”) during the 13 foreclosure process that do not rely on their invalid-assignment 14 theory. 15 single point of contact as required by California Civil Code 16 section 2923.7, and defendants allegedly failed to contact 17 plaintiffs before recording a Notice of Default as required by 18 California Civil Code section 2923.55. 19 Specifically, defendants allegedly failed to designate a (Compl. ¶¶ 64-65, 71-72.) Plaintiffs have not demonstrated that they are likely 20 to succeed on these claims either. 21 from each plaintiff stating that neither was contacted by 22 defendants. 23 Decl. of Arlene Freeman ¶¶ 7-8 (Docket No. 2-2).) 24 declarations are contradicted by the declaration attached to the 25 Notice of Default, (see Compl. Ex. D), and a “contact history 26 report” provided by defendants that details a conversation 27 between an agent of SPS and the borrowers, (see Aguilar Decl. Ex. 28 A at 9-10). They offer only declarations (See Decl. of Frank Freeman ¶¶ 7-8 (Docket No. 2-1); These Accordingly, because plaintiffs’ declarations are 10 1 contradicted by clearly documented evidence plaintiffs’ success 2 on on these claims appears highly unlikely, plaintiffs have 3 failed to fulfill the first Winter factor. 4 C. 5 Balance of Equities A temporary restraining order “is an extraordinary 6 remedy never awarded as of right.” 7 (citing Munaf v. Geren, 553 U.S. 674, 688 (2008)). 8 courts “must balance the competing claims of injury and must 9 consider the effect on each party of the granting or withholding Winter, 555 U.S. at 24 10 of the requested relief.” 11 In each case, of Gambell, AK, 480 U.S. 531, 542 (1987)). 12 Id. (quoting Amoco Prod. Co. v. Vill. Here, plaintiffs’ long history of default weighs 13 against them. 14 payments for sixty-seven months, but they have also placed the 15 bank in the position of having to pay plaintiffs’ taxes and 16 insurance for the property during that time. 17 at 6.) 18 requirements that plaintiffs make a mortgage payment and pay 19 defendants for their advanced expenses, plaintiffs did not 20 comply. 21 concludes that the balance of equities favors defendants. 22 23 D. Plaintiffs have not only failed to make mortgage (See Defs.’ Opp’n Moreover, when the state court imposed the reasonable (See Aguilar Decl. ¶ 5, Exs. B-C.) The court therefore The Public Interest “In exercising their sound discretion, courts of equity 24 should pay particular regard for the public consequences in 25 employing the extraordinary remedy of injunction.” 26 U.S. at 24 (quoting Weinberger v. Romero–Barcelo, 456 U.S. 305, 27 312 (1982)). 28 preliminary injunction requires [the court] to consider ‘whether Winter, 555 “The public interest analysis for the issuance of a 11 1 there exists some critical public interest that would be injured 2 by the grant of preliminary relief.’” 3 Cal., Inc. v. Maxwell–Jolly, 572 F.3d 644, 659 (9th Cir. 2009) 4 (quoting Hybritech Inc. v. Abbott Lab., 849 F.2d 1446, 1458 (Fed. 5 Cir. 1988)), vacated on other grounds, 132 S.Ct. 1204 (2012). 6 Indep. Living Ctr. of So. Plaintiffs’ failure to make mortgage payments as well 7 as pay their taxes and insurance on the residence for sixty-seven 8 months runs counter to the public interest. 9 would permit plaintiffs to further extend the time they remain in Preliminary relief 10 their residence without paying, to the detriment of defendants 11 and the larger community of borrowers who do not ignore their 12 financial obligations. 13 LLC, 980 F. Supp. 2d 1186, 1211 (E.D. Cal. 2013) (O’Neill, J.) 14 (“Granting injunctive relief would be a disservice to public 15 interest by allowing plaintiffs to preclude foreclosure after 16 their default and without legitimate tender of outstanding 17 amounts owed.”). 18 See Herrejon v. Ocwen Loan Servicing, IT IS THEREFORE ORDERED that plaintiffs’ application 19 for a temporary restraining order be, and the same hereby is, 20 DENIED. 21 Dated: June 29, 2015 22 23 24 25 26 27 28 12

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